Rural Finance and Investment Insights: September 2017
Dear RFILC members,
Our September’s newsletter is dedicated to the topic of agricultural insurance. Agricultural insurance is an instrument of choice in many countries for helping farmers and rural communities cope with risk, as defined in the World Bank paper “When and How Should Agricultural Insurance be Subsidized? Issues and Good Practices”. This study explores the reasons why governments and donors subsidize agricultural insurance and asks the following questions: is this a worthwhile way to spend public money, and if insurance must be subsidized are there smarter ways of doing it that can achieve the same objectives, but at lower cost, and which avoid some of the economic and institutional pitfalls that have plagued subsidized agricultural insurance in the past. The paper is structured as follows: after the introduction, the next section reviews existing types and levels of subsidies for agricultural insurance, both globally and for the developing world. Section three reviews the various arguments that have been offered for subsidizing agricultural insurance, while section four discusses some of the key challenges that have arisen when insurance subsidies are poorly designed. Section five seeks to balance the benefits and costs of subsidized agricultural insurance, and asks whether this has proven to be a worthwhile way of spending public funds. Section six presents a set of guiding principles and best practices to be used in their design and implementation. Finally, the last section concludes and provides general recommendations and guidelines.
Second highlight is the Inter-American Development Bank paper “Agriculture and adaptation to climate change: the role of insurance in risk management: the case of Colombia”. Insurance can potentially play an important role in climate change adaptation for rural households in developing countries as part of the overall climate change adaptation strategy. However, agricultural insurance markets have many market failures that inhibit their full development. In Colombia these market failures, namely information asymmetries and high transaction costs, are amplified by the country’s difficult topography, poor infrastructure, and history of rural violence. Even though the government provides premium subsidies to increase coverage, it is still very low and important crops and small producers are not covered. This paper analyzes in detail the market constraints on the development of the agricultural insurance market in Colombia and provides recommendations so that it can fulfill its potential as a risk management tool in the country.
Finally, Adoption of Agricultural Innovations through Non-Traditional Financial Services (INNOVATE) is a three-year initiative implemented by MEDA and funded by the International Development Research Centre (IDRC). The INNOVATE Call for Proposals seeks applications from eligible organizations, companies and institutions to pilot a Non-Traditional Finance (NTF) product/service focused on rapid testing and learning or to document through a case study an ongoing or completed initiative related to NTF. Successful proposals will be awarded up to CAD $200,000 (pilot award) or up to CAD $50,000 (case study award). More details on the call and the application process can be found here.
The Rural Finance and Investment Learning Centre is a part of the CABFIN Partnership Project which aims to promote and facilitate capacity building in rural finance. The concerns of rural finance are to ensure that people living in rural areas have access to financial services such as deposit and money transfer facilities, insurance and loan products. Effective use of these services can help to improve livelihoods and reduce rural poverty. The following CABFIN Partners have provided financial support to the RFILC: