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Weather Index Insurance: The Case for South Africa

Published by:
Publication date
Number of Pages
Type of Publication:
Focus Region:
Sub-Saharan Africa
Focus Topic:
Climate / Weather / Environment
Type of Risk:
Weather & Climate related
Type of Risk Managment Option:
Risk transfer
Shadreck Mapfumo
Micro Insurance Agency Holdings LLC.

South African smallholder farmers are faced with high yield variability due to weather related perils such as drought, floods and snow. Their plight is made worse by their inability to access high yielding, disease resistant seed varieties and other required inputs such as fertilizer. To access input loans, they would need to pledge their assets as collateral to banks or microfinance institutions. Most of these farmers do not have such assets. The lack of collateral and their high dependence on rainfall make smallholder farmers high risks and most banks do not avail their loans to them. On the other hand, medium and large-scale farmers not only have access to finance, but also access risk transfer mechanisms such as multi-peril crop insurance (MPCI). Though not very efficient, MPCI has not even been attempted as a risk transfer mechanism in the micro-level farming community. The challenge is to design and implement an alternative efficient and cost effective crop failure insurance program that can easily be reinsured and distributed to micro-level farmers. Weather index insurance attached to input finance proved very popular in Malawi where two financial institutions provided loans to farmers to purchase high yielding seed and other chemicals.