During a recent training session about The Role of Financial Market Solutions for Building Resilience to Shocks in Agriculture, we asked a simple question to a group of policy makers and private sector players: “Which financial services do you think play a role in boosting rural resilience?” To our surprise, while participants were given the possibility to select several answers, many of them chose only one: insurance.
With several years of combined experience on the development of agricultural insurance programs, we fully agree that insurance is important in helping farmers manage the impact of economic shocks. But it should be used as the last line of defense, for financial protection against specific high-severity, low-frequency events, as part of a risk-layering approach.
Given the variety of risks impacting rural households—and the need for farmers to find ways to not only manage financial shocks but also avoid them—a broad range of financial services such as credit, savings, and remittances are of crucial importance.
Rural resilience is about both financial protection and risk reduction. In addition to accessing liquidity after shocks (financial protection), farmers need instruments to reduce their vulnerability to agricultural risks (risk reduction). Helping farmers invest in irrigation equipment or drought-resistant seeds, for example, will allow them to continue growing their crops and generating income when droughts happen.
Source : blogs.worldbank.org