1. The role of the Actuary in Microfinance
МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ
The role of the Actuary in Microfinance
Ulan Bator, Mongolia
14-15 November 2011
Kirsten Armstrong

2. Agenda What is micro-finance? What is micro-insurance?
What should actuaries do in the sector?
A case study
Specific challenges

3. What is Microfinance? Basic financial services to poor & excluded
Innovating to meet needs: Eg: Mobile phone banking for remote communities
Savings, credit, money–transfer, insurance
Target groups:
Micro Entrepreneurs
Small and medium-sized enterprises

4. Social Goals more important than profit
Mission: To contribute to the socio-economic development of the country while creating a fair value for its shareholders. This will be achieved by providing inclusive, value adding, and reliable financial services to all people and entities of Mongolia through establishing a leading financial institution that is equally concerned about Planet, People, and Profit. XAC Bank

5. Microfinance in Mongolia
Loans US$914.7 million
Borrowers 390,000
Deposits US$1.2 billion
Depositors 1.8 million
MFIs 6
Hugjil badrakh, VFM, TFS, Khan Bank, Credit Mongol, XacBank
Regulator Bank of Mongolia
Source: Mixmarket 2010
Khan Bank has greatest number of deposits, with 2.2 million accounts, althouggh this may reflect the fact that it has Government deposits in the form of children’s welfare money accounts – Government dispursed State allowance for children.
XAC Bank is also big – bigger in terms of overall loans.

6. What is Micro-insurance?
Targetted protection for low-income people
Simple
Affordable
Work best when supported with advice & innovation
* Microinsurance is still in development.*

7. Product Groups Complexity
Crop Insurance Health / disability insurance Annuities / endowment Property Term life Credit life

8. Micro-insurance in Mongolia
To be updated!

9. Case Study: Health insurance in India’s slums
Date
62 million people live in India’s slums. 300 million people in India live in poverty.
Health care is limited & basic.

10. Micro health insurance
Date
Micro health insurance
Covers insured people in Pune’s slums
Annual premium: 60 rupees ($2)
Reimburses max 5,000 rupees hospital costs
Other benefits
health camps, discounts, 24 hour hotline
More than 60,000 members
Scheme expanded to other slums

11. Date
Community-based decision-making helps manage risk. Some benefits remain discretionary → minimises solvency requirements.

12. Local systems can be basic – simplicity essential
Date
Local systems can be basic – simplicity essential
Performance monitoring at the community level

13. …All in a three week visit….
Date
What did I do?
Supported product redesign
Pricing model
Performance monitoring tool
Minimum Solvency requirements
Reviewed accounting procedures
Advised on data requirements
…All in a three week visit….

14. Other roles for actuaries
Date
Other roles for actuaries
Identifying needs, gaps and opportunities
Risk Management
Reserving / outstanding claims valuation
Forecasting

15. Original Benefit Structure

16. Option 2

17. Option 3

18. Unique aspects for Actuaries
Poor data: how to price? How to manage uncertainty?
Keep costs down : offer simple tools
Short tail products; focus on
Pricing
Good monitoring systems
Outstanding claims valuations are less important
Design products with risk management levers
Don’t want to end up needing big solvency reserves

19. Unique aspects for Actuaries
Always ask: Is this meeting social needs?
Measure social outcomes as well as financial outcomes
Do you understand the customer?
Data collection: What do they need for pricing and evaluation?
Offer ideas from the industry – innovate!

20. Further Information…
Consultative Group Assisting the Poor Microfinance Information Exchange

21. The role of the Actuary in Microfinance
МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ
The role of the Actuary in Microfinance
Ulan Bator, Mongolia
14-15 November 2011
Kirsten Armstrong