Grant Assistance Report

Sri Lanka Project Number: 41671-022 December 2008

Proposed Administration of Grant

People’s Republic of Bangladesh: Developing

Inclusive Insurance Sector Project (Financed by the Japan Fund for Poverty Reduction)

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS (as of 30 November 2008)

Currency Unit - taka (Tk)

Tk1.00 = $0.0145 $1.00 = Tk68.7850

ABBREVIATIONS

ADB – Asian Development Bank EA – executing agency IA – implementing agency JFPR – Japan Fund for Poverty Reduction MFI – microfinance institution NGO – nongovernment organization PKSF – Palli Karma Sahayak Foundation PMC – project management cell TA – technical assistance

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 30 June 2008.

(ii) In this report, "$" refers to US dollars

Vice President X. Zhao, Operations 1 Director General K. Senga, South Asia Department (SARD) Director A. Sharma, Governance, Finance and Trade Division, SARD Team leader M. Ozaki, Finance Specialist (Rural and Microfinance), SARD Team members R.L. Fontejon, Administrative Assistant, SARD M.K. Hidalgo, Assistant Project Analyst, SARD M.M. Zillur Rahman, Financial Management Officer, SARD

B a y o f B e n g a l

Ganges R.

Madhum

ati R.

Padma R.

Meghna R

.

Brahmaputra R.

Jamuna R

.

Teesta R

.

Hari

ngh

ala

R.

Puss

ur

R.

Kushiyara R.

DHAKA

Dohazari

Patiya

Nawabganj

DinajpurParbatipur

Sayedpur

Joypurhat

Gaibandha

Panchagarh

Thakurgaon

Nilphamari

Rangpur

Lalmonirhat

Kurigram

Bogra

Jamalpur

Bahadurabad

Sherpur

Naogaon

Rajshahi Natore

Bonpara

Nalka

Mymensingh

Tangail

Madhupur

Bhuapur

Sirajganj

Meherpur

Chuadanga

JhenaidahMagura

FaridpurRajbari

Manikganj

PabnaIshurdi

Jessore Narail

Kushtia

Gazipur Shahji Bazar

Brahmanbaria

Ashuganj

Bandarban

Rangamati

Khagrachari

Chittagong

Cox's Bazar

Teknaf

Bhola

Patuakhali

Barguna

Khepupara

Mongla(Chalna Port)

St. Martin's Island

Khulna

Bagerhat Perojpur

Jhalakati

Satkhira

Noakhali

FeniLakshmipur

Chandpur

Comilla

Laksham

Daudkandi

NarsingdiAkhaura

Shariatpur

Madaripur

Gopalganj

Barisal

Sylhet

Chhatak

Tamabil

Moulvibazar

Kulaura

Habiganj

Netrokona

Mohanganj

Sunamganj

Kishoreganj

Narayanganj

D H A K A

K H U L N A

CHITTAGONG

S Y L H E T

R A J S H A H I

BARISAL

I N D I A

I N D I A

I N D I A

MYANMAR

National Capital

Divisional Headquarters

District Headquarters

Town/Village

National Highway

Other Road

Railway

River

District Boundary

Divisional Boundary

International Boundary

Boundaries are not necessarily authoritative.

BANGLADESH

DEVELOPING INCLUSIVE INSURANCESECTOR PROJECT

Kilometers

0 25 50 75

N

08-3105 EG

89 00'Eo

89 00'Eo

91 45'Eo

91 45'Eo

22 00'No22 00'No

25 30'No

25 30'No

JAPAN FUND FOR POVERTY REDUCTION (JFPR)

JFPR GRANT PROPOSAL

I. Basic Data

Name of Proposed Activity Developing Inclusive Insurance Sector

Country Bangladesh

Grant Amount Requested $2.0 million

Project Duration 2 years

Regional Grant Yes / No

Grant Type Project / Capacity building

II. Grant Development Objective and Expected Key Performance Indicators

Grant Development Objective: The objective of the grant Project is to protect the livelihoods of poor households, especially women, from risks such as accidents, illness, theft, or natural disasters—to secure their welfare and productive or nonproductive assets through the development of low-cost inclusive insurance services (microinsurance). Expected Key Performance Indicators:

(i) Number of poor people who are covered by insurance (microinsurance policyholders) increased by 20,000 compared to the base figure in 2008.

(ii) Unexpected expenditures or resulting loss of assets, to cope with the risks of poor households covered by the pilot microinsurance, decreased by 30% compared to the base figure in 2008.

(iii) Insurance awareness campaign and training extended to at least 50,000 rural poor households; such households become familiar with the insurance concept, and are able to select proper formal and informal risk mitigation mechanisms.

(iv) Capacity building training on microinsurance operations extended to at least 20 microfinance institutions; those microfinance institutions develop institutional expertise in insurance underwriting, screening, financial management, product development, and marketing.

III. Grant Categories of Expenditure, Amounts, and Percentage of Expenditures

Category Amount of Grant Allocated in $ Percentage of Expenditures

1. Civil Works 0 0.0

2. Equipment and Supplies 92,000 4.6

3. Training, Workshops, Seminars, Public Campaigns

124,000 6.2

4. Consulting Services 456,400 22.8

5. Grant Management 0 0.0

6. Other Inputs: Pilot Microinsurance Scheme 1,215,000 60.8

7. Contingencies 112,600 5.6

TOTAL 2,000,000 100.0

Incremental Cost __ __

— = none.

2

JAPAN FUND FOR POVERTY REDUCTION

JFPR Grant Proposal Background Information

A. Other Data Date of Submission of Application

1 September 2008

Project Officer Mayumi Ozaki, Finance Specialist (Rural and Microfinance)

Project Officer’s Division, E-mail, Phone

Governance, Finance and Trade Division; South Asia Department mozaki@adb.org; Tel: +63 2 632 5347

Other Staff Who Will Need Access to Edit/Review the Report

Ashok Sharma, Director, Governance, Finance and Trade Division

Sectors Finance, Health, Nutrition, and Social Protection

Subsectors Microfinance, Social Protection

Themes Sustainable economic growth, gender and development

Subthemes Developing rural areas, gender equity in opportunities

Targeting Classification Targeted intervention

Was JFPR Seed Money used to prepare this grant proposal?

Yes [ X ] No [ ]

Have SRC comments been reflected in the proposal?

Yes [ X ] No [ ]

Name of Associated ADB Financed Operation

Improvement of Capital Market and Insurance Governance Project

Executing Agency

Ministry of Finance

Grant Implementing Agency

Palli Karma Sahayak Foundation (PKSF) Fazlul Kader Deputy General Manager PKSF E-4/B, Agargaon Administrative Area, Sher-e-Bangla Nagar Dhaka 1207, Bangladesh E-mail: fazlulkader@pksf-bd.org Tel: 880-2-8128832(1007) Fax: 880-2-9134431

ADB = Asian Development Bank.

