IFC infuses $25M in agri insurance fund

MANILA, Philippines - The Internatioal Finance Corp. (IFC), a member of the World Bank Group, has signed an agreement marking the $25-million contribution by the Dutch Ministry of Foreign Affairs in support of scaling up insurance markets in developing countries over the next five years, thus helping ensure that agricultural insurance becomes a sustainable business model for smallholder farmers.

Dutch Ministry of Foreign Affairs senior policy advisor Aaltje de Roos said that with the world’s population expected to reach nine billion by mid-century, improved farmer 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 productivity and investment.

Agricultural production in many developing countries, particularly in Sub-Saharan Africa, South Asia and parts of East Asia Pacific is characterized by low levels of yield due to insufficient levels of farm investment and vulnerability to weather uncertainty and natural catastrophes.

Understanding and managing risks of weather-caused disasters for smallholder farmers is critical to reducing their economic losses.

The Global Index Insurance Facility (GIIF), a program managed by IFC and implemented with the World Bank, aims to expand the use of index insurance as a risk management tool in agriculture, food security and disaster risk reduction, primarily in sub-Saharan Africa, the Caribbean and Asia Pacific, supporting the growth of local markets for index insurance.

“We greatly value the ongoing collaboration with the Dutch government in support of index-insurance programs targeting smallholder farmers,” said Peer Stein, director of IFC Access to Finance Advisory Services.

 â€œWith the number of people affected by climate-related disasters on the rise globally and the poorest households left without the means to deal with their economic effects, index insurance holds the promise to be a great vehicle for protecting the most vulnerable from the unknown”.

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.

“We at IFC are eager to address what you may consider a market failure and do the needful to make insurance and other mitigation tools for natural and climate change-related disasters available and affordable to farmers,” said Gilles Galludec, manager of GIIF.

To date, the Facility, funded by the European Union, Japan, and the Netherlands, has supported nearly a dozen partners in developing countries to set up index insurance markets for farmers and micro- and small-to-medium enterprises, with more than 500,000 clients covered to date and $109  million in sums insured.

One of GIIF’s most successful partners, the Syngenta Foundation for Sustainable Agriculture, set up the Kilimo Salama initiative which currently insures 186,000 farmers in Kenya, Rwanda and Tanzania.

The project was recently the recipient of the 2012 Financial Times/IFC Sustainable Finance Awards for Technology in Sustainable Finance category.