MFIs in insurance business bypassing regulatory watch IDRA for orderly growth of micro-insurance
A large number of microfinance institutions (MFIs) are engaged in insurance business involving their members, remaining outside the radar of any regulatory framework, according to a report prepared by Insurance Development and Regulatory Authority (IDRA).
The microfinance institutions are mostly covering health insurance of their members, although there is no proper body to look into whether they settle claims effectively.
The report questioned the sustainability of the insurance business carried out by the microfinance institutions.
The insurance regulatory body is of the view that MFIs should not enter into any form of 'micro-insurance business' on their own, rather they could form a partnership with registered insurers for transaction in such businesses.
The report, which stressed the need for regulatory framework to promote orderly growth of micro-insurance business, has been submitted to the finance ministry last week.
It said the Insurance Act 2010 prohibits anyone from carrying out any type of insurance business in the country unless a certificate of registration for that business is obtained from the IDRA.
The microfinance-dealing non-government organisations at the early stage centred round mobilisation of small savings from their members, offering a variety of loan products to them.
But in the recent years, a number of these NGOs moved into the area of micro-insurance and started offering insurance products to their members outside the umbrella of any regulatory framework.
The report said most of the large NGOs in the country now offer a variety of micro-insurance products, designed without opinions of experts, to their several thousand clients.
The report said micro-insurance tends to be more expensive than the traditional insurance offered to high-income or middle-class people due primarily to high transaction costs.
A World Bank study on the crop micro-insurance also held the view that "this is very expensive".
The report said the core activities of the MFIs are to provide loan and savings products to their clients.
It said insurance business is a different one which requires, among other things, highly specialised risk-management techniques for its sound management and proper governance.
"Most of the MFIs do not have that level of expertise which can ensure the sustainability of their insurance business," the report said. When contacted, Quazi Mesbahuddin Ahmed, managing director of Palli Karma-sahayak Foundation (PKSF), said NGOs must comply with the government Acts.
Mr Mesbahuddin said this insurance-business is going on mainly due to the provisions related to the micro-credit regulatory act and insurance act of 2010.
He said large MFIs are mainly involved in providing health insurance coverage.
