The article draws insights from UNDP’s side event at the 8th World Congress on Rural and Agricultural Finance in Mombasa, Kenya, which led to the adoption of the Mombasa Declaration. The declaration calls on financial institutions to implement de-risking mechanisms, including agricultural insurance, to support smallholder farmers who are increasingly exposed to climate-related hazards. Over the past three decades, the agricultural sector has lost more than US$3.8 trillion due to climate impacts, and smallholder farmers, who produce one-third of the world’s food, face devastating losses from a single drought or flood. Despite these risks, most smallholders lack insurance and experience an annual financing gap exceeding $200 billion, forcing them to self-finance climate adaptation at $368 billion annually.
The article highlights the need to integrate agricultural finance and insurance as mutually reinforcing systems rather than treating them as separate agendas. Both markets share the goal of strengthening rural livelihoods and food security, but in many countries of the Global South, they are managed in different ministries with limited coordination. Research from UNDP’s Financial Resilience in Agriculture (FRA) initiative reveals that incompatible business models, misaligned incentives, and fragmented delivery systems prevent either market from scaling. Banks lend without insurance protection, insurers design products without distribution channels, and value chain actors, who provide over 40 percent of smallholder lending, are largely absent from insurance initiatives.
Integrating insurance with agricultural finance can significantly reduce loan defaults and expand credit access. Evidence shows that bundling insurance with loans increases approval rates by 15–21 percentage points and encourages smallholders to invest up to 35 percent more in climate adaptation, improving productivity and resilience. Smallholder lending is inherently risky, with positive lending margins for microfinance institutions and banks dropping under climate shocks, making insurance essential for stabilizing returns and enabling broader participation from financial actors.
Effective integration requires action at three levels. At the macro level, central banks set the vision and align policies across ministries, as seen in Bangladesh’s Agricultural Credit Facility. At the meso level, development finance institutions, such as the African Development Bank (AfDB), build enabling infrastructure, embed climate risk insurance into lending, and provide expertise in product design through frameworks like the African Climate Risk Insurance Framework for Adaptation (ACRIFA). Open-access data platforms, including CIAT’s Africa Agriculture Adaptation Atlas, support climate risk planning and improve insurance uptake. At the micro level, partnerships between reinsurers, governments, and financial institutions create innovative delivery models. Examples include Zambia’s integration of insurance into the Farmer Input Support Programme, Tanzania’s Sustainable Agriculture Financing Facility, and ZEP-RE’s Horn of Africa DRIVE project de-risking 3.3 million pastoralist households across four countries.
Government leadership is critical for connecting agricultural finance and insurance markets. The UNDP FRA Institutionalization Framework emphasizes coordination across ministries, mobilization of innovative financing, development of robust data systems, and investment in premium subsidies, public reinsurance, and direct lending through development banks. ACRIFA complements these efforts by promoting market readiness, product innovation, knowledge sharing, and alignment of insurance regulation and public financing across Africa. When coordinated, these frameworks reinforce government leadership and build institutional capacity, enabling lasting transformation.
The article concludes that the integration of agricultural finance and insurance is no longer optional but urgent. With mounting climate risks, available evidence, technical tools, and growing political will, scaling integrated approaches is essential to protect smallholder farmers, strengthen food systems, and foster climate resilience. Further insights into linking these markets will be provided in an upcoming UNDP Deep Dive in partnership with ISF Advisors.
