Agriculture in Ethiopia is almost entirely rainfed and highly prone to droughts and floods. Given that 85 percent of the population depends on smallholder agriculture, these weather shocks severely affect many Ethiopians. The high covariance of climatic risks, coupled with the lack of property to be attached as collateral, makes it difficult for cooperatives, microfinance organizations, or banks to provide financial services to smallholder farmers unless they have some insurance/reinsurance against this weather risk. These conditions in turn keep farming at a subsistence level, with low use of improved technology, low productivity, and low risk. Nyala insurance has experienced considerable success in designing innovative weather insurance products that protect a range of farmers. Public investments in institutions such as cooperatives that can retail these products to farmers and automated weather station infrastructure can help scale up these products.
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