One More Stop on the Way Home

Overview
I am blogging from the Heathrow Sheraton now preparing to head home later today. Our last day of the trip related to Africa was yesterday, and it was a fitting end. Time will tell, but it was quite likely the most important meeting we had for making this project into a long term program with outcomes for ISU, our students, and faculty. More details in a moment.

I will be reviewing overall blog and making some edits on names, spellings, and accuracy but I will preserve the observations I was making along the way as I actually saw them. I now have a clearer understanding, and some of the perspectives I had at the time were...,let's say, limited. I now see things more clearly and I would like to change some of what I said to make my observations appear more informed. But I think it is important to recognize that there each day we are learning (or should be) new ideas and gaining new perspectives that change our paradigms, our beliefs.

I think it is easy to think that what we believe now is what we have always believed. But if we are honest with ourselves we would see how much our core beliefs have changed over time, as we gain new perspectives. In Ghana they have a word Sankofa (literally meaning "go back and take"). It teaches the wisdom in learning from the past in order to build for the future. I think that to remain true to what I felt at the time is important. If I make any edits for the purpose of clarification now, I will note that it came at a different time.

I am grateful that I had a colleague, Horace, there with me. I think that made my observations more objective. Every evening we sat down and debriefed the days events, sometimes for several hours over dinner.

I hope that these blogs challenged some of the things you may have thought about Africa. That it is technologically in the stone age, or that they are all poor and in constant need of of a handout from those of us living in rich countries. Or that we have nothing to learn from them. I hope that people will see the fallacies of those assumptions as they read through my blogs, and see the photos I posted.

I already miss Ghana. It truly is a place of where modern meets traditional. A place where cultures blend, almost seamlessly. My favorite photo illustrating this was the photo of an Islamic man, in a thatched-roof village outside of Tamale, sitting on a motorcyle, with his cell phone in hand. I miss the places we saw, the food we ate, and especially the friends we made. I am comforted by a line from Frederick Beuchner's book "Telling the Truth" it reads:
You can kiss your friends and family good-bye and put miles between you, but at the same time you carry them with you in your ear, your mind, your stomach, because you do not just live in a world, but a world lives in you. I can honestly say, Ghana lives in me now.

If you want to find out more about the topic of microinsurance please see our Katie School wiki

at http://www.katiepedia.com/ and search under the topic of microinsurance. I keep that updated with research and papers on the topic. I have gotten good feedback on the You Tube videos that I posted on Day 12 on Ecotourism and Day 8 on the value of microfinance for women in Ghana.

Day 12- Baobab Financial Services http://www.youtube.com/watch?v=FOcIdw61j1Q
Day 8- Larabanga Ecotourism http://www.youtube.com/watch?v=H9THYjEVEC4

Here is the blog from yesterday.

One Stop to Go
We finally left Accra at around 11 p.m. headed for London. We ate a nice dinner on the plane, love British Airway meals, and then tried to get some sleep. We arrived at London at around 7 a.m. and then got a bus for Cheltenham, which is about two hours outside of London, to the home office of Microensure http://www.microensure.com/.

The history of Microensure was that it was established in 2005, as Microinsurance Agency (MIA) , the insurance agency of the international microfinance organization Opportunity International, a faith-based non-profit headquartered in Oak Brook, IL

They have packaged life and non-life microinsurance products in Ghana and have microinsurance operations in numerous developing countries. They successfully provided microinsurance in Uganda, and worked with World Bank in financing a weather-indexed insurance product for Malawi. MicroEnsure acts as a broker between regulated local insurers, reinsurers, and microfinance organizations and the farmers who purchase the insurance. They currently work with 40 different microfinance organizations, including their founding organization, Opportunity International. They provide product development, and the IT back office support for loan and insurance applications, and claims payment information for insurers and reinsurers. They see there role as helping to make sure that the insurance is affordable for the bottom billion (people who can only pay a few dollars a year).