B. Details of the Proposed Grant

1. Description of the Components, Monitorable Deliverables/Outcomes, and Implementation Timetable

Component A

Component Name Market Assessment and Product Development

Cost ($) 108,000.00

Component Description While poor rural households are potentially a significant market for insurance, there have been limited efforts to know and better understand poor people’s mechanisms for coping with risks. Understanding their risk profiles and awareness about insurance is an important step to introducing and developing microinsurance services that are relevant to poor households’ livelihood. A comprehensive market assessment will be conducted to develop a consolidated profile of potential microinsurance clients—including

3

their knowledge of insurance services, risks, income and expenditure patterns, seasonality of income and spending, health and health care conditions, ability to afford insurance premiums and willingness to pay, association and linkage with existing risk mitigation services by microfinance institutions (MFIs), and informal risk mitigation systems such as community-based mutual funds.

1

The market assessment will also focus on analyzing specific needs related to gender and indigenous people. The results of the market assessment, together with knowledge about successful products developed on microinsurance specially in other similar developing countries, will form the bases for the design and development of insurance products that will be tested under the pilot microinsurance scheme (component D). The market assessment survey will be organized by the Project Management Cell (PMC) at Palli Karma Sahayak Foundation (PKSF)—the Implementing Agency (IA). The survey is expected to cover more than 2,000 households spread out in the rural areas to ensure adequate geographical spread and risk experience. The result of the market survey will be publicly disseminated for further development of the microinsurance sector. Upon completion of the market assessment, microinsurance products for the pilot scheme will be developed. Potential microinsurance products for pilot testing could include a package of life, health and/or disaster insurance. PMC, with assistance from an actuary, will develop details of the actuarial-based microinsurance products—including benefit, term, eligibility, premium, restrictions, administration, claim verification, and monitoring. The product designs will be accompanied by appropriate financial projections, risk management processes, and operating procedures. The products will be user-friendly, simple and easy to understand for rural poor households. To promote microinsurance as a viable poverty alleviation instrument, microinsurance educational seminars will be conducted for the Government, insurance industry, microfinance sector, and other nongovernment organizations (NGOs) on the concept, products, policy framework, regulatory environment, grievance mitigation mechanisms for the poor, and illustrations of successful regional and international experiences. The educational seminars will be conducted by PKSF.

Monitorable Deliverables/Outputs (i) A survey report on the microinsurance market assessment, with comprehensive compiled survey data.

(ii) A stakeholders’ workshop to discuss the findings of the market assessment.

(iii) Reports on detailed microinsurance product designs including financial productions, delivery models, and administration methodologies; and endorsement by the relevant authority.

(iv) At least two education seminars on microinsurance.

1 Community-based mutual funds are informal arrangements in communities to pool funds to prepare for risks or

certain incidents of individual households (i.e., funeral fund).

4

Implementation of Major Activities: Number of months for grant activities

(i) 6 months for the market assessment (ii) 2 days for the stakeholders’ workshop (iii) 2 months for the microinsurance product development (iv) 9 days spread over the project implementation period for

the educational seminars.

Component B

Component Name Strengthening Policy, Legal and Regulatory Framework

Cost ($) 63,200.00

Component Description Although the insurance industry in Bangladesh is governed by the Insurance Act, 1938, the country does not have a dedicated act for microinsurance. Under this component, a microinsurance legal specialist will review the current legal and policy framework relevant to microinsurance (i.e., the Insurance Act, 1938, and the Micro Credit Regulatory Authority Act, 2006) for developing a conducive regulatory environment for the promotion of the microinsurance sector; and make recommendations for enhancing the existing framework. A legal specialist will interact with the Department of Insurance, Ministry of Commerce, for harmonization between the Microcredit Regulatory Authority Act, 2006, and the Insurance Act, 1938, which is currently under review by the Government. The legal specialist will also coordinate with the Ministry of Law, Justice and Parliamentary Affairs for the identification of potential legal matters. Supervisory functions of the regulatory authorities (e.g., the Microcredit Regulatory Authority, an independent regulatory authority for microfinance) could also be reviewed, and their capacity development needs would be assessed for enhancing the regulation and supervision of the microinsurance sector. The Project will provide expert assistance to support the implementation of supervision, if requested by the Authority. The regulatory authority would be assisted by developing guidelines and manuals for microinsurance sector regulation and supervision. PKSF will be the IA of this component and will coordinate with the Microcredit Regulatory Authority.

Monitorable Deliverables/Outputs (i) A report on recommendations of the microinsurance legal and policy framework review, and consultative meetings for information dissemination.

Implementation of Major Activities: Number of months for grant activities

(i) 2 months for the legal and policy review (ii) 1 month for consultative meetings for information

dissemination on recommendations

Component C

Component Name Awareness Creation and Capacity Development

Cost ($) 126,000.00

Component Description The Project will work with MFIs to extend the microinsurance outreach to rural communities. However, insurance operations are new to MFIs, and at the onset of the Project, staff of PKSF and its participating partner MFIs will be given intensive training on the insurance system, marketing, administration, and monitoring to enable them to function as microinsurance agents. The training will be coordinated by PMC at PKSF. To ensure the training programs

5

meet the industry standard, cooperation will be sought with the insurance industry (e.g., the Insurance Association, insurance companies) as appropriate.

Rural poor households have limited knowledge and understanding of insurance. To improve insurance awareness among rural poor people, extensive awareness creation campaigns will be conducted in a phased manner—starting from four selected divisions and gradually expanding to other divisions. The campaigns will be conducted by participating MFIs, with the assistance of PMC and awareness campaign facilitators. Various instruments (including group meetings, short play, public broadcasting, and leaflets to disseminate the basics of insurance knowledge to rural poor people) will be utilized. Capacity development programs and awareness creation campaigns will be gender–focused, by assessing gender-specific risk mitigation needs and reflecting them in pilot products.

Monitorable Deliverables/Outputs (i) Microinsurance training to PKSF and at least 20 MFIs. (ii) Awareness creation campaigns for at least 50,000 rural

households.

Implementation of Major Activities: Number of months for grant activities

(i) Throughout the project implementation period for the microinsurance training for PKSF and participating MFIs.

(ii) Throughout the project implementation period for the microinsurance awareness creation campaigns.

Component D

Component Name Microinsurance Pilot Scheme

Cost ($) 1,812,800.00

Component Description The market assessment, product development, awareness creation,and capacity development will result in a pilot microinsurance scheme that will test microinsurance products and delivery models, and identify cost-effective means of providing sustainable insurance services to poor households in rural areas. The pilot test will be started in four divisions and sequenced in marketing, product delivery, monitoring, and assessment. Explicit selection criteria of participating MFIs will be developed by a consultant expert, in consultation with PKSF. In the pilot test, PKSF, with the participating MFIs, will be the IA. While implementing the pilot scheme, the Project will support technical transfer to PKSF and the participating MFIs—on underwriting, policy issues, claims management, marketing, advertising, and monitoring—by providing qualified insurance experts to MFIs. The Project will install an appropriate management information system for PKSF and the participating MFIs. The Project will also support PKSF to enter into a reinsurance arrangement with a formal insurance provider to prepare for covariant risks (a situation in which a large number of insurance policyholders are affected by a certain incident and require benefit payouts at the same time).

At the end of the Project, a country workshop will be held inviting policymakers, insurance industry, microfinance sector, and other professionals to disseminate the results of the pilot scheme and promote replicable microinsurance delivery models. Outputs of the workshop will be disseminated through online and print media.

