Basic Needs Financing

It’s time again for the Financial Times Sustainable Banking Awards.  The awards recognize financial institutions that show leadership and innovation in incorporating environmental and social sustainability objectives in their operations. 

The organizers included a new category this year - Achievement in Basic Needs Financing.  The category highlights institutions with solutions to address basic needs such as energy, food and water.  Interestingly, the finalists include two microinsurers – MicroEnsure and ParaLife.

The new category follows on from increased attention for microinsurance in the mainstream media.  Insurers such as Allianz, Zurich, AIG, and ICICI Lombard have been developing new products, complmented by specialized institutions like MicroEnsure and ParaLife.  

The promise is great.  Well-designed insurance policies, along with access to savings and credit, improve the ability of poor households to manage risk.  Still, the fact is there’s much to learn about the demand, use, impact and sustainability of these microinsurance schemes.  The evidence so far is not always encouraging. 

Research from Malawi, for example, shows that when rainfall insurance is coupled with a loan to buy high-yield seeds, take-up is 13 percentage points lower among farmers offered insurance with the loan.  Take-up of rainfall insurance in India has also been surprisingly low.  Is low demand a result of limited liability because farmers don’t feel they have much to lose, a limited understanding of how insurance works, a lack of trust, or a factor of price? We don’t know.  

So we welcome FT’s choice to spotlight microinsurance.  It can only help spur new activity and better evidence.