Agricultural Insurance in Bangladesh

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Agricultural Insurance in Bangladesh Report No. 53081-BD Public Disclosure Authorized Public Disclosure Authorized Agricultural Insurance in Bangladesh Promoting Access to Small and Marginal Farmers Public Disclosure Authorized June 2010 THE WORLD BANK South Asia Poverty Reduction, Economic Management, Finance and Private Sector Development Insurance for the Poor, GCMNB, Finance and Private Sector Development Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange rate effective December 1, 2009) Currency Unit = Bangladesh Taka US$1.00 Tk 69.04 GOVERNMENT FISCAL YEAR July 1—June 30 Table of Contents Acknowledgements .......................................................................................................... iii Executive Summary ......................................................................................................... iv Context ........................................................................................................................... iv Challenges for the Development of Agricultural Insurance in Bangladesh ................... v Options for Consideration ............................................................................................ viii Next Steps ...................................................................................................................... xi Chapter 1: Introduction ................................................................................................ 12 Importance of Agriculture in Bangladesh ..................................................................... 12 Government Policy for Agriculture and Climate Change ............................................. 12 Role of Rural Institutions and Farmer Access to Financial and Other Support Services ....................................................................................................................................... 14 Exposure of Agriculture to Natural and Climatic Disasters ......................................... 16 Objectives of the Study and Selection of Three Study Districts ................................... 18 Chapter 2: Review of Farmers’ Financial Protection against Natural Disasters in Bangladesh ....................................................................................................................... 20 Disaster Relief Programs .............................................................................................. 20 Bangladesh Insurance Sector ........................................................................................ 23 Supply of Agricultural Insurance in Bangladesh .......................................................... 27 Demand for Agricultural Insurance in Bangladesh ...................................................... 36 Chapter 3: Agricultural Risk Assessment in Bangladesh ........................................... 39 Objectives and Scope of Agricultural Crop, Livestock, and Weather Risk Assessment ....................................................................................................................................... 39 Data Availability for Crop, Livestock, and Weather Risk Assessment ........................ 39 Agricultural Crop Production in Bangladesh ................................................................ 40 Key Climatic Perils and Crop-Area Damage Assessment ............................................ 48 Regional-Level Risk Assessment of Crop Production and Yields ............................... 51 Weather-Risk Assessment and Impact on Crop Production and Yields ....................... 60 Livestock-Risk Assessment .......................................................................................... 69 Chapter 4: Opportunities for Agricultural Insurance Product Development in Bangladesh ....................................................................................................................... 75 Potential Crop Insurance Policy Options for Bangladesh ............................................. 75 Named-Peril Crop Insurance (Hail, Frost, Wind) ......................................................... 77 Multiple-peril Crop Insurance (MPCI) ......................................................................... 81 Area-Yield Index Crop Insurance ................................................................................. 82 Livestock Insurance ...................................................................................................... 99 Chapter 5: Operational Issues for Agricultural Insurance....................................... 106 Traditional Named-Peril Crop Insurance and Area-Yield Index Insurance ............... 106 Crop-Weather Index Insurance ................................................................................... 