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Corporate design manual
stand vom 08.12.2010
INNOVATION BRIEF
BOTTOM-UP INNOVATION
FOR ADAPTATION FINANCING
New Approaches for Financing Adaptation Challenges
Developed through the Practitioner Labs Climate Finance
Jonas Restle-Steinert and Tobias Hausotter In cooperation with
INNOVATION BRIEF
Imprint
AUTHORS PUBLISHER
Jonas Restle-Steinert and Tobias Hausotter adelphi research gemeinnützige GmbH
Alt-Moabit 9, 10559 Berlin
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LAYOUT AND DESIGN Bottom-Up Innovation for Adaptation Financing. New
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veloped through the Practitioner Labs Climate Finance.
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© 2019 adelphi research gemeinnützige GmbH, July 2019
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This paper is part of the Support Project for the Implementation of the Paris Agreement (SPA), implemented by the
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and funded by the International Climate Initiative (IKI)
of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU).
Supported by:
based on a decision of the German Bundestag
2
INNOVATION BRIEF
Table of Content
List of Figures 5
List of Abbreviations 6
Executive Summary 7
OVERARCHING LEARNINGS
FROM THE PRACTITIONER LABS CLIMATE FINANCE FOR
BOTTOM-UP ADAPTATION FINANCING 8
1. Background 9
2. Challenges for Developing Bottom-Up Adaptation
Financing Approaches 11
3. Solutions for Addressing Recurring Challenges
Regarding Bottom-Up Adaptation Financing 13
4. Importance of Specific Country Contexts for
Bottom-Up Adaptation Financing 16
5. Approaches for Bottom-Up Adaptation Financing 18
APPENDIX I & II next page →
3
INNOVATION BRIEF
APPENDIX I
PROTOTYPE CONCEPT NOTES 20
1. Mobile-Enabled Microinsurance 21 4. Last of Ours – Blockchain-based
1.1. Synopsis of Product Prototype 21 Conservation Fund 42
1.2. Innovative Characteristics 23 4.1. Synopsis of Product Prototype 42
1.3. Target Market 24 4.2. Innovative Characteristics 43
1.4. Impact Potential 25 4.3. Target Market 44
1.5. Key Partners & Resources 25 4.4. Impact Potential 45
1.6. (Co-)Financing Opportunities 26 4.5. Key Partners & Resources 46
1.7. Challenges in Implementation 26 4.6. (Co-)Financing Opportunities 47
1.8. Market Analysis for Mobile-Enabled 4.7. Technical Overview 48
Microinsurance 27
5. Global Mangrove Trust – A Blockchain-based
2. Irrigation System Microleasing for Conservation Finance Incentive 49
High-Value Crops 28 5.1. Synopsis of Product Prototype 49
2.1. Synopsis of Product Prototype 28 5.2. Innovative Characteristics 52
2.2. Innovative Characteristics 29 5.3. Target Market 53
2.3. Target Market 30 5.4. Impact Potential 54
2.4. Impact Potential 32 5.5. Key Partners & Resources 55
2.5. Key Partners & Resources 32 5.6. (Co-) Financing Opportunities 56
2.6. (Co-)Financing Opportunities 33 5.7. Challenges in Implementation 56
2.7. Challenges in Implementation 33
2.8. Market Analysis for Irrigation 6. Smart-Irrigation-as-a-Service
System Microleasing for High-Value Crops 34 Financing Vehicle 57
6.1. Synopsis of Product Prototype 57
3. Green MSME Finance Tool 36 6.2. Innovative Characteristics 58
3.1. Synopsis of Product Prototype 36 6.3. Target Market 58
3.2. Innovative Characteristics 37 6.4. Impact Potential 59
3.3. Target Market 38 6.5. Key Partners & Resources 60
3.4. Impact Potential 38 6.6. Challenges in Implementation 60
3.5. Key Partners & Resources 39 6.7. Market Analysis for Smart Irrigation 61
3.6. (Co-) Financing Opportunities 39
3.7. Challenges in Implementation 40
