Some MNOs are turning to loyalty-based microinsurance to address this challenge.

Telenor Pakistan and Tameer Microfinance Bank have launched one of the more elegant products. Easypaisa Khushaal uses microinsurance to reward customers for keeping balances on their mobile money wallet. Easypaisa customers who maintain an average monthly balance of PKR 2,000 (USD 21) are eligible for life insurance coverage of PKR 50,000 (USD 521) for natural death and PKR 100,000 (USD 1,039) for accidental death.  Higher average balances result in even higher insurance coverage.

The State Bank of Pakistan was congratulatory in their remarks at the product launch, with the Deputy Governor, Kazi Abdul Muktadir commenting, “The State Bank looks forward to the success and positive outcomes of Easypaisa Khushaal and expects more innovative products from TMFB [Tameer Microfinance Bank] for promoting deposit mobilization and financial inclusion agenda.”

Vodacom Tanzania has also recently launched loyalty-based microinsurance. The microinsurance product Faraja does not drive stored value but rather rewards customers for transaction volumes.  Customers who make ten M-PESA transfers per month are eligible for free insurance cover (funeral benefit) of TZS 200,000 (USD 126) in the subsequent month.

Whether encouraging stored balances or transaction frequency, both of these microinsurance products should have the same effect – encouraging more wallet activity.

Is microinsurance an effective tool to encourage mobile money wallet usage? We welcome your feedback: you can post comments below or email us directly at mmu@gsm.org.

For additional details on microinsurance products see MMU publication Emerging Practices in Mobile Microensurance and MMU’s recent blog post on Tigo, Bima and MicroEnsure

MicroEnsure had originally experimented by partnering with MNOs to offer insurance directly to customers through the mobile money wallet.  Customers would sign up for insurance directly on the phone or through an agent and pay premiums through their mobile money accounts. Unfortunately, insurance awareness and understanding in Ghana is low (life insurance penetration is under 2%) and the mobile money ecosystem was still developing. These schemes struggled to reliably collect premiums and secure consumer trust in an unfamiliar product through a non-traditional channel.

In Ghana, MicroEnsure tried a variation on this model that seems to have had more success. Through a partnership between Tigo, Bima and MicroEnsure[1], Tigo subscribers were offered so-called “embedded” insurance – a free benefit on an opt-in basis. Subscribers are awarded free life insurance coverage in proportion to the amount of airtime they use as a loyalty benefit. The purpose of the free insurance is to create brand loyalty for Tigo and reduce churn. The scheme has resulted in more than 1 million new individuals covered by insurance in Ghana and Tanzania (where a similar service was launched), 80% of who had never previously had insurance coverage.

Here is the innovative part: In addition to the free embedded benefit, Tigo offered an option to double the insurance coverage for a monthly fee of GH₵1 (US$0.52).  This might be called a “Freemium” model – offering a basic level of service for free to many customers in the hope that some customers will voluntarily upgrade to a more premium paid service. Free + Premium = Freemium.

Impressively, Tigo has seen tens of thousands of customers upgrade from free insurance to paid premium product since the program’s launch in February. By offering the free embedded product they have created a market of customers that want and understand insurance. This market is coming back to Tigo to buy more of the product.

Peter Gross from MicroEnsure points out that Coca-Cola enters new markets with a similar model – first offering free samples of Coca-Cola to customers to get them hooked on the product and then subsequently selling it to them. For new products that are not yet well understood by consumers, this approach might have some merit.

[1] The roles between the parties are split as follows: Tigo provides the subscriber base and markets the product. Bima provides the technical interface, agency force to register users to the insurance service, and other supporting functions. MicroEnsure handles the insurance partnerships and claims administration.

In large part, what holds back the diffusion of microinsurance (i.e., insurance for low-income people) is transaction costs. The cost of selling and underwriting insurance and of administering a claim does not decrease in proportion to the value of the policy. Using traditional channels and processes, insurance companies simply cannot write policies with values below a certain floor without pricing them unrealistically. Moreover, microinsurance is a low-cost, high-volume business; therefore, scale is crucial.

