1 39 th AIO Conference “Challenges & Opportunities of Micro- Takaful & Micro-Insurance in Africa” بسم الله الرحمــن الرحيــم Khartoum, Sudan 27 – 30 May, 2012

Agenda  Micro insurance  Micro insurance in Africa  Takaful: definition & statistics  Micro insurance /Takaful initiatives  Conclusion

Micro insurance

 Micro-insurance is not a new concept; it is a modern name for a very old practice; to provide protection against risks; the poor communities developed in the past informal insurance mechanisms such as selling assets, exchanging gifts, cash transfers and diversifying crops;  The African and/or Muslim communities were having a form of group self insurance for weeding, death or any unfortunate event;  Since the 1970s pro-poor microfinance institutions have been established in the semi-formal sector.  Modern micro-insurance was developed to accompany the development of the MFI’s and NGO’s in developing countries; their success has led to the recognition that poor people can save and want to save.  Starting from the past few years, the insurance industry starts perceiving the micro-insurance as a potential market segment. History

5 Micro-insurance & Micro-Takaful  Is Micro insurance / Takaful a business opportunity? Or is the insurance industry CSR?  What is the micro insurance objective? the reduction of the poverty; helping the vulnerable population? To serve the underserved population? The first option is a simple insurance / Takaful offer to a segment (very low income population) by a commercial entity looking for profit; while the second objective is more socially responsible and "in line" with the essence and the principles of solidarity and (brotherhood for Takaful); Both options should be beneficial for the community and insurance /Takaful; and could make the concept more popular.  Is Micro insurance / Takaful about small premiums /contributions?  Micro insurance is today a hot topic for the insurance industry

The role of insurance and poverty alleviation  Poor (-$4/day) or below the line of poverty (- $1.25/ day) population is vulnerable to:  Sickness, death of accident of the family breadwinner;  Natural disasters, climate change (draught);  Fire or theft and loss of the main source of income;  Loss of job;  Frequency of claims / disasters in some areas greater for this category;  Savings and credit facilities can assist the poor to overcome unforeseen losses; however, their benefits are limited to the capacity of individuals to save or make repayments.  In bad conditions and if their consequences persist for several years e.g. drought or flooding, then the use of savings as protection is constrained.  High risks of illnesses, or the death or disability of the breadwinner means outstanding loans become difficult to pay; Insurance can be an effective mechanism to mitigate the poor’s risks by reducing their vulnerability of the impacts of disease, theft, disability and other hazards as well as safeguarding the productive use of savings and credit facilities.

 Based on insurance principles, technicalities: Low of large numbers, Premium payments, Risk transfer or risk sharing / pooling in case of micro Takaful  Simplicity: products design must be customized to cater the differences between different segments of the very low income population, different needs;  Affordability: If the insurance is not affordable;  Accessibility. Micro Insurance Main Characteristics

Micro insurance value proposition

Traditional insurance Low income population Between $1.25 & $ 4 Commercial micro insurance Very low income population < $1.25 / day Private public private Micro insurance Population income Micro-insurance potential today 4 billion (*) of potential clients for the insurance industry; USD 40 billion of potential premiums (*) Micro insurance covers 500 million population today (***) The World Bank defines extreme poverty as living on less than $1.25 per day and estimates that 1.4 billion people are concerned by extreme poverty(**) (*) Sigma, Swiss Re 6/10 (**) Press release Munich Re, ILO, 10th of April 2012 (***) Munich Re Foundation web site :

Micro-Insurance LOB  Life micro insurance Credit Life is the most dominant LOB; MFI’s can offer it with micro credit; Term life, disability.. Savings  Health micro insurance: Hospitalization, critical illness, loss of income  Agricultural: crops & livestock  Assets: Homes, small businesses

Micro insurance in Africa

World map of Human Development Index in 2011(*) Very HighLow HighData unavailable Medium (8) Source: Wikipedia

Africa development indicators CountryH.D.I(*)GDP/ CapitaPopulation Million Zimbabwe Congo-Kinshasa Niger Burundi Mozambique Guinea Bissau Chad Liberia Burkina Faso Mali Central Africa Sierra Leone Ethiopia Guinea Sudan37.92, Malawi Rwanda Gambia Zambia39.51, (*) The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education, and standards of living for countries worldwide. It is a standard means of measuring well- being, especially child welfare. It is used to distinguish whether the country is a developed, a developing or an under- developed country, and also to measure the impact of economic policies on quality of life. Ref = 100, the highest HDI Sources:  “The Economist Pocket World in figures”,2012  Wikipedia  World bank  Among the 20 countries lowest HDI, 19 are in Africa !

