Health shocks can lead to failures of businesses, clients leaving their financial service providers, repayment problems and even destitution and poverty. In this fourth in e-MFP’s blog series to complement the European Microfinance Award 2021 on ‘Inclusive Finance and Health Care’, Bobbi Gray and Amelia Kuklewicz from Grameen Foundation’s RICHES Program describe the demand for health financing support, the models for meeting that demand, and lessons learned for FSPs considering getting into health finance.

We met Teresa in El Salvador in the winter of 2019. She was a participant in a focus group discussion in which we sought to understand the relationship between women’s involvement in microfinance and the impact of income shocks on their families. She was emotional, sharing her anguish over her husband’s illness and how she took the risk of taking out a loan to manage his medical care. Along with the other women in her group, when they discussed income, they had a well-worn phrase to hand - “Coyol quebrado, coyol comido” – which alludes to a particular fruit with a hard shell, that when broken, is eaten right away and nothing is saved. This is their cash flow and expenses; earned income is always fully accounted for and used immediately, leaving no room for emergencies. In English, this might be called ‘hand-to-mouth’.

In 2019, with a grant from the US Department of Labor’s Bureau of International Labor Affairs, Grameen Foundation and the American Bar Association Rule of Law Initiative joined forces for the Reducing Incidence of Child labor and Harmful conditions of work in Economic Strengthening initiatives (RICHES) project, with the goal to develop a toolkit for women’s economic empowerment actors such as financial services providers (FSPs) to integrate child labor and business safety into FSP products, services and programming. RICHES started out with a year-long pre-situational analysis, which consisted of a robust global desk review and field research in the Philippines and El Salvador. The evidence was growing that, as women start or grow a business, they will turn to their children for help—either to work in the business as a trusted and unpaid “employee”, or to offset the caretaking and household chores at home. But what also became clear was the primary reason most households resort to child labor - health shocks. Health shocks are also a key contributor to business failure as well as FSP client drop-out or repayment problems.

When Teresa and her group members were asked about what products they needed, microinsurance and other health financing products were mentioned, along with the basic need for more flexibility in existing products. Why? So that when household stresses or shocks occur, they don’t doubly suffer from the consequences of responding to the shock and keeping up with financial obligations such as loan repayment. This is of course compounded by the additional stress, pressure and worry that one missed loan repayment might permanently affect their access to future loans.

Demand for health financing support is often higher than any other financial risk management solution, and demand far exceeds supply. Health and accident/disability microinsurance are two of the most needed insurance tools. While hospitalization insurance is the most available, out-patient care can be just as financially catastrophic for a household; day-to-day ailments and chronic illnesses can quickly push a vulnerable household towards destitution. Children are pulled out of school temporarily, or permanently, to help fill the financial gap, especially if it is an income earner who has fallen ill.

Microinsurance is one of the only financial tools that has been shown to mitigate the risk of a household turning to child labor when a shock occurs. However, microinsurance, when available, seldom covers all out-of-pocket expenses, such as transportation or medicines. While microfinance clients will often use microenterprise loans to cover health expenses, these are not shown to positively impact health outcomes. And all other financial tools have shown a relationship, under certain circumstances, to an increased prevalence of child labor. Yet, the more financial tools a household has in their financial portfolio and the more flexible those financial tools are, the less likely a household will resort to child labor. This means the role of health financing can protect households in more ways than one: microenterprise loans are not being diverted to cover health expenses, households are able to seek health services without delay, and children are not pulled out of school to financially support the household in times of crisis.

Building on a paper we produced a few years ago that reflected on lessons learned from developing health savings, and amplified by the research we’ve conducted to develop the RICHES toolkit, we propose the following recommendations for those considering health financing:

If an FSP cannot immediately offer products that assist households in managing health costs, they can start by ensuring that existing products (whether these are savings, loans, etc.) and processes:

    1. Allow for restructuring in times of crisis, such as a health shock;
    2. Are better designed to respond to common cash-flow constraints that push households in making trade-offs. If there are well-known times of the year when households are low on income but have high expenses, these are common triggers for causing negative coping strategies, such as using child labor to support loan repayment, generating income to cover schooling costs, etc.;
    3. Don’t rely on aggressive payment recovery techniques. To avoid shame and ensure continued access to future financing, households may rely on children to assist in short-term income generation for loan payments; and
    4. Monitor for negative coping strategies and sacrifices that households may adopt or experience when using a financial tool, in addition to the intended positive impacts. This evaluation should be conducted at the product or program design stage, through program monitoring (such as during client satisfaction surveys), as well as when evaluating program outcomes. 

 If an FSP can offer health financing products, our experience shows an FSP should:

    1. Conduct market research to understand the types and amounts of out-of-pocket health expenses, women’s decision-making power related to their ability to decide when, where, and how they will seek treatment, and what health providers are most used;
    2. Design health financing products that are superior to borrowing from friends and family and other informal lenders since these are the frontline resources most often used due to being easily accessible and providing more flexibility in repayment;
    3. Keep red tape to a minimum, since even well-intentioned paperwork can create barriers to use. Focus on speed as health issues are often perceived as an emergency, even for planned medical events, such as childbirth;
    4. Consider how to meet different health costs. Different or integrated products should address preventive care (e.g. annual check-ups) and curative care (e.g. illness or injury) as well as financing that responds to small-impact (e.g. cough or cold) and large-impact (catastrophic illness or accident, disability) health issues;
    5. Cover the entire family, not just the client; and
    6. Evaluate client satisfaction with these financial tools as well as the care received from the health providers, since satisfaction is interlinked between the two.

More research is clearly needed to understand the overall impact health financing products (especially those designed to complement microinsurance such as health savings and loans) have on health behaviour, and even more so on the impact they can have on mitigating the risk of child labor. The 2021 European Microfinance Award highlighting advances in health financing is a welcomed acknowledgement of both the progress made in the field, and its potential to encourage replication of good practice.

Many FSPs might question the relevance of child labor to their work, but women female entrepreneurs were asked in the focus groups whether they wished their FSP could know and better understand the tradeoffs they often make, and in doing so to be more involved in their lives. One woman in El Salvador put it clearly: “Al menos que sepan que estamos jodidos” (‘at the least, they should know that we’re screwed’). This reveals how significant the challenge for FSPs is. They must see themselves as part of a larger solution, starting with what they do best, which is making well-designed, evidence-driven financial tools readily available.


For more on the RICHES toolkit and how the tools can help your organization mitigate the risk of child labor and harmful working conditions through better designed products, services, and processes, please explore the RICHES toolkit here or contact us at riches@grameenfoundation.org. Please note that the tools are currently in the final editing stage, but we are happy to share them prior to finalization for review. A Financial Services Brief, which is where much of the content used for this blog is derived, and which covers more than health financing, is also available.

Funding for the RICHES project is provided by the United States Department of Labor under cooperative agreement number IL-31469. 100% percentage of the total costs of the project or program is financed with federal funds, for a total of $1,872,000 dollars. This material does not necessarily reflect the views or policies of the United States Department of Labor, nor does mention of trade names, commercial products, or organizations imply endorsement by the United States Government.

PHOTO 1: Antonio Gallegos for Grameen Foundation

PHOTO 2: Jim Cline for Grameen Foundation

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