6

Monitorable Deliverables/Outputs (i) Pilot microinsurance scheme (actual marketing and operation of microinsurance product) and a report on the scheme

(ii) At least 20,000 microinsurance policyholders by project completion

(iii) Impact assessment of the pilot scheme (iv) A country workshop on inclusive insurance sector

development

Implementation of Major Activities: Number of months for grant activities

(i) 12 months for pilot microinsurance scheme (year 2) (ii) 1 month for the impact assessment (year 2) (iii) 3 days for the country workshop

2. Financing Plan for Proposed Grant to be Supported by JFPR

Funding Source Amount ($)

JFPR 2,000,000.00

Government (including PKSF) 96,000.00

Other Sources (communities) 14,000.00a

Total 2,110,000.00 a Mostly in kind.

3. Background

For the poor,2 acquiring and creating productive assets and increasing income is the long and difficult way out of poverty. Shocks like illness, fire, or theft can cause severe setbacks in the process of accumulating assets, and often force them deeper into poverty. Even shocks that would only mildly affect upper- and middle-income households can dramatically reduce the assets of poorer households, eliminate their income sources, reduce consumption, and thus adversely affect their ability to improve their social and economic welfare. To cushion the shocks, these households borrow from informal sources, withdraw their savings, or sell productive and nonproductive assets. However, the coverage of such mechanisms is insufficient and unreliable. For most poor and lower-income households, no alternative formal institutional mechanism of risk mitigation—insurance service3—is available.

Although Bangladesh is one of the most mature countries in microcredit, microinsurance or inclusive insurance service for the poor, though gaining in popularity, is a relatively new concept. Despite recent rapid growth, especially in life insurance businesses, the insurance industry is still at a developing stage—indicated by the insurance density4 of a mere $2.5 per person and insurance penetration5 of 0.61%, the lowest in the South Asia region. In addition, the insurance policyholders concentrate on the upper- and middle-income population, and it is

2 The poor in this document roughly denote people with daily consumption of $2 per day or below. Conventionally,

beneficiaries of microinsurance projects are the poor, but not destitute, and have at least one source of income such as agricultural labor, subsistence farming, or microenterprises.

3 There are various types of insurance, but this paper refers mainly to life (life, credit life, life savings, and disability)

insurance and general (fire, marine, motor, and miscellaneous) insurance for individual households. Agricultural, crop, or weather insurance is beyond the scope of this Project.

4 Insurance density is calculated as per capita insurance premium for a year. It measures the progress of the

insurance industry and is used as an indicator of the industry’s maturity in an economy. 5 Insurance penetration is the gross insurance premium as a percentage of gross domestic product (GDP). It is used

as an indication of the level of risk awareness in the population and significance of insurance in the economy.

7

estimated that 93% of Bangladesh’s 134 million population has no access to institutional insurance services. 6 Several major NGOs have initiated some microinsurance schemes covering health care, disability, or death.7 However, microinsurance has not yet reached a level where it can make a significant impact, given the scale of potential demand. This is mainly due to (i) an underdeveloped policy and regulatory framework devoted to microinsurance, (ii) limited institutional capacity, and (iii) insufficient knowledge and awareness on insurance among the poor population. In recent years, the number of microinsurance schemes in the world has grown. In the South Asia region, India is the most advanced country and has various microinsurance innovations—including life, health, crop, livestock, and weather insurance—by different types of organizations ranging from formal insurance companies to community-based organizations.8

The purpose of the proposed Project is to develop the microinsurance sector to improve risk mitigation and reduce the vulnerability of Bangladesh’s poor; and to integrate it as a mainstream microfinance activity, taking lessons from successful microinsurance experiences in other countries.9 The Project will promote microinsurance through the microfinance NGO self-insurer model, under which microfinance NGOs will be insurance providers, involved in all aspects of services. This is because microfinance NGOs in Bangladesh have a long established presence among poor communities, high accountability and sustainability, and are governed by a regulatory authority—compared to the formal insurance sector, which has weak performance, inadequate supervision, and governance. The intervention will cover comprehensive aspects for the promotion of microinsurance including regulation and supervision, institutional development, capacity development, product design and development, and delivery and social intermediation. The project design and monitoring framework is in Appendix 1. 4. Innovation Traditionally, donor-funded poverty alleviation projects have focused on employment and income generation as means to uplift the poor. Addressing risk mitigation needs of the poor has been less emphasized. In reality, the poor have to grapple with both adverse events and their limited coping capacity with shocks. Although support for income augmentation and asset accumulation could gradually lead the poor out of poverty, a single shock such as flood or drought will bring them back below the poverty line. Even for the nonpoor, those around the periphery of the poverty line are also vulnerable since small shocks can push them into poverty.

6 Socquet, Marc. 2005. ILO/STEP, Microinsurance Workshop. India.

7 Grameen Kalyan, a Grameen Bank subsidiary, started a health insurance scheme in 1996 and provides

preventative and curative health insurance services. The Bangladesh Rural Advancement Committee has offered health insurance to the rural poor since 2001, with three insurance products: an annual general package, a package targeted at pregnant women, and a product targeted at schoolchildren. The International Network of Alternative Financial Institutions initiated life and non-life insurance schemes in 2006. In addition, many microfinance institutions have credit-life schemes to waive a debt repayment obligation in case of the death of the borrower.

8 Examples of microinsurance programs in India include the following: Spandana offers an integrated insurance

product covering credit life, spouse’s death, and limited asset loss; TATA-AIG Life Insurance Company Ltd. is a joint venture between TATA, a large Indian conglomerate, and the American International Group, offering life insurance and savings products; and VimoSEWA India formed a partnership with two private insurance companies to offer life, health, and asset insurance.

9 ADB assistance on microinsurance includes ADB. 2008. Grant Assistance to the Republic of the Philippines for

Developing Microinsurance Project (Financed by the Japan Fund for Poverty Reduction). Manila; and ADB. 2006. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for Microinsurance Sector Development. Manila.

