VisionFund International and Global Parametrics have launched the African and Asian Resilience in Disaster Insurance Scheme (ARDIS), which could benefit up to four million people in six low-income countries.
The non-governmental programme, which is the largest of its kind, secures continuous lending through issuing recovery loans for farmers to restart economic activities and offering capital from contingent liquidity fund provided by the InsuResilience Investment Fund to microfinance institutions to increase their reserves. In its first year, ARDIS protection will be provided to VisionFund’s clients in Kenya, Malawi, Mali, Zambia, Cambodia and Myanmar, of which around 80 percent are women.
Stewart McCulloch, global insurance director of VisionFund International, told Development Finance the programme’s size and outreach will meet one percent of the G7 goal to increase access for up to 400 million uninsured people in developing countries to insurance products that protect against climate risk.
“Our innovative financing structure offers an affordable and sustainable system for disaster recovery lending at costs of approximately half a percent of loan portfolio value per annum payable by the microfinance institution. This translates to only 0.05 percent per month of loan outstanding, or less, which is equivalent to five cents per month on a US$100 loan,” he said.
McCulloch also highlighted the sustainable funding method and quick delivery of recovery loans to the client through the provision of liquidity to the microfinance institution to strengthen its resources to cope with increased demand.
“In the case of a significant climate event, a payout of risk capital to the microfinance institution will be triggered by parametric insurance. This payout is a convertible debt to equity capital which transforms when the capital reserves of the microfinance institution fall below a certain amount. This tends to happen because the effects of the disaster are significant and sustained,” clarified McCulloch.
Hector Ibarra, CEO of Global Parametrics, explained that the social venture used big data to evaluate VisionFund International’s portfolio natural disaster exposure to determine the level of risk at each participant location. The advanced climate-based data modelling draws attention to droughts and floods based on a soil moisture index and for tropical cyclones based on a composite index. It also triggers access to both contingent liquidity and risk capital by VisionFund’s microfinance institutions.
The beneficiaries of the insurance are rural families and smallholder farmers who live below the poverty line and are clients of VisionFund’s microfinance institutions in the countries identified.
“We have helped over 25,000 families previously with recovery lending and shown this approach eliminates ‘negative coping strategies’ such as reduced food intake, children being taken out of school, adults going to the city to find work and forced sales of important assets. Rapid restoration of the livelihoods of the community empowers them to deal with the negative impact of the climate shock. Our clients are mainly women and this is particularly important for them and their children,” concluded McCulloch.
Financing for the initial preparation and assessment required to implement ARDIS came from the InsuResilience Investment Fund, the UK Department for International Development (DfID), the Asian Development Bank (ADB), the Rockefeller Foundation, and with focused support to launch the programme provided by the Dutch development bank FMO.