Insuring microcredit against HIV, AIDS in South Africa

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The social impact of the five million people living with HIV/AIDS in South Africa is significant. This research paper examines access to credit for families at high risk of HIV infection. Credit providers often exclude potential HIV-positive customers or raise risk premiums, anticipating that HIV will impair their ability to work and repay loans, leading to losses. Most families at risk are low-income and lack formal employment. Ensuring their access to finance can help them remain economically active, preventing destitution and improving their situations. Low-income families typically rely on microfinance institutions (MFIs) that offer small loans to those excluded from formal financial systems. To continue lending affordably, MFIs require a safeguard against HIV/AIDS-related loan losses. This publication proposes a microinsurance concept as a hedging mechanism, analyzing various product designs and presenting a concrete proposal. It calculates the risk costs to establish appropriate pricing for the product. The findings suggest that such a microinsurance product can effectively reduce risks for individual institutions by pooling the risks of multiple MFIs. Finally, the study explores the practical implementation of this product.