Crop insurance, game changer—experts

The insurance industry and an agriculture expert say money lending institutions have no excuse not to extend credit to farmers or the agriculture sector due to weather associated risks.

They argue that weather index insurance has taken away such risks.

Money lending institutions, especially commercial banks have not been comfortable to lend to farmers in view of weather shocks that affect yields; hence, contributing to loan default.

This comes against the backdrop of Reserve Bank of Malawi (RBM) figures showing that the agriculture sector plays second fiddle to wholesale and retail sector in terms of extension of credit by banks.

In the July to September quarter,  banks loaned K18.6 billion to the wholesale and retail sector, agriculture was given K12.1 billion, electricity, gas, water and energy was given K9.6 billion with transport, storage and communication were given K6 billion.

Insurance Association of Malawi president Donbell Mandala, who is also Nico General Insurance Company chief executive officer, said in an interview on Monday that with adverse effects of climate change, insurance companies are already offering weather index insurance service, which is registering remarkable growth.

He said that initially banks did not understand the existence of weather index insurance and how it works, but the insurance industry has demonstrated how it works in paying claims for weather- related risks.

Said Mandala: “Right now, we have proven that insurance is able to mitigate some of the weather associated risks.

“When farmers buy weather index insurance, it means they are securing their crops from any adverse weather effects.”

He said weather index insurance could help bank customers, especially farmers, to get cheaper loans because banks lend with an inclusion of risk amount.

Bankers Association of Malawi (BAM) chief executive officer Violette Santhe on Monday reserved her comment on the matter.

But Civil Society Agriculture Network (CisaNet) executive director Pamela Kuwali said it is important for farmers to access weather index insurance so that they are cushioned from adverse weather shocks.

“If farmers are not cushioned from impacts of climate change such as drought, floods, pests and diseases, among others, then they end up making losses. We think it’s important for all stakeholders to start looking at innovative solutions as to how we can strengthen resilience of our farmers,” she said.

One of the country’s seasoned farmers, Felix Jumbe, said the biggest challenge is that banks have been worried about risks in farming; hence, not comfortable to lend to the sector..

He said: “What is needed now is awareness of the availability of the platform where insurance companies can pull together to insure farmers.”