1. Access to Finance Innovations March 5, 2010 Financial Innovations Marketplace

2. Session Objectives Issues in access to finance from a household/demand perspective Provider sustainability and risk management

3. Goals of finance 1.Smooth consumption over time 2. Smooth consumption across uncertain states of the world

4. Household Risk Management (demand side) Household Farm (price & weather) Health (routine & catastroph ic) Accident/ death Longevity Macro (inflation, gold price)

5. Feizal, Uttar Pradesh, India (Portfolios of the Poor, Morduch et al) Household monthly income: $36 Broke his leg, no insurance Delayed treatment Lost 8 months of wages Total treatment cost: $250 Son’s wage advance Savings Relatives Credit

6. Product Design - a Priority Cashflow matched loans Loans with bundled risk management Savings with commitment features Insurance combined with annuities

7. Role of providers/intermediaries Last mile between large Financial Institutions/markets and customers – MFIs, credit unions, cooperative banks, Local Area Banks Tend to have low levels of capitalisation Risk management crucial for sustainability

8. Provider Risk Management (supply side) Product design Diversification Pricing/capital Idiosyncratic risks Securitisation Reinsurance Derivatives Systematic risks

9. Challenges in Risk Transfer Moral hazard on the part of the RFI Appropriate pricing of risk Finding relevant buyers for this risk

10. Thank you 1, Cenotaph Road | Teynampet | Chennai - 18 www.trust.ifmr.co.in