Microfinance institutions (MFIs) that offer savings services and/or credit to low-income households and small businesses remain one of the most popular and effective channels for delivering microinsurance. MFIs are evolving beyond basic credit life insurance. However, making the transition to more complex products and business models presents several challenges. This paper outlines 10 key recommendations for MFIs to improve their microinsurance offerings. MFIs need to: 1) understand market needs and preferences; 2) prioritize savings; 3) make mandatory cover valuable; 4) proactively develop the product menu; 5) improve claims processing; 6) apply holistic risk management; 7) create a demonstration effect; 8) build structures for success; 9) build insurance capacity; and 10) monitor their performance. Insurance has the potential to improve the health and welfare of low-income households, and consequently enhance the social and financial performance of the MFI.
This article describes the recent turn around experienced by South Africa's largest NGO microlending programme. In 1993, Get Ahead's Stokvel Lending Programme was in trouble: 50 per cent of the portfolio had to be written off, employee morale reached rock bottom, and costs were too high for the portfolio size. By 1996 the programme had nearly 10 000 active borrowers and an annual loan loss rate of less than 3 per cent. Cost ratios and staff morale have significantly improved. Get Ahead's shift to the new paradigm in microfinance, while not complete, provides some interesting lessons for the microfinance community.