110 Livestock Insurance .................................................................................................... 113 Chapter 6: Institutional and Financial Considerations ............................................. 115 Public-Private Partnerships in Agricultural Insurance: International Experience ...... 115 Public-Private Partnership Options for Agricultural Insurance in Bangladesh .......... 119 Risk Financing and Reinsurance Considerations ........................................................ 128 Glossary ......................................................................................................................... 131 Bibliography .................................................................................................................. 140 Abbreviations and Acronyms ADB Asian Development Bank AICI Agricultural Insurance Company of India, Ltd ASA Name of a prominent MFI in Bangladesh; the name means “hope” BASIC Bank of Small Industries and Commerce BBS Bangladesh Bureau of Statistics BCCSAP Bangladesh Climate Change Strategy and Action Plan BKB Bangladesh Krishi Bank BMD Bangladesh Meteorological Department BSE Bovine Spongiform Encephalitis CLDP Community Livestock Development Program CoV Coefficient of Variation CRAMR Crop Risk Assessment Model Regional CRAMU Crop Risk Assessment Model Upazila (sub-District) CWII Crop-Weather Index Insurance DAE Department of Agricultural Extension DMB Disaster Management Bureau DHM Department of Hydrology and Meteorology DLS Department of Livestock Services DoA Department of Agriculture DMF Disaster Management Fund DRR Directorate of Relief and Rehabilitation DSCP Deprived Sector Credit Program FAO Food and Agriculture Organization FMD Foot and Mouth Disease GCMNB Global Capital Market Non Banking Financial Institutions Division GFDRR Global Facility for Disaster Reduction and Recovery GoB Government of Bangladesh GR Government Relief HH Household HPAI Highly Pathogenic Avian Influenza HYV High-Yield Variety IRB Brazilian Reinsurance Institute IDRA Insurance Development and Regulatory Authority IU Insured Unit LDCs Least Developed Countries MFI Microfinance Institution MIME Microinsurance Mutual Entity MoA Ministry of Agriculture MoF Ministry of Finance MoFDM Ministry of Food and Disaster Management MoFF Ministry of Environment and Forests MoFL Ministry of Fisheries and Livestock MPCI Multiple Peril Crop Insurance NAIS National Agricultural Insurance Scheme NGO Non-Governmental Organization NDVI Normalized Deviation Vegetation Index OIE Office Internationale des Epizooties - i - PCBs Private Commercial Banks PKSF Palli Karma Sahayyak Foundation PML Probable Maximum Loss PPR Pests de Petits Ruminants PSCP Priority Sector Credit Program RAKUB Rajshahi Krishi Unnayan Bank SACCOS Savings and Credit Co-operatives SASFP South Asia, Finance and Private Sector Development Unit SBC Sadharan Bima Corporation SCBs State-owned Commercial Bank SHG Self-Help Group SIF Self Insurance Fund SVD Swine Vesicular Disease TEO Technical Extension Officer Tk Bangladesh Taka TSO Total Sum Insured TSU Technical Support Unit VO Village Organization VVL Veterinary Vaccine Laboratory - ii - Acknowledgements This report was authored by a team led by Sadruddin Muhammad Salman (Financial Sector Analyst, SASFP, World Bank) and Olivier Mahul (Program Coordinator, Insurance for the Poor Program, GCMNB, World Bank). The team comprised multidisciplinary specialists with responsibility for specific aspects of the report. These included Minnie Chey (Senior Private Sector Development Specialist, SASFP, World Bank), rural finance and microfinance; Ramiro Jose Iturrioz (Senior Agricultural Insurance Specialist, Insurance for the Poor Program, GCMNB, World Bank), agricultural risk assessment and area-yield index crop insurance; Charles Stutley (Consultant), agricultural risk assessment, livestock insurance, and institutional framework; William Dick (CRMG, World Bank), Ornsaran Manuamorn (Operations Analyst, ARD, World Bank), Joanna Syroka (CRMG, World Bank), Erik Chavez (Consultant), weather-index-based crop insurance; Nihal Fernando (Senior Rural Development Specialist, SASDA), government policy for agriculture; Md. Saif Norman Khan (Consultant), insurance, microinsurance, and microfinance; and Md. Fazlul Haque (Consultant), agricultural crop and livestock database. Bridget Rosalind Rosario (SACBD), Marjorie Espiritu (SASFP), Aza A. Rashid (SASFP), and Sashikala Krishani Jeyaraj (SASFP) provided invaluable administrative support to the team. The team acknowledges the contributions of all stakeholders, including the Ministry of Finance (Finance Division), Ministry of Commerce (including the Department of Insurance), Bangladesh Meteorological Department, Bangladesh Bureau of Statistics, Water Development Board,
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