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A new climate insurance programme has been launched to increase access to finance and provide post-disaster recovery lending to smallholder farmers in Asia and Africa.

VisionFund International, World Vision’s microfinance arm, and Global Parametrics are behind the new African and Asian Resilience in Disaster Insurance Scheme (ARDIS), which is supposedly the world’s largest non-governmental climate insurance programme.

In the first year, protection will be provided to farmers in Kenya, Malawi, Mali, Zambia, Cambodia and Myanmar who participate in VisionFund’s microfinance network. Up to 4 million people living in these six low-income countries stand to benefit. Around 80% of them are women.

Under the programme, beneficiaries will be able to receive immediate access to much-needed credit required by farmers and small businesses to get back on track after a climate shock. This so-called ‘recovery lending’ will be provided through VisionFund’s microfinance institutions.

Loans will be disbursed during and after disasters to help the businesses maintain or restart their activities. The swift access to financing is enabled by Global Parametrics’ climate-based data modelling, which verifies the climate event and triggers access to both contingent liquidity and risk capital by the microfinance institutions.

The new scheme comes at a time when it is much needed. For many farmers in these countries, climate risk is starting to bite. At the same time, many find it increasingly difficult to access finance when they need it most. In Africa, for example, where producers are increasingly feeling the effects of drought and flooding on yields, local lenders are becoming more risk aware. As reported in GTR’s recent sustainability feature, big farmers with multiple buyers and export contracts easily secure trade finance, but smaller farmers struggle to do so. It’s because banks are insisting on multiple offtake agreements to spread the risk before they are prepared to lend, according to the African Trade Insurance Agency (ATI).

“Banks don’t want to lend to farmers with only one or two clients because if it is a bad harvest they are unlikely to get paid. If a farmer has multiple clients, the thinking is that at least one of those contracts will pay, even if it’s a bad year,” Tusekile Kibonde, resident underwriter at ATI, told GTR.

As another sign of the changing picture, ATI has recently raised its own premiums and cut its exposure to smaller farmers because of the impact of erratic weather patterns on harvests. “We have put up the cost of our insurance and lowered our exposure. We’re not declining cover but we have a lower appetite level and need to factor in the risks,” Kibonde said.

The new venture between VisionFund and Global Parametrics could help some of the farmers who can’t access finance elsewhere. The scheme consists of a US$10mn contingent disaster finance credit line, provided by InsuResilience Investment Fund, and a risk transfer element, which is funded by the UK department for international development (DFID) through the Natural Disaster Fund – the amount has not been disclosed and will depend of the number of locations that join the programme.

InsuResilience Investment Fund is an initiative set up by the German development bank KfW and managed by Swiss-based impact investment manager BlueOrchard Finance.

In a statement, the parties say the structure offers “an affordable and sustainable system” for disaster recovery lending at “costs of approximately half a per cent of loan portfolio value per annum payable by the microfinance institution”.

Michael Mithika, president and CEO at VisionFund International, says they are looking to roll out the programme on a wider scale. “This is the first step for VisionFund in the use of climate science and financial disaster risk management tools to create extremely low-cost climate protection. We are already working on additional countries, risks, features and services with Global Parametrics to build on ARDIS,” he says.

Jerry Skees, chief strategy officer at Global Parametrics, calls the closing of the transaction a “major milestone” in offering solutions to communities needing them most. “We plan to repeat this type of offering with other firms serving the poor and vulnerable in emerging markets,” he says.

The parties also note that the programme will effectively meet 1% of the G7 goal to increase access to insurance products that protect against climate risk for up to 400 million uninsured people in developing countries.

Financing for the initial preparation and assessment required to implement the programme came from the Asian Development Bank, Rockefeller Foundation and the Dutch development bank FMO.