WIN-WIN-WIN: in-kind assistance, livestock insurance and credit in Rwanda by Bavagnoli, M. and Van 't Wout, T.
Feasibility study to link 'Girinka', livestock insurances and credit for vulnerable herders in the drought-prone area of Bugesera, Rwanda.
This research proposal aims to undertake a feasibility study to define a framework that links the social protection scheme Rwandan’s One Cow per Poor Family Program (‘Girinka’), an in-kind social assistance program based on animal donation, with livestock insurances, credit products and animal health trainings, in order to reduce the adverse climate impacts and build more resilient livelihoods.
Social protection schemes, i.e. animal donations, have rapidly increased to enhance and secure people’s food and nutrition security in various developing countries as well as the provision of additional income it can generate through the sale of animal products (Senauer, 1990; Kennedy, 1994, Kafle, 2014 and Rawlins et al., 2014). However, climate change, poses challenges to pastoral systems that the Government of Rwanda is promoting. The expected increase in frequency and severity of extreme weather events, like floods, landslides (in the northern & western regions) and droughts (in the Eastern & South-Eastern regions), will adversely affect the rural communities mainly relying on agriculture for their livelihoods. It is therefore clear that climate change will undermine the effectiveness of 'Girinka'. Linking it with livestock insurance, credit products and animal health training, can help to reduce the impact of climate change on the livelihoods of herders.
Bugesera district is highly prone to prolonged droughts and floods. Over 49% of the total cattle in Rwanda is located here (SNV, 2008), while food insecurity & poverty levels remain substantial. It has received among the highest numbers of cows through the Girinka program (Ntanyoma, 2010), although, very few studies have been conducted to determine the impact of the program (Mwaboninama and Habinaana, 2015). Only Kayigema (2014) assessed the effect of 'Girinka' on food security & poverty alleviation in Bugesera district, but no insights in the potential of credit-linked insurance to further enhance people’s livelihoods.
What actions do you propose?
The Government of Rwanda launched in 2006 the One Cow per Poor Family Program “GIRINKA”, in order to alleviate high levels of poverty and food security in the country. This social safety net program is based on the provision of a productive asset, specifically a dairy cow, which can provide long-term benefits to the recipient. The objectives of the program include i) reducing poverty through dairy cattle farming; ii) improving livelihoods through increased milk consumption and income generation; iii) improving agricultural productivity through the use of manure as fertilizer; iv) enhancing soil quality and reducing erosion through the planting of grasses and trees; v) promoting unity and reconciliation among Rwandans based on the cultural principle that if a cow is given from one person to another, it establishes trust and respect between the giver and beneficiary. Girinka originally aimed to reach 257,000 beneficiaries, but by September 2014, close to 200,000 beneficiaries had received a cow and as a result, this target was revised upwards to 350,000 beneficiaries by 2017. It is one of a number of programs under Rwanda’s Vision 2020, which consists of a set of development objectives and goals designed to transition the country to a middle-income nation by 2020.
The negative effects of increased temperature adversely affect feed intake, reproduction and the performance on various livestock species. According to the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS), the majority of the livestock species, such as cattle, sheep, goats, pig and chickens, perform best under temperatures between 10 and 30°C. However, the increase of 1°C above this range, reduces the feed intake of all species by 3-5 percent (Thornton et al., 2015). Without a doubt, this will have far-reaching effects on the quality and quantity of livestock species (Mikova, K., Makupa E., Kayumba, and J. 2015). In addition, an increase in temperatures will also lead to widespread negative impacts on forage quality and as a consequence, livestock productivity. When combined with overgrazing and poor cultivation practices, drought has also led to a deterioration in pasture and arable land to the point where they have been abandoned. In addition, the health of farm animals and humans is also at risk, particularly amongst those living below the poverty line, and as temperatures rise, diseases could spread to new areas, particularly higher altitudes. Out of the main livestock diseases in Rwanda, ticks, tick-borne diseases and trypanosomosis are the most likely to be sensitive to climate change (Republic of Rwanda, 2011).
