November 2011 I Access Africa Technical Learning Series : No. 3

UGANDA LINKING SAVINGS GROUPS

tO FUNeRAL INSURANce

Tororo

Soroti

Nebbi

Moyo

Moroto

Mbarara

Mbale

Masindi

Masaka

Lira

Kumi

Kotido

Kitgum

Katakwi

Kamuli

Gulu

Arua

Kaabong

Ibanda

Fort PortalJinja

Entebbe

Kampala

UGANDA

ZoNe of INTerveNTIoN SAve Up projecT

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When Africa’s rural poor gain access to financial services, the benefits can be transformative. CARE has been nurturing this process of transformation since 1991 when it began to cultivate a savings-led micro-finance movement based on village savings and loan associations (VSLAs) in Niger. Today CARE’s VSLAs serve more than 2.8 million people in 26 African countries—nearly 80 percent of them women who, experience shows, invest most effectively in improving their families’ lives. Meanwhile many other organizations working in developing countries have also adopted the savings-led methodology; it is estimated that, in all, more than 4 million Africans are now benefiting from this approach.

In 2008 CARE launched Access Africa, a 10-year program designed to scale up the VSLA methodology to reach 30 million people in 39 African countries during the decade. Access Africa’s first project, Save Up, began working intensively in Malawi, Tanzania and Uganda in 2009, expanding the number of VSLAs through demand-driven replication by trained VSLA members called village agents (VAs). When this phase of Save Up ended in August 2011, it had established more than 18,000 VSLAs in these three countries, serving more than 400,000 members.

As VSLAs mature, their need for more sophisticated financial services becomes apparent. Many VSLAs today are accumulating larger and larger amounts in savings and emergency funds that need to be stored securely and earn interest. Often members need to borrow more than their VSLA funds can provide. They need to transfer money instantly and they need access to specialized insurance, especially to defray the unforeseen costs of funerals. In other words, like the rest of us, Africa’s poor need to be linked to a variety of formal financial services and products such as bank accounts, mobile money transfer technologies and insurance.

In 2009 CARE’s Save Up program launched three pilot projects to provide such linkages in the three Save Up countries: bank accounts in Malawi, mobile phone banking in Tanzania and funeral insurance in Uganda. This publication describes the process of linking VSLA members in Uganda with funeral insurance.

IntroductIon

When Africa’s rural

poor gain access to

financial services,

the benefits can be

transformative.

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Methodology

Identitfy the need

When CARE Uganda was planning to launch its pilot project linking VSLA members to formal banking services, they conducted a needs assessment among VSLAs in Butaleja and Tororo, two of the seven districts where Save Up operates. They found that the need for funeral insurance was the number one priority among VSLA members as people commonly die from many causes ranging from pneumonia, road accidents, HIV/AIDS, and children die of malaria and other diseases. No matter what has killed the person, it’s always a shock when a family loses someone.

Funeral expenses can run to as much as $300 in these districts, including buying a coffin, paying for the burial and providing food for mourners, who often visit the bereaved family for a number of days

Anna Kibussi, 65, and Rose Mary Awori, 35, have never met, but they have much in common. Both woman are members of a VSLA formed in 2009 by CARE’s Save Up program. When they had been members for less than a year, they both decided to purchase funeral insurance offered through these groups. After that both women paid a small amount every week until they had paid their entire premiums of $3.15. Some time later, Anna’s husband died of illness; Rose Mary’s husband was killed in a motorcycle accident.

Less than a month after their husbands’ deaths, both women received insurance payments of

$167 in cash, delivered by CARE’s local partner organization, to help them defray the funeral expenses. In Uganda’s rural communities such costs can be a huge financial burden for families, especially when a death is unexpected as it was for Anna and Rose Mary. But these women were fortunate. The amounts they received for their claims covered the entire cost of their husbands’ funerals with money left over. Anna has since been able to purchase a small plot of land for farming and Rose Mary bought a bull that she rents out to farmers for plowing. In spite of their devastating loss, these women now have confidence that they can face the future and continue to provide for their families.

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before and after the funeral. There may also be hospital or doctor bills to pay as well as the cost of transporting the body. These sudden expenses are more than many families can afford, and at a time of grief when the financial burden can be overwhelming, an insurance payment of $167 can be a significant help.