The mobile platform, including mobile money, can be used as a tool to reduce the cost structure of microinsurance and to help it to scale. For example:

• Insurers can leverage mobile communication channels (including not just voice, but also SMS and USSD) to promote their services and allow customers to self-enrol, administer their account, and submit claims
• Airtime dealers and mobile money agents can educate and enrol customers
• Customers can pay premiums with airtime or mobile money
• Co-branding can build confidence in insurance among customers without experience with it

To support practitioners who are exploring these possibilities, the Mobile Money for the Unbanked programme is today releasing an overview of the ways in which the mobile channel can support the delivery of microinsurance and an inventory of nearly thirty approaches that have been tested so far. In the article, “Emerging Practices in Mobile Microinsurance”, we hope that readers from both the mobile and the insurance industries will discover new ideas for collaboration that will make risk-management tools more widely available to those who need them most.

This month, BPI Globe BanKO, the mobile microfinance bank in the Philippines has announced it is launching three m-insurance products.  BPI Globe BanKO is a joint venture between the Bank of the Philippine Islands (BPI), a commercial bank; and Globe/ GCash which offers loans and savings services to individual clients and microfinance institutions (MFIs).  In this model,   BanKO issues loans and maintains savings accounts, while Globe/GXI is the bank’s distribution partner carrying out functions in account acquisition.

The three new products being offered are as follows:

• PondoKO: Entitles individuals to life insurance paying five times the balance of contributions and interest earned on savings deposits once the balance reaches an amount equivalent to USD46. This product is linked to a personal savings account.

• PuhunanKO: Provides a life insurance benefit of USD 231 plus the amount of any outstanding loan balance. This product is linked to small-scale loan offered to BanKO’s accountholders.

• PaniguroKO: Offers coverage for accidental death, flood, typhoon or earthquake damage. The PaniguroKO policy costs USD 8.50 for one year of coverage.

Earlier this year, Mercy Corps had announced plans to fund a USD 1 million partnership with BPI Globe BanKO to expand the uptake of mobile financial services. Mercy Corps has been offering assistance in the application of mobile technology and the design of financial products tailored to poor people, enabling BPI Globe BanKO to increase the use of financial services through cell phones. The work is funded by a grant by the Bill and Melinda Gates Foundation to build innovative financial services in Indonesia and the Philippines.

Additionally, in light of market saturation, MNOs face the task of growing average revenue per user (ARPU) and market share in rural areas. Agricultural Value Added Services (Agri VAS) present a considerable business opportunity due to the enormous potential user base in LDCs. The farming sector in these countries often suffers from chronically low productivity. Lack of information acts upon productivity and income levels like a glass ceiling.  However, with increasing teledensity in the developing world – Africa is being tipped to pass one billion mobile subscriptions and become the world’s second largest mobile market by 2016, mobiles are uniquely positioned to address the information and financial needs of farmers – an intervention that can help increase their incomes, yields and economic wellbeing.  Vodafone’s research indicates potential $138 billion addition to developing world farmers’ incomes by 2020

The financial and information opportunities at the base of the pyramid (BOP) in themselves hold significant untapped value for the private sector.  The BOP has both intricate financial and information needs, which have the potential to be met through mobile money and information-based mobile services.   Mobile Money can reduce the financial gap for farmers by giving them access to savings and insurance, which in itself reduces the impact of extreme weather and allows for greater investment in improving production.[1] Meanwhile, m-information services have the potential to open up significant markets opportunities, by relaying sales prices, GIS-based commodity demand information, as well as more basic yet essential information on agricultural best practices and reliable weather forecasts.

While there are existing agricultural information services provided via traditional channels such as radio and television, government extension services as they are usually referred to can be made much more efficient by leveraging the mobile channel. This can help improve their quality and trust amongst user communities increasing their potential for scale.  In addition, by linking to them to mobile financial services, farmers will not only improve their productivity but will also be empowered to make better investment and risk management decisions (e.g. request credit for new fertilizers or other inputs they need to grow more and better crops). These benefits are also likely to extend to the wider community as increased agricultural income helps rural families afford education, healthcare and other services.

