NAIROBI, Kenya, Sept 2 – Kenyan farmers will now be insured against the vagaries of weather following the entry of an insurance intermediary which has developed products that target the informal sector.
MicroEnsure on Wednesday announced its entry into the Kenyan market saying it had developed a weather index insurance policy targeting farmers in drought stricken areas.
MicroEnsure Chief Executive Richard Leftley said micro finance institutions were becoming increasingly stringent in providing credit to farmers influencing the yield from their farms.
“Availing credit to small scale farmers is viewed as high risk and financial institution would not want to give credit without any guarantees,” he said.
Mr Leftley said the company had accessed data from several weather stations from across the country and would develop an insurance scheme depending on the region and the risk it is exposed to.
The product will guarantee compensation in case yields are affected by drought.
Mr Leftely said the policy could also serve as guarantee to financial institutions where in the case of drought, the farmer could access credit to finance purchase of farm inputs that would mitigate the effects of the harsh conditions.
Malawi has already adopted the policy and Mr Leftely highlighted that tobacco and groundnut farmers had reported yield increase of between 100 and 250 percent.
“The weather index we developed unlocked credit and the loans were as low as an equivalent of Sh800 shillings per acre,” he said.
The product has also been launched in Rwanda, Philippines, Tanzania and India with the aim of also introducing the product in Kenya.
The scheme works by taking into consideration farmers within a twenty-kilometre radius of a particular weather station who are then clustered assuming they receive the same amount of rainfall.
The Chief Executive also called for the development of insurance products tailored for the informal sector, which he argues, could help boost the economy.
He said low-level income earners face numerous risks in their daily business that creates obstacles to their economic prosperity.
With insurance products suitable to them, he said individuals could concentrate more on developing their businesses making a significant contribution to the economy.
“We sometimes compare the lives of the poor to being like ‘snakes and ladders’ game where people are trying to work their way out of poverty but all that hard work is undone by all the risks they face,” he commented.
Mr Leftley said market study conducted by the company highlights increased demand for insurance by the sector but were not suitable to the needs to the low end user.
“If they are present with an insurance product that offers them a higher level of benefit for the same cost they are keen to take insurance.
He said lack of the products had forced many to mitigate the risks they face them by using other informal mechanisms that were not as secure.
The company currently has operations in five counties.
Mr Leftely however said with a $24.2 million grant from the Bill and Melinda Gates Foundation, MicroEnsure has plans to enter into 11 new countries.
He said the company should begin operations in Kenya by the first quarter of 2010.