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Pakistan Poverty Alleviation Fund

Pakistan Poverty Alleviation Fund. Innovations in Managing Catastrophic Risk in Agriculture Finance - Strategy & Actions. April 28-29, 2015. PPAF – The Apex. An independent legal entity under the section 42 of the Companies Ordinance 1984 with a Robust governance structure

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Pakistan Poverty Alleviation Fund

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  1. Pakistan Poverty Alleviation Fund Innovations in Managing Catastrophic Risk in Agriculture Finance - Strategy & Actions April 28-29, 2015

  2. PPAF – The Apex • An independent legal entity under the section 42 of the Companies Ordinance 1984 with a Robust governance structure • Premier national apex, with credibility, track record and strategic positioning, operational since 2000 • National presence, outreach, scale, growth platforms, networks and drivers of community-driven development – 121 partner organizations & 500,000 community organizations and groups • Ability to crowd-in investments, convene alliances, partnerships and • relationships(national and international) • Sector developer – creating the eco-system for microfinance, livelihoods, • renewable energy… • Agility to respond effectively and immediately to natural disasters

  3. Fact File Cumulative September, 2014(figures rounded off) Source: Compliance and Quality Assurance – PPAF Large portion of investments in Water, Infrastructure and Livelihood targeted at promoting Agriculture. 80% Loans are in rural areas with 60% Portfolio in agriculture (small farmers)

  4. Agri-sector in economy of Pakistan Pakistan Economic Survey 2013-14 Agriculture growth percentages (Base=2005-06) • Average Yields (Kg / hectare ) • (Wheat, Cotton, Rice, Maze, Sugarcane) • National Average: 58,615 (kg/ha) • Progressive farmer: 126,125 (kg/ha) 2011-12 2012-13 2013-14 1.2 Crops 3.2 2.3 Livestock 2.9 4.0 3.5 1.5 Forestry 1.8 1.0 Fishing 3.8 0.7 1.0

  5. Risks in Agriculture Finance Key challenges for rural and agricultural financial service provision 1. Vulnerability Constraints 2. Operational Constraints 3. Capacity Constraints Systemic Risk – Low returns & unpredictable capital flows Market Risk Credit Risk – collateral, especially mortgage Investment Returns and Capital Flows Low Investment and Assets Geographical Dispersion Infrastructural capacity constraint Technical & Training constraint Social Exclusion Institutions Limited client awareness & absence of customized, client centric products

  6. PPAF-Addressing Risk through Innovation • Value Chains • Tunnel Farming • Introducing off-farm businesses • Renewable Energy • Asset Backed Lending • Technology & Branchless Banking • Micro Insurance Initiatives

  7. Conditions for success of Insurance products For Insurance companies Insurance premium > expected loss + risk margin + administrative Cost For the Farmers Expected utility without formal insurance < expected utility with formal insurance

  8. PPAF’s MI Initiatives PPAF provided platform to all stakeholders and shepherd the process to develop Sustainable, Scalable, Affordable and Flexible products • Index Based Crop Insurance • Live Weight Livestock Insurance PPAF through strategic partnership with SECP, NARC, MFIs, insurance companies, Met department & renowned experts designed and launched various innovative agricultural insurance products • Crop Yield Insurance • Micro-insurance for milking animals

  9. Innovation in MI 1. Index Based Crop Insurance 2. Crop Yield Insurance • First of its kind in Pakistan • 30 years data on crop yield and weather used to develop index • 2,400 acres • Premium ranges from PKR 530 to 980 per acre • First of its kind in Pakistan • 5 Years data of Yield collected on wheat and cotton • Model based on historical crop yields • covering 32,000 acres and improving the lives of poor farmers in Bahawalpur • Premium: 3% of reference yield Mitigating information asymmetry and moral hazard issues through automated claim settlement and involvement of Communities

  10. Innovation in MI 3. Live Weight Livestock Insurance 4. Micro-insurance for Milking Animals • First of it’s kind in the world • Growth rate of different species under varied feeding regimes based management determined through Government’s livestock research institutes historical data • Animal prices calculated on the date of loss, ensuring adequate compensation to the policyholder • 12,500 animals insured • Premium: 6% • Specialized product for large milking animals • Claim settlement is based on a model where the value of the animals is based on its productivity • 23,000 animals insured under conventional micro-insurance and micro-insurance for milking animals • Upscale including 41,000 more animals • Premium small animals: 5%, Large animals: 4%

  11. Way Forward

  12. Thank You

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