MICROCAPITAL STORY: Asian Development Bank (ADB) and Japan Fund for Poverty Reduction (JFPR) Approve $2m Grant to Help Grow Microinsurance Service in Bangladesh

The Board of Directors of the Asian Development Bank (ADB), a multilateral finance organization that promotes economic and social progress in the Asia-Pacific region, approved a grant of 2 million USD aimed at developing Bangladesh’s microinsurance sector. The grant is provided by the ADB’s Japan Fund for Poverty Reduction (JFPR).

Under the project, at least 20 MFIs in Bangladesh will undertake training in microinsurance operations so as to develop expertise in underwriting, screening, financial management, product development, and marketing. The money will also finance the development of low-cost insurance services to protect poor households, especially women, from risks such as accidents, illness, and natural disasters, hence reducing the vulnerability of the poor to sudden losses of income. The grant will likewise fund an insurance awareness campaign and training programs targeted at 50,000 poor households in rural Bangladesh.

While microcredit is well-established in Bangladesh, microinsurance is still a relatively new concept. It is estimated that 93 percent of the country’s total population have no access to insurance services. Mr. Mayumi Ozaki, a specialist in rural microfinance within the South Asia Regional Department of the ADB, elaborated on the importance of insurance services for the indigent. He noted that the poor are different from the middle class in terms of coping with risks and setbacks in life. Without insurance the destitute resort to borrowing from informal sources, withdrawing from their meager savings, or selling assets in order to cope with setbacks such as illness, theft, or accidents, pushing them only further into poverty. Meanwhile, similar events would only mildly affect middle class households.

The Japan Fund for Poverty Reduction is an untied grant facility established by Japan and the ADB in May 2000, according to JFPR’s official website. The Fund now stands at over 360 million USD, of which 224 million has been committed. JFPR assists ADB clients in providing direct relief to the poorest and most vulnerable segments of their societies, while simultaneously elevating the capacity for self-help and income generation. A similar vehicle, the Japan Social Development Fund (JSDF), is being administered by the World Bank.

Based in Manila, the Philippines, the Asian Development Bank is a regional development bank established in 1966 to promote economic and social development in Asian and Pacific countries through loans and technical assistance. It is a multilateral financial institution owned by 67 nation state members, 48 from the region and 19 from other parts of the world. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their citizens. As of 2007, the ADB approved 10.1 billion USD in loans, 672.7 million USD in grant projects, and 243.7 million USD worth of technical assistance.

In March, 2008, MicroCapital reported that JFPR provided a grant of 1 million USD to the Government of the Philippines to be used in the development of microinsurance for the nation’s 27.6 million citizens living below the poverty line.

MicroCapital also reported that the International Labor Organization (ILO) launched a Microinsurance Innovation Facility, which aims to offer 40 to 50 grants over five years totaling 18 million USD to test innovative approaches in providing better insurance products to low-income households. Another story released by MicroCapital examined the Cooperative Insurance Company of Kenya (CIC), one of the first beneficiaries of the ILO grants.

Finally, in January 2009, MicroCapital reported that ACCION, a private, non-profit microfinance foundation, invested 3 million USD in LeapFrog Investments, an international microinsurance investment firm headquartered in Mauritius. The ACCION investment was to be used towards building a sustainable model for development and marketing of microinsurance services to the poor in Asia and Africa.

By Yanni Hao, Research Assistant

Additional Resources:

Asian Development Bank: “Home” “Japan Fund for Poverty Reduction (JFPR)” “ADB and Japan to Help Grow Micro Insurance Service in Bangladesh”

ACCION: “Home”

International Labor Organization: “Microinsurance Innovation Facility”

Japan Social Development Fund: “Home”

Kenya Co-operative Insurance Company: “Home”

LeapFrog Investments: “Home”

MicroCapital.org article, August 22, 2008: “Co-operative Insurance Company of Kenya Introduces Microinsurance Products through International Labor Organization (ILO) Microinsurance Innovation Facility”

MicroCapital.org article, August 26, 2008: “PRESS RELEASE: International Labor Organization (ILO) Announces Availability of Microinsurance Innovation Grants”

MicroCapital.org article, December 4, 2008: “Challenges and Unique Solutions to Providing Microinsurance in West Africa”

MicroCapital.org article, January 5, 2009: “ACCION Invests $4.2m in Two Microfinance Companies: Mauritius Based Leapfrog Investments Ltd and Swiss Based Paralife, Invests in Initiatives Aimed at Moving Microfinance ‘Beyond Credit’”