{"id":299561,"date":"2026-05-17T09:11:15","date_gmt":"2026-05-17T03:26:15","guid":{"rendered":"https:\/\/insurancekhabar.com\/?p=299561"},"modified":"2026-05-17T09:15:05","modified_gmt":"2026-05-17T03:30:05","slug":"role-of-microinsurance-in-poverty-alleviation-2","status":"publish","type":"post","link":"https:\/\/english.insurancekhabar.com\/role-of-microinsurance-in-poverty-alleviation-2\/","title":{"rendered":"Role of microinsurance in poverty alleviation"},"content":{"rendered":"

background<\/strong><\/span><\/p>\n

The preamble of the Constitution of Nepal has envisaged to build an equitable society on the basis of the principles of proportional, inclusive and participatory to ensure economic equality, prosperity and social justice by ending class, ethnic, regional, linguistic, religious and gender discrimination and all forms of caste-based untouchability. Food, shelter, employment and social security have been enshrined as fundamental rights in the constitution. In the sixteenth five-year plan of Nepal, The long-term vision and goal is to reduce poverty to zero by 2100. Although the poverty rate has been gradually reduced due to the policies and programs implemented in the past, the poverty alleviation programs targeted at the rural and marginalized groups have not been effective as per the target. According to the Fourth Living Standard Survey conducted by the National Statistical Office, 20.27 percent of the total population of Nepal is below the poverty line. Of them, 18.34 per cent are in urban areas and 24.7 per cent are in rural areas. <\/p>\n

Among the seven provinces, Madhes, Lumbini, Karnali and Sudurpaschim provinces have the highest poverty rate while Bagmati province has the least poverty. Poverty generally refers to the lack of basic goods and services that a person needs to survive, such as food, clothing, shelter, drinking water, health, education, etc. In other words, poverty is a condition that prevents people from being able to live as human beings. Today, more than 65 percent of the world’s population suffers from some form of poverty. In particular, people in South Africa and most of the countries of the Asian continent are suffering from poverty. <\/p>\n

South Asian countries including Nepal are at high risk of floods, landslides, inundation, earthquakes, storms, epidemics every year. The poorest and most disadvantaged people are affected by such risks. These communities, as well as others, also need economic protection against disasters and risks. In this context, microinsurance can be used as a reliable financial tool of social protection against risk. Micro insurance is the insurance provided for the financial security of the economically backward and marginalized communities against various types of risks. The sixteenth five-year plan has the goal of expanding the scope of insurance for risk reduction by making arrangements for insurance in the life, property, crops, business of poor families, farmers, domestic and small entrepreneurs to minimize the loss due to disaster, epidemic, climate change and incurable diseases and to expand the scope of health insurance to all local levels and increase the quality of service. In line with the government’s objective, Nepal Insurance Authority (NEA), the regulatory body of the insurance sector, has approved the establishment of 4 non-life micro insurance companies and 3 life micro insurance companies to provide insurance services to the people living under the poverty line, poor class and working class g. <\/p>\n

Microinsurance<\/span><\/strong><\/p>\n

According to the Insurance Act, 2079, micro insurance is defined as insurance targeting the people who are low income and are economically, socially and geographically backward. Similarly, the International Association of Insurance Supervisors (IAIS), the umbrella organization of the international insurance regulatory body, defines microinsurance as insurance that provides financial protection to low-income individuals or communities, low premiums, small sum insured, and has limited resources. <\/p>\n

Key Features of Microinsurance<\/span><\/strong><\/p>\n

}<\/p>\n

(a) A micro insurance policy may be issued collectively through any micro insurer for life, accident, health, liability and property for persons residing within any village, region, district, province or the same geography<\/p>\n

.<\/p>\n

(b) To enable all sections of the community to have easy and easy access to micro insurance, <\/p>\n

(c) No hassle for claim processing like traditional insurance and there is no need to collect a lot of documents and evidence for the claim, <\/p>\n

(d) Since the minimum documents prescribed by the insurer can be submitted from the nearest insurer’s branch and sub-branch or from the mobile app, the micro-insurer may pay the claim immediately without any hassle, <\/p>\n

}<\/p>\n

(e) Sufficient to pay the microinsurance premium even by saving a small amount from daily wages, wages and small or medium businesses, <\/p>\n

(f) Since the coverage of the insurance policy is high and the exceptions are few, all classes of micro insurance will be attracted to <\/p>\n

}<\/p>\n

(g) An insurance policy containing more covers can be purchased in micro-insurance by paying a small premium, <\/p>\n

(h) The target group may insure by maintaining a lower insured as per the requirement, <\/p>\n