8

The Project has two innovative aspects for addressing the needs of the poor: (i) reducing their vulnerability and building protection against shocks through developing affordable insurance services (innovation in subject), and (ii) expanding insurance service outreach through the network of MFI NGOs (innovation in approach). Conventionally, insurance is not regarded as an appropriate risk mitigation mechanism for the poor since the poor have limited capacity to pay insurance premiums. However, experience in other regions suggests that insurance is a valid protection instrument for the poor if the product is developed according to the poor’s livelihood requirements and income level. The Project will develop affordable but viable insurance products for the rural poor through participatory discussions with MFIs and community-based organizations. In this Project, MFIs are the primary insurers and service provider, and their participation will enable the Project’s outreach to women. The pilot insurance services will be promoted, marketed, and managed by MFIs with support and cooperation from the formal insurance sector and the Government. 5. Sustainability The Project will ensure sustainability by instituting viable microinsurance operation at MFIs. This means that MFIs will be able to assess the insurable risks, adequately price the insurance against those risks, and manage the operating expenditures vis-à-vis premium incomes. This will entail (i) a proper market assessment and detailed client information stocktaking, (ii) product and services development that meet poor people’s needs and livelihoods, and (iii) technical transfer and capacity development. The Project will pilot test this approach under component D. A market assessment will also be conducted to compile the profile of the targeted poor beneficiaries—including their income level, seasonality of income, interest in insurance, affordability of insurance premium, risk mitigation needs, and level of insurance awareness. Based on the information obtained from the market assessment, commercially viable and actuarial-based insurance products will be developed. Dissemination of the results of the market assessment survey will also be useful in providing an incentive for other market-based institutions and NGOs to develop their own strategies and products for providing microinsurance on their own. In addition, the Project will conduct an extensive awareness campaign and capacity development training through training of trainer programs to develop lasting awareness on insurance among poor households. Under the training of trainer programs, selected staff of MFIs will be trained for replication and expansion of awareness creation and capacity development campaigns in different locations, even after project completion. The Project will provide rigorous training to MFIs on insurance operations, with the initial operation cost supported by the Project. The Project’s operational cost support for MFIs is conditional on PMC’s assessment of MFIs’ ability to conduct insurance business in a financially sustainable manner based on their operational and financial plans. 6. Participatory Approach Key project stakeholders include the Government (Ministry of Finance), PKSF (microfinance apex organization), MFIs, and community-based organizations (beneficiaries).The Project involves an extensive participatory consultation process at all levels of project implementation. The market assessment to be conducted at the onset of the Project will take complete stock of the livelihood profile of poor households through focus group discussions, participatory appraisal, and interviews. The awareness creation campaigns and capacity development training will be conducted in an interactive manner to receive beneficiaries’ feedback, as reflected in project implementation, on a continuous basis. The pilot microinsurance scheme will have a built-in monitoring and feedback mechanism in its operating modality, under which the views of clients (target beneficiaries) will be constantly sought to improve the pilot insurance product for replication and expansion. The policy and regulatory

9

framework for microinsurance will also be developed. This process will include extensive consultation workshops inviting various stakeholders—including government agencies, the central bank, MFIs, and representatives of community-based organizations—to ensure that grassroots views are adequately reflected in the policy. The project is monitored by the project coordinating committee which is comprised of the secretaries or their designated representatives from the Ministry of Finance, Ministry of Commerce, Microcredit Regulatory Authority, and PKSF.

Primary Beneficiaries and Other Affected Groups and Relevant Description

Other Key Stakeholders and Brief Description

The primary beneficiaries of the Project are rural poor people who have limited access to formal financial services (i.e., bank loans, insurance services, etc.). The poor face extensive risks such as accidents, illness, fire, theft, natural disasters, crop failure, and loss of livestock, but have only informal means to cope with those risks (such as borrowing money from friends and relatives). The Project will develop institutional insurance services for those poor households through MFIs that have long and close associations with rural poor households.

The Project will involve the Government (Ministry of Finance), which is in charge of developing financial sector policies—including the microfinance sector—as the project executing agency. PKSF, the microfinance apex organization, will be the project implementing agency. PKSF will be supported by its partner MFIs to implement the Project at the community level. The Project will also have linkages to the Ministry of Commerce, Bangladesh Bank (the central bank), Microcredit Regulatory Authority (a regulatory authority for MFIs), and private insurance companies for consultation and guidance.

7. Coordination During the project design phase, extensive donor consultations were held with the Japan Bank for International Cooperation, Japan International Cooperation Agency,10 Department for International Development of the United Kingdom, German development cooperation through GTZ, and International Fund for Agricultural Development of the United Nations; their comments and suggestions were incorporated in the project design. The World Bank is currently preparing a crop insurance project with PKSF, and has assured information exchange and coordination during implementation of this Project. There is no duplication between the World Bank’s forthcoming project and the proposed Project; rather, they are complementary as the proposed Project will not cover crop insurance but will focus on life and general insurance. The ADB Mission met with Y. Fukuda, counsellor-deputy chief of mission; A. Yoshida, first secretary; and T. Inagaki, economic researcher, Economic and Development Cooperation of the Embassy of Japan in Bangladesh together with Y. Fujita, chief representative, Japan Bank for International Cooperation on 21 February 2008 and briefed them about the project concept. The Mission in general received supportive responses on the proposed Project. 8. Detailed Cost Table

A summary cost table is in Appendix 2. Appendix 3 contains detailed cost estimates and Appendix 4 presents the funds flow arrangements.

10

On 1 October 2008, Japan Bank for International Cooperation (JBIC) merged with Japan International Cooperation Agency (JICA).

10

C. Link to ADB Strategy and ADB-Financed Operations

1. Link to ADB Strategy

ADB’s long-term strategic framework 2008–2020 (Strategy 2020)11 identifies extensive financial services to the poor and rural areas as part of ADB’s core strategic areas of interventions, stating that “to promote inclusive growth, it will seek to create an enabling environment for microfinance, rural finance institutions, and small and medium enterprises, and will explore the use of technologies to expand the reach of the formal financial system in rural areas.” Other related strategies are as follows:

Document Document Number Date of Last

Discussion Objective(s)

Country Strategy and Program Bangladesh 2006–2010 Financing for the Poor: Microfinance Development Strategy

CSP: BAN 2005-13

October 2005

2002

(i) accelerating growth in rural areas and developing agriculture and nonfarm economic activities led by the private sector; (ii) assisting small and medium-sized enterprises; (iii) improving rural infrastructure, including measures to reduce natural and human-induced shocks; and (iv) better access to information and communication technology. (The country operations business plan for Bangladesh 2008–2010 contained no changes to the country partnership strategy results framework in the country strategy and program 2006–2010.) To ensure permanent access to institutional financial services for the poor and low-income households at competitive prices.

2. Link to Specific ADB-Financed Operation

Project Name Improvement of Capital Market and Insurance Governance Project

Project Number 2232-BAN

Date of Board Approval 9 March 2006

Loan Amount ($ million) 3

3. Development Objective of the Improvement of Capital Market and Insurance Governance Project The development objective of the associated project is to improve good governance practices in the capital market and insurance sector. The technical assistance loan has two parts. Part 1 is to enhance the governance and capacity of the insurance sector. It is targeted at the regulator, stock exchanges, market practitioners, and investors. Part 2 is to support government-led reforms being pursued in the insurance sector and international best practices. These twin efforts are being undertaken in parallel with a reform program aimed at

11

ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008–2020. Manila.

11

strengthening Bangladesh’s banking sector, supported by the International Monetary Fund and the World Bank. The proposed JFPR Project will complement these objectives by emphasizing affordable insurance services targeted at poor households. It will carry out activities to enhance the access of poor households to insurance services through pilot microinsurance schemes, along with awareness creation and capacity development. A participatory approach, in close collaboration with NGOs and community-based organizations, will ensure greater pro-poor impact. 4. Main components of the Improvement of Capital Market and Insurance Governance Project

No. Component Name Brief Description

1. Enhancement of governance and capacity of the insurance sector (component: part 2)

Capacity building of the regulatory authority, regulations for the new legislation, a development plan for state-owned insurance corporations, and updated mortality tables.

