Drought does more than kill a farmer’s crops. It can force a family to use up savings to survive the year without crops to sell, making it hard for them to invest in the seeds and fertilizer needed to make the next planting season a success.
In emerging markets, where insurance is not always available, the inability of individual farmers or farming collectives to manage this risk makes it that much harder to fight poverty.
IFC’s recently-launched Global Index Insurance Facility will help farmers get the insurance they need to protect against catastrophic weather that can destroy fields and livelihoods.
Backed by the European Commission and the Netherlands’ Ministry of Foreign Affairs, the facility focuses on emerging markets like sub-Saharan Africa, where farmers and agricultural workers make up 60 percent of the work force, but most cannot find crop coverage.
“Providing insurance against such natural disasters is crucial to help prevent huge humanitarian and economic losses,” said Jean Philippe Prosper, IFC Director, Eastern and Southern Africa. “Index-linked insurance products make it easier for companies to offer products and services in rural communities and frontier markets.”
Droughts and Earthquakes
Working with insurers, governments and other financial institutions, IFC wants to help create a new, index-based insurance product that would pay out in the case of natural disasters, such as droughts and earthquakes.
Bringing coverage to rural farming areas in emerging markets can help stabilize the financial situation of working families and help them grow their business.
The high cost of verifying claims to avoid fraud is one reason insurers avoid emerging markets. Index-linked insurance avoids that cost by paying out based on measurable conditions, in this case, weather related, regardless of crop damage. It is a cheaper way for companies to offer coverage, which in turn should help make it more affordable to farmers.
The availability of this type of insurance should have a significant impact on farmers in emerging markets in Africa, the Caribbean and elsewhere. If farmers can protect the value of their assets – the crops and land – they can more easily find low-cost loans to expand their business, putting them in a better position to pull themselves out of poverty, forever.
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