Contents Project Objectives Introduction: ANDHRA PRADESH CRISIS Project Objectives To identify and understand the barriers to the growth of the microinsurance sector in India. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay To study the role and importance of microinsurance as a rural development initiative. Keywords: The keywords used are “Microinsurance”, “Rural development in India”, “Microfinance”, “Barriers and challenges for the growth of microinsurance in India”. Introduction: There are some risks that every person living in this world faces. The intensity of risks and the type of risks faced by an individual depend on various factors that influence him. They depend on the activity he carries out, where he lives, the people he deals with or the number of people in his family who depend on him, etc. For example, a person living in an urban area is very prone to health risks arising from pollution. Rural poor in India are subjected to many risks such as premature death, risks health and accidents, crop risks, livestock, calamities and disasters, fires, theft, machinery breakdowns, etc., changes in government policies, technological changes, etc. Many of these risks are unavoidable. Some solutions to manage these risks are adopted through risk avoidance, risk transfer or risk mitigation. Because individuals cannot manage all risks alone. That is why concepts such as insurance, community funds, pension schemes, etc. have emerged. On the other hand, risk management is not the same for both categories of people, i.e. for people living in urban and rural areas. There are several factors that make risk management difficult. Some of these risks can be managed through informal money saving places such as relatives, friends, superiors. The rural population is very conservative. They don't invest money in any system they don't trust because for them it's not just about money, but it's the manifestation of their hard work. They save these small amounts of money with people they trust. But to what extent will this type of arrangement manage risks such as health, hospitalization, death, crop loss, etc., when huge amounts of money are needed? Yet another argument against this is the availability of credit. Even though there is a strong boom in the microfinance sector, it is observed that a person who has taken a loan to meet his current needs does not have enough to repay the loan taken. For this reason, at the time of repayment, the loan is taken back. As a result, the person's debt increases and the amount owed in the form of interest also increases. (Ms. Kirti Singh and Dr. Vijay Kumar Gangal, 2011) This results in suicides by farmers. Having insurance coverage offers greater financial security. It not only provides financial security but also provides psychological security. This is a clear indication of the need for insurance in rural areas. Even if such tools are present, “what impact have they had on people's lives?” is a question that needs to be answered. This encouraged me to set myself the goal of identifying the role and importance of microinsurance in the development of the rural poor. It has been studied that despite the huge need for insurance in rural India, the demand for microinsurance is low. This is due to various factors, such as awareness of such a structure, lack of financial literacy, etc. From the supply point of view, the companies ofinsurance have not opened their branches in rural India. (Dr. Rupali Satsangi; Mrs. Namrata Anand;, 2016) This indicates that there is a huge gap between the demand and supply of microinsurance in India. Therefore, I am inspired to identify and understand the barriers to the growth of this sector in India. Review of Research and Literature:Microinsurance: DefinitionAlthough there are many definitions that define microinsurance, this definition from Churchill seems very relevant. “Microinsurance is the protection of low-income populations against specific perils in exchange for the regular payment of premiums proportional to the probability and costs of the risks involved” (James Roth; Craig Churchill; Gabriele Ramm; Namerta, 2005) Insurance Regulatory Development Association ( IRDA), defines microinsurance as “A general or life insurance policy with a sum insured of Rs 50,000 or less” Evolution of Microinsurance in India: As the need for insurance is very evident in the rural areas of the country. Many microinsurance programs were started in rural India by NGOs and trust hospitals, as they felt the need among the people. Over time such programs have accelerated the pace with the rise of microfinance. In 2000, IRDA made it mandatory for all insurance companies to extend their presence to the “well-identified rural and social sector”. But these insurers turned out to be for-profit operators. As a result, accessibility to these programs has been low due to high prices and high premiums. In 2002, the IRDA developed rules that required all insurance companies to achieve a certain percentage of policy sales in rural areas. A limited number of lives to cover in the social sector. In 2003, an advisory group was established to look into various issues. RRBs were allowed to sell insurance as agents in 2005. The IRDA has developed regulations on microinsurance. India is one of the very few countries that has a proper mechanism for microinsurance. (Dr. Rupali Satsangi; Mrs. Namrata Anand;, 2016)Microinsurance in India: OverviewAlthough there is a lot of demand for microinsurance in India, it is observed that the supply is very less. Insurers are not willing to open roads to the rural poor. A study conducted in rural Ghana states that microinsurers reach a large number of customers but a wealthier segment of the locality. (Lena Giesbert, 2008)A study conducted revealed that “microinsurance is not an opportunity, but it is a responsibility”. To fulfill this responsibility microinsurers should create awareness which is lacking in India. (Venkata Ramana Rao, 2008) This indicates that the penetration of microinsurance in India is low. There is microinsurance for poverty reduction: the rural poor benefit less from income-generating opportunities that could reduce poverty. Most of these people try to manage their risks with their personal savings instead of paying for insurance and other programs. These programs do not provide sufficient margin when adversity occurs serially. The only solution that can minimize these risks is to insure yourself. (Ms. Kirti Singh and Dr. Vijay Kumar Gangal, 2011) On the other hand, (Paul Mosley;, 2009) provides various approaches on how to make microinsurance products more poverty-oriented. According to him, companies should minimize costs in order to provide services at a lower price. He says instead of providing insurance, incentivize the rural poor. For example, in the case of crop insurance, helping them plant varieties resistant todrought. He highlights the importance of insurance by stating