How do indigenous insurance institutions help people cope with the cost of funerals? Could these institutions be scaled up? This article analyses evidence from rural Tanzania and Ethiopia. It finds that these institutions are widespread and inclusive and may be well-placed to broaden insurance provision and other development activities. However, concerns about political capture (based on past experience) seem to make them reluctant to engage with NGOs and government agencies. Cautious experimentation is therefore needed in attempts to expand their activities, and strictly voluntary schemes are the only realistic way forward.
Indigenous associations for the provision of funeral insurance are prevalent in developing countries, but largely unstudied. In Ethiopia and Tanzania, they have evolved into well-structured organisations, often offering insurance beyond funerals. This study draws on data from communities in rural Ethiopia and from a village called Nyakatoke in western Tanzania. One of the most striking findings is the large number of groups offering funeral insurance in each community and the clear rules and regulations governing their functioning.
- In a substantial number of cases, these groups offer not just funeral insurance but also hospitalisation, fire and house insurance, as well as financial services such as short-term credit.
- They have written membership lists and rules, well-defined coverage and payout schedules. A significant number charge regular contributions, resulting in substantial asset holdings.
- Multiple groups in each community tend to offer similar products, and people are often members of several institutions to increase their coverage.
- These groups appear to be more inclusive than informal arrangements of mutual support, and different socio-economic groups tend to be members of the same groups. Only limited sorting according to socio-economic background occurs.
- These institutions do not operate directly in formal financial markets.
- They have elected committees but are strongly independent from local political forces.
Indigenous insurance institutions may well be suitable vehicles for many development activities. There are an increasing number of examples in Ethiopia of successful involvement in broader development or microfinance-related activities, in collaboration with local NGOs.
- The success of such activities should not be taken for granted, however. Attempts by government-led institutions to scale up insurance groups may be met with suspicion and perceived as a threat to their continuation.
- Ownership and community-based development are popular concepts in current policy design and implementation. Offering these insurance groups possibilities to be included in these processes and providing them with ways to strengthen themselves would seem a sensible strategy.
- Even if policymakers choose not to engage these groups directly, developing new insurance activities must take into account their existence. Any alternative insurance activity involving some of the members may affect incentives to continue with the current institutions. This would have implications for the survival of these groups, and might result in the exclusion of members without access to the new mechanisms.
