Nowadays, Ethiopia is in an incredible double digit economic growth. According to IMF, World Bank and other international institutions, the nation has continued to be one of the few fastest non-oil growing economies in the world. Thanks to its 70 percent young demographic base, abundant natural resources, suitable climate, land availability, sustainable peace and stability, it has huge opportunity to realize the middle income status by 2025. However, there are several challenges the nation is struggling with. Among the challenges, persistent drought and climate change related upheavals take the lion's share. The frequently occurred drought has been severely affecting agrarian and pastoralist communities. Realizing the extent of the consequences of this problem, the government, private institutions, donors and other pertinent bodies have been designing problem solving mechanisms to address the predicament of farmers. Introducing micro-insurance service to low income livelihoods in rural and urban areas is among the schemes designed to alleviate the problem facing mostly the low income society.
Speaking to The Ethiopian Herald, Nyala Insurance Share Company, Micro-Insurance Department Manager Solomon Zegeye said that micro-insurance as a tool of managing risks facing low-income population has paramount importance in maintaining and sustaining achievements gained in poverty reduction and food security of the low income population.
He said that Nyala insurance provides mainly livestock insurance for farmers in rural part of the country. According to Solomon, livestock insurance itself is divided into two. One is index based insurance, a type of livestock insurance which checks the availability of pasture. The index measures the amount of precipitation. If the rain is low that means it will not grow grass for the animals. Index insurance is used for pastoralist society. The other one is called indemnity based is used for agro-pastoralists and highland dwelling society. So the insurance that could be provided depends on the way of living of the society. The manager highlights the importance of micro-insurance in empowering people economically.
"Many people want to start and expand their businesses. But they fear to take risks due to lack of insurance service which could replace their loss. However, insurance institutions like Nyala are involving to support poor livelihoods in the country," Solomon stated. Nyala Insurance has started its first insurance program in Tigray State in 2009 in collaboration with Oxfam America.
Out of the eight projects being undertaken by Nyala Insurance, two of them have been implemented in Tigray State. These are known as Promoting Autonomous Adoption (PAA) and Mekelle University WII Research Project. PAA is a weather index insurance project under Climate Smart Agriculture initiative being implemented in partnership with the Ministry of Forest, Environment and Climate Change of Ethiopia with financial support obtained from the United Nations Development Program (UNDP). So far, 2,097,386 Birr was paid for weather index insurance beneficiaries in the State. And the Mekelle University WII Project is provided based on research project tasked with examining the effectiveness of weather index insurance within the Productive Safety Net Program (PSNP). It was launched in 2016 in four districts and targeted 380 beneficiaries. The project is funded by government of Netherlands.
The insurance service being provided in drought prone areas of the state in collaboration with donors and micro-finance institutions has created self-confidence and upgraded the production and productivity of low income farmers.
"Nyala insurance has been focusing mainly on drought affected areas. Index and indemnity based insurance schemes were offered to the farmers," he said adding, "index based insurance system is used for tackling drought in pastoralist society who depend on pasture for their animals, whereas the indemnity insurance is multi-purpose insurance which is mostly provided for agro-pastoral society to pay compensation for fire, flood, pest and drought."
It is obvious that Ethiopia is rich in livestock. But the farmers were not beneficiaries of the huge number of livestock population. The main reasons being noted for harming the livestock sector are drought and diseases. Understanding this problem, Nyala Insurance has designed insurance package on ways of alleviating the challenges.
"We gave priority for Tigray State because the state was affected by soil infertility, drought and land degradation problems for several centuries. Thus, supporting the deprived farmers who want to engage in water and soil conservation, animal husbandry and agriculture was the prime mission of our company," Solomon indicated.
According to him, the company was able to reach for 24,219 people over the last 10 years and this is extremely low compared against the market potential vigorous move the company had shown at early stages.
"When we launched the first project in Tigray in 2009 in collaboration with Oxfam America, there were only 200 farmers. Currently, we have more than 6,000 customers in Tigray State," Solomon noted. The same project was started in Amhara State in 2011 and 4,000 households have become beneficiaries of micro-insurance service so far.
The insurance program has been expanded to other states including Somali, Afar, Gambela and Southern Nations and Nationalities of People in collaboration with donors and micro-finance institutions.
Solomon indicated that the insurance payment process includes those who are unable to pay the debt, adding, "the rate of the payment is fair. For instance, a farmer who bought an ox would pay 3.5 percent of the purchasing price of the ox. That means if the farmer buy an ox with 10,000 Birr, he/she will be expected to pay 350 Birr per year."
