Background:

Financed through a repayable 5 million USD grant by BII, Pula is offering smallholder farmers increased access to agricultural insurance by reducing the steep barriers that affect uptake through its novel Pay at Harvest product that allows the pre-financing of premiums at the start of the season and repayment by farmers at the end of the season when constraints on cash is less.

Agricultural insurance enables the transfer of risk from farmers to insurers and reinsurers, who are better positioned to diversify and manage the risk. The costs associated with the risk transfer (insurance premiums) are in various structures distributed across farmers, governments, banks and other supply chain actors such as offtakers or aggregators. This distribution makes smallholder farmers more attractive to financiers. Transfer of risk can lead to higher yields, increased farmer income and greater availability of food for domestic and export markets. However, there are several demand and supply side gaps in the value chain that have kept adoption of agriculture insurance at low levels.

Pula is tackling a challenging problem that market forces alone have not been able to solve to date. The core Pula business is leveraging technology to help create a more efficient agriculture insurance marketplace; however, increasing farmer uptake also requires innovation with regards to financing instruments that address affordability barriers and thereby increase farmer uptake.

Concessional debt for mechanisms such as Pay-at-Harvest enables Pula to run pilots to test market receptiveness (i.e. farmer uptake) / tweak its product offering based on results and test repayment profile, with the aim of gaining a more accurate picture of defaults and costs, to ultimately develop a sustainable financial product with enough track record that is able to crowd in other less concessional/commercial investors/financiers.

The objective of the Pay-at-Harvest insurance model is to create value chain models and financing mechanisms where insurance premiums can be partially borne by the market and by farmers. The anticipated catalytic effect of the Pay-at-Harvest model is to lower the threshold for farmers to adopt insurance by allowing them to pay premiums at the end of the season when they have a stronger cash position, via deductions from the sale of their harvest to buyers or off-takers.

BII currently acts as a third party investor that provides funding to pre-finance premiums for farmers; as financed amounts are repaid via deductions made by the offtaker at the time of harvest. Their upfront funding is recycled throughout the period of the investment.

Impact:

In 2021, Pula carried out a PAH insurance pilot funded by the Shell Foundation and Heifer International in Nigeria’s Benue and Nasarawa states, with Olam aggregating produce from these farmers.

Out of the 4,358 farmers insured, 71% received payouts. At the payout ceremony, more than 75% of the farmers expressed their satisfaction with the insurance product and the PAH model, especially the timing of the premium payments which allowed them to manage their cash flows better. Subsequently, Olam witnessed a 125% increase in enrollment in 2022 to 9,900+ farmers under this innovative model in the same states.

Video of insured farmers expressing gratitude.

BII: Pula has leveraged the above pilot to align the repayable grants we received from BII to work with off-takers in Uganda, Ghana, and Malawi for rice, maize, coffee, and cocoa farmers. The repayable grant from BII has aided Pula’s efforts and has allowed 115k farmers to be insured under the PAH model in 2022— a ~30x growth in 1 year.

Working with BII as a partner has supported our business growth journey as they have provided us with the financing to pilot an impactful product that gives us a competitive advantage and grow new markets exponentially. For a company that is trying to bring insurance to millions of farmers, partners like this are key.

Their continuous collaboration and constant presence to brainstorm and adapt to changes and challenges swiftly has also aided the growth experienced particularly in the Ugandan market. Our work with farmers on the ground is hard, and means that we are constantly dealing with new curveballs and unforeseen challenges. BII has been a patient and understanding partner and took real risks with us. We look forward to a continued partnership with them and further growing our partnership.

Potential for scale:

Based on further research and analysis, we anticipate the greatest opportunities to successfully implement PAH insurance through tight value chains such as organic cotton in India and certified cocoa in Ghana, Côte d’Ivoire among others, where side selling is highly disincentivized for farmers.

Furthermore, research in Kenya, and Ethiopia among other countries, highlight that the financial flexibility of the PAH model is likely to allow the most liquidity-constrained farmers to increase their demand for insurance thanks to delayed premium payments.

We expect that at scale this product can reach 800,000 farmers in the next 5 years in cocoa and cotton sectors alone, and that the PAH facility can overtime grow into a 20-100m concessional debt facility for qualified partners at a market rate.