The GSMA mAgri Programme

The Mobile for Development’s mAgri Programme was set up in 2009 to accelerate the development, provision and adoption of mobile solutions to benefit the agriculture sector in emerging markets. In June 2011, the programme announced the second phase of their mobile agricultural programme, the introduction of the mFarmer Initiative, a partnership between GSMA, USAID and the Bill and Melinda Gates Foundation.  The scope of the mFarmer Initiative is to support mobile phone operators and agricultural partners in launching commercially viable mobile information services that bridge the information gap and increase the productivity and income of rural small-holders.  It aims to attract 2 million of the worlds’ poorest farmers to become users of mFarmer Services by 2013. This compliments their previous work on mobile agricultural services in India and Kenya.

The team has recently launched the Agri VAS  Market Entry Toolkit which explores the opportunities for Agricultural VAS  and covers emerging best practice on marketing, service design and business modelling.  It is primarily addressed to Mobile Network Operators (MNOs), other service providers, and agricultural organisations that are looking to partner and launch Agri VAS.

Just as the successful provision of mobile financial services for the BOP requires innovative partnership models; Agri VAS will require similar efforts from the part of its stakeholders.  While MNOs have a leading role to play, they will need the collective support and partnerships from key stakeholders in the agricultural supply chain in order to fully unlock the benefits for farmers in LDCs.

[1] For more information on agricultural m-insurance, visit the MMU Insurance Topic Page

An estimated 3,700 new cases of obstetric fistula occur in Tanzania every year, but only about 1,000 get treated.  CCBRT provides fistula surgery free of charge, but the high cost of transportation and accommodation to Dar es Salaam still prevents women from seeking treatment. Using M-PESA, CCBRT now sends money to fistula survivors to cover travel costs to the hospital the repair surgery.  CCBRT uses ambassadors in the local villages, who may be former patients, health workers, or NGO Staff, in helping them refer women who require treatment.   These ambassadors receive mobile money and buy bus tickets for the patients. Once the women arrive in Dar for their treatment, the ambassador also receives a small incentive via M-PESA.

The programme has had a dramatic effect on the number of women seeking treatment. According to CCBRT, since the start of the programme surgeries for fistula were 60% higher, whereas cleft lip/palate surgeries have increased by 75%. Additionally, in order to overcome lodging costs, which is the second biggest barrier to access treatment,  the United Nations Population Fund (UNFPA) is supporting the renovation of a building near CCBRT’s hospital to accommodate women who are waiting for or recovering from surgery.

Simple solutions can often have a great impact in the lives of the poor. We hope that as adoption for mobile money services continues across the developing world, we continue to see more cross-sectoral work leveraging the mobile platform.

Launched in 2010, FrontlineSMS:Credit is a social enterprise that produces software tools to enable organizations and businesses to easily use mobile money. Realizing that there was a gap in the market for an efficient way of managing organizational data, FrontlineSMS seized this opportunity and linked FrontlineSMS’ existing platform to mobile money.

FrontlineSMS:Credit derives its name from its original target market: MFIs. In the early days of mobile money, MFIs wanted to connect to mobile money services in order improve their processes and reduce their transaction costs, especially in rural areas. However, since MFIs are complex entities in terms of financial needs, FrontlineSMS:Credit has decided to broaden  its scope and target a wider group of  organizations that also trade directly with the BOP and which could also benefit from mobile money such as NGOs and SMEs.  Nathan envisions the role of FrontlineSMS:Credit as that of an interface; a partner for MNOs which helps SMEs, NGOs and MFIs leverage the potential of mobile money.

