Over 690,000 families totaling up to four million people living in six low-income countries stand to benefit from a new climate insurance 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 around 80% are women.
This programme will effectively meet one per cent 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.
Fast recovery lending to the client is enabled by the provision of liquidity to the microfinance institution in order to bolster its resources to cope with increased demand. Global Parametrics’ advanced climate-based data modelling verifies the climate event and triggers access to both contingent liquidity and risk capital by VisionFund’s microfinance institutions.
This injection of funds to the microfinance institutions restores their balance sheets, thus ensuring business continuity or enhancement of operations and services despite the common disruptions created by such calamities.
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 £2 million 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, said: “We are thrilled to have worked jointly with VisionFund to develop this innovative programme. Together, we have the potential to meet ambitious social goals that improve financial inclusion, facilitate recovery lending and build resiliency for communities. 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.”
Stefan Hirche, Chairman of the Board of the InsuResilience Investment Fund said: “African and Asian countries are highly vulnerable to the effects of climate change and natural catastrophes. We are looking forward to partnering with VisionFund International and Global Parametrics to reduce the vulnerability of small businesses and low-income households in these regions and to contribute to achieving the G7 goal to insure 400 million vulnerable people.”
Financing for the initial preparation and assessment required to implement ARDIS came from the InsuResilience Investment Fund, DfID, Asian Development Bank, the Rockefeller Foundation, and with focused support to launch the program provided by the Dutch development bank FMO.
FMO’s contribution was provided by the MASSIF fund, which is managed by FMO on behalf of the Dutch government. MASSIF supports small businesses and micro-entrepreneurs in emerging markets by providing resources to financial intermediaries.
MASSIF supports innovations in inclusive business, such as ARDIS, targeting households at the base of the pyramid which are often situated in rural areas.
Michael Mithika concluded: “ARDIS consolidates VisionFund International’s leadership in the provision of on-the-ground agricultural finance. This is the first step for VisionFund in the use of climate science and Financial Disaster Risk Management tools to create extremely low cost climate protection. We are already working on additional countries, risks, features and services with Global Parametrics to build on ARDIS.”