One of the other key concepts that they relayed to us was that the best thing that microinsurance was doing was moving the risk from local people to the international reinsurance market, which can more easily spread and diversify the risk. I see the value of this, and I wonder how to work that concept with the risk retention concept I considered in earlier blog re. Agogo region. Figuring out how to integrate those two will be on my mind for some time, I suspect.


MicroEnsure recently received $24.5 million from the Gates Foundation for the purpose of faciliatating microinsurance, and weather-indexed crop insurance around the world. They have an office in Accra and are working on developing products for Ghana, including indexed insurance for crop loss.

We compared notes and reassuredly found that we had several similar findings. We both saw the importance of helping the agricultural sector because so much of the population (over 70 percent) somehow rely on that sector. We also agreed that the most important part of addressing this sector is to get farmers more credit. As mentioned in earlier blogs, banks and microfinance institutions are reluctant to expand their loan portfolios to include morefarm loans, as the are currently viewed as risky.

We discussed their approach and strategy, which was a bit different than what we were considering (I feel like I shouldn't go into too much detail on that publicly as I am not sure what they considered public information) but the result would be the same, greater willingness to provide credit for farmers.They have had success with their approach in other countries, so it may very well work out in Ghana. They certainly have the resources to overcome many challenges, and in fact have a good track record of doing just that in Malawi and India.

After about two hours of sharing observations and brainstorming ideas we came to the conclusion that we really should be working together. There are things we can be doing at ISU to support them and they have a lot to offer ISU, including providing data to help accelerate our research and development of student and faculty involvement in microinsurance, including student internships and study abroad programs to Ghana. We see a role for our students in helping with the pilots they run. This includes, the needs analysis, helping with initial product development ideas, providing education about insurance to farmers (and others) in Ghana. There would also be a number of projects students (agribusiness and actuarial science) could conduct on campus. In short, this could be an enormous win-win for both organizations.

On our way home from Cheltenham, we had the simultaneously feelings of being completely wrung out and exhilirated.

It was a long journey in many ways. One that I will never forget.

Faithfully Submitted,
Jim

Day 15- Leaving Ghana

Day 15-Our Last Day
Day 15 was busy and we had two important meeting before our 10:40 p.m. flight.
I suppose it is time to reflect on lessons learned.
First, having connections and a car (with a driver) are almost necessities.we can't overemphasize the value that Mr. Mahdi Abdullah had on this trip in providing all three.Thanks. We hope that the lessons learned, people we met, and discussions we have had will lead to something that will benefit your country. (Thanks again Mukthar).
Second, there are so many things that happened before and during this trip that seem to me to be way beyond coincidence. The latest one being the discovery that Mr. Mahdi, and the Paramount Chief we met yesterday were once next door neighbors. For the record, the trip to the Agogo was planned independent of Mr. Mahdi, in fact weeks before we had even met him. We just learned that last night that they had been neighbors, when we went to Mr. Mahdi's house. So I have to give credit to that Force that made all this happen and pulled so many people together. That is something I will never forget.

Our last day in Ghana
We started off the day meeting with Dr. Danso-Manu downtown in Accra.She handed over two USB sticks full of data on soil maps and rainfall data. It was nice to get the data in hand literally. She physically goes out and gathers the data with USB sticks.We were hoping to get at least half the 40 stations in Ghana that we had identified. Unfortunately, we only got 12 weather stations. Dr. Danso-Manu apologized, but the people she was working with had not gotten all the data input. Evidently, they are still transferring some paper data to electronic format for several of the stations. Well, it was good to have to get started.A little disappointing but at least we have some preliminary data to work with.

