Catalyzing inclusive risk finance in LAC: Opportunities for Innovation in Guatemala and the Caribbean
Wednesday, Dec 02, UTC 16:00 to 16:55
Organizer: WFP MiCRO
|The regional context|
2020 illustrates clearly the challenges of the Latin America and the Caribbean (LAC) region, with countries experiencing a combined impact of the COVID-19 pandemic – a major crisis that is leading to the most severe contraction in the region’s historical economic activity – and at the same time some major weather events such as Tropical Storm Amanda that hit Guatemala, Honduras and El Salvador – in late May 2020.
Building the resilience and adaptive capacities of the most vulnerable and food insecure is paramount for the WFP, with risk financing having the potential to play a substantial role by providing funds to cover the financial effect of unexpected losses in the most effective and cost-effective way possible to those who need them the most. Since 2018 the Regional office of Latin America and the Caribbean (WFP) started a process of adopting a Risk Financing Strategy that has been adopted in 2020 with the objective of enhancing the resilience of the region’s most vulnerable and food insecure though integrating risk finance into sustainable and scalable policies, programmes and partnerships.The Risk Financing Strategy is a tool that aims to demystify risk financing and inspire Country Offices in the region to engage into a journey to test innovative approaches of risk financing that can support the most vulnerable. The Strategy has outlined two objectives: (1) a dual investment in “last mile” outreach and to enable the environment to develop and implement risk financing instruments; and (2) advocating with governments for national risk financing capacities that enhance climate resilience. Five guiding principles have been developed to support WFP country offices in the region to achieve the Strategy’s goal and objectives, those being: (1) define the “last mile” target populations to ensure risk finance instruments suit their needs and particularities; (2) Consider risk-layered approaches at the micro, meso and macro level to address the needs of vulnerable population; (3) Find the best entry points for integrating risk financing instruments into WFP programme activities; (4) Encourage and advocate for an enabling environment and strong public-private partnerships and (5) Generate robust evidence and knowledge that will support advocacy and investment.
The case of Guatemala
Guatemala is the 16th country most affected by climate events in the period of 1999-2018 and is the eighth most exposed and vulnerable to natural hazards in the world . Climate-related shocks caused by climate change and variability have had critical impacts on food security in the country. Prolonged lean seasons heighten food shortages and increase food insecurity and acute malnutrition, particularly in the Eastern region known as the Dry Corridor. Vulnerable populations are mostly subsistence or infra-subsistence farmers who depend on their livelihoods for food consumption. Multiple socio-economic factors contribute to low agricultural productivity and profitability including poor soil conditions, over-exploitation of forest resources, degradation of lands, small plot sizes and lack of access to productive assets and financial services, agricultural supplies and technical assistance , and this situation is aggravated by the climate risks.
Guatemala Climate Risk Finance (CRF) Strategy. WFP Guatemala with the support of the regional office and inspired by the Regional Risk Financing Strategy has adopted a comprehensive CRF Strategy. The CRF Strategy is characterised by adopting an integrated approach to risk management by recognising that, firstly, risk finance is a piece of the puzzle of wider risk management approaches, therefore the CRF strategy incorporates the analysis of former and future programmes of WFP, and secondly, that risk finance interventions should be selected considering a diverse portfolio of instruments that could be more or less appropriate depending on the particularities, needs and exposure of the most vulnerable, and depending on the frequency and severity of events.
A. Integrating microinsurance in WFP’s resilience and market access programmes. WFP has designed a microinsurance product to be integrated in resilience-building and market access programmes protecting the most vulnerable populations, against events of low frequency and high severity; support them to enable their integration in sustainable supply value chains; and very importantly, serve as a steppingstone to enhance access to other formal financial services such as credit and savings that can support them to build contingency finance and invest in risk reduction and preparedness. The CO Guatemala has been working on pre-assessment and feasibility studies since December 2019 in order to design the best solution for smallholder producers in Guatemala. The product designed with the support of MiCRO, Swiss Re and Aseguradora Rural is a weather index insurance protecting smallholder producer against drought and excess rain. The pilot will be launched in April 2021 to cover approximately 1,400 smallholder producers participating in WFP programmes. The scale-up strategy for the microinsurance programme foresees the expansion to approximately 50,000 smallholder producers in the next 4 years.
B. Integrating climate services to promote risk reduction and preparedness. Considering the efforts on climate services that the CO has made in Guatemala, such as using technology for the dissemination of climate forecast information and the strengthening of inter-institutional agroclimatic roundtables at departmental level. The plan is to integrate FbF in resilience-building initiatives in order to provide contingency finance for readiness to prepare and reduce the impact of forecasted future shocks. In order to establish a functioning FbF system, it is necessary to have reliable forecast system, well-defined thresholds and triggers for each type of hazard, predetermined responsibilities and anticipatory actions of each stakeholder and coordination with national disaster risk management authorities and plans. WFP Guatemala has designed triggers for different natural hazards in cooperation with the International Research Institute for Climate and Social (IRI) of the Earth Institute of the Columbia University. In addition, WFP facilitated the participatory design of Standard Operating Procedures (SOPs) that incorporate the triggers in Agroclimatic Roundtables in participation of local stakeholders and decision makers. WFP is coordinating with key government institutions to integrate FbF and early warning into institutional decision-making processes, for example through the forecasting of food insecurity and acute malnutrition.
C. Potential link between micro, meso and macro insurances explored. WFP Guatemala will assess the potential synergies between macro, meso and micro considering that the Government of Guatemala has purchased sovereign coverage against excess rain in the last two years and the current process of CCRIF that is designing a product to cover drought that could potentially benefit Guatemala in the future. This stance from the Government reflects its willingness on investing in risk financing and implementing the national risk financing strategy and presents an important opportunity to ensure the resilience of the most vulnerable through the enhancement of macro and meso level solutions.