The UK's 2006 White Paper on International Development commits DFID to tackling barriers to access to markets and financial services, and supporting microfinance initiatives in partnership with banks and regulators.
DFID's financial sector programmes aim to build stronger and more inclusive financial sectors, which benefit the poor. “Microfinance” incorporates a full range of financial products, which includes micro-insurance as well as savings, credit and remittances.
At 31 October 2006, DFID has spent over £165 million to support microfinance and financial sector projects and had committed 140 million more to ongoing projects. DFID does not disaggregate funding on micro-insurance specifically. It is not possible to give a meaningful breakdown of future commitments by year as new programmes to improve access to finance continue to be designed and implemented.
Examples of microfinance programmes supported by DFID include:
In India, Megatop received a grant of £850,000 via the Financial Services Deepening Trust, to support them in offering a range of microinsurance products and pension policies to farmers in 9,000 villages in Andhra and Madhya Pradesh using a network of village internet portals to lower costs and expand access.
Since the last review of commitments in October, DFID has approved a £32.8 million seven-year PROSPER programme in Bangladesh, which will support delivery of innovative financial services to the very poor, small businesses and farmers. Around 22 per cent. of these resources will go to a Learning and Innovation Fund which will support projects to test innovative financial services, including microinsurance.
As well as direct support to programmes, DFID also works in coordination with other donors and specialist agencies:
DFID provides core funding to the Consultative Group to Assist the Poor (CGAP), a consortium of 33 public and private development agencies working together to expand access to financial services for the poor. The CGAP working group on microinsurance, in conjunction with the International Labour Organisation, has recently published a Microinsurance Compendium for insurance practitioners and policy makers in developing countries.
DFID is a leading supporter of FIRST, the Financial Sector Reform and Strengthening Initiative, a multi-donor trust which provides advice to developing countries on how to develop their financial sectors. In Mongolia FIRST has worked with the insurance industry, the government and the World Bank to develop a novel livestock insurance scheme that will provide microinsurance to cattle herders at affordable prices.
Surveys carried out by the FinMark Trust, a DFID funded programme in Africa, show that poor people already use a wide variety of formal and informal insurance services ranging from insurance provided by multinational companies to membership of traditional burial societies.
DFID has helped support the recent expansion of micro-insurance in developing countries as an effective way to help poor people to cope with shocks and reduce their vulnerability. Poor people need to be able to access a full range of financial services including insurance as well as savings, credit and remittances.
Although it is a relatively young industry, micro-insurance is already demonstrating its potential to provide protection to low-income communities against risks such as sickness and natural disasters. There remain big challenges, however, to the long-term sustainability of microinsurance including making sure that schemes are affordable and ensuring that schemes are appropriately regulated.
Examples of DFID support to micro-insurance include:
In Bangladesh, DFID contributed £100,000 to an access to rural finance study. In conjunction with the World Bank, the study investigated the feasibility of introducing a weather linked insurance product for farmers, where payouts are directly linked to objective monitoring of floods and droughts.
In Africa the FinMark Trust has spent £271,000 over the last three years on programmes aimed at making insurance markets work for the poor and has committed a similar amount over the next three years. The funding has been provided to catalyse change in the insurance market and to leverage private sector investment.