MILK Brief #10: Doing the Math with Property Insurance in Ghana

In January 2012 the MILK Project designed a Client Math study in partnership with MicroEnsureGhana and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ). The study was centered on the role of the insurance coverage in how insured entreprenuers coped with this shock, and thus explores the value of this type of coverage. Many products covering property damage, including agricultural microinsurance, include a large component that covers outstanding loans. The premise is that loan coverage can be useful in maintaining clients’ credit access in the formal financial sector. By paying off the loan, the product can help clients to remain creditworthy, which in turn helps them to continue to borrow in the future. The extent to which the loan coverage has value depends, of course, on what options would have been available to these clients if they did not have insurance coverage. Where a loan can be restructured or even partially forgiven after a shock, the potential value of an insurance product is limited, as the risk has already been managed. Our study shows in the case of Obra Pa the debt relief component of the insurance appears to offer value and few loans of uninsured clients (only 4 of 28) were restructured. We also find that the Obra Pa product’s loan forgiveness did improve the insured’s ability to borrow more, albeit from informal sources.