Blog

Pastoralism is the primary livelihood in the drylands of the Horn of Africa (HoA), accounting for over one-third of agricultural GDP in most countries and around 80 percent in Djibouti and Somalia. It provides the major source of nutrient-rich animal-sourced foods for East Africa’s rapidly growing population. The HoA has a long history of fragility, catastrophic droughts, and conflicts. Climate change is now exacerbating an already difficult situation, leading to increased tension over natural resources. During the frequent and intense droughts, livestock either perish or are sold at extremely low prices, pushing pastoralist communities into crisis mode.

In 2010, a group of researchers from leading universities, consultancies, research institutes, and insurers came together to pilot an innovative financial product, with the objective of building resilience that would allow pastoral communities to withstand and recover from climate-related risks. This innovative product, index-based livestock insurance (IBLI), has now been active for over 15 years, and research has demonstrated its favorable impacts. In 2019, countries in the HoA, with support from the World Bank, came together to create the De-risking, Inclusion and Value Enhancement of Pastoral Economies in the Horn of Africa (DRIVE) project. This project was launched in August 2022, when the World Bank Board of Directors approved US$327.5 million to cushion pastoralists in Djibouti, Ethiopia, Kenya, and Somalia from the impacts of climate shocks, and to better connect them to markets, with a component on financial resilience implemented by ZEP-RE [1]. The researchers have also been integrated into the project through an ongoing impact evaluation.

While the World Bank and regional governments originally aimed to reach 1.6 million pastoralists by 2027, by May of this year, DRIVE had already benefitted over 3.2 million pastoralists through a package of savings in digital accounts to support pastoralists in small and moderate shocks and IBLI for more severe shocks.

The financial product

In parallel with the original pilots, research was conducted across pastoralist communities in Ethiopia and Kenya. Over 1,400 households were randomly assigned varying levels of insurance premium discounts to evaluate behavioral and economic responses. The intervention centered on IBLI, which uses satellite data to monitor rangeland vegetation conditions, a drought indicator shown to predict livestock mortality in this region. When vegetation levels fall below a predefined threshold, the index triggers automatic payouts, providing timely financial support without the need for individual loss assessments. In other words, IBLI is designed to provide payments that might be used to protect livestock from dying due to drought, not just to compensate for catastrophic herd mortality losses.

Significant Research takeaways

• Long-lasting shifts in herding strategy

As pastoralists found a safety net in IBLI, households with small-to—moderate sized herds shifted their livelihood strategies by reducing small ruminants like goats, that were commonly held as precautionary savings in the absence of a financial insurance product. Those with large herds pre-IBLI significantly increased holdings of cattle or camels. These changes persisted years after their insurance coverage ended, suggesting that even temporary insurance had a lasting influence on how households manage risk and structure their livelihoods.

• Increased investment in productivity

Families with insurance spent more money taking care of their animals, and the changes in herding strategy also led to long-term increases in income from crop production.

• Lasting human capital impacts on the next generation

One of the strongest and least anticipated results – that can be explained by children’s involvement in herding labor -- was how much children’s education improved. IBLI increased educational achievement by 40 to 55 percent 10 years later, as children were far less likely to be working, and the share of children going to school full-time jumped from 16 to 58 percent, which was driven by households with small-to-moderate sized herds, helping the most vulnerable families invest in their children’s futures.

The main conclusion of the research is that long-term change starts with temporary support during vulnerable periods, like droughts [2]. Projects such as DRIVE have the possibility to create sustainable solutions, even after the project is over.

Looking ahead

Although the study offered promising findings about the impact of IBLI on resilience, it also revealed some critical gaps: respondents had limited knowledge of the financial contract and its procedures, there were challenges in understanding and perceptions of contract performance, and in supply by insurance agents in these remote drylands.

Identifying these constraints, the research team in collaboration with the DRIVE project has launched a series of targeted interventions focused on building knowledge, addressing understanding of contract performance and providing incentives for promotion of financial services, aiming not only to raise IBLI sales, but also to improve consumer knowledge and generate sustained demand.

So far, these interventions have contributed to increased knowledge, through virtual audio and video messages in local languages, and addressed issues with contract performance and grievances, leading to better targeting of consumers. These initial results underscored a key insight for the team which is being incorporated into implementation decisions: for DRIVE to scale effectively across regions, the next phase must prioritize consumer knowledge and protection as well as a focus on crowding-in this population into the financial and livestock value chains.

With the research ongoing, more results will be shared when they become available. You can learn more through the published working paper.

The DRIVE project has been enabled to conduct such research using support from the Risk Finance Umbrella (RFU) and Global Shield Financing Facility (GSFF). We also extend our sincere gratitude to the DRIVE project team including the Government of Ethiopia and Government of Kenya, and the ZEP-Re DRIVE project implementation team. The researchers also acknowledge additional funding from the Foreign, Commonwealth & Development Office Project “Extreme Poverty - Building Evidence for Effective Action” through Oxford Policy Management Limited (Award Number: POR008864).

The research team includes Agency for Inclusive Innovation Development (AIID) Ltd. Africa, Consultative Group on International Agricultural Research (CGIAR), Cornell University, Georgia State University, Global Research Consultancy Service (GRCS), International Livestock Research Institute (ILRI), University of Edinburgh, University of Nairobi, Utrecht University, and Wageningen University. 

[1] PTA Reinsurance Company

[2] Further details here http://ssrn.com/abstract=5258026