€4M Climate Insurance Initiative Links Rural Credit, Food Security in Ethiopia

The €4 million grant will complement EIB Global’s existing €110 million credit line for the third phase of Ethiopia’s Rural Financial Intermediation Programme, known as RUFIP III.

Smallholder farmers in Ethiopia facing growing threats from drought, extreme weather and natural disasters are set to gain greater financial protection through a new climate-risk insurance initiative backed by the European Investment Bank (EIB) and the World Food Programme (WFP). EIB Global, the development arm of the EIB, is providing a grant of up to €4 million to WFP to develop and roll out insurance products designed around the needs of rural farmers, marking the EIB's first climate-risk insurance project and adding a new layer of protection to agricultural finance in Ethiopia.

The initiative was announced during the United Nations Convention to Combat Desertification (UNCCD) COP17 in Mongolia, where climate resilience, land degradation and the economic pressures facing vulnerable rural communities are central themes.

Insurance and Rural Credit Come Together

The €4 million grant will complement EIB Global's existing €110 million credit line for the third phase of Ethiopia's Rural Financial Intermediation Programme, known as RUFIP III. Financing under the programme flows through the Development Bank of Ethiopia and is then provided to eligible rural finance institutions, helping expand access to credit among farmers and other rural borrowers who can struggle to secure conventional financing.

Climate shocks create another layer of financial risk because a failed harvest, livestock losses or severe weather can leave farmers unable to repay loans while making lenders more cautious about financing agriculture. The new initiative connects credit with tailored microinsurance so farmers can make productive investments with greater protection when weather-related losses occur.

WFP will work with private insurance companies to develop and pilot an index-based microinsurance scheme, drawing on its experience in rural finance and climate-resilience programmes in Ethiopia. Selected rural finance institutions participating in RUFIP III will receive technical assistance, while farmers and financial institutions will gain training and greater awareness of how the insurance products work.

Premium Guarantee Fund Tackles a Key Barrier

A central part of the programme will be the creation of a Premium Guarantee Fund, designed to pre-finance insurance premiums and ease liquidity pressures that can prevent borrowers from obtaining coverage. The fund will also provide a guarantee mechanism for rural finance institutions purchasing insurance on behalf of beneficiaries when premium payment defaults occur.

WFP will initially administer the fund while the insurance model is being established, with management later transferred to the Development Bank of Ethiopia as part of efforts to build a system that can operate sustainably within the country's rural financial sector.

EIB Vice President Gelsomina Vigliotti said the combination of insurance, credit and capacity building can help rural finance institutions and farmers manage climate shocks, protect incomes and improve access to finance, while supporting stronger food security and more sustainable economic opportunities in rural communities.

210,000 Farmers Expected to Receive Protection

The scale of the planned rollout could make the programme particularly significant for rural households exposed to increasingly unpredictable agricultural conditions. Around 210,000 smallholder farmers are expected to receive adapted microinsurance coverage protecting crops or livestock against losses caused by adverse weather conditions and natural disasters.

For farmers operating with limited savings, insurance can mean the difference between recovering after a damaging season and falling deeper into financial difficulty. Greater protection can also make agricultural lending less risky for rural financial institutions, creating more room for farmers to borrow for seeds, equipment, livestock and other investments that can improve productivity and incomes.

WFP Representative and Country Director in Ethiopia Zlatan Milišić noted that climate shocks can quickly destroy harvests and incomes, while uncertainty can discourage both farmers and lenders from making productive investments. Bringing climate insurance and rural finance together gives farmers greater confidence to invest while improving their ability to recover when shocks strike.

Building a More Climate-Resilient Rural Economy

The programme extends beyond individual farms because agricultural losses can ripple through local businesses, lenders, food markets and rural employment. Expanding microinsurance alongside accessible finance can reduce some of those risks while supporting micro, small and medium-sized enterprises whose economic activity depends heavily on agriculture.

The €4 million grant is financed through the Member States Compartment of the African, Caribbean and Pacific Trust Fund. By connecting the grant with the much larger RUFIP III credit facility, the initiative brings finance, insurance and practical capacity building into one structure designed to protect livelihoods while keeping investment flowing into Ethiopia's rural economy.

For smallholder farmers living with increasingly uncertain weather, that combination offers something more practical than emergency support after a disaster: a financial safety net that can help them keep farming, investing and rebuilding when the next climate shock arrives.