Agriculture Insurance in Increasing Acces to Finance for Rural and Agri- Sectors

Agriculture is and continues to be the most common occupation of rural communities in Zambia, it is their source of livelihood. It is usually practiced on a small-scale level by farmers who are constantly faced with a myriad of perennial constraints that contrive to keep them from growing and becoming more viable farmers. Some of these are: limited access to finance, formal financial exclusion, limited access to secure and equitable markets, limited access to knowledge and technical assistance, lack of title to traditional and ancestral lands on which they live and work, exposure to vagaries of weather, limited and non-existent risk management strategies, etc. These are enormous odds that small-scale farmers by themselves may not be able to overcome. But despite these obstacles small-scale farmers play a significant role in the production of Zambia’s main staple food crop, maize, under a government farmer support initiative, the farmer input support programme (FISP), that’s been in place for about two decades (Burke, et al, 2012). According to Burke, et al (2012) the programme has succeeded in increasing the production of maize even though its efficiency and effectiveness in increasing maize production and reducing poverty has been questioned recently. This being a government programme viewed by the private sector as “political,” financial institutions shy away from it.

Employment and financial inclusion in the agricultural sector
Zambia’s population distribution urban versus rural is 45.2 percent to 54.8 percent while gender distribution is 51 percent to 49 percent for female and male, respectively (Finscope Zambia survey report 2015). A diagnostic study by the World Bank on agriculture finance in Zambia (2019), notes that agriculture represents a very important sector in the country’s economy, even though it has not played a significant role in helping to reduce poverty in rural areas for a variety of reasons, including limited access to financial services among small and medium agricultural enterprises. The report states that agriculture employs 48 percent of Zambia’s working population yet its contribution to GDP between 2014 and 2018 averaged 5 percent. As will be seen later, this compares poorly to other countries in Sub-Saharan Africa. It also observes that only one-fourth of the country’s arable land is under cultivation and only a third of cultivated land is under irrigation. For a country endowed with good climate, land and surface and ground water resources, the huge untapped potential in agriculture if exploited could contribute significantly to the country’s economy.

The World Bank (World Bank diagnostic report on agriculture finance in Zambia, 2019), notes that less than 5 percent of small to medium scale farmers, estimated to be approximately 384,000, had access to institutional credit. By contrast, over 80 percent of institutional credit went to large commercial farmers numbering approximately 1,500.

According to Finscope Zambia 2015 the overall education level of adults is low with 6.5 percent having had no formal education, 68 percent has gone up to Grade 9, only 21 percent has completed secondary school education, while only 1.1 percent of the population is educated up to postgraduate level and above. There is a direct correlation between level of education and an individual’s financial behaviour and literacy such that it is difficult to expect someone of a lower education to fully comprehend some financial concepts.

The Role of Financial Services – Agriculture insurance
Financing agriculture continues to be viewed as highly risky and as a result it is shunned by lenders. However, the use of financial instruments like insurance can help lenders to mitigate their risks. Agriculture insurance can help both the lender and the borrower to mitigate risk exposure as the inherent risk can be transferred to a third party, an insurer. Therefore, agriculture insurance can make the business case for financing small-scale agriculture in Zambia. According to a paper on agriculture insurance from India, vagaries of weather continues to be the most prominent and uncontrollable risk in agricultural production (Accelerating agriculture insurance, Knowledge Paper, FICCI, 2018). The paper advocates for agriculture insurance to cover weather related risk exposure to small-scale farmers. The paper also emphasizes that in order for this type of insurance to succeed it would require cooperation between the farmers (insured), insurance companies (insurers) and a third player could be government (benefactor), in whose interest this would work as taxes would be levied on profits from the resulting business growth. Therefore, for agriculture insurance for small-scale farmers to succeed the following conditions would be vital to have:

  1. Enabling policy framework – the World Bank diagnostic report (2019) identifies some key actions by Government:
  • Providing incentives to the private sector to deliver financial services in rural areas,
  • Strengthening the design and implementation of the weather index insurance scheme
  • Developing an agriculture finance action plan that is adequately resourced and allocates clear implementation responsibilities.
  1. Distribution channels – according to a private insurance consultancy, Risk Shield, having in place channels of distribution would be essential, as these channels would play the role of aggregators of the small but numerous farmers spread across the country. Aggregators could be MFIs, agriculture input suppliers, farmers associations, etc. An effective and efficient distribution channel would be vital to the success of the undertaking.
  1. Timely payment of claim benefits – provide insurance cover and financial support to farmers in the event of failure of any of the insured crop as a result of natural calamities, stabilize the incomes of farmers to ensure their continuance in farming as a business/economic activity, this would spur farmers to invest in modern and innovative farming practices, thereby ensuring the flow of credit to the agriculture sector (FCCI paper, pg. 30).  Therefore, claim settlement will be crucial to encouraging farmers to take up insurance, without this they will be discouraged.
  1. Awareness creation – some of the potential challenges of weather index insurance, could be lack of awareness among small-scale farmers and general low uptake of the insurance. In this regard insurance companies would need to provide incentives e.g. no claim discounts in the event of no claims, etc. innovativeness by insurance companies will be important.

Some notable achievements to build on
According to the World Bank diagnostic report in 2018, Zambia achieved the largest outreach for agriculture insurance in Africa, with approximately 900,000 farmers reached. However, the report notes that design and implementation weaknesses severely limited benefits to farmers. Therefore, useful experiences have already been learnt that should help develop further expansion of outreach. Notably, mobile money is touted as having played a significant role in this regard.

Agriculture insurance can be a game changer in incentivizing financial institutions to finance small-scale farmers. Agriculture insurance would help both financial institutions and farmers to manage their respective risk exposures and thereby make the business case for financing small-scale farmers. Already, a growing number of farmers, who have been educated on insurance are beginning to take up insurance and enjoying the benefits. However, to succeed there will be need for a number of actions to be taken on the side of government and private sector actors. These include an enabling environment, distribution channels that aggregate small-scale farmers, timely payment of claims, and the need for awareness creation.


The author of this article is the Executive Director at the Association of Microfinance Institutions of Zambia (AMIZ). The opinions expressed do not necessarily reflect the position of AMIZ.



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