3.8. Market Analysis for Green MSME
Finance Tool 40
APPENDIX II
OVERVIEW OF LAB APPROACH 62
4
INNOVATION BRIEF
List of Figures
FIGURE 1 FIGURE 10
Product design of Mobile-Enabled Microinsurance Product design of Global Mangrove Trust
FIGURE 2 FIGURE 11
Product mechanism of Mobile-Enabled Microinsurance Traditional transaction model for donors
FIGURE 3 FIGURE 12
Target market of Mobile-Enabled Microinsurance Stimulation of new markets through the GRO-coin
FIGURE 4 FIGURE 13
Product design of Irrigation System Microleasing for Target market of Global Mangrove Trust
High-Value Crops
FIGURE 14
FIGURE 5 Product design of Smart-Irrigation-as-a-Service
Target market of Irrigation System Microleasing for Financing Vehicle
High-Value Crops
FIGURE 15
FIGURE 6 Target market of Smart-Irrigation-as-a-Service
Product design of Green MSME Finance Tool Financing Vehicle
FIGURE 7 FIGURE 16
Target market of Green MSME Finance Tool Phases of the Lab process
FIGURE 8 FIGURE 17
Product design of Last of Ours Detailed Lab cycle
FIGURE 9 FIGURE 18
Target market of Last of Ours Timeline of the current Lab cycle
5
INNOVATION BRIEF
List of Abbreviations
AI Artificial Intelligence MNO Mobile Network Operators
AR Augmented Reality MoU Memorandum of Understanding
ASEAN Association of Southeast Asian Nations MSME Micro, small and medium-sized enterprise
AVCF Agriculture Value Chain Financing NA Nursery Administrator
BAAC Bank for Agriculture and Agricultural NARO National Agricultural Research Organization
Cooperatives NBFC Non-Banking Finance Companies
CBO Carbon Sequestration, Biodiversity Support, NDC Nationally Determined Contribution
and Oxygen production NFT Non-Fungible Token
CII Confederation of Indian Industry NGO Non-governmental organisation
CMP Community Mangrove Project PLCF Practitioner Labs Climate Finance
CR Critically Endangered PPP Private-Public Partnership
CVA Community Verifying Agent RCC Regional Collaboration Centre
EADB East African Development Bank ROI Return on Investment
EN Endangered SACCO Savings and Credit Cooperative Organizations
EU European Union SDG Sustainable Development Goal
FAO Food and Agriculture Organization of the SFI Specialised Financial Institution
United Nations SIDB Small Industrial Development Bank of India
GDP Gross Domestic Product SME Small and medium-sized enterprise
FSD Financial Sector Deepening SPV Special Purpose Vehicle
GIS Geographic Information System SUP Stand-up Paddling
SUTD Singapore University of Technology and
GIZ German Corporation for International Design
Cooperation (Deutsche Gesellschaft für UAIS Uganda Agriculture Insurance Scheme
Internationale Zusammenarbeit) UDB Uganda Development Bank
GMT Global Mangrove Trust UI User Interface
GNP Gross National Product UIA Uganda Insurers Association
GRO Global Reforestation Objective UK United Kingdom
ICO Initial Coin Offering UN United Nations
ICT Information and Communications Technology UNFCCC United Nations Framework Convention
IFC International Finance Corporation on Climate Change
IGES Institute for Global Environmental Strategies USSD Unstructured Supplementary Service Data
IUCN International Union for Conservation of VAT Value Added Tax
Nature VR Virtual Reality
LAST Living Animal Social Token VU Vulnerable
MFI Microfinance Institutions WIF Worldview International Foundation
6
INNOVATION BRIEF
EXECUTIVE SUMMARY
This Innovation Brief presents six innovative bot- the need for diversifying the sources of adaptation
tom-up adaptation financing approaches from the finance, mobilising new players, and developing
SEED Practitioner Labs Climate Finance 2018 in India, self-sustaining business models.
