The NDC Action Project, in collaboration with the Government of Uganda, Agriculture and Climate Risk Enterprise Ltd. (ACRE) Africa, Agro Consortium (U) Limited (AIC), the Banana Industrial Research and Development Centre (BIRDC) hosted a side event at COP28 focused on innovative insurance products tailored for smallholder banana farmers.
This pioneering hybrid insurance product, utilizing a Picture Based Insurance (PBI) method, was developed under the NDC Action Project. Funding recently secured from the Adaptation Fund Climate Innovation Accelerator has paved the way for taking the concept into product development, scale and impact.
The discussions also involved the Uganda Development Bank, the European Investment Bank and Insuresilience Solutions Fund, underscoring the importance of such risk mitigating insurance products in the mobilisation of affordable and accessible finance for smallholders.
The key messages from the side event were:
- The existence of a vast Finance Gap: Smallholder farmers, vital for food security, receive a mere fraction of climate finance. Bridging this gap is essential to help them adapt to climate change and secure their livelihoods.
- The power of Innovative Insurance Solutions: Novel insurance models like Picture Based Insurance (PBI) offer promising avenues to unlock finance for smallholder farmers, enhancing their resilience against climate risks.
- The importance of Government Leadership: Governments play a pivotal role in creating enabling environments for climate finance innovation. Their support and risk-taking capacity are crucial in channelling capital to agriculture and adaptation sectors, driving climate resilience for smallholders.
Mr Franck Jésus, Senior Department Climate Advisor, European Investment Bank, stated that “One interesting avenue the EIB is considering with some of its partners would be to combine intermediated financing operations, where the EIB provides a loan to a local bank targeting smallholders, with a climate insurance product. The latter, linked to digital technology, could be offered alongside a loan for agricultural businesses, farmers and small holders directly exposed to climate risk. Both (the intermediated lending and the insurance scheme) would reinforce one another.
This analysis was complemented by Mrs Patricia Ojangole, Managing Director, Uganda Development Bank, who argued that “For farmers to adopt better agronomic practices, they need key de-risking instruments such as insurance, to not only raise their appetite to invest in profitable yet risky investments but to also secure credit from the financial institutions.”
Mrs Ojangole further explained that while there exist insurance schemes in many countries, their uptake by farmers has been low, mainly because of either high premiums paid, limited understanding and hence appreciation of how these schemes work, or delayed and sometimes lack of compensation in cases crop/livestock damages due to shocks. Innovative intervention models are therefore key in enhancing the adoption and uptake of insurance products by farmers because of the farmer's involvement in ascertaining the extent of damage.
Representing the Ugandan Ministry of Finance, Planning and Economic Development, Mr Musa Lukwago stated that “As guardians of fiscal stability, the Ministry of Finance endorses the NDC Action Project and its initiative to develop a Hybrid Index Insurance Solution for Ugandan smallholder banana farmers. The initiative bolsters national food security, addressing impacts of climate change on smallholder banana farmer production and productivity, and related income fluctuations.”
Mr. Lukwago further explained the overall strategy and goal behind developing a hybrid climate insurance product, which is ultimately to increase exports and foreign exchange earnings for Uganda, in addition to improving the livelihood for small scale banana farmers. With the help of this innovative insurance products, he explained, Uganda can de-risk the agricultural sector banana value chain to protect smallholder livelihoods, enable access to finance and climate smart activities, and reaffirm the country’s commitment to achieving a climate resilient agricultural sector.
For more information, please contact sumalee.khosla@un.org
