At the Singapore Fintech Festival last week, the Indian Prime Minister Narendra Modi, delivered an amazing key note speech with Financial Inclusion at its core. During the speech he touched upon several of his achievements, including Aadhaar. In the last 4 years, he claimed the banked population in India has gone up from 50% to almost most of the country.

I am a big fan of Modi. He has managed to achieve some major milestones with Aadhaar and meaningful steps for a country where 70% of its population still earns from agriculture. However, in times of natural disasters, in a country dealing with 1.3 Billion people, one ambitious and dedicated leader can only do so much.

Earlier this month, my home state in India, and some of the neighbouring states were hit badly by a storm named Gaja. Gaja in the regional tongue refers to Elephant. In my state, the most hit districts were the most fertile parts, that are called the delta region (of the river Cauvery). On top of human casualties (33) and about 75,000 being relocated, the storm hurt farmers massively.

Many farmers in the delta region had moved from cultivating paddy to coconuts as paddy is considered water intensive. This farming tactic has heavily hurt them, as coconut trees took 10-15 years to grow, and the damage caused by the storm was to their decade of hard work - which were not insured.

I come from that part of the world, and had the privilege of going to school and University with many, whose parents were farmers. One of them sent me texts post the storm, this is the summary.

Tall coconut trees were just twisted and broken right in the middle. Wind speed seem to have been around 100 kmph. Interior delta regions don't get exposed to this level of winds. Usually Only the coastline takes the brunt.

People weren't prepared and seem to have been caught by surprise. The last time something similar happened in the interior areas was in early 50s. But back then this area primarily had paddy cultivation.
Years of effort in tending to them (coconut trees), watering them.. at least for us it was just additional income. For many farmers we know, the 10k or 15k INR, they get out of these coconut farms every month is their only income.

I understand, this is not a weather news channel - so back to crop insurance and Blockchain.

So what has been done by the Modi government for Crop insurance?
In January 2016, Prime Minister Narendra Modi launched a revamped crop insurance scheme, his government’s flagship scheme for farmers, the Pradhan Mantri Fasal Bima Yojana (PMFBY).

How does the insurance work?
The premium is subsidized for farmers who own less than two hectares of land. Insurance coverage is for two aspects,
• Yield protection, which protects the farmer from a lower yield
• Weather linked insurance that covers for disasters and other weather irregularities
The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated. In essence - a very manual process.
The insurance is mandatory for farmers who take loan for their needs. For the rest of the farmers it is not.

What has happened to the Crop insurance industry since then?
These were the key findings,
• Number of farmers covered has increased by 0.42%.
• Premiums collected from farmers has gone up by 350%
• Claims paid out have increased marginally. But time taken to pay claims is already hurting farmers.

Points one and two clearly highlight where the monies are going - insurance providers are having the last laugh - at the cost of the farmers.

Also, If one season fails, and farmers didn't get their claim money in time for the next season, they don't have funds to buy seeds for the next season. So timing of the release of claim money is critical.
There are several other issues with the current process that include lack of transparency, errors in setting yield thresholds, poor awareness amongst farmers, complex criteria and documentation.

What could we do in future?
Well, we seem to have got a silver bullet in Blockchain. I have written about how Blockchain can help crop insurance before, but will revisit some of those points again. In an Indian context, this is how I see it working.
• Every farmer has an Aadhaar, so use the biometric identification.
• When a farmer opens a bank account, make it compulsory to get them on an insurance
• Explain the criteria, payment schedule and agree on thresholds and how they could change.
• Create a simple data driven smart contract to list the criteria that would trigger a claim - without the farmer having to claim.
• Source the required information on weather and soil dampness from satellite data
• When there is a natural calamity, automatically trigger the claim, in near real time, using self executing contracts.
• Last but not the least - have strict guidelines for crop insurance firms profit margins.

This would still need state/crop level data on yield thresholds, which is apparently decided by the local authorities post every season. But apart from that data point, most other information can be automated. The customer (the farmer) should have a frictionless experience.

They don't have to understand insurance, they just need to know they are protected and taken care of when disaster strikes. Blockchain can create that trust in the process.
Once the confidence in the system comes back, number of farmers enrolling for the scheme will easily go up.

During the Singapore Fintech festival, Mr.Modi mentioned how Blockchain was a hot trend amidst VCs. If he had advisors for his financial policies, who were half as good as his PR team that wrote his speeches, the nation should soon see some relief from its dysfunctional financial services.

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.
Daily Fintech.
dailyfintech.com

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