Banks have been urged to consider micro-insurance policies as collateral to facilitate access to credit to rural farmers. Laura Johnson, the head of business development at Kilimo Salama Agriculture Insurance Initiative, said micro-insurance policies reduce risks involved in agro-funding.
"It's important for banks to review their guidelines and start accepting these policies to help the rural poor access credit. It can also address the issue of lack of collaterals and, hence, mitigate the risks involved in micro-lending," Johnson explained. Micro-insurance targets low-income people living on between $1 and $4 per day.
Although several insurance companies have started providing agro-covers, their uptake by farmers is still low. Johnson also noted that it is crucial to make insurance affordable, particularly for the poor. "Taxes on insurance are still high when compared to other countries in the region. While Rwanda charges 15 per cent withholding tax, Kenya charges only 5 per cent withholding tax on insurance," she said.
Johnson noted that reducing the tax on insurance could help save about 30 per cent that is normally paid by farmers. Tim Muzira, the value chain manager at Rwanda East Africa Exchange, called for streamlining of processes in the banking sectors. "How do you help farmers when there are banks that still take over 30 days to process loans?"
Muzira further noted that employing information computer technologies will address the problem of forecast in productivity and weather related risks, making it easy for banks to extend credit to farmers.
Callixte Kalisa, the director general CAF Isonga Microfinance, noted that agricultural micro-insurance can attract investments in the sector "as it would make it easy for financial institutions to extend credit to farmers".