Investments in this strategy aim to improve options to mitigate risk – including from weather, disasters, pests, disease, and fluctuating markets – by offering insurance tailored to farmer needs, interests, and repayment schedules. The sections below include an overview of the strategy for achieving desired goals, supporting evidence, core metrics that help measure performance toward goals, and a curated list of resources to support collecting, reporting on, and using data for decision-making.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What is the problem the investment is trying to address? For the people experiencing the problem, how important is this change?

All agricultural production is subject to both the natural risks of weather, disasters, pests, and crop or livestock disease as well as market-based risks such as price fluctuations (4, 5). These risk factors can limit farmers’ ability to recover their investments at harvest time or even altogether discourage input use (5). Investments in this strategy could include products in weather or rainfall insurance, disaster insurance, agricultural microinsurance, pests, or crop and livestock insurance (although weather-based index insurance products have begun to replace crop insurance). Improving options for agricultural insurance or stress-tolerant inputs through investments in this strategy can:

  • increase smallholders’ investments in farming inputs, amount of cultivated land, and other production factors by reducing farmers’ exposure to risk (4, 6, 7);
  • reduce smallholders’ reliance on informal self-insurance—such as crop diversification—that can keep them from reaching economies of scale (8);
  • encourage smallholders to adopt higher-risk, higher-yield crops and technologies (4, 9, 10); and
  • contribute, through these factors combined, to greater profitability, engagement with credit and savings markets, food security, and community resilience.

What is the scale of the problem?

With roughly 450 million smallholder farms worldwide, about two billion people depend on such farms for their livelihoods (2, 11). Small farms supply around 80% of the food consumed in Asia and sub-Saharan Africa (2). Coverage of the global agricultural microinsurance market in 2015 was estimated between 0.05% and 2%, with the highest coverage in India and Mexico and lower coverage throughout sub-Saharan Africa and parts of Latin America and Oceania (12).

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who/What is helped through this strategy?

Low-Income, Farm-Dependent Households: Over two billion of the world’s poorest individuals live in households that depend on agriculture for income and nutrition (1). These low-income smallholders are often considered uninsurable due to their remoteness, poverty, and lack of education, as well as limited population data. Recent advances in insurance structures and mobile technology allow risk-mitigation products to target these populations successfully.

Households Relying on Smallholder Farms for Food: Low-quality inputs on smallholder farms often lead to low-quality products, which can negatively affect populations relying on food from these farms. But smallholder farmers often lack the risk tolerance needed to invest in high-risk, high-yield inputs that can improve the quantity and quality of food they produce.

Rural Communities: With less access to tailored financial products than many urban residents, rural farmers are often left with limited options to mitigate the risks that derive from weather, natural disasters, pests, and disease.

Women: Women comprise 43% of smallholder farmers globally and up to half of smallholders in sub-Saharan Africa and Eastern and Southeastern Asia (2). Some evidence has shown that, compared to male-headed households, female-headed households with insurance increase their agricultural investment in land and inputs at a higher rate (3).

What are the geographic attributes of those who benefit?

Most of the world’s 450 million smallholder farmers live in Asia, with smaller numbers in Africa, Latin America, and the Middle East and North Africa; most are in rural locations, though some are also peri-urban or urban (1).

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

Is the investment’s contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How Much and Who?

For this strategy, increasing access to and uptake of products that allow farmers to mitigate their associated risks, including those associated with adopting higher-risk, higher-profit crops and methods, will very likely lead to better outcomes than what would otherwise likely occur. The extent to which this strategy can mitigate risk for smallholder farmers depends on the investee business and the product they are bringing to market.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many can receive the outcome through this strategy?

Of approximately 450 million smallholder farms worldwide, most lack ready access to insurance that is tailored to their seasonal, financial, and locational constraints. Though existing evidence shows mixed levels of uptake for insurance products, structuring products according to growing season and offering complementary training and information can significantly increase uptake (1).

How much change can beneficiaries experience through this strategy?

The amount of change beneficiaries experience greatly depends on the product and, to some extent, any additional information or services offered. Evaluations of projects in this strategy include the following:

  • An evaluation of weather index insurance in Mexico found a correlated 6% increase in yield. Compared to the premium that the government paid per hectare in 2008, this increase offers a substantial cost-benefit ratio of 340% (13).
  • Analysis of a weather insurance policy in rural China associated insurance coverage with as much as a 22% shift in farmers’ allocation of land to cash crops compared to uninsured households (14).
  • A study in Mongolia found 22–27% higher ownership of livestock after a weather-related disaster for insured compared to uninsured households (15).

