Weathering Seasons
Since
its inception last year, the Indian weather insurance market has blossomed.
Virat Divyakirti reviews its progress and considers some of the challenges
Narasimha,
a farmer from Mahboobnagar - a drought-prone district in Andhra Pradesh,
always knew that the difference between receiving or not receiving
rainfall during monsoons is the difference between having or not having
enough food and clothing the coming year.To
others of his kin, it has been the difference between escaping a debt
trap or being slowly but surely smothered by poverty. However, in
July 2003, an experimental insurance initiative carried out by ICICI
Lombard General Insurance, in collaboration with Basix, a leading
micro-finance organisation, introduced these farmers to a mechanism
through which they could transfer to the weather risk markets some
of their exposure to lack of rain. The two Indian financial institutions,
supported by technical assistance from the World Bank's Commodity
Risk Management Group, offered them weather indexbased insurance (see
box) for groundnut and castor crops, allowing them to mitigate some
of their worries and gain confidence about their future. The experiment
also marked the beginning of a weather risk market in India and spurred
significant interest among stakeholders including farmers, insurance
companies, governments, nongovernment organisations, and other microfinance
organisations. A year later, the Indian weather market has witnessed
significant expansion. The number of farmers buying weather insurance
has increased from 230 to nearly 20,000. Three insurance companies
now offer such cover on more than 10 crops, compared to just two and
in almost 20 districts across six states. The year also witnessed
another landmark event in the world of environmental finance when
ICICI Lombard, with technical assistance from the World Bank, provided
weather index insurance cover to Bhartiya Samruddhi Finance Limited
(BSFL—part of the Basix group) to protect its crop loan portfolio.
Through this deal, BSFL transferred monsoon risk from thousands of
their client farmers to Wall Street. Enthused by the success of these
initial experiments, the ICICI Lombard-World Bank partnership is now
working towards devising mechanisms that would extend such cover to
even landless labourers and other parts of the rural population who
are indirectly dependent on monsoons for their livelihood. The central
and state governments in the country are keenly following these developments.
Rajasthan, a drought prone State, became the first state to support
a weather index based insurance 15 TAJ MARCH - APRIL 2005 Vol 3 Issue
9 Cover Story m Weathering Since its inception last year, the Indian
weather insurance market has blossomed. Virat Divyakirti reviews its
progress and considers some of the challenges seasons scheme for orange
cultivators in June 2004, by bringing together interested parties
and by extending subsidies to small farmers. Other state governments,
namely those of Himachal Pradesh, Maharashtra, Andhra Pradesh and
Haryana have also shown keen interest in working with insurance companies
to make weather index-based agricultural risk management instruments
accessible to farmers.
contd...
TO
READ FURTHER... SUBSCRIBE TO
YOUR COPY TODAY!!!