5. Rationale for Grant Funding versus ADB Lending The proposed JFPR grant Project aims to assist the development of the microinsurance sector in Bangladesh to reduce the vulnerability of the poor to financial (loss of productive assets, damage to property, etc.) and physical (illness, injury, etc.) downturns, through improved access to reliable and affordable institutional insurance services. Experience suggests that developing the formal insurance sector is a prerequisite for enhancing the insurance outreach of large institutions, but that alone does not lead to extending insurance services to the poorer segment of the society. Well-targeted approaches are needed to enhance the insurance outreach to the poor, such as developing insurance products that address particular risk mitigation needs of the poor. Supplementing the capacity development efforts of the formal insurance sector under the loan Project, the proposed JFPR Project aims to promote microinsurance in partnership with NGOs and community-based organizations through policy review and dialogues, capacity development, social intermediation, awareness creation, training, dissemination, and pilot schemes. Such activities are not suited for loan financing. Microfinance NGOs in Bangladesh have a well-established network in rural poor communities, a high level of accountability, and are well-governed by the regulatory authority. The Project will support the development of the microinsurance sector, with microfinance NGOs as key stakeholders. D. Implementation of the Proposed Grant

1. Implementing Agency Palli Karma Sahayak Foundation (PKSF)

PKSF is the government-owned microfinance apex organization, established in 1990. It provides wholesale credit to its member MFIs for onlending. PKSF currently has 200 partner MFIs, 8 million clients, and lends about $300 million annually. It also implements various donor-funded projects including the Second Poverty Alleviation Microfinance Project of the World Bank. The Project will be implemented by PKSF, using its extensive partner MFI network. Details of the implementation arrangement are in Appendix 5.

All procurements under the JFPR grant will be conducted in accordance with ADB’s

Procurement Guidelines (2007, as amended from time to time). PKSF will be procuring two vehicles to transport the project staff for community mobilization, MFI supervision, and

12

monitoring. Vehicles are procured through a leasing arrangement, unless purchasing prices are significantly lower than the cost of leasing. If vehicles are purchased, they will be handed over to PMC upon project completion. Consultants will be recruited by a consultant selection committee to be established for the Project, which is comprised of representatives from the Ministry of Finance, PKSF, and other relevant government agencies in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time) to provide the services for implementation, management, and progress monitoring of the JFPR grant. Grant funds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). The Government will maintain separate accounts and records for the JFPR Project and have them audited annually by auditors acceptable to ADB and following sound auditing standards. Certified copies of the audited reports will be submitted to ADB within 6 months after the close of the relevant financial year. The JFPR Project follows all relevant ADB safeguard policies, including ADB’s Involuntary Resettlement Policy (1995), Environment Policy (2002), and Policy on Indigenous Peoples (1998). The proposed Project envisages no resettlement, environment, or indigenous peoples’ issues. 2. Risks Affecting Grant Implementation

Type of Risk Brief Description Measure to Mitigate the Risk

Governance The Government may not actively support nonformal insurance companies (i.e., MFIs) to be involved in insurance operations.

The Executing Agency of the Project is the Ministry of Finance, which expressed full commitment in support of the development of the microinsurance sector with the involvement of MFIs. The Project will also have close interaction with the Microcredit Regulatory Authority and Department of Insurance for guidance.

Staff Capacity Staff of participating MFIs may not have sufficient skills and knowledge for insurance operations

Sufficient resources will be allocated for training and capacity building for participating MFIs. Technical support from the insurance industry will also be requested to ensure skills transfer.

Beneficiary Willingness

Poor people may have limited interest in and willingness to buy insurance products.

Extensive public awareness campaigns will be launched, emphasizing the importance of insurance as cost-efficient protection, and a pilot insurance scheme will have constant interactive monitoring to refine the products based on clients’ needs.

The summary poverty reduction and social strategy is in Appendix 6. 3. Incremental ADB Costs No incremental ADB cost is requested under this Project.

13

4. Monitoring and Evaluation

The performance monitoring and evaluation of the JFPR Project will comprise the following: (i) baseline data and output targets set up at the overall project level by PMC and at the individual group level by implementing MFIs and managed by the PMC, (ii) implementation-related performance data collected and recorded by implementing MFIs and managed by PMC, and (iii) performance and impact data collected by implementing MFIs on project completion. A separate NGO will also be engaged to carry out a poverty impact assessment. Key performance indicators and monitoring and reporting mechanisms are summarized below.

Key Performance Indicator Reporting Mechanism Plan and Timetable for M&E

Number of poor people who are covered by insurance (microinsurance policyholders) increased by 20,000 compared to base figure in 2008.

Regular MFI reporting

Project progress report

ADB missions

Quarterly

Semiannual

Semiannual

Insurance awareness campaign and training extended to at least 50,000 rural poor households, and those households become familiar with the insurance concept and able to select proper formal and informal risk mitigation mechanisms.

Regular MFI reporting

Project progress report

ADB missions

Quarterly

Semiannual

Semiannual

Capacity building training on microinsurance operations extended to at least 20 MFIs, and those MFI develop institutional expertise of insurance underwriting, screening, financial management, product development, and marketing among the MFIs.

Regular MFI reporting

Project progress report

ADB missions

Quarterly

Semiannual

Semiannual

Unexpected expenditures or resulting loss of assets to cope with risks of the poor households who are covered by the pilot insurance decreased by 30% compared to base figure in 2008.

Regular MFI reporting

Project progress report

ADB missions

Participatory poverty monitoring and poverty impact assessment

Quarterly

Semiannual

Semiannual

Annual

5. Estimated Disbursement Schedule

Fiscal Year (FY) Amount ($)

FY2009 $300,000.00

FY2010 $1,100,000.00

FY2011 $600,000.00

Total Disbursements $2,000,000.00

14

----------------------------------------------------------------------------- Appendixes

1. Design and Monitoring Framework 2. Summary Cost Table 3. Detailed Cost Estimates 4. Funds Flow Arrangements 5. Implementation Arrangement 6. Summary Poverty Reduction and Social Strategy

Appendix 1 15

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Impact Improved access to affordable insurance services and reduced vulnerability of poor households, especially in rural areas

Government policies and legal framework more conducive to the promotion of microinsurance for poor households established (dedicated microinsurance act and policy developed) Growth of microinsurance industry dedicated to providing insurance services to the poor (increase in number of microinsurance providers from 3 in 2008)

Policy documents of the Government, including the central bank Project completion report Impact assessment report

Assumption • Poor peoples’

willingness to buy insurance services

Risk • Government’s

willingness to establish appropriate policy environment

Outcome Increased awareness and availability of microinsurance

Number of poor people covered by insurance (microinsurance policyholders) increased by 20,000 compared to base figure in 2008

Unexpected expenditures or resulting loss of assets, to cope with risks, of poor households covered by the pilot insurance decreased by 30% compared to base figure in 2008

Insurance awareness campaign and training extended to at least 50,000 rural poor households; those households become familiar with the insurance concept, and able to select proper formal and informal risk mitigation mechanisms

Capacity building training on microinsurance operations extended to at least 20 MFIs, which develop institutional expertise in insurance underwriting, screening, financial management, product development, and marketing

Recommended policy and legal amendments Project completion report Project review missions

Consultants’ reports Impact assessment study

Assumption • Willingness of MFIs to

enter into microinsurance business

Risk • Government’s

willingness to adopt legal amendments

16 Appendix 1

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Outputs 1. Policy review,

including analysis and documentation of successful microinsurance schemes in other countries

