Keya Sarkar: Rural India's lessons in micro finance

OUT OF FOCUS

It was only last month that I attended a conference on "Risk Management in Livelihoods" organised by the Hyderabad-headquartered micro-finance organisation, BASIX. Although at one level, micro finance and livelihood promotion are struggling to become part of mainstream financial services, at another level, it is encouraging to see that private sector players in the insurance sector are actively participating in bringing risk management tools to the poor.

I am sure that like BASIX, many of the bigger micro-finance companies are working with insurance companies to innovate products suited to regions and types of livelihoods of their clients. The intention of talking about the BASIX experience is to draw attention to the fact that in insurance too, like in all the services that are being offered to the poor by the micro-finance organisations, financial sustainability is of greatest significance. In its vision statement for the insurance sector, therefore BASIX says: All poor households, especially those served by BASIX, will have access to risk management services covering their lives and livelihoods, and insurance companies will provide these services willingly on a financially sustainable basis. The presence of senior personnel from AVIVA, Royal Sundaram, ICICI Lombard and the agriculture and rural development wing of the World Bank was evidence that BASIX's vision was based on reality.

In its efforts at providing insurance in all the sectors that it works in, BASIX has tied up with different insurance sector partners. In 2002, BASIX and AVIVA jointly designed a group life insurance product to provide life insurance to all BASIX credit customers, where the sum assured was up to one and a half times the loan amount. By December 2003 BASIX entered into an agency relationship with non-loanees too. Thus, the local area bank, KBS, which is part of the BASIX group, could offer life insurance to all deposit holders of the bank.

For livestock and health insurance, BASIX works with Royal Sundaram. BASIX started the distribution of livestock insurance in 2002 and worked with the insurance company towards product and process simplification and, by May, this year had begun to offer health insurance to all its credit customers.

While cross-selling of life, health or livestock insurance to its credit or deposit customers has meant a lot of work for BASIX, what has been the most satisfying is its pioneering work in the area of rainfall insurance. The introduction of rainfall insurance by BASIX was the first weather insurance initiative ever launched in India and in fact, in all of the developing world. The initiative actually followed a study to explore the viability of weather insurance for Indian farmers in the context of extending financial outreach by reducing exposure to weather risk.

In response to this study, BASIX, in collaboration with ICICI Lombard and with technical assistance from the Commodity Risk Management of the World Bank, piloted the sale of rainfall-indexed weather insurance to 230 farmers in the Mahabubnagar district of Andhra Pradesh during the monsoon season of 2003. Within a span of three years, this pilot programme has become a full-scale weather insurance programme. In the monsoon season of 2005, BASIX sold 7,685 policies to 6,703 customers in 36 locations across Andhra Pradesh, Karnataka, Jharkhand, Madhya Pradesh, Maharashtra and Orissa.

More importantly the 2003 pilot has sparked an interest in weather insurance per se, with now even the government-owned Agricultural Insurance Company (AIC) and IFFCO-TOKYO General Insurance Company offering the weather insurance products. The rapid scaling up by BASIX and product replication by other insurance companies prove both the viability of such a product and the existence of demand for the same.

The agriculture and rural development wing of the World Bank distributed a paper at the conference which documents in detail the scaling up of the pilot weather insurance project to a full-scale product offering. This paper serves several purposes: first, it expands the Commodity Risk Management Group's case study on BASIX as an innovative institution in the areas of agricultural finance and risk management. Second, it underscores the technical and operational viability of intermediating weather insurance to small holder farmers and, third, and most important, the study hopes to serve as a project implementation guide by identifying the conditions for scalability. For all those in business of rural financial services, this would be of immense value.

For me personally the conference and the study on weather insurance held special significance. For, only a few weeks ago on a tour of Mehbubnagar, I had the opportunity to meet some of the women farmers who had been the buyers of this index-linked rainfall insurance product. The features of the product, which had taken me a while to appreciate, was explained lucidly by a white-haired, heavily-wrinkled beautiful banjaran woman. The only thought that had crossed my mind was that to make available sophisticated financial products to the poor, all that was necessary was a will to do so.