More than 12 million Indonesians live and work in earthquake-prone zones, with economic exposure reaching an estimated $79 billion. These risks are especially high in areas such as Yogyakarta and Padang, where the worst-hit banks lose between 15 and 35 percent of income following recent earthquakes. The losses erode the banks' capital reserves and compromise their ability to lend.
With support from IFC, MAIPARK will work with local insurance companies to develop and distribute a new earthquake-index insurance product. The company will also be reaching out to commercial banks, regional banks, and microfinance institutions, particularly those with a significant client base in Indonesia's earthquake-prone regions.
"Indonesia's earthquake hazard exposure is among the highest in the world, both in terms of human mortality and economic losses," said Frans Sahusilawane, president director of MAIPARK. "Our cooperation with IFC allows us to provide protection for banks against financial risk due to earthquakes."
Insurance that hedges banks against losses from nonperforming loans and mass savings withdrawals can improve their risk management of natural disasters. This can in turn support better financial performance, lower interest rates, reduce volatility in access to credit, and expand banking services.
"Insurance protection for banks that provide loans to small and medium enterprises is important in maintaining business sustainability," said Sarvesh Suri, IFC's country manager for Indonesia. "This is IFC's first insurance project in Indonesia and underlines our commitment to fully support sustainable economic growth providing protection to all key players."
The project is funded by the Japanese government, one of the key donors of the Global Index Insurance Facility, a multidonor trust fund managed by IFC and jointly implemented with the World Bank. Other donors include the European Union and the Netherlands. The facility's objective is to expand the use of index insurance as a risk management tool in agriculture, food security and disaster risk reduction.
About IFC
IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. Working with private enterprises in more than 100 countries, we use our capital, expertise, and influence to help eliminate extreme poverty and promote shared prosperity. In FY13, our investments climbed to an all-time high of nearly $25 billion, leveraging the power of the private sector to create jobs and tackle the world's most pressing development challenges. For more information, visit www.ifc.org.
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