Risk, as emphasised by the recent World Development Report (World Bank 2000) on poverty, is a fundamental cause of underdevelopment.
Insurance makes it easier for people to tolerate risks, by replacing the uncertain prospect of large losses with the certainty of a small, regular payment. It thus reduces vulnerability, and thereby may stop markets from falling apart. Insurance is one of the basic institutions which can provide a defence against social and financial exclusion for people whose existing coping strategies are failing, and by protecting people’s livelihoods in this way, it should encourage investment among lower income groups. Nonetheless, as the recent World Development Report on poverty puts it: ‘there are almost no insurance markets in developing countries because of problems of contract enforcement and asymmetric information’ (World Bank 2000: 143). Slightly hyperbolic though this description of the situation is, there is no doubt that the provision of one of the potentially most poverty-reducing of all services is seriously deficient, especially at the bottom end of the market where risk-coping capacity is at its worst. Thus the spotlight is thrown on what the microfinance movement – so dynamic in other parts of the financial spectrum – is able to do to redeem this deficiency. This article examines what this contribution might be and how its effectiveness might be optimised.
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This article comes from the IDS Bulletin 34.4 (2003) Microinsurance: Scope, Design and Assessment of Wider Impacts
