Day 9 Overview
We are running a little ahead of schedule and so we did a little freelancing and met with people not on our itinerary. In doing so, we got some great additional insights and made some valuable contacts. Last night when we were debriefing in the restaurant (which is what we do each day), Horace pointed out that it was like the United Nations branch office here at Mariam. There was a table from from India, China, Denmark, U.K, and us (and one large group that was a combo of many countries. In overhearing the conversations they are talking about their research ideas on education, women’s empowerment, health care, or their investment ideas. Lots of people evidently see opportunities in Ghana.
Today we met with a microfinance institution, an NGO doing education in the rural villages, and the U.S-Ghana Millennium Development Authority here in Tamale.
I was glad to see a comment on one of the posts, related to farming techniques that might be able to be adopted here. I will ask the Ministry of Agriculture when we meet with them today, what techniques are being used.
Finally, to our great surprise, there is a consortium of three Ivy League Schools that have formed an NGO, and are reportedly offering rainfall insurance product to local farmers. When we first got to Tamale, I met a Danish woman who is working on her thesis, and she said she saw a group offering that. I thought for sure she was mistaken since none of the officials, including the insurance commissioner, knew about this. Evidently, they are offering this rainfall insurance policy as a “field experiment” and do the sales, underwriting, (and I presume claims) themselves. So it is not an official product yet. More about that later. Here is the Day 9 blog:
Day 9- Tamale –Freelancing It
MASLOC
Our first meeting was with MASLOC Microfinance and Loan Center. This is a government run operation that provides micro credit and small loans to groups and individuals. (They defined a micro credit loan as less than GHc1000 ($750) and a small loan as Ghc1100 to GHc2500. One of things that they do (which we have heard from other rural banks and is where the American NGO I mentioned in previous blog had erred) is to have flexible payment schedules for farmers, recognizing that farmers, unlike market vendors, get income at longer intervals. They have loans that can be extended up to two years. They have nineteen administrative districts. Over 65 percent of the people in the district are farmers. The interest rate for micro creditis only 10 percent. The small loan is offered at prime rate (currently 21.5%).
Mesloc provides loans for both groups and individuals. They didn’t really see a need for credit life insurance because if a person dies the other members pay. )Groups can be 5-25 individuals. Interestingly, with respect to individual loans they still don’t see a need because they require another person to act as guarantor. They actually underwrite the guarantor looking at bank statements, doing a background check, etc. (They did agree that in this arrangement there would be a need for life insurance for creditor from the guarantor’s perspective (who has an insurable interest in life of creditor).
The question that they asked us, which is ABSOLUTELY critical was who would be the policyholder for a rainfall insurance policy?
I explained that we had kicked this question around with everyone we met as we travelled through Ghana. We went through the customers such as Rural Banks, a group of microfinance centers (like themselves), best farmer association, APEX or ADB, perhaps processors for crops, maybe even companies like ADM or Nescafe whose suppliers may be affected by rainfall. They agreed, and said that they did not think that small, peasant farmers would be good customers of this product for several reasons. We had heard that sentiment expressed throughout Ghana as well.
Also, like everyone else we have met, they see a HUGE need for education and gave these ideas:
1. Best farming practices (I went through example of Peace Corps in Forikrom, and showed them photos and they thought that was exactly what was needed (they liked the photos of your gardens Greg!) They see a need for those demo farms to help farmers mitigate their risks throught crop diversification. The Ghana Ag extension office doesn’t have the resources to go out and do all the training so they see need for that kind of training.
2. Financial literacy and insurance education. Insurance concepts are not known or understood. (They suggested radio ads during prime time when farmers are listening as one means for education)
3. Training of the trainers. (So they would be very interested in having ISU students act as trainers on bookkeeping, basic insurance principles, etc.)
So in short they strongly support the initiative of rainfall insurance product, to the appropriate customers. See photo of team members.
IBIS
Because of the need for education in the villages we decided to stop and talk with a local company well-respected for it’s education of people in villages, especially those who are illiterate. IBIS is a Danish NGO focusing on educating poor people, especially children, on literacy, empowerment of women. We met with Zakaria their executive director. I asked him what the consequences were when there was a crop failure. He gave an example of 2007 where the rains came very late. There was drought when the farmers first planted, then some farmers planted again, and still lost all their crops. For those who planted a third time, they got flooded out. So the whole year was shot. This led to families to not eat well, and to not sending kids to junior high and high school. Here are costs that they must pay:
1. Costs for transportation (most rural villagers do not live near junior highs and must pay for transportation, plus something for lunch since they kept come home to eat,
2. PTA fees,
3. Girls’s hygiene products,
4. Uniform costs (All students wear uniforms).
5. The other big cost is opportunity cost of losing labor. There are some jobs that are seen as only jobs for kids. ((i.e a 45 year old man is more likely to enroll a son or daughter to shepherd cows and goats, than to do it himself. And this keeps them out of school.
