Optimal packaging of insurance and credit for smallholder farmers in Africa (AGRICREDIT+)
Farm households in Africa must cope with a variety of challenging conditions: poor soil quality, weather, and infrastructure. With yields already low, often due to the poor soil quality, variations to growing conditions can be life-threatening. Meanwhile, inadequate infrastructure makes it difficult to help the households with access to financial services, insurance and inputs that could stabilise their access to resources, and enhance yields.
Addressing just one aspect of these problems – bringing agricultural inputs to the farm for example – will not be sufficient: credit is also needed. Credit can only be provided if there is a likelihood that loans will be repaid. Here, insurance can help. If insurance of the loan makes it attractive enough for the lender, a package can be composed of inputs, with credit and insurance. However, the households will remain exposed to some risks as insuring against everything is prohibitively expensive.
This research therefore addresses the core question: what is the appropriate degree of insurance in such bundles? It investigates how to supply inputs to farmers on credit, with insurance, in such a way that a good balance is found between the benefits and risks to the farmers and the profits and risks to the credit provider.
The study focuses on Kenya and Zambia in collaboration with a large insurance provider and a farmers organisation. Information will be gathered on the costs, benefits and risks involved in using the inputs, the alternatives open to stakeholders, and the costs and benefits involved in providing credit to finance the purchase of inputs, with and without an insurance against crop failure.
The overall goal is to provide knowledge that can help other suppliers of insurance and credit, and farm organisations, to establish similar packages that are adapted to the local conditions for input supply, and financial services.