MICROFINANCE PAPER WRAP UP: “Protecting Growing Prosperity: Agricultural Insurance in the Developing World;” from ISF Advisors

This is a summary of a paper published by the Initiative for Smallholder Finance (ISF) Advisors, based on research by Matt Shakhovskoy and Romit Mehta, September 2018, 30 pages, available at:
https://www.raflearning.org/sites/default/files/sep_2018_isf_syngneta_insurance_report_final.pdf

The authors of this paper discuss how agricultural insurance can help smallholder farmers recover from damage to crops and livestock caused by shocks such as extreme weather conditions. According to previous research by ISF, “globally less than 20 percent of smallholder farmers currently have agricultural insurance coverage.” The authors argue that this is due to lack of trust and knowledge of insurance on the part of smallholder farmers in Latin America, sub-Saharan Africa, and South and Southeast Asia. This lack of knowledge can include not knowing how insurance products work or simply not knowing they exist.

Based on case studies of insurance providers working in Africa, the authors suggest four ideas to speed the growth of agricultural insurance. The first is to get “governments engaged and equipped to drive the agenda.” Of the USD 25 billion in agricultural insurance premiums paid worldwide, 45 percent is government subsidized. According to the authors, this suggests that government support is important to a functioning agricultural insurance market. The second idea is achieving “a new step change in product effectiveness” by modifying products to conform more closely to the needs of smallholder farmers. For example, financial service providers may simplify product options and lower prices. Third, the authors argue that the market needs “product linkages that change the distribution and adoption game.” For example, providers can combine agricultural insurance with loans or pre-harvest sales contracts. Lastly, the authors propose that a combination of knowledge sharing and competition among financial service providers can catalyze significant improvements in the marketplace.

By Tiannah Steele, Research Associate

Sources and Additional Resources

ISF Advisors publication
https://www.raflearning.org/sites/default/files/sep_2018_isf_syngneta_insurance_report_final.pdf

ISF Advisors homepage
https://www.isfadvisors.org/

Rural and Agricultural Finance Learning Lab homepage
https://www.raflearning.org

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/.