Expanding Economic Opportunity
`
`Christopher N. Sutton and Beth Jenkins
`
`ECONOMIC OPPORTUNITY SERIES
`
`The Role of the Financial Services Sector in
`
`CASE CBM2012-00001
`
`

`

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`..
`
`" Table of Contents
`
`
`
`'UIq:>
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`
`
`uh
`
`a:
`1. THE ROLE OF THE FINANCIAL SERVICES SECTOR IN EXPANDING ECONOMIC OPPORTUNITY
`
`
`2. THE BUSINESS CASE FOR ENGAGEMENT
`
`on
`
`2.1 Mitigating and Managing Risk
`2.1.1 Politiml and Regulatory Risk
`2.1.2 Realization lisk
`2.2 Hmneesing Opporbrri'ly
`
`22.1 New and Expanding Markets
`2.2.2 lnnovatim in the financial Servim Sector
`
`
`3. BUSINESS STRATEGIES FOR EXPANDING ECONOMIC OPPORTUNITY
`3.1 Creating lrrclirsive Business Models
`
`N
`
`1
`
`3.4 Helping to Optimize the one: ol the Game"
`
`
`1 co
`4. FUTURE OPPORTUNITIES
`
`
`5. CASE PROFILES
`
`5.1 Icrcr Lombard: Weather-Indexed Crop Insurance for Rain-Fed Farmers in India
`5.2 Barelayszltdding Value through Traditional Microfinanee Mime in firm
`
`5.3 ABN AMRO Heal: Financing Eucalyptus simpliers in Brazil
`5.4 Deubche Bank: The Global Commercial morofimnce Comorlium
`
`55 Glimmer: Remittance Models for the US-Mexioo Market
`5.6 South Alrican Financial Sector Charter: Encouraging Inclusive Bus'ness MMeIS
`
`O
`
`2
`
`5.7 Grofin and Shell Foundation: lnrmding in SME Development in Africa
`5sslandardararleredzAgriculbnal0’edilCardsinPaklstan
`
`
`3\l
`END NOTES
`
`
`REFERENCES
`
`4O
`
`

`

`Preface
`
`Beth Jenkins, (“SH Initiative. Kennedy School of Government, Hanero‘ Universinl
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`mporhmitiesThecsnlnItiaiive's Mimic Opportunity Saieeaproductotour Economic Omortunity “mentoresttisroie
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`across a range of Industries
`
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`Creating or expanding economic opportunity could rightly be considered a respmsibifity of governments toward their citizens But in
`
`today's global market environment, various risks and opportunities provide reason for business to engage.
`
`One keymon, across industries, Isforbusinesstnleverage itsowncompmativeadvantage hisociety.As Milton Friedman might
`
`sey,'the busineesofbusiness Isbusinees'-andihisisexacllywintgivestinnsthe cepabilityand credibilityhiewandmic
`
`opporheilty. Business activity creates jobs cultivates inter-tinn linkages, enables technology transier, builds human capital and
`
`physiml infrastructure, generateslaxrevenuesiorgovemments, and,oicourseuiiersavarietyotproductsandservicesto
`
`consumers and other businesses. Each of these contributions has multiplier effects on development
`
`In developing counhies, companies' multipliers otten tail to reach the scale or leverage of which they might be capable - otten due
`
`to market iailures and governance gaps More deliberate management attention is requimd to unlock their full potential.
`
`The Eonomic Opportunity Series explores four key strategies companies can me In mid economic opportunity
`
`Creating Inclusive Business Models
`
`Involving the poor as employees. entrepreneurs, suppliers. distributors,
`
`retailers. customers. and sources oi innovation in financially viable ways
`
`Developing Human Capital
`
`Improving the health. education. experience, and skiiis of employees. business
`
`partners. and members oi the community
`
`which it is inclusive of the poor
`
`Building Institutional Capacity
`
`Strengthening the industry associations. market intermediaries. universities.
`
`governments, civil society organizations, and grassroots groups who must ail
`
`be able to play their roles effectively within the system
`
`Helping to Optimize the “Rules of the Game"
`
`Shaping the reguiatory and policy frameworks and business norms that help
`
`determine how well the economic opportunity system works. and the extent to
`
`

`

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`So Is collaboration. complex, systemic challenges litre exparrrllng econornlc opportunity present l‘nrstratlngly frequent bottlenecks to
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`ofinnovaficn, create economies ofscele, and enhance the legitimate; oftlre pertles’ own Individual aetlvlbes. In additlorrto
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`environments In waysttratcreete newsb'ateglc omtunilies.
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`
`'
`
`

