European Microfinance Week 2021

Lisa MORGAN opened the session by stating that MFIs realise that healthy clients in general are good clients, underlining the link between ‘health and wealth’. And MFI clients define health as the major risk they seek cover for. Therefore there is a general need to act on SDGs as regards health and healthcare provision. Sitara MERCHANT was in agreement and observed that before the pandemic clients’ health was a bit overlooked whereas it is now high on the agenda. As a result MFIs are now looking for ways to improve access to healthcare for their clients.

Richard LEFTLEY remarked that health risk had always been acknowledged by MFIs, as poor health can impact loan repayment capacity. Morgan referred to an earlier study that observed that out of 89 MFIs that offered some kind of health intervention, only 20% thereof actually offered health insurance. Katharine PULVERMACHER confirmed that demand for affordable health insurance has grown fast in recent years among clientele of MFIs and beyond.

According to Leftley recent observations show that health risk is primarily associated with loss of income earning capacity. The industry responded to that by offering life and accident insurance to essentially facilitate loan repayment. You would expect that to be extended with health insurance which also represents income earning risk and thus would benefit not just the both lender but also the borrower.

Merchant then asked the question: What is the ideal model; how does it relate to public care and insurance? Leftley answered that, while the public sector aims to do more and better, it may take time to realize universal health cover (UHC). MFIs are well-positioned to address gaps in the system until then and this is not entirely new – for example MFIs in India started doing this in 2006. Most MFI involvement takes the form of dressed-down commercial products such as offering in-patient services only and including out-patient services. Those efforts often failed due to lack of scale, non-matching location of hospitals and introduction of upfront cash payments from clients. Also related efforts such as pre-paid capitation models did not get much traction. Of these new initiatives the hospital cash model is probably the most promising. It is in-patient only but allows the patient free choice of hospitals. The patient is free to decide how to spend the pay-out received under this scheme; it can even be applied for loan repayments.

Pulvermacher subsequently asked about the hospital cash model. According to Morgan, when data on hospitalisation rates are available, and products are designed to pay out a lump sum, they are relatively straightforward to design and set the price of premiums. In general, the member pool should be sufficiently large and diverse to ensure that the income from premiums covers the cost of claims pay-outs. For the low-income segment, it is challenging to achieve affordable premiums on this basis, indicating the need for external subsidies or contributions to fill the gap. An alternative, more holistic approach is to have a basic insurance plan that is augmented with health savings and health loans. Integration also allows for offering value-adding services such as telemedicine, education and prevention. It is an approach MFIs could consider designing for their clients, and examples in Kenya and the Philippines merit further research.

Yet, as Pulvermacher observed, few MFIs seems ready to go that way. Merchant described a more common approach, like in India, whereby MFIs partner with large private insurance companies and motivate them to address lower income customer segments. Big firms that may have ignored these segments on the basis of low payment capacity then start to realise that the client base of MFIs offer a large-scale and accessible market opportunity. Yet, these firms may still need some de-risking support to go beyond initial projects, especially as regards product design and marketing. Merchant’s organisation is active in this area.

Leftley noted that you would expect that in markets where there is strong competition between MFIs, offering differentiated services can support customer loyalty, particularly since it is not always feasible to compete on price alone. The stronger the competition, the greater the need to be innovative. Bundling health insurance with loans has been a key innovation. However, more recently demand for health insurance as a stand-alone, voluntary product (not bundled with a loan) has also been emerging.

On Pulvermacher’s question how impact investors are actually driving positive health outcomes, Morgan answered that research seems to indicate that investors interested in health outcomes are more likely to invest directly in health organisations or health insurers rather than MFIs. Yet, tools do exist for all investors to observe and monitor health outcomes at investee MFIs, which is a broader concept than merely measuring usage. Perhaps we should consider pushing such investors to become more creative. Merchant pointed out that, in practice, impact investors tend to focus on housing, agriculture and energy as areas that seem to map more easily to outcomes. Also, there are few tangible opportunities as yet in health even though there is some initial interest and willingness.

Leftley, on the same issue and based on broad experience, suggested that most impact or social investors already have made up their minds on the areas they like to be associated with, and seek outcomes and impact. At the same time, the microfinance sector at large has not yet developed easy to adopt products and business cases for such investors. It is encouraging that we see a nascent interest unfolding, which should prompt us as an industry to design suitable investment options for impact investors. This might also be an area that could be more supported by the donor community.

Pulvermacher then asked whether the UHC inspired drive to insure particularly female informal sector workers could be a special target for MFIs. Morgan concurred, with the caveat that this depends on the country, the state of the health sector, and the way UHC is being pursued. In some countries opportunities are unfolding, in others it will remain difficult.

On working further with MFIs to broaden their involvement in health and health insurance, Merchant suggested that more resources have to be allocated to the general issue of ‘beyond finance’ through research, technical support, donor funding for design, testing and replication. Leftley pointed out that nearly all health insurance products today are in-patient products which are not intensively used because only 3% of the population gets hospitalized in a year meaning that 97% of clients do not use their health insurance. So we need to go to out-patient products as well. This could well go hand-in-hand with promoting m-health functionality, and bring out-patient services to the clients at their workplace or MFI outlet of which there are some examples.

It can be concluded from this session that it is important to learn from the MFI involvement in health and health insurance, and allocate more resources to fuel new initiatives and innovation.