Background 1

This case study synthesizes the evidence and insights from five existing case studies that have made significant progress in addressing the challenge of insuring poor smallholder farmers and pastoralists in the developing world:

• In India, national index insurance programmes have reached over 30 million farmers through a mandatory link with agricultural credit institutions and strong government support.
• In East Africa (Kenya, Rwanda and Tanzania), the Agriculture and Climate Risk Enterprise (ACRE) has recently scaled up to reach nearly 200,000 farmers, and has successfully bundled index insurance with agricultural credit and farm inputs. ACRE was built on strong partnerships with regional initiatives such as M-PESA mobile banking.
• In Ethiopia and Senegal, the R4 Rural Resilience Initiative has scaled up unsubsidized index insurance to over 20,000 poor smallholder farmers who were previously considered uninsurable, using insurance as an integral part of a comprehensive risk management portfolio.
• In Mongolia, with strong public and private sector support, the Index-Based Livestock Insurance Project (IBLIP) insures more than 15,000 nomadic herders and links commercial insurance with a government disaster safety net.
• In Kenya and Ethiopia, the Index-Based Livestock Insurance (IBLI) project demonstrates innovative approaches to insuring poor nomadic pastoralists in challenging circumstances.

Each of these case studies shares a few common features which appear to have contributed to their success:

• Explicitly targeting obstacles to improving farmer income.
• Integrating insurance with other development interventions.
• Giving farmers a voice in the design of products.
• Investing in local capacity.
• Investing in science-based index development.

Although agricultural insurance has a long heritage with significant ongoing investment, it has only recently started to become widely applied in the developing world, driven in part by innovations in index-based insurance. There still remains much to learn from the successes and failures of existing initiatives but the rapid progress observed in recent years suggests that index insurance has the potential to benefit smallholder farmers at a meaningful scale, and suggests a need to reassess the argument that a lack of demand and practical implementation challenges prevent index-based insurance from being a useful tool to reduce rural poverty.