Transcript Innovations in managing catastrophic Risk in Agri. Financing-PPAF

Pakistan Poverty Alleviation Fund
Innovations in Managing Catastrophic Risk in
Agriculture Finance - Strategy & Actions
April 28-29, 2015
PPAF – The Apex
 An independent legal entity under the section 42 of the Companies Ordinance 1984
with a Robust governance structure
 Premier national apex, with credibility, track record and strategic positioning,
operational since 2000
 National presence, outreach, scale, growth platforms, networks and drivers of
community-driven development – 121 partner organizations & 500,000 community
organizations and groups
 Ability to crowd-in investments, convene alliances, partnerships and
relationships (national and international)
 Sector developer – creating the eco-system for microfinance, livelihoods,
renewable energy…
 Agility to respond effectively and immediately to natural disasters
Fact File
Cumulative September, 2014(figures rounded off) Source: Compliance and Quality Assurance – PPAF
Large portion of investments in Water, Infrastructure and Livelihood targeted at
promoting Agriculture. 80% Loans are in rural areas with 60% Portfolio in
agriculture (small farmers)
Agri-sector in economy of Pakistan
Employs 45%
of the
country’s labor
force
Accounts for
70% of total
exports
directly and
indirectly
3rd largest
milk producing
country in the
world
66% of rural
population
dependent on
agriculture
24%
Contribution
to GDP
Pakistan Economic Survey 2013-14
Agriculture growth percentages (Base=2005-06)
2011-12
2012-13
2013-14
Crops
3.2
2.3
1.2
Livestock
4.0
3.5
2.9
Forestry
1.8
1.0
1.5
Fishing
3.8
0.7
1.0
Average Yields
(Kg / hectare )
(Wheat, Cotton, Rice, Maze, Sugarcane)
• National Average:
58,615 (kg/ha)
• Progressive farmer:
126,125 (kg/ha)
Risks in Agriculture Finance
Key challenges for rural and agricultural financial service provision
a.
1.
2.
3.
Vulnerability
Constraints
Operational
Constraints
Capacity
Constraints
Systemic Risk – Low
returns & unpredictable
capital flows
b. Market Risk
c. Credit Risk – collateral,
especially mortgage
a.
b.
c.
Investment Returns
and Capital Flows
Low Investment and
Assets
Geographical
Dispersion
a.
b.
c.
d.
Infrastructural
capacity constraint
Technical & Training
constraint
Social Exclusion
Institutions
Limited client awareness & absence of customized, client centric products
PPAF-Addressing Risk through Innovation
Initiatives
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Value Chains
Tunnel Farming
Introducing off-farm businesses
Renewable Energy
Asset Backed Lending
Technology & Branchless Banking
Micro Insurance
Conditions for success of Insurance products
For Insurance companies
Insurance premium > expected loss + risk margin + administrative Cost
For the Farmers
Expected utility without formal insurance < expected utility with formal
insurance
PPAF’s MI Initiatives
PPAF provided platform to all stakeholders and shepherd the process to develop Sustainable,
Scalable, Affordable and Flexible products
Baseline
Survey
Partnership
with Key
Stakeholders
Product
Design
PPAF through strategic
partnership with SECP, NARC,
MFIs, insurance companies, Met
department & renowned
experts designed and launched
various innovative agricultural
insurance products
Community
Perception
Surveys
Awareness
Campaigns
Launching of
the
Insurance
Products
•
Live Weight Livestock Insurance
•
Micro-insurance for milking animals
•
•
Index Based Crop Insurance
Crop Yield Insurance
Innovation in MI
1.
2.
Index Based
Crop
Insurance
•
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•
First of its kind in Pakistan
30 years data on crop yield and
weather used to develop index
2,400 acres
Premium ranges from PKR 530 to 980
per acre
Crop Yield
Insurance
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First of its kind in Pakistan
5 Years data of Yield collected on
wheat and cotton
Model based on historical crop yields
covering 32,000 acres and improving
the lives of poor farmers in
Bahawalpur
Premium: 3% of reference yield
Mitigating information asymmetry and moral hazard issues through
automated claim settlement and involvement of Communities
Innovation in MI
3.
4.
Live Weight
Livestock
Insurance
•
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First of it’s kind in the world
Growth rate of different species under
varied feeding regimes based
management determined through
Government’s livestock research
institutes historical data
Animal prices calculated on the date of
loss, ensuring adequate compensation
to the policyholder
12,500 animals insured
Premium: 6%
Microinsurance for
Milking
Animals
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Specialized product for large milking
animals
Claim settlement is based on a model
where the value of the animals is
based on its productivity
23,000 animals insured under
conventional micro-insurance and
micro-insurance for milking animals
Upscale including 41,000 more animals
Premium small animals: 5%, Large
animals: 4%
Way Forward
Government & Donors
- Create an agriculture insurance fund
to:
Insurance and MF sector
- Support for R&D and piloting in
various districts while investing in
Infrastructure
- Addressing moral hazard and
adverse selection through informal
mechanisms
- Promote & fund ways to better
cover catastrophic risks
- Up-scale successful pilots
- Subsidy for poor communities till
they graduate
- Protection of clients rights and
regulatory supervision along with
client awareness and Literacy
- R&D and risk taking for new niche
to expand the business
- Active participation in existing
platforms.
- Reduce costs by using aggregators
& technology
Thank You