2. Legal review of

acts and regulations related to microinsurance, including the Microcredit Regulatory Authority Act, 2008

3. Institution and

market assessment of microinsurance market

4. Participatory assessment of risk mitigation needs of poor and low-income households

5. Awareness campaign for potential microinsurance beneficiaries

6. Microinsurance

pilot scheme including products, actuarial valuation, delivery modes, administration methods, and capacity-building needs

A report on the policy review with recommended actions A report on the legal review and recommendations A market assessment survey report on existing microinsurance providers, products, and services; client profile; and dissemination workshops A participatory needs assessment report on risk mitigation products and services identified by potential microinsurance clients and dissemination workshops Awareness campaign and monitoring report A report on product development, and implementation methods for pilot testing

TA review missions Consultants’ reports Assessment reports Report on workshops List of workshop participants Impact assessment report

Assumption • No politicization of

insurance providers Risks • Willingness of existing

microinsurance providers to disclose information

• Identification of

financially viable products

• Willingness of key

MFIs to participate in microinsurance market

Appendix 1 17

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

7. Pilot testing

8. Impact

assessment of pilot testing (1–2 years after the Project)

Implementation, monitoring, and evaluation of pilot-testing results Impact assessment report on the social and poverty impact of the Project, including (i) household asset level, (ii) reduced emergency expenditures, (iii) reduced costs for informal risk mitigation, (iv) spending on health and education, and (v) empowerment Lessons learned and recommendations for replication

Activities with Milestones Inputs 1. Legal and policy review of microinsurance sector conducted and report

submitted (2nd

quarter 2009) 2. Institutional and market assessment for microinsurance conducted and report

submitted (2nd

quarter 2009) 3. Participatory needs assessment of risk mitigation for poor and low-income

households conducted and report submitted (2nd

– 3rd

quarter 2009) 4. Awareness campaign conducted in the four selected divisions (from 4

th

quarter 2009 to throughout the project implementation period) 5. Report on microinsurance products and services for pilot test submitted (2

nd

quarter 2010) 6. Actuarial valuation developed for proposed microinsurance products (2

nd

quarter 2010) 7. Consultation workshops conducted for the pilot test (2

nd quarter 2010)

8. Capacity-building training conducted for the pilot scheme as needed (from 2nd

quarter 2010 to throughout the project implementation period)

9. Pilot test implemented and monitoring report submitted (from 3rd

quarter 2010 throughout the project implementation period)

10. Project completion report submitted and impact assessment conducted (1st

quarter 2011) 11. Knowledge management products developed and disseminated (1

st quarter

2011) 12. Beneficiary impact assessment conducted and results disseminated

(1–2 years after the Project)

• Japan Fund for

Poverty Reduction grant financing: $2,000,000

• Counterpart financing (in kind): $110,000

MFI = microfinance institution, TA = technical assistance.

18

A

ppe

ndix

3

SUMMARY COSTS TABLE ($)

Component A

Component B

Component C Component D Total Percent

1. Civil Works 0 0 0 0 0 0.0

2. Equipment and Supplies 0 0 0 92,000 92,000 4.6

3. Training, Workshops, Seminars, Public Campaigns

0 4,000 90,000 30,000 124,000 6.2

4. Consulting Services 65,200 47,200 0 344,000 456,400 22.8

5. Grant Management 0 0 0 0 0 0.0

6. Other Inputs: Pilot Microinsurance Schemes 15,000 0 0 1,200,000 1,215,000 60.8

7. Contingencies (0%–10% of total estimated grant fund):a

7,800 2,000 6,000 96,800 112,600 5.6

Subtotal JFPR grant financed 88,000 53,200 96,000 1,762,800 2,000,000 100.0

Government Contribution 17,000 9,000 25,000 45,000 96,000

Implementing Agency Contributions 0 0 0 0 0

Community Contributions (mostly in kind) 3,000 1,000 5,000 5,000 14,000

Subtotal Contributions 20,000 10,000 30,000 50,000 110,000

Total Estimated Costs 108,000 63,200 126,000 1,812,800 2,110,000

a Use of Contingencies requires prior approval from ADB.

ADB = Asian Development Bank, JFPR = Japan Fund for Poverty Reduction.

Grant Components

Inputs/Expenditure

Appe

ndix

3

19

DETAILED COST ESTIMATES ($)

Code Supplies and Services Rendered Unit Quantity Cost Total

Units Per Unit $

AmountMethod of

Procurement

Component A. Market Assessment and Product Development Subtotal 100,200 80,200 17,000 0 3,000

1.1 Civil Works 0 0 0 0 0 0 0

1.2 Equipment and Supplies 0 0 0 0 0 0 0

1.3 Training, workshops, seminars 0 0 0 0 0 0 0

1.4 Consulting Services1.4.1 Remuneration (international) person-month 2 15,000 30,000 30,000 consultant 0 0 01.4.2 Per Diem (international) day 60 170 10,200 10,200 consultant 0 0 01.4.3 International Travel (international) travel 2 5,000 10,000 10,000 consultant 0 0 01.4.4 Local Travel (international) travel 4 500 2,000 2,000 consultant 0 0 01.4.5 Reports and Communications (international) lump sum 1 500 500 500 consultant 0 0 01.4.6 Miscellaneous Administration Support (international) lump sum 1 1,000 1,000 1,000 consultant 0 0 01.4.7 Remuneration (national) person-month 2 5,000 10,000 10,000 consultant 0 0 01.4.8 Local Travel (national) travel 1 500 500 500 consultant 0 0 01.4.9 Reports and Communications (national) lump sum 1 500 500 500 consultant 0 0 01.4.10 Miscellaneous Administration Support (national) lump sum 1 500 500 500 consultant 0 0 0

1.5 Management and Coordination of this Component 0 0 0 0

1.6 Other Project Inputs (Specify: e.g., costs for NGOs, microfinance)1.6.1 Survey contract 1 35,000 35,000 15,000 consultant 17,000 0 3,000

Component B. Strengthening Policy, Legal and Regulatory Framework Subtotal 61,200 51,200 9,000 0 1,000

2.1 Civil Works 0 0 0 0 0 0 0

2.2 Equipment and Supplies 0 0 0 0 0 0 0

2.3 Training, workshops, seminars2.3.1 Seminar person 40 350 14,000 4,000 9,000 0 1,000

2.4 Consulting Services 2.4.1 Remuneration (international) person-month 2 15,000 30,000 30,000 consultant 0 0 02.4.2 Per Diem (international) person-day 60 170 10,200 10,200 consultant 0 0 02.4.3 International Travel (international) travel 1 5,000 5,000 5,000 consultant 0 0 02.4.4 Local Travel (international) travel 1 500 500 500 consultant 0 0 02.4.5 Reports and Communications lump sum 1 500 500 500 consultant 0 0 02.4.6 Miscellaneous Administration Support (international) lump sum 1 1,000 1,000 1,000 consultant 0 0 0

2.5 Management and Coordination of this Component 0 0 0 0 0 0 0

2.6 Other Project Inputs 0 0 0 0 0 0 0

Costs Contributions

CommunitiesGovern-

ment

Other

DonorsJFPR

20

A

ppe

ndix

3

Code Supplies and Services Rendered Unit Quantity Cost Total

Units Per Unit US$

AmountMethod of

Procurement

Component C. Awareness Creation and Capacity Development Sub-Total: 120,000 90,000 25,000 0 5,000