`

`1 . The Role of the Financial Services Sector in
`
`Expanding Economic Opportunity
`
`Financial services are fundamental to economic growth and development. Banking, savings and investment,
`
`insurance, and debt and equity financing help private citizens save money, guard against uncertainty, and build
`
`credit, while enabling businesses to start up, expand, increase efficiency, and compete in local and international
`
`markets. For the poor, these services reduce vulnerability and enable people to manage the assets available to
`
`them in ways that generate income and options — ultimately creating paths out of poverty."2
`
`The finandal ”“4““ 5‘3“” is ‘he 1“”!5mt “1 the
`world in terms of earnings, comprised of a wide
`
`BOX 1 THE ROLE or Low. FINANCIAL msrmmous
`
`range of businesses including merchant banks,
`
`While an in-depth discrmion is outside the scope ofthls report it is
`
`credit card companies, stock brokerages, and
`
`important to highllghtlhe role that smaller. local financial lnslillrtlons
`
`insurance companies, among others. This report
`
`play in emandlng ecorwmic Wily. “lime firms lave lnvdepth
`
`focuses primarily on large domestic
`
`and
`
`knowlerbe of local mutating environments, which hm ambled them
`
`multinational commercial banks. These large
`
`to become a stmiflcant some of {mm in business models
`
`firms have
`
`the expertise,
`
`reputation,
`
`and
`
`targeting mm rnarlets in addillm, local firms novice
`
`geographic reach to have significant direct impact
`
`thousands of sldlled jobs
`
`and, through engagement and example, to change
`
`the way entire markets operate. They are using increasingly deliberate strategies to expand economic
`opportunity through business models that serve poor individuals and SMEs as clients. They are also developing
`
`initiatives to build human and institutional capacity and using their experience and influence to shape policy
`frameworks in the regions in which they work.
`
`Despite their potential, to date the impact oflarge commercial banks on expanding economic opportunity has
`
`remained limited in the developing world, where a vicious cycle of insufficient information, inappropriate
`products, inadequate infrastructure, and inflexible regulatory environments has kept costs, and therefore
`
`prices, high, limiting companies’ markets to clients within the top tiers of the economic pyramid.’
`
`One of the most critical obstacles to financial inclusion is informality. The poor often live and work in the
`
`informal sector, lacking legal ownership of land, homes, and businesses. Some one billion people worldwide
`
`live in informal settlements in urban areas alone,‘ meaning that they cannot use their land or their homes as
`
`collateral on a loan; often they lack addresses they could associate with a bank account or credit application.
`
`Entrepreneurs can face high fees, ineflicient and sometimes corrupt procedures, and burdensome regulation
`that essentially make it too costly to incorporate legally, forcing many small and start—up enterprises to remain
`
`in the informal or extra-legal sector. The results are telling. Of 1.1 billion people in India, only 30 million are
`
`formally employed; of 8.8 million in Bolivia, only 400,000 are formally employed.’ The remainder largely
`operate their own micro-enterprises without the legal recognition required to obtain traditional lines ofcredit,
`
`enforce contracts, or declare bankruptcy.
`
`