One of the concerns is moral hazard. He thinks (as others have) that payments need to be made in kind not cash. We went through an extensive discussion on how one might have insurance for something like school fees in the event of a crop failure and how that product might be designed and rolled out. (like having conditions of child attending school regularly). We need to take a look at results of an effort done by Catholic Relief Services. They paid families to keep girls in school. And based benefit in-kind (food) on the girls attendance record . So a farmer’s allotment of funds was based on kid’s attendance. He thought that was successful. Maybe something like this could be developed for micoinsurance.
The big question was asked, “Could farmers afford to pay an insurance premium?”. The answer was yes, if they saw the value and the payment could be made in crops, not cash. He gave an example of sharing that currently occurs. If one farmer, in good standing, suffers a loss the rest contribute. BUT they don’t contribute money for school fees. Another example is that a village contributes to a local teacher by making contribution to a local teacher.
One issue they we asked about was cost of funerals in the north. He said that a lot of farmers defer funerals until they get to harvest. We had heard that the guests make a contribtion. Turns out the contribution is only about Ghc1, which doesn’t cover cost of funeral. (Example have to feed and lodge out of town relatives in town for funeral). Most funerals up north are attended by 100 people.
In short there is a huge communal spirit. So this could be a good foundation for teaching of insurance.
How to teach insurance
He did say education needs to be 1) pictorial (because of illiteracy), 2) must have active participation of student and 3) based on concepts they already know, like sharing of losses currently done in villages. The change might be getting them to think of contributing to shared group before a loss rather than after a loss.
Millennium Development Authority.
While we were visiting with IBIS , we saw a sign for Millennium Development Authority (Part of US AID). I remember from a meeting with Ed Mason a couple of years ago, with US AID, that they awarded grants through in-country operations. So that became another stop. Good thing too as it is true that the local authority is the one that gives thumbs up or down. So it was nice to talk with them too. So I talked with them about the rainfall insurance product for banks and microfinance institutions, and possibility of a crop risk sharing program for small farmers. They thought this was a GREAT idea. They called up a local agricultural director who we met with and he agreed. We will be meeting with Ministry of Agriculture in the morning.
They like the idea and they also work with the rural banks on their projects. They reiterated something that I have heard from several different sources. – This only succeeds if there is education. I gave him examples of how it could be rolled out (which was based on previous information received from those working directly with farmers) and they liked it and seemed to think it could work. They said that one issue that is different than the traditional for of group retention, is that with pure insurance, you pay money and only those with a loss get anything.
This IS VERY foreign concept, and would be met with mistrust. So I proposed another model and that woud be a hybrid product (with more details than I want to cover in a blog) and they liked that.
They gave us great contacts on another person, an Indian businessman, who does hedging on market pricing fluctuations of crops.
Rainfall Insurance Mystery Company
We then learned of another organization who is supposedly offering a rainfall insurance product to small farmers. Nobody had many details. But that they have an office in town. Turns out that it is an American NGO that was formed by a consortium of three Ivy League universities. They have an office here and in Accra. We found that they too have set up a blog except unlike this blog there is not a way to post a comment or email the researchers in charge. But evidently the product is based on rainfall from a product developed in Mali. They are evidently running the company as a field experiment. Selling, underwriting, and (hopefully) paying claims.
We are running a little ahead of schedule and so we did a little freelancing and met with people not on our itinerary. In doing so, we got some great additional insights and made some valuable contacts. Last night when we were debriefing in the restaurant (which is what we do each day), Horace pointed out that it was like the United Nations branch office here at Mariam. There was a table from from India, China, Denmark, U.K, and us (and one large group that was a combo of many countries. In overhearing the conversations they are talking about their research ideas on education, women’s empowerment, health care, or their investment ideas. Lots of people evidently see opportunities in Ghana.
Today we met with a microfinance institution, an NGO doing education in the rural villages, and the U.S-Ghana Millennium Development Authority here in Tamale.
