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The role of the Actuary in Microfinance

МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ. The role of the Actuary in Microfinance. Ulan Bator, Mongolia 14-15 November 2011 Kirsten Armstrong. Agenda. What is micro-finance? What is micro-insurance? What should actuaries do in the sector? A case study Specific challenges. What is Microfinance?.

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The role of the Actuary in Microfinance

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  1. МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ The role of the Actuary in Microfinance Ulan Bator, Mongolia 14-15 November 2011 Kirsten Armstrong

  2. Agenda • What is micro-finance? • What is micro-insurance? • What should actuaries do in the sector? • A case study • Specific challenges

  3. What is Microfinance? • Basic financial services to poor & excluded • Innovatingto meet needs:Eg: Mobile phone banking for remote communities • Savings, credit, money–transfer, insurance • Target groups: • Micro Entrepreneurs • Small and medium-sized enterprises

  4. Social Goals more important than profit Mission: To contribute to the socio-economic development of the country while creating a fair value for its shareholders. This will be achieved by providing inclusive, value adding, and reliable financial services to all people and entities of Mongolia through establishing a leading financial institution that is equally concerned about Planet, People, and Profit. XAC Bank

  5. Microfinance in Mongolia Loans US$914.7 million Borrowers 390,000 Deposits US$1.2 billion Depositors 1.8 million MFIs 6 Hugjil badrakh, VFM, TFS, Khan Bank, Credit Mongol, XacBank Regulator Bank of Mongolia Source: Mixmarket 2010

  6. What is Micro-insurance? • Targetted protection for low-income people • Simple • Affordable • Work best when supported with advice & innovation * Microinsurance is still in development.*

  7. Product Groups Crop Insurance Health / disability insurance Annuities / endowment Property Term life Credit life Complexity

  8. Micro-insurance in Mongolia • To be updated!

  9. Case Study:Health insurance in India’s slums 62 million people live in India’s slums.300 million people in India live in poverty. Health care is limited & basic.

  10. Micro health insurance • Covers insured people in Pune’s slums • Annual premium: 60 rupees ($2) • Reimburses max 5,000 rupees hospital costs • Other benefits • health camps, discounts, 24 hour hotline • More than 60,000 members • Scheme expanded to other slums

  11. Community-based decision-making helps manage risk.Some benefits remain discretionary→ minimises solvency requirements.

  12. Local systems can be basic – simplicity essential Performance monitoring at the community level

  13. What did I do? • Supported product redesign • Pricing model • Performance monitoring tool • Minimum Solvency requirements • Reviewed accounting procedures • Advised on data requirements …All in a three week visit….

  14. Other roles for actuaries • Identifying needs, gaps and opportunities • Risk Management • Reserving / outstanding claims valuation • Forecasting

  15. Original Benefit Structure

  16. Option 2

  17. Option 3

  18. Unique aspects for Actuaries • Poor data: how to price? How to manage uncertainty? • Keep costs down : offer simple tools • Short tail products; focus on • Pricing • Good monitoring systems • Outstanding claims valuations are less important • Design products with risk management levers • Don’t want to end up needing big solvency reserves

  19. Unique aspects for Actuaries • Always ask: Is this meeting social needs? • Measure social outcomes as well as financial outcomes • Do you understand the customer? • Data collection: What do they need for pricing and evaluation? • Offer ideas from the industry – innovate!

  20. Further Information… Consultative Group Assisting the Poor www.cgap.org Microfinance Information Exchange www.themix.org www.microinsuranceacademy.org/ www.ilo.org/public/english/employment/mifacility/

  21. МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ The role of the Actuary in Microfinance Ulan Bator, Mongolia 14-15 November 2011 Kirsten Armstrong

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