We then met with the Director of Research for APEX Bank again. This time formally and in detail. He and his staff were very receptive. We went through what we had learned travelling across the country, about the lack of credit for farmers.He understood that the rural banks are reluctant to loan to farmers because of the risks. He was a bit concerned about whether we would be able to get the data. I told him about the data we had collected, and the data that exists at KNUST and he was thrilled to learn that. I still had some concerns myself, given that we didn't get all the data we wanted either. While I was talking, my phone kept ringing. I ignored it the first two times since I didn't want to ruin the moment there with the APEX folks, but the third time I answered. Incredibly, it was Dr. Danso-Manu with more data.On her way home in a taxi she got a call that 17 more stations were now ready.I relayed that to APEX and they were as pleased as I was to hear the news. She brought another USB stick to us while we were there at APEX. (APEX told me how important this was to them. They had even travelled to India and met with people from other countries to try and develop something like this but the data was always the rub. (I realize that for investors to have confidence they are going to want the data ready and easily accessible.I think that his is just a transitional time and I expect that in a year or so, it will be easier to access.In the mean time, I am accepting (and if I am honest, benefiting from) the mysterious and arcane way is gathered. That will change in the near future I'm sure.

We ended the meeting with APEX agreeing to write a letter of support for us in our future proposals, and wants to introduce us to the Ministry of Agriculture in Accra.They made a contingent agreement to run a pilot for a product with reduced limits of financial exposure to see how the product performs. In addition to a simulation, I think a pilot with lower limits might work, and local insurance companies might actually be willing to underwrite that initial pilot.

We finished the formal day at 3 in time to get in some last minute shopping. Needed to catch up on shopping for a few little items to bring back from Africa before heading off to the airport.

Tomorrow we arrive in London at 7 and then take a bus two hours to Cheltenham to meet the CEO of Micorinsurance Agency -Microensure. They are the insurance part of Opportunity International based in Chicago and with microfinance offices around the world.

Faithfully Submitted,
Jim

Day 14- Trip to the Mountain to meet Paramount Chief

Day 14-Oveview
Today was a fascinating day in learning how the traditional tribal system works, and how it might be engaged to help facilitate crop loss mitigation strategies. We met with a Paramount Chief, who is just one level below the King, at his palace in Agogo, a city on a mountain in the heart of the forest of Ghana.
We expected to receive good information from the Paramount, and we came prepared to ask some questions, present our mission, and seek guidance. We did not expect to become a part of a 700 year old tradition for hearing of new ideas and make a formal presentation to a tribal council of elders, who gathered from around the region to hear our ideas.

I would have loved to been able to just observe all the intricate protocols of that tribunal, unfortunately, all my attention was focused on how to present this rather complicated idea to a group of influential klan leaders, most of whom, did not speak our language. Based on this meeting, we had a meeting with a local rural bank to discuss their role in what we had discussed.

Here is the blog
Meeting the Paramount Chief
We left Kumasi, and drove about 90 minutes up to a mountainous region, to the town of Agogo to meet the Paramount Chief of the region, Honorable Nana Akuoko Sarpong. Although Nana Sarpong was raised to be chief, and heir through his uncle, his mother insisted on his becoming educated and he became a lawyer and eventually Minister of the Interior (among other roles) in the government. He maintained his connection to the community, fought for their causes, and still to this day has a farm in the community and is working to help the farmers in his area through getting a rural bank located in his region, and engaging in reforestation to undo the damage done by multinationals over the past decades. He also, while respecting traditions, has brought a high level of technology to the village. He has a very high tech facility where students come from all over the region to do computer training. (an interesting place to learn Java script).

We arrived at the palace after the drive up the mountain from Kumasi.
We entered the Paramount Chief's palace and waited for him in the atrium on very formal, traditional furniture. The chief entered and his assistants prepared his chair for him. The chief was very helpful in explaining the way the traditional system works and how it functions in parallel to the formal government in terms of the courts and which cases are heard by tribal system and which cases go to formal system.

He explained the hierarchy going from King to Paramount Chiefs, to Division Chiefs, to Subdivision Chiefs, to Village Chiefs. We explained our mission and asked him to help us understand the needs of his people and then try and work thorugh how we could work together. We talked for about an hour and one of the major points learned (heard again) was that the farmers lack credit that they need to improve their operations, buy inputs, and do the kind of investing they need in order to prosper. He reiterated what we heard that banks are unwilling to loan to farmers because the risk is too great. He also explained the need for a market for the goods and a place to store the harvest. He also confirmed what we heard before in that farmers have to sell and very low pricesat harvest because there is a glut of crops, and then that may not be enough to pay off the loans. (Something sold in a village for 1GHc might sell in Accra for 12GHc.)

