Micro-insurance is seen by many as a promising tool to improve the social protection of low-income earners. This assumption is supported by the positive experience of existing micro-insurance schemes. At the same time, however, many schemes have failed to organize sustainable insurance arrangements that are affordable for the poor and near-poor. The question is thus which institutions are best able to arrange for micro-insurance. Formal institutions such as public agencies or commercial companies are usually too distant in social and spatial terms from the target group of micro-insurance and face severe difficulties in downscaling. Informal institutions, however, such as self-help groups or grassroots NGOs, usually lack the know-how, experience and capacities to design and manage insurance arrangements. They need powerful partners to upgrade. An alternative would be that formal and informal institutions cooperate in providing micro-insurance. This article argues that such a linking approach is superior to both the downscaling and upgrading approach.