Pakistan Poverty Alleviation Fund

April 28-29, 2015

Innovations in Managing Catastrophic Risk in

Agriculture Finance - Strategy & Actions

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

PPAF – The Apex

Cumulative September, 2014(figures rounded off) Source: Compliance and Quality Assurance – PPAF

Fact File

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

Crops

Livestock

Forestry

Fishing

Agriculture growth percentages (Base=2005-06)

2011-12 2012-13 2013-14

3.2 2.3 1.2

4.0 3.5 2.9

1.8 1.0 1.5

3.8 0.7 1.0

Pakistan Economic Survey 2013-14

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. Systemic Risk – Low returns & unpredictable capital flows

b. Market Riskc. Credit Risk – collateral,

especially mortgage

1.Vulnerability

Constraints

2.Operational Constraints

3.Capacity

Constraintsa. Investment Returns

and Capital Flowsb. Low Investment and

Assetsc. Geographical

Dispersion

a. Infrastructural capacity constraint

b. Technical & Training constraint

c. Social Exclusiond. Institutions

Limited client awareness & absence of customized, client centric products

PPAF-Addressing Risk through Innovation

Initiatives

• 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 companiesInsurance premium > expected loss + risk margin + administrative Cost

For the FarmersExpected utility without formal insurance < expected utility with formal insurance

PPAF provided platform to all stakeholders and shepherd the process to develop Sustainable, Scalable, Affordable and Flexible products

PPAF’s MI Initiatives

• Index Based Crop Insurance• Crop Yield Insurance

• Micro-insurance for milking animals

• Live Weight Livestock InsurancePPAF through strategic

partnership with SECP, NARC, MFIs, insurance companies, Met

department & renowned experts designed and launched various innovative agricultural

insurance products

Innovation in MI

• 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

1.Index Based

Crop Insurance

2.Crop Yield Insurance

• 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

• 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%

3.Live Weight

Livestock Insurance

4.Micro-

insurance for Milking

Animals• 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%

Innovation in MI

Way Forward

Thank You