Why We Invested: OKO
Smallholder farmers are essential to ensuring food security across frontier markets. However, lack of access to credit, land titles, and escalating rates of crop failure at the hands of severe weather events leave smallholder farmers in deeper financial challenges each year. Parametric insurance products designed to cover remote micro lots of farmland against severe weather have been on the rise, yet still only have ~3% penetration in Africa and virtually no penetration in the Francophone region.
At Mercy Corps Ventures (MCV), we have a strong belief in the power of such insurance products to allow remote communities to adapt to a changing environment and increase their resilience to the effects of climate change. OKO Finance fits squarely in this mandate. While other micro-insurance for farmers exist, we were impressed by OKO’s thoughtful direct-to-consumer strategy with a simple digital backend to meet users where they are, through local language content and audio, making it accessible to illiterate users. Furthermore, OKO’s partnership with pan-African mobile operators, like Orange, allows for an exciting opportunity to drive deeper user engagement and capitalize on a greenfield opportunity in French-speaking Africa, to offer a complete suite of insurance products serving the needs of rural agricultural communities going forward.
Market Need
Family farms grow 53% of the world’s food, and make up a large proportion of food production in Sub-Saharan Africa, whilst food production needs to increase to meet rapidly growing global demand. When weather causes a bad season and low crop yields, these smallholder farmers have no safety net or income stability, leaving them unable to purchase the quality inputs needed for the following seasons or access the credit needed to mitigate some of these risks. On top of this, climate change is leading to more frequent and severe weather events, making farming even more risky and unpredictable. Agricultural insurance can reduce risk for farmers, but traditional providers do not cater for this market segment because it is low-margin and difficult to serve, and while microinsurance companies are emerging, they are largely focused on more developed markets in the region leaving those in Francophone Africa without options. Emerging agro-microinsurance companies also struggle to build trust and demonstrate value to smallholder farmers — insurance is a conceptually challenging product to sell, as it is less intuitive to first-time buyers who need to be sensitised in how it works, and why it is worth the upfront investment — and this is key since microinsurers are competing for precious disposable income.
The OKO Solution
OKO designs and delivers climate-index insurance products for smallholders in French-speaking Africa, an ideal target region with a GDP heavily skewed towards rural populations and agriculture and a population that is rapidly digitizing. In contrast to other climate microinsurance providers, OKO sells its policies via a direct-to-consumer sales strategy built on the back of a trained agent network and strategic partnership with Orange, which helps build trust with first time buyers and allows OKO to own the customer relationship. Farmers engage via a feature phone-adapted platform or smartphone app that includes local voice content for those who cannot read or write. The product is then integrated into WhatsApp and Orange Money, through which users can pay the insurance premium and receive payouts automatically when events like drought or flooding occur. This ensures that farmers have greater income stability and are able to access decent loans with proof of insurance, resulting in higher agricultural yields through the ability to invest in improved production.
“Agriculture is by far the largest source of occupation in Africa, with an estimated 33 million farms. And yet, farmers are deprived from basic financial services like insurance and loans. We are using technology to solve this issue and secure the income of those farmers”
Simon Schwall, Founder of OKO
Investment Rationale
Despite the large market, insurance penetration today is <3%. There are no players selling climate index insurance with any degree of scale in the French-speaking Africa market due to language barriers, low levels of literacy, and smaller populations by country. However, with rising digitalization (72% of the population have mobile phones) and the effects of climate change accelerating, the market’s capacity to absorb climate insurance is rapidly growing and in urgent need. OKO has a first-mover advantage in French-speaking Africa and is ideally positioned to capitalize on this greenfield opportunity and, importantly, their strong partnership with Orange positions them on a strategically-aligned growth trajectory. We’ve been impressed by their scaling potential and ability to execute, having already insured 10,000+ farmers, and growing policyholders over 300% per year with a more than 80% retention rate.
We expect climate insurance to be ubiquitous in this market within the next decade, as the region catches up to East Africa, India, and other frontier markets.