3.1 Equipment and Supplies 0 0 0 0 0 0 0

3.2 Training, workshops, seminars3.2.1 Awareness Creation Campaigns including materials campaigns 40 1,425 57,000 40,000 12,000 0 5,0003.2.2 Microfinance Institution Training training 25 2,520 63,000 50,000 13,000 0 0

3.3Consulting Services (e.g. for management and

monitoring/assessments)0 0 0 0 0 0 0

3.4 Management and Coordination of this Component 0 0 0 0 0 0 0

3.5 Other Project Inputs 0 0 0 0 0 0 0

Component D. Pilot Microinsurance Scheme Sub-Total 1,716,000 1,666,000 45,000 0 5,000

4.1 Civil Works 0 0 0 0 0 0 0

4.2 Equipment and Supplies4.2.1 Vehicle vehicle 2 30,000 60,000 60,000 shopping 0 0 04.2.2 Servers server 2 5,000 10,000 10,000 shopping 0 0 04.2.3 Computers computer 8 1,100 8,800 8,800 shopping 0 0 04.2.4 Printers printer 8 350 2,800 2,800 shopping 0 0 04.2.5 Uninterrupted Power Supply 8 1,300 10,400 10,400 shopping 0 0 0

4.3 Training, workshops, seminars4.3.1 Seminars seminar 5 10,000 50,000 30,000 20,000 0 0

4.4 Consulting Services4.4.1 Remuneration-national consultant person-month 60 5,200 312,000 312,000 consultant 0 0 04.4.2 Local Travel-national consultant travel 18 500 9,000 9,000 consultant 0 0 04.4.3 Reports and Communications-national consultant lump sum 1 3,000 3,000 3,000 consultant 0 0 04.4.4 External Audit contract 1 20,000 20,000 20,000 consultant 0 0 0

4.5 Management and Coordination of this Component 0 0 0 0 0 0 0

4.6 Other Project Inputs (Pilot Testing)

4.6.1 Pilot Testing-community mobilization/delivery lump sum 30,000 25,000 0 5,0004.6.2 Pilot Testing-reinsurance reinsurance 2 200,000 400,000 400,000 NCB 0 0 04.6.3 Pilot Testing-underwriting/policy issue/claims management contract 1 100,000 100,000 100,000 consultant 0 0 04.6.4 Pilot Testing-marketing, advertising contract 1 100,000 100,000 100,000 consultant 0 0 04.6.5 Pilot Testing-management information system contract 1 600,000 600,000 600,000 NCB 0 0 0

Components A to D = Subtotal Sub-total: 1,997,400 1,887,400 96,000 0 14,000

Contingency (Maximum 10% of total JFPR Contribution) 112,600 112,600

TOTAL Grant Costs Total: 2,110,000 2,000,000 96,000 0 14,000

Costs Contributions

JFPRGovern-

ment

Other

DonorsCommunities

JFPR = Japan Fund for Poverty Reduction, NCB = national competitive bidding, NGO = nongovernment organization.

Appendix 4

21

FUNDS FLOW ARRANGEMENTS 1. Funds will be disbursed under the terms of a contractual agreement with a government-approved party acceptable to the Asian Development Bank (ADB). The Project Management Cell (PMC), which will be established at Palli Karma Sahayak Foundation (PKSF) (the Implementing Agency), will channel funds to project contractors and participating microfinance institutions to be determined during project implementation. The Japan Fund for Poverty Reduction (JFPR) imprest account will be established, managed, replenished, and liquidated in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time) and detailed arrangements agreed between the Finance Division of the Ministry of Finance (the Executing Agency), PKSF, and ADB. The initial advance to the imprest account should be based on approved contracts and planned expenditures for the first 6 months of the Project. However, total advances of the grant amount at any time should not exceed estimated expenditures for the next 6 months or 10% of the total grant amount, whichever is lower. The statement of expenditures will be used for reimbursing eligible expenditures and liquidating the imprest account for any individual payment transaction up to $10,000 equivalent. The funds flow arrangements are in Figure A4.1. 2. PMC will (i) maintain, or cause to be maintained, an account for the JFPR Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied by independent auditors acceptable to ADB; (iii) as soon as available, but not later than 6 months after the end of the fiscal year, provide ADB with certified copies of such audited accounts and financial statements and the related report of the auditors, including the auditor’s opinion on the use of the JFPR funds and the imprest account and statement of expenditures provided under the Project, all in English; and (iv) provide ADB other information concerning such accounts, financial statements, and audits upon request.

Figure A4.1: Funds Flow Arrangements

$51,200

$80,200

Finance Division, Ministry of Finance (Executing Agency)

$90,000

Component D: Pilot Scheme

Component C: Awareness Creation

and Capacity Development

$1,666,000

$112,600

Component B: Conducive Policy

Development

Component A: Market Assessment and Product Development

Imprest Account

Reporting

Monitoring

Reporting

Contingencies

Monitoring

Reporting Palli Karma

Sahayak Foundation

(PKSF) [Implementing

Agency]

Source: Asian Development Bank.

Asian Development Bank

Appendix 5

22

IMPLEMENTATION ARRANGEMENTS

A. Project Components 1. The Project has four components:

(i) Component A: Market Assessment and Product Development, (ii) Component B: Strengthening Policy, Legal, and Regulatory Framework, (iii) Component C: Awareness Creation and Capacity Development, and (iv) Component D: Microinsurance Pilot Scheme.

B. Key Project Management Entities 2. The following entities will ensure successful implementation of the Project:

(i) Finance Division of the Ministry of Finance—the Executing Agency (EA). (ii) Palli Karma Sahayak Foundation (PKSF)—the Implementing Agency for the

entire Project, and recipient of the grant. (iii) Asian Development Bank (ADB)—funding agency, carrying out periodical project

review and audit. C. Project Management Unit

3. Facilitation and implementation of the overall Project will be managed and coordinated by the Project Management Cell (PMC) established at PKSF, supervised by the General Manager of PKSF and headed by a project coordinator responsible for directly managing the Project, and supported by additional PKSF staff. The project coordinator will be assisted by consultants for specific functions as appropriate. PKSF, on behalf of the EA, will procure the equipment. All procurement will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). PKSF will arrange annual financial audits of the Project and pilot audits, and for all reporting to ADB. PKSF will be responsible for coordinating with the EA and ADB. D. Consultant Recruitment 4. A consultant selection committee to be established for this Project will comprise representatives from the Ministry of Finance, PKSF, and other relevant government agencies. The committee will recruit the following consultants as outlined in ADB’s procedures for recruiting individual consultants in accordance with its Guidelines on the Use of Consultants (2007, as amended from time to time):

(i) International consultants: (a) microinsurance product development specialist (2 person-months), and (b) microinsurance legal specialist (2 person-months).

(ii) National consultants: (a) project coordinator (24 person-months), (b) project facilitators (24 x 2 person-months), and (c) actuary (2 person-months).

E. Project Review 5. ADB will periodically review the Project to ensure the expected outputs and development impacts, and report to the Government about the overall progress of the Project.

