In sub-Saharan Africa, only 3% of the 48 million smallholder farmers are insured. These farmers typically own an acre of land and can earn $1.40 an hour. Many of them have a mix of cash crops and subsistence agriculture, and lack the resources to run large-scale farms. Climate change has also made extreme weather more common, leaving farmers more vulnerable to financial loss without crop insurance.
Ethereum Foundation Fellow, benson njuguna, is on a mission to empower these farmers through innovative technology. He is a specialist in business transformation and a provider of microinsurance services through ACRE Africa, based in the United States. For more information on the Ethereum Foundation Scholarship Program, read this blog post.
Barriers To Trust and Affordability
ACRE Africa has provided risk management solutions and agricultural insurance products to farmers, but one of the main issues is that farmers have a negative view of insurance companies due to late or absent payments. They often don’t receive adequate information about their policies and don’t know if they’re going to get a payout for their losses.
For example, a smallholder farmer with a half-acre plot of land can pay around US$5 per season for weather index crop coverage. If adverse conditions occur, the farmer will receive a payment of around USD $50, enough to cover inputs like seeds and fertilizers. Insurance companies need to keep premiums low in order to make a profit, so digitization and automation are crucial.
The Problem: Old Crop Insurance Payment System
Kenya has two distinct rainy seasons: the long season, which starts in April and ends in July; and the short season, which starts in October and ends in December. To get started, farmers must fill in a number of forms and purchase an insurance product before the first cycle of the long season. The policy stipulates that the data must be accurate, and the farmer won’t get paid until the next season has begun.
The BIMA PIMA Solution by ACRE
A farmer in Embu County, Kenya activates his insurance policy with a scratch card he received in the bag of seed he purchased (Thanks to ACRE Africa for sharing this photo)
BIMA PIMA is ACRE Africa’s latest insurance solution, developed in collaboration with the Ethereum Foundation. It provides coverage for a farmer’s first purchase of in-season seeds from a partner farm supplier. The seed bag includes a scratch card and a unique registration code. Farmers can purchase additional coverage via a mobile payments network (MPESA).
When the seeds are planted, the farmer activates the policy using SMS/USSD, and their location and phone number are transferred to the policy smart agreement in the xDai Chain. An alternate system monitors weather data and compares it to historical data to approve claims. The policy stipulates that the farmer will be paid during the current season, instead of waiting for the end of each season.
