EIB WFP Ethiopia Climate Insurance: €4M Grant for Farmers

• EIB Global has granted up to €4 million to the World Food Program for climate-risk insurance products targeting smallholder farmers in Ethiopia.
• This initiative, the EIB's first in climate-risk insurance, complements an existing €110 million EIB credit line for Ethiopia's RUFIP III program.
• A new Premium Guarantee Fund will pre-finance insurance premiums and provide guarantees for rural finance institutions, initially managed by WFP before transferring to the Development Bank of Ethiopia.
• The program includes capacity building for financial institutions and farmers, alongside the development of an index-based microinsurance scheme with private insurers.
• The goal is to enhance climate resilience, protect farmer incomes, and foster more sustainable and inclusive financial systems in Ethiopia.

This collaboration with EIB Global, by integrating climate risk insurance, rural finance, and capacity strengthening, will empower farmers to invest with greater confidence, protect their livelihoods during shocks, and recover more swiftly, marking an important stride toward building more inclusive and climate-resilient financial systems in Ethiopia.

The European Investment Bank (EIB), operating through its development arm EIB Global, has committed a grant of up to €4 million to the World Food Program (WFP) to establish and implement climate-risk insurance products specifically designed for smallholder farmers across Ethiopia. This significant financial commitment, announced during the United Nations Convention to Combat Desertification (UNCCD) COP17 in Mongolia, marks a pivotal moment as the EIB's inaugural direct investment in a climate-risk insurance project. The initiative aims to bolster the resilience of Ethiopian agricultural communities against increasingly frequent and severe climate shocks.

This new Ethiopia climate-risk insurance grant is strategically designed to complement an existing €110 million credit line from EIB Global, which supports the third phase of Ethiopia's Rural Financial Intermediation Program (RUFIP III). This larger credit facility is channeled through the Development Bank of Ethiopia (DBE) and subsequently on-lent to eligible rural finance institutions throughout the country. The overarching goal is to equip these financial institutions with better tools to manage climate-related risks, simultaneously empowering farmers who access financing through RUFIP III to withstand adverse weather events more effectively.

A core component of this EIB WFP Ethiopia climate insurance initiative is the establishment of a Premium Guarantee Fund. This fund is specifically engineered to pre-finance insurance premiums, thereby alleviating liquidity constraints often faced by borrowers. Furthermore, it provides a crucial guarantee mechanism for rural finance institutions that contract insurance on behalf of farmers, particularly in instances of premium payment defaults. The World Food Program will initially oversee the administration of this fund, with plans to transition its management responsibility to the Development Bank of Ethiopia in due course.

EIB Vice President Gelsomina Vigliotti underscored the urgency of the initiative, noting that "climate change remains one of the greatest risks to agricultural livelihoods in Ethiopia." She emphasized that the partnership between EIB Global and the World Food Program is designed to enable both rural finance institutions and smallholder farmers to better manage climate shocks, safeguard their incomes, and enhance their access to essential finance. The combined approach of insurance, credit, and capacity building is expected to significantly strengthen resilience, contribute to food security, and foster more sustainable economic opportunities for rural communities across the nation.

Zlatan Milišić, the WFP representative and country director in Ethiopia, echoed these sentiments, highlighting how climate shocks can rapidly decimate harvests and incomes for millions of Ethiopia's smallholder farmers, eroding hard-won progress. He pointed out that while access to finance is vital for boosting agricultural productivity, climate risks frequently deter both farmers and lenders from making productive investments. Milišić affirmed that this collaboration with EIB Global, by integrating climate risk insurance, rural finance, and capacity strengthening, will empower farmers to invest with greater confidence, protect their livelihoods during shocks, and recover more swiftly, marking an important stride toward building more inclusive and climate-resilient financial systems in Ethiopia. The funding for this grant originates from the African, Caribbean and Pacific (ACP) Trust Fund's Member States Compartment.

Lawyers advising financial institutions or agricultural clients in Ethiopia should be aware of the new EIB/WFP climate-risk insurance framework and the Premium Guarantee Fund. This initiative introduces new mechanisms for managing climate-related risks in rural finance, potentially impacting lending practices, compliance requirements, and due diligence for investments in the agricultural sector.

Source: Original reporting via Addis Standard