Microfinance Can Provide Insurance, Loss Recovery

Ben Hess is a CRS international development fellow living in Guatemala and working with savings-led microfinance programs.

Imagine that a fire destroys your home or a family member suffers a crippling injury or debilitating illness. If you have insurance, you would expect your plan to take effect, thereby reducing your expenses. Insurance can mitigate your risks by minimizing the economic impact of a potentially catastrophic event. To obtain personal insurance, you pay a small premium in return for coverage in the event of an emergency. Premiums vary based on the probability and costs of risks.

What happens to an uninsured family when fires, illnesses, and other disasters strike? For extremely poor Guatemalan families—who almost never have health coverage, home insurance, or workers’ compensation—the consequences can be devastating.

In mid-October 2008, heavy rains caused flooding and landslides that affected almost 50,000 people in northern Guatemala. Shortly thereafter, I visited the department of Petén, where I spoke with people who had lost everything: their homes, possessions, and crops. Although CRS is working with the Catholic Church and other organizations in the affected areas to disinfect contaminated wells and distribute hygiene kits and other materials, thousands of families face an uncertain future. With no savings or insurance, it may take years for them to recover.

Savings groups have mechanisms to help members overcome emergencies. First, a member’s savings can be used to cover unforeseen expenses. Second, the savings-led microfinance method includes a “social fund” that acts as a safety net for group members.

Members contribute a regular amount to the social fund based on the group’s established rules. They also define when the social fund can be used—to cover funeral expenses, for example, or in the case of a serious illness. When the social fund is tapped, the member receives a donation, rather than a loan.

Although the Guatemalan savings groups have not added social funds to their savings portfolio, these funds have saved lives in other countries. Melita Sawyer, a program specialist in CRS’ microfinance department, pointed me to a success story in a CRS publication. A 32-year-old mother and member of a local savings group in Perma, Benin, had no money to take care of a gravely ill son. She sought help from her savings group, which gave her the equivalent of $10 to cover hospital expenses and save her son’s life.

As the previous story shows, the amounts distributed through the social fund do not have to be large to have a life-saving impact. For savings group members, the social fund can provide peace of mind when the unexpected occurs.

– Ben Hess

Gautemala is one of more than 100 countries whose people you help when you partner with CRS in reaching the world’s poorest. The global financial crisis has, of course, hurt everyone. It has made helping more difficult even as it increases the desperation of needy people. If you are at all inclined and able to help, know that what may seem an insignificant amount to you is nothing less than lifesaving. Even a little bit can make a big difference.

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One Response to “Microfinance Can Provide Insurance, Loss Recovery”

  1. Collection Agency Services Says:


    When the social fund can provide help during toughest times, it is all what a person needs then. During our unexpected incidents, this can be enough.. This is what the last lines of your article say.


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