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Background

Background

Microfinance has been playing important role in opening access to financial services for low income households. To date, microfinance covers borrowings, savings, insurance, money transfer and other financial products specifically designed for low income clients (International Year of Microcredit).

Various socio-economic problems severely impede these families from getting out of poverty. They remain poor and vulnerable, which is mainly due to lack of mechanism to anticipate socio-economic risks. Such risks include death, sickness, accident and property loss; and these can be faced by anyone in the society either rich or poor. However, this situation is harder for the poor since they do not have sufficient buffer unlike middle and upper classes. These people have insurance coverage, bank savings and other type of investments.

Hence, in the context of poverty alleviation, insurance program for the low income families (or micro takaful) is badly required, to at least buffer the families from unprecedented events or casualties.

Also, for those who have exited poerty, they would have the capacity to remain above the poverty line. This micro insurance, beside anticipating risks of death, sickness or house fire, can also be utilized as a form of investment and future family financial planning through saving plan, education plan and retirement plan. Thus, all programs offered under conventional insurance are also basically offered under micro insurance.

However, a very practical approach for the micro insurance development is through a linkage with micro financial institutions (MFIs) that have been earlier known by the society. A good start is from a simple product called 'credit life' that is to pay off debt of MFI's borrowers upon their death. After that, other products will follow.