Weather Index Crop Insurance: Implementation, Product Design, Challenges and Successes - Lessons Learned in the Field

This paper examines the impact of index-based weather insurance on farmers in Malawi. Financial institutions in sub-Saharan countries consider agricultural lending risky because of the high correlation between drought and agricultural loan defaults. The paper describes a project in which MicroEnsure partnered with financial institutions in Malawi to provide farmers with loans coupled with indexed weather insurance.

The paper describes the implementation process, product options, reasons for the success of the program and major challenges. Conclusions include:

• Indexed insurance products are necessary for crop insurance to have a meaningful impact on the rural economy in developing countries;
• Indexed weather insurance enables poor farmers to manage risk and provides them with a safety net to fall back upon in case of drought;
• Microinsurance helps the rural poor access microcredit and enables them to move away from poverty and hunger;
• Farmers in the project used loans to purchase improved farm inputs that increased productivity and raised living standards.

The project resulted in increased willingness among lenders to lend to poor farmers. It also allowed participating banks to expand their lending portfolio while mitigating their risk.