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Barely two years ago, a crisis-ridden microfinance sector was struggling to integrate into the formal finance sector. In 2013, the sector is close to being 100 per cent insured, as it has emerged as one of the largest platforms for marketing of insurance products.
The sum insured in the microfinance sector now stands at more than its gross loan portfolio. As on June 30, sum insured through microfinance institutions (MFIs) stood at Rs 35,300 crore and the gross loan portfolio of the MFIs at Rs 21,300 crore. Of the 24.8 million-odd clients of MFIs, 23.2 million lives are insured, according to Micro Finance Institutions Network (MFIN) data. (The data does not include that of SKS, the second largest MFI in the country).
With insurance turning out to be into an ancillary sector of microfinance, MFIN plans to approach the Insurance Regulatory and Development Authority (Irda) to ease regulations on rules governing distribution of insurance products. Almost all MFIs now have a tie-up with an insurance company and insurance comes as a tag with the loan.
The Reserve Bank of India (RBI) does not allow the MFIs to collect any commission from clients. However, Irda allows MFIs to receive administrative fees, capped at two per cent, for distribution of products from insurance companies, according to Samit Ghosh, president of MFIN. “We are contemplating writing to Irda to increase the limit of administrative fee, as the cost of operations is quite high,” said Ghosh.
Most MFIs offer group life insurance products to their clients. The sum insured is either the loan amount or about Rs 30,000-50,000, payable in the event of death of the client. With premiums as low as Rs 4 a month, on every Rs 1,000 of loan, micro insurance here is a volume-driven business.
Bandhan, the biggest MFI in the country, has a tie-up with the Life Insurance Corporation for distribution of specially-designed group insurance products. Although not a written rule, buying an insurance policy with the loan is “more or less compulsory”, according to Chandra Shekhar Ghosh, CEO of Bandhan.
Of the 23.2-million lives insured in the microfinance sector, nearly half (12.3 million) are through Bandhan alone.
Ujjivan has tied up with Bajaj Allianz Life Insurance to offer a group term life insurance policy, with different insurance schemes based on loan type and repayment mode. In 2012-13, the MFIs insured 1.7 million customers and their spouses, and settled 7,900 death claims. Ujjivan recovered loans of nearly Rs 5 crore and helped disburse Rs 14.4 crore in claim amounts to nominees and family members.
For a sector that has always preferred women as clients, insurance is becoming a good reason to drive a gender-diverse business model.