Making insurance working for Microfinance Institutions

This post is also available in: Tiếng Việt (Vietnamese)

Introduction

A risk is the chance or likelihood that an event will cause damage or loss. Low – income entrepreneurs are particularly vulnerable to risks, such a illness, injury, theft and death. Of these, death is among the most serious risks faced by low-income households, especially the death of breadwinner. Not only does the household face a rise in short-term expenses for funeral or burial costs, which can be quiet large in some societies, but it also faces the long-term problem of losing that person’s labor contribution to the household enterprise. While the household may employ varios coping strategies, such as participation in burial societies and relying on the generosity of friends and family, informal coping mechanisms are sometimes unreliable or inadequate.

Microfinance institutions (MFIs) lend money to low-income entrepreneurs, so MFIs are vulnerable to the same risks as their clients. When a risk event strikes borrowers or their family members, it often affects their ability to repay their loans.