`

`Informality contributes to insuflicient market information for financial institutions. Because most of the poor
`have never held checking or savings accounts, taken bank loans, or entered into legal contracts, it can be
`
`difficult and costly for commercial financial institutions to determine what assets they have, what kinds of
`
`services they might need, or what levels of risk they might represent. Banking system regulations, such as
`
`interest rate caps, directed lending, and high reserve requirements discourage them further still.‘ As a result, in
`
`developing countries, only 26% of citizens have even basic checking or savings bank accounts.7 Worldwide,
`
`only one billion of 6.5 billion people have bank accounts.“
`
`In recent years, however,
`
`two major trends have drawn attention to the potential market opportunity
`
`associated with low-income individuals and small businesses, catalyzing increased innovation and
`
`experimentation around these challenges and enabling promising business models to emerge.
`
`First, against a backdrop of 30 years’ practical experience, widespread publicity around the United Nations’
`
`International Year of Microcredit in 2005 and Muhammad Yunus’ receipt of Nobel Peace Prize in 2006 have
`
`increased overall public awareness of microfinance. Awareness has led to growing recognition of two
`
`important facts:
`
`0
`
`0
`
`the poor are able to pay (often very high interest rates) for financial services, and
`
`they present no greater credit risk than the average higher-income borrower. In fact, many microfinance
`
`institutions have better repayment rates than traditional commercial finance institutions.
`
`Increasing acceptance of microfinance has, in turn, laid the groundwork for an increasing focus on “meso-
`
`finance,” or small and medium enterprise finance — loans and investments larger than micro—loans, but smaller
`
`than would be profitable for a large, commercial financial institution to make."‘°
`
`Second, remittances from developed to developing countries, sent home by migrants, have reached sizes and
`
`growth rates too large for the major commercial players to ignore. The World Bank has shown that these flows
`
`totaled some $199 billion in 2006, more than twice the amount in 2001. And this figure includes only
`transfers through oflicial channels. Available household surveys suggest that unrecorded flows through
`
`informal channels may add 50 percent or more to this estimate."
`
`Almost all multinational banks now have microfinance initiatives, and the challenge has become moving their
`commitments and activities into mainstream business operations where they can scale to match the enormous
`
`global demand.“‘3 Another challenge is to expand the focus from microfinance to meso-finance, roughly
`defined as financing in the $50,000 to $1 million range, which would enable small and start-up businesses to
`
`grow to levels where they could begin taking advantage ofeconomies ofscale and creating significant numbers
`ofjobs.
`
`

`

`2 -
`
`'i The Business Case for Engagement
`
`Why should large commercial financial institutions care about expanding economic opportunity in developing
`countries? They operate quite profitably as it is, sewing high net worth clients, invsting in government bonds,
`and providing services to established companies in other industry sectors.“ Though these strategies have been
`
`sufficient thus far, more may increasingly be required. Indusz trends, new technologies, rising citizen
`expectations, and government mandates that encourage the provision of financial services to underserved
`
`populations all challenge the traditional paradigm — presenting both risk and opportunity.
`
`2.1 Mitigating and Managing Risk
`
`2.1.1 Political and Regulatory Risk
`
`Given the critical role of financial services in expanding economic opportunity, a reluctant industry may be
`
`regulated or otherwise “incented” into expanding its markets by national governments. Examples have
`occurred in the United States, South Africa, and Brazil, among other countries:
`
`0 US Community Reinvestment Act: In the United States, the Community Reinvestment Act of 1977, in part a
`result of public scrutiny and pressure applied to big banks by nongovernmental organizations (NGOs),
`
`established explicit targets for lending in under—served communities.
`
`0
`
`South African Financial Sector Charter: Facing the prospect of government regulation, South African financial
`institutions worked with government and with communities to develop and adopt a set of principles that
`
`encourage the economic empowerment of under-served communities by setting targets and giving firms
`individual ratings based on their performance.
`
`0 Community Reinvestment Legislation in Brazil: Changes in Brazilian government policy in 2003 require that
`financial institutions provide simplified, low-cost bank accounts for low—income people and put aside 2%
`
`of all demand deposits for microfinance operations targeting small (though not necessarily low-income)
`businesses.15
`
`By taking proactive approaches to increasing economic opportunity, individual financial institutions — and the
`
`industry as a whole — can minimize political controversy and the prospect of government regulation, while at
`the same time addressing a critical business and societal issue.
`
`2.1.2 Reputation RISK
`
`Poor corporate governance, outsized executive pay packages, and white collar crime are significant sources of
`reputation risk for financial services firms today. As global wealth and income inequality simultaneously
`
`increase, business models that are perceived as “elitist” or “exclusive” may join this list. By exclusively serving
`
`

