Stress levels among insurance-backed loans in Kenya 63pc lower than non-insured- Report

The report examined insured loans to smallholder farmers in Kenya. 

Partnering with Turaco, One Acre Fund gave borrowers the option to embed insurance into its loans to protect against health emergencies that can impact repayment. 

Given the insurance was optional, it is likely there are systematic differences between the insured and uninsured groups like wealth, previous exposure to insurance; that could influence financial outcomes.

Even, taking this into account, the financial outcomes were notable among the insured group: 65pc of borrowers self-reported that their loan repayments are a lesser burden and 63pc of borrowers self-reported reduced stress levels, as they spent less time worrying about money. 

There's a potential decrease in default; initial results indicate up to 60pc lower default among the group that chose to add insurance, and 18pc increase in on-time loan repayment times among that group. 

These significant and encouraging findings highlight the need for additional research that can further expand on the likely causal relationship between insurance and loan repayments.

Beyond financial resilience, borrowers reported a marked improvement in health and overall well-being. Borrowers reported that their health visits increased by 66pc. 

There was nearly an even breakdown in the utilization of claim payouts among medical expenses 37pc, household expenses 36pc, and repaying family and friends for healthcare costs [31%], illustrating the flexibility of insurance to cover immediate expenses borrowers face in light of a financial shock. 

With 85pc of jobs found in the informal sector in sub-Saharan Africa, the vast majority of adults lack access to employer-based insurance and must pay out-of-pocket for healthcare expenses, putting them at risk of financial ruin due to costly medical bills. According to the World Health Organization, 14 million low-income households across the continent are plunged into poverty every year due to out-of-pocket health expenses. 

With 70pc of One Acre Fund borrowers previously lacking access to insurance, 47pc would have had to sell an asset to cover hospitalization costs. 

Speaking on the report, Ted Pantone, Turaco CEO/founder said, “Without insurance, families across Africa are vulnerable to devastating catastrophic health risks, which can ruin them financially. This also puts lenders at greater risk of loan defaults."

"By embedding insurance into loans, both borrowers and lenders are protected. We are dedicated to improving the financial resilience of low-income families, and helping lenders get repaid is a key way to get that done.”

“At One Acre Fund, we believe that farming is the engine of Africa's development. We are on a mission to help boost food security and build pathways to prosperity among the 50 million farm families in sub-Saharan Africa. By integrating insurance into our loans, we allow smallholder farmers to focus on growing their crops without the fear of getting derailed by unexpected medical bills,” said Hepsiba Chepng’eno, One Acre Fund’s Director of Product Strategy.