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Livestock Insurance: Protecting Livelihoods and Investments

October 17, 2011

  • In Ethiopia, over 50 million people depend on livestock for their livelihood; it accounts for as much as 38 percent of rural households’ cash income.
  • The World Bank along with financial partners launched the Ethiopian Pilot Indemnity Insurance Project (PILP) to protect the poor from unforeseen problems in livestock farming.
  • Based on the successful start of the project, the Bank and its partners are considering expanding insurance offerings.

ADDIS ABABA, October 17, 2011 -- Birke Legesse is in her mid forties and lives near the town of Sululta in the Oromia region of Ethiopia. Over the past four years, she has been working very hard to support her family but was barely making ends meet.

Two years ago, Legesse decided to change her life by getting into the cattle business. She borrowed six thousand birr (US$350) from her local microfinance institution, and used the money to buy a cow. Her hope was to make a better living by selling dairy products and if she was lucky enough, when her cow gave birth to a calf, she will sell it and pay off her loan.

When she discovered that her cow was pregnant, Legesse was beyond ecstatic. She took great care of her and made sure she had enough to eat, but just a few days before the cow was scheduled to give birth, disaster struck.

Legesse woke to discover that her dreams were turning into her worst nightmare. She couldn’t believe her eyes. Her pregnant cow lay dying. Legesse was wailing, mourning not only her cow, but her dreams.

It was in this state that a World Bank team made up of Renate Kloeppinger-Todd and Jonathan Agwe discovered Legesse, who told the team her sad story.

“We immediately felt her pain,” Agwe said. “We knew this woman had lost all her savings and asset/capital base, and that her immediate future and that of her family was financially handicapped as she will still be required to pay back the loan she took to purchase the cow, the loss of the loan-financed cow notwithstanding.”

Legesse’s story inspired the team to come up with the idea that the Bank must develop a project to protect such vulnerable people.

After conducting a survey to determining the need for High Value Livestock Insurance, the Bank, in partnership with the Association of Ethiopian Microfinance Institutions and Nyala Insurance Company, launched the Ethiopian Pilot Indemnity Insurance Project (PILP).

The insurance project seeks to protect poor and vulnerable individuals such as Legesse against any financial loss related to livestock farming created by sudden or unexpected risks.

In Ethiopia, over 50 million people depend on livestock for their livelihood; it accounts for 37 - 38 percent of rural household’s cash income.

Owning livestock helps people to cope with the effects of drought, provides transportation, supplies households with meat, milk and nutrition, and serves as an important source of cash income. Livestock also plays significant social and cultural roles, and is a form of asset accumulation to protect against unforeseen risks.

Poverty and vulnerability reinforce each other in an escalating downward spiral. Not only does exposure to these risks result in substantial financial losses, but vulnerable households also suffer from the ongoing uncertainty about if and when a loss might occur.

Because of this perpetual apprehension, the poor are less likely to take advantage of income-generating opportunities that might reduce poverty. Helping low-income households to manage risks through micro-insurance will allow them to feel more secure and willing to invest in their economic activities, while making them less vulnerable to stressful events.

Since the promising start of the pilot project in Ethiopia, the Bank, its partners and relevant stakeholders are making plans to scale up and expand high value livestock insurance services to poor households, and tailor them to their specific needs.

This will enable individuals like Legesse to rest assured that their valuable investments are protected against unforeseen threats.