8 April 2020. Webinar. Scaling up agricultural insurance – The role of financial institutions and agribusinesses as distribution channels MFW4A and the German Agency for International Cooperation (GIZ) hosted a webinar entitled:" Scaling up agricultural insurance – The role of financial institutions and agribusinesses as distribution channels ".

1. SCALING UP AGRICULTURAL INSURANCE
– THE ROLE OF FINANCIAL INSTITUTIONS
AND AGRIBUSINESSES AS DISTRIBUTION
CHANNELS
We will begin shortly…
April 08, 2020
MFW4A-GIZ WEBINAR
1

2. MFW4A-GIZ WEBINAR
DE-RISKING FINANCE FOR AGRICULTURAL VALUE CHAINS WITH AGRICULTURAL
INSURANCE
HOUSEKEEPING
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3. • G8 initiative launched in October 2007
• Facilitate joint actions between development partners and African financial
sector stakeholders
• Platform for the knowledge sharing, cooperation and networking amongst
African financial sector policymakers and regulators
• Advocate for financial sector development to policymakers and regulators
ABOUT MFW4A
MFW4A-GIZ WEBINAR
DE-RISKING FINANCE FOR AGRICULTURAL VALUE CHAINS WITH AGRICULTURAL
INSURANCE

4. secretariat@mfw4a.org
www.mfw4a.org
MFW4A FUNDING MEMBERS
MFW4A-GIZ WEBINAR
DE-RISKING FINANCE FOR AGRICULTURAL VALUE CHAINS WITH AGRICULTURAL
INSURANCE

5. OUR STRATEGY 2018-2020
MFW4A-GIZ WEBINAR
DE-RISKING FINANCE FOR AGRICULTURAL VALUE CHAINS WITH AGRICULTURAL
INSURANCE
Innovative, sustainable, competitive and
diverse African financial systems, providing
near universal access by 2030, and offering
a full range of products and services for the
continent.
Households and businesses
have access to a full suite of
quality financial services.
Financial Inclusion
Long-term domestic resources
is efficiently mobilised and
allocated to fill existing
investment gaps
Long-term finance
Sound policies and efficient
regulation and supervision,
ensuring stability and
enhancing resilience, whilst
balancing the need for
growth and innovation
Financial Stability & Governance
• Agricultural Finance
• Digital financial services
• Insurance
• Remittances & Diaspora Investment
• SME Finance
• Local institutional investors
• Housing Finance
• Banking regulation &
Supervision
Knowledge Management and Advocacy

6. 6
Robert Fischle, Advisor, Gesellschaft für Internationale
Zusammenarbeit (GIZ)
Agrotosh Mookerjee, Managing Director and Chief
Actuary, Risk Shield Consultants
Douglas Phineas Daura, Agricultural Insurance
Specialist, Gesellschaft für Internationale
Zusammenarbeit (GIZ)
MODERATOR
SPEAKERS

7. 1. Introduction
2. Agrotosh Mookerjee
§ Challenges of scaling up agricultural insurance
§ Role of financial institutions as distribution channels
3. Douglas Phineas Daura
§ Role of agribusinesses as distribution channels
§ Strengthening and replication of sustainable distribution models
4. Discussion
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AGENDA

8. Integration of Agriculture Insurance with Agriculture Financing
By Agrotosh Mookerjee, Fellow of Institute of Actuaries, UK
Managing Director, Risk Shield Consultants Ltd.

