Microinsurance is not a cost: Reducing fragility by increasing stability
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 the poor.
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 smallholder farmers:
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 business owners.
By Stewart McCulloch (Director of Insurance, Vision Fund International)