DEVELOPING MICROTAKAFUL IN INDONESIA 1

Transcription

1 DEVELOPING MICROTAKAFUL IN INDONESIA 1 Agus Haryadi 2 1 The article is presented on The 2 nd International Convention on Takaful and Retakaful, Kuala Lumpur, 23 November Head of Group, Takaful Mikro Indonesia (Takmin), Working Group of Peramu, Bogor, Indonesia 1

2 A. INTRODUCTION Shadaqah/Charit Shadaqah/Charity Shadaqah/Charit Qardh/Loan Poor People Poor People Stages to Poverty Alleviation Financing Nowadays, the utilization of zakah fund to empower the poor has taken very important role in our society. Therefore the fund is pooled and distributed by Baytul Maal as charity to this mustahik to support their living and case of emergency such as sickness. However that is a short term solution and somehow will not really change the status of the poor. The Baytul Maal is also practicing to revolve the zakah fund into micro enterprise programs where the poor can apply for Shadaqah/Charity Qardh/Loan Poor People Financing Saving/in vestment Qard Al-Hasan as their micro enterprise capital. It is hoped that with the Qardh/Loan Poor People Financing Saving/Investment Risk Sharing control and supervision from the Baytul Maal, the poor can develop the business and will become independent up to the stage that they will return the Qard Al-Hasan to the Baytul Maal. For bigger business activity, Micro Financial Institution (MFI) such as Baytul Maal wa Tamwil, Islamic Cooperative and Islamic Rural Bank will play their roles by giving financing to the poor and it is expected that after the business is developed, they will make some savings or investments at MFI. However, the possibility of having risks such as death, sickness, accident, fire both Baytul Maal and MFI will not be responsible for the whole recoverage. They might have some support but without certainty of time and amount. From the stage of being dependent, independent and entrepreneurship, the poor can turn to the early stage if their risks are not bearable. Therefore, there must be an effort to Shadaqah/Charit Qardh/Loan Poor People 2

3 share the risks that eventually will secure the poor at sustainable welfare position. In this case, there are three institutions involved in the above poverty alleviation program. They are Baytul Maal as an institution of trust fund, responsible for pooling public fund as zakah, infaq, shadaqah and waqf and distributing them to the mustahik. The second institution is MFI as a commercial institution offering financial services such as investment and financing. At KBMT level, their limit of financing is around USD , for Grameen Model and Islamic Rural Bank; their limit is less and above USD 100 respectively. The third institution which has a role to share the risks of both the poor and MFI is called Microtakaful. It will offer benefits for MFI for securing its revolving fund and for the poor to secure the payment to the MFI in case of disability and death as well as additional benefit for the decease family. In addition, the Microtakaful can also offer them with other investment products to make their life more secured such as for education, pension. Even Microtakaful is the takaful scheme for low-income people, in Islamic perspective, however Takaful on its own is not the solution to the poverty problem; it has to be recognized as an important component of any poverty alleviation strategy. Without protection against losses and natural perils many individuals will fall back into poverty (back to the early stage in case for the poor), which is not solving the real and long term problem of poverty alleviation. Takaful can provide the safety net for communities to achieve sustainable development of their standard of living, providing a basis for families to look to the future with a sense of security and optimism 3. 3 Takaful and poverty alleviation by Sabbir Patel. ICMIF 3

4 B. OVERVIEW OF MICROINSURANCE 1. What is Microinsurance? Under conventional insurance, insurance for the poor is called microinsurance. The CGAP Working Group on Microinsurance notes Microinsurance is the Protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved. As with all insurance, risk pooling allows many individuals or groups to share the costs of a risky event. Moreover, in the last ten years a good deal of pioneering and experimentation in the field of Microinsurance has been conducted, which resulted in a growing confidence that insuring poor people is actually possible. As microfinance has shown that the poor are bankable, Microinsurance is showing that they are insurable as well Coping Mechanisms People living with poverty from time to time, have developed mechanisms to deal with risks affecting their lives. The risks faced by better-off persons are the same with the risk Poor People COPING MECHANISMS illness,death,disasters, loss of property,and loss of income earning capacity. essentially the same as the risks faced Better-off persons: on self-insurance: the better-off have access Mostly informal to sophisticated insurance and time-honoured schemes and often have a. group based support systems. financial buffer to overcome These are based on temporary set-backs, savings or on borrowing models. faced by the poor: illness, death, disasters, loss of property, and loss of income earning capacity. However, the better-off have access to sophisticated 4 Micro-insurance, an overview of client, provider and support perspectives, published by Novib, june Page 4 4