In August 2010 CARE conducted a study of VSLAs in Tororo district that was part of the micro-insurance pilot project. Table 1 shows the main reasons people were willing to pay for funeral insurance:

Yet, despite these incentives, rural people with little education do not always easily understand the concept of how insurance works. Insurance is not easy to promote to people who don’t understand it and the main reason CARE chose these two districts for the insurance linkage pilot is that literacy levels are generally higher there than in other areas. Also CARE was already working with a local non-government organization, Community Vision, on the Save Up program in these districts, so they were an obvious choice to carry out the linkage project. It was their field officers (called community-based trainers, or CBTs) who actually sold the policies to VSLA members, receiving about 10 cents commission on every policy sold.

Training VSLA members in micro-insurance

The insurance company chosen by CARE’s Access Africa program, MicroEnsure, seemed an obvious choice. MicroEnsure is a multinational insurance intermediary wholly owned by Opportunity International, a global network of non-profit micro-finance institutions. In 2009 CARE Uganda began working with MicroEnsure to design an appropriate funeral insurance product. The premium was set at $3.15 per VSLA member, covering six people per household including the VSLA member, one spouse and up to four children. The agreement was finalized and MicroEnsure started working on the linkage pilot in October 2009.

Training of VSLA members in micro-insurance was conducted by the CBTs during three consecutive weekly group meetings with support from a MicroEnsure program manager. The first week included training in the basics of micro-insurance; the second week covered the specific MicroEnsure product and the funeral insurance process itself. The third week was a recap session. Table 2 shows the various roles of the CBT and MicroEnsure management.

TAbLe 1: Motivation for Purchasing Funeral Insurance

perceNT

23.5

17.6

11.8

11.8

5.9

5.9

5.9

5.9

5.9

5.9

reASoNS for TAkINg oUT fUNerAL INSUrANce

Access to benefits

To reduce pressure on clan members to contribute to burial costs

To avoid selling personal property to pay burial costs

To reduce risks associated with borrowing

ensure help by accessing benefits of compensation

To easily borrow money in case of death and be assured of paying it back

Not to worry about funeral costs for self and children

To be prepared

To avoid spending a lot of money

To feel safe and secure

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VSLA management committees also have important responsibilities with regard to the insurance policies, as outlined in Table 3.

Finally VSLA members themselves have a significant role to pay as well, as outlined in Table 4.

TAbLe 3: Roles of VSLA Management Committees

roLeS

continue sensitizing members about insurance product and the importance of paying premiums

ensure that members have completed premium payments and that the money has been submitted to the coMvIS office

record premiums paid by members

record members’ premium installment contributions

Take contributions to the bank

confirm death

Write letter to local council and inform them about death

follow up with local council to ensure that the letter is approved

ensure that affected person receives compensation

TAbLe 4: Roles of VSLA Members in the Insurance Process

roLeS

pay premium installments

encourage other members to pay premiums

follow up on receipts to prove payment

confirm death to group chairperson

provide information about and verify beneficiaries listed

ensure that affected person receives compensation

TAbLe 2: Roles of CbT and Management in Micro-Insurance Rollout

roLeS of progrAM MANAger ANd projecT offIcer

Sensitize community on insurance

Train cBTs

receive bank slips as proof of paymentfor premiums

process compensation

roLeS of cBT

Sensitize of community on insurance

Train groups

ensure that members pay for premiumsand get registered

guide group members on how to bankpremium payments

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Group vs individual policies

To reinforce group cohesion and solidarity, CARE intended that the insurance policies be sold to entire VSLA groups. But as MicroEnsure proceeded with the pilot, it became clear that there was a misunderstanding. Instead of selling policies to VSLA groups, MicroEnsure was approaching individual VSLA members. There are about 700 VSLA groups in the two pilot districts, supported by CARE and Plan International, and each group has approximately 28 members for a total of about 19,600 individuals. Taking into account that spouses who are members of the same VSLA would buy one policy instead of two and that some members are single and don’t need funeral insurance, CARE decided that participation of 70 percent of the members of a group would be optimal. Depending on their ability to pay, some members pay their premiums in installments to their group then their group pays the premiums in bulk to MicroEnsure. For a group of 28 members, if 70 percent were enrolled, MicroEnsure would receive $63.

To reach this level of coverage, CARE intended that purchasing a policy should be mandatory for around 70 percent of the members of the VSLAs that expressed interest. The policy holders would not be insured unless all eligible members were regularly paying their premiums, which amounted to pennies a week. Group solidarity would encourage everyone to pay their premiums on time.

Among the VSLAs participating in the August 2010 study, about 10 percent of members fell behind in their premium payments for a number of reasons. For example they had not been sufficiently trained in micro-insurance and did not appreciate its value. Others, who belonged to polygamous households, could not decide which wife of the household should be insured.