Having a place to store would help even out the timing of the market and serve to provide the farmer was higher prices, which currently go to a middleman who has transportation and storage facilities.

We concluded that there is a need for some kind of a rainfall insurance product to protect the banks and those who provide credit. Reducing their risk should make them more willing to provide capital to the farmers.We then discussed a system that has been germinating based on observations and discussions from what we've seen with Susu groups and the potential for a farmers risk retention group. I decided to trot that concept out and he was very enthusiastic because it was based on some traditional concepts of risk sharing that farmers already understood. He thinks that would succeed. There would be a number of complexities to deal with indemnification, moral hazards, and record-keeping but those are the details to be worked out.

The general idea is that the farmers contribute ex ante (before a loss occurs) rather than sharing in members loss after a crop failure. That timing difference could make the difference in how the risk retention could be funded and eventually how an insurance product could be developed.

Here's were it got fascinating! All of this had to go before the tribunal of chiefs (the divisional chiefs reporting to him).The chief left us for about 30 minutes to discuss this with his advisors. His advisors agreed to let the idea go before the full tribunal of elder chiefs.

The Tribunal Hearing:

We were taking to a court and seated with our two chairs in the middle. We were then surrounded by the divisional chiefs, scribes, and even a tribal photographer.The Paramount Chief was escorted in with several others and seating on a throne directly in front of us.The Paramount Chief announced (in his own native language) that they were holding court, and the purpose of the meeting. This was then repeated by a man to his right. The chiefs then made their way up to swear their allegiance to him.Then we were introduced. We walked around and shook hands. Then sat down. Then all of the divisional chiefs came up to us and shook our hands again and welcomed us.The Paramount Chief then told the others what he had learned from us. He then asked for a formal presentation.Since it was all through a translator I broke everything out into pieces (similar to the presentation we do for the Russian insurance executives who come to campus).I broke it into two presentations with three parts. The first presentaton was the rainfall insurance product that would be purchased by banks to reduce their risks andmake them more willing to provide loans to farmers. Then after that I went into the second part which was the risk retention group idea which I had discussed with the Paramount Chief.This was the village concept, where a group of villages would pool parts of their harvest to provide for crop losses of members who suffered losses the following season.

Then the chief opened it up for questions (and they had a TON).They talked about moral hazard and wanted to know how that would be addressed (of course they had more interesting terms for this than moral hazard, but that was the issue). Then they wanted to understand the premium (village contribution)who would be members of the groups, the size of the group, the mechanism for resolving disputes, and basically all the thingsyou would expect people to ask. Almost all of my answers were based on what I had learned the past week in how these were currently addressed in traditional systems.

1. The idea of each member contributing a jar of honey was borrowed from the farmers group in Forikrom. Chief liked this because he is trying to promote beekeeping with his farmers and it

2. Fit with traditional concept of risk sharing we just learned about (just changing the timing)

3. The organizational aspect that I presented and that the liked was based on the Baobab's women's solidarity group of five with a larger association of 25

4. The way a guarantee could be established was based on concept from Masloc

5. The way information on weather could be dissimenated was based on meeting with Chief Abdullah in Tamale.

6. As was the idea of a storage facility to prevent market gluts around harvest time and help farmers get better prices in order to more easily pay off their loans.

7. The way disputes are resolved via traditional system was what the Paramount Chief detailed earlier in out discussions and would be important in resolving (and even establishing) indemnity.

(Almost nothing besides the general concept of risk pooling was based on anything I had learned formally. If we had met him at the beginning we would have had very little of value to give him. ) . Basically, it is just about applying traditional systems (both risk management and legal traditions) that they have in place in a new way.

(There was an elaborate process for these questions to be made and how discussion could proceed and it was obvious that they had a traditional version of Roberts Rules to go by.)I was given some slack on this, but fortunately the Paramount chief gave me gestures on how I was doing. I wish I could just have been an observer. (Horace took a ton of notes and at dinner he pointed out a dozens of things going on that I didn't catch because I was so focused on the message.)

