Farmers, protected from risks, are able to repay loans, improve production, and become more reliable business partners. © AgmiaFruits

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Rexhep Spahiu owns 14 apple orchards in Llugagji, a village south of Kosovo’s capital of Pristina. He was drawn to farming around a decade ago because of the sector’s potential for growth. Agriculture accounts for more than 13 percent of Kosovo’s GDP and employs nearly one-third of its population. Even so, Spahiu has always approached it conservatively, knowing that financing options for farmers are limited.

That’s because poor weather conditions, exacerbated by sharp fluctuations in temperature, make the activity too risky for many banks to invest in. This creates a vicious cycle: farmers cannot afford to buy critical inputs like fertilizer, and so their yields are smaller. Then, lower productivity makes it difficult for farmers to pay back loans.

Farmers like Spahiu, who got his start in agriculture during land privatization, works around this challenge by diverting income from his other enterprises—real estate and construction—into his farming ventures. “If I was not involved in other businesses besides agriculture, I would not have been able to cover losses of almost €63,000 from the 2016 and 2017 spring frosts,” he says.

To address the challenges faced by Spahiu and other Kosovar farmers, IFC, supported by the governments of Austria and Hungary, launched an agriculture insurance initiative in the region last year. The project increases farmers’ access to finance via a tailor-made insurance system that helps them mitigate weather-related risks that undermine creditor confidence. With this insurance, farmers will have a more predictable and stable cash flow, enabling them to repay loans, improve production, and become more reliable business partners to lenders. The system benefits farmers as well as insurance companies, banks, and other stakeholders.

Kosovan farmer Armend Skeja in his apple orchard.

Insuring Steady Yields

Spahiu has long believed that agricultural insurance will help protect his fellow farmers from risks that threaten the viability of their businesses. “There is a real need for an instrument that will secure us against [weather-related] losses and increase productivity and incomes,” he says.

But before Kosovo could develop an agriculture insurance market, IFC partnered with Kosovo’s Ministry of Agriculture and Rural Development to create a regulatory and institutional framework that would support it. A new agriculture insurance law soon followed.

The government also agreed to establish a Risk Management Division (RMD)—a new supervisory body, housed within the Ministry of Agriculture and Rural Development, to provide oversight to the country’s fledgling agriculture insurance system. IFC trained RMD staff in agriculture insurance as well as in oversight requirements, product development, and stakeholder consultations.

With expertise from IFC, RMD specialists developed six weather-based index agriculture insurance products for key crops: apples, plums, strawberries, raspberries, winery grapes, and pepper. To make the premiums attractive and affordable to farmers, a 50-percent subsidy is provided by the Ministry of Agriculture.

Offering Support and Security

Local insurance companies have already shown interest in offering new index insurance products to farmers. Arben Avdyli, chairman of the board of the Insurance Association and the chief executive officer of Scardian Insurance Company, believes that this approach will open up markets for insurance companies. “It offers new opportunities for diversifying our existing portfolio. For farmers, it provides an opportunity to secure and mitigate their risks,” he says.

Spreading the word about this new offering is an important first step toward adoption of agricultural insurance. Last year, IFC and the Ministry of Agriculture conducted a public awareness campaign informing over 400 farmers across the country about products designed to reduce risks.

The program has been led by IFC’s Agri-Finance Project for Europe and Central Asia, which was founded in partnership with the governments of Austria and Hungary in 2014. That was the start of expanding access to finance for small and medium farmers by increasing creditors’ capacity to lend to agriculture, and mitigating weather and price risks that undermine creditor confidence. The project operates in Azerbaijan, Kosovo, Serbia, and Ukraine. Since its inception, over 12,000 farmers have obtained more than $160 million in financing from partner banks.

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Published in June 2018.

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