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Focus on micro-finance, micro-insurance

Access to social security is a fundamental human right. While the country is expecting its Gross Domestic Product (GDP) to grow faster, a balanced growth is a major concern as the gulf between the rich and the poor would be widened further in a country like India. Micro-finance and micro-insurance definitely will have an impact on reducing this gap, though it may take many years to build a bridge between the haves and the have-nots.

Even though the UPA Government has given a serious thought to the micro finance and insurance and introduced many products suitable for the poor, reaching of these products to the target households still remains a major issue. Today, micro insurance is driven by non-governmental organisations (NGOs) and micro finance institutions (MFIs). Whether these organizations alone would be able to make financial inclusion a success story? There is still a layer called below the poverty line (BPL), not covered by these agencies.

In the last several years, insurance or getting insured was the privilege of the rich. Even in the last 50-years of existence, the state-owned Life Insurance Corporation (LIC) or other general insurance companies preferred to insure the households which have strong assets or a good income level, even in rural areas. In a recently concluded international micro insurance conference in Mumbai, Finance Minister P. Chidambaram had asked the insurance companies to use India’s strong and widespread post office network and around 60,000 bank branches to distribute micro-insurance to the poor. “We expect a growth rate close to 9 per cent in the current year. But the poor should get credit and insurance and they should also benefit from the product.”

Interestingly, the country’s concern for inclusiveness — by catering to the poor through finance and insurance — got attention only in the era of economic reforms and not in the first 50 years of independence. The government also felt an urgent need as the country witnessed starvation deaths and a large number of suicides of farmers. The Insurance Regulatory and Development Authority (IRDA) had given lot of importance to fulfillment of rural and social sector obligations of the insurance companies, said C.S. Rao, Chairman, IRDA.

Another layer untouched by any insurance company is BPL households, whose income is below Rs. 15,000 annually or $1 a day. “But the government has to provide for social security schemes,” said Vijay Athreye, Head, Micro-Insurance, Tata AIG Life. One half of rural India (50 to 60 per cent) have no bank account. But most of them are considered just above the poverty line with an income range of Rs. 48,000 to Rs. 72,000 a year.

These households in rural areas are either have a land of an acre or two or small shop owners, and live ‘in perpetual debt.’ Most micro insurance products available in India are concentrated on this lot, through NGOs and MFIs, to fulfil their targets accorded by the IRDA.

Though some argue that the households below the Rs. 15,000-mark are mostly migrants with no permanent base, the most vulnerable section today are the households which have an income of Rs. 15,000 to Rs. 50,000 annually. They are estimated to be around 20 to 30 crore households. Think about the section of people that arrives at Dadar (a junction of Mumbai’s suburban rail transport) every day from nearby villages of Mumbai, sell their agricultural products and return home with just Rs. 150 to Rs. 200 a day (Rs. 18,000 to Rs. 24,000 annually). They too live in perpetual debt with no bank account or insurance policies. In rural areas, this section never heard about road infrastructure, communication infrastructure or bank infrastructure.

“Human resources are the only way to reach these households and they have to be trained,” said Mr. Athreye. According to him bank branches or post offices are not a solution to reach to these vulnerable sections. “It is easier said than done, given the historical experience. But in our case in another 8 to 10 years we will be able to breakeven in micro insurance," he added. Tata AIG Life targets households from an income of Rs. 15,000 to Rs. 72,000 a year under micro-insurance business.

Life and non-life companies can tie up together to launch composite products (with both general and life covers) for the poor. This is permitted by the IRDA. Technology is another factor which drives micro insurance. The spread of technology helped insurance companies to take wings in micro insurance business. For example, availability of data, which interpret vulnerabilities of poor. Further, micro insurance may teach the insurance companies become more efficient with small premiums. Said Mr. Athreye, "That will give efficiency in the mainstream business."

As per the UPA’s Common Minimum Programme, the Government had introduced Aam Admi Bima Yojana for the landless peasants of the country on October 2, through the LIC. “This has been introduced as 50 per cent of the funds were contributed by the Central Government and the rest of the funds were pooled in by the State governments,” said T. Chattopadhay, Executive Director, Micro-Insurance, LIC. "We also plan to distribute one crore policies within one year.” Mr. Chattopadhay feels that the public sector would be in a better position to follow up such scheme. The Central Government had also set aside an amount of Rs. 1,000 crore for this scheme.

“There are two main varieties of micro insurance — one focused on extending social protection to the poor in the absence of appropriate government schemes and the other offering a virtual financial service to low income households by developing an appropriate business model that enables the poor to be a profitable (or sustainable) market segment for commercial or cooperative insurers,” said Craig Churchill of International Labour Organization (ILO) in a book edited by him, Protecting the poor: A micro insurance compendium. Regardless of whether one is looking at micro insurance from social-protection or a market-base approach, the body of the insurance scheme, its basic operations will be largely the same.

The Government has to have a revolutionary approach to reach out micro finance and insurance to the poor and the poorest of the poor of the country like introducing finance and policies for tribal people and street children and also with the help of the corporate sector. The Finance Minister had urged industry to distribute the micro-insurance policies through the bank branches and India has the fourth largest banking infrastructure in the world.

However, among the six lakh villages, 94 per cent of them do not have a single bank branch. India’s poor does not need ‘charity’, which is also among the privileges of the rich. They need their rights to be established, access to social security.

OOMMEN A. NINAN

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