Published on People Move

Mobile money platforms for agricultural micro-insurance

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An Economist article discusses how a “private-private-NGO” partnership between Safaricom (the parent company of Kenya’s mobile money transfer service M-Pesa), an insurance company, fertilizer and seed companies and an agricultural foundation has produced an innovative micro-insurance scheme in Kenya. The crop insurance scheme, called “Kilimo Salama” (safe farming in Kiswahili), collects insurance premiums using M-Pesa when farmers purchase seeds and fertilizers, and in the event of adverse weather, makes payouts directly into the M-Pesa mobile phone accounts of the farmers. 

According to the Economist: 

The clever bit … is the administration. Local agents register a policy with UAP by using a camera-phone to scan a bar code on each bag sold. A text message confirming the policy is then sent to the farmer’s handset. Farmers are registered at their nearest weather station, which transmits data over the mobile network. If weather conditions deteriorate, a panel of experts uses an index system to determine if crops will no longer be viable. At that point payouts are made directly to the handsets of farmers in the affected areas using Safaricom’s M-PESA mobile-money service.”

… With no field surveys, no paperwork and no middlemen, transaction costs are minimal. The scheme is designed to be self-financing.”

The fertilizer companies are matching the farmers’ premiums (5 percent of the price of seeds or fertilizers) for the time being – about 9 Kenyan shillings or $0.12 to insure a one kilogram of high-yielding maize seed, and about 25 Kshs or $0.33 for 10 kg of fertilizer, according to estimates.  The pilot with 200 farmers paid out over 80 percent of the value of the insured agricultural inputs during a recent drought.

This partnership is indeed a shining example of how innovative money transfer technology, private interests, and good intentions can come together to potentially produce better outcomes for the poor.

There are, however, some questions to consider in scaling up such initiatives: 

1. Can it create incentives for the seed and fertilizer companies involved to increase the prices of agricultural inputs for their micro-insurance clients by increasing their market power over time?   

2. Will it create incentives to influence the decisions of the panel of experts who will determine when there is an adverse weather event (or worse to manipulate the data of the solar powered stations, some of which are located in schools and private farms)?


Sanket Mohapatra

Associate Professor, IIM Ahmedabad

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