Thailand and Uganda, and shares overarching learn-
ings about challenges and solutions. The Labs fa- Solutions for Addressing Recurring Challenges
cilitated the development of the following prototype Regarding Bottom-Up Adaptation Financing
solutions with a focus on small- and medium-sized • Strengthening of capacities on the ground through
enterprises (SMEs): grouping enterprises, farmers or projects into net-
• Mobile-Enabled Microinsurance (Uganda) works and collectives in order to create synergies,
• Irrigation System Microleasing for High-Value Crops peer learning opportunities, shared resources, and
(Uganda) stronger collective bargaining positions.
• Green MSME Finance Tool (India) • Provision of smart data gathering and sharing
• Last of Ours – Blockchain-based Conservation Fund techniques with very different levels of complex-
(Thailand) ity, ranging from blockchain-based impact meas-
• Global Mangrove Trust – A Blockchain-based Conser- urement tools to simple databases for collating and
vation Finance Incentive (Thailand) sharing information and data.
• Smart-Irrigation-as-a-Service Vehicle (Thailand) • Increasing the openness to and use of innovative
technology-driven solutions. The level of complex-
Challenges for Developing Bottom-Up Adaptation ity needs to be adjusted to the specific local context.
Financing Approaches This includes using mobile technology for contract
• Lack of capacities and information among enter- management, mobile money for premium pay-
prises on the ground, particularly the lack of finan- ments and insurance pay-outs as well as blockchain
cial literacy of SMEs is a crucial barrier for mobilis- technology for mobilising finance.
ing adaptation finance effectively. • Overcoming misaligned seasonal income patterns
• Financial institutions and investors often lack in- and revenue cycles of agribusinesses and repay-
formation on and technical understanding of inno- ment schedules for loans through restructuring of
vative green technologies or adaptation measures transactions and payment flows.
and their impact to properly assess the creditwor- • Mobilisation of new stakeholders, and investors,
thiness of projects and understand the full business such as private companies, commercial banks, and
value of innovations in this space. consumers from the wider public as new sources
• Low accessibility of financial instruments for cli- of adaptation financing and tapping into underuti-
mate adaptation in remote areas as distribution lised markets (e. g. online game community or ur-
networks and branches of financial institutions are ban youth).
often primarily located around (peri-)urban areas. • Usage of gamification as a cross-cutting solution
• Mismatch of demand and supply in the design of strategy: The basic principle of gamification ap-
financial instruments: Particularly in the agricultural proaches is to use game elements, online games, or
sector, there is misalignment between repayment fun activities in non-game settings for value and
schedules of loans or premium payments for insur- impact creation in order to reach new target groups.
ances and seasonal income patterns of SMEs, par- • Coupling of different service offerings by finan-
ticularly agribusinesses. cial institutions or technology providers, such as
• Limited number of dedicated investors or donors combining the provision of financing with sharing
involved in adaptation finance, with SMEs com- information about business practices or supplying
peting for very limited resources. This exemplifies technology solutions.