9. WHO ARE WE?
• We are a specialist technical service provider and leading consultancy firm for delivering
insurance solutions for the mass market in developing and emerging countries.
• We provide actuarial advisory services and deliver technical and operational inputs in
numerous products and projects on agricultural, index-based, health, life, digital-based and
other mass market insurance products in Africa, Asia and Europe.
• Over 2015-2019, our agricultural and other microinsurance products have insured
approximately 3 million smallholder farmers and over 30 value-chain stakeholders in more
than 25 countries in partnership with about 22 insurance companies.
We provide support in setting up, operating and improving insurance products. Key areas of
support are:
a) Actuarial Expertise and Technical Support
b) Feasibility Studies and Diagnostics
c) Capacity Building and Trainings
d) Operational Support
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10. OUR OUTREACH IN AFRICA (2015-2019)
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We have also worked in:
• Africa: Ethiopia, Ivory Coast
• Asia: Bangladesh, Cambodia, India,
Indonesia, Mongolia, Nepal,
Pakistan, Palestine, Philippines, Sri
Lanka, Thailand and Vietnam;
• Europe: Albania, Armenia, Bosnia
and Herzegovina;
• Australasia: Papua New Guinea
• Applied research projects:
Germany, United Kingdom, United
States

11. • Agriculture Insurance (AI) products (Weather Index, Yield Index, Indemnity insurance products etc.) can be integrated
with Agriculture Loan products. Potential pros and cons of doing so:
PERSPECTIVE POTENTIAL PROS AND CONS
ADVANTAGES FOR
BANKS/MFIS
1. Reduces certain risks (e.g. production risk), which leads to credit risk;
2. Enables more loan disbursals for agriculture loans;
3. Enables entry into agriculture sector and disbursal of agriculture specific loans.
DISADVANTAGES FOR
BANKS/MFIS
1. Perceived cost of lending may be higher (due to insurance premium);
2. Farmers may not want to pay for insurance;
3. Regulatory restrictions e.g. central bank’s guidelines on interest rate caps.
ADVANTAGES FOR
FARMER
1. Can access specific loans (e.g. single balloon repayment seasonal crop loans);
2. Can potentially reduce/complement collateral requirements;
3. Can access insurance for their own livelihood protection as well potentially
DISADVANTAGES FOR
FARMERS
1. May not be fully aware of the credit-linked insurance product;
2. Cost of credit may increase (especially if there is no reduction in risk premium in
interest rates);
3. Typical credit-linked AI only covers the loan amount, NOT cost of production,
revenue etc.
Impact of integrating agriculture insurance with
agriculture loans

12. Rwanda: Kenya Commercial Bank (KCB) linked weather index insurance (WII) to its crop loans on a
mandatory basis in order to resume disbursing loans in flood prone areas of Rwanda to Savings and Credit
Cooperatives. Premium pre-financed by bank and added on top of the loan. Product covered drought and
excessive rainfall and rate of approx. 9%;
Tanzania: SACAU (farmer organization) used WII for 70% of loan amount as form of collateral for
accessing loan from Barclays ABSA for financing input suppliers directly. Premium paid by farmer
organization. Product covered drought and rate of approx. 6%;
Zambia: ZANACO bank in Zambia would finance the Zambia National Farmers Union (ZNFU) where WII
was made mandatory for seasonal crop loans. Premium pre-financed by bank and deducted from loan
disbursed to farmers. Product covered drought, excessive rainfall and fire cover and rate of 4.5%
Option 1: AI linked to each loan disbursed, insuring
farmers individually or as a group
Roles: Distribution of insurance; Bundling insurance with credit; Supplying
data for underwriting; Pre-financing premiums; Facilitating claim payouts;
Negotiating with insurance companies on product design and pricing.

13. Similar concept to a Credit Guarantee facility, but via a portfolio or meso-level insurance
product, insured by insurance/reinsurance companies;
Value insured: Entire agricultural loan portfolio or a % based on the worst Non Performing Loan
(NPL) levels e.g. 30% of agricultural loan portfolio;
Premium paid: By bank/MFI. May or may not be passed onto farmers/end clients;
Policyholder: Bank/MFI itself. Claim (if payable) would be paid to bank, MFI as well;
Awareness: Farmers would typically NOT be aware of the insurance coverage;
Premium level: Would typically be 0.5%-2% of the entire loan portfolio, depending on the sum
insured amount and the nature of the insurance cover;
Type of product: Typically Weather Index (e.g. Based on satellite data) or Yield Index;
Complementary: Can exist together with credit gurantees and/or with micro-level AI products as
well;
Regulations: Both insurance and banking regulators may need additional notification for
approval of such products. Typically, should not be a problem.
Option 2: AI linked to entire agriculture portfolio of
bank/MFI

