Financial Inclusion Builds Resilience of Pastoralists to Drought

Sep 06

Story Highlights 

  • Until recent rain fell in the Horn of Africa, more than 9.5 million animals died from prolonged drought, eroding the livestock trade.
  • The De-risking, Inclusion, and Value Enhancement of Pastoral Economies Project, is designed to protect pastoralists against heavy financial losses and improve their access to markets.
  • Rather than putting all their money into building their flocks, the idea is for pastoralists to have cash available to survive disasters, with savings accounts for moderate shocks and insurance for severe shocks.

Asna Ware Diba is a pastoralist living in eastern Kenya’s Tana River County. Despite its name, the county is in an area of Kenya recently hit by a particularly severe drought. “We pastoralists have a tough time during droughts,” Diba says, explaining that, because pastoralists channel the best part of their savings into building up their flocks, when their livestock die, it is as if their bank accounts have been emptied.

It’s the same story across the border in southern Somalia and parts of Ethiopia. “I hadn’t seen a drought like this before,” says Sola Jilo, who keeps livestock in southern Ethiopia, of the drought that began a couple of years back and ran into the beginning of 2023 when, for the fifth time in a row, seasonal rains failed. “We lost a lot of livestock and had few left. Some people started begging to survive.”

Climate change has increased the intensity of the seasons, dry and wet, in the vast, arid areas of the Horn of Africa that straddle the national boundaries of Kenya, Somalia, Ethiopia, and Djibouti. These are the regions where many semi-nomadic pastoralists live and, in good years, conduct a thriving trade in live animals. The value of this trade, which runs from the greater Horn to the Middle East, has been estimated at almost $1 billion a year.

The prolonged drought turned this economic success story on its head, bringing hundreds of thousands of pastoralists hardship and hunger—even the destitution Jilo refers to, when people had no option but to turn to others for help. More than 9.5 million animals died across the Horn of Africa.

DRIVE, the De-risking, Inclusion, and Value Enhancement of Pastoral Economies Project, is designed to protect pastoralists against heavy financial losses of this kind and improve their access to markets. Its aim is to build financial resistance against climate shocks, with a package of financial services, which include drought insurance and savings and digital accounts, and which better integrate pastoralists in the value chains, moving the value along from live animals to livestock products. The World Bank has committed $360.5 million for the project.

Rather than storing money in cows, the idea is for pastoralists to have cash available to address severe shocks. Pastoralists are incentivized to save for moderate shocks in saving accounts and have insurance for severe shocks. Using satellite data, the insurance mechanisms monitor the growth of pasture across the region; pastoralists receive a payout when it falls below a certain level. Payouts are delivered early, directly into the digital accounts, allowing pastoralists to purchase feed to keep their core breeding stock alive.

A study by the U.S. Agency for International Development (USAID) in 2018 calculated that $1 of timely assistance equaled $3 in humanitarian spending later or, in other words, that delayed assistance and restocking costs three times as much as keeping animals alive through a drought by buying feed.

The benefit to beneficiaries

Diba says the insurance pays in good time for her to buy feed for her goats, while the added cash augments her household income and covers her children’s school fees. Insurance payouts also saved livestock in southern Ethiopia during the drought. “DRIVE came at the right time, just when we needed it most,” says Yenenesh Girma, Head of the Cooperative’s Promotion Bureau in Borana zone. “We are grateful to those stakeholders that made it happen.”

Pooling several countries into a regional insurance scheme creates scale, enabling smaller countries to join. It also mobilizes the capital of the local and international (re)insurers ultimately taking on the drought risk. The project is expected to mobilize $572 million in private capital.

Once pastoralists know they are protected by the financial package they can invest in their herds, increasing quality over quantity. The project aims to support private investments in the livestock value chains so that livestock exporters or processors can source directly from pastoralists rather than going through multiple intermediaries. It should also improve standards and testing capacity to allow Horn of Africa countries to export higher-value products as opposed to live animals.

Not a one-off

DRIVE is not intended to be a one-off solution but the foundation of a permanent mechanism that can continue and expand to other regions, including to South Sudan, Uganda, parts of southern Africa, and to the Sahel in West and Central Africa. It emphasizes financial inclusion, gender and youth, private capital mobilization, and regionalism and trade. Women already make up about 50% of its participants—"60% in Somalia,” says Hope Murera, Managing Director and CEO of ZEP-RE, which manages the regional distribution of the financial package to pastoralists. ZEP-RE says DRIVE has hit its Year 3 targets in just two seasons, reflecting the strength of demand on the ground.

As African countries grapple with periods of drought and flooding intensified by climate change, collective action presents a way forward. Coming together to transfer their risk to the market brings scale, sustainability, and protection for the poorest.  


This news release was originally published on World Bank News - Link here.