Bundling weather index insurance and credit in Senegal: contributors and constraints to take-up

3ie evidence programme:  Agricultural Insurance Evidence Programme
Author(s): Mame Mor Anta Syll, Ahmadou Ly, Ibrahima Diouf, Lena Weingärtner, Samba Mbaye
Institutional affiliation(s): University of Gaston Berger and Laboratoire d'Economie d'Orléans, Université d'Orléans; University of Gaston Berger and Initiative Prospective Agricole et Rurale (IPAR); National Agency of Statistics and Demography, Senegal; Overseas Development Institute; University of Gaston Berger and Centre de Recherche pour le Développement Economique et Social (CRDES)
Grant-holding institution: University of Gaston Berger
Main implementing agency: University of Gaston Berger
Sex disaggregation: Yes
Gender analysis: No
Equity focus: Yes
Study type: Formative evaluation

Context

Pilots for weather index insurance (WII) for crops have been implemented in many developing countries – starting in Asia and South America before arriving in West Africa around 2010. Senegal is witnessing the multiplication of programmes that are either directly dedicated to WII or include a WII component as part of a larger rural intervention.

The key focus of this formative evaluation study is on Weather based indexed insurance (WII) take-up by rural farmers, practicing rain-fed agriculture in Senegal. All participants are network members of the COOPEC/RESOPP group, an intermediary through which OSIRIS is channelled. The target regions, Fatick, Kaolack, Kaffrine, Tambacounda and Sedhiou, are in the centre of the country.

Farmer households in the central Senegalese regions are highly exposed to the impacts of drought and rainfall deficits on rural livelihoods (Sène, Diop and Dieng 2006). This is related to their position within the 400–700 mm isohyets. Whereas the 400 mm isohyet divides the country into a predominantly rain-fed agricultural area in the south and a predominantly irrigated agricultural area in the north.

Intervention design

The intervention focussed on the OSIRIS project, which aims to contribute to poverty reduction, enhances social inclusion and strengthens social and economic protection of rural vulnerable population. As part of this project, the weather indexed insurance is combined with credit through a microfinance institution. Developing and delivering a WII product to cover crop production is one component, next to other activities such as technical support to farmer, indemnity crop insurance or the provision of life/disability insurance. The intervention implemented through pre-established relationships between cooperative networks (COOPEC/RESOPP) and farmers in the intervention areas. Through COOPEC, members of the network have access to credit in the form of agricultural inputs, including fertiliser, seeds and equipment. More specifically, RESOPP buys inputs in bulk in order to provide its members with quality products below the market price, especially at the beginning of the rainy season. COOPEC agents then collect applications for credit from farmers in terms of expression of needs for inputs and decide about their provision based on credit history and available collateral, before distributing the withdrawal orders. Since the price and availability of inputs are big concerns for poorer farmers, they have a vested interest in the services offered by the COOPEC/RESOPP system, but are also vulnerable to accumulating debt when failing to repay the loan at the end of the season. Agricultural insurance is one mechanism through with OSIRIS intends to address this challenge.

Evaluation design and methodology

The study follows a mixed-methods approach, consisting of four steps:

1. key informant interviews
2. a randomised controlled trial (RCT)
3. a survey
4. focus group discussions

The following product options were randomly allocated and offered to credit applicants:

• Mandatory insurance with incentive
• Voluntary insurance with incentive
• Voluntary insurance without incentive

Primary evaluation questions

1. What sales protocol (voluntary or mandatory bundling) is more likely to help reach the objectives of poverty and vulnerability reduction through increasing insurance take-up?
2. To what extent is take-up of the bundled product increased by using index insurance as a complement to collateral for credit?
3. What factors beyond those addressed by the bundled product (liquidity and collateral) may support or inhibit insurance take-up by farmers in the study areas and how can these be addressed by the intervention?
4. How do the suggested products and intervention processes adhere to farmers’ needs with regards to managing agricultural risks and providing adequate financial services?
5. How may the intervention support farmers’ risk management and deepen financial inclusion?

Primary findings

1. More than 40 per cent farmers interviewed said they had suffered either flooding or drought.
2. Around 8.53 per cent of the interviewed farmers thought that index insurance could not help them manage rainfall deficit risks.
3. Around 66.47 per cent of the surveyed producers declared that they do not have the capacity to finance an agricultural season on the basis of their own capital.
4. Focus group discussions highlighted, due to low access to credit and agricultural inputs (seeds and fertiliser more specifically), people did not take the risk to decrease their chance to get funded, even if they did not fully grasp the concept of the WII or the bundled product.
5. Considering WII take-up, it was seen that mandatory or voluntary provision has no effect on high liquidity constraints and need for credit.

Implications

1. Monitoring of credit default rates as compared between insured and non-insured farmers and the reasons for default should be monitored.
2. Given the novelty of WII approaches in West Africa, mandatory and voluntary bundling on demand for credit and financial inclusion in the long run should be assessed.
3. Another area of future research could be the take-up of WII and the different bundling mechanism on well-being through supporting climate resilience and financial inclusion.