Loan Protection for Maize Farmers in Burkina Faso
This case study examines drought-related costs and financing for maize farmers in Dedougou, Burkina Faso focusing on farmers’ highly variable cash flow. It evaluates the role that a maize loan protection insurance product developed by Allianz played in helping farmers cope with droughts. The product, named Siman Panga, was launched in 2011 and it offers loan forgiveness for farmers’ input loans for maize in case of drought. It is distributed among farmers by l‘Association de promotion de la finance inclusive (APFI), an MFI operating in Burkina Faso. The product was evaluated by using the Client Math methodology. Key findings include:
- Though most farmers have diversified their income, farmers rely on agricultural revenue to invest in other income streams and are unable to utilize diverse strategies when yields are low. Hence, drought insurance is important to them;
- Many insured respondents did not fully understand the insurance product, and insured farmers may have limited their ex-ante risk mitigation behavior as they expected more from the product;
- Relatively low levels of loan coverage compared to a high loan amount due in one large bullet payment reduces the potential value of the insurance by limiting its impact on loan payment relief.