Finally after it was all over, we met again with the Paramount Chief privately. He said the meeting had gone very well.They divisional chiefs are all on board. They want to try the risk retention group part within their regions, and are interested in discussing this further and developing the details of that system.The beauty of this is that it all stays within their system. Nothing leaves. However they will be keeping records so that in a few years they will have data to show an insurer, who then might be willing to insure or reinsure the groups.(But the journey is long. So I am getting ahead of myself).

The Paramount chief took a photo with us (I knew it was formal but I couldn't contain myself after the tribunal, which is why I have such a silly grin). Next he then had one of his Divisional Chiefs go with us to the Rural Bank to talk with them and tell them about this. They were very interested, but especially interested in findind a way for them to get a loanto build a storage facility for the farmers goods to help support crop prices. This would, by itself, reduce the risk of defaults by farmes because some of the defaults are based on poor markets, and not poor yeilds. (This is a key piece to the puzzle).

After that we bid our farewells, took the road down the mountain and slept on the way back to Accra.We go into Accra in time for dinner and then began to get things ready for our departure tomorrow evening.But we had two more important meetings for tomorrow. One with Dr. Danso-Manu and the other, our second, and formal meeting with Apex Bank.

Faithfully Submitted,
Jim Jones
Director
Katie School of Insurance
Dateline Agogo

Day 12-Eco-tourism Day 13- Sunday Day of Rest

Day 12 and 13 Overview
It is Sunday and I am at the Miklin hotel in Kumasi. This is the first day that we are really just resting. We went to church nearby (a Roman Catholic church) at a school and it was as I remembered from 20 years ago. A mix of liturgical music and local music with drums. Very nice.

We have had a LOT to be thankful for this trip. Was glad we got to go to church even though the English language version started at 7 a.m. (and they do an enhanced two hour version that leaves plenty of time to offer your thanks :-)) After church we went to the market in search of good (brand name batteries). We ran out as we were leaving Mole. (That caused me to miss photo of mosque from 1653 (Oldest buidling in Ghana) except with my disposable. The local variety made in China, doesn't hold a charge. Horace went through a box of twenty in two hours in the park. (Okay, I'll stop whining.)

Anyway, I found some good Energizer batteries and got a good photo or two of the Kumasi Kejetia market (10,000 vendors over area of covering 36 acres. The largest in West Africa). Only about half that many were there this afternoon because it is Sunday. Interestingly, the topic of fire insurance for market vendors is now being discussed following a fire at the market last week. (Remarkably the last major fire before that, which like this one, was also a partial fire, was 1995.) So, maybe there is some kind of a product for fire that could be developed? (Wish there was a way to partition the market better to prevent a total market loss. They also need to monitor how many people tap into one outlet. In fact they might consider a more highly protected area for appliance vendors where they would pay a fee for electricity and close fire protection.)

Okay, well let me tell you about yesterday now. Tomorrow will be back on the circuit looking at farming and technology in a village outside of Kumasi.

Day 12- Ecotourism.

After the trip to the farm, we left Tamale and on the way home stopped over at Mole National Park. It is a bone-jarring two and a half hour drive from Tamale. Wanted to check that out as a possible stopover for students on a study abroad. We ran into another group of students from the University of Utah. The faculty who has been doing this with them for the past five years said that they stay in Kumasi (at KNUST guesthouse) and do public health activities in local villages. He also had some great ideas on how to structure and internship/study abroad.

The only reasonable option to stay, is the Mole Motel. It is authentically rustic. But what it lacks in accommodations, it makes up for in its view. It overlooks watering holes and these watering holes were where the animals will eventually congregate (especially in the dry season. )

You could see animals from the hotel. The sun was setting as we pulled in, so once again the fatigue of the day’s journey was replaced by the feeling of gratitude for being able to see yet another breathtaking view of the beauty that exists here in Ghana. No doubt the ten minutes of sunset over the Mole (pronounced Mo-lay).was worth the hours of difficult roads.