Besides, the company has planned to introduce funeral insurance in urban areas in collaboration with the International Labor Organization (ILO) and strategic plan is being prepared, he confirmed.
"Nowadays, the most exasperating issue in the urban areas is the fee being spent on funeral ceremony. Families are paying 25,000 Birr for one funeral and the price is souring from time to time. Insurance companies should include this issue."
For his part, Haylay Gebremeskel, Project Coordinator at the Relief Society of Tigray (REST) told The Ethiopian Herald that in 2016 three insurance projects that were launched in Tigray in collaboration with Nyala Insurance, Africa Insurance and other donors, made 29,944 farmers beneficiaries and out of this number 39 percent of them are women.
The first project was started operation in 2004 in one village called Adiha which is found in Kola Temben is now expanded to eleven woreda, according to the coordinator.
"The project has brought real change in the livelihood of the society. Farmers developed self-confidence to take loans to buy cattle, to use better fertilizer and develop the culture of saving. They are able to develop self-reliance and continued sending their children."
Haylay reaffirmed that the micro-insurance service being provided in the state has been playing decisive role in ensuring food security.
Meanwhile, the International Livestock Research Institute (ILRI) indicated that more than 2,250 pastoralists received insurance payouts from insurance companies in 2017 following the extremely poor rains in southern Ethiopia. Low levels of rainfall have led to the loss of approximately 300,000 livestock in 2017 in the Borana Zone of the southern Oromia State. The insurance payouts of more than 5,233 million Birr (USD 220,000) was the largest-ever micro-insurance made in Ethiopia. Each insured pastoralist received an average of 2,255 Birr (USD 96), which will allow the herders to purchase feeds for their surviving animals and to restock their herds.
According to him, the micro-insurance service has been facing many challenges. Lack of awareness, absence of well-instructed business model, technical capacity limitation on product development and pricing, absence of efficient distribution channel, high premium cost, inaccessibility of reinsurance service at competitive rate and most importantly lack of regulatory framework has adversely affected the expansion and development of micro-insurance services provided.
Solomon underlined that in order to address the challenges, the National Bank of Ethiopia (NBE) has been designing Financial Inclusion Strategy. The strategy is keen to promote micro-insurance in the country through developing an appropriate regulatory and supervisory structure that will greatly assist in enhancing transparent, sustainable, regulated and supervised market that is capable of addressing the varied insurance needs of the low income society. Hence, NBE is finalizing the strategy in collaboration with World Bank. The strategy will have four components including micro-insurance product development, regulation and supervision, consumer and financial protection, financial literacy and index based insurance.
Moreover, Solomon gives stress to enhancement of micro-insurance delivery channels and micro-insurance product offerings. The micro-insurance service should be developed and delivered by insurance companies, NGOs, donors, government and semi-government bodies. In Ethiopia, only insurance companies and deposit taking Micro-finance Institutions (MFI) were allowed by law to issue micro-insurance policies. Other providers such as cooperatives can be used as agents of the insurance companies and deposit taking MFI. Although there has been relative success in building sustainable micro-insurance providers in Ethiopia, such as insurance companies, deposit taking MFIs, and cooperatives, they failed to provide tailored micro-insurance service and interventions which address the insurance demands of low income households both in rural and urban areas of the country. On the other hand, micro-insurance product offerings have been limited in range. Thus, MFIs and other credit cooperatives are currently self-insuring their loans through credit life insurance because of the lower cost structure, simplicity, and limited risk and the focus of the micro-finance insurance providers protecting their assets. Therefore, upon functional, the Financial Inclusion Strategy will resolve all those aforementioned challenges and limitations.
To sum up, even though Ethiopia has been registering remarkable economic growth which lifted millions out of absolute poverty, many tasks remain to be accomplished. There are still millions who couldn't afford their daily bread. Though they have tangible business ideas, they have financial constraint to change their feasible ideas into reality. Let alone creating their own businesses, there are many Ethiopians who fear taking risks due to lack of insurance service which could replace their loss in the way of compensation. The rural households are the main insurance deprived society in the country. Therefore, the government, non-governmental organizations, private companies and development partners should step up their efforts in developing micro-insurance service in all corners of the country. They have to extend their reach to low income population and fulfill their economic needs. If such swift measures are taken, Ethiopia would realize its dream of becoming middle economy status. Beyond that, it will reclaim its glory, a glory that restores the nation's ancient prominence in all aspects.