There are several options for herders to put in place climate adaptation strategies, such as e.g. adaptive management of resources, farm diversification, and genetic selection of robust animals (IFAD, 2009; FAO, 2013). However, in many cases, the adverse impacts of extreme weather events, such as droughts and floods, often result in livestock mortality if farmers are not able to adequately and timely implement these prevention and risk reduction measures. According to a FAO study (2015), the livestock subsector is the most impacted by droughts, although due to the lack of adequate, accurate and reliable data, the exact damage and losses to the sector are unavailable.
Even for the most experienced herders, and pastoral and herd management in the majority of the developing countries, complementary financial resources may often be required in order to purchase, for instance, vaccines to prevent and control the spread of diseases or to have access to sufficient and nutritious fodder. Also in the aftermath of a disaster, access to financial mechanisms is often needed to provide herder households with liquidity in order to adequately recover. However, access to finance or risk transfer tools, like livestock insurance specifically aimed to reduce the impact of climate variability and change, as a mean both to make agricultural investments and to cope with the damage and losses due to climatic related shocks, is limited, because finance and microfinance institutions are reluctant to provide credit to these vulnerable groups. This exacerbates the virtuous cycle of poverty.
Against this background, a climate risk management tool to support vulnerable herders’ communities is the use of livestock insurances. There is growing interest by the Rwandan Government to focus on agriculture and livestock insurances as climate risk management strategies for vulnerable communities of the country. The Ministry of Agriculture and Animal Resources has set aside Rwf 200 million for agriculture insurance support these farmers for the fiscal year 2018, according to officials. However, there is not yet clarity on the implementation of the pilot phase of the initiative, the actors involved and the timeframe.Furthermore, as of now, insurance companies in Rwanda are developing risk transfer products for livestock, including SONARWA, UAP and SORAS, but the costs are still too high, so affordability is an issue and the market penetration remains limited (Syngenta Foundation for Access to Finance Rwanda & MINAGRI, 2012). As of today, tenders for selecting local insurance companies have not yet taken place. Thus, despite the livestock sector is among the top priorities, an insurance product targeting this have not been implemented yet. ACRE, the project’s counterpart will be working closely with the goverment to support the implementation of activities related to insurance in agriculture and through engaging with them in this project, the scalability of the government’s insurances for the livestock sector will be promoted.
The study undertaken by the Syngenta Foundation for Access to Finance Rwanda & MINAGRI (2012) has advised the Rwandan government to i) regulate the amount of credit to rural areas; ii) ensure that agricultural credit is insured; iii) instead of subsidizing premiums, eliminate the 18% VAT from any insurance products that support the rural sector so as to make it more affordable. It also stated that the private sector alone may not develop these products due to the high development costs and uptake time. Different ways of finding funding support, for instance, through development partners supporting insurance companies via a grant scheme, should be explored. As of March 2017, it has been reported that the government has waived the 18% VAT on weather-based index insurances (The East African, 2017).
The idea behind this research proposal, is to conduct a feasibility study to help define a framework to link the social protection scheme ‘Girinka’ with the development of livestock insurances, as well as linking insurances and herders with financial institutions, as a measure for vulnerable communities to reduce the adverse climate impacts while increasing agricultural investments, thereby building more resilient livelihoods. The focus will be on cattle primarily as a result of analysing the 'Girinka' programme, but the promotion of improved livestock practices will also be beneficial from small ruminants, whose production is also often associated with overgrazing and land degradation (El Aich and Waterhouse, 1999).
At present, there are only limited studies and analyses about the relationship between credit-linked insurance as well as little is known. According to the recent publication by the ILO and IFC (2017), there is almost no information about the benefits to farmers and Financial Services Providers (FSPs) as well as hardly any evidence about the value to insurers, as a result, there is a need to undertake evaluations and impact assessments as well as developing monitoring and evaluation systems for those projects and programs that link credit to insurance. At the same time, there are not yet evidences to be provided to insurance companies of the economic benefits arising from reducing herder's exposure to risk through climate-resilient livestok management. This feasibility study aims to address this issue, by looking at the three components of social protection – insurance – credit connected with animal health, for win-win-win solutions for herders, insurance companies and FSPs as outlined in Figure 1 below.
