Challenge of Integrating Crop Insurance in Agricultural Financing

By Romeo Arahan Jr.

SEDPI recently concluded the MFI Credit Support to Agri-production and Enterprises of Agrarian Reform Beneficiaries or ARB Households and Rural Women in the Program Beneficiaries Development Model Areas project of the Department of Agrarian Reform (DAR) on July 2015. During the contract period, SEDPI was able to formulate micro-agricultural loan products (MALP) to 23 MFIs that participated in the project. These MFIs are geographically diverse, catering to agrarian reform beneficiaries all over the Philippines.

One of the agreements during the project was for MFIs to provide crop insurance to their clients. Most of the partner MFIs were very keen in accessing crop insurance because of the risk mitigation benefits it provides to the clients’ farming activities in the event of natural calamities. SEDPI provided training to the MFIs on the importance of crop insurance and how this could be integrated in their financial products.

One of the main challenges of integrating crop insurance in agricultural financing products of MFIs is the notable lack of crop insurance providers in the country. SEDPI was only able to initiate linkage of the MFIs to the Philippine Crop Insurance Corporation (PCIC). Its crop insurance is the dominant product in the market right now. Its limited capitalization of PhP2 billion in 2013, hinders its growth in providing crop insurance to a wider range of clientele. In addition, private insurance companies, such as Malayan and CARD, are still undergoing pilot testing of their insurance products. As a result, MFIs and ultimately their clients have limited options on choosing crop insurance products that are more appropriate to their needs.

The threat of climate change is impending. It is important for the government to play a more active role in crop insurance to ensure protection of farmers’ livelihood and food security in the country. As a start, it should increase the capitalization of PCIC so that it could absorb serve more farmers and cover more geographic areas. The government could also provide incentives for private insurance companies to provide affordable and effective crop insurance products. It should also continue subsidizing premium payments of farmers on crop insurance similar to a project it implemented with DAR and PCIC previously. These are just small steps towards making crop insurance a robust industry in the Philippines.