Analysis of Microinsurance in Kenia

Research question

In the developing countries, people are destitute which can be attributed to the political and economic conditions in addition to the situations in the financial and social sector that inhibit the opportunities available for the development.( Islam and Memun,2005,2006).  Micro credit concept with different mechanisms and practices developed by the microfinance institutions helps to reduce the poverty. The impact of the risks on poor people is such that it inhibits the economic and human welfare to a greater extent.

Personal, social, and natural risks that involve high expenditures increase the poverty. Services offered by the formal mechanisms provide more benefits at a lower cost than the services when compared to the services of the informal mechanisms, even though the risk factor reduces the effectiveness of the micro credit. Institution and the borrower are connected by a mechanism which is risk protection or insurance. Many of the micro financial institutions focus on the lender’s part of risk and ignore the risk from the borrower’s side. Improvements in this area will protect the risk of the borrower and alleviate poverty. (Mamun.M.Z).

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Aim of the study

The aim of the present study is to investigate the relationship between micro insurance mechanism and sustainable poverty alleviation among the women of Kiberia of the country Kenya. The study also aims to find out whether there is any relationship between the vulnerability and risk management, and the capabilities of the micro financial institutions to manage the risk effectively.

Objectives of the study:

Overview of the micro insurance
Analysis of the micro insurance practices in Kenya
Analysis of the provisions of the different models of micro insurance.
Analyze the  performance of the micro financial institutions as providers of micro insurance
Investigate the socio-economic and psycho-social aspects of the risk
To study the cultural and sociological values and attitudes.
Research hypothesis of the study

The present study focuses on the link between the micro insurance and poverty alleviation, in addition to focusing on such issues as the policies and regulations of the government of Kenya for insurance in general and micro insurance in particular.

Hypothesis-1

Micro insurance and its role in the alleviation of poverty:

Insurance designed for the people of low-income group and businesses that is characterized by low premiums and low coverage limits. As with the insurance, micro insurance also functions on the concept of risk pooling but by linking many smaller units to larger structures.  The concept of micro insurance enhances the functions of insurance as well as supports the structures for the improved governance. Similar to the general insurance, micro insurance covers a wide variety of risks that include health risk and the property risk. (Alexander S. Preker et.al, 2002).

Thus the micro insurance protects the people of the low income group against certain risks for the payment of regular premiums. In addition to its coverage of expenses against health risks, it can also cover to certain hazards of the business. The main challenge associated with the micro insurance is it has to provide a comprehensive protection that is ideal that could be affordable at low premiums. A mixture of mechanisms will help poor people to manage the risks. The new products and services of micro insurance will definitely help poor people to recover the setbacks. Demand assessment in a right way will help to develop an effective design of the products and services of the micro insurance. Micro insurance is the key for the alleviation of poverty.

Hypothesis-2

Filling the gap to provide the coverage for the excluded:

Some reports on the market opportunities for the sustainable micro insurance products in Kenya, it was found that only a few mechanisms help to cover the losses. To recover the losses people borrow, rather than drawing the hard earned money from their savings. In the formal insurance mechanisms, the claiming process is burdensome for the people who are illiterate and linkage of the formal insurance to the credit increases the cost of premium.

The micro insurance mechanisms are popular in that the terms associated with them are understandable, premium payment systems that are flexible, trust and timely pay outs. Poor people use a mixture of the tools to manage the risks as none of the existing strategies have the ability to provide 100% coverage. Micro insurance can play an important and potential role in filling these gaps. To make the mechanism sustainable and effective, there is a need for the providers of the micro insurance to understand the underlying challenges in the mechanism. It is important to Understand the range and effective of the risk, learning the advantages and disadvantages of these mechanisms in social obligations.

Hypothesis-3

Transformation of the micro finance institutions to micro insurance- a new way to fight poverty:
microfinance is the humanitarian activity for the welfare of the poor people, a small amount of unsecured loans, provided for the people for the income generation. The efficiency of the micro loan mechanism encouraged to bring this endeavor to a large scale. In many countries legislations were enacted to formalize the activities of this sector. However there are some draw backs associated with the micro finance institutions. (MFI). Lack of knowledge in designing the product is the draw back with MFI’s as these institutions have never attempted the risk calculation and designing matters related to insurance.