Illustrative Investment

Bhartiya Samruddhi Finance Limited (BSFL), financed in part by Triodos Bank and Aavishkaar, focuses primarily on economically active households in rural areas of India that engage in agriculture, cattle breeding, home production, or providing services (16). The organization provides a variety of insurance products–including health, crop, livestock, and micro-enterprise–alongside loans, technical assistance, trainings, and support services. BSFL also offers non-insurance risk mitigation products including livestock vaccination.

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 1
10 Facts about Hunger

“10 Facts about Hunger.” World Food Programme. September 30, 2015.

NESTA: 3
Evaluating Seasonal Food Storage and Credit Programs in East Indonesia

Karna Basu and Maisy Wong. “Evaluating Seasonal Food Storage and Credit Programs in East Indonesia.” Journal of Development Economics 115 (July 2015): 200–216.

NESTA: 3
Agricultural Decisions After Relaxing Credit and Risk Constraints.

Dean Karlan, Robert Osei, Isaac Osei-Akoto, and Christopher Udry. “Agricultural Decisions after Relaxing Credit and Risk Constraints.” The Quarterly Journal of Economics 129, no. 2 (May 2014): 597–652.

NESTA: 3
Savings and Subsidies, Separately and Together: Decomposing Effects of a Bundled Anti-Poverty Program

Michael R. Carter, Rachid Laajaj, and Dean Yang. “Savings and Subsidies, Separately and Together: Decomposing Effects of a Bundled Anti-Poverty Program.” Working paper, June 2015.

NESTA: 1
Evidence on the Impact of Rural and Agricultural Finance on Clients in Sub-Saharan Africa: A Literature Review

Chris Clark, Katie Panhorst Harris, Pierre Biscaye, Mary Kay Gugerty, and C. Leigh Anderson. “Evidence on the Impact of Rural and Agricultural Finance on Clients in Sub-Saharan Africa: A Literature Review.” Evans School Policy Analysis and Research (EPAR) Brief No. 307 / Learning Lab Technical Report No. 2. Seattle: University of Washington, November 2015.

NESTA: 2
Drought and Retribution: Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico

Alan Fuchs and Hendrik Wolff. “Drought and Retribution: Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico.” Policy Research Working Paper No. 7565. Washington, DC: World Bank, 2016.

NESTA: 3
Impact of Weather Insurance on Small Scale Farmers: A Natural Experiment

Stephan Dietrich and Marcela Ibanez. “Impact of Weather Insurance on Small Scale Farmers: A Natural Experiment.” Research Centre on Poverty, Equity, and Growth, Discussion Paper no. 165. Göttingen, Germany: University of Göttingen, 2015

NESTA: 1
The Impact of Weather Insurance on Consumption, Investment, and Welfare

Francesca de Nicola. 2012. “The Impact of Weather Insurance on Consumption, Investment, and Welfare.” Quantitative Economics 6 (2015): 637–61.

NESTA: 1
Investing in Smallholder Agriculture for Food Security

Pierre-Marie Bosc, Julio Berdegué, Mamadou Goïta, Jan Douwe van der Ploeg, Kae Sekine, and Linxiu Zhang. Investing in Smallholder Agriculture for Food Security. Rome: High Level Panel of Experts on Food Security and Nutrition of the Committee on World Food Security, June 2013.

NESTA: 3
Assessing the Impacts of Postharvest Storage Technology on Household Food Security: Experimental Evidence from Uganda

Oluwatoba J. Omotilewa, Jacob Ricker-Gilbert, Herbert Ainembabazi, and Gerald Shively. “Assessing the Impacts of Postharvest Storage Technology on Household Food Security: Experimental Evidence from Uganda.” Poster presented at the 2017 Agricultural & Applied Economics Association Annual Meeting, Chicago, Illinois, July 30–August 1, 2017.

NESTA: 1
Towards a Water and Food Secure Future

Food and Agriculture Organization of the United Nations (FAO) and World Water Council. Towards a Water and Food Secure Future. Rome and Marseille: FAO and World Water Council, 2015.

