The Microfinance Opportunity in Pakistan by Gregory Chen

Top 20 FREQUENT WORDS

insurance 174 clients 84 savings 64 microinsurance 58 products 50 kashf 49 loan 46 education 45 health 44 income 44 respondents 44 coping 41 risks 41 loans 40 economic 38 nrsp 38 amount 34 financial 34 household 34 risk 33

DOCUMENT KEY POINTS

• figure health insurance product concepts extended life insurance figure extended life insurance product concept conclusions implications for future development of microinsurance risk managing financial services product concepts client education and marketing mfi insurer partnerships next steps for pmn attachment

• endowment similar to a term insurance except that if the insured survives the term they insurance receive a lump sum payment representing the cash value of accumulated premiums plus interest
• insurance insurance a system under which individuals businesses and other entities in exchange for a monetary payment a premium are guaranteed compensation for losses resulting from certain perils under specified conditions

• policy the legal document issued by the company to the policyholder that outlines the conditions and terms of the insurance also called the policy contract or the contract

• insurer partner selection design of product prototype s based on the demand and supply studies a short quantitative study to determine the demand for the product prototypes preparation and then implementation of the proposed product a includes training systems preparation and documentation of procedures
• a supply side study to assess existing and planned microinsurance products a to refine what should be offered identify potential insurers and other partners that mfis could work with and uncover information about the processes marketing and efficiencies of various options

• the authors wish to express their gratitude to miss mehr shah of the pakistan microfinance network for her unwavering support as well as to the team of local consultants misses ayesha a

• the sample group consisted of clients from the two largest microfinance organizations in pakistan a the national rural support program nrsp based in islamabad and kashf based in lahore

• attachment a field work schedule presents the actual schedule of field research and the specific tools used
• a total of focus group discussions and in depth interviews were conducted with a total of over participants

• this study included both types of events thereby allowing for a more comprehensive understanding of the dynamics of household economics the coping options available to the poor and the motivations for the choices of risk managing strategies

• risks according to respondents the risks that place the greatest amount of economic pressure on households are death of a family member prolonged illness business loss or failure death of a family member respondents viewed death in the family as the most stressful risk
• prolonged illness all participants perceived health issues as a major risk although they distinguished minor health problems which they considered easier to deal with from major illnesses that often require hospitalization and make tremendous claims on household finances

• i have to pay a school fee of rs per month whereas one day s worth of medical checkups and transportation requires an amount of more than rs woman client most respondents said they do not use precautionary strategies for dealing with health related expenses at least in comparison to other risks and economic stressors

• the precautionary coping mechanisms for dealing with a loss of business assets are use of home savings use of committee savings informal insurance a a group of shopkeepers pay in small amounts monthly and use the money in case of an emergency investment in household assets after the fact clients rely on other strategies to recover from the loss moneylenders a available to the urban population borrowing from friends and family or from an mfi reducing household consumption an effective response to this type of risk could be a conventional asset insurance product
• key economic stressors respondent cited the following as the top economic stressors in terms of the amount of economic stress that each puts on a family construction of a house marriage of a son daughter education of a child birth of a child construction of a house construction of a house was the most frequently cited source of financial pressure for a household with costs ranging from rs

• traditionally parents are responsible for covering the costs of their children s weddings which include the reception dowry for the daughter and expensive presents for the bride s family from the groom s family

• saving cash closer to the time of the event through committees borrowing from friends and family borrowing from mfis a by diverting productive loans borrowing from village organizations borrowing in kind from shopkeepers a for example food or jewelry borrowing from money lenders a accessible to the urban population selling household assets a including land the social pressure to marry off children a especially daughters a can be great and respondents said they use all available options in order to live up to their obligations
• so important is education that a large number of respondents decided to send their children to private schools a even though private schools are more expensive than government schools a because they provide a better education monthly tuition at government schools is roughly rs

• women client in order to pay for education respondents named the following strategies additional work a increasing regular income cutting down on other household expenses a even food consumption negotiating postponement of school fee payment informal borrowing a from friends and relatives not sending daughters to school pulling children out of school a in cases of extreme hardship most families are able to send their children to primary and high schools although many go into debt in order to meet these recurrent expenses
• the local van charges high rates to reach them and a in a few cases a the woman and the newborn died before reaching the clinic in time

• high stress responses can provide temporary relief but it could also ruin a family s economic situation in the long run because of the following reasons a lower income level a after selling off business or productive assets a debt trap a as a result of borrowing and taking on too much debt lowering of living standards a after selling off household items ignoring health problems is particularly dangerous since it could lead to a total loss of income due to the inability to work