`

`rich minorities in economies characterized by extreme poverty and inequality, banks run the risk of being
`perceived to perpetuate inequality — or even partly create it. There is by now a reasonably long history of
`
`negative publicity and activism by grassroots groups, advoeacy organizations, and the media against industries
`and specific companies whose business practices are deemed unfiir. Such campaigns are no longer limited to
`
`instances of negative impact. Firms that fail to create positive impact, in line with the expectations ofsociety,
`
`are also subject to attack — witness the campaign for a living wage in the toy, apparel, and footwear industries.
`
`Groups increasingly couch their claims in human rights language, including economic and social rights such
`
`as the right to work and the right to an adequate standard of living.
`
`It is increasingly clear that public relations and philanthropy are inadequate strategies for mitigating this kind
`of reputation risk, as they do not address stakeholders’ core concerns: business models that currently exclude
`
`the majority of the world’s poor from access to vital services. As public awareness of the relatiomhip between
`
`financial inclusion and poverty alleviation grows,
`
`this risk could increase. By incorporating economic
`
`opportunity objectives into their mainstream business strategies, firms ean demonstrate both commitment and
`
`results, protecting or even strengthening their brands, reputations, and “licenses to operate.”
`
`2.2 Harnessing Opportunity
`
`2.2.1 New and Expanding Markets
`
`Shareholder value is determined in part by expectations about growth. While developed economies continue
`to grow, many developing economies are growing even more rapidly. Indeed, World Bank research shows that
`
`the developing economies will, as a group, grow faster on average than developed ones for at least the next 25
`
`years. “' This growth can be expected to bring hundreds of thousands, even millions of people into the formal
`
`financial sector for the first time. Inclusive business models could increase the potential even further. The
`
`opportunities include microfinance, meso or SME finance, and remittances.
`
`0 Hicrofinanca: Comparison of data from three authoritative sources,
`
`the Mcrofinance Information
`
`Exchange, the Microcredit Summit, and the Consultative Group to Assist the Poor, reveals that a core
`
`group of microfinance institutions reaches between 30 and 50 million borrowers worldwide. According to
`
`microfinance pioneers Maria Otero and Elisabeth Rhyne of ACCION, while it is impossible to gauge the
`hill extent of global demand, “it is easy to determine that demand is much greater than current supply.”
`
`They put the potential market at several hundred million families at least.17 In addition, demand exists for
`
`more diversified personal financial services beyond credit, including savings, bill payment, insurance, and
`more.
`
`0
`
`SME finance: In many developing countries, SMEs with fewer than 50 employees constitute 95% of all
`
`businesses." And yet, SMEs in those countries contribute far less to GDP and employment than their
`
`developed country counterparts: 17% and 30%, respectively, compared with 50% and 60% in developed
`
`countries." Part of the problem is informality, which limits SME access to productivity tools and market
`
`opportunities. However, with increasing attention to this topic — including the World Bank’s annual Doing
`
`Business rankings”o — incenting countries to reform, progress is taking place. With key bottlenecks being
`lifted, the SME sector could experience significant growth and development, oEering new and expanded
`
`

`

`undoubtedly at the larger and better—established end of the spectrum (see Box 2). Within the donor and
`
`investor communities, the focus on smaller, newer, and otherwise higher-risk SMFs is intensifying, with
`pointed discussion of what is required to generate attractive commercial returns.1|
`
`Remittances: As indieated earlier, international remittances doubled between 2001 and 2006, now totaling
`
`over $199 billion per year. In addition to international remittances, increased urbanization has led to growth
`in domestic remittances. Household surveys suggest that a significant percentage — up to 50% — of these flows
`
`still happen outside formal financial channels, suggesting additional market opportunity for commercial
`financial institutions.22
`
`BOX 2 SMALL AND MEDIUM ENTERPRISES (SEES) AN IMPORTANT NEW MARKET FOR FINANCIAL SERVICES
`
`A sampfing of reoem headlines includes:
`
`“Big banks now eyeing SMEe" WeWamAet Bilge, $611113an 18, 2007
`
`“Standard chartered targets major growth from the SME sealer“ Mmmmmm Flnma'd Network September 13, 2M7
`
`“ABN Amro turning to SMEs for future growth“ .hkarla Hist, mm,mmaa, 2007
`
`“citi aims for 20% growth in SHE business” Mamsia war, MHMJUM 7. 2M7
`
`“HSBc’s SHE banking business up 20% annually over three years” ammlfleusAsa August 7, 2M7
`
`“US banks tum greanbacks flow towaMs Indian SHE” Emmmk: Tmes, m, JulyZi, 2M7
`
`2.2.2 Innovation In the Flnanclal Servloes Sector
`
`Financial services firms have traditionally paid little attention to the poor because, by definition, the poor have
`
`limited assets. Informality,
`
`insufficient
`
`information,
`
`inadequate infrastructure and other barriers have
`
`reinforced the belief that serving the poor cannot be commercially viable, much less a driver of innovation.
`
`New, lower—cost business models have begun to challenge this conclusion, relying for instance on innovations
`
`in technology and utilization of existing retail channels.
`
`A wide range of examples shows the power of information and communications technology to reduce
`
`distribution and customer service costs, including the village ATMs of Citibank and ICICI Bank in India, and
`
`the mobile transactions services ofWizzit and MTN Banking in South Africa, SMART Communications and
`
`Globe Telecom in the Philippines, Celpay in Zambia and the Democratic Republic of Congo, and Vodafone
`
`and Safaricom in Kenya. Indeed, a recent study by the Consultative Group to Assist the Poor (CGAP) found
`
`that 62 financial institutions in 32 countries report using technology-based channels, ranging from ATMs,
`point of sale devices, and mobile phones, for transactions with low-income clients." Interestingly, Wiuit and
`
`Globe Telecom provide financial services without associating with a bank or other financial institution, thus
`
`eliminating the need for the poor to hold bank accounts in order to pay bills, transfer funds, and deposit or
`withdraw eash.
`
`Another emerging low-cost business model for providing financial services to low-income clients can be found
`
`in the retail sector in Mexico, where Wal-Mart is providing deposits, Withdrawals, transfers, and payments —
`going beyond consumer credit. Domestic retail chain Elektra and its banking arm Banoo Azteca have already
`
`been in this business for a number of years.
`
`