(i) The insurance policy shall be in simple terms for all to understand, <\/p>\n

(j) Micro insurance may be made on the basis of a few conditions, <\/p>\n

(k) To act as a link for social security by protecting the risks that may arise by inculcating the habit of saving to the target group. <\/p>\n

Importance of Microinsurance<\/strong><\/span><\/p>\n

The importance of microinsurance is mentioned in the following points: <\/p>\n

(a) To provide economic security against risk of life, liability and property to the low-income and disadvantaged marginalized, especially the poor, in the country, <\/p>\n

(b) To provide the basis of financial security against risk to the amount deposited by the individual in banks, microfinances, cooperatives and other financial institutions by making small savings, <\/p>\n

(c) Playing a supportive role in expanding access to essential financial services, including affordable health care and children’s education, <\/p>\n

(d) To reduce the burden of the amount of relief to be borne by the Government to provide compensation for the loss caused by floods, landslides, natural disasters and diseases, <\/p>\n

(e) To provide financial compensation to the small businesses that have suffered losses due to various reasons and to provide the basis for their continued operation, <\/p>\n

(f) To have the facility to do all the work related to insurance through the digital app without physically visiting the branch and sub-branch to avail the insurance service, <\/p>\n

}<\/p>\n

(g) To play an important role in building an equitable society by expanding the scope of insurance and maintaining inclusion in insurance by meeting the goals set by the government and regulatory bodies. <\/p>\n

In the last 20 years, microinsurance programs have expanded rapidly in many developing countries. Micro insurance has been gradually developed in Nepal for the past decade. Micro insurance is considered as an integral part of the social security system to build an inclusive and equitable society by providing financial security to poor and low-income families. Since it operates on the basis of the basic principle of risk, micro insurance provides financial protection against financial losses in industries and businesses due to natural calamities. Microinsurance plays an important role in reducing poverty and improving economic efficiency by reimbursing the medical expenses of the main person or member of the poor and middle-class family due to illness or disability due to accident. On the one hand, such families do not have to worry about the cost of treatment, and on the other hand, the loan can be easily managed by getting the amount spent by borrowing the loan during the treatment. <\/p>\n

Poor and low-income people do not have much access to formal insurance services. Such people are deprived of insurance services due to lack of insurance awareness and high insurance premiums. They are economically affected by natural events like floods, landslides, earthquakes and fires every year. At the same time, they are struggling to earn a living and sustain their families by doing small and medium enterprises and are constantly facing the problem of financial pressure. They do not even have access to the resources of the state. At the same time, they do not get timely disaster relief and even if they do, they can get less relief, even late. On the one hand, the most disadvantaged and impoverished people are affected by natural disasters such as floods, landslides, inundations, earthquakes, droughts and epidemics, while on the other hand, they are the most economically disadvantaged and insecure due to human and natural disasters including disease, disease, accident, death, mutilation, fire, theft and other human and natural disasters. When the industries and businesses run by borrowing loans are destroyed in an instant, the poor and low-income people are unable to rise above it and are pushed into the mire of poverty. However, they can get insurance with more protection if they buy microinsurance at a low insurance premium from the amount they have saved a little. The insured can easily solve the problem of loss of property and income through micro insurance. Therefore, microinsurance provides financial stress relief to the economically backward poor and low-income marginalized communities. <\/p>\n

In a developing country like ours, the poor and marginalized do not have easy access to financial services. It is not easy for such people to get loans from financial institutions. They have to pay high interest on the loans taken from the moneylenders. Some people make a living by running small and medium enterprises by taking loans from institutions like cooperatives and microfinances. They are uninsured due to lack of insurance awareness and will have to face a huge financial setback in the future. <\/p>\n

Micro insurance provides financial protection against the loss of life and property by deducting the money earned from daily wages, wages and small and medium enterprises by saving hundred to fifty monthly savings. When you have the financial resources in your hands, you can rebuild your wealth and continue your business and help you get out of poverty. In this way, microinsurance helps in reducing poverty by providing an opportunity to the insured to create wealth. While microinsurance can help increase income levels by creating wealth, eliminating poverty and compensating for losses, microinsurance enables low-income individuals to accumulate capital for short and long term investments, encouraging them to save. Health insurance provides coverage for health treatment expenses when a person falls ill or meets with an accident in a family belonging to economically disadvantaged and low-income marginalized communities. So that they do not have to take loans at high interest rates or sell property for health treatment. Micro insurance also provides a base of savings and financial security. At the same time, it also ensures social welfare by expanding access to essential services such as health and education. <\/p>\n

