FAR training improves the skills of agricultural finance professionals with a view to resilient and sustainable rural development

The FAR course allowed participants to discuss different topics to strengthen their agricultural finance skills and learn how to develop innovative solutions to promote the financial inclusion of rural populations. In particular, participants had the possibility of taking part in an online course by Tara James, a specialist in climate risks and agricultural insurance at the International Fund for Agricultural Development (IFAD), who spoke to ADA.

Why is it important that the agricultural finance professionals on the FAR training course strengthen their expertise in the field of agricultural insurance?

Because insurance against agricultural and climate risks has an important role to play in reducing the risks associated with public and private investments in rural areas. It can be an important pre-condition for financial institutions to expand rural lending and for private sector investment, which leads to a sustainable reduction in poverty. Insurance provides women and men in rural areas affected by agricultural risks and climate change-related disasters with sufficient compensation to cover essential expenditure on food, health and education, or to pay down debts and avoid drawing on savings.

Despite the clear advantages, agricultural and climate risk insurance remains largely inaccessible to most smallholder farmers in low- and low-middle income countries. Globally, less than 20% of smallholder farmers have access to agricultural and climate risk insurance and that number is less than 3%  in sub-Saharan Africa.
Combining insurance products with other services and using appropriate delivery channels close to poor rural populations - such as MFIs, savings and credit groups, farmer cooperatives and agricultural extension services - can also help to make insurance more accessible and affordable as it allows to lower the distribution costs and create scale.

Do you notice a lack of knowledge and know-how in implementing agricultural insurance solutions?

Yes. Financial institutions serving agricultural target groups often have a strong understanding of their customers or beneficiaries’ needs and risks. Many of them are interested in offering or scaling up agricultural insurance, but they have difficulty introducing and managing these products and need additional support to make the right partnerships, in designing cost-effective insurance programmes and in developing the technical capabilities needed to implement these programmes.

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“Globally, less than 20% of smallholder farmers have access to agricultural and climate risk insurance and that number is less than 3% in sub-Saharan Africa. [Financial institutions] are interested in offering or scaling up agricultural insurance, but they have difficulty introducing and managing these products and need additional support to make the right partnerships, designing cost-effective insurance programmes and developing the technical capabilities needed to implement these programmes.” - Tara James, specialist in climate risk and agricultural insurance, IFAD.

What innovative solutions make agricultural insurance more accessible to small producers?

A number of solutions are available. These include new climate risk management tools, such as forecast-based insurance or nature-based solutions. Another solution is bundling agricultural insurance with financial or non-financial products or services, for example with other forms of insurance, credit, remittances, savings, agricultural inputs and agronomic advice. In addition, the affordability of agricultural insurance, both in terms of premium financing and payment structures, can be improved through various innovative approaches such as pre-financing and instalment payments, rewards if no claims are made, freemium models, rewards for good risk management practices, payments at harvest times, indirect premium subsidies and graduation strategies. 

Lastly, the use of technology at all stages of the agricultural insurance process makes it more accessible. This includes smart contracts, machine learning and artificial intelligence to improve product design and claims assessments with a view to improving index-based products and reduce fraud in indemnity insurance. Furthermore, technology can facilitate the collection of risk and customer data, consumer education, for example via digital information platforms, as well as the use of digital channels for distribution and bundling.

In conclusion, the FAR training course offers a unique platform to improve the skills of agricultural finance professionals and to promote innovative solutions for the financial inclusion of rural populations. Drawing on strategic partners such as the International Fund for Agricultural Development (IFAD) and recent approaches to agricultural insurance, this training course helps to transform challenges into opportunities with a view to sustainable agricultural development.