by Liz Booth
The UK government, together with VisionFund international KfW and BlueOrchard Finance, has set up a new climate insurance programme to help up to four million people across Africa and Asia.
More than 690,000 families living in six low-income countries stand to benefit from the programme launched by VisionFund International, World Vision’s microfinance arm, and Global Parametrics, a new venture funded by the United Kingdom’s Department for International Development (DfID) and by the InsuResilience Investment Fund, set up by German development bank KfW and managed by Swiss-based impact investment manager BlueOrchard Finance.
Financing for the initial preparation and assessment required to implement the programme came from the Rockefeller Foundation and FMO, the Dutch development bank.
The programme, known as the African and Asian Resilience in Disaster Insurance Scheme (ARDIS), is thought to be the world’s largest non-governmental climate insurance programme.
ARDIS will increase access to finance and provide post-disaster recovery lending to rural families and smallholder farmers who live below the poverty line and participate in VisionFund’s microfinance network. In its first year, ARDIS protection will be provided to VisionFund’s clients in Kenya, Malawi, Mali, Zambia, Cambodia and Myanmar, of which about 80% are women.
This programme will effectively meet 1% of the G7 goal to increase access for up to 400 million uninsured people in developing countries to insurance products that protect against climate risk.
The ARDIS programme allows beneficiaries to receive swift access to much-needed credit required by farmers and small businesses after a climate shock. Recovery lending, essentially small loans with special terms, is provided through VisionFund’s microfinance institutions.
Such loans are disbursed immediately during and after disasters to help clients maintain or restart economic activities, complementing relief aid which is required for urgent survival needs in disaster situations.
For example, typically in disasters when clients cannot repay loans and there is higher demand for lending, microfinance institutions suffer a reduction in the amount of capital they hold and are therefore required to curtail their lending.
The contingent liquidity for ARDIS is provided by the InsuResilience Investment Fund which is managed by impact investment specialist, BlueOrchard Finance, and backed by KfW on behalf of BMZ, the German Federal Ministry for Economic Cooperation and Development.
Risk capital is provided through the Natural Disaster Fund that is managed by Global Parametrics and currently funded by the British government via DfID. The structure offers an affordable and sustainable system for disaster recovery lending at costs of approximately half a per cent of loan portfolio value per annum payable by the microfinance institution.
Michael Mithika, president and CEO, VisionFund International, said: “ARDIS uses an innovative financing structure making recovery lending scalable. This scalability means greater opportunities for more people to access emergency finance to restart businesses and restore incomes. We’ve already seen the benefits of recovery lending initiatives in Sub Saharan Africa in 2016/2017 which were supported by a £2m returnable grant from DfID. We are excited about rolling this out on a wider scale.”
Jerry Skees, chief strategy officer and director of Global Parametrics, added: “The adoption of ARDIS also assists microfinance institutions to protect their exposure to climate risk, ensure continuity of services and continue business growth. The closing of this transaction is a major milestone as we build market-changing risk models and offer solutions to communities needing them most. We plan to repeat this type of offering with other firms, serving the poor and vulnerable in emerging markets.”