FrontlineSMS:Credit appears well-positioned to overcome some of the main obstacles that have impeded SMEs and MFIs from adopting mobile money. According to ACCION International, one of the biggest challenges for MFIs is the weakness of their technology infrastructure[1]. For example, ACCION International highlights the difficulty MFIs have in connecting to an MNO’s mobile money platform. FrontlineSMS:Credit works as an interface with operators by providing this service.  In addition, a weak country infrastructure (including difficulties to access the internet) often prevents MFIs from using alternative channels. FrontlineSMS:Credit does not require internet access and not only does it provide free turn-key software to organizations, but also serves as an interface, in addition to providing consultancy services to help organizations implement its software when there is no in-house capacity.

FrontlineSMS:Credit is currently running a series of pilots in Kenya with a wide-range of organizations such as a member-owned community-level rural MFI, a microinsurance provider that plans to expand a life insurance and savings product from group to individual distribution through mobile payments, and a final pilot involving local NGOs in Western and Central Kenya which distribute ToughStuff solar products through networks of micro-franchisers.

The software, primarily designed for the Kenyan market, will be publicly released at the end of the year. There are plans to expand to other countries where mobile money services already exist at a large scale, and where there are operators willing to link up their platforms to SMEs and MFIs.  We look forward to hearing more about the developments of FrontlineSMS:Credit in the coming months.

[1] In December 2009, ACCION International published a report on the 10 obstacles for MFIs launching alternative channels, including mobile money channels. In particular, the following elements are listed among challenges: “Technological infrastructure remains weak”, “Dedicated and specialized human expertise for channel projects are lacking”, and “MFIs are unsure about how to engage third parties”.

ACCION International, “Accelerating Financial inclusion through Innovative channels. 10 Obstacles for MFIs Launching Alternative Channels – and What Can Be Done About Them”, 2009

In a recent paper, Tavneet Suri from MIT and Bill Jack from Georgetown explore this issue focusing on customers using M-PESA, the most widely adopted mobile money service in the world.  M-PESA is used mostly for p2p transfers and understanding its role in allowing households to better smooth risk is essential.  To study how mobile money has affected risk sharing, they compared changes in consumption in response to shocks across M-PESA users and non-users by analysing data from a large household panel survey in Kenya that was designed and collected between 2008 and 2010.

The authors find convincing evidence that mobile money has had a significant impact on the ability of households to spread risk, and attribute this to the associated reduction in transaction costs. The results show that households which do not use mobile money suffer a 7% drop in consumption when hit by a negative income shock. These finding are especially important in the context of a country like Kenya, where a large proportion of the population lives close to subsistence. The benefits from smoothing down risk are much larger than in developed countries given household vulnerability to risk has a direct impact on poverty levels.  The results also highlight the important role of remittances or P2P transfers in improving risk.  When faced with a shock, households which use mobile money are not only more likely to receive a remittance, but the number of remittances and their amounts tend to be larger.   “Mobile money appears to increase the effective size of, and number of active participants in, risk sharing networks, seemingly without exacerbating information, monitoring, and commitment costs”.

You can download a full version of the report from the MMU document library or the author’s webpage.

There is an increasing number of MNOs leveraging the mobile channel to sell and distribute insurance, including some which are specifically using the mobile money platform to improve premium collection and claims handling.   However, there are different approaches emerging.  While  all  these models use the mobile phone as  an access point, they vary in the ways premiums are paid, claims are initiated and pay-outs are disbursed to name a few.   One of the approaches is to provide insurance “free” to a subscriber in return for use of airtime. This loyalty-based approach is currently offered in Ghana with Tigo and Microensure.  A second approach is to sell insurance via the mobile money platform as in the case of MTN Ghana, M-KESHO and Kilimo Salama in Kenya, where a client signs up via an agent or the mobile money menu and premiums are deducted monthly or weekly from their m-wallets.

A third model is based on ‘subscription’ fees which are deducted automatically from the customers’ airtime balance. Following this approach, ZONG in collaboration with Adamjee Life has launched, Pakistan’s first m-insurance. The product covers accidental death or disability caused due to an accident or terrorism.  Users can now subscribe to the insurance service simply by sending an SMS. To complete the process the user is prompted to confirm their ID number. After verification, the user is allowed to choose from 3 different plans, add the beneficiary’s details and finally receives the policy number as confirmation.   Customers don’t require any documentation and daily deductions are automatically made from the airtime balance according to the Insurance plan.  In case of accidental death or disability, the insurance policy can either be claimed by sending an SMS or by submitting the claim form to Adamjee.