Determine the right price

Selling insurance to VSLA groups reflects one of CARE’s fundamental VSL programming goals, which emphasizes the benefits of promoting group cohesion and a sense of mutual support among members. But in the case of insurance, CARE also sees a purely economic incentive for working on the basis of groups. To reach poor customers, MicroEnsure set its premiums so low that the returns from policies sold on an individual basis were negligible and, as it turned out, one of the mistakes made by MicroEnsure by recruiting individuals. Due to the low incomes of the VSLA members, individual sales were not cost effective and the promotion of group insurance was necessary. If serviced properly, CARE felt that these low-income people could make good clients but only when served in groups.

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But MicroEnsure had a different idea. “They recruited individuals, scattered among a total of 33 groups,” says Ms. Nyonyozi, lead advisor for SAVE UP Uganda. “So you find that in a group of, say, 30 members, only two would have insurance. That’s how you end up with many groups involved but relatively few individuals with insurance policies.” And in a VSLA with only two policy holders, peer pressure to pay premiums on time was nonexistent.

After CARE discovered the problem, they insisted that MicroEnsure sell policies on a group basis. During the next 4 months, sales of insurance policies increased rapidly to a total of 498 policies, and Community Vision’s CBTs were earning larger amounts in commissions. But in May 2010 MicroEnsure terminated its involvement with the project. To ensure that the nearly 500 policies already sold would remain active through uninterrupted coverage, CARE stepped in and transferred the policies to another broker, the underwriter APA (Uganda Limited). However, since MicroEnsure had charged customers less than APA’s prices, CARE provided nearly $3,000 to make up the difference. As a result, all of the policy holders continued to be covered and CARE and Community Vision retained their good standing in the communities.

Ripple-effect benefits

CARE has found that funeral insurance can have benefits for a family above and beyond the payment of funeral expenses. If a VSLA member has funeral insurance, the dread of an unexpected disaster is significantly reduced and with it the inclination to avoid investing in business through fear that whatever money is on hand may suddenly be urgently needed. When people know that they have funeral insurance, they feel free to use their funds for productive purposes or to take out loans from their group to invest in a business. Figure 1 shows the different levels of economic activities engaged in by VSLA members who had funeral insurance compared to those who were uninsured.

The study also shows that VSLA members in insured groups took out more loans than their counterparts in uninsured groups, as demonstrated in Table 5. Study participants reported that they felt empowered to borrow because they could plan the use of their resources, which enabled them to diversify income-generating activities that require more capital.

“When there is

insurance, instead

of saving money for

a death eventuality,

people invest it.”

Rabbecca Nyonyozi

Save Up Uganda

Lead Advisor

FIGuRe 1: economic Activities of Insured and uninsured Members

SeLLINg vegeTABLe

coMMercIAL fArMINg

SeLLINg fLoUr

SeLLINg fISh

BreWINg Beer

BAr SeLLINg prodUce

reTAIL Shop

eATINg hoUSe

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

INSUred UNINSUred

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Funeral insurance can also have positive effects on other areas of family wellbeing. In fact CARE even sees a link between funeral insurance and a decrease in sudden deaths. During the 3½ years of the insurance pilot, out of nearly 500 insurance policies purchased, only four claims were filed. (Two more, for $83 each, were for children). This shows that people were able to provide for their medical requirements. The result was a reduction in mortality rates.

If a family has a funeral insurance policy, therefore, they may be more willing to spend money on maintaining their health, on educating their children, on buying better food, on farm inputs or on making home repairs. People who have insurance are able to meet expenses that they would not have met if they didn’t know that there was support for them in case they need it. These are the indirect benefits that enable people to refocus the little funds they have after paying the premium. Having an insurance policy enables them to identify different priorities and expenses.

future plans And Lessons Learned

CARE has established an agreement with another East African insurance company, Jubilee Holdings, with whom it will expand the micro-insurance pilot in five new districts, on more favorable terms than those offered by MicroEnsure. The funeral policy cost will slightly increase as compared to MicroEnsure’s policies.

“people who have

insurance are able to

meet expenses that

they would not have

met if they didn’t

know that there was

support for them in

case they need it.”