14. a) Stand-alone basis: AI can also be distributed by banks/MFIs on a stand-alone
basis on an agency/commission based model for the banks/MFIs. This is usually not
a very viable option as take-up is low among smallholder farmers on a purely stand-
alone basis, especially when starting a product e.g. AMK in Cambodia;
b) Alternative Collateral: AI could potentially be used as a form of soft collateral or to
reduce collateral requirements for farmer groups e.g. the District Farmer Association
in central Zambia used AI as a form of collateral to access fertilizers on credit from
Omnia;
c) Incentives for farmers: AI could be used an incentive tool to encourage farmers to
take-up new forms of technology e.g. a small amount of insurance can be used as
an incentive for farmers to use an electronic wallet for accessing farming inputs on
credit in Bangladesh (Bank Asia);
d) Tailormade loan products: AI can also reduce risks for specific niche loan
categories, such as livestock loans to dairy cooperatives. AI can make it easier for
banks and MFIs to develop and launch specific loan/savings products for specific
crops and sectors e.g. AMZ in Zambia
Other options, relevant for linkage to agricultural finance

15. a) Distribution of insurance on mandatory or voluntary basis;
b) Premium pre-financing or premium collection;
c) Advising and negotiating on product design and pricing on behalf of farmers;
d) Awareness raising of product and facilitating insurers’ marketing;
e) Enrolling farmers and making the sale;
f) Administration of products and answering questions;
g) Potentially facilitating the reporting or verification of claims;
h) Facilitating claim payments to reach the farmers;
i) Providing data for underwriting, pricing and claims assessment;
j) Legal policyholder via Group policy structure.
Key Potential Roles of Distribution Channels
Capacity Building Seminar on Agriculture Insurance

16. a) Understanding of potential demand/need for agriculture loan/savings/insurance products;
b) Analyse own and industry/benchmark NPL, credit default/risk levels for agriculture loans. What
are the drivers for the high levels of credit risk for agriculture loans?
c) Understanding of risk premium in lending interest rates and drivers of the risk premium?
d) Based on steps A-C, discuss potential agriculture insurance product options with insurance
companies, reinsurance companies, GIZ, Risk Shield etc.
e) Supply data (e.g. Locations, type of loans, crop types, farming details, loss history etc.) to insurers,
service providers
f) Participate in process of product development with insurers, service providers. Test products with
farmer groups as well, if suitable
g) Participate in sensitization of loan officers, field staff, farmers, if necessary (together with insurers,
service providers, GIZ etc.)
h) Put in place monitoring framework for assessing impact of agriculture insurance linked to loans,
based on various relevant KPIs;
i) Participate in piloting of AI products (via different distribution options).
Potential Next Steps for Banks/MFIs

17. De-risking Finance for Agricultural Value Chains
with Agricultural Insurance
Webinar – Making Finance Work for Africa & GIZ – Apr 08, 2020
Douglas Daura (GIZ)

18. A brief overview
Climate risk insurance projects:
1. InsuResilience implementation in Zambia (InsuR): ended in Sep 2019
2. German Climate and Technology Initiative (DKTI ): started in Jan 2020
3. PPP (develoPPP.de program) with Louis Dreyfus Company (LDC) Zambia: started in Jun 2018
Synergies with other projects:
Promotion of agricultural finance in Zambia (AgFin)
§ Support of farmers and SMEs in business & investment training
§ Capacity building for Financial institutions & Product development
Page 18
GIZ Zambia Projects on Agricultural Insurance
(AI)

