Unique Incofin initiative protects nearly eighteen thousand Nicaraguan coffee and cereal growers from the impact of climate change

December 6, 2018

The global impact investment firm, Incofin uses a climate insurance to bolster the economic resilience of local farmers who are groaning under the consequences of climate change. Until recently and due to a lack of knowledge, trust or financial resources, small Nicaraguan farmers had no form of climate insurance against tropical storms or long droughts, among other natural disasters. Incofin’s initiative now brings the management and payment of such an insurance to a group level and in the hands of local micro-finance institutions (MFIs). With success.

Together with Honduras, Haiti and Myanmar, Nicaragua is in danger of being the biggest victim of climate change according to the Global Climate Risk Index (CRI). The Central American country is increasingly facing lean crops caused by prolonged droughts, rain showers and hurricanes. The premiums for agricultural insurance against weather conditions however, are going through the roof. Furthermore, many small farmers are suspicious or do not know how such an insurance works. It is a tricky situation, particularly for the most vulnerable farmers, i.e. female farmers or those with a rented or small piece of land.

Incofin is the first entity to stand up for this group with insurance at a meso level. In concrete terms, local micro-finance institutions take out insurance coverage first. When weather phenomena ravage the fields and livestock of farmers, the insurer pays the MFIs. The latter use that insurance money to create a special reserve fund for local farmers. The MFIs then analyse their portfolio of farmers in the affected region and go on location to ascertain which farmers have suffered the most. It is essential that farmers are not only protected against extreme weather phenomena, but also against frequent small-scale climate changes that have long-lasting adverse effects – which is a unique feature of this agricultural insurance. Finally, the MFIs restructure loans for local farmers or ease their instalments. The gist of the story is that these farmers can continue to provide an income for their families and put food on the table.

Incofin launched this project in July 2017 in cooperation with the local MFIs Fundenuse, Fundeser and MiCrédito and with financial support from, among others, the Inter-American Development Bank (IADB) and the Nederlandse Ontwikkelingsbank (FMO). The initiative proved its worth and efficacy for local coffee and cereal growers last summer. Thanks to support from Incofin, the MFIs could continue to invest in financial training and support for small farmers. Together, they make small farming families more resistant to the effects of climate change.