BIBLIOGRAFÍA DEL CAPÍTULO

The fourth features on risk management techniques applied in the informal sector are health or funeral societies. These are used to cover events such as deaths and funerals. They have arisen largely in response to the substantial expenditures associated with funerals. They are typically characterized by a well-defined membership base and membership rules. Membership is restricted to individuals living in the same geographical area. As a result, individuals are able to observe fellow members closely and monitor their behavior, mitigating problems of moral hazard (for example spending payouts on non-funeral expenses). Moral hazard is not as much of a problem in the case of funeral insurance as in the case of other forms of insurance as, at least in most cases, it is extremely unlikely that individuals precipitate death because they have funeral insurance.

In these semi-formal burial societies, contributions are typically to be made on a regular basis or when a death occurs. Contributions can be monetary or in kind (in the form of food and labour assistance). Payments are made for funeral-related expenses incurred when a member or a well- defined set of relatives of the member die and the amount is typically conditional on the relationship of the deceased to the member. There are funeral associations established to provide insurance against death-related risks. In addition to death-related risks exposure, these organizations provide insurance against other adverse shocks. For example, funeral associations provide coverage for funeral costs and illness. Although these institutions are described as informal they operate with written rules and regulations, and membership rules of funeral associations require that new members must put in applications. The rules include but are not limited to group‘s membership fees, and members in default are subject to exclusion from the group, fines, public warning or bringing the person before a local court. Invariably the fear of shame is expected to play an important role in reducing the incidence of default. There was a significant positive relationship between incomes and whether a person or household would be a member of a funeral association. These requirements are a screening mechanism to reduce the incidence of adverse selection and to ensure commitment. The activities that are insured are clearly defined and this reduces the incidence of moral hazard.

The research finds various semi-formal community-based financing scheme initiatives known as micro insurance community health funds or mutual health organizations. Typically, these community-based health insurance initiatives are established in conjunction with health care providers. They are usually characterized by voluntary membership (which can potentially increase adverse selection problems) and have strong community involvement in pooling, revenue collection, resource allocation, and often, service provision. The latter can ameliorate moral hazard and adverse selection problems. Members make regular ex ante contributions and receive a payout in the event that illness occurs. Among other things, community-based health insurance associations vary on the basis of the extent of coverage (high frequency, low cost events; or low frequency, high cost events). In a review of community-financed health initiatives, Preker, et al. (2002) finds micro-level evidence that community financing improves access for informal sector households to much-needed health care and provides them with some financial protection against the cost of illness. In addition they also find macro-level evidence that risk-sharing in health financing improves all five World Health Organization (WHO) indicators of the performance of a country‘s health system (including the level and distribution of health, financial fairness and responsiveness indicators).

This research finds that community-financed health initiatives frequently suffer from low resource mobilization, small size of the risk pool and poor management capacity. Perhaps most critically from the viewpoint of risk management by the informal households, we find evidence that the poorest are often excluded from these schemes in the absence of some kind of subsidy. The household survey reveals that 14 percent of the respondents use formal insurance services and in particular health insurance schemes managed by VIBINDO society. This scheme is a provider based scheme. This strategy was used for the costs related to death and medical expenses only. For a few respondents mostly members of MFI with credit lines have access to life insurance. The policy covers funeral costs for the policy holders, examples of an insurance policy available can be seen from the first micro insurance scheme.

The high level of risk and the evidence that households are not able to completely protect against adverse shocks suggests that there may be demand for insurance. The relative successes of informal techniques appear to be in terms of getting round the problems of information asymmetry and enforcement. This suggests that they should be the ideal local financial intermediary to link up with formal financial institutions. There are challenges associated with this kind of cooperation that must be addressed if these arrangements are to be successful. Informal insurance groups tend to be small in size and the success is because their relatively small size allows them to screen and monitor at reasonable costs. A program linking them to formal financial institutions should be careful not to

expand the size of the associations beyond what is optimal to effectively continue to perform these functions. Dixon, et al. (2007) indicates that the experience of micro finance organizations that expand too quickly is that staff get over-stretched and diverted away from their core functions. This leads to frustration amongst members of the micro finance groups and the rate of default increases. There is evidence to suggest that a large number of member based schemes deliver public goods37 and services, bolstering the ability of households to manage risk, whether through risk transfer (i.e., insurance) mechanisms or, more commonly, through reduced risk exposure. The research finds disease control through community-based preventive medical and sanitation programs that help to reduce health risks in market centers. These are typically provided through community-based arrangements established by NGOs or local governments to deliver goods and services that have a public good character. Findings from a combination of focus-group discussions and household surveys suggest that the community-based model for the provision of public goods and services are preferred by respondents to those by the commercial sector. The major reasons cited for their preference are the ease of access and flexibility for payment provided by community-based distribution, relative to other models.