Crop Insurance as a Risk Management Strategy in Bangladesh

an incident occurred and farmers were scared about crop insurance as well. So, a sort of
confidence building is necessary. Even though government organizations used to be
corrupted and less efficient, but farmers are confident that at least they will not disappear
without paying indemnities. Directorate of insurance and SBC might play important role in
this regard. Bangladesh Krishi Bank as a major credit provider in the agriculture sectors, can
also open a section as crop insurance.
As it is seen from the review of experience elsewhere in the world, in the developing
countries public sector mostly offer CI while in the developed countries, it is offered by
private insurance companies. For Bangladesh, in the context of reality there need to be a
nexus between both private and public sector to implement CI. Reputed insurance companies
and NGOs can offer CI, where SBC can serve as a re-insurer and Directorate of Insurance
can regulate and monitor the process, including dispute resolution. But farmers were worried
about the direct involvement of government organizations because of bureaucratic process of
government organizations and prefer an organization which is close to them like those of
NGOs. It is true that if NGOs have no intention to exploit the farmers, they will be the best
option as because they have a large network rooted mostly in the rural areas. Like Microcredit,
Micro-insurance needs to be closely monitored as well, for its success.
Whether CI is financially viable?
First of all, losses in CI should not be considered alone, but compared with the amount of
money government already subsidizing in the agriculture sector for disaster management
purposes. It includes relief and distribution of huge amount of Bank loan and exemption of its
interest or mercy of the loan itself. Introduction of CI will reduce such subsidy requirement to
a great extent. For example, if CI is made mandatory for Agri-credit takers, the outstanding
loan can be collected from Indemnities of CI directly. India is already practicing this
methodology, where the indemnity is directly paid to the credit organization.
Considering the example of 2007, a qualitative calculation of government expenditure in
disaster management purposes in the agriculture sector can be compared to the expenditure
expected under CI programme.
• After 2007 flood, agriculture credit disbursement by banks will be increased by Tk
2406 crore or 45 per cent in the current fiscal year for post-flood rehabilitation. The
banks have set a target of distributing Tk 7698 crore in agricultural loans in the
current fiscal year. Of it, Tk 1078 crore will be disbursed by private commercial
banks. Agricultural loans amounting to Tk 5292 crore were disbursed in the last fiscal
year.
• In another estimate, already more than 30 per cent of agricultural loans are classified.
In that case, it is expected that around Tk. 750 crore loan amounts is going to be
classified or defaulter which was disbursed extra because of flood.
• The damaged crops area during the same period was around 4.69 lakh hectares of
land, which is about 26 per cent of the total cultivated crops in the affected areas.
Production of these crops reduced by 16.67 lakh tonnes, according to an estimate by
the Department of Agricultural Extension (DAE).
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