The Rwandan government will support expansion of insurance packages to the agriculture sector in a bid to attract more players to the sector.
This development could increase competition and lower premiums, making it more attractive for farmers to embrace take up.
Ange Tambineza, the agriculture communication and information programme manager at the Ministry of Agriculture said the implementation of an agriculture insurance policy is on course.
While she did not say when the livestock insurance cover will be launched, Rwanda Today has learnt that it will most likely be commissioned in the second quarter of the year.
The crop insurance cover will be commissioned in September in agricultural season A.
“For the livestock insurance policy, recruitment of staff for running the project has been done. Insurance firms have been urged to express their interest as negotiations with reinsurers is ongoing,” said Ms Tambineza.
Currently, plans for electronic chips for tagging animals and which will be used to collect data automatically has reached the procurement stage.
According to government officials, the plan is to tag 277,000 cattle with electronic chips, which should help reduce risks for both financial institutions and farmers.
Tagging cattle is meant to provide insurers with accurate and timely information to calculate premiums and enable lenders to price loans.
This comes at a time when microfinance institutions have scaled down disbursing of credit, signalling an urgency to de-risk lending to the agriculture sector.
Data from the central bank shows that the industry’s loan book shrunk to 2.9 per cent in the year ending December 2017, from highs of 14.9 per registered in December 2016, after the profits of the industry dropped — constraining the lending capacity of microfinance institutions.
The dip in credit disbursement is attributed to the slowdown in economic activities in the first half of last year. But, industry players blame the low uptake of agriculture insurance in the country for the slowdown in lending by microfinance institutions to the rural poor who are considered risky.
The national multi-peril agriculture insurance policy has been on the cards for years, but it has not been implemented exposing agriculture investments to risk.
“At least 16.1 per cent of microfinance institution’s loan portfolio is in agriculture. They should be helped to continue lending,” said Jean Bosco Iyacu, programmes manager at Access to Finance Rwanda.
Experts are calling for combined efforts between governments, NGOs and insurers to move agriculture insurance programmes beyond the pilot stages.
“Insurance is promoted disproportionately and tends to be forgotten as a key risk mitigation tool,” according to Access to Finance Rwanda.
Analysts warn that they see lenders taking a conscious approach in credit disbursement to reduce risk exposure after their earnings took a hit last year.
The microfinance institutions reported high growth in bad loan provisioning, which increased from Rwf5.7 billion ($6.5 million) in December 2016 to Rwf6.2 billion ($7.1 million) in December 2017, eating up their capital levels, after farmers failed to service the loans.
This means reduced capacity for microfinance institutions to mobilise cheap deposits to lend to smallholder farmers and low income earners.
This explains the fresh capital calls from shareholders to shore up their liquidity levels. The central bank says the microfinance institutions sector got fresh capital injection of Rwf6.3 billion ($7.2 million)in 2017.