7
INNOVATION BRIEF
OVERARCHING LEARNINGS
FROM THE PRACTITIONER LABS
CLIMATE FINANCE FOR BOTTOM-UP
ADAPTATION FINANCING
8
INNOVATION BRIEF
1
BACKGROUND
It is widely acknowledged that a bottom-up approach Labs Climate Finance (PLCF) and, in close cooperation
involving businesses and stakeholders on the ground with SEED, adelphi has developed and integrated a
in emerging and developing countries is essential for specific adaptation finance stream in the existing PLCF
driving climate change adaptation finance as local targeted at small- and medium-sized eco-inclusive
companies and communities are directly affected by businesses & enterprises (see Appendix II for a more
climate change. Small- and medium-sized enterprises in-depth overview of the Lab approach and review of
(SMEs), which should focus primarily on their own ad- the 2018 cycle)3. This allowed us to engage innova-
aptation while also having the potential to offer prod- tors on the ground in peer-to-peer exchange and to
ucts or services that can help their clients adapt to cli- facilitate the development of prototype solutions and
mate change, are crucial stakeholders in this context as mechanisms for adaptation finance challenges across
they often play a dominant role in the private sector in the globe. The aim of the adaptation stream is to devel-
developing countries and should thus be driving forces op prototype solutions and financial instruments that
in localised climate change adaptation. However, de-
1
particularly facilitate mobilising finance for adaptation
spite the fact that local businesses and communities measures and increasing climate change resilience on
are in urgent need of suitable financing instruments, the ground beyond more generic climate finance initi-
SMEs on the ground face significant financing chal- atives with a stronger focus on mitigation.
lenges in many developing and emerging economies, The Labs bring together different organisations,
particularly with regards to climate change adaptation. businesses, and stakeholders with an interest in solv-
To tackle this issue, SEED2 has set up the Practitioner ing climate finance issues and support participants
in jointly developing targeted solutions for pressing
1 For more information about the roles and activities of SMEs and challenges specific to their organisations and sectors.
other private sector entities regarding climate change adaptation, In this working process, the Labs unite different stake-
see Cochu, Annica, Tobias Hausotter and Mikael Henzler (2019):
The Roles of the Private Sector in Climate Change Adaptation –
holders to engage in a series of exchanges in order
an Introduction. Berlin: adelphi (forthcoming). to strengthen the solution implementing capacity of
2 SEED is a multi-donor programme and network for action on
sustainable development and the green economy hosted by adel- 3 Further information on the Practitioner Labs Climate Finance
phi research gGmbH. It focuses on enterprise support and eco- and the specific Labs in India, Thailand and Uganda can be found
system development for eco-inclusive entrepreneurship. More on the SEED website at https://seed.uno/programmes/ecosys-
information can be found at www.seed.uno. tem-building/finance/climate-finance
9
INNOVATION BRIEF
participants, build a network of trust, facilitate out-
put-oriented knowledge exchange, share best practic-
es and lessons learned as well as enable peer-to-peer
learning between participants from different organisa-
tions and sectors. Through implementing, continuous-
ly improving, and expanding the designed prototypes,
the Labs aim to instigate wider long-term change in
the sector or organisations.
The PLCF were conducted in three pre-defined
SEED target countries: India, Thailand, and Uganda
in 2018 – closely aligned with the priorities of SEED’s
IKI counterparts. They resulted in prototypes for bot-
tom-up adaptation financing with different fields of
application, ranging from information tools for banks
to purely technology-based solutions for mobilising
financing. These solutions were developed for the
respective specific country contexts. However, they
may also be replicable in other countries with simi-
lar conditions. Learnings can be drawn by identifying
common themes, differences, solutions and recurrent
challenges that appeared across the different countries,
working groups, and prototypes.
This Innovation Brief focuses on sharing some of the
overarching learnings about challenges and solution
ideas for innovative adaptation financing approach-
es with climate finance experts, public and private
funders as well as local and international financial
institutions, banks, and investors. It is important to
note that we cannot make judgements about the actual
impact of any of the developed solutions and innova-
tions at this point given that these new ideas are all
in prototype stage. Consequently, this paper provides
new ideas and angles that could be considered, adopt-
ed, and tested by relevant actors in the field rather than
fully fledged recommendations.
