How DIVA Protocol can help unlock affordable insurance for farmers

By Frisco d'Anconia & Walodja1987 at

Countless farmers in developing countries cannot afford irrigation systems for farming and rely on climatic conditions to produce food. Taking Africa as an example, United Nations Environment Programme's (UNEP) statistics indicate that 95 percent of African food farming is rain-fed.

Accordingly, weather-related hazards frustrate agricultural productivity payoffs, particularly in the face of climate change. When the rains fail to come, it is a financial disaster for many households, especially in the rural communities.

These factors constantly threaten food security and human well-being in the region. In 2021, droughts slashed into harvests across countries like Malawi, Rwanda, Tanzania, and Zambia—and thousands of hard-working farmers bumbled to make ends meet.

Agrarian insurance

Agrarian insurance would have been the logical solution to the farmers' hardships. However, traditional insurance services, if accessible at all, are generally costly, with high premiums and sluggish payouts, resulting in low agricultural insurance penetration among smallholder growers. In Africa, for example, agrarian insurance is less than five percent.

Fortunately, thanks to the evolution of the blockchain technology, those problems could soon be a thing of the past. Developers around the globe are building open, permissionless and trustless applications to provide access to crucial financial infrastructure for everyone in the world. One of such utilities is the DIVA Protocol.

DIVA Protocol changes the narratives

DIVA Protocol is a smart contract that lives on the blockchain and is programmed with logic to create and settle derivative products, insurance in particular. DIVA's flexibility to use virtually any metric as the underlying and link a wide range of payoff profiles to its outcome is unique and opens up unlimited possibilities to create insurance products that will benefit the world.

Let’s take a look at how DIVA Protocol can be utilized to create an insurance product for farmers growing maize, one of the major crops in Nigeria. Maize’s minimum water need over the total growing period is estimated at 500mm. Choosing the rain amount during the total growing period as the underlying metric and attaching a payoff profile that will benefit the farmer if the actual rain amount ends up below 500mm will neutralize any loss incurred by the farmer due to a lack of rain.

The maximum cover is deposited upfront by the product creator at the time of creation and securely held by the DIVA smart contract until the actual rain amount is reported by an oracle following product expiration using a verifiable public data source. In particular, DIVA Protocol allows the creator to specify the rain amount at which the maximum cover will kick in, thereby defining the shape of the payoff curve. The customization of the payoff profile allows to design products that are tailored to the underlying insurance event and the specific needs of the farmers.

An example of a maize farmer's insurance product payoff is illustrated in the following chart, using a linearly increasing payoff starting at 500mm with a maximum payoff of USDC 1'000 at 200mm:

Similarly, any other publicly verifiable event that can cause harvest losses or lower yield such as flooding, wildfire, or locusts invasions can be used as the underlying metric.

DIVA Protocol delivers a highly flexible tool to create robust hedge instruments against the adverse events that farmers face. With the transparency of the blockchain, its non-custodial nature, and the absence of third parties, farmers would have a far better insurance scheme than the traditional insurance market. Farmers can be certain to get paid without any delays whenever an insurance event occurs.

To make described agrarian insurance products affordable to farmers, non-profit entities can play a key role in creating those products using DIVA Protocol and providing the cover at subsidized rates.

Development Agencies And Charities

Various development agencies and charities are working with farmers in need to improve their lots. DIVA Protocol offers a tool that these agencies and organizations can utilize to create sustainable farmer benefits without ever touching banking infrastructure.

Instead of offering unconditional donations, charity organizations could use the contributions to offer insurance cover - a form of conditional donation - for farmers at subsidized rates. If an insurance event occurs, farmers will receive the benefit. If no insurance event occurs, the collected premium is reinvested into more insurance cover for farmers.

The key benefits of a conditional donation scheme compared to a traditional one-off donation include:

  • Donation is provided when it’s most needed by the farmers
  • In the absence of an insurance event, the same capital can be reused numerous times and even grow over time thanks to the re-investment of the premia, reaching more needy farmers

Such products act as a springboard for farmers to adjust to weather-related shocks and fight food insecurity and poverty.

With DIVA Protocol being an open-source infrastructure, the creation of these products is not limited to charity organizations. Anyone can act as the counterparty and offer subsidized insurance products to farmers to help them focus on what they do best - tendering crops.

Join DIVA Protocol

DIVA Protocol is open to collaboration with international development agencies, Non-Governmental Organizations, and other charity institutions to work with farmers to ease their plight. Our platform offers the most innovative way to create a better situation for rural communities and those who eke out a living.

We can work together to create countless products covering various weather events that go against the farmer and livelihoods. These are strategies highly sustainable, empowering, and beneficial for society.

Let's come together to deliver technology-backed solutions with a humane approach with the chance of replication. The blockchain has a lot to offer humanity, and the DIVA Protocol is dedicated to playing our part in this evolution.

If you are interested in what DIVA is building, here are the main links to get involved at no cost:

  • 📚 Docs:
  • 🍏 DIVA Testnet App:

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