Initiating crop insurance in
production is susceptible to catastrophes of nature and the
impact of such disasters and other risks are hardly
affordable by the farming community.
Growers cannot bear the output losses that, more often than
not, lead to debt defaults. The loans need to be secured by
crop insurance for which support is usually provided by
governments to farmers in the shape subsidies on premium,
underwriting and also reinsurance.
The crop insurance mode varies from country to country and
operates under the central or local governments or under a
partnership between government and private insurance
companies. Usually, the government subsidies premium to
farmers. Even WTO regulations support subsidy on crop
insurance premiums and these are often heavily funded from
Recent floods and torrential rains have ruined cotton,
sugarcane and other crops on millions of acres and washed
away thousands of tons of wheat stocks, particularly in
Punjab. Crop insurance is a powerful tool to mitigate losses
caused by natural calamities and helps promote adoption of
modern techniques in agriculture mainly by small farmers.
However, despite exhaustive exercises of nearly three
decades, a model crop insurance scheme is yet to be
Crop insurance was launched during Kharif 2008 with an
agreement between the National Insurance Company Ltd (NICL)
and the National Bank to provide cover to farmers against
crop losses from natural calamities and exposure to bank
risks. According to an estimate, the sum of Rs3-4 billion
allocated for insurance coverage was hardly two per cent of
the total agricultural loaning facility and only about
100,000 farmers benefited from the scheme.
On the other hand, the Zarae Taraqiati Bank Limited, the
largest lender to the agricultural sector, showed reluctance
to join the scheme due to some technical flaws.
At present, the number of borrowers of agricultural loans is
hardly half a million and about 70 per cent of them do not
enjoy access to bank loans, discloses the Committee on Rural
Finance. The small farmers do not have collaterals to offer
Courtesy: The DAWN
provincial boards of revenue have not issued them passbooks.
And, therefore, they cannot enjoy loan facilities, as
documentation is a prerequisite for insurance coverage.
A majority of small farmers would remain outside the
insurance umbrella even if at any time, the banks agree to
coordinate with insurance companies for a cover. Besides,
the fear of risk in doing business with landed gentry also
insurance firms to go in a big way for crop insurance.
Success of crop insurance depends on reforms and
improvements in the whole system and cannot be achieved in
The government has also approved a subsidy of Rs2 billion
and paid Rs77 million to farmers so far to cover their
losses in different areas of the country but still a
majority of them is unaware of this scheme.
There is a need to create awareness among growers about the
National Crop Insurance Scheme and the State Bank should
re-evaluate the scheme and take provinces on board to make
it sustainable and socially and economically viable. The
bank networks and insurance companies should develop
time-bound action plan to introduce their products in the
market. The taskforce to launch the crop loan insurance
should start its programme from this Rabi season.
The aftermath of the floods and losses incurred by the
farmers call for immediate steps to extend insurance cover
to the poor farmers against crop damages.