NESTA: 3
Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana

Dean Karlan, Ed Kutsoati, Margaret McMillan, and Chris Udry. Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana. Journal of Risk and Insurance 78, no. 1 (March 2011): 37-55.

NESTA: 2
Does Index Insurance Help Households Recover from Disaster? Evidence from IBLI Mongolia

Veronika Bertram-Huemmer and Kati Kraehnert. “Does Index Insurance Help Households Recover from Disaster? Evidence from IBLI Mongolia.” American Journal of Agricultural Economics (forthcoming, 2017).

NESTA: 3
After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection

Sarah A. Janzen and Michael R. Carter. “After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection.” National Bureau of Economic Research, working paper no. 19702, Cambridge, MA, December 2013.

NESTA: 2
Crop Insurance for Agricultural Development: Issues and Experience

Peter Hazell, Carlos Pomareda Benel, and Alberto Valdés, eds. Crop Insurance for Agricultural Development: Issues and Experience. Baltimore: Johns Hopkins University Press for the International Food Policy Research Institute, 1986.

NESTA: 3
How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment

Shawn Cole, Xavier Giné, and James Vickery. “How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment.” Harvard Business School Working Paper 13-080, September 9, 2014.

NESTA: 3
The Impact of Insurance Provision on Households' Production and Financial Decisions

Jing Cai, (2013). “The Impact of Insurance Provision on Households’ Production and Financial Decisions.” American Economic Journal: Economic Policy 8, no. 2 (2016): 44–88.

NESTA: 3
The Effect of Microinsurance on Economic Activities: Evidence from a Randomized Field Experiment

Hongbin Cai, Yuyu Chen, Hanming Fang, and Li-An Zhou. “The Effect of Microinsurance on Economic Activities: Evidence from a Randomized Field Experiment.” The Review of Economics and Statistics 97, no.2 (May 2015): 287–300.

NESTA: 3
Informal Risk Sharing, Index Insurance, and Risk Taking in Developing Countries

Ahmed Mushfiq Mobarak and Mark R. Rosenzweig. “Informal Risk Sharing, Index Insurance, and Risk Taking in Developing Countries.” American Economic Review: Papers & Proceedings 103, no. 3 (2013): 375–80.

NESTA: 3
Selling Formal Insurance to the Informally Insured

Ahmad Mushfiq Mobarak and Mark Rosenzweig. “Selling Formal Insurance to the Informally Insured.” Economic Growth Center, working paper no. 1007, Yale University, New Haven, CT, February 2012.

NESTA: 2
Managing Risks to Agricultural Livelihoods: Impact Evaluation of the HARITA Program in Tigray, Ethiopia

Malgosia Madajewicz, Asmelash Haile Tsegay, and Michael Norton. Managing Risks to Agricultural Livelihoods: Impact Evaluation of the HARITA Program in Tigray, Ethiopia, 2009–2012. Evaluation Report. Boston, MA: Oxfam America, 2013.

NESTA: 3
The Impact of Formal Insurance Provision on Farmer Behavior: Evidence from Rural Zambia

Ken Miura and Takeshi Sakurai. “The Impact of Formal Insurance Provision on Farmer Behavior: Evidence from Rural Zambia.” Poverty Reduction, Institutions, Markets, and Policies in Developing Countries (PRIMCED), discussion paper no. 67, Hitotsubashi University, Tokyo, March 2015.

NESTA: 3
Insuring against Droughts: Evidence on Agricultural Intensification and Index Insurance Demand from a Randomized Evaluation in Rural Bangladesh

Ruth Vargas Hill; Neha Kumar, Nicholas Magnan, Simrin Makhija, Simrin, Francesca de Nicola, David J. Spielman, and Patrick S Ward. “Insuring against Droughts: Evidence on Agricultural Intensification and Index Insurance Demand from a Randomized Evaluation in Rural Bangladesh.” International Food Policy Research Institute (IFPRI) discussion paper, no. 1630, Washington, DC, 2017.

NESTA: 3
Ex-ante Impacts of Agricultural Insurance: Evidence from a Field Experiment in Mali

Ghada Elabed and Michael R. Carter. “Ex-ante Impacts of Agricultural Insurance: Evidence from a Field Experiment in Mali.” Working paper, University of California, Davis, 2014.

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.