Agriculture is the mainstay of Rwanda’s economy. Rwanda also has a long pastoral history where livestock plays a major role in the economic and sociocultural life of the people. Given the conducive agro-ecological conditions for intensified livestock production, the industry can provide an opportunity to enhance farm level income thereby driving agricultural growth, reducing poverty and improving the nutritional security of rural people. Agriculture finance has been and remains a national priority for transforming the sector from subsistence to a commercial mode of production and promote financial inclusion. However, the growth and deepening of agriculture finance market in Rwanda is constrained by factors such as high transaction costs due to the absence of distribution channels, limited access to funds and technical capacity to assess agriculture risk. Other constraints include co-variance of production, market and price risks, absence of adequate instruments to manage risks and low levels of demand due to fragmentation and incipient development of value chains. In terms of livestock, untimely death of cattle could have a debilitating impact on the owner’s income, especially in case of marginal farmers or dairy farmers. In the Rwandan context, farmers generate significant income from livestock and the value of cattle represents a substantial percentage of the farmer’s wealth. Hence, the death of cattle poses a considerable risk and affects the farmer’s earnings and ability to pay back the loan. Thus, mortality risk due to diseases, catastrophes and accidents prevents financial institutions from lending to agriculture, particularly dairy production. It is to meet this exigency that the livestock insurance scheme has emerged as a saviour of cattle owners in recent years by providing for indemnity in the event of death of the insured animal. Some of the insurance schemes implemented in the past have got restricted to few big cooperatives or programmes and were not able to achieve some of the desired outcome at the policy level. Lessons from countries that have implemented agriculture insurance show that, the private insurance sector on its own lacks capacity to develop and underwrite agriculture insurance schemes. Given this, the public government has a crucial role to play, specifically in creating a conducive environment for the private sector to develop a sustainable agriculture insurance market. Successful agriculture insurance schemes in emerging markets, therefore, are implemented under Public Private Partnership (PPP) model. An insurance PPP is defined as a contractual agreement between the public sector, represented by a ministry and the private sector, represented by the insurance industry and its service providers and distribution partners that combines business objectives with public policy goals in a cost-efficient and effective. Some of the arguments and rationale for government support to agriculture insurance schemes are; • Low risk awareness and lack of insurance culture. Governments may play an important role in providing farmer awareness and education programmes on the insurance scheme. Involvement of public institutions will legitimise the scheme from the onset. • Affordability. Various empirical literature show that the demand for agricultural insurance is extremely price elastic, or in other words the cheaper the price of an agricultural insurance policy, the more the product is demanded by and purchased by farmers, and vice versa. Premium subsidies alter the price of insurance; consequently, they are likely to affect the demand for insurance. There is growing consensus that subsidies will reduce the cost of premiums making insurance affordable and accessible to more number of farmers. • Informational asymmetries and lack of agricultural risk market infrastructure - The two critical informational problems that any insurance program faces are adverse selection and moral hazard. It may be very difficult for private entities to measure risks, collect relevant data, monitor producer behaviour, and establish and enforce underwriting guidelines. Government can play a pivotal role in collecting, auditing and managing insurance-quality data; provide an institutional (legal and regulatory) framework that can create and enabling environment for sustainable agriculture insurance • Systemic risk. Can generate major losses in the portfolio of agricultural insurers. Government can retain a portion of agricultural risk; help domestic insurers pool their agricultural risks and support in obtaining reinsurance for agriculture risk at a reasonable price. Lessons drawn from past experiences of successful PPP model requires clear identification of roles, responsibilities and reporting, the sharing of resources and expertise to achieve the common goals and better results. In such scenarios, where Government plays a significant role in developing the overall scheme the private sector plays an essential role in the successful implementation of the scheme and making it commercially sustainable. Some of the key functions that remains with the private sector are • Risk acceptance and underwriting, • Decisions over risk retention and strategies, • The marketing and distribution of the insurance products • Loss assessment and claims pay out (settlement) A PPP model requires a careful design that can evolve over time as both the Government and the private sector learn from the results and situations experienced. The PPP model should be flexible enough to adapt to the given conditions and scale further across breeds / crops and locations. Apart from the sectoral justification and the need of agriculture finance; insurance is also an important tool to achieve the UN’s Sustainable Development Agenda, its goals and targets in the following ways: • Provide a buffer to stop the vicious cycle of poverty and contribute towards poverty alleviation • Build resilience – support the formalisation, growth and productivity of small-scale farmers • Access to credit thereby encouraging investment in enhanced agricultural practices • Complements and strengthens other climate change coping efforts • Improve the livelihoods notably cash incomes, food security, nutrition, resilience to shocks. • Increased access to health care facilities such as vaccination. Hence the success of the national agriculture livestock insurance scheme lies in the efforts of collaborations and partnerships between Government agencies, insurers, civil societies, communities, international development cooperation and research institutions. The Sustainable Development Agenda is also a true reflection of this. Ayandev Saha is the General Manager, K M Dastur & Company, London involved in the design and implementation of the National Agriculture Insurance Scheme (NAIS), Rwanda The views expressed in this article are of the author.
