The European Investment Bank (EIB), through its development arm EIB Global, is providing a grant of up to €4 million to the World Food Programme (WFP) to support the development and rollout of tailored climate-risk insurance products for smallholder farmers in Ethiopia.
The announcement was made at the ongoing United Nations Convention to Combat Desertification (UNCCD) COP 17 in Mongolia, marking the EIB’s first climate-risk insurance project.
The grant will complement EIB Global’s €110 million credit line for the third phase of the Rural Financial Intermediation Programme (RUFIP III) in Ethiopia.
The credit line is channelled through the Development Bank of Ethiopia and on-lent to eligible rural finance institutions, while the grant is financed under the African, Caribbean and Pacific (ACP) Trust Fund’s Member States Compartment.
The initiative is intended to reduce climate-related risks facing agricultural portfolios of rural finance institutions participating in RUFIP III while helping farmers accessing financing manage climate shocks.
Supported activities will include capacity building for the Development Bank of Ethiopia, rural finance institutions and smallholder farmers, as well as the establishment of a Premium Guarantee Fund to pre-finance insurance premiums.
The fund will help address borrowers’ liquidity constraints and provide a guarantee mechanism for rural finance institutions that contract insurance on behalf of beneficiaries in cases of premium payment defaults.
“Climate change remains one of the greatest risks to agricultural livelihoods in Ethiopia. Through this partnership with the World Food Programme, EIB Global is helping rural finance institutions and smallholder farmers better manage climate shocks, protect incomes and improve access to finance,” said EIB Vice President Gelsomina Vigliotti.
“By combining insurance, credit and capacity building, this initiative will strengthen resilience, support food security and create more sustainable economic opportunities for rural communities.”
WFP will draw on its experience in rural finance and climate-resilience programming in Ethiopia to develop and pilot an index-based microinsurance scheme in partnership with private insurance companies.
The products will subsequently be rolled out to selected rural finance institutions under RUFIP III through technical assistance, capacity building and awareness-raising activities.
To support the scheme’s long-term sustainability, WFP will initially administer the Premium Guarantee Fund before transferring its management to the Development Bank of Ethiopia.
“For millions of smallholder farmers in Ethiopia, climate shocks can quickly wipe out harvests, incomes and hard-earned progress, eroding gains that vulnerable communities have worked hard to achieve,” said WFP Representative and Country Director in Ethiopia, Zlatan Milišić.
“Access to finance is essential for increasing agricultural productivity, but climate risks often discourage both farmers and lenders from making productive investments. This partnership with EIB Global brings together climate risk insurance, rural finance and capacity strengthening to help farmers invest with greater confidence, protect their livelihoods when shocks occur and recover more quickly. It is an important step toward building more inclusive and climate-resilient financial systems in Ethiopia.”
As a direct result of the operation, an estimated 210,000 smallholder farmers are expected to gain coverage through adapted microinsurance products protecting them against crop or livestock losses caused by adverse weather conditions or natural disasters.
The initiative aligns with development-finance priorities by promoting stable incomes and sustainable growth for smallholder farmers facing climate change.
It will also support micro, small and medium-sized enterprises by expanding access to microinsurance, helping reduce risks associated with economic activity and strengthening resilience across Ethiopia’s rural economy.
