Challenges

harvests are poor, farmers see their incomes fall and can struggle to feed their families and maintain their livelihoods. It also becomes difficult for them to keep up with pay-as-you-go (PayGo) instalments on the solar home systems (SHS) that provide much-needed electricity to farming families living off-grid.
As a consequence, the companies providing the PayGo SHS are also hit hard in times of drought by late payments and rising defaults. This can threaten their presence in rural markets and means that they may withdraw from the areas where their services are most needed to seek less apparently risky client bases.
In 2019, a widespread drought in Zambia left some farmers with just 22% of their usual yields, and PayGo default rates were up to three times as high as usual.

Primary target

Which group does your product/service primarily target?

Description of Innovation

Working with the IFAD-supported RUFEP, IFAD’s technical assistance INSURED programme launched a crop insurance scheme for maize smallholders, bundled with SHS on credit, marketed by PayGo solar provider, Vitalite. INSURED supported Pula Advisors, to set up and test the scheme using an area yield index insurance (AYII) product.
Vitalite pays the premium to the insurer at the beginning of the season. Customers receive the insurance with their solar loan and pay the premium back in instalments together with their loan. When farmers’ yields fall below an established historical yield benchmark, the insurer pays Vitalite, and they give the farmers a repayment holiday. Depending on the level of payout, this covers one to six months of full or partial loan payments.
Digitalization is key to all aspects of the insurance scheme: education, marketing, in-season monitoring, claims processing and harvest measurements.
Innovative insurance protects farmers’ supply of green electricity in off-grid communities

Results

Close to 9,000 farmers were insured in the first year of piloting in the 2019/2020 season, with a total premium value of US$20,000. The same number were insured in the second successive season in 2020/2021, but the level of coverage was significantly increased in order to increase the value of the product to customers. With an average of five members in each farming household, about 45,000 people were protected.
Bundling agricultural insurance with PayGo credit can be an interesting strategy to boost farmer access to much needed solar technologies and to protect their investment in these assets. It can also help expand the reach of solar companies and stabilize their businesses.

Lessons Learnt

Agricultural insurance can be bundled with credit, for the benefit of farmers, solar companies and insurers.
• There is an important role for digitalization, but it is not a magic bullet, and is often used alongside non-digital elements. Much farmer education and awareness-raising is still conducted in person and with printed pamphlets.
• Many of the digital aspects in the case are not directly “customer facing”; there are uses to improve the way things operate behind the scenes.
• Partnerships are important to develop and implement agricultural insurance schemes that benefit smallholder farmers. IFAD-financed programmes can play an important role in bringing stakeholders from the public and private sectors together and building partnerships.
• There was important learning in relation to pricing and coverage during the pilot year. In 2020, there were no payouts, partly because it was a good season, but this also suggested that the trigger level should be adjusted, which was done for 2021. In 2020, the trigger level was 50%. In 2021, the trigger level was moved to 70%, which increased the sum insured by a factor or five.

Insurance regulation allows bundling of agricultural insurance with other products and services. This in turn allows for innovative distribution models for the insurance product, and makes it possible to reach more people.