Nepal is a highly vulnerable country to climate risk. Increasing temperature, excessive rainfall, floods, landslides, droughts, melting of glaciers and earthquakes have resulted in direct economic loss every year. Low-income and poor people have suffered the most due to this. The government has been spending budget every year for relief during such disasters and disasters. The government’s increasing external debt and decreasing financial resources are having a negative impact on the country’s economy. Therefore, the government should manage the financial burden of risk through insurance, not by borrowing and distributing relief. As the debt increases, the country’s financial burden increases and the country becomes poorer. The damage caused to the infrastructure and industries built due to natural hazards will create a situation of unemployment on the one hand, and on the other hand, public expenditure will increase and the overall production and productivity will decrease, leading to a contraction of the country’s economy and poverty. <\/p>\n

The government’s fiscal year 2082. Although the annual policy and program of 83 years has mentioned to implement the Insurance Information Center by promoting the insurance of physical property by making the insurance service accessible and reliable, and to run an insurance literacy program to include the rural and low-income group in the insurance system, it has not moved ahead as expected. Political instability, economic contraction, low investor morale, unemployment, decrease in purchasing power and decrease in industrial production have hampered the sustainable development and expansion of the economy. The affluent class has to protect their own life and property. However, it seems that low-income and disadvantaged people are even more difficult to access financial security. In a country like ours, the lack of saving habits in such categories and the lack of awareness about how to be financially safe from future risks is one of the major problems. <\/p>\n

Problems and Challenges in the Microinsurance Sector <\/strong><\/span><\/p>\n

More than 85 percent of the country’s population does not have any social security. Although senior citizens, people with disabilities and single women have been receiving some allowance from the national budget as social security, but the amount is not sufficient. Although the health insurance program is being run by the government in the name of social security, it has not been effective due to weakness in service delivery. This program seems to be limited to the middle class. The most vulnerable are still at risk because they are uninsured. Despite the huge potential of the insurance sector, the government has not been able to take concrete steps due to the security gap for a large population of the country. Although micro insurance is very important in the livelihood of the low-income group living in rural areas and in reducing the potential risks in their daily life and in the future, there are some problems and challenges. <\/p>\n

Some of the major challenges of microinsurance are as follows: <\/p>\n

Lack of public awareness<\/strong><\/span><\/p>\n

}<\/p>\n

Financial literacy enhances an individual’s financial decision-making ability, making optimum use of financial instruments and increasing the overall demand for financial services. Financial access and financial use increase financial inclusion and make the country’s economy inclusive. At the national level, Nepal’s overall financial literacy rate stands at 57.9 percent. The highest level of financial literacy is 64.5 per cent in Bagmati Province while the lowest is 52 per cent in Madhes Province. The lack of overall financial literacy is a significant challenge. As a result, the socially and economically backward classes do not understand what insurance is, why insurance is necessary, how to do insurance, what are the benefits of insurance. There are many types of risks to human life, health and wealth. Insurance is a means of compensating the financial loss and damage caused by various types of accidents on the life and property of a person. However, there is a lack of awareness and knowledge about insurance among the low-income groups living in rural areas and the geographically backward classes. Such groups have not been able to understand that insurance is the only necessary and important mechanism for risk management in the long run. There is a need to create awareness about the role of insurance in providing financial protection against unforeseen events. In the absence of education, it is a challenge to make the public understand that insurance is a means of saving and investing along with protection against risk. <\/p>\n

In order to expand access to microinsurance, financial education and insurance education are very important to increase confidence in insurance among rural and low-income groups. <\/p>\n

Trust in Insurance<\/strong><\/span><\/p>\n

The general public is less aware of the risk management of insurance. They lack an understanding of how insurance provides financial protection against loss of life and property. Also, there is a lack of understanding of how insurance works. There is still a misconception in society that you will be cheated after getting insured. There is a challenge in maintaining the trust of the society in the insurance company due to the doubt whether the insurance premium will be safe or not or whether the benefits will be obtained from the insurance. <\/p>\n

<\/strong>{<\/span><\/p>\n

}<\/p>\n

Micro insurance companies have been using mobile apps and websites to issue insurance policies, collect premiums and pay claims in an easy, simple and fast manner to the general public and groups. The poor and low-income groups still do not have access to the internet. About 56 percent of the population in Nepal uses the Internet. Digital literacy is around 31 percent. Expansion of micro insurance has been a challenge as not all the targeted groups do not have access to internet and technology. <\/p>\n

Low Savings<\/strong><\/span><\/p>\n

Due to poverty and unemployment in the country, most of the households are not able to save. The income of the target groups is low and irregular. Due to this, it is difficult for them to pay insurance premiums regularly. At the same time, the rate of policy lapse is also high. Due to lack of savings, the target group is deprived of microinsurance services. <\/p>\n

