ABSTRACT. The main objective of Microfinance Institutions (MFIs), namely the provision of a broad range of financial services such as deposits, loans, payment services, insurance and money transfers to the poor and to those excluded from the formal financial system, is not being effectively achieved in Ethiopia and Africa as a whole. The main reasons for this are the entry barriers characterizing formal finance like lack of funds for all the poor to access loans, unattractiveness of financial products in satisfying the needs of the poor, and lack of will, on the part of the urban poor, to seek formal finance. The informal microfinance, rarely acknowledged, has been making up for the deficits of MFIs with the majority of the urban poor, with no savings account or pension, depending on one crucial financial security – the Iddir. Iddirs, indigenous funeral societies, have proven adaptive and responsive and have been providing the bulk of the urban population and rural-urban migrants with funeral insurance. The need to explore and highlight the minute details of these informal microfinance operations and responses compelled this research to utilize a case study methodology, with Salam Iddir in Addis Ababa being the case. We show that microfinance products based on indigenous finance schemes progress appropriately towards the needs of the poor. In particular we argue that Iddirs are successful in maintaining their membership and receive a high level of commitment. If handled the right way Iddirs can contribute to poverty reduction and development, and MFIs can imitate and work in alliance with these indigenous funeral societies in creating micro-insurance and micro-saving products that scale-up beyond the micro-level as a sustainable part of the process of economic empowerment by which the poor can lift themselves from poverty. pp. 52-66

Keywords: Micro-insurance, Microfinance Institutions; Iddir; Funeral insurance; Development