Adoption of Microinsurance by Microfinance Institutions in India

Microfinance institutions (MFIs) have successfully established themselves in extending credit to low-income populations living in underserved areas of India. It was anticipated that these institutions would also play a crucial role in increasing access to insurance in the masses by promoting a similar concept of ‘microinsurance’. However, the growth of microinsurance was not commensurate with the growth of microfinance over the past two decades in India. MFIs restricted themselves to credit life insurance, which worked as collateral. Uptake of health and life insurance remained lukewarm despite efforts from the insurance regulator and the Government. This paper attempts to understand the reasons behind the low uptake of microinsurance and examines the experiences of MFIs in extending insurance to their clients. Sentiment analysis was conducted on data collected from MFIs to understand their perspective and experiences. The study concludes that the reasons for the low uptake of insurance by the MFIs are demand and supply side limitations. Operational issues, lack of trust, low awareness and low demands in the target population, low professional skills among the field personnel and high cost of insurance were a few reasons for the low uptake of insurance through MFIs. The recommendations presented in the paper have policy implications. The findings of the study are relevant in the light of the new initiative of the IRDAI—‘Insurance for All by 2047’.