Microfinance institutions (MFIs) are expanding their service of distributing insurance products in association with insurers.

It is a win-win situation for both as insurance firms will save on distribution costs and MFIs will earn premium-based income among other benefits. Rural and urban poor in turn will get easier access to a variety of insurance products including saving, pension and asset coverage.

According to MFIs, the normal cycle of any customer with an institution is between 8-36 months. However, with longevity of insurance products the MFIs get to retain their customers for a substantial time period besides mitigating the credit portfolio risk.

While long standing MFIs that have been selling insurance products are strengthening their service portfolio, others are jumping onto the bandwagon.

Uttar Pradesh-based SE Investments is now planning to distribute life insurance products to its customer base in the state.

Sunil Agarwal, MD of SE Investments, told FC, “Till now we have only offered micro credit under individual lending and group lending model. Now with the proposal of distributing life insurance, we will be able to retain the ownership of our clients as we want to take care of all their needs. Talks with insurers are at primary stages at present.”

Amarnath Ananthanarayanan, MD and CEO of Bharti Axa General Insurance, said, “The insurance penetration in rural and semi-urban market is only about 2-3 per cent. At present, 8 per cent of our revenues come from the rural and the micro business. We are looking at a 20 per cent growth for the financial year 2010-11. We are interacting with a host of MFIs.”

Bhartiya Samruddhi Finance (BSFL), the flagship company of Hyderabad-based microfinance firm, is set to launch a new micro pension fund this financial year. BSFL sold about 10,000 micro pension funds in association with Invest India Micro Pension Services, Sewa bank and UTI during the pilot phase. With the formal launch it hopes to sell about 1 lakh micro pension funds by March.

BSFL has also unveiled a micro saving product in association with Aviva Life Insurance. Under the Long Life Samruddhi scheme, rural customers will get the benefit of term life insurance that never lapses through out the term. Similarly, to meet health needs of the urban poor, BSFL will soon unveil health insurance products.

Sajeev Viswanathan, CEO of BSFL, said, “We will tie up with hospitals and pharmacists to reduce the medical cost. The health insurance product will include preventive care cover wherein the customers will have to pay a premium ranging from Rs 300-500 per annum.”

Spandana, another Hyderabad-based MFI, is also in talks with Tata AIG to offer life insurance.