CRISIS base to enter into the P4P approach. In 2007, WFP procured more than US$612m and 1.6 million tons of food in 69 developing countries. In Africa alone, WFP procured 5.3 million tons between 2001 and 2007, amounting to US$1.5bn in 2007 prices. Moreover, WFP locally buys the transportation and warehouse services it needs, providing a further stimulus to the local economy. This shows the tremendous potential for productive partnerships as the optimal use of the P4P mechanisms depends on the support of credit facilities provided by MFIs. Cash and Voucher Transfers Cash and voucher transfers play an important role in reducing the risks households face, although most programs have been fairly small-scale and lasted only a few months. Predictable transfers, such as those provided by the Productive Safety Net Programme in Ethiopia , a government-implemented social transfer program funded by some Western governments, the World Bank and the World Food Programme, can provide poor people with the confidence and sense of security needed for investing and engaging in income-generating, but potentially risky, activities. Cash transfers provide people with money to buy food. Vouchers provide people with coupons to purchase a fixed quantity or value of food in pre-selected shops, which shopkeepers can then redeem at local banks, with which agreements have been made. Cash and voucher transfers are not always appropriate and feasible. The factors that affect the appropriateness and feasibility include program objectives, market functioning, implementation capacities, cost efficiencies and beneficiary preferences. Another important limitations to the expansion of cash and voucher transfers is the presence of financial institutions, which influence implementation capacities and cost efficiency. Weather-based Risk Insurance WFP has assisted countries in the development of weather-based insurance products, where the trigger for a disbursement is based on a rainfall index. In 2006, the WFP piloted such an insurance policy in Ethiopia, and is assisting other governments in designing and piloting drought www.microfinanceinsights.com
and flood risk management instruments. Index-based risk financing heralds an innovative and effective way for assisting poor people whose livelihoods are threatened by extreme weather conditions and natural disasters. A thriving market for weather index-based insurance and pilots is currently developing, and will only become more important as climate change inevitably leads to a rise in weather-related catastrophes. Potential Synergies WFP is learning to be more focused on What is a Warehouse Receipt?1 The idea behind warehouse receipts is to have producers store their grain in secure warehouses and use the warehouse receipts as collateral for obtaining credit for immediate financial needs. A certified warehouse management firm keeps the grain in a secure warehouse so that farmers can sell their grain later in the year and benefit from increased grain prices which usually occur several months after the harvest. 1 “Launch of the Warehouse Receipt Program.” USAID. April 25, 2008.
hunger solutions within the humanitarian challenges we face, but we need partners to solidify and expand our efforts. P4P, cash and vouchers transfers, and weather-based insurance are dependent on an array of partners, with MFIs of primary importance. Innovations have been at the core of the microfinance revolution. It has served the hungry poor well. Yet, more needs to be done. Areas where collaboration between MFIs and WFP could increase include: • Accepting of food-supply contracts and warehouse receipts as collateral for loans • Providing financial services in remote rural areas, including innovative savings and insurance products • Implementing weather-based insurance products • Capacity development in financial literacy • Providing financial services and training to farmers’ associations I would like to appeal to the microfinance community to keep innovating and encourage MFIs to work with WFP, to link to P4P, and create new ways to address these challenges, including the risk conundrum. Together we can do it. Together we are much stronger.
Watch the webcast of our “Indian Microinsurance: What Works?”event. Visit www.microfinanceinsights.com
nov/dec 2008
microfinance insights
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