Economic losses vs. insured losses in 2011(*) RegionNumbe r VictimsIn %Insured loss US$ m In %Total loss US$ m North America , ,460 Latin American 361, ,558 Europe341, , ,712 Africa512, ,560 Asia10426, , ,149 Oceania , ,814 Seas /Space 401, , ,633 World Total 32934, , ,877 (*)Source: Sigma Swiss Re 2/2012

Micro-insurance in Africa (*) Population: 1,031.3 million GDP: USD 1,728 billion GDP/Capita: USD 1,675.6 Africa total premium : USD 64.7 billion Penetration: 3.9% mainly due to S. Africa (14.8%) Density : USD 64.7 (S. Africa 1,054.7) (*) Sigma, Swiss Re 2/2011 Population covered by micro insurance: 14.7 million Total micro insurance premiums : USD 257 million Micro insurance: 0.45% of the total premium

Micro-insurance in Africa (*)  Micro insurance is not a new phenomena in Africa; many practices can be considered as micro insurance pooling within the villages or the communities i.e. “tontines” in west Africa;  Initiatives in Sub Saharan countries: Funeral insurance dominating the market Credit life South Africa: Ethiopia: HARITA weather insurance for poor farmers by Oxfam & Swiss Re Sudan: micro Takaful in conjunction with micro credit for micro projects, crops Kenya: CIC and now Takaful Africa

Takaful 18 What is Takaful? Why Micro Takaful? Takaful is based on brotherhood and solidarity Takaful is about pooling risks together Takaful can benefit from donations (Zakat or religious tax) Muslim countries are among the poorest Micro Takaful : is not “per say” a micro insurance LOB, it is the Shari 'a compliant version of Micro insurance Takaful = Mutuality + Shari’a principles

Takaful

30% Growth Takaful Market Development % Growth 22% Growth 18% Growth 23% Growth % Growth

Islamic /Takaful Contributions by region

Takaful Market Development

Islamic /Takaful Contributions by class

Number of Islamic Insurance operators in 2010

Takaful Contributions in Africa Country GWP in USD million Egypt Mauritania 0.4 Senegal 8.0 Sudan Kenyan/a

Micro-Takaful initiatives

Micro insurance initiatives HARITA : HORN OF AFRICA TRANSFER FOR ADAPTATION Ethiopia: Swiss Re + Oxfam America 1300 families in 2010; insurance against draught; Micro: a micro insurance program in Haiti that helps women entrepreneurs bounce back after natural disasters Munich Re micro – insurance foundation

ICMIF Micro - Takaful Support Centre (MSC) FOIITC and GTG formally join the ICMIF Micro-Takaful Support Centre Steering Group FOIITC and GTG invite and encourage their members to sign up to the MSC The three secretariats agree on action plan to introduce activity into the Micro-Takaful Support Centre, identifying projects and start approaching potential donors and partners.

Examples of Micro Takaful projects  Sudan: Shiekan, started in 2008 LOB: mainly Domestic credit insurance, Family Takaful, Material damage and Livestock, Fire & Burglary & Agricultural Insurances  Malaysia: Takaful Ikhlas is offering family Takaful products with very small contributions  Sri Lanka: Amana & Muslim Aid, project for 1000 beneficiaries, linked to Micro Finance ($ 100 loans); cost of insurance $ 27/ year & compensation in case of sickness or accident, with weekly collection  Micro Takaful experience is still very limited to few cases and cannot be compared to Micro insurance

There are many difficulties providing insurance to the low-income sector:  Lack of interest from financial institutions in the poor has been due to: Low collateral, High transaction costs, Uncertain profitability, High risks and, Inability to serve their specific needs.  The provision of insurance to the poor has been left to the MFIs, NGOs, credit unions and cooperatives operating predominantly in the informal sector and who face a multitude of problems;  Lack/ need for qualified and dedicated staff, internal controls, efficient administration systems, reinsurance and resources for marketing, distribution and education means that establishing a comprehensive, sustainable and affordable insurance scheme is almost impossible in the short term.  The micro-insurance provider has to compromise between how low into the poverty sector the scheme can penetrate whilst maintaining costs recovery. Challenges for providing micro-insurance / Takaful

Conclusion  Commercial Micro insurance / Takaful is a promising market for the whole insurance industry and should improve the awareness and bring new policyholders;  Micro insurance is also the insurers CSR;  PPP Micro insurance / Takaful is an excellent mechanism to help the very low income population; should work in a joint venture with MFI’s, preferably NGO’s, and benefit from government or international Aid support, or Zakat for Takaful;  Developing a Micro insurance / Takaful offer is facing challenges i.e. cost, cost of distribution, lack of support from traditional insurers and governments;  Is Africa ready for micro insurance? The continent is far behind Asia or Latin America in Micro insurance;  Micro Takaful is yet to develop; why?  What’s the next step for micro Takaful? East Africa? North Africa? Egypt? The development of Micro insurance / Takaful is subject to an effective partnership between MFI’s, insurers, Takaful operators and governments.

Bibliography: * Sigma: Swiss Re N 6/ 2010 * Munich Re Foundation & ILO: Protecting the poor; A micro insurance compendium - Volume I Protecting the poor; A micro insurance compendium - Volume II Thank you…