19. Role of AI: Micro-level and meso-level cover
§ Protect: ex-post compensation
of income fluctuations
à Less negative risk coping
Low risk taking, low input and
low return farming
Higher risk taking, higher input
and higher return farming
4/8/2020
§ Promote: Facilitate behavior
change, better asset allocation,
better access to credit
Dual role of AI
Micro-level insurance for smallholders
Macro-level portfolio cover for aggregators (agri-businesses or financial institutions)
§ Protect: Direct protection of company
portfolios against financial impacts due
to adverse weather
§ Promote: Companies more
confident in extending their
business to “riskier” regions,
customers
Page 19

20. Contract Farming Model (micro-level)
Inputs on credit, with scope of
adding insurance as another
input
Payouts either in
cash or as credit
waiver
Insuran
ce Cover
Farmer
4/8/2020
Claim
settlements
Contract Farming
Aggregator
Insurance
Company
Role of Aggregator Premium pre-financing; enrolling farmers; awareness raising; promoting
product; reflecting claims payouts
Value proposition Using insurance as an incentive for loyalty based contract farming; offers
protection for both farmers and contract farming company; low costs for
insurance companies due to aggregation
Premium payment Mandatory or voluntary
Page 20

21. Example of contract farming model: LDC Zambia
• 2013/14 to 2019/20: 73,480 farmers have been insured
• 2015/16: 51,827 farmers insured; (=75% take-up); 23,280 pay-outs
• High fluctuations in enrollment numbers
• Yearly claims ratios ranging from 0% to 227% (until 2018/19)
• A 3-year develoPPP.de has been set up with LDC in 2018
4/8/2020Page 5

22. GIZ Approach (InsuResilience and enhanced under DKTI)
4/8/2020
Replication and scaling up of the weather index insurance also beyond contract farming
operators, e.g. seed companies, cooperatives, (micro)finance institutions
Supply side: Capacity building of local insurers and support innovations on the product
side: e.g. index-based livestock insurance
Demand side: Strengthening smallholders’ understanding of insurance
Risk reduction to complement risk transfer: provision of climate risk information, e.g.
location specific weather forecasts enriched by basic farming advices
Goal (DKTI): Farmers have improved access to resilience-enhancing climate risk
insurance offered by private companies and to climate risk information.
Page 22

23. Capacity building (conducted so far)
4/8/2020
Presentation of insurance model to potential aggregators
• Consultations
• Seminars on agriculture insurance
Implementation of training of trainers concept for aggregators
• Train aggregators
• 1. level: Management staff of aggregators
• 2. level: Field staff / lead farmers
• 3. level: Outreach to farmers
Capacity buidling of insurers
• Consultations
• ILO-GIZ training program on agricultural insurance in May, June and July 2019
Page 23

24. Instruments & tools development (conducted so far)
4/8/2020
Insurance products:
• Support in product development targeted to smallholder farmers
• Support innovations on the product side: e.g. index-based livestock insurance,
insurance for new agricultural value chains.
Insurance awareness: print material
• Posters
• Training flip chart
• Comic, flyer
• Credit card size information card
Insurance awareness: digital and mobile engagement platform
• Toll free line
• Interactive voice responses
• Interactive game on agricultural insurance
Page 24

25. www.giz.de https://twitter.com/giz_gmbh https://www.facebook.com/gizprofile/
Thank you for your attention!
Julia.kirya@giz.de
P +260 211 252234
M +260 97 1259190
Julia Kirya
Project Coordinator
Zambia
Nihar.jangle@giz.de
P +49 228 44 60-3390
F +49 175 19 50 369
Dr. Nihar Jangle
Advisor
Germany
Robert.fischle@giz.de
P +49 228 4460-1818
F +49 152-90077873
Robert Fischle
Junior Advisor
Germany
4/8/2020Page 25
Douglas.daura@giz.de
P +260 211252234
M +260 97 1 011 981
Douglas Daura
Advisor
Zambia
Contact

26. Q&A

27. Feel free to contact us at
Abdelkader Benbrahim
a.benbrahim@afdb.org
Hugues Kamewe-Tsafack
h.kamewe-tsafack@afdb.org
Thank You!
www.mfw4a.org