5 insurance schemes and often have a financial buffer to overcome the problems, the poor usually lack both. In case of shock, the poor relies on coping mechanisms based on self-insurance: mostly informal and time-honoured group based support systems. The betteroff with savings or on borrowing manage risks before the event occurs, such as in the case of marriage or burial funds. The poor however, manage risks after the occurrence of the event, such as borrowing from family, solidarity groups or money lenders Risk and Impact RESPONSES SECONDARY SHOCK IMPACTS IMMEDIATE IMPACT Risk Event Death Illness Proverty Loss In their field research in East Africa, Cohen and Sebstad identified a general coping pattern linking direct impact with responses and future impacts. Their model, which is seen from the perspective of a micro-entrepreneur, convincingly shows that traditional coping mechanisms still function well if the 5 Micro-insurance, an overview of client, provider and support perspectives, published by Novib, june Page 10 5

6 stress level of the risk event is limited (low to medium). If, however, the stress level is high, the affected family can not hope to overcome the damage and faces a serious decline of the quality of its life. And as the authors remark, the very poor have even fewer options. The self-insurance schemes on which they rely are highly inadequate to deal with major risk events. Overcoming the damage often leads to future indebtedness 6 4. Different Needs and Priorities IMPORTANCE-> IMPORTANCE-> IMPORTANCE-> UGANDA ALBANIA Theft Electricity cut-offs Health problems Fire Death of family member Health problems Price Pluctuations Theft Car accidents Fire and other accidents Unfair competition Natural disasters Natural disasters Loan repayment Death of family member WOMAN MAN School fees Health problems Health problems Accidents Funeral School fees Damage to property Theft Fire Theft Loan repayments Damage to property Accidents Livestock Fire Drought Funerals Repayments Old age Livestock Old age VULNERABLE HOUSEHOLDS NON-VULNERABLE HOUSEHOLDS Illness Education Wedding Business risks House building Wedding Death Illness Agricultural risks Natural disasters House building Agricultural risks Natural disasters Other business risks Death Education Poor people have different needs and priorities. Designing insurance products for all types of needs will affect any insurance program adversely. An interesting approach to recognize these differences was presented by the Microfinance Centre, the main network of Eastern European and Central Asian microfinance institutions. First it placed insurance needs in the broader context of all problems faced by a potential group of clients. Then it compared 6 Monique Choen and Jennefer Sebstad, Reducing Vulnerability: The Demand for Microinsurance, Nairobi, 2003, pages VI-VII, sponsored by MicroSave 6

7 different settings; in the box between Uganda and Albania. This way, level of problems could be identified. After differentiating as to settings, the approach allows for looking at variances across groups. Women may have a different problems ranking than men as illustrated in the next box, coming from Ghana. Lastly, the approach looks for differences between groups within the same setting. In this example differences are presented between vulnerable and non-vulnerable households in Uzbekistan. Obviously, the micro-insurance schemes will see these differences when designing the most appropriate policies 7 5. Microinsurance Product Most common types of microinsurance product like credit life, term life/personal Accident, saving life, property insurance, endowment life, agriculture and health insurance. Credit life is a simple product hence its degree of difficulty is lower than term life or health insurance. Therefore degree of success offering credit life is higher than offering savings life or health insurance 8 7 Slide show presentation by Michal Matul of the icrofinance Centre for Central and Eastern Europe and the New Independant States at the KfW Microinsurance Symposium, Frankfurt, Oktober Microinsurance Products, Presentation by Craig Churchill at the KFW Microinsurance Meeting, 21 October 2004) 7

8 6. The Five Recommended Products These short-term, credit-linked products represent building blocks. Beginning with Credit Life, each builds on the systems and experiences of the previous product. For example, if an MFI has effective systems to manage a Credit Life product, it is easy to add Credit Disability, and not too complicated to offer an Additional Benefit policy. It is anticipated that these products would be introduced one-by-one over a period of years as the MFI develops expertise, although of course an MFI need not provide all of them. 8