I was glad to see a comment on one of the posts, related to farming techniques that might be able to be adopted here. I will ask the Ministry of Agriculture when we meet with them today, what techniques are being used.
Finally, to our great surprise, there is a consortium of three Ivy League Schools that have formed an NGO, and are reportedly offering rainfall insurance product to local farmers. When we first got to Tamale, I met a Danish woman who is working on her thesis, and she said she saw a group offering that. I thought for sure she was mistaken since none of the officials, including the insurance commissioner, knew about this. Evidently, they are offering this rainfall insurance policy as a “field experiment” and do the sales, underwriting, (and I presume claims) themselves. So it is not an official product yet. More about that later. Here is the Day 9 blog:
Day 9- Tamale –Freelancing It
MASLOC
Our first meeting was with MASLOC Microfinance and Loan Center. This is a government run operation that provides micro credit and small loans to groups and individuals. (They defined a micro credit loan as less than GHc1000 ($750) and a small loan as Ghc1100 to GHc2500. One of things that they do (which we have heard from other rural banks and is where the American NGO I mentioned in previous blog had erred) is to have flexible payment schedules for farmers, recognizing that farmers, unlike market vendors, get income at longer intervals. They have loans that can be extended up to two years. They have nineteen administrative districts. Over 65 percent of the people in the district are farmers. The interest rate for micro creditis only 10 percent. The small loan is offered at prime rate (currently 21.5%).
Mesloc provides loans for both groups and individuals. They didn’t really see a need for credit life insurance because if a person dies the other members pay. )Groups can be 5-25 individuals. Interestingly, with respect to individual loans they still don’t see a need because they require another person to act as guarantor. They actually underwrite the guarantor looking at bank statements, doing a background check, etc. (They did agree that in this arrangement there would be a need for life insurance for creditor from the guarantor’s perspective (who has an insurable interest in life of creditor).
The question that they asked us, which is ABSOLUTELY critical was who would be the policyholder for a rainfall insurance policy?
I explained that we had kicked this question around with everyone we met as we travelled through Ghana. We went through the customers such as Rural Banks, a group of microfinance centers (like themselves), best farmer association, APEX or ADB, perhaps processors for crops, maybe even companies like ADM or Nescafe whose suppliers may be affected by rainfall. They agreed, and said that they did not think that small, peasant farmers would be good customers of this product for several reasons. We had heard that sentiment expressed throughout Ghana as well.
Also, like everyone else we have met, they see a HUGE need for education and gave these ideas:
1. Best farming practices (I went through example of Peace Corps in Forikrom, and showed them photos and they thought that was exactly what was needed (they liked the photos of your gardens Greg!) They see a need for those demo farms to help farmers mitigate their risks throught crop diversification. The Ghana Ag extension office doesn’t have the resources to go out and do all the training so they see need for that kind of training.
2. Financial literacy and insurance education. Insurance concepts are not known or understood. (They suggested radio ads during prime time when farmers are listening as one means for education)
3. Training of the trainers. (So they would be very interested in having ISU students act as trainers on bookkeeping, basic insurance principles, etc.)
So in short they strongly support the initiative of rainfall insurance product, to the appropriate customers. See photo of team members.
IBIS
Because of the need for education in the villages we decided to stop and talk with a local company well-respected for it’s education of people in villages, especially those who are illiterate. IBIS is a Danish NGO focusing on educating poor people, especially children, on literacy, empowerment of women. We met with Zakaria their executive director. I asked him what the consequences were when there was a crop failure. He gave an example of 2007 where the rains came very late. There was drought when the farmers first planted, then some farmers planted again, and still lost all their crops. For those who planted a third time, they got flooded out. So the whole year was shot. This led to families to not eat well, and to not sending kids to junior high and high school. Here are costs that they must pay:
1. Costs for transportation (most rural villagers do not live near junior highs and must pay for transportation, plus something for lunch since they kept come home to eat,
2. PTA fees,
3. Girls’s hygiene products,
4. Uniform costs (All students wear uniforms).
5. The other big cost is opportunity cost of losing labor. There are some jobs that are seen as only jobs for kids. ((i.e a 45 year old man is more likely to enroll a son or daughter to shepherd cows and goats, than to do it himself. And this keeps them out of school.