10INNOVATION BRIEF
2
CHALLENGES FOR DEVELOPING
BOTTOM-UP ADAPTATION FINANCING
APPROACHES
1 Lack of capacities and knowledge among 2 Lack of data and reliable information among
enterprises on the ground financial institutions and investors
Across all three countries, irrespective of their lev- On a slightly different dimension, banks and fi-
el of development, one common challenge that nancial institutions often lack data as well as
came out clearly from our lab process was lack information on and technical understanding
of data, knowledge and information in different of innovative green technologies or adaptation
forms that creates a barrier and challenge for mo- measures to properly assess the creditworthiness
bilising or directing adaptation finance effectively. of respective SMEs or projects. Beyond assessing
This comes in different shapes and forms, affects a creditworthiness, this lack of information further
multitude of key stakeholders, and triggers or ex- limits the understanding of the full business/
acerbates additional challenges further down the commercial value and investment potential of
line. A very obvious problem and consequence in innovative ideas in this space. Furthermore, sev-
this regard is the lack of financial literacy of agri- eral groups raised the issue that neither banks
businesses and small-and medium-sized enter- nor businesses in the respective countries have
prises (SMEs) that limits their access to finance sufficient experience in assessing the financial
for resilience building measures, climate smart risks associated with climate change. As a con-
technologies and other green innovations. As sequence, the banking and financial sector in
each player on its own is very weak, this problem many developing and emerging countries lacks
is particularly severe if SMEs, agribusinesses or interest in interacting with or investing in
community-level projects act individually rath- SMEs/projects with a climate change or adapta-
er than pooling resources and forming groups in tion focus, partly due to a lack of knowledge and
order to create synergies and strengthen their col- resulting risk aversion.
lective capacity and bargaining position. Related to this, a shared challenge faced by most
investors and philanthropic donors in the space
11INNOVATION BRIEF
of climate change adaptation that was voiced in 5 Limited number of investors and stakeholders
several working groups is the limited access to involved in adaptation finance
reliable data and information on the expected Another challenge that has been particularly
or actual impact of specific initiatives or pro- discussed in the Thailand Lab was the limited
ject ideas. Directing available funds to the most number of conventional climate financers and
promising or effective initiatives seems unfeasi- dedicated value-driven or socially-minded in-
ble in many instances, creates uncertainty and vestors or donors that make any reallocation of
deters some donors and investor from financing funds a zero sum game. As different initiatives
such projects altogether. aim for the same funding sources, this limits the
The lack of information and data on multiple ability of new innovative initiatives to scale up
levels further aggravates an already harmful impact without harming other existing initiatives
gap for adaptation financing as most investors in the same area by reducing their funding. This
and financial institutions in developing countries exemplifies the need for diversifying the sources
are known for being rather risk averse in general of climate and adaptation financing, expanding
and, on top of this, risks for investing in SMEs and the horizon, and mobilising new players, such as
climate change adaptation initiatives are already the private companies, commercial banks, and
perceived as particularly high by them. consumers from the wider public as well as de-
veloping self-sustaining business models.
3 Lack of access to remote areas
Another key challenge that has been addressed
in several working groups is the low accessibility
of financial instruments for climate adaptation
in rural and remote areas. A lack of developed
distribution networks for financial institutions
and insurance companies as well as insufficient
decentralised or digital solutions have been men-
tioned as key reasons for this issue.
4 Mismatch between available financing
mechanisms and income patterns
An additional financing barrier that has come up
in several groups is the mismatch of demand and
supply in the design of financial instruments
for certain markets. For example, due to crop
cycles and harvest calendars agribusiness have
seasonal revenue at certain times/seasons rather
than stable, continuous income throughout the
entire year. At the same time, banks and insur-
ance components require regular (e. g. monthly)
payments for loan or insurance products even at
times when the farmers and businesses have lim-
ited liquidity. Particularly in the agricultural sec-
tor, this misalignment of repayment schedules
of loans or premium payments for insurances
with seasonal income and revenue cycles of
agribusinesses/farmers causes a huge barrier for
financing climate smart farming innovations and
adaptation measures, such as irrigation systems
and crop insurances.