In addition, despite the growing interest of FSPs and microfinance institutions of financing trust-worthy small holder farmers in Rwanda, access to credit for small producers affected by recurrent losses due to climate shocks, remains inexistent due the lack of risk transfers instruments, such as insurances. On the one hand, insurance companies are still skeptical in the opening of their business to small farmers and lack of figures showing the profitability of taking this market opportunity, while on the other hand, famers are not aware of the products available to protect their income. In addition, as part of this proposal, we suggest to conduct 3 trainings to farmers on animal health and DRR/related practices, including improved feeding practices as (Argent et al., 2014) has showed that the returns to training are positive in terms of e.g. enhanced milk production, income generation and asset building. These trainings will include not only topics related to animal health, but also technical topics and cross-cutting issues, such as business skills, livestock production in pastoral areas, natural resources management (to ensure guidance for stocking rates so as to not exacerbate land degradation and diversification of livestock), health, nutrition and gender, in line with FAO's Pastoral Field School approach (FAO, 2018). Within the context of this feasibility study, these trainings will be beneficial and a win-win-win for all three stakeholders, namely that i) farmers will enhance their knowledge on animal health and in turn ensure their food security, income generation and livelihoods; ii) the MFSPs/FSPs will have their credits ensured by the fact that farmers have their assets saved; and, iii) the probability of the insurance companies having to pay back the farmers will decrease. Moreover, by reducing the risk of animal losses, due to better linking social protection, insurance and credit, will enhance people's ability to spend this income on health care and the education of their children.
Figure 1 – Three main components of social protection – insurance – credit interlinked with climate-resilient animal health management that feasibility study will look at:
In order to better understand the existing constraints and challenges as well as potential opportunities to link social protection schemes, like Girinka with livestock insurances and other financial products, a literature study, an inception workshop will be organized with the relevant stakeholders, including herders, insurance companies and financial institutions combined with 100 (semi-structured) interviews, 3 trainings to 60 farmers on animal health/DRR related practices, a validation workshop to validate the findings and draw up conclusions, and recommendations for potential ways forward.
The team composition for this project proposal is the inclusion of two international consultants, one with expertise on insurance/credit and the other specialised in DRR/social protection, who will provide the guidance and ensure strategic direction and effective implementation. They will be supported by two national consultants of which one from Acre Africa, who will assist with the field work, including conducting and supporting desk research, project coordination of activities, logistics, administering the interviews and translation where required. In addition, a national animal health trainer will provide the 3 trainings to herders on e.g. animal health, climate adaption and sustainable resources management and related DRR good practices for livestock. Lastly, a possible collaboration is promoted with the FAO Animal Health Division to use a Pastoral Field School (PFS) approach.
Who will take these actions?
This proposed action will be implemented through collaboration with Acre Africa, which was previously the Kilimo Salama project of the Syngenta Foundation for Sustainable Agriculture and supported by the World Bank Group and the Global Index Insurance Facility (GIFF) and has the largest private sector index-based insurance in Africa. Acre Africa is an insurance agent in Rwanda and Tanzania. It is not an insurance company, but rather a service provider that works local insurers and other stakeholders in the agricultural insurance value chain.
Furthermore, two independent researchers and two national consultants of which one is from Acre Africa, who are based in Rwanda will be collaborating on this action, including one national animal health trainer, who will facilitate the 3 planned trainings to herders on animal health and related DRR good practices for livestock.
The suitable distribution channel is a mandatory form of bundling / linking loan /credit with insurance cover i.e Financial institutions (Banks / MFIs) issue credit with on top insurance premium. Farmers get a complete set of credit plus premium as part of the loan. The Financial institution (FI) will transfer premium to ACRE / insurer and payouts / claim settlements will follow the same channel i.e ACRE / insurer will compensate any loss through accounts of clients open in the same FI giving them power to monitor credits recovery or defaulting and in the last case scenario, FI can avoid defaulting by using money from loss compensation as they will be following transactions done on clients / insured bank accounts.