`

`A significant share of this innovation is originating outside the traditional financial services sector. As World
`Bank economists Mohsen Khalil and Charles Kenny have predicted, “the technologies driving change in the
`
`next decade may well encourage a firrther blurring of the line between access, industries and applications.“
`There is a crucial opportunity for commercial financial institutions to become involved now, particularly while
`banking regulation in many countries favors partnership, as opposed to facilitating the efforts of
`telecommunications, retail, and other firms to go it alone.25
`
`

`

`3 5...; Business Strategies for Expanding Economic Opportunity
`
`As we have seen, financial services help the poor to reduce vulnerability and manage the assets available to
`
`them in ways that generate income and options. Perhaps the most significant way banks can contribute to
`
`expanding economic opportunity is therefore to find ways of making financial services available to low-income
`
`individuals, entrepreneurs, and small business owner-operators — ideally through inclusive business models
`that are financially viable, and thus offer the potential for sustainability and scale.
`
`In addition to inclusive business model innovation, large commercial financial institutions are engaging in
`efforts to develop human capital, build institutional capacity, and help shape supportive regulatory and policy
`frameworks in the geographies in whidi they operate. These four strategies are not mutually exclusive, but
`
`rather complementary. For instance, creating or strengthening inclusive business models may require a firm to
`build the managerial capacity of local partners or to promote specific regulatory changes domestically or
`
`internationally. Many of the examples covered in this report expand economic opportunity using multiple
`strategies in concert.
`
`3.1 Creating Inclusive Business Models
`
`As defined in the United Nations Development Programme’s forthcoming Growing Inclusive Mania: report,
`inclusive business models include the poor _. whether as employees, entrepreneurs, suppliers, distributors,
`
`retailers, customers, or sources of innovation w and are or have the potential to become financially viable.36
`
`In the financial services sector, most inclusive business models to date have included the poor as customers and
`entrepreneurs. These have included:
`
`- Microcredit. Nearly all multinational commercial banks are now involved in microfinance in some capacity.
`
`Most do not provide micro-credit directly to clients, but rather invest in or structure deals on behalf of
`
`established microfinance institutions. For example, Deutsche Bank, in collaboration with the US Agency
`for International Development (USAID), the UK’s Department for International Development (DflD),
`and a group of philanthropists and socially responsible investors, has created a new investment Facility
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`called the Global Commercial Microfinance Consortium. The Consortium leverages participating donors
`as the first bearers of risk to generate investment from commercial investors; so far demand has exceeded
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`expectations. Citigroup underwrote a $45 million bond offering for Mexican microfinance institution
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`Compartamos in 2004 that was so successful that its second issuance in 2005 was oversubscribed by
`30096.17
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`- Microsavings. While the poor are often precluded from opening traditional bank accounts due to high
`transaction fees, required deposit minimums, and the physical distance between the client and the bank,
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`the poor still find ways to save, often through traditional networks and institutions. In Ghana, Barclays
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`works with traditional Susu collectors, who act as walking savings accounts. By offering a range of services
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`via the Susu collectors, Barclays has raised awareness of formal savings mechanisms, given clients greater
`security, and enabled them to build their credit profiles. Barclays anticipates replicating the model
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`elsewhere in Africa. Savings groups, in various forms, are common in many parts of the developing world.
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`0 Remittances. As described earlier, remittance flows are large and rapidly growing. A number of major
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`financial institutions have begun to offer remittance products that generate new revenue directly and also
`help increase the number of personal banking accounts. In the US, for example, Citibank is ofl'ering low-
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`fee accounts to immigrants from Mexico, enabling them to send remittances that relatives at home can
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`access via its Mexican subsidiary, Banamex, using only a card. Citi is also offering Ecuadorian clients in the
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`US remittances of up to $3,000 for only $5, delivered through microfinance organization Banco Solidario
`in Ecuador.
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`0
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`SME finance. Though to date it has been overshadowed by micmfinance, SME finance is critical in helping