9 As complexity of these products increases, the value for policyholders increase too. With Credit Life and Credit Disability, the protection largely accrues to the MFI since insurance reduces its credit risk 9. Waiting Periods for the Five Products Product Severity of Adverse Selection Waiting Period Credit Life Low None Credit Disability Additional Benefit Additional Lives Continuation High None 1 Loan cycle 2 Loan cycles: must give 6 months notice of intention to join None but must have had the Additional Benefit Policy (Source: Making Insurance Work for Microfinance Institutions, A Technical Guide to Developing andd elivering Microinsurance, Craig F. Churchill, Dominic Liber, Michael J. McCord, James Roth. ILO, Page 84) 7. Microinsurance Delivery Models 10 Full service model: Regulated insurers downsizing insurance services like Delta Life (Bangladesh), which offers a long-term savings product (annuity) with life insurance and a premium affordable by the poor. Some MFIs also assume the role of insurers. Most of these offer only basic credit life insurance to protect their loan portfolios. 9 Making Insurance Work for Microfinance Institutions, A Technical Guide to Developing anddelivering Microinsurance, Craig F. Churchill, Dominic Liber, Michael J. McCord, James Roth. ILO, Page MicroInsurance Centre Briefing Note #6, Financial Risk Management Tools for the Poor, Monique Cohen and Michael J. McCord 9

10 Community-based model: Local communities form groups that capitalize and manage a risk pool for their members. Provider model: Hospitals and clinics create prepaid or risk pooling coverage for people at their facilities. Social protection models: National governments often underwrite cover for certain risks through social insurance programmes such as with healthcare, crops and livestock, and covariant risk. Partnership model: Insurers, with products, are pairing with MFIs and others, with low-income markets, to provide microinsurance, as AIG does with MFIs in Uganda. C. DEVELOP MICROTAKAFUL IN INDONESIA Microtakaful is the takaful scheme for low-income people. All the Takaful products like takaful financing, takaful education, fire, pension, etc. can be delivered to poor people with some modification i.e. low premium contribution. Peramu is an NGO concerns on empowering the people with poverty, the team has experiences to set-up Islamic Microfinance such as Islamic Rural Bank/BPRS, Baytul Maal wat Tanwil Cooperative/KBMT, and Grameen model in Bogor. It also has been tightly involved in Baytul Maal Bogor/Trust Fund and now is setting-up Microtakaful adopting the partner-agent model. In this case, Takaful Indonesia as a partner will then work together to enter the micro market. 10

11 For setting up the Microtakaful, Peramu established a working group, named Takmin Working Group, which is responsible to run Microtakaful program with pilot project in Bogor. Takmin WG has obtained technical assistant from Microinsurance expert from the Netherland (Microinsurance Assosiation of Netherland/MIAN). The pilot project is expected to give birth to Microtakaful Products, Business Process, System Operating Procedure, Training and Marketing model. Furthermore, after the completion of the pilot project, roll-out can be implemented in other cities in Indonesia in the following year. ACTIVITIES INITIAL SET-UP (Sept 2005) Partner with Takaful System Development Literature Study Product Design Socialization the Microtakaful idea to MFIs Submit Proposal to donor agency and its appraisal Market Research I (Qualt. Approach) Education/Training System Appraisal Strategic Planning Technical Assistance & Commitment from MIAN (Sept 2006) Institutional System Launching (9 Dec 2006) Roll Out Business Plan Market Res. II (Quant. Approach) Pilot Testing (1 year) 11

12 Some Criteria for Successful Microtakaful 11 To ensure the success of the Microtakaful, therefore Takaful Indonesia together with Takmin WG and MFIs will need to look into some criteria as written on the Microinsurance Newsletter such as the following: 1. Real, integral partnerships with people s organisations - Takmin WG working together with Takaful Indonesia as a Partner and MFI as Agent to give access to MFI customers and clients to participate in the Microtakaful programs. At the same time, it also set building capacity for MFI as organization. 2. Products decided/agreed on by partner organisations 3. Trust and transparency between the partner and the insurer 4. Simple products 5. Group insurances 6. Minimal marketing costs; avoidance of commissions 7. Risk-only coverage 8. Automatic coverage linked to other activities 9. Aggregated premium payments 10. Stream-lined administration 11. Simple claims procedure and verification 12. Rapid delivery of benefit payments 13. A profit-sharing mechanism 11 Source: Microinsurance Newsletter no. 6. March