Enabling the shift towards a new finance paradigm: Scaling up adaptation investments for smallholders using novel insurance models

International adaptation finance flows to developing countries are 5-10 times below estimated needs and the gap is widening. Without an increase in support, adaptation actions could be outstripped by accelerating climate risks, which would further widen the adaptation implementation gap. Meeting those needs will require a rapid increase in the scale of financing that should go hand in hand with a diversification of the finance sources. Climate finance particularly neglects smallholder farmers in developing countries who receive only 1.7% of total climate finance flows. Africa’s 33 million smallholder farms form the backbone of the region’s food system, producing up to 70 percent of the region’s food. However, higher temperatures - together with increased incidences of drought and flooding - destroy crops and livestock and make it difficult for them to continue to feed their communities and earn a living. The NDC Action Project, supported by the German Government and led by UNEP and UNEP Copenhagen Climate Centre, collaborates with Uganda and Ghana to mitigate financial risks for smallholder farmers, facilitating access to essential funds for climate adaptation. In Uganda, a pioneering hybrid insurance product utilizing Picture Based Insurance (PBI) has been conceptually developed. It recently secured funding from the Adaptation Fund Climate Innovation Accelerator, paving the way for further development. This event presents the innovative insurance product, tailored for smallholder banana farmers. The PBI approach is also showing promise in Kenya, where ACRE Africa is conducting successful trials. The World Food Programme (WFP) will contribute insights into its work with PBI in Ethiopia and present the R4 microinsurance model, currently operational in Kenya, Uganda, and several African countries, with prospects for wider adoption. The discussion during this event will additionally underscore the importance of price-based insurance products to shield smallholder farmers from market fluctuations. Government ministries will share their insights on the critical role of public finance in supporting agriculture and adaptation, advocating for increased risk-taking and conducive environments to mobilize additional capital.