Strategies to Extend Commercial Insurance to Poor

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Strategies to Extend Commercial Insurance to Poor

• Syed Mohsin Ahmed
• General Manager
• June 29, 2007

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Presentation Outline

• The Pakistan Microfinance Network
• Microfinance in Pakistan
• Micro Insurance

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Pakistan Microfinance Network
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Mission Strategic Objective
Promote an enabling environment that benefits the
work of all stakeholders
Build the capacity of stakeholders, especially
retail microfinance institutions
Mission Statement Support retail MFIs to
enhance scale, quality, diversity and
sustainability in order to achieve inclusive
financial services .
Improved operational functioning of the PMN by
developing policies and procedures
Improve transparency and accountability by
promoting the publication and use of performance
measures and standards among retail microfinance
institutions
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The Structure
General Body (19)
Policy and Strategic Committee
Board of Directors (14)
Finance Committee
Membership Committee
Chief Executive Officer
General Manager
Research Analyst
Microfinance Analyst
Network Coordinator
Manager Finance Admin.
Admin. Assistant
Accountant
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PMN Members
RSPs
NGOs
MFBs
Commercial Bank
Leasing Company
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PMN Members Coverage
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The Microfinance Sector
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Market Coverage
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Growth
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Scale
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3M Capacity of Existing Providers
2.5
2000
2010
2006
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Growth Drivers
Sustainability worsening 2002-5 Pakistan
interest rates of 18 below regional levels
Bangladesh 25 India 30
Afghanistan 35 3M Borrower would incur
shortfall of revenues against costs Rs. 5
billion per year Cannot reach nor sustain 3M
borrowers without dramatic shift towards
sustainable operations
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Growth Drivers
Rs. 86 Billion
Savings (22)
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Debt (47)
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Rs. 14 Billion
Average Loan Rs. 20,000
Savings (1)
5
Debt (9)
Equity (17)
65
20
Equity (4)
30
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Growth Drivers
Total Staff 20,000
1
Senior Management 200
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Middle Management 3,000
84
Field Staff 16,800
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Challenges
Entry of New Players with - Growth Appetite
- Sustainability Focus Facilitate entry of
organizations which have reached large scale
elsewhere BRAC Bangladesh/Afghanistan ASA
Bangladesh Compartamos Mexico BRI
Indonesia Facilitate entry of visionary
entrepreneurs Vision and commitment Talent and
drive to succeed
New Players
Non Traditional Delivery Channels
Credit Bureau
Product Development
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Challenges
Expansion of mobile phone network presents
enormous opportunity for exponential expansion of
lower cost finance services Roughly 35 million
users many are urban poor New models in
use G-Cash Philippines Wizzit Bank South
Africa Pakistan Post Office represents a large
network of service points. Currently offers
range of savings and insurance services.
Advantages Large low cost infrastructure for
outreach already exists. Risks PPO is not
designed to be a service provider
New Players
Non Traditional Delivery Channels
Credit Bureau
Product Development
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Challenges
New Players
Credit information on borrowers will greatly
reduce risks and transaction costs as market
expands. Advantages reduces risks as
competition increases in unsecured lending, can
bring entry of commercial players Ensure that
NGOs and Banks are part of the system Require all
organizations over 10,000 clients to
participate Pricing should be subsidized in
early years as market is built, but be set a
level that acheives breakeven as market volumes
increase
Non Traditional Delivery Channels
Credit Bureau
Product Development
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Challenges
Mostly Credit and that too for productive
purposes. Deposit by MFBs as a separate
product and source of funding growth. NGOs take
deposit that are mostly compulsory and are a tool
of hedging against risk or for behavioral
changes. Insurance services are few and far in
between..
New Players
Non Traditional Delivery Channel
Credit Bureau
Product Development
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Insurance Market
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Niche Market

• Educated
• Middle to high income community
• Islamic instruments Takaful
• Corporate

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Product Mix

• Life
• Health
• Education Annuity Plan
• Marriage Annuity Plan
• Pension funds
• Cash
• Deposit
• Equipment
• Only recently Crop and Livestock by Adamjee

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Market Coverage Life Insurance
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Challenges in going down market

• Literacy
• Lower renewal persistency
• Conversion ratio is 4
• Higher distribution costs
• Low level of awareness on demographics

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Models of Insurance services
3
Network Model

• Smaller Organization
• AKHUWAT
• SAFWCO
• Reduces risk on both sides
• Compulsory product
• Credit Life plus funeral costs
• High premium of insurance firms

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Models of Insurance services
3
Network Model

• Larger Organization
• KASHF
• FMFBL
• Khushhali Bank
• DAMEN
• Product Mix Credit Life with funeral charges
• Future Products
• Annuity plans
• Live stock and crop insurance
• Health insurance

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Models of Insurance services
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Network Model

• RSPN
• NRSP
• TRDP
• Product Mix
• Hospitalization insurance (Rs.15k pa)
• Accidental death insurance or permanent
  disability
• Voluntary available to Community members and
  borrowers
• Advantage
• Attractive to insurance company because of huge
  volumes
• Challenge
• Another tier of administration making the
  process more bureaucratic

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