One of the concerns is moral hazard. He thinks (as others have) that payments need to be made in kind not cash. We went through an extensive discussion on how one might have insurance for something like school fees in the event of a crop failure and how that product might be designed and rolled out. (like having conditions of child attending school regularly). We need to take a look at results of an effort done by Catholic Relief Services. They paid families to keep girls in school. And based benefit in-kind (food) on the girls attendance record . So a farmer’s allotment of funds was based on kid’s attendance. He thought that was successful. Maybe something like this could be developed for micoinsurance.
The big question was asked, “Could farmers afford to pay an insurance premium?”. The answer was yes, if they saw the value and the payment could be made in crops, not cash. He gave an example of sharing that currently occurs. If one farmer, in good standing, suffers a loss the rest contribute. BUT they don’t contribute money for school fees. Another example is that a village contributes to a local teacher by making contribution to a local teacher.
One issue they we asked about was cost of funerals in the north. He said that a lot of farmers defer funerals until they get to harvest. We had heard that the guests make a contribtion. Turns out the contribution is only about Ghc1, which doesn’t cover cost of funeral. (Example have to feed and lodge out of town relatives in town for funeral). Most funerals up north are attended by 100 people.
In short there is a huge communal spirit. So this could be a good foundation for teaching of insurance.
How to teach insurance
He did say education needs to be 1) pictorial (because of illiteracy), 2) must have active participation of student and 3) based on concepts they already know, like sharing of losses currently done in villages. The change might be getting them to think of contributing to shared group before a loss rather than after a loss.
Millennium Development Authority.
While we were visiting with IBIS , we saw a sign for Millennium Development Authority (Part of US AID). I remember from a meeting with Ed Mason a couple of years ago, with US AID, that they awarded grants through in-country operations. So that became another stop. Good thing too as it is true that the local authority is the one that gives thumbs up or down. So it was nice to talk with them too. So I talked with them about the rainfall insurance product for banks and microfinance institutions, and possibility of a crop risk sharing program for small farmers. They thought this was a GREAT idea. They called up a local agricultural director who we met with and he agreed. We will be meeting with Ministry of Agriculture in the morning.
They like the idea and they also work with the rural banks on their projects. They reiterated something that I have heard from several different sources. – This only succeeds if there is education. I gave him examples of how it could be rolled out (which was based on previous information received from those working directly with farmers) and they liked it and seemed to think it could work. They said that one issue that is different than the traditional for of group retention, is that with pure insurance, you pay money and only those with a loss get anything.
This IS VERY foreign concept, and would be met with mistrust. So I proposed another model and that woud be a hybrid product (with more details than I want to cover in a blog) and they liked that.
They gave us great contacts on another person, an Indian businessman, who does hedging on market pricing fluctuations of crops.
Rainfall Insurance Mystery Company
We then learned of another organization who is supposedly offering a rainfall insurance product to small farmers. Nobody had many details. But that they have an office in town. Turns out that it is an American NGO that was formed by a consortium of three Ivy League universities. They have an office here and in Accra. We found that they too have set up a blog except unlike this blog there is not a way to post a comment or email the researchers in charge. But evidently the product is based on rainfall from a product developed in Mali. They are evidently running the company as a field experiment. Selling, underwriting, and (hopefully) paying claims.
If you have been following this blog and the comments made from previous contacts you would probably offer the following questions:
How do explain rainfall insurance (with it’s inherent basis risk) to illiterate farmers who don't understand basic insurance principles ? (I think I have worked through in my head how to present insurance or at least risk retention groups pictorially but rainfall insurance would be challenging. I am interested in seeing how that was accomplished.
I like the idea of doing some simulations (especially with larger sophisticated buyers) and a pilot product, but explaining that something is a field experiment and not an actual product, would also be challenging and I am eager to see how that was accomplished.
I think that it is great that there are other organizations interested in a financial solution to this vexing problem, as it is really important to the country.- What are the unintended consequences of starting with such a product? Could you kick the underinsured when they are down? Do they get the wrong impression of insurance overall if this is their first experience and it doesn't pay out?
- There are a number of academic papers on rainfall insurance. Pros and cons. I just read one while surfing here at the Kalong, entitled Rainfall insurance and vulnerability: Economic Principles and Cautionary Notes by Jonathan Morduch at New York University.
- I liked it as a summary overview in practitioner language stating some of the challenges and unintended consequences. My personal view at this point( is that it potentially good for sophisticated buyers like banks, but I am skeptical of the roll out at the rural farmer level. )
Tomorrow we will meet with the Ministry of Agriculture and Ag extension services in the Northern region.
Faithfully submitted,
Jim Jones
Director- Katie School of Insurance
Illinois State University
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