Distribution channels are key to make insurance affordable & accessible. We will continue to document the emergence of new and innovative ways of leveraging the mobile platform to provide financial services to the poor.

MMU:   What advice do you have for mobile operators and others who are trying to develop financial services for the poor?

ED: Keep your eyes open, evaluate the impact of what you are doing, be willing to adapt and change, don’t over promise, and measure what you deliver.

MMU:  You touch upon the notion of risk and how agricultural profitability could be 30% higher if there were no weather risks.  In a time of climate change, what role do you see for agricultural mobile insurance products such as Kilimo Salama in Kenya?)

ED: The problem many current weather insurance product is that the demand for them tend to be quite low. The reason is that the products that the market can sustain are not considered to be very attractive by the farmers: these products are generally very simple (for example a weather insurance product will pay you if the rainfall level falls below a specified levels), which make them easy to administer, but also implies that they don’t cover many of the relevant risk: for example it may be very dry in your field but the rainfall at the weather station is above the threshold.  There is a need to continue to develop better products and products that can be administered as cheaply as possible (so that they are worthwhile for farmers). But in the book, we argue that there may also be a need for governments or international organizations to subsidize insurance, at least for a while, while the market gets established.

MMU: The development community believed microfinance could increase the poor’s earnings partly through business growth, partly though new business creation and partly through greater investment in human capital. Yet, in practice microcredit was used not just for business investment but also for consumption, repaying other loans, etc.  Was the non-business use of microcredit its downfall?

ED: No, I don’t think so.  First I think that the problems that microcredit is experiencing today have nothing to do with its intrinsic value; they are mostly of a political nature. Second, it is  a great use of microcredit to repay an old debt: if you have a debt on which you pay 70% interest or more (actually up to 5% per DAY for the fruit vendor), and a microcredit loan comes along, and you only have to pay 25% or 30% in interest, then it really help freeing up money. The rate of returns of doing that is likely greater than what you could do in your business. In a sense I would say that was surprising in our evaluation of a microcredit program in Hyderabad is that few people used their loan to repay an old loans. This was perhaps because they want to maintain a relationship the money lender in case they need money quickly.

I think the problem with microcredit was less what it is doing, which I think is quite respectable and important, than what it promised to do, which was a bit inflated. If the hopes had been reasonable, people would not be so disappointed today. I hope that microcredit will be able to continue and not be a victim of a fad in reverse.

MMU: Increasingly the development sector is turning to RCTs as the new standard for measuring impact?  Every methodology has its drawbacks – how can development practitioners strengthen their understanding of impact?  Are there methodologies complementary to RCTs than need to be maintained?

ED: Obviously I think RCT is a great methodology, and to be honest, I don’t see many drawbacks to it, but then of course I am biased. But there are other useful methods as well. For example, Tavneet Suri is evaluating the impact of M-PESA in Kenya using the progressing introduction of the program across Kenya: essentially she compares places over two periods, and some of them got the M-PESA program in the meantime, while other did not. One needs to be careful in exploiting the data, but this can be done and is very helpful. That said, a program like mobile money lends (or programs that can be layered on it) lend themselves wonderfully to RCT, so there should be a lot of exciting opportunities there.

MMU: Thank you very much

Esther Duflo is Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics in the Department of Economics at MIT.. She has received numerous honors and prizes including a John Bates Clark Medal for the best American economist under 40 in 2010, a MacArthur “genius” Fellowship in 2009. She was recognized as one of the best eight young economists by the Economist Magazine, one of the 100 most influential thinkers by Foreign Policy since the list exists, and one of the “forty under forty” most influential business leaders under forty by Fortune magazine in 2010. Together with Abhijit Banerjee and Sendhil Mullainathan of Harvard University, she founded the Abdul Latif Jameel Poverty Action Lab in 2003