Geographical Difficulties The geographical location of our country is not uniform but geographically made up of mountains, hills and Terai. Due to geographical difficulties, most of the mountainous and hilly areas as well as some places in the Tarai region lack transportation, roads and infrastructure. As a result, insurance companies have not been able to physically reach the local level. Due to geographical difficulties, it is seen that there is a challenge to extend the microinsurance service to the poor and low-income group in the rural areas and the geographically backward groups. <\/p>\n

The living conditions and standard of living of people living in urban and rural areas vary in the absence of an insurance policy to meet the needs of the insured. As a result, insurance requirements for low-income groups in rural areas are different from those in urban areas. Micro insurance companies are not found to have introduced low-cost insurance policies for households living in rural and urban areas. Also, although the risk of the households living in the mountain, hilly and Terai region is different, the insurance rate and policy are not different on the basis of regional risk. Due to this, there is a problem in the expansion of microinsurance. <\/p>\n

Claim Payment<\/strong><\/span><\/p>\n

In fact, the trust of insurance is the payment of the claim. If the insurance company provides the insurance claim payment to the insured in a timely manner, then the public’s trust in the insurance will automatically increase. Insurance companies need to rise above the thought that delaying the payment of claims to the insured will increase profits. The complex process of claim, the hassle of collecting the required documents for the claim and the perception of the general public that the insurance companies do not pay the claim on time are also the problems and challenges in micro insurance. As a result, on an average, people are forced to take insurance out of compulsion and tax without insurance. Therefore, if insurance companies pay insurance claims on time in a hassle-free manner and in a quick manner, then the credibility of insurance will increase. <\/p>\n

Lack of government coordination<\/strong>{<\/span><\/p>\n

}<\/p>\n

There are three structures of government in Nepal: federal, provincial and local levels. The National Insurance Policy, 2080 BS has made provisions for providing special facilities like discount in insurance to the people below the poverty line. In addition, there is a policy to expand the access of insurance in coordination with the local level by diversifying the insurance service. Though there are policies for disaster management, social security, health care, infrastructure development and insurance of government and public property, the government has not made any concrete annual programme and budget for this. Although there is a policy to publicize insurance by conducting insurance literacy programs in coordination with the provinces, local levels and other stakeholders, there has been no coordination among the federal, provincial and local levels due to lack of government coordination. This has also added challenges to the expansion of micro-insurance services. <\/p>\n

Conclusion<\/strong><\/span><\/p>\n

Microinsurance plays an important role in reducing the economic loss that may occur due to risk to life, property and liabilities of low-income individuals, communities and economically and socially backward groups in a reliable and low cost. In a developing country like ours, the poor, impoverished and marginalized are struggling to get jobs, to survive in small businesses, to get opportunities in education and quality health care. On the one hand, the poor, impoverished and backward classes have not been able to rise up from poverty in the country, while on the other hand, they are the most affected by floods, landslides, inundations, droughts, earthquakes and other risks. Unless there is economic security from the risk of such classes, poverty cannot be eradicated from the country. <\/p>\n

Therefore, the government should promote micro-insurance by subsidizing the insurance premium directly for the population who cannot afford the insurance premium for financial protection against the risk. Policy arrangements should be made to diversify micro-insurance services for the low-income poor people living in rural and urban areas and expand access to insurance in coordination with the local governments. In addition, the state should link microinsurance services with poverty alleviation policies through special programs for marginalized communities that are gendered, ethnic, geographically and economically backward. For low-income communities and poor people in rural and geographically backward areas, small life insurance should be exempted or reduced tax rates should be provided. VAT exemption on property and home insurance should be made in the budget. The regulatory body of the insurance sector should give priority to raising awareness on insurance by emphasizing on rural insurance education. In addition, micro-insurance should be promoted by developing new products, determining the price appropriately on the basis of geography and expanding the range and scope of the insured. In addition, reliable and effective service delivery system related to microinsurance should be developed by establishing processes to build the trust of the insured. Insurance documents and procedures should be simplified. <\/p>\n

There is no doubt that micro insurance can play a more effective role in poverty alleviation in the coming days by developing and expanding micro insurance in a sustainable way if micro-insurance services are operated from the local level with cooperation, coordination and cooperation among the three tiers of governments. Therefore, it is imperative for the government and regulatory bodies to bring effective and reliable programs related to microinsurance in the annual policies and programs and budget for the coming fiscal year in order to build a prosperous economy and economic development of the country. <\/p>\n

(The author is a former director of Nepal Insurance Authority) This article has been published on the occasion of the 58th anniversary of the Insurance Authority. )<\/em><\/strong><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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