It will be a win /win situation for different parties involved and much value proposition to FI that has nothing to gain than controlling the defaulting through an insured loan. FIs and insurance companies will increase their portfolio, while the credit interest rate will be less influenced by the deault risk reducing the price paid by farmers.
Where will these actions be taken?
The proposed site for the implementation is the district of Bugesera in Rwanda. It is considered to be, in comparison to the other regions where GIRINKA has been implemented, the most affected by climate change and is characterized by a very hot climate with excessively prolonged droughts (Republic of Rwanda, 2011). According to a survey, 50% of the households in Bugesera are also quite frequently affected by floods, which is much higher than the average of 8% for the entire country. Bugesera is also among the 13 districts, which is highly food insecure, with an estimation that over half (52%) of the children under five years old are stunted. Moreover, households relying on agriculture and livestock for their livelihoods observed that rainfall deficit negatively affected their income (94%), reduced their ability to provide food (98%) and led to the loss of assets (81%) (WFP, 2012).
Within this context, it is highly important to get a better understanding of the impact of droughts and floods on livestock. In particular, for those households that received a cow through the Girinka programme and whether they did or did not have access to livestock insurance or other credit products to help prevent or mitigate this impact on their animals. The availability of secondary data seems limited regarding the number and percentage of households that received a cow under the Girinka programme in Bugesera district and livestock damage and losses data due to the impacts of floods and droughts. It was reported through that 4% in Bugesera district were provided with large livestock through the Girinka project and that a limited number of households indicated that they received any training/technical assistance or specific veterinary services. The latter is highly important as it can help to prevent or mitigate the total loss of an animal by knowing, for instance, when and how to provide animal vaccinations (WFP, 2012).
What are other key benefits?
This action will operate within national strategies for disaster risk reduction, climate change as well as connecting livestock insurance to ensure food & nutrition security.
Social protection programs are recognized in the country’s Green Growth and Climate Resilience National Strategy for Climate Change and Low Carbon Development, which addresses both adaptation & mitigation, whilst focusing on economic growth and poverty reduction as well as including the link between climate resilience & social protection in pillar 3 of this strategy.
Since 2010, the Ministry of Agriculture and Animal Resources has also partnered with insurance partners, MicroEnsure and Acre Africa to initiate agriculture & livestock insurance aimed at transforming into market-oriented agriculture as outlined in the Strategic Plan for the Transformation of Agriculture in Rwanda Phase III and Rwanda’s Vision 2020. Given the clear interest in promoting insurance for herders, this pilot may be scaled up up by government
What are the proposal’s costs?
The total duration of the proposed action is 9 months.
- Activity 1 - Conduct literature study on key constraints, challenges and potential opportunities to link social protection, livestock insurance and access to credit products. (1st month).
- Activity 2 - Undertake inception workshop with farmers, insurance companies and financial institutions (2nd month).
- Activity 3 - Conduct 100 (semi-structured) interviews conducted with farmers, insurance companies and financial institutions (2nd until 5th month).
- Activity 4 – Draft the report (6th month).
- Activity 5 - Undertake validation workshop with farmers, insurance companies and financial institutions (7th month).
- Activity 6 - Organise 3 trainings on animal health, climate adaptation and sustainable resources management and DRR related practices for farmers (8th month)
- Activity 7 - Adjust and finalise report with recommendations on how social protection, livestock insurance and access to credit products can be established in Bugesera district, Rwanda (9th month).
The proposed action is in line with government policies, strategies and resources allocation, which will ensure the sustainability of the initiative beyond the project’s duration. Moreover, a participatory approach is applied to ensure that the action will adequately address stakeholders’ needs, planning, decision-making and implementation within the local context. It is foreseen that this project will not have any negative impact on the natural environment as through ensuring the health of the animals the productivity will be enhanced and manure will be able to be used instead of chemical fertilizers and pesticides, thus promoting good agricultural practices based on agro-ecology and improving soil biodiversity and soil fertility. Lastly, providing evidence of the profitability of engaging in the market and establishing links with clients and FIs may stimulate the stable penetration of insurance companies.
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