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OKO Finance: Helping Smallholder Farmers Secure Their Income Via Digital Insurance

African Farmers-80% of them smallholder farmers or family-run- are grimly exposed to drought, insect attacks, and flooding. They suffer huge losses as they are unable to proffer solutions to the aforementioned challenges.

Meanwhile, the devastating impact of flooding and drought can be mitigated by agricultural insurance.

Unfortunately, insurance penetration in Africa let alone agricultural insurance remained at 2.8%, considerably below the world’s average of 6.3%. The African insurance market is vastly underdeveloped.

There are signs of improvement regardless. A recent report by McKinsey and Company, which outlines the trajectory of the African insurance market’s growth and the potential said that Africa is the second-fastest-growing insurance market in the world, trailing behind Latin America. The African insurance market was expected to grow, prior to the COVID-19 pandemic, at 7 percent per annum from 2020 to 2025.

Back to agricultural insurance, the situation is dire despite its many advantages for smallholder farmers.

According to the World Bank, Africa’s agricultural premium volume accounts for roughly US$200m, which is less than 1% of the global agricultural premiums of US$25bn, and disproportionately lower than Africa’s overall share of 1.5% of the world’s total premiums

Per this development, Simon Schwall (CEO), Raphael Haziza, and Shehzad Lokhandwalla launched an insurtech startup for smallholder farmers, OKO Finance in 2017. It provides inclusive agricultural insurance to secure farmers’ income across Africa.

Speaking with Techawk about OKO, Simon Schwall said: “OKO is an insurance solution offered to smallholder farmers to secure their income. We offer farmers to get insured using their mobile phones, and they will automatically receive compensation if they are affected by a drought or a flood. We achieve this result by analysing satellite weather data and identifying remotely if an area has been affected or not.

As a farmer, OKO offers you to receive financial support in difficult years, in exchange for a small fee payable by mobile without leaving your field. For insurance companies, it is also an opportunity to bring an innovative product to a population that was previously un-attended.

Our business model is simple: we take a commission on every payment we generate. But since our prices are low, we need a very large number of farmers insured to generate substantial revenues.

From Schwall’s comment, you may think that insuring African farmers is as easy as switching on your TV. But no, there are challenges.

On this, the CEO who has worked in the mobile financial services field for almost 10 years now said “For OKO specifically, the main challenges are that micro-insurance is still a nascent business. It is not a replication of what has been successful in high-income countries like e-commerce or food delivery. So many proven methods are not applicable and we need to be very creative, make mistakes, and learn fast.

Another challenge that businesses across the world had to deal with in recent times is the coronavirus pandemic-COVID-19. The pandemic led to the shut down of most African economies. Businesses had to look for ways to adjust to the new normal.

So, how did OKO brave this? Schwall said: Due to COVID-19, the management team was unable to visit the operations on the ground, many investors paused their investments and farmers also changed their behaviour. But thankfully we were better suited for this kind of challenge than traditional businesses: we were already used to doing a lot of our work remotely, and since our insurance product is fully digital, we could still register new customers remotely, via our call centre.

Funding is key to every startup. With a Good Minimum Viable Product (MVP), a value proposition, and a committed team, funding won’t be a problem. However, in the first few years of your startup, you have to probably bootstrap which was exactly what Schwall did with his co-founders.

“For a few months, we invested our own savings in the company. Then we managed to join an acceleration programme: Techstars. They provided us with an initial convertible note that helped us fund our pilot. We also looked for competitions and subsidies that could help us further develop while it was still too early for institutional investors to pitch in: we received support from the European Commission, the Luxembourg government, and more, and we won some prizes like the Orange Social Venture Prize.”

Now, you won’t be wrong if you say the investments are rolling in from institutional investors. Days ago, OKO raised $1.2m. The round was led by Newfund and ResiliAnce. Mercy Corps Venture, Techstars, ImpactAssets, and RaSa also participated in the round.

“The turning point was when we managed to convince 2 large agro-industries (ABInBev and Touton) to test our crop insurance. They followed us closely and one of them decided to invest in OKO after our pilot with them was completed. Once we had one investor committed, it was easier to convince more to come on board, and we had already ongoing discussions with some of them. The funds will be used to scale up in Mali, convert the pilots in Uganda to commercial operations, and possibly launch in a third market. The main priority at the moment is to onboard as many customers as possible.

On plans for the future, Schwall said that the OKO team wants to make sure “We (1) onboard enough paying customers to generate revenues and (2) that this revenue is “recurring” so that we don’t have to start from scratch every year. We also need to remain as lean as possible and not waste any dollar.”

As the drive to onboard more paying users intensifies, Schwall is not losing sight of “the market dynamics including encouraging mobile penetration, rise in mobile payment usage, more and more importance being given to climate resilience and African economies growing quickly.

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