Global Index Insurance Facility (GIIF)

The Global Index Insurance Facility (GIIF) is a World Bank Group trust fund that pays for the design and launch of index insurance products for smallholder farmers and micro-businesses. It was set up in 2009 as a multi-donor fund, housed at the World Bank Group and run mainly by IFC, the International Finance Corporation. The European Union was among its first contributors, later joined by other donors including Germany, Japan and the Netherlands. Its ground is the opposite of sovereign pools like CCRIF (the Caribbean Catastrophe Risk Insurance Facility) or ARC (African Risk Capacity). Here the insured is a smallholder, a cooperative or a microfinance institution, and the contract is index-based, paying on a rainfall level, a vegetation index or an area-yield average. The facility does not carry the risk. It pays for what the local market cannot fund on its own at launch: weather data and its cleaning, index design, basis risk studies, training for distributors. It sometimes covers part of the premium in the first seasons, and supports regulators so that an index product has a legal framework. The local insurer writes the policy, international reinsurance takes the peak. The idea is that the first season carries too much fixed cost for an insurer selling premiums of a few dollars, and that once the product is proven it can stand without subsidy. Results are mixed. The programs that work tie insurance to credit: the bank lends to the farmer because the loan is covered, and the premium goes into the cost of the loan. Those that sell insurance on its own, at retail, run into renewal rates. One year with no payout is enough to convince a farmer he paid for nothing. One missed payout, because of basis risk, is enough to wreck a village's trust. GIIF has made basis risk one of the threads of its applied research.