Rabbecca Nyonyozi

Save Up Uganda

Lead Advisor

TAbLe 5: VSLA Members with Loans Outstanding

NUMBer of MeMBerS

IN groUp

15-20

20-25

Above 25

Less than 15

UNINSUred MeMBerS WITh LoANS

oUTSTANdINg

.0%

.0%

45.5%

.0%

INSUred MeMBerS WITh LoANS

oUTSTANdINg

9.1%

27.3%

9.1%

9.1%

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The policy will cost an individual approximately $13.60, payable in two installments of $6.80. Benefits will increase to $227 per adult and children’s benefits rise to $136. CARE anticipates that Jubilee’s pricing will prove to be a sustainable way to reach more rural populations with funeral insurance.

Overall, despite the problems with MicroEnsure, the funeral insurance linkage pilot has been a success, helping to build confidence and enhance relationships among VSLA members. The benefits of being insured are now understood at a very personal level by many policy holders. In fact the pilot has also been highly educational, as it has given VSLA members hands-on experience in the value of paying for something that at first seems as intangible as insurance. When interviewed in August 2010 group members in Tororo district cited other forms of insurance that they feel would be beneficial to them (see Table 6).

Demand for funeral insurance among VSLA members is expected to grow in the coming years as news of the payments received by policy holders spreads throughout the communities. VSLA clients generally perceive that the product serves their needs, that the premiums are affordable and the payments significant; and Community Vision remains committed to promoting micro-insurance as part of their VSLA offerings. Key lessons learned from the micro-insurance linkage project include:

• Paying for premiums has created security and confidence among insured members since they are now assured that burial costs will be met. This, in turn, has resulted in improved savings and loan use among insured members.

• Communities readily embrace interventions that have tangible benefits, such as the insurance

payouts that have been witnessed by many. This has encouraged many more members to enroll and pay for premiums.

• Proper coordination, shared priorities and constant follow-up by all stakeholders at all levels are key to the successful implementation of any development program.

• Proper design of the implementation strategy, especially the definition of roles and responsibilities of key players, contributes significantly to a successful project.

• The micro-insurance program manager (housed at Community Vision) and the CBTs have played a crucial role, although there is a need to ensure that CBTs remain motivated to participate in the linkage project, since they are the “drivers” of VSLA linkage implementation.

• VAs were not involved in this pilot, but if CARE continues to support micro-insurance, they must be involved to ensure sustainability. VAs remain in the community more often than CBTs. Therefore VAs can be important promoters of micro-insurance.

TAbLe 6: Other Insurance Products Desired by VSLA Members

perceNT INTereSTed

38.5%

23.1%

15.4%

19.2%

3.8%

TypeS of INSUrANce

Medical

Agriculture production (flood, drought)

Fire

Education

Theft

Zimbabwe

Zambia

Uganda

Tunisia

Togo

Tanzania

Swaziland

Sudan

South Sudan

South Africa

Somalia

Sierra Leone

Senegal

Rwanda

Nigeria

Niger

Namibia

Mozambique

Morocco

Mauritania

Mali

Malawi

Madagascar

Libya

Liberia

Lesotho

Kenya

Guinea-BissauGuinea

Ghana

Gambia

Gabon

Ethiopia

Eritrea

Equatorial Guinea

Egypt

Djibouti

Cote d'Ivoire

Congo

Democratic Republicof the Congo

Chad

Central African RepublicCameroon

Burundi

Burkina Faso

Botswana

Benin

Angola

Angola

Algeria

Western Sahara(Occupied by Morocco)

6,899

238,366

123,914

30,322

1,634

17,799

5,621

27,358

4,000

101,150

299,179

461,380

149,763

9,115

1,000

139,436

104,113

9,423

14,323

12,597

157,348

12,977

248,114

503,402

8,000

cAre vSLA Membership

Data as of June 2011

first Wave

Second Wave

Third Wave

excluded

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editorial Credits Author: Kristin Helmore, Editor: Sybil Chidiac

Photo Credits Cover and Pages 1, 5 and 7: Jake A. Herrie/CARE; Pages 2: Ami Vitale/CARE.

CARE is an Equal Opportunity Employer and Affirmative Action Employer (AA/M/F/D/V) dedicated to workplace diversity. CARE® and CARE Package® are registered marks of CARE. Copyright ©2010 by Cooperative for Assistance and Relief Everywhere, Inc. (CARE). All rights reserved.

headquartersCARe uSA151 Ellis StreetAtlanta, GA 30303-2440 T) 404-681-2552 F) 404-589-2650

ACCeSS AFRICA Program Office

CARe Tanzania P.O. Box 10242 (mailing)Plot No 101 Kinondoni Road (physical)Dar-Es-SalaamTanzania

www.care.org

CARE’s Save Up initiative is funded by: