Smallholder farmers and poor rural households live and work in a high-risk environment and are extremely vulnerable to local and global shocks. Agriculture is their main source of food and income, and this is the sector hardest hit by the climate breakdown. Climate-related shocks, including droughts, floods and pests, can strike whole communities and wipe out agricultural production. But there are other multiple interlocking risks that severely undermine the resilience of poor rural populations, as demonstrated by the impacts of the COVID-19 crisis.
Without tools to address these risks, poor rural households are locked into a vicious cycle of shocks and poverty traps that reduce consumption, deplete precious savings and assets, and limit productive investments. Strengthening the resilience of poor rural women and men – their capacity to cope and recover – is a vital part of IFAD’s work and is enshrined in the first Sustainable Development Goal.
Insurance can play a key role in building resilience, and in increasing and protecting the impact of IFAD-financed projects. Approached in the right way, insurance contributes to economic growth, providing financial stability, fostering investment, facilitating trade and commerce, and enabling risks to be managed more efficiently.
Focus on agricultural and climate risk
Together with the multi-donor Platform for Agricultural Risk Management (PARM), WFP and other partners, IFAD has been working to develop and share insurance expertise since 2008. The Fund has a particular focus on agricultural and climate risk insurance, recognizing it as a tool within a holistic approach to agricultural risk management and rural development. Agricultural and climate risk insurance can be ‘bundled’ with financial and non-financial services and inputs, including seed, fertilizer, credit, and even other types of inclusive insurance, such as for health or business interruption.
IFAD-financed programmes can play a critical role in supporting and facilitating the growth of sustainable insurance markets in rural areas and in scheme delivery to smallholder farmers and rural entrepreneurs. This catalyses private sector investment in development, enabling financial service providers to reach out to typically ‘risky’ clients, and making it possible for them to secure their businesses.
The IFAD-financed portfolio is currently supported by two special technical assistance initiatives managed by PARM: the Sida-financed INSURED programme (Insurance for Rural Resilience and Economic Development programme) and the IFAD-financed grant Managing Risk for Rural Development: Promoting Microinsurance Innovations, implemented by the MicroInsurance Centre@Milliman (MIC@M). These initiatives build on IFAD’s insurance cooperation with WFP through the Weather Risk Management Facility.