Insurance is based on a simple principle: paying a defined sum today to cover a risk that may or may not materialize tomorrow. However, insurance has always existed in some form. Today it is offered by traditional organizations, private companies and public authorities.
In Africa, traditional ‘self-insurance’ tools are designed to collectively transfer and manage risks, often taking the form of community savings supervised by a ‘wise’ person, or more complex hierarchical and social arrangements. Pooling risks and resources to help people through tough times is very common in Africa.
Apart from tontines, other non-profit, membership-based schemes such as burial societies in South Africa or iddirs for Ethiopian smallholder farmers pool risks among people with no access to formal insurance.
Source of growth
Enables risk-taking. Positively impacts interest rates, credit supply and financing terms and conditions.
Source of stability
In economic terms: smooths income patterns and facilitates disaster recovery. In financial terms: long-term focus.
Source of redistribution
Pooling and mutualization: spreads risks between generations and between individuals.