African farmers offered drought insurance

Sugar cane farmers in South Africa: low-income farmers will be able to take out insurance against drought imagepoint

Insurance giant Swiss Re has launched an initiative to offer African farmers cover against droughts ruining their crop harvests.

The microinsurance industry is expanding, with other firms offering cover for people on low incomes. Zurich Financial Services (ZFS) for example formed a partnership with a Swiss government agency earlier this year.

The microcredit industry started in the late 1970s but has snowballed in recent years as companies have recognised both the benefits of ethical business practices and the opportunity to tap into a new market.

Swiss Re said on Thursday it aimed to provide protection against adverse weather conditions for up to 400,000 people in Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Rwanda, Senegal, Tanzania and Uganda.

This follows the launch of a $2 million (SFr2.34 million) scheme earlier this month to protect 150,000 farmers in Ethiopia, Kenya and Mali against the economic effects of severe droughts.

“After witnessing the terrible natural catastrophe of the [2004 Indian Ocean] tsunami that brought misery to people who were not insured, we thought about what we could do for people without a lot of capital,” Swiss Re spokesman Henner Alms told swissinfo.

“But there is a clear business aspect too. If these solutions for African villagers prove successful, they could be extended elsewhere too.”

Sustainability warning

Microinsurance is not a new venture for Swiss Re as the firm had already pioneered weather protection policies in India three years ago.

ZFS has been present in Bolivia since 1999 selling, among other things, life insurance policies that encourage saving by paying out an amount to relatives based on how much the holder had in their bank account.

ZFS entered into a partnership with the Swiss Agency for Cooperation and Development (SDC) and the International Labor Organization (ILO) in February to extend microinsurance for life, property and possessions to Africa, Asia (primarily China) and throughout Latin America.

“We entered into the partnership in order to crystallise this into a real growth and corporate responsibility strategy,” ZFS head of microinsurance Brandon Mathews told swissinfo.

Alliance Sud, a group of six leading Swiss development organisations, gave a broad welcome to microfinance in general, but warned that the innovation had to be properly applied to avoid potential pitfalls.

Partnerships crucial

“If you do not offer sustainability along with the cash, then the attitude of the people will change and they will just take the easy money without thinking of the long-term,” spokesman Bruno Stöckli told swissinfo.

“Swiss companies need to make sure that local partners are stable enough to handle all this new money coming in,” he added.

With this warning in mind, Swiss Re has chosen to work in partnership with NGO Millennium Promise. ZFS will draw on the experience of the SDC while tapping into new markets.

“The SDC works with many of the populations where we should be able to provide these products. They have substantial knowledge built over many years engaging these populations and these markets,” Mathews told swissinfo.

swissinfo, Matthew Allen in Zurich

Key facts

Microfinance refers to loans, savings, insurance, transfer services and other financial products for low-income clients.
The idea first introduced in Bangladesh in 1976 by Professor Muhammad Yunus and was taken up by Grameen Bank and extended to other poor countries. Both Yunus and the Bank were jointly awarded the Nobel Peace prize in 2006.
Up to 90% of the people in poor countries have no access to financial services such as savings accounts, credit, money transfers and insurance, according to the Swiss Agency for Development and Cooperation (SDC).
The United Nations named 2005 as the Year of Microcredit, with nearly 100 countries pledging their assistance to the project.
Around 200 experts in the field of Microinsurance will gather for a conference on the subject in Mumbai, India, in November.