Drought Insurance in Malawi

LILONGWE - Nov 24/05 - IRIN -- A new pilot program aims to help Malawi's smallholder farmers access agricultural loans and risk cover in the event of drought, boosting their ability to recover from shocks.

The country is in the grip of widespread food shortages after a prolonged dry spell in some parts.

Malawi's National Smallholder Farmers' Association and the Insurance Association of Malawi designed the scheme, with the support of the World Bank and the Opportunity International Network.

"The insurance will help farmers obtain the financing necessary to obtain certified seeds, which produce increased yields and revenues [and have] greater resistance to disease," the Bank said in a statement.

"If there is a drought that triggers a payout from the insurance contract, funds will be paid directly to the bank to pay off the farmers' loans; if there is no drought, the farmers will benefit from selling the higher-value production in the marketplace," the Bank added.

Nearly 900 farmers in four areas will participate in the pilot phase of the program, which covers groundnuts. If successful, the project could be scaled up to include other crops, such as maize, the staple crop, and may be introduced in other parts of Malawi and Africa.

"This project is being implemented for the first time in Malawi and there are likely to be a lot of challenges. One major challenge is that the rainfall pattern in Malawi is not equal. So it will still happen that some farmers will not harvest enough to ensure that they repay the [agricultural] loans as required," Duncan Warren, crop production director for the National Smallholder Farmers' Association, told IRIN.

Drought is one of the major risks in rainfed agricultural production. In the event of drought the farmer faced low yields, or total crop failure. If a production loan had been obtained from a bank, farmers would be forced to default.

The Drought Insurance Pilot Project will give small-scale farmers an opportunity to get loans from the banks and have their money secured when there is drought, said Ben Kautsire of the Insurance Association of Malawi

The initiative was aimed at "putting the farmer back to where he/she was before a drought. In the event that there is drought, farmers should be able to protect themselves, and this is the whole essence of this arrangement," he added.

The project is being implemented in Lilongwe, Kasungu and Nkhota Kota districts in the central region of the country, and has the advantage of encouraging microfinance institutions to be "more amenable to providing loans on otherwise risky crops", said

Warren.

In terms of the arrangement farmers must pay upfront for seven percent of the total sum insured, which includes all components of the production process.

A farmer in Likuni area of Lilongwe province, Victor Lowe, said the initiative was a welcome development. "The [commercial] interest rates are high and this has made it difficult for many farmers to secure loans from the banks," he pointed out.

Copyright (c) UN Office for the Coordination of Humanitarian Affairs 2005

Integrated Regional Information Network (IRIN)

Copyright (c) 2005 UN Office for the Coordination of Humanitarian Affairs