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New Funding for Innovative Agricultural Index Insurance Will Boost Smallholder Farmer Productivity
Mrs. Veneranda owns a small plot of land and farms rice and maize in Rwanda. She has been able to feed her seven children and send three of them to school but she would like to do better. She took out a 60,000 Rwandan Francs loan ($96) to pay for fertilizer and labor to plant rice to improve her harvest. The loan was made possible because it was bundled with index insurance which covers Mrs. Veneranda’s loan for drought and excess rain.
“The availability of insurance has encouraged me to invest more in our agriculture production. We have a lot of problems here with drought, too much rain, and sometimes flooding and diseases,” she said. The Veneranda family is one of the beneficiaries of a new agricultural index insurance program pioneered by the Global Index Insurance Facility (GIIF) – a World Bank Group program, implemented in partnership with MicroEnsure. MicroEnsure serves more than 5.9 million clients in Asia and Africa with microinsurance products.
The Dutch Ministry of Foreign Affairs signed an agreement with IFC in early June 2014, marking a $25 million contribution to GIIF in support of scaling up insurance markets in developing countries like Rwanda over the next five years, thus further enabling agricultural insurance to become a sustainable business model for smallholder farmers. “With the world’s population expected to reach 9 billion by mid-century, improved farmer protection and productivity will prove critical for food security. This calls for increased investments in agriculture, and sustainable agricultural insurance markets offer a solution to the problem of low farmer investment and unacceptable high risks due to adverse weather and natural catastrophes,” said Aaltje de Roos, Senior Policy Advisor for the Dutch Ministry of Foreign Affairs.
For much of the developing world, agricultural insurance has not taken off due to the lack of appropriate products, high cost of premiums, and payment delays that discourage potential clients. Agricultural insurance penetration in developing countries averages only 1-2 percent. Innovative agricultural index insurance can, however, potentially become a game changer, allowing for affordable agricultural protection with quick payouts once closely calibrated indexes are triggered.
To date, the Facility, a multi-donor trust fund financed by the European Union, Japan, and the Netherlands, has supported nearly a dozen partners in 13 countries in Sub-Saharan Africa, the Caribbean and Asia Pacific, with more than 500,000 farmers, pastoralists and micro- and small-medium enterprises covered to date and $109 million in sums insured. Regulatory and policy work to support index insurance markets is being conducted in 25 countries globally.