Micro-finance institutions play a major role in distributing micro-insurance products "IF there is any restriction on MFIs to sell our product, it may be a huge blow to the insurance sector " Amarnath Ananthanarayanan MD and CEO, Bharti Axa General Insurance

Insurers say that in case there is a restriction on MFIs to distribute insurance products, they may find it difficult to be able to meet their mandatory micro insurance business target. The committee recommended that MFIs should concentrate on their core nature of business, which is to lend to the poorest of the poor borrowers.

The Reserve Bank of India (RBI) had set up a committee headed by YH Malegam to study issues and concern in the microfinance sectors.

Micro insurance like microfinance is small ticket size insurance product. Insurers say MFIs form a major chunk in their distribution network to sell micro insurance products.

"We have observed that some MFIs operate not merely as providers of credit, but also as providers of other services. These services include acting as insur ance agents, acting as agents for the suppliers of mobile phones and telecom services. While these services can profitably be provided by MFIs along with the supply of credit, there is a risk that given the vulnerable nature of the borrower and his/her inadequate negotiating power, an element of compulsion may creep in unless the provision of these services is regulated.

It is, therefore, necessary that the regulator limits the nature of services that can be provided, as also the in come that can be generated from such services, the latter as a percentage of the total income of the MFIs," the Malegam Committee report said.

RBI is studying the recommendations and will soon come out with final guidelines.

Amarnath Ananthanarayanan, managing director and chief executive officer, Bharti Axa General Insurance, said, "Microfinance institutions form a major channel for distribution of our micro insurance products. If there is any restriction on MFIs to sell our product, it may be a huge blow to the insurance sector."

GV Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance, said, "Insurance products should be seen in a different light than telecom services.

Micro insurance products sold by life insurers covers the life of borrowers. So, in case something happens to the borrower, insurance companies will repay the loan to the company. Such products are good for the customers, MFIs and insurance companies."
Source :- mydigitalfc