Designing Financial Services to Respond to Household Shocks
Poor health and the inability to access health care are both key factors leading to and resulting from poverty (Narayan and Patesch 2002). For financial service providers (FSPs), poor health and health shocks are very common reasons for clients to default or drop out of their programs (Reinsch and F Ruaz 2010; Bardsley, Gray, and Gash 2015). These realities drove the launch of Freedom from Hunger’s Microfinance and Health Protection (MAHP) pilot initiative that ran from 2006 to 2009 and continues today. The goal of MAHP was to demonstrate the capacity of FSPs to design and deliver health products and services and remain financially viable. Reseau des Caisses Populaires du Burkina Faso (RCPB), a credit union network based in Ouagadougou, Burkina Faso, was one of the original MAHP partners. Through this project, RCPB developed three products to address the health needs of its clients: a health savings product, health loan (which could be accessed only when a health savings account was in use and depleted of funds), and a health solidarity fund managed by RCPB to invest in health protection services in the communities it serves. The health savings account was designed as a commitment savings product: (a) clients must save a minimum US$20 up-front or wait a minimum of six months before making a withdrawal and (b) clients must provide health expense receipts before withdrawing their funds.
In 2014, Freedom from Hunger, with support from the Consultative Group to Assist the Poor (CGAP), designed a study to gather information on household resilience. A key question of the resilience research related to the financial product features that help people anticipate and respond to shocks. Given that RCPB had a health financial product on the market designed to help people anticipate and respond to health expenses, the resilience research tools and the sampling methodology included questions related to the use of RCPB’s health savings and loan product. A diary approach was used with 46 women over a seven-month period to understand how they anticipated and coped with shocks. In addition, an economic game, engaging 395 women, was facilitated by researchers from the University of California, Davis. The economic game also set out to observe the household decisionmaking process regarding the choices they make about allocating resources in hypothetical scenarios, including the use of financial instruments designed to help people manage the risk of costly negative health shocks.
By December 2009, at the conclusion of the MAHP initiative, 12,539 RCPB clients had health savings accounts, amounting to approximately $55,000 in current deposits. By year-end 2011, there were 17,499 savings accounts, amounting to $389,984 in deposits (Juillet 2012). By June 2013, there were 19,500 health savings accounts (amount in deposits not reported), representing a growth in health savings accounts of 55 percent since the end of the project in 2009.
Initial MAHP research showed that clients were making active deposits and withdrawals in the first year of having their account (Gray and McCord 2010). The research also suggested that clients were overwhelmingly pleased with their health savings accounts, even when they had regular savings accounts with RCPB, because the health savings account allowed them to build savings specifically for health and created a level of discipline for saving for costs they knew they would eventually incur. They could also keep their health problems more private by not having to borrow from family members or neighbors. Clients consequently felt more secure about unpredictable illnesses they might face in the future (Gray and McCord 2010).
This case study highlights key findings from the CGAP resilience research that can help guide further thinking about how to best design financial products for anticipating and covering health shock expenses.