NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

“It’s a moment to balance the global with the local.” – Dr. Abhay Bang, director of SEARCH

NextBillion’s news section contains 4 new items, all of which pertain to ?risk? in relation to the BOP community. But this risk I am referring to is two-fold. These news items address the wrongly perceived notion by commercial banks and insurance companies that the poor are ’high risk.’ But the flip side, the newsworthy aspect, is that now these companies are seeing opportunity instead of risk. In fact, they are making it their job to reduce the risk to the poor using multiple approaches.

Micro Health Insurance
For years, the poor were considered uninsurable, both for the barrage of risks they face and for being either unwilling or unable to pay for disasters in advance. Micro health insurance plans, such as the one provided by UpLift India Association, aim to provide quality healthcare at low premiums on a community-level scale. Undertaken with creative planning, this initiative can provide the same protection against risk for the poor that it does for the rich. In countries such as India (the world leader in this emerging field, with 5 to 10 million people enrolled in micro health insurance nationwide) where the poor usually work in informal jobs or are self-employed, they are highly unlikely to be included in employment-related plans. In addition, about one-fourth of hospitalized Indians fall below the poverty line as a direct result of their hospital expenses, according to a 2002 World Bank report. Many people take out steep loans or sell their homes in order to pay. And for the poor, losing even a day’s wages while waiting in the hospital can be devastating. According to an article by The Christian Science Monitor…

Nandakumar Rajeshirke, a stone carver in India, bought coverage for his whole family at 50 rupees ($1.10) per person annually and renewed the plan for several years in a row. In 2005, his gamble paid off. Rajeshirke’s wife needed a hysterectomy, a procedure that would normally cost 20,000 rupees ($446), one-third of his yearly salary. “Without insurance,” he says, “I would have had to sell some things from my house or get a loan from someone at high rates.” Instead of facing financial ruin, he paid 6,000 rupees ($134) total and had help navigating the long process through diagnosis, surgery, and medication.

With the money Mr. Rajeshirke saved in medical costs, the following initiatives become viable options?

Microfinance
Microfinance in India, -currently focused on small loans for the rural poor, is growing fast enough to make an impact over the next -decade, according to a new report. Microfinance serves about one fifth of poor households in India and has helped to widen the reach of financial services to the population of 1.1bn, 80 per cent of whom have no access to banks.

Microfinance–Forging a Partnership with Banks
Microfinance can provide tangible commercial opportunities for banks in the region notably if they partner with a microfinance institution, said Debbie Arnold, VP of Emerging Markets at Visa International, the world’s leading provider of electronic payments. In an article by AME Info, Arnold said…

“Local commercial banks can benefit in various ways from commercial microfinance opportunities. They gain access to a new customer segment, can cross-sell non-competitive products and also benefit from new deposits and new income streams from the increased use of Visa debit, credit and pre-paid cards at the point-of-sale.’
Arnold explained how electronic payments solutions can support microfinance activities and how partnerships can overcome challenges in the sector. ’Banks have the electronic payments infrastructure but lack the appetite and ability to manage risk and train the target market,’ she said. ’Microfinance Institutions (MFIs) have the one-to-one consumer relationships but no access to electronic payment infrastructure to get to scale. Our strategy, therefore, is to encourage bank partnerships with MFIs thereby uniting the convenience and security of cards and electronic payments with the powerful grassroots outreach of MFIs. All of this supports our global efforts to bank the unbanked and increase access to the formal financial sector for low income consumer segments.’

And what opportunities can this lead to?

M-Banking
The Consultative Group to Assist the Poor (CGAP), United Nations Foundation (UN Foundation), and The Vodafone Group Foundation (VGF) have released the first public findings on how low-income individuals in South Africa use mobile phone banking (m-banking). The findings show that m-banking can be up to a third cheaper for customers than the current banking alternatives, and users value the service for its security and easy use. Elizabeth Littlefield, CEO of CGAP, said…

Mobile phone ownership is exploding in developing countries, presenting a tremendous opportunity to deliver financial services cost effectively to the nearly three billion people who do not currently have bank accounts,” said Elizabeth Littlefield, CEO of CGAP.”And that matters because financial services can help poor people increase household incomes and build assets, making them less vulnerable to crises so that they can ultimately plot their own paths out of poverty. Globally, there are more than 2.5 billion mobile phones, more than half owned by people in developing countries.”

These initiatives by themselves cannot solve the problems of the poor, but when used in partnership with each other, have the opportunity to give the poor a chance to work their way up the BOP ladder. Risk is the name of the game and the poor shouldn?t have to play the game anymore unless they are guaranteed to win?