Reducing fragility by increasing stability
Stewart McCulloch, VisionFund’s Global Insurance Director, recently
appeared on a panel at the future of small farms conference, an
event that covered a broad range of topics aimed at assessing the state of
agricultural policy in developing economies and emerging markets, and its
influence on smallholder farmers around the world.
In this blog, Stewart describes how insurance is integral to the
continued economic progress of smallholder farmers.
If we want to truly and sustainably transform the lives of agricultural
microfinance clients, we need to include insurance alongside loan products. In
order to make this change, the industry needs to fundamentally alter the way it
thinks about insurance.
Insurance is not a cost for protection; it is a method of helping
clients to mitigate the risk of scaling their agricultural operations and so it
both encourages investment and makes the resulting business more resilient.
Consider this: as a farming business grows, the risk increases with it.
More capital is tied up into the farm, there is more at stake if a crop fails or
an animal dies, and losses are felt more keenly in a community. Clients are
reluctant to adopt the changes needed to scale their businesses because they
are rightly concerned that the downside risk is just too much to take. They are
often right and that is where insurance becomes important to grow the farms of
Insurance can help clients to feel secure, and make their farming
efforts more productive; but it is also regarded as too expensive. By offering
insurance as an input, just like a spray or fertiliser to protect the crop, we
are helping people to transform their farming and business practices. Clients
are sophisticated in managing their businesses against overwhelming odds; we
need to understand their perspectives on risk and growth, so we can offer
insurance products to fit their diverse requirements at the grassroots level.
Our farmers do not say good insurance is expensive; as one client said at a
briefing recently: “now we sit down to talk real business”.
Here are some examples of how VisionFund is wrapping its loans with
insurance to facilitate scale by creating a lower risk environment for
Crops in Tanzania
VisionFund is launching one of the first examples of a new generation of
multi-peril crop insurance products for smallholder farmers in Africa. This
product combined with credit and better farming techniques will transform
unpredictable agriculture income into a predictable and reliable source,
thereby facilitating investment in a path out of poverty for these farmers.
Cows in Kenya
VisionFund has a product that supports families in growing their small
herds of cattle from one or two low yield cows to four yield cows delivering a
path out of poverty. Through partnership with insurance providers we are able
to provide not only good insurance but also veterinary and Artificial
Insemination services alongside traditional credit. The use of technology
allows this to be serviced on a mobile platform and enables access to a
critical veterinary resource for the poor smallholder farmer when needed,
reducing the risks to their growing herds.
The key thing to remember is that microinsurance can’t be a ‘one size
fits all agricultural businesses’ approach. The integration of farming know
how, microfinance and microinsurance results in products that cover smallholder
agriculture businesses across multiple elements of their operation. It also
respectfully turns us more into true business partners for these smallholder
Originally published on the VisionFund Blog.