More Cambodians than ever are turning to microfinance for money to cover their small business endeavours or pay expenses, and, increasingly, they are looking to protect their families from the burden of these debts in the event of death or disability.
Credit life insurance is a concept that dates back centuries but is still new to the Cambodian market. The primary purpose of the insurance product is to ensure that the outstanding debt of a borrower is extinguished if he or she dies, though most policies also provide financial support to the borrower in the case of incapacity.
Kea Borann, CEO of AMK Microfinance, the largest microfinance institution (MFI) in Cambodia in terms of the number of borrowers, said credit life insurance benefits society by providing families with assurance and stability.
“If a family’s breadwinner is injured or dies, the family will lose its primary source of income,” he explained. “But now many of our clients are covered by credit life insurance, so in such an event we can help preserve the family’s stability and avoid any serious liabilities.”
AMK had just 9,000 clients when it first began offering the microinsurance policy two years ago. Today it has 330,000 clients, of whom nearly half have purchased credit life insurance underwritten by Forte Insurance for their loans, according to Borann.
Under the policy terms, customers pay a premium of $6.25 a year for coverage. In the event of a debilitating accident, the borrower receives $5 per day for up to 60 days to cover expenses. If the borrower is killed in an accident, his or her loan payments are paid in full and an additional $500 if provided to the family.
The benefits are used to pay off debts and cover hospital and funeral costs, reducing the financial burden for poor borrowers or their families, who normally rely on their neighbours’ donations, savings and asset liquidation to cover these expenses.
Several other Cambodian MFIs are offering similar products, including policies underwritten by Forte Insurance, Meada Rabrong and PKMI.
One of the pioneers is Meada Rabrong, which began as a pilot project of local NGO Cambodian Health Committee and Samic Microfinance in 2007 and now operates as an independent company offering both life and credit life microinsurance policies. It remains partnered with Samic, having grown to cover over 20,000 of the MFI’s customers.
Khem Sary, executive director of Meada, said that credit life insurance helps spread risks and makes customers feel less vulnerable. “Because our clients are poor they face high vulnerability when taking out loans,” he explained. “Our real achievement has been to increase the number of poor people covered by insurance.
They represent a market segment that doesn’t just need loans, but also insurance and other financial products.”
A number of microlenders are now considering introducing credit life insurance policies, including Prasac.
“It is time for us to develop this service for our clients,” said Sim Senacheert, Prasac’s CEO. “It would help to ensure financial stability of our clients in the event they face unforeseen circumstances.”
Prasac’s customers are also keen on the safety net that the microinsurance would provide. Yat Reaksmey, a 60-year-old rice farmer in Battambang province, recently took out a $500 loan from the MFI to cover upfront expenses for this season’s harvest, yet worries her family could face financial hardship if anything happens to her.
“Accidents can happen anytime,” she said. “As a mother, I want to make sure that if something happens to me my family won’t have to worry about my debts.”
She said a $6.25 annual premium, such as the one AMK offers its customers, would be a very affordable price to pay for peace of mind.