Financial inclusion in the Philippines: an inside look into microinsurance
Authors: Faith Lee (Vice President of Initiatives) & Jade Vergara (Project Leader)
The 2019 MMI project team working in partnership with Mentors Philippines was responsible for the creation of an advisory report on microinsurance in the Philippines, which was then distributed throughout the industry. Our team’s findings and recommendations can be accessed here.
2019 Mentors Philippines team: Joey Moshinsky (Project Leader), Faith Lee, Jade Vergara (Project Leader), Sunny Bahuguna
The term microfinance, or more broadly financial inclusion, encapsulates financial services that are targeted towards those who do not have access to commercial banking and financial services. At its core, it aims to promote financial literacy, economic development, and employment by supportive small businesses owners and entrepreneurs. It’s a fast growing industry in many South-East Asian countries, including the Philippines, particularly alongside the increasing priority for poverty reduction.
Since its introduction, the understanding of microinsurance within the Philippines has greatly improved, and in particular, the way in which microinsurance is governed, how social impact is created through microinsurance, and how microinsurance is understood and used by members of the Filipino community. One of the largest challenges the microinsurance industry currently faces is the limited or poor conceptualisation of the microinsurance products that can be offered, and the associated benefits with the purchasing of these covers; this leads more broadly to a misuse, or underuse, of these available services and processes.
So who uses microfinance? Below we’ve included a few answers from Jerwin, who lives in the Philippines and works within the microfinance industry, and offers some insight into the client base of these microfinance institutions.
Interview with Jerwin Earl Aquino
Position: Field Mentor, Mentors Philippines
Who takes out microfinance loans with Mentors (a microfinance institution)?
Clients are mostly between the ages of 40-60.
What do they use the money for?
Most money is used for their business.
Why aren’t there more clients aged between 20-40?
Most people aged between 20-40 do not have microfinance loans, they have loans with banks such as house loans, car loans and thus most people do not need microfinance.
Younger clients don’t have businesses, they are not concerned with responsible financial management. They are more concerned about starting families and other things in life. They start getting serious about business at about the age of 30.
Do many young people have insurance?
Not many people in this age bracket have insurance, they do know about it, however, they don’t think of purchasing it themselves. They don’t see the tangible benefits of insurance and thus do not feel that it is worth the extra bills each week.
Understanding cultural context
Our team of four based our project trip in Manila, where we were able to gain a better understanding of the context in which microinsurance services operated and the challenges faced. We primarily consulted with organisations responsible for the distribution of information regarding microinsurance, including Mutual Benefit Associations (MBAs) and Microfinance Institutions (MFIs), as well as a number of their insured members.
Venturing out to the metro regions of Manila and more remote rural communities, such as Antipolo, our team also interviewed loan officers and borrowers in the local communities. While quantitative data is always valuable for research, our project benefited more from the collection of qualitative data as our main goal was to understand the way in which microinsurance is perceived within the Filipino communities we visited. It was there that we discovered a large disparity between the information relayed between the various stakeholders (see Section 8.2 in ‘Microinsurance Advisory Report: The Philippines’).
“...microinsurance within the Philippines is deeply influenced by their family-first, community-based culture...”
Consumption of microinsurance within the Philippines is deeply influenced by their family-first, community-based culture. As trust takes on a form of currency, reputation via word-of-mouth is key as many purchases and investments made often stem from referrals. While this cultural norm has helped to ensure the security of many Filipino communities when making financial decisions, it also means that a lack of understanding and proper communication about microinsurance can lead to skepticism and doubt.
A recurring theme of the need for education came up in our research, particularly the importance of properly informing those who are within the target segment of microinsurance- the demographic which can benefit most from being covered. Based on this discovery, our team formulated suggestions on ways to educate FIlipino communities on microinsurance and its benefits (see Section 7 in ‘Microinsurance Advisory Report: The Philippines’). The report also outlines recommendations to improve staff understanding and ability to sell microinsurance products that may lead to greater financial protection of the Filipino communities that these organisations already reach (see Section 8 in ‘Microinsurance Advisory Report: The Philippines’).
In short, we found that the comprehensive microinsurance coverage of these Filipino communities is partially limited by the shallow understanding of the benefits of such insurance. In response, our project team came up with an advisory report which has been sent out to the various microinsurance bodies that we have consulted with, which included recommendations addressing the challenges identified through both desk and in-country research.
Our impact
The impact of our project trip was two-fold: consultants were given an opportunity to access rich and insightful data that essentially helped to provide recommendations to the underserved microfinance institution, and we were also able to unlock the opportunity to create firsthand social impact in the Filipino communities.
“Everyone we encountered gave us a real insight into how microinsurance is employed to shape businesses, families and individuals”
The project trip itself was crucial in aligning secondary research conducted in the first half of the year with the quantitative, and more importantly, qualitative data collected in the regions. Our project team indulged in opportunity to listen and learn from the very people impacted, ranging from executive directors from MBAs to loan officers from MFIs to borrowers themselves. Everyone we encountered gave us a real insight into how microinsurance is employed to shape businesses, families and individuals, while also extending the way in which we approached the project. By interviewing and listening to the people affected by microinsurance we were able to understand their values, their mission, and their reasons behind taking out microinsurance, which greatly informed the direction of our project and how we could provide a recommendation most suited culturally for the MFI and their borrowers.
The combination of the anecdotal data we had received from business owners, students, parents and employees of the MFIs and MBAs, and the theoretical knowledge we had learned in our classes that we could apply into the greater world allowed us to do this. Being able to draw the connection between our learnings in Melbourne and its potential to really create an impact was probably the driving motivation whenever we had reached a hurdle or a problem to overcome.
Moving forward with microinsurance
Microinsurance products can support growing businesses, entrepreneurs, and families. This can be promoted by a supportive regulatory environment and advocacy. There is an opportunity to unlock value for microinsurance organisations through improvements to the information distribution channels that exist between the relevant bodies in the microinsurance market (explored in MMI’s advisory report; namely proper segmentation of and the importance of understanding benefits of purchasing such products). This can enable greater awareness and understanding of microinsurance, therefore increasing the overall likelihood to purchase and refer others to purchase. Our project team found that even basic levels of understanding of microinsurance allowed borrowers to fully access financial services, entrepreneurial training and a community network that supports the growth of its people, which are often otherwise inaccessible.
“it was inspiring to see these diverse communities advocating and striving for meaningful change”
While there is undoubtedly more work to be done both in the Philippines and in Australia towards increasing the wellbeing of our communities, it was inspiring to see these diverse communities advocating and striving for meaningful change. Having encountered numerous people with stories, advice, and genuine passion for improving the lives of those around them, will definitely continue to inspire the work we do in our future projects.