Malawi Pilots Drought Insurance Coverage With Local Farmers
Monday, November 28, 2005
Malawi has introduced an innovative pilot drought insurance program for local groundnut farmers that will help them mitigate the risks associated with periodic droughts. The insurance will help farmers obtain financing necessary to obtain certified seeds, which produce increased yields and revenues as well as greater resistance to disease. The program is currently being utilized through the pilot program by nearly 900 farmers in four areas and, if successful, can be scaled up to other crops and other areas of Malawi and Africa.
The National Smallholder Farmers’ Association of Malawi, in conjunction with the Insurance Association of Malawi and with technical assistance from the World Bank and Opportunity International Network financed by the Swiss State Secretariat for Economic Affairs, designed the index-based weather insurance contract that would pay out if the rainfall needed for groundnut production was insufficient. If there is a drought that triggers a pay out from the insurance contract, funds will be paid directly to the bank to pay off the farmers’ loans. If there is no drought, the farmers will benefit from selling the higher value production in the marketplace.
This private pilot program is very much in line with the Government’s initiative to explore innovative ways to manage weather and price risk in Malawi and contribute to the food security needs of the country, and is the first time in Africa that such index-based weather insurance policies have been sold to smallholder farmers. A similar pilot in India in 2003 has been expanded from an initial 230 farmers to now give more than 250,000 farmers access to weather insurance.
Reactions to the pilot program have been very positive.
Mrs. Quent Mukhwimba of the Ukwe Farmers Association in Lilongwe said, “It is good to note that in case of severe drought I do not have to worry about paying back loans in addition to looking for food to feed my family. In future I hope to send my children to school with income from this project.”
Mr. Ben Kautsire, of the Insurance Association of Malawi notes that, “Drought index insurance is a real breakthrough, as it does not only avail the potential for re-accessing the commercial farming community, but also accessing rural farming folk who need it most.”
Mr. Duncan Warren, Crop Production Director for the National Smallholder Farmers Association of Malawi, adds, Drought is one of the major risks in rainfed agricultural production. In the event of a drought the farmer may face low yields, or even total crop failure. If the farmer uses production loans, he/she may not be able to pay for the loan. The Drought Insurance Pilot Project has offered an option so that he/she will be covered by the insurance-oeA further advantage is that by covering the risk of drought, the microfinance institutions will be more amenable to providing loans on otherwise risky crops, hence more farmers will have access to micro financing.”
Timothy Gilbo, World Bank Country Manager for Malawi, is pleased with the role the Bank and other partners have been able to play with the Government of Malawi to pilot this program, and is optimistic that it can play an important role in supporting rural agriculture in the country. “Before the pilot, farmers had little cash and no access to finance, and thus could not afford to purchase certified seed. Banks were unwilling to lend to these farmers for a variety of reasons, but primarily because of the risk that farmers would not be able to repay their loans if there was drought. This program can mitigate this risk and bring needed resources to this crucial sector of the Malawi economy.”