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Access to Finance InnovationsMarch 5, 2010
Financial Innovations Marketplace
Session Objectives
• Issues in access to finance from a household/demand perspective
• Provider sustainability and risk management
Goals of finance
1.Smooth consumption over time
2. Smooth consumption across uncertain states of the world
Household Risk Management (demand side)
Household
Farm (price & weather)
Health (routine & catastrophic)
Accident/ deathLongevity
Macro (inflation, gold
price)
Feizal, Uttar Pradesh, India (Portfolios of the Poor, Morduch et al)Household monthly income: $36
Broke his leg, no insurance
Delayed treatment
Lost 8 months of wages
Total treatment cost: $250
Son’s wage advance
Savings RelativesCredit
Product Design - a Priority
• Cashflow matched loans• Loans with bundled risk management• Savings with commitment features• Insurance combined with annuities
Role of providers/intermediaries
• Last mile between large Financial Institutions/markets and customers– MFIs, credit unions, cooperative banks, Local
Area Banks• Tend to have low levels of capitalisation• Risk management crucial for sustainability
Provider Risk Management (supply side)
• Product design• Diversification• Pricing/capital
Idiosyncratic risks
• Securitisation• Reinsurance• Derivatives
Systematic risks
Challenges in Risk Transfer
• Moral hazard on the part of the RFI• Appropriate pricing of risk• Finding relevant buyers for this risk
Thank you
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