Agricultural finance, or agrifinance, is a model that assists vulnerable and rural smallholder farmers to reduce risk and increase investment in their farms, leading to increased yields and higher income. Through strong partnerships and an innovative insurance product, VisionFund is working to ensure that farmers in Tanzania, Kenya and Malawi are managing controllable risks and are supported through insurance when disaster strikes.
Most rural poor farmers are astute managers of their farms and have their own traditional means to mitigate risks to crops and livestock.
Farmers in these areas will adopt diverse agricultural practices, stagger planting over time, plant resilient crops, and have multiple sources of income in order to mitigate and manage risk to their livelihoods. However, these strategies aren’t resilient to all risks and can result in lower yields for farmers. Climate change has also increased the uncertainty for small holder farmers, increased their exposure to natural disasters and other severe events, and reduced the relevance and success of the traditional risk management strategies. Events like natural disasters and pest infestations can leave farmers with no hope of financial recovery and drive them deeper into poverty.
Because most smallholder farmers live in very remote areas, and often have no defined crop protocols, insurers find it difficult to assist them as there are no defined means to measure loss or exposure to risk. Insurers usually require up-front payment for their services and many smallholder farmers cannot afford to pay this sum all at once. This means that rural poor farmers are often excluded from finance and insurance services that could help them to mitigate risk to their income and livelihoods.
VisionFund has seen this gap in the market and has stepped up to provide support that combines finance and insurance for rural farmers.
Beginning with projects in Tanzania, Kenya, and Malawi, we have partnered with organisations who can help farmers join together as a group or cooperative, and train farmers to use consistent crop protocols appropriate for their crop and location. The farmers are then provided with a Group Multi-Peril Crop Insurance Scheme (GMPCI) that protects both the farmer and VisionFund. At this stage, farmers are provided with two loans: the first loan helps farmers to buy what they need to implement good crop protocols, and the second one covers the cost of the insurance premiums. The loans are repaid only after the farmers have harvested and sold their crops.
The Crop and Livestock Insurance product reduces risks for all parties and enhances the farmer’s resilience to climate shocks.
VisionFund can lend safely to farmers knowing that their practices are sound, and that insurance will cover uncontrollable risks. The farmers will also have the confidence to borrow more money to invest in their farms knowing that they are protected by insurance. The established crop protocol allows insurers to supply insurance products to homogeneous groups of farmers where yield assessments can easily be done. In this program, farmers can attain better yields and turn larger profits without worrying about external shock, thus creating bright futures for their children, families, and farms.
Developing market linkages is key to success.
VisionFund has also developed linkages with market off takers – bulk buyers of farm produce - who provide a stable and more lucrative market for farmers, allowing them to sell their products in a larger market and get the best possible price for their produce. VisionFund also provides farmers with financial literacy and insurance training as part of the product, to ensure that the farmers manage their finances better and that they adhere to set insurance conditions.
Our Insurance Solutions
VisionFund is piloting new micro-insurance solutions to accompany our more traditional microfinance and micro-savings livelihood products. Learn more about how we are ensuring those living in rural poverty are covered if an emergency strikes.