Making climate risk insurance more accessible for farmers in Africa
Climate change is one of the most pressing issues facing the world today.
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Its effects are particularly devastating for small scale farmers in Africa, who are highly dependent on the weather for their livelihoods. Even small changes in temperature or rainfall can have a devastating impact on their ability to grow crops and raise and feed livestock.
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In Eastern Africa, the worst drought in four decades has led to increased hunger and food insecurity. In Madagascar, low rainfall caused the country’s maize and cassava production to drop by 60 percent in three of the most populated districts. Tomato crops in Kenya and Zambia are facing the burden of pests and disease due to warmer climates resulting in average seasonal losses of $59.3 million and $8.7 million, respectively.
These examples underscore why now, more than ever, Africa’s agriculture and agribusiness sectors need protection and support.
One effective way to protect farmers’ livelihoods is by expanding and easing access to climate risk insurance, which pays out benefits based on transparent parameters used to measure losses sustained after weather-related events. Insurance payouts build farmer resilience against unexpected shocks by providing compensation and enabling faster recovery.
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Small scale farmers often operate on very thin margins, and any loss of crops or animals can have a major impact on their livelihoods. Climate insurance can provide a safety net that helps these farmers maintain their businesses even in the face of extreme weather events.
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Climate insurance can also help promote sustainable farming practices. By providing farmers with financial protection against climate-related risks, insurance can encourage farmers to try new crops and farming methods that are better suited to changing weather patterns, and to invest more in their businesses if they feel protected. This can help to ensure that farmers are better prepared for future climate change and can continue to produce healthy food for their communities.
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Currently, most African countries have a less than 1% climate insurance penetration rate. Increased financial literacy and better availability and awareness of insurance products are crucial to increased insurance uptake amongst smallholder farmers and small businesses. Insurance also increases the confidence of banks and microfinance institutions to extend financial offerings to smallholder farmers with coverage – and ultimately increase individual access to products such as credit, loans, and investments.
To help fill this gap, IFC launched the Africa Inclusive Insurance Program in 2022 to make climate insurance more accessible and affordable for small scale farmers in 15 countries, including Nigeria, Madagascar, Senegal, Tunisia, and Zambia.
Building on interventions made through the World Bank Group’s Global Index Insurance Facility (GIIF), IFC and its partners, including insurance providers and regulators, aim to support at least 5 million smallholder farmers and agri-MSMEs against climate-related shocks through 2025 by increasing technical capacity within the industry and working with companies and regulators to design and commercialize new inclusive climate risk insurance products.
The program will also prioritize supporting women, who represent about half of the agriculture sector in sub-Saharan Africa, by ensuring gender-sensitive product design and distribution strategies and conducting analyses to devise effective approaches for women’s empowerment in inclusive insurance.
The new products, which are being rolled out, tap digital and satellite technology to help insurers validate claims more efficiently and issue payments using mobile money, in turn increasing accessibility and affordability compared to current practices.
IFC-led climate insurance programming is tried and true in emerging economies. Over the past ten years, the GIIF has issued over 10.5 million index insurance policies reaching an estimated 53 million beneficiaries globally and facilitating at least $990 million in financing for farmers in Africa.
Farmers have also expressed high interest in and support for affordable climate insurance products. In Zambia, insurance payouts during severe drought enabled over 200,000 farmers to purchase farming tools and provide food and water for animals and their families. For example, smallholder farmers in Senegal received payouts amounting to over $875,000 in 2019 following limited rainfall, compensating for losses and allowing farmers to save money for food before the next crop season.
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IFC invites development partners, governments, financial institutions, agri-businesses, and insurers to help develop inclusive financial packages that increase the resilience of smallholder farmers and MSMEs against the growing threat of climate change.
The Africa Inclusive Insurance Program is funded by The Federal Ministry for Economic Cooperation and Development Germany (BMZ) and the Dutch Ministry of Foreign Affairs.
Daisy Sabao
Selin Konrat
Programmes Organizer at Radio Ghana, Accra
1 年Brilliant. Very brilliant. A similar initiative could.not see the light of day in the northern part of Ghana due to some factors the Ghana Agricultural Insurance Pool suffered, despite the tremendous work done by the managers of the pool. Farmer education went on very well, by engaging local radio stations, and doing lots of community outreach programmes to educate farmers, most of who bought into the idea, and quite a lot of the benefitted from the initial payments that was due them. Unfortunately this could not stand the test of time. So, may I suggest to brother Aliou Maiga to consult extensively with Mr. Ali Muhammad Katu, GM at the Ghana Agricultural Insurance Pool to share his rich experience with the home to sustain this great initiative. Kudus to you brother Aliou Maiga. Thanks
Partnership Lead Western Hemisphere, International Finance Corporation
1 年Another example of an impactful partnership between IFC, BMZ and The Netherlands’ Ministry of Foreign Affairs.
GENERAL MANAGER at GHANA AGRICULTURAL INSURANCE POOL
1 年This is a good initiative. Insurers should have a paradigm shift in looking at climate risk insurance to make it reliable and affordable to get the buy-in of the vulnerable smallholder farmers and other stakeholders such as the financial institutions, etc.
Private Equity/ Venture Capital
1 年Africa’s farmers are truly the backbone of the continent.
Partnerships | Business Development | Sustainability
1 年Great initiative to proactively support insurance rather than reactively deliver aid later. We shouldn't forget the important of subsidization here. Its been a fundamental pillar of sustainable ag in the US and Europe for decades. However only 2% of agricultural microinsurance products in Africa were fully subsidized, compared to 40% in Latin America.