Piloting a weather-index-based crop insurance system in bangladesh: Understanding the challenges of financial instruments for tackling climate risks

Abstract

Bangladesh is one of the most vulnerable countries in the world to extreme climate events. With over 60% of its population living in rural areas, over a third of which lives under the poverty line and depends on agriculture, these climate stresses constitute a major challenge. The traditional financial instruments, e.g., microcredit and relief programs, continue today. However, how climate risk can be tackled through innovative financial instruments focusing on agriculture farms and farmers is crucial. Considering this issue, the Sadharan Bima Corporation and the Bangladesh Meteorological Department joined forces in 2014 to launch a $2.5 million three-year pilot project on weather-index-based crop insurance (WIBCI) executed by the Financial Institutions Division of the Bangladesh government’s Ministry of Finance. This study examined the basic strategy of this pilot project, the major challenges confronted, and possible solutions for creating a successful weather-index-based crop insurance scheme in Bangladesh. We relied on key informant interviews, informal discussions, focus group discussions, and in-depth interviews with the major stakeholders of the WIBCI pilot. These showed the WIBCI pilot to be a promising initiative that still faces problems from limited weather data, a costly business operations system, farmer insurance illiteracy, and fatalism, as well as problems with designing insurance products and recruiting qualified personnel. We compared this WIBCI pilot against the challenges of other projects, recommending best practices for a viable weather-index-based crop insurance system. The insurance mechanism of this study may apply to other vegetation sectors of Bangladesh, e.g., forest plantation or agroforestry for protecting natural resources from natural disasters.