The next day (Saturday and actually Day 12) we did a 6:30 a.m. walking tour with a guide. (Got up early to see the game more active, also needed to make it to Kumasi before nightfall. Our guide was great in helping us to track animals and in explaining the eco-tourism part of how the reserve worked with local villages to conserve the land and help find employment for those villagers who could no longer hunt or farm on their traditional land which was now the protected game reserve. The park has several hundred elephants scattered over 4800sq Km. We were hoping to see elephants up close in the wild. I saw some 20 years ago when I was in a photo safari car but never met up with any while I was just walking around in the forest.

Turned out we had a great tracker. Not all the groups were as fortunate. I include my favorite photos of the elephants. I really enjoyed this even more than the elephants in Kenya that you would drive to see. These elephants were in the forest and tracking them down to photo them was an enjoyable challenge. A lot of antelopes and other smaller game along the way too. We almost literally (ran into a troop of baboons on our way of the park. All my batteries were dead so I was using the disposable, but they were pretty close. I think that this would be a worthwhile stop for a study abroad. It seems like all the universities spend a night or two here.

Afterwards we went to the nearby Village, Larabanga, which has the oldest building structure in Ghana, and perhaps West Africa. It is a mid-17th century mosque and is now the center of ecotourism for this muslim village. The eco-tourism project was established by a Peace Corps volunteer and they did a really nice job with that. The guides who greet you, and there will be several, range from 4 year s old to 18. They have a tight marketing campaign. (It would actually make for a fun exercise for business students to note all the different marketing and sales techniques that are employed. Impressive.)

I videotaped this and put it up on You Tube http://www.youtube.com/watch?v=H9THYjEVEC4 , to give them a little more PR. They work hard and deserve it, and it does help the local community which was displaced by the reserve.

The story of the mosque itself as well as the story of the Peace Corps volunteers' role in developing ecotourism for the community were both worth hearing. Given it’s proximity to Mole National Park, the town has a lot of potential for developing ecotourism.

Faithfully Submitted,

Jim

Day 11-Trip to Chief Abdulah's Farm

Overview:

I am running a couple of days behind on blogs as we have been travelling in some more remote areas. It is now Sunday afternoon and I am at a hotel in Kumasi catching up on my Friday and Saturday blogs. The Day 11 and 12 activities involved some serious four-wheeling and it took something out of us. But the many farmers and villagers who live in those remote areas get around on much less comfortable terms than in a 4x4 Landcruiser.

Day 11- Trip to the Chief’s Farm

Today we decided to take a look at the actual production of crops like cassava and yams. The trip was about 50 km outside of Tamale and it took us about 2 hours. The photo at the top shows the long road to the Chief's farm. It does seem to go on forever.

We went passed the fields where they were going to be growing maize and rice but the Chief was holding off on planting because the rains are coming about two-three weeks late this year.

He knows that, based on meteorological reports.

Unfortunately, a lot of farmers have already started based on traditional timetables. As mentioned in the previous blogs, this information is something that the chief tries to communicate to farmers who have loans with him, at their weekly meetings. I met some U.S. Dept. of Agriculture people who are trying to find ways to get the word out via mobile telephone (since most farmers would have that). That might be something to consider in underwriting for crop loss too if such a product were developed. The farmer needs to have access to the updated climate and weather information. (That would be a nice value-added for purchasing insurance too. Would help reduce losses and benefit the farmer.)

I included a photo of the cassava being grown and then the other photos is cassava being sold at the market. (This is a traditional crop and is not really considered a "cash crop". It takes about 15 months for cassava to reach maturity. Most of the other crops take a few months.)

Transportation is an issue on everything and one reason that farmers don’t get very good prices for their crop. Most farmers have no easy way to get them to market because the roads are so challenging. It seems like an improvement in infrastructure could make a huge difference in what farmers could get to the market without spoiling. (If a multi-peril crop insurance product were developed for smaller farmers), it would have to be designed and underwritten with that in mind

On the way to the village we saw some interesting contrasts. I included a photo below of a Muslim man adorned in flowing, brightly colored, full-length clothes on his motorbike in a thatched room village. (That scene was repeated many times.)