Appendix 6 23

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title: BAN: Developing Inclusive Insurance Sector

Lending/Financing Modality:

Japan Fund for Poverty Reduction (JFPR) Grant

Department/ Division:

South Asia Department/Governance, Finance and Trade Division

I. POVERTY ANALYSIS AND STRATEGY

A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy The Government’s national poverty reduction strategy affirms that reducing poverty and accelerating the pace of social development are the most important long-term strategic goals. The strategy accords priority, among others, to (i) accelerating growth in rural areas; and (ii) improving rural infrastructure, including measures to reduce natural and human-induced shocks. The country strategy and program for Bangladesh (2006-2010)

a of the Asian

Development Bank (ADB) aims to address critical constraints to broad-based economic growth, social development, and good governance. Especially, the strategy includes developing an inclusive investment climate and advancing social development to empower the poor. The proposed Project aims to reduce the vulnerability of the poor to financial and physical shocks by promoting low-cost insurance services for the poor, enabling them to take advantage of economic opportunities.

B. Poverty Analysis Targeting Classification: Targeted Intervention 1. Key Issues Poor households are exposed to various risks such as flood, fire, accident, illness, loss of livestock, and crop failure. Those risks that would mildly affect non-poor households are the significant setback for poorer households and often push them deeper into poverty. The poor have various informal coping mechanisms such as borrowing from friends and relatives, cutting down food and other essential consumptions, or selling lands and other assets. However, such informal means are insufficient, erode their assets, and adversely affect their livelihoods. It is estimated that 93% of the population in Bangladesh has no access to institutional insurance services. Several major nongovernment organizations (NGOs) have piloted some microinsurance schemes covering health care, disability, or death. However, despite the mature microcredit industry, microinsurance has not yet been mainstreamed as part of microfinance even when there is a significant demand.

2. Design Features The impact of the proposed Project is to reduce the vulnerability of the poor

b to financial (loss of productive

assets, damage to property) as well as physical (illness, injury, etc.) downturns through access to reliable and affordable institutional insurance services. The expected outcomes are (i) increased awareness among policy makers of inclusive insurance services as an effective instrument for livelihood improvement for the poor, and (ii) development of a conducive framework and financial infrastructure to promotion of the microinsurance sector, and (iii) initiation of microinsurance services by microfinance institutions (MFIs) with innovative products and delivery models. The Project will cover (i) conducive policy development, (ii) market assessment and product development, (iii) awareness creation and capacity development, and (iv) a microinsurance pilot scheme.

C. Poverty Impact Analysis for Policy-Based Lending Not applicable

II. SOCIAL ANALYSIS AND STRATEGY

A. Findings of Social Analysis

The Fact-Finding Mission conducted social analysis to identify issues and constraints in facilitating microinsurance services for poor households, to be reflected in the project design. Key points are summarized as follows:

(i) Risks faced by the poor. Like risks for the public, these risks are both covariant and individual. Risks are also categorized by frequency and impact. High-impact and high-frequency risks include crop failure (drought, flood, etc.) and livestock losses; high-impact and low-frequency risks include cyclones and earthquakes (natural disasters); low-impact high-frequency risks include snake bites and bullock hits; and low-impact and low-frequency risks include minor illness, and accidents. (ii) Poor’s perception of insurance. The poor’s low perception of insurance impedes their willingness to buy insurance. Limited rural presence of insurance brokers and insufficient awareness creation have resulted in limited or biased understanding of insurance by the poor. Responses by rural communities indicated various

a ADB. 2005. Country Strategy and Program (2006-2010): Bangladesh. Manila.

b In the context of this intervention, the poor is roughly defined as the population with daily consumption of $2 or less per person.

24 Appendix 6

reasons for not buying insurance: (a) cannot afford the premium, (b) do not trust in insurance companies, (c) terms and conditions of products are not suitable, and (d) no time or interest in thinking about insurance. (iii) Premium affordability of the poor. Without effective risk-pooling mechanisms, the poor tend to save to prepare for emergencies or life cycle events (marriage, funeral) even though their income is low and irregular. The analysis found that even the extreme poor save when they have cash income. Poor households are also willing to buy insurance if the insurance premium is affordable and matches their income stream.

B. Consultation and Participation

1. Provide a summary of the consultation and participation process during the project preparation.

(i) assessment and participatory appraisal of the beneficiaries (rural community groups) on their risk exposure, informal coping mechanism, interest in insurance, income and expenditures, health and education status, ability to afford insurance premiums and willingness to pay, and association with MFIs.

(ii) consultation and participatory discussion with NGOs and community-based organizations with regard to measures to develop and extend cost-efficient insurance services to rural poor households including awareness creation, capacity development, promotion and marketing, and impact assessment.

(iii) dissemination and discussion with the government agencies, regulatory authorities, and insurance companies on policy and regulatory matters to promote microinsurance. (iv) consultation discussion with donors and development partners, to receive feedback on the project design.

2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring?

Information sharing Consultation Collaborative decision making Empowerment 3. Was a C&P plan prepared? Yes No If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why. Palli Karma Sahayak Foundation (PKSF), the Implementing Agency, is the microfinance apex organization and has an established consultation and participation policy with communities through its partner MFIs. The Project will develop the consultation and participation plan, building on PKSF’s existing policy, at the initial stage of project implementation. Project facilitators will be recruited for this purpose.

C. Gender and Development

1. Key Issues Disasters and crisis often hit women harder than men. In case of disability or death of the household breadwinner, women have little means to cope with such shocks and in many instances become destitute. Although many rural poor women in Bangladesh have association with MFIs, insurance services, targeted at women are rarely available. 2. Key Actions Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process:

Gender plan Other actions/measures No action/measure (to be completed by PKSF on completion of the market assessment.) The Project will have the following actions for gender inclusiveness: (i) A market assessment to be conducted at the beginning of the Project will have a specific gender focus

assessing gender-specific risk mitigation needs, capacity development requirements, and pilot insurance products relevant to women’s livelihoods.

(ii) Awareness creation and capacity development will target women’s community-based groups. (iii) A pilot microinsurance scheme will incorporate women’s needs and risk mitigation requirements. Gender

sensitive promotion and marketing will be carried out. (iv) Monitoring and assessment of social and poverty indicators by gender, including (a) household income

level, (b) emergency expenditures, (c) household assets, (d) spending on health and education, (e) reliance on informal risk mitigation measures, and (f) empowerment.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Appendix 6 25

Issue Significant/Limited/ No Impact

Strategy to Address Issue

Plan or Other Measures Included in

Design Involuntary Resettlement

No impact No involuntary resettlement issues are expected

Full Plan Short Plan Resettlement

Framework No Action

Indigenous Peoples

No impact No issues related to indigenous peoples are expected

Plan Other Action Indigenous Peoples

Framework No Action

Labor Employment

opportunities Labor retrenchment Core labor

standards

No impact No labor issues are expected

Plan Other Action No Action

Affordability

No impact The Project will promote affordable insurance services for poor households

Action No Action

Other Risks and/or Vulnerabilities

HIV/AIDS Human trafficking Others(conflict,

political instability, etc), please specify

No impact Plan Other Action No Action

IV. MONITORING AND EVALUATION

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes □ No