Demographic transition starts spreading in developing countries: birth and mortality rates are decreasing, life expectancies are improving and joint families are breaking up due to urbanization flows. This trend may arise the need for pension reforms aimed at guaranteeing a fair security income for current and future retired people. However, in the past pension reforms in developing countries were often design to cover only workers in the public sector, excluding those with extremely low income and high uncertainty employed in the vast developing countries' informal sector. This is basically due to the obstacles behind targeting the unorganized employees: they use to live in remote rural areas and they are mostly illiterate and unfamiliar with the concept of long-term savings and pensions.
One solution to face the lack of coverage in informal sector is the provision of micro-pensions. This article by Uthira and Manohar (2009) reviews the general characteristics of micro-pension plans and focus on the instruments supplied by Unit Trust of India – Asset Management Company (UTI – AMC). UTI - AMC is the biggest mutual fund in India and invests contributions from micro-pension in bonds and equities in order to obtain a reasonable return over them.
Uthira and Manohar analyze the shortcoming of micro-pensions (e.g. lack of government support, finding credible service providers, convincing people to save for a long period) and provide possible solutions (e.g. marketing of micro-pensions, expanding the industry, working with community based pension models).
The article also studies different channels through which micro-pensions can be introduced in India and it highlights a new interesting model recently suggested by the researcher: the Micro Agent Model. According to that, the MFIs (Micro finance institutions) or banks can appoint a micro agent who is a member of small groups like the NGO Surabi in SHEPHERD1. He/she will be responsible for the promotion of the micro-pension scheme among his/her group members. For his/her services the agent will then be paid a commission on the basis of the number of members who join the scheme.
The last chapter of the article presents a case study on Activists for Social Alternatives Trichirapalli (ASA), a micro finance institution that invests money collected from its micro pension schemes into micro credit projects for ASA's members.
1 Surabi offers Business Development support services to create new micro enterprises through skill building, re-skilling and other complimentary services. SHEPHERD offers Business Development Services to Surabhi members as part of deepening credit and livelihoods promotion strategy.