Insurance for Micro, Small, and Medium-Sized Enterprises

Publication | April 2017

This brief looks at the important role that better risk management, including insurance, can play in improving access to finance.

Small and medium-sized enterprises (SMEs) are a key component of every economy. Studies fill the literature with the importance of SMEs as employment generators, innovators, factors in the supply chains of larger enterprises, and important contributors to gross domestic project.

In developing countries, the formal SME sector is competing with a large informal sector. Moving informal SMEs into the formal economy tops the agenda in countries where informality is high. Improving on the World Bank’s “doing business” parameters and providing fiscal incentives is needed to formalize the MSME sector, as are attractive financial sector solutions that support government agendas for a gradual reduction of informality.

Recently, special regulation has been developed to improve access to insurance for low-income people, but little effort has been made in insurance for MSMEs. Nonetheless, some MSME needs call for insurance products that cannot be offered under most existing insurance regulations.

Key Points

  • Access to insurance can play a significant role in mitigating risks faced by poor households and micro, small, medium enterprises (MSMEs) by smoothening consumption, building assets, absorbing shocks, and managing risks associated with irregular and unpredictable income. Yet, standard insurance services are out of reach of the millions of the poor and disadvantaged.
  • Proper risk management reduces the likelihood that risks will materialize and, if it does, insurance reduces or eliminates the financial impact. Insurance can make MSMEs resilient to shocks, making them more financially sound.
  • Tailor-made regulation on insurance products that specifically target SMEs will contribute to increased uptake. For successful uptake of the MSME insurance, it is essential that products offered should add value and are affordable to targeted consumers.
  • Since MSMEs inherently face a broad spectrum of risks, many of which are commercially uninsurable, the development of a special fund to provide financial support for uninsurable risks can enhance the value of insurance and contribute towards MSME industry resilience.

Additional Details

  • Poverty
  • Inclusive growth
  • Social development and protection
  • Social protection - social insurance programs
  • BRF178794-2
  • 978-92-9257-829-9 (Print)
  • 978-92-9257-830-5 (e-ISBN)
  • 2071-7202 (Print)
  • 2218-2675 (e-ISSN)

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