There are no proper policies of the government that help in giving a scope for reinsurance and work commercially in a full fledged way. There is no specific method available with MFI that can handle the risks effectively, and the MFI’s do not adjust the premiums on par with inflation. The MFI’s perform tasks like sale of products, collection of the premium and pooling the risk. MFI’s are sustainable in their growth due to their good relations with the clients and they are high performers in terms of cash collection and sales of the product, consequently their product designing and risk pooling is very poor.

MFI’s are innovators and practitioners and they have a rich experience and professionalism with poor. They have a better knowledge of adopting the strategies and policies to the target group. It has been shown that MFI does can respond the needs of clients for insurance. These institutions have recognized the fact that insurance has the role protecting the client as well as the institution. The MFI’s have an additional source of income that can improve sustainability.

Hypothesis-4

Changing the policies of the insurance with the intervention of the government is a key to success:

It is important to establish the concept of micro insurance as a market product and the MFI’s as providers of service. There are several avenues in this sector that require the intervention of the government. The government has to design its policies in such a way that it can assist the commercial insures and MFI’s in an agent partner model and design the schemes based on the strengths of the clients. The generic service business market, with the support of the vertical commodity based business service market by enabling an environment set by government regulations and policies that are relevant to the specific markets offered by the government is a key to the success.

Hypothesis-5

Poverty in Kenya reflects challenges and complexities in dealing with the alleviation of poverty and making them sustainable:

The women comprise around 50% in Kenya and comprise a vulnerable group that faces unique constraints. Most of the women combine domestic activities with the income generating activities and the lack of time dictates their choice of the enterprise. Most of the women that are involved in the small enterprises lack the investment capital.

The other constraints include their illiteracy, lengthy beaurocratic procedures to acquire the license, lack of adequate housing, and the limited resources coupled with heavy family responsibilities. Remedial measures by the government and the institutions will not only increase the participation of women in the small micro enterprises but also improves the quality of the life of the household and the economy of the country as a hole. The intervention of the MFI’s with micro insurance designs will help to improve the poor women as well as the institution.

Methodology

My research studies comprises of quantitative and qualitative studies.

Quantitative studies:

Data collection is done mostly through direct observation and interviews. Most of my sources for the secondary analysis include books, articles, newspapers and internet. I choose the sources that are mostly of objective nature. I search for some models and methods to adopt them for my research to find out whether there is any correlation between the micro insurance and poverty alleviation.

Qualitative study:

Data collected from the interviews will enable me to do my qualitative studies in a realistic manner. I will interview the women from the low income group, personnel from banks government offices, financial institutions, insurance companies that are involved in the insurance related matters. These interviews will help me to gain a knowledge on the needs of the women of low income group, and their view on the operations of the institution of the micro insurance.

Time to be spent on my research studies

The first nine months will be spent to develop the proposal, methodology and literature review. During this time I will allocate my time also to attend the courses relevant to the subject and research methods as per the recommendations of the university.
I will spend four to six weeks to obtain data from the interviews and statistical work.
I will spend six months time in the slums of kibera for an intensive field work.
Application

With this proposal I feel I can apply for a research grant for my research studies.

References

Alexander S. Preker, Guy Carrin, David Dror, Melitta Jakab, William Hsiao, Dyna Arhin-Tenkorang (2002). "Effectiveness of community health financing in meeting the

cost of illness". Bulletin of the World Health Organisation 80 (2): 143–150. Geneva: WHO.

Islam, Nazrul and Mamun, M. Z. (2006). Prospects of health Insurance Initiatives in Bangladesh: An Empirical Study, Proceedings of the Tenth Annual Conference of Asia-Pacific Risk and Insurance Association (APRIA), July 30- August 2, 2006, Meiji University, Tokyo, Japan.

Islam, Nazrul and Mamun, M. Z. (2005). Factors for Not Buying Life Insurance Policies in a Developing Country: A Case of Bangladesh. Journal of Business Administration, Institute of Business Administration, University of Dhaka, Bangladesh, Vol. 31, No. 1 & 2, pp. 1-22, January & April 2005.

Ziaulhaq Mamun.M, Contribution of Micro-Insurance Augementing The poverty alleviation

A Draft Paper Prepared for the 11th APRIA Conference at National Chengchi University, Taipei, Taiwan (July 25-28, 2007)

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