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`entrepreneurs and small businesses reach sizes where it is possible to take advantage of economies of scale
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`and create jobs in significant numbers. To date, much of the innovation has been outside the commercial
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`banking sector. In South Afi'ica, for instance, Anglo Zimele makes debt and equity investments in small and
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`medium black economic empowerment (BEE) enterprises connected with the mining industry, sometime
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`facilitating linkages between its portfolio companies and its parent Anglo American. With support from the
`Shell Foundation, GroFin, a pan-African investment firm, provides debt and equity along with business
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`development services to SMEs in South Africa, Kenya, Uganda, Tanzania, Rwanda, and Nigeria.
`
`
`BOX 3 SMALL ENTERPRISE ASSISTANCE FUNDS (SEAF)
`
`SEAF is a global investment firm that proddes growth capital and qreratlmal support to small enterprises in emerglng markets initially
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`established as a prime investment summary ot CARE, the intemaiiorral development N60, SEAF now operates tor—profit indictment finds In
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`more than 20 countries. It courts among its investors international finance institutions. pension funds. insurance conmanles, barrlrs, and
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`foundations. in 2003, SEAF launched an initiative to explore the impact of its investments on local communities. The first study released
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`concluded that every dollar invested in local small enterprises generated an additional 10 dollars in the local economy.
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`-
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`Supply chain finance. Commercial financial institutions are also offering SME finance in collaboration with
`large firms in other industries — such as agribusiness, manufacturing, mining, and others — that are working
`with SMEs in their value chains. Such relationships can help the financial institution with deal-flow,
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`reducing the cost of identifying qualified borrowers and sometimes subsidizing interest rates. These
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`relationships can also help reduce risk, as large buyers often provide SMEs with relatively stable markets
`
`and capacity-building support such as basic business management training, helping assure lenders that
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`borrowers will have the income to repay their loans. In addition, large buyers can be willing to share risk
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`explicitly by guaranteeing SMEs markets for their products at predefined prices or guaranteeing loans.
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`ABN AMRO Real in Brazil, for example, has worked with Votorantim Celulose e Papel (VCP), a paper
`and pulp company, to finance small farmers growing eucalyptus. Because eucalyptus takes seven years to
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`mature, VCP has reduced ABN AMRO Real’s risk by guaranteeing to buy the eucalyptus at predefined
`prices, adjusted for inflation. ICICI Bank is another major commercial financial institution offering
`finance for small farmers as part of other large companies’ value chains, providing unsecured loans to
`farmers growing barley for Cargill to make into malt for SABMiller in India.
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`Insurance. The poor operate on razor-thin margins, and without significant savings,
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`insurance, or
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`government “social safety nets” to rely on, they are extremely financially vulnerable. TATA-AIG originally
`entered the micro-insurance market in India as a condition for business licensing, and has since developed
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`a model that uses community members referred by credible NGOs as salespeople. For the millions in the
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`developing world who rely on agriculture for their livelihoods, weather is a particularly important source
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`of risk. In addition, constant uncertainty about future earnings prevents farmers from investing too heavily
`in their farms, which limits productivity growth. In India, ICICI Lombard Insurance has tamed up with
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`the microfinanoe institution BASIX to provide crop insurance for rain-fed farmers. Payments are made if
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`rain falls below a certain amount, or if certain other weather patterns occur; this weather-indexed model
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`has eliminated much of the cost associated with indemnity-based insurance. ICICI Lombard projects that
`the business, first piloted in 2003, will become profitable by the end of 2008.
`
`- Commodity price hedging tools. In the developed world, farmers have access to a variety of price hedging
`products to protect themselves in case of price instability in world commodity prices. Farmers in the
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`developing world have few such options. Rabobank has worked in East Africa to develop affo