How Kiva helps the poor deal with life’s uncertainties

By Adam Kemmis Betty, KF9 Bolivia

Those frustrated with the health-and-safety of Europe and North America often celebrate the apparent appetite for risk in countries such as Bolivia, where you carry your machete into the local bar or cram a dozen people into the back of your car without fear of reprimand.

In fact, this tolerance for risk is largely borne out necessity rather than any deep-seated cultural predilection. The Bolivian poor spend a great deal of energy trying to minimise the risks and uncertainties in the lives. The trouble is, it’s hard to do. To start with, life is simply riskier in a country with numerous tropical diseases, an underdeveloped transport network and extreme weather conditions (exacerbated in recent years by climate change). The majority do not have access to insurance, which would the first backstop in times of crisis for most in Europe or North America. And finally, most do not have sufficient savings to draw on in the event of an expected shock: be it a bad harvest, sickness of a family member or a house fire. Such an event will typically result in increased poverty for the family, perhaps undoing the hard-fought gains of generations.

There isn’t much that microfinance institutions (MFIs) can do – directly at least – do reduce the riskiness of their clients’ environment. However, they can provide financial services to help the poor cope better with life’s uncertainties, and these are often bundled together with the loans made through Kiva.

Basic credit life insurance is compulsory for all borrowers in Bolivia who take out an individual loan, and most MFIs also insure group borrowers against the death of one of their members. This coverage means that if the borrower dies, the debt is forgiven and the family (or group) is not burdened with repayments. Many policies also include a benefit for the deceased’s family to cover funeral costs. In some cases these products have been developed by the MFIs themselves (Agrocapital, for example, is currently designing its own life insurance product for group loans), while in others the MFI works a commercial insurer to cover its clients.

Of course this type of insurance has its limitations: one Kiva borrower, who lived on one of the particularly steep mountainside slopes of La Paz, lost her house to a landslip. This was not covered by her insurance policy, although in this case the MFI, Emprender, decided to make an exception as she was a long-term reliable client in dire need. As the microinsurance sector develops, insurance companies are increasingly providing other types of policy in partnership with MFIs, such as home or health insurance.

Saving is another way to manage risk, building up a reserve to draw on in case of emergency. Most of Kiva’s MFI partners are not regulated banks, and therefore can’t take deposits from customers, but many still do offer savings products via agreements with other institutions. Pro Mujer Bolivia, for example, provides all its clients with an account at a regulated financial institutional called Fie, and obliges all borrowers to make a deposit with each loan repayment. At the end of the loan term the borrowers are able to draw on the savings they’ve accumulated. Currently, all MFIs in Bolivia are in the process of becoming regulated, meaning that the availability of savings products is likely to increase in the near future.

As such products become increasingly important adjuncts to microloans, Kiva could consider including more product details in its loan descriptions, for example indicating whether the borrower is insured or required to save. In the meantime, to lend to a Kiva borrower from Bolivia, click here.

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