Reducing Client Vulnerability through Microinsurance Ali Ghezawi Director General Development & Employment Fund (DEF) Tunis – May 2008 Advancing Arab Microfinance: Greater Social Impact through Inclusive Financial Systems

Introduction Morethan 67% of DEF clients average income are below the national poverty line, without any access to insurance and so are vulnerable to risk. Vulnerability of the poor clients, which is already very high by this fact and others, diverted DEF attention to look for affordable solution for three main reasons namely; 1. To transfer the financial risk from DEF and its clients to IC. 2. To post the demand for self-employment. 3. To foster and assume social responsibility. In order to reduce the risk on DEF and its clients, three types of microinsurance schemes were looked at and two of them had been already adopted.

1) Life Insurance: DEF negotiated a blanket, credit life insurance policy with Jordanian Insurance Companies (IC), which would pay-off the entire loan balance, if its clients were to die or disabled. DEF acted as an intermediary and negotiated with the IC, then administrated a “group insurance scheme” for 16,262 of its clients with $44,6 in outstanding loan under one contract at low premium rate, of $0.100 per $1000. Introducing a life insurance scheme to DEF clients was not a burden, since the affordability and willingness of our client to share the extra cost was tested and accepted. We believe that life insurance scheme is transferring the situation from zero-sum game to a win-win situation for both DEF and its vulnerable clients.

2) Health Insurance: A recent study on Microfinance in Jordan, indicated that 67% of MFI’s clients surveyed requested health insurance programme. Moreover two third of DEF clients are living below the national poverty line, which entitle them by the NSN programme to free health insurance. However, the remaining 33%, have been offered by DEF a special health insurance programme in cooperation with the MOH. A preliminary rate range between 2.7% - 8.2% of the client average annual income. These rates will be decreased when a “group insurance” health contract to be negotiated and signed, based on the number of interested beneficiaries. * Any Jordanian with average annual income of $1500 or less is entitled for free health insurance.

3) Property Insurance: Currently, DEF is negotiating with insurance companies the possibility to mitigate financial risk on its clients property and assets in case of loosing their business due to fire, sabotage, and theft. In principle the companies offered a group contract at rate of $0.325 per $1000, we believe this rate can be cut to almost the half, when negotiation to be finalized next month. A mechanism to eliminate and monitor fraud by clients if arise will be provided to be discussed and approved by DEF.

Conclusion DEF has been trying to develop its own insurance schemes for its vulnerable clients, in order to reduce risks and transfer its financial cost through insurance companies. Some MFI’s provisioned special fund and allocated certain percentage of their loan activities to be utilized directly in case of certain risk rises. Self dependent of microfinance clients should be enforced by microinsurance, and giving a hand-up should overcome the concept of hand-out. Despite the fact that the sum of extra cost of ($0.100 per $ % - 8.2% +$0.325 per $1000) will be shared by both DEF and its clients, we look at as paying back benefits to our clients. DEF aims to minimize financial risk which means fulfilling its financial obligation to sustain itself and social risk which means fulfilling its social mission of improving the living condition of its client, in addition to fostering self-employment culture.

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