Research Case Study

Impact: Encouraging financial inclusion - improving policies and protecting families

Joint Winner: Celebrating Excellence in Research and Impact Awards 2021 - Best International Research Impact

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    Economy, business, politics and society
    Global perspectives and challenges

portrait photograph of Professor Thankom Arun

Low-income families across Africa and Asia are better protected against the devastating economic impact of natural disasters thanks to Essex research on financial inclusion. The research has led to better access to financial services for those most in need and policy changes to help improve the economic resilience of families at risk.

Professor Thankom Arun has helped governments understand the action needed to protect the most financially vulnerable. His leadership of a flagship ICMIF (International Cooperatives and Mutual Insurance Federation) Financial Inclusion project, project means an additional two million households have accessed insurance protection. These are families, already living right on the edge, who otherwise would face the risk of slipping further into in the face of unexpected interruptions to income., caused by natural disasters or other calamities such as industrial accidents.

What was the challenge?

Natural disasters and other calamities, such as industrial accidents can devastate households by disrupting or destroying sources of income and damaging property. But those with the most to lose - those most in need across the globe – are least likely to be financially protected through insurance. These households are known as financially excluded as they have no bank accounts which bars access to affordable credit.

Many governments understand that financial inclusion must become a key policy priority, but it is vital to understand how to educate communities and identify the reasons why financial services are not taken up.

What did we do?

Professor Arun’s research addresses three key strands: financial inclusion; risk management; and gendered dimensions of financial behaviour.

He examined the products and services through which financial inclusion efforts can be mainstreamed and developed an innovative approach to quantify the incentives and costs involved in targeting households with no bank accounts. The findings argue that the level of financial services provision determines the risk management strategies among the poor. His research finds a convincing need for the micro financial sector to be more responsive to the needs of the poor and identifies the need for more inclusive and composite packages of microinsurance products for greater financial inclusion of the poor.

Promoting access to microinsurance, according to Professor Arun, can play a significant role in helping vulnerable low-income populations deal with the risks they face.

Professor Arun said: “Even though the poor have high incentives to secure against future shocks, their ability and willingness to take part in micro-financial services increases with rising self-awareness of risk. We have been able to evidence the importance of a household's experience of shock and its impact in prioritising the need for insurance and other financial services.”

The researchers found new tailored products were needed for low-income households alongside better education.

Professor Arun also investigated women’s financial behaviour and identified that the impact of information networks, namely media and social networks, were key in women’s decisions to prioritise the use of financial services.

What have we changed?

Professor Arun’s research demonstrates that values, perceptions and attitudes affect the demand for financial products and the roll out of financial inclusion.

Based on his research on risk management, Professor Arun was invited to serve as the Chair of the financial inclusion committee of the International Cooperatives and Mutual Insurance Federation (ICMIF) 5-5-5 strategy to steer improvements to access microinsurance for low-income households.

His research and the resulting diagnostic reports showing the landscape of microinsurance, were crucial to the redesign and delivery of affordable and appropriate insurance products tailored to the need of low-income households.

These new products ultimately provide protection against the risks of these families’ everyday lives, and mitigate the negative impacts of adverse events, preventing the household from slipping further into poverty.

Insurance providers also benefitted from the research – gaining valuable insights into how to tailor the design of products and improved technical knowledge to ensure greater financial inclusion – reaching the low-income households.

Between 2016 and January 2019 this programme has reached over two million low-income households, impacting roughly 10,000,000 lives, by providing access to microinsurance for the first time.

"As of 2020 through its projects in the Philippines, India and Kenya, the 5-5-5 issued 2 million policies to low-income households, protecting ten million individuals when averaging 5 people per household, and at a funding costs of just 0.74 USD per policy.”
International Cooperatives and Mutual Insurance Federation

Further impact – enhancing government policies on financial behaviour in India

Professor Arun’s research has offered vital insights into combatting financial exclusion at every level and has been used to develop intensive gender-focused approaches in supporting start-up enterprises in the state of Bihar.

He organised a series of training and research workshops through which local start-ups benefitted from the handbooks issued which contain theoretical and practical knowledge. Many of the entrepreneurs also shared how the workshop has empowered them to examine the existing practices of their business

In Kerala, Professor Arun’s research has directly influenced the development of policy and government guidelines in relief camps.

Local bodies re-evaluated grassroots level resilience and preparedness to deal with the aftermath of the 2018 floods. Professor Arun helped ensure the design of relief camps incorporated the voices and participation of women “to harness the potential of all groups of women, including volunteers who have been the backbone of our community structures” according to the Kerala Institute of Local Administration.

This led to many practical recommendations. For example, in Kunnukara Panchayat, a region most devastated by the floods in Kerala in 2018, ‘digilockers’ were established for residents to use during future natural disasters to let them safeguard important official documents, which if lost, could put them at risk of financial exclusion by removing access to banks or other services.