Photo: Vijay Gurung, LI-BIRD

Fighting with uncertainties: Scope of Financial Inclusion


Posted on: 12/4/2017

By: Vijay Gurung

The project “Improving the Livelihood of Marginalized Groups of Salyan District (ILMC) -NPL 1035” is a 3.2 year project funded by Federal Ministry of Economic Co-Operation and Development (BMZ), Germany and Welt Hunger Hilfe (WHH), Germany and implemented by Local Initiative for Biodiversity, Research and Development (LI-BIRD), Rural Reconstruction Nepal (RRN) and Aasaman Nepal.

In the project LI-BIRD worked in establishing value chain of five commodities and developing financial model. In terms of financial model development, LI-BIRD had envisioned the value chain development fund (VCDF) (For more on VCDF, please refer to VCDF Brochure). Partnering with private sector, Mahila Sahayatra Microfinance Bittiya Sanstha Limited (MSMBSL), it provided financial access to rural poor from formal sector.

The commonly known financial product is saving and loan but with the help of VCDF, micro insurance is also becoming a part of rural household’s financial product. The saving and loan product are integrated in the group mechanism promoted by ILMC project in group formation, which is implemented by RRN, where every household involved in the group is contributing certain amount to the group fund every month and later on from that fund it extends the credit to the needy member. As this fund is minimal and is an informal way of financial backup for the group, a formal institution is required to fulfill and meet the demand of the rural household. Hence, comes the part of LI-BIRD which tied up with MSMBSL and District Chamber of Commerce and Industries to ensure that the demand of financial product for the rural household will be fulfilled through the VCDF initiative.   

Staff members of Mahila Sahayatra Microfinance Bittiya Sanstha Ltd., Kalimati branch. Photo: Vijay Gurung, LI-BIRD

Through our effort in fields more than 200 household are formally part of MSMBSL and near about 80 people have taken loan from the institute. Additionally, each member has opted for the life insurance product offered by the institute for herself and her spouse. The MSMBSL will reinsure it with Metlife Alico insurance company limited.

There were two types of insurance product offered by the microfinance institution; one when the member took loan and another when the member didn't take loan.

  1. Loan taken: The bank insured the member equal to loan amount and the premium is 0.65 percent   of the loan amount and an insurance for the husband is done by taking NPR 57 for the loan tenure of NPR 12,700. For example Mrs. X had taken a loan of NPR 75,000 from the bank for which bank does the life insurance with a premium of 0.65% i.e. NPR 487.50 for the whole loan tenure. In case of the death of the member, the whole loan is recovered from the insurance and balance is handed over to the immediate family members. Hence, there is no liability for the family members. As in case of death of spouse which is a very devastating effect for the household, the amount coming from the insurance not only helps the family for last rite but will also contribute for paying installments for few months.  
  2. Loan not taken: For example, In case of loan not taken, if Mrs. X is a member of the bank, she has to pay NPR 100 as micro life insurance for herself and for her spouse on an annual basis. In case of death of either of two, the remaining spouse is entitled to get NPR 5,000 from the insurance company. Thus, the amount received will help to cover the expense of the last rite ceremony. 

2   The benefit of the micro insurance product has come to forefront as in the case of Mrs. Shobha Basnet KC, a resident of Kalimati Rural Municiplaity Ward Number 4. Her husband Mr. Arjun K.C, who was the Chairperson of the newly formed Navjyoti Market Planning Committee (MPC) promoted by the ILMC project, passed away recently. While going to his field, he found out that there were some disturbance in the irrigation canal upstream. To see and repair the irrigation canal he went upstream; as it was near to his house, he went alone. But he fell off and as he had not informed anybody, he died of his injuries there. As a member of the bank, Mrs. KC is now entitled to get NPR 5,000 from the insurance company. This amount came handy to her as she doesn’t have to look for the money from others to do the last rite ceremony of her late husband.

The micro insurance had become a part of the rural households and is preparing them to fight the uncertainties. It’s been new for them and realizing its benefit will take some time. But due to unfortunate example like that of Mrs. KC, they are now realizing its importance and benefits and more and more households are opting for it. With this effort, the ILMC project is also looking forward to non-life insurance product especially in agricultural and livestock. We are in advance stage of discussion with NLG insurance company, a non-life insurance private sector insurance company, to provide insurance coverage to our rural beneficiaries. With introduction of NLG insurance, the rural household will be more efficient to face uncertain events.

Thus, through the banking and insurance components, the ILMC project had envisioned a more secure and resilient society for the project beneficiaries.