Financial inclusion through microfinance-health insurance in India

India is home to the largest population of poor in the world. Microfinance in India has emerged as a powerful tool for financial inclusion. The ‘SHG – Bank Linkage’ programme plays a predominant role in the financial inclusion of poor. The programme is coming up well and being implemented widely across the country. But there is a need to strengthen the SHG-Bank Linkage Programme to fully mainstream it with the commercial banking system.

The programme is scaling up at a rapid pace in South India, while the progress in other regions is slow. The variations in performance across the regions, both in terms of reach and quality needs immediate attention. Lack of knowledge and understanding of services and its attendant policy and processes among the poor population are important factors that impediment their financial inclusion.

In other words, financial literacy is critical for financial inclusion. The vulnerable situation faced by the poor like irregular employment, unemployment, seasonality, illiteracy and growing trend of globalization also throw challenges for financial inclusion of poor. It is clear from the above that access to affordable financial services by the poor is a serious issue. The definition for microfinance is best given by Robinson, Marguerite.

‘Microfinance refers to small-scale financial services for both credits and deposits — that are provided to people who farm or fish or herd; operate small or microenterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries, in both rural and urban areas’.

Within India the microfinance movement in Western and Southern India have received most attention, both in the media as well as in academic research1. The poster boys among the Indian microfinance NGOs – SHARE, BASIX, SEWA, MYRADA and PRADAN, for instance – have deservingly received attention from academicians, media persons as well as the government. Andhra Pradesh, in particular, has witnessed a remarkable growth in microfinance activities and its success stories have been widely reported as well.

Health Insurance Imagine this: an impoverished family in southern Uganda is barely making ends meet. The father, the head of the family, is a farm laborer and the primary wage earner. One day, he contracts malaria. The family loses its source of income, and is unable to pay for malaria medication. Impoverished families are affected much more by problems such as sickness and robbery than other, better off families. In many developed countries, insurance systems exist so that the huge financial burdens created by unforeseen disasters do not send people into poverty.

Fortunately, financial services such as insurance—called ‘microinsurance’ when it is geared towards poor families—are gradually making their way into the lives of the poor. In a country where less than 3% of the population has access to insurance, and where upwards of 35 million people fall below the poverty line each year because of a single health event in the family, it is slowly being accepted that “micro health insurance units” (MIUs) that offer benefit packages and require pre-payment create a rudimentary insurance among marginalized and underserved segments of the population in India.

MIUs represent a high hope for extension of health insurance coverage among the poor. India is a world leader in the development of this form of low-cost health insurance, but Most MIUs in India and elsewhere are managed independently, usually without the skills required to properly assume the actuarial and organizational consequences of underwriting risks of their members. A growing number of (rural) poor communities in India are establishing “micro health insurance units” (MIUs), that offer benefit packages and require pre-payment, i. e. create a rudimentary, community-based insurance/safety net for underserved groups.

According to the latest estimates, over 100 micro health insurance schemes, covering upward of six million persons are in operation in India alone. It has been claimed that MIUs represent the highest hope for extension of health insurance coverage among the poor in India.

Many communities have started out by buying group insurance from commercial insurers, but then shift to the mutual, or community based health insurance (CBHI) model as they find it is better suited to their reality, in that the members can agree to rationing of benefits more easily when they decide on it than when an insurance company rejects claims or refuses to renew contracts for ‘bad risks’. These experiences suggest that government’s schemes could benefit in acceptance if they would be available, and adapted, to multiple forms of CBHI.

Microinsurance holds much hope for extension of protection to millions of resource-poor households in India. At the same time, there is a need to pay attention to the specificities of the clients at the “micro” level, and customize solutions that meet their needs, are affordability and are provided by trusted institutions. Involvement of communities in the process represents much scope for limiting adverse selection, moral hazard and fraud, and thus making the schemes more sustainable.


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www. economictimes. com.

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