Microfinance and Health

1. Microfinance and Health Lecture # 16 Week 10

2. Structure of this class • Importance of insurance & credit access for poor households • Health needs are not met in rural India • Attempts to evaluate effectiveness of microfinance in administering heath insurance ( SKS case in India) • Reasons for incorporating health in microfinance • Strategies • A case for integrating credit with other development services

3. Access to insurance & credit for health Absence of health insurance or credit may • Sharply lower consumption in the short-term (Townsend (1994) • Decrease investments in very productive assets (Rosenzweig and Wolpin (1993) • World Bank Development Report (2004): “Illnesses pushes households into poverty, through low wages, high spending for catastrophic illnesses, and repeated treatment for other illnesses”

4. Duflo – Banerjee (2007) • Taking advantage of SKS Microfinance in India introducing compulsory health insurance in 2008 • Researchers will assess whether microfinance is able to leverage its existing infrastructure to assist in the administration of health insurance • Baseline survey on 201 villages, 100 randomly selected will administer insurance and 100 will not Questions: microfinance effective at administering health insurance? Will SKS clients remain? Will this method mitigate adverse selection?

5. From a microfinance standpoint (Gupta Ohri & Tulchin (2004) • Poverty: multidimensional and income is just one component Reasons for integrating health in microfinance: • Social objectives: A more comprehensive poverty solution • Self-sustainability objective: loan default reduction and attrition (e.g., HIV/AIDS in 30% of Africa) • MFIs better placed for health delivery due to regular access to poor, branch location, close client relationships….

6. Strategies “Microfinance practitioners are often motivated to provide non-financial services to their clients, because they recognize the need and hear the demand. However, the legitimate concern for sustainability, interpreted as the financial viability of the microfinance service as a business, has made practitioners very cautious about non-financial add-ons. They believe that add-ons can only be a drag on the drive for sustainability” ….Christopher Dunford (2002) Double bottom line: reaching the poorest while attaining self-sufficiency Assuming social objectives first (narrowly defined: poverty alleviation via the provision of health, the second challenge is to identify affordable and sustainable strategies

8. Christopher Dunford argues that there is a case for “integration” • In theory, opportunities for “economies of scope” • In practice, credit with education aimed to improve health and nutrition of children under five years of age, as well as income and assets of poor families seems to have worked in, for example: • Ghana, relative to control group, the integrated approach has: “ Increased monthly non-farm earnings & increase antibody-rich milk, colostrum, and breastfed their babies longer” • Burkina Faso, relative to control group, the integrated approach has: “increased learning on how to prepare a thicker porridge and when to begin feeding it to their young children”

9. Assessment • The integrated approach increases administrative costs for the MFIs • The optimistic view is that there are productivity gains which offset such costs Example: Compartamos is self-sufficient but administrative costs are twice as high as those charged by “integrated” and self-sufficient MFIs such as Pro Mujer and Crecer.  Next class: Microfinance and Education