Help for smallholder farmers in South Africa
News from 2019-09-20 / KfW Development Bank
InsuResilience Solutions Fund supports the development and introduction of drought insurance for smallholder farmers
On 19 September, Frankfurt School of Finance and Management signed a grant agreement on behalf of the InsuResilience Solutions Funds (ISF) together with the South African Land Bank Insurance Company and CelsiusPro. Their aim is to give smallholder farmers in South Africa access to climate risk insurance. The ISF was established in 2017 with an initial endowment of EUR 15 million and financed by KfW Development Bank on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ). It is an important implementation programme of the InsuResilience Global Partnership, a joint initiative of the G20 and V20. Needy households earning less than USD 15 per day can protect their livelihoods against weather-related risks.
Between mid-2015 and early 2016, a severe drought drastically reduced South Africa's water supply and agricultural production. Maize and other crops did not grow and the animals were in danger of starving. Smallholder farmers and their families were particularly hard hit, not only as a result of income losses, but also because of the associated risk of food shortages. The economic loss stemming from the 2015/16 drought was estimated at nearly half a billion USD.
Insurance offers smallholder farmers effective protection against extreme weather events like drought. Still, less than one per cent currently have access to climate risk insurance – which means that an estimated 1.7 million smallholders and subsistence farmers in South Africa are currently not insured against weather-related risks. Although the Ministry of Agriculture has a disaster relief programme, it has proven insufficient to provide financial aid after the fact and a significant number of smallholder farmers have been left destitute due to delays in the programme's implementation. Dr Joachim Nagel, Member of KfW Group's Executive Board, highlights the innovative component of the insurance product: “With the support of the InsuResilience Solution Fund, we make it possible for smallholder farmers to protect themselves against losses caused by drought. A fast payout of the insurance premium provides the urgently needed financial support.”
The grant – the first since the ISF's call for proposals began in early 2019 – will co-finance the development and market roll-out of an innovative index-based insurance for smallholder farmers in South Africa, designed to provide insurance coverage to around 240,000 people by 2021. As a government institution, Land Bank and its subsidiary Land Bank Insurance Company have a mandate from the government to facilitate access to financial services for poor and vulnerable people. To be in a position to offer insurance protection to smallholders, Land Bank Insurance Company works with CelsiusPro, a highly experienced Swiss insurtech company that specialises in integrated climate and natural catastrophe insurance. Mark Rueegg, CEO of CelsiusPro, said “We are proud to be able to provide an automated insurance management platform that enables fast payouts, reduces costs and makes insurance affordable for smallholder farmers.”
This innovative climate risk insurance is a striking example of the action plan for resilience and adaptation developed at the UN Climate Action Summit convened by UN Secretary-General António Guterres on 23 September.