that if providing microinsurance is not possible, then providing “quasi-insurance” services. Rural Finance: The future of business in India lies in rural areas. This is due to urban saturation in terms of business growth. The key to business and farming is finance. This is how the concept of rural finance arose in the last decade. Although researchers define rural finance as credit to rural populations, it is a broader concept. It covers all financial services such as savings, credit, insurance, leasing etc. provided to rural people to improve business, agriculture and raise their standard of living. It is the affordability aspect that makes it different from the concept of conventional financial services. There are various financial services that have developed under the umbrella of rural finance. Some of them are still in the early stage. We will see them in detail one by one. To date, the three legs on which rural finance rests are Microcredit, Microleasing, Microsaving, while the others are still emerging because their need is made evident to a large number of people. The main objective behind the concept of rural finance is financial inclusion. but the impact of these financial services on financial inclusion is not very evident, which creates a huge barrier to entry for institutions to venture into. Microfinance: Microfinance is the concept which was first brought by Muhammad Yunus to Bangladesh in the form of Grameen bank. This was later adopted by NABARD and called microfinance in India. Bhartiya Samruddhi Finance Ltd. was the first microfinance institution established in India. Microfinance in India has gone through many ups and downs since its inception. One such major crisis that has changed the face of microfinance is the Andhra Pradesh microfinance crisis. ANDHRA PRADESH CRISIS What is the Andhra Pradesh crisis? The state of Andhra Pradesh is highly permeated with microfinance institutions and self-help groups which have led to people taking loans from multiple sources at multiple times. The CGAP study revealed that the average household debt in AP was Rs. 65000 while the country average stood at Rs. 7700. This led to competition between the state and financial providers and led to a broader conflict of interest. This has led to lending aggressively to people whose ability to repay the debt is lower. On the other hand, MFIs charged higher interest rates as the risk involved is high. MFIs have adopted coercive collection practices as there is no refund from the customer. This had a great psychological impact on people which led to the suicide of a huge number of farmers. At this point the government had to intervene. On October 16, 2010, the AP government issued an ordinance which became "The AP MFIs Act, 2010". (Ghiyazuddin M. A; Shruti Gupta;, 2012) Impact of AP Crisis During this period, the activities of MFIs and SHGs slowed down. The AP crisis has made a lot of difference to the lending environment in AP, given the repercussions in other parts of the country as well. This study reveals that after the crisis period, MFI client households had much fewer total outstanding loans, but indebtedness increased. The most shocking thing in this context is that when formal players slowed down their activities, customer indebtedness increased. This study reveals some facts: before the crisis, the amount of outstanding loans to various informal sources decreased by about 24%, while the percentage of outstanding loans to moneylenders increased at25%. But after the crisis period, MFI clients had to borrow from money lenders, which increased by 46%. Some reasons for non-refunds have been identified. There are only 45% of customers who default on their loans. Others argue that this is due to the absence of loan officers at the time of repayment and also the influence of political leaders and government officials. Despite the crisis and its repercussions, 72% of clients said that MFIs were very helpful. (Vaishnavi Prathap; Mudita Tiwari; Santhadarshan Sadhu, 2013)Microcredit: The term microcredit is actually associated with microfinance even though MFIs provide all other financial services. Microcredit is the provision of small loans to the rural poor (usually people below the poverty line) at lower interest rates. Micro Savings: Savings in rural areas occurred through informal channels. Rural people save the small sums of money that remain after meeting their daily needs within the home or with their relatives and friends. This will not give them any return nor will it give them protection against default risk. This is where the concept of microsavings comes from. The major player in this sector is the Indian Postal Services. This is due to their long-term presence in the country. This also attracts a large number of customers due to the high awareness it has created among rural players. These savings made by the rural poor in postal services are also ensured since postal services are government services. Therefore the rural poor place a lot of trust in postal services. Microleasing: It is still a concept in its infancy in India. Micro-leasing is a concept similar to the usual concept of leasing. The rental amounts paid in microleasing are lower than in conventional leasing. For example, in microleasing, properties such as land are often rented out for cultivation. These properties must be rented at a lower rent. But in practice this is not the case. There are two theories directly related to microinsurance and demonstrate the need to develop microinsurance. Uncertainty theory, in which two important assumptions are made, namely, the expected utility theorem is good, which means that the total utility is equal to the set of weighted probable utilities of the most possible outcome. The second hypothesis is that people are believed to be risk averse. For this reason, people are willing to “trade risk for uncertainty” because this gives them extra utility from a particular outcome. (Boyer M; Dionne G;, 1983). If the price of insurance is reasonable, the individual will prefer to obtain a certain outcome rather than an uncertain outcome. (Schlesinger H, 2006). Furthermore, Mossin' (1968) theorem clarifies that, assuming all the above presumptions hold, the individual is fully insured. Delivery Models: There are five basic delivery models for microinsurance provision prevalent in India. The partner-agent model: In this model, a regulated insurance company supports and offers a micro-object insurance, while the delivery of the item is completed via delivery channels. Delivery channels can be of many types. Microfinance institutions (MFIs) are the “conventional” distribution channel and still the most widely recognized in many circumstances due to their wide spread, however various inventive options have begun to emerge, including resellers (cash and credit based) , utilities and broadcast. communications organizations and external bill installment payment providers, after.