Motorbikes are used frequently by farmers in the north (as are bicycles).

Faithfully Submitted,

Jim

Day 10- Meeting with The Chief and the Ministry of Agric

Day- 10 Overview

I can't believe that I am actually caught up on my blogs today. I did two. One early this morning and one now. Two excellent meetings. The meeting with the Chief was another inspiring one. I am just humbled by the talent of the people here in providing developmental solutions. The Chief's shop is one that should be looked at and replicated. It rained today (YEA!!) the farmers really needed that, even though it was short and late. But it kept me in town and we weren't able to get out to the farms. But I got out this second blog instead, and got to eat some local cuisine. Guinea Fowl in Groundnut Soup (tasted a bit like a peanut sauce that was spicy). Was also able to find some more research I couldn't locate in the states. (Google sometimes needs a little more detail and I got that detail here.) If you didn't catch blog Day 9, check the archive. It was a good one.

:-)

I added a driving through town scene. Motorbikes are very prevalent here in the north, especially here in Tamale.

Day 10- Tamale Ministry of Agriculture
We met with the Ministry of Agriculture in Tamale. We met with the Northern Regional Director of Ministry of Food and Agriculture. After we described the project he then brought in his entire team of employees. I took that as a good sign. We asked him first about the percentages of people who actually do farming for a living (i have heard and seen different percentages). He said it varies by region. Could be as high as 70 percent in northern regions, but as low as 40 percent in some southern regions.
We described our mission and potential rainfall insurance product to see if there was a need. He said that there is a huge need for such a product because the issue is that the farmers can’t enough capital to make significant improvements because agriculture is so risky. The banks and microfinancial institutions can't have too a large a part of their portfolio in agriculture (which we learned from info. in previous blogs). He thinks that a product that would help reduce the variability of loss would give them more incentive to provide loans to farmers.

At a small level he didn’t see a need for a rainfall insurance product. For those farmers the preferred risk management tool is crop diversification. However, some of the farmers that are growing mono crop cash crops (like rice) might be interested. They are usually more sophisticated. Might be rolled out to informal group of farmers. Might also be a need for farmers who have livestock.

There are informal “insurance” mechanisms. They gave an example of a project sponsored by (Millenium Development Authority) (MiDA) where they provided input and then the farmers agreed to contribute one bag of maize for every acre they have. This goes to a common fund to help pay for group members who suffer a loss.

They suggested other partners that might be interested such a product be Assoc. of Church Development Project and the Stambick(sp?) Bank (S.A. Bank). Maybe companies who rely on cocoa producers too?

Consequences of crop loss

This is a question we have posed to everyone. Here are his thoughts.
Depends on the severity what the consequences are:
Example:

Severe
· Girls runaway from home.
· Families pack up and travel.

Intermediate
· Will sell their labor to other farmers at below market rate.
· If all else fails the sell off animals in the following order, goods (chickens and guinea fowl), then goats, then sheep, then cattle. If you see farmers selling cattle for food it indicates that it is catastrophic for the farmer. (There is probably an economic index in their somewhere).

We presented two options of insurance. The Rainfall Insurance Product for more sophisticated buyer who understands the trigger and who it works. Then possibly a different product for small farmers (which I went into some detail to explain) and they thought that both sounded like they would be accepted in the market once.

We then met a group of Indian consultants from OLAM
OLAM Nigeria Lmtd.

They are looking to bring Rice production services to Ghana. They partner with banks, NGOs, and US AID. They won a U.N. World Bank Business Award. One of his concerns about Ghana is the lack of crop insurance. Unlike in Nigeria where they have crop insurance. The insurance is multirisk. It is for only registered coops in Nigeria. It is 5% premium. For $600 of inputs for rice the premium would be $30. But the farmer only pays 2% of the 5%. Or in this example $12. The state and federal pay the rest of the premium because they benefit from the farmers getting insurance.
The multiperil risk is rainfall (drought and flood), birds, pests, and disease. Although the general manager suggested that rainfall (drought or flood) is really the most important part of the product.

