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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