African farmers set to benefit from insurance scheme

Africa could receive a $63bn boost from an EU/World Bank-backed insurance project designed to free up loans to the small farmers that form the backbone of the continent’s economies.

By packaging a weather-based insurance product with the loans, the scheme plans to give the farmers access to finance that they would otherwise be denied. The project’s backers say that the money could allow subsistence farmers to grow better-quality maize, improving productivity by four to five times. That, they say, could increase gross domestic product across sub-Saharan Africa by 2.9 percentage points, or $63bn.

“In sub-Saharan Africa, less than 5 per cent of farmers have access to fertilisers and seeds that would allow them to produce more than subsistence levels,” says Erik Chavez of Imperial College London, one of the institutions that has been working on the product.

The World Bank estimates that 65 per cent of sub-Saharan Africa’s labour force earns its living from agriculture and that the sector accounts for about one-third of the region’s GDP. Most farmers work at a subsistence level, with some 80 per cent owning less than two hectares.

However, insurance penetration is extremely limited. Rose Goslinga of Pula Advisors, an insurance advisory service for African farmers, says only about 650,000 farmers working on less than 2 per cent of the agricultural land in sub-Saharan Africa have cover.

“The main driver is the loan,” Ms Goslinga said. “If there’s not going to be loans, there’s not going to be any insurance. There’s no inherent demand [ for insurance].”

Dr Chavez says that it is difficult for many of the farmers to fund activity beyond subsistence levels. He says they face trouble getting loans because they lack a credit history and adds that farmers themselves are reluctant to take out loans because of the risk of losing the cash collateral that they have to put up. “This is what perpetuates a cycle of poverty, low productivity and semi-subsistence,” he says.

The need for insurance in sub-Saharan Africa is expected to rise in the coming years as the population doubles from 1bn now to 2bn by 2050 and the impact of climate change becomes more severe.

The new scheme, called Winners, is backed by the World Bank and the EU. It aims to solve the problem by selling insurance alongside a loan. The insurance pays out automatically if weather events such as a drought mean the farmers are unlikely to produce the expected crops. That should give lenders confidence that they will be repaid regardless of the weather and borrowers confidence that they will not lose their cash collateral.

The project is being trialled in Tanzania, where it aims to reach 250,000 farmers over the next two to three years. Local banks NMB, CRDB and Akiba are involved in the roll-out. There are plans to extend it to the rest of sub-Saharan Africa by 2020. The backers hope that eventually it will give 1.5m farmers across the continent access to about $350m of loans. The insurance policies will initially be written by Jubilee, a Kenya-based insurer, but it will pass the risk on to international insurance markets via Willis Towers Watson, the insurance broker.

A number of initiatives have been launched to try to give insurance a bigger role in disaster recovery in the developing world. A report from insurance broker Aon this week said that natural catastrophes caused $210bn of economic losses last year but that only $54bn of that was covered by insurance.

Many in the industry are keen to close the gap and they have set up institutions such as the Insurance Development Forum, a joint venture between the industry, the World Bank and the UN, to help themdo it.

The G7 group of industrialised nations has a target of giving 400m people in developing countries access to direct or indirect insurance against the impact of climate change and natural catastrophes by 2020.


By Oliver Ralph in London and John Aglionby

Published on Jan 24,2017 [ Vol 17 ,No 873]



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