According to the Managing Director of OLAM, last year the insurance paid out $180,000 for 50,000 acres. This is the Nigerian Agricultural Insurance is part of Nigerian Government and was in conjunction with US AID. The payout this year was $220,000. Will have to check out what that is in terms of the premium they collected.

Meeting the Chief
Met with Nana (Chief) Yusif Abdulai. He is the Managing Director of the Northern Rural Development Bank an Association of Financial NGO’s. They do Microfinance ++. They have been around since 1997. The + includes education on financial literacy, health (HIV/AIDS,maternal health, Malaria,), technical crop assistance for farmers associations. They have 4500 men and women who have Susu accounts. They make loans strictly to women ranging from GHc100 ($75)to GHc 1000. Like most vendor loans we have seen, theirs are four month loans. This was the longest running and most well-organized of all that we have met so far. Really well designed and executed.
They loan to vendors, farm producers and processors, hair dressers,etc. Their process is to form solidarity groups into associations. Then they require education (financial literacy, record keeping, health, etc) of 6 weeks before they give the loan . This education helps the women succeed in their businesses and thus be more reliable creditors. All loans are given to an association of women. An association is comprised of 30 women with five solidarity groups. The way it works is that the solidarity group first guarantees the loans for each of its members and then if the group can’t pay all the loan, the association must step in to pay. (They do have a contingency in case there is an association default risk. They measure success not only in terms of repayment but also in terms of women who grow their business to the point that they can get a bank loan and then become a part of the formal financial sector.

One of the innovations that the Northern Rural Bank has undertaken is to provide a storage facility for farmers to store their crops immediately after harvest because the price they can get at harvest is very low in comparison (about Ghc18 for a bag of maize to a price of Ghc60 if they hold on to it for a few months.) They give the farmer an advance on their loan which represents the market rate at harvest time. (This would be all the many farmers would get). However by storing the grain until mid season when the prices go up more than four times they can just use that difference to pay off the loan. The Chief learned this from Boulder Microfinance Institute Workshop he attended in Italy.

They see a need for an insurance product for property loss (fire and theft) for their market vendors. It needs to be set up well, designed in terms they understand, and then provided with a great deal of education. We discussed what that might look like and he like the design.

The education that they provide is for financial literacy, health (malaria, diarrhea, HIV/AID).

However, they have one hugely value-added for their farmers, something we have heard before a need for (We heard that need expressed here at our meeting in Sunyani.) but until now, have not heard of a financial institution providing- That is weather information. They give weather information to farmers during their weekly meetings. This helps their farmers to plant at the right time. We heard that from several people one problem farmers have is that they don’t get the tv or radio weather forecasts. So they are planting based on previous timetables, which may not apply under current climatic conditions.

They have a history of working with volunteers and study abroad students.(Max of three at one time). The typical stint is for 2-3 weeks. The students stay with host families in Tamale.They then go out and do the training at the Susu meetings. He said that they can provide the content (although they do have materials from Microfinance Opportunities (a D.C. organization I visited a year ago) but they said the advantage the students have is that they draw a crowd and people listen. Given the topics that they would like to have covered it might be good to have a multidisciplinary mixed team of Agriculture,Nursing, and Business students even if they provide content for the training materials.

Here are some phrase words I have picked up that may help you navigate around:
Greeting in morning (da-si-ba) Response: n.naa
Afternoon greeting (n.tiray) Response n.naa
Evening greeting (annuwula) Response n.naa
How are you? (Kawula) Response Alaafay (or al-off-ee) I’m doing fine
Thank you (em-Poo-Hair)

Faithfully submitted,
Jim Jones
Director-Katie School of Insurance
Illinois State University

Day 9- Freelancing it in Tamale

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.

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.

http://www.nyu.edu/projects/morduch/documents/rainfall%20insurance.PDF

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