Financial Innovations for Poverty Action (FIPA) is an emerging institution providing financial services to the rural and peri-urban poor. The birth of FIPA resulted from the need to empower caregivers (guardians of orphans and other vulnerable children) through their Village Savings and Loans Association members (VSLAs) to have access to financial services and micro insurance services.
FIPA was a creation of ITI management and its partners to mitigate and fill gaps arising from poor service delivery and mistreatment of caregivers by formal micro finance (MFIs) service providers where VSLAs had been linked. It was evident that these MFIs were only profit driven and ignored the foundational objectives of VSLAs. At first, they encouraged every member in our VSLAs to request for loans without understanding their background and capacity but later confiscated property, mistreated, sold off property, sent some who could not pay loans on time to prison. They were treated no less than any wealthier client and weren’t given any preferential treatment given their background. Thus, there was need to incorporate an institution that well understands the background, operations and one which would put the needs and aspirations of VSLA members in consideration.
LINKAGE BANKING
Linkage banking is where banks link with the informal or semi-formal financial sectors to enhance accessibility of deposit and credit facilities for micro-enterprises or groups. This strategy involves the creation of relationships between two or more formal and informal institutions through which they expect to capture the comparative advantages that each possesses in offering financial services. Whereas the VSLAs need safe custody of their funds and additional resources to enable their clients expand business opportunities, FIPA has the funds and ready to lend out with of course a 10% interest rate. Therefore the relationship will be mutually beneficial. Groups could save with FIPA then have access to credit services.
Micro insurance: Micro-insurance are insurance products characterized by low premium, low coverage limits sold as part of a typical risk pooling and marketing arrangement and designed to service low income people and business not served by typical social and commercial insurance firms. Integrating micro-insurance in VSLAs will be recognized as a useful tool in economic empowerment because low income people who don’t have access to adequate risk management tools are generally more vulnerable to fall back into poverty in times of hardship.
FIPA promotes the use of social welfare fund as micro-insurance premium to protect caregivers against unplanned expenses, risks, shocks and stress consequently reducing their vulnerability level.
Micro-insurance, like regular insurance, may be offered for a wide variety of risks. These include both health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of micro insurance products exist to address these risks, including crop insurance, livestock/cattle insurance, insurance for theft or health insurance, life insurance, death insurance, disability insurance, insurance for natural disasters, etc. however, FIPA focuses on medical/health insurance and funeral.
Our aim would be to build a mechanism and provide extra safety net for at least 2500 VSLA members through micro insurance component in an effort improve the health and socio-economic wellbeing of caregivers.
MICRO-INSURANCE DELIVERY MODELS
In general, there are four main methods for offering micro-insurance. The partner-agent model, the provider-driven model, the full-service model, and the community-based model. Each of these models have their own advantages and disadvantages. However, for this particular project, partner agent model will be integrated with community based/mutual model to provide micro-insurance products to the caregivers. This is because of their correlated advantages.
Partner agent model: A partnership is formed between the micro insurance scheme and an agent, and in some cases a third-party healthcare provider. The micro-insurance scheme is responsible for the delivery and marketing of products to the clients, while the agent retains all responsibility for design and development. In this model, micro-insurance schemes benefit from limited risk, but are also disadvantaged in their limited control.
Micro insurance premium: FIPA insurance scheme will establish a mechanism whose beneficiaries are (at least in part) people excluded from formal social protection schemes, particularly, people involved in informal activities and their families. Specifically, the scheme will target caregivers in VSL groups with a range of 15-30 members per group. Although, the scheme targets VSL groups, the micro-insurance products will be tailored to benefit households of VSLA members. Each VSLA member will contribute towards an insurance policy.
The scheme differs from others created to provide legal social protection to formal economy workers. Membership is not compulsory (but can be automatic), and members pay at least in part small affordable premiums ranging between UGX 500 per week in order to cover their benefits depending on the nature of the micro insurance product signed up for. For the first year, VSLA members shall not contribute towards micro insurance amount exceeding their projected annual savings. This can be calculated basing on the group’s share value.
Prepayment and resource-pooling: the regular prepayment of contributions (before the insured risks occur) that are pooled together.
Risk-sharing: the pooled contributions are used to pay a financial compensation to those who are affected by predetermined risks, and those who are not exposed to these risks do not get their contributions back.
Guarantee of coverage: a financial compensation for a number of risks, in line with a pre-defined benefits package.