Challenges

Smallholder farmers in the arid and semi-arid lands of Kenya grow mainly rainfed crops and their livelihoods are therefore highly vulnerable to weather extremes such as drought and floods, together with crop pests and diseases. All of these hazards can be triggered or exacerbated by the worsening effects of climate change, which brings both sudden disasters and slow but devastating shifts in conditions and seasonal patterns. Lack of secure access to markets and inadequate investment in post-harvest handling compound the upstream challenges that smallholders face, especially in fragile ecosystems.
Poor harvests can plunge smallholder farmers into hunger and poverty, cutting their household food supplies and threatening their livelihoods. Without insurance, planting can be a risky investment for farmers, who are often buying seeds, fertilizer and other inputs on credit, with repayments due at harvest time. If harsh conditions lead to poor production, farmers can find themselves both struggling to repay loans and unable to purchase vital inputs for the next season to try and get back on their feet.
Crop insurance can buffer the worst of these effects, allowing farmers to avoid a spiral of low production and debt.

Primary target

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Description of Innovation

Farmers participating in the European Union and IFAD co-financed KCEP-CRAL are enrolled in an innovative e-voucher scheme, through which they make digital payments for improved agricultural inputs and technologies.
In 2021, IFAD’s technical assistance INSURED programme partnered with KCEP-CRAL to accelerate an area yield index insurance (AYII) product. With support from INSURED, insurtech company, Pula Advisors, piloted the product to smallholders in partnership with local insurers and county stakeholders. Payouts are made if harvests fall below an established trigger point.
Digital technology is key to the insurance workstream:
• SMS and IVR in English and the local language are used for sensitization, education, marketing and agronomic advice. A female voice is used for IVR targeting female farmers.
• In-season crop monitoring is conducted via collection of satellite data and field data submitted by field agents using tablets.
• At harvest time, crop cut experiments (CCEs) are carried out by enumerators to collect representative harvest data and yield measurements. Enumerators use mobile technology and GPS to register crop weights with farmer certification, log locations and upload data.
• Payouts are made directly to farmers’ e-wallet accounts in the e-voucher system and are thus available for the next season’s purchases and transactions.

Area yield index insurance administered through innovative e-voucher scheme

Results

By February 2022, nearly 25,200 KCEP-CRAL farmers had received payouts following a drought or insured peril in the previous seasons; about 16,350 of them were women and young people (read more). Some 44,400 smallholder farmers in all had taken insurance in 2021 through the programme (over two cropping seasons), and 85,250 have been insured since the initial pilot began in 2020. About 413,000 household members have thus been protected.
An important lesson for farmers and other stakeholders, is that insurance is not only valuable when a payout is received. Insurance that is bundled with financial and other services and products, such as that provided to KCEP-CRAL participants, strengthens financial inclusion and builds farmers’ capacity to invest in their livelihoods, while protecting incomes and loans. Furthermore, insurance models such as AYII enhance smallholders’ trust as they can visibly relate to payouts associated with crop failure, and trust is reinforced in the case of KCEP-CRAL where payouts are linked to farmers’ individual e-wallet accounts.

Lessons Learnt

Customer protection
Digitalization in insurance can bridge last mile obstacles common in agriculture, and cut costs. However, rapid digitalization brings consumer protection challenges because rural consumers may not be digitally literate. Education is key and clear information about who to address with queries and complaints is important.

Partnerships
Multiple stakeholders are involved in making insurance work for smallholders and ensuring sustainability; partnerships are key, including between the public and private sectors. The insurance partner is APA insurance, a leading insurance company in Kenya. APA is contracted by the Government, under KCEP-CRAL. Insurtech company, Pula Advisors, was engaged by APA, and Pula is supported by INSURED. County stakeholders support the insurance partners and facilitate outreach to smallholders together with KCEP-CRAL . The two participating banks (Equity Bank (Kenya) Limited and Cooperative Bank Kenya Limited) provide the e-voucher platform and facilitate the digital payments.
Reaching youth
In addition to protecting livelihoods, digitalized agricultural insurance can encourage young people to invest in agriculture, including by enabling them to access productive credit. Typically, young people struggle to access credit, but insurance can sometimes be accepted as collateral. Young people may also be more responsive to the innovative approaches used by insurance, including digital distribution.

The Government subsidizes inputs; this allows a good distribution model for the insurance product, which benefits farmers and the insurance market alike.