• benefits paid same day or the day after a client s death documentation records of the premium payment are entered into the borrower s book and acknowledged by the client through a thumbprint the insurance product serves a dual purpose on the one hand it drastically reduces kashf s credit risks related to the client s death because it pays off the balance of the loan outstanding on the other hand it provides specific but limited protection to clients
• of loan amount method of premium payable at the branch at the time of loan disbursement or to the team leader of the loan collection group claims process documents to be presented to the branch proving the client s death death certificate or cemetery slip

• in terms of understanding of the product itself there were different opinions at the time of the study only half a dozen claims were being processed and it is difficult to evaluate the actual time the claim will take to be processed
• nrsp health insurance nrsp offers a combination of health accidental death and disability insurance to their clients in cooperation with adamjee insurance company

• some considered the insurance to be obligatory for borrowers a raising questions about how it is being sold others believed that the policy also covers family members few mentioned that the policy covers health a most mentioned death and accident only none could articulate the process for obtaining a payout in case of illness the situation could improve once clients start to file clai miss for now they seemed satisfied with the convenience and affordability of the policy but some thought that the premium should be reimbursed if they do not file a claim
• respondents were most familiar with the following products both of which are provided by the state life insurance company of pakistan endowment life accident insurance regular life accident insurance most clients said that they see insurance as a preferred way to save since it has an added bonus of a lump sum payment in case of death or accident

• current coping mechanisms primarily committee savings are not fully satisfactory because these savings schemes have limited time periods and relatively small lump su miss also committees are less popular in urban areas where community ties and mutual trust are weaker

• they were not interested in the insurance partners which suggests that customers will likely associate microinsurance with the mfi that sells the insurance and not the insurer where the product originates

• conclusions i m p l i c a t i o n s f o r f u t u r e d e v e l o p m e n t o f m i c ro i n s u r a n c e the purpose of this study was to identify the most economically stressful risks facing low income microentrepreneurs in pakistan the strategies that they use to deal with these risks the gaps in these coping mechanisms and the needs for better risk managing financial strategies
• they have a habit of saving but they are often unable to save very much at home and the amounts that they save at their mfis are inaccessible in times of crisis

• the desire of clients to receive a refund if they don t incur the condition that the insurance covers shows a lack of understanding of the principles upon which insurance is based and will be a challenge to the successful implementation of an insurance product
• while their experiences may have been the result of a poor understanding of the insurance policy respondents also mentioned problems with fraud committed by insurance agents or a lack of good faith on the part of insurance companies

• partner selection design of product prototype s based on the demand and supply studies short quantitative study to determine the demand for the prototype preparation and then implementation of the proposed product including training systems preparation and documentation of procedures
• the research did not find many definitive differences along these dimensions but it did demonstrate that there are significant differences in the income levels of clients within a single mfi that can result in different types of demand for and use of risk coping mechanis miss the quantitative survey could investigate market segmentation in greater detail

• the purpose is poverty alleviation enabling people to break the cycle of poverty which begins with lack of opportunity extends to the well known miseries of economic and nutritional poverty and leads new generations to endure the same conditions
• organization nrsp delivers microfinance services through microfinance enterprise development program operational in districts and urban poverty alleviation program covering districts covering most of the country client base urban rural about of borrowers women product offering loans

• number of active loans over average loan size us urban rural clients female clients about data marked with refer to
• key operational results operational sustainability financial sustainability par over days

• the consumption loan is a six month loan with twelve equal installments that is tied to the savings of the customer with a ratio of one to three if a customer saves one dollar she can access three dollars as a loan
• k a s h f f o u n da t i o n mission to provide cost effective and quality microfinance services to poor women by adding value to women s existing economic opportunities in order to enhance their role in economic and social decision making

• key operational results operational sustainability financial sustainability par over days
• number of active loans average loan size urban rural clients female clients

• a t ta c h m e n t

• a t ta c h m e n t

• they may therefore act as ratchets forcing a household further into poverty taking cash or kind loans from kin and neighbors especially if an initial crisis is compounded by taking cash or kind loans from moneylenders and subsequent shocks shopkeepers high stress coping strategies mortgaging or pawning assets utensils jewelry hard to reverse indicators of severe distress and land etc

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DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic micro

KeyWords

islam finance fund mfis institute developed agricultural financial bankable oper credit rate client econometric mfi loan program beneficiarie imfi sustain

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DOCUMENT REFERENCES

Number of Pages

36

Published Date

2006-04-04 00:46:53

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