12INNOVATION BRIEF
3
SOLUTIONS FOR ADDRESSING
RECURRING CHALLENGES REGARDING
BOTTOM-UP ADAPTATION FINANCING
When looking at the developed adaptation financing prototypes, there are some common
elements, such as data sources utilised, types of players mobilised, and business model
logic applied in the solutions to the abovementioned challenges, but also some significant
differences such as technologies used.
1 Capacity building and grouping of enterprises 2 Data and information provision and sharing
on the ground Another crucial approach is the provision of
One key methodology that has been integrated smart data gathering and sharing techniques.
in several of the prototypes is the strengthening This has been used across the prototypes with
of capacities on the ground through grouping very different levels of complexity. At one end
enterprises, farmers or projects into networks of the spectrum, data gathering in the two block-
and collectives in order to create synergies, peer chain-based prototypes for conservation financ-
learning opportunities, shared resources, and ing in Thailand works through highly complex
strengthen their collective bargaining position. As and technology-driven solutions that enable ef-
explained above, limited accessibility of financial fective fund allocation and impact monitoring. In
instruments for SMEs and local players as well contrast to this, the Green MSME Financing Tool
as the mismatch between bank and investor re- in India primarily focuses on collating key data
quirements for accessing loans, insurance prod- and information about green technologies and
ucts or investment capital on the one side and the business models. It then stores and shares the
capacities of potential borrowers and investees on information with the banking sector via a basic
the other side, are key barriers for adaptation fi- database and a manually managed information
nance. Therefore, pooling players with similar in- and data management tool. Beyond these da-
vestment needs in the same area has proven to be ta-focused approaches, elements of data sharing
a viable strategy. For instance, grouping has been are also integrated in other prototypes such as the
integrated in the prototypes aiming at financing microinsurance prototype in Uganda. This mod-
smart irrigation systems in Thailand and Uganda el uses weather data for identifying appropriate
as well as in the blockchain-based conservation pay-outs and shares weather data and informa-
finance incentive for mangroves in Thailand. tion on the insurance product and agricultural
practices via mobile phones with farmers.
13INNOVATION BRIEF
3 Technology-driven solutions 5 Mobilising new stakeholders
The aspect of data management is closely relat- Another promising innovation in several proto-
ed to another key element of several approaches types is the mobilisation of new stakeholders,
which is increasing the openness to and use of and investors, such as private companies, com-
technology-driven solutions. Here, it is impor- mercial banks, and consumers from the wider
tant to note that the level of complexity needs public as new sources of adaptation financing
to be adjusted to the respective local context. and tapping into underutilised markets. This
In Uganda, using mobile technology for contract is integrated in the various models to differing
management and mobile money for premium degrees. In India, the provision of information,
payments and insurance pay-outs for the devel- data, and knowledge is used to convince com-
oped crop-insurance is considered a revolution- mercial banks to slightly shift their business focus
ary approach that solves the issue of reaching and invest more in currently still underfinanced
remote and rural areas. In Thailand, however, the green micro, small-and medium-sized enterpris-
economy is already very much focused on high- es (MSMEs) and adaptation measures. In a much
tech solutions, which is why the level of ambition more extreme approach, the blockchain models
to create technology-driven approaches is much in Thailand aim at mobilising entirely new play-
higher. In line with this, two prototypes focus on ers, such as the online game community or urban
smart contracts, crypto-currencies, e-wallets, and youth, with no pre-existing connection to adap-
gamification through blockchain-based technol- tation finance through connecting the world of
ogy solutions for mobilising finance. Even in the online games with conservation and adaptation
less obvious cases of smart irrigation financing in measures.
Uganda, technology plays a role as portable so-
lar-powered irrigation kits have been identified as 6 Gamification
a solution for overcoming the barrier of how irri- This leads to another last cross-cutting solution
gation equipment can be shared between groups strategy of the prototypes that is worth mention-
of farmers in order to increase affordability. ing here. The usage of gamification is integrat-
ed in both blockchain-based models in Thailand.
4 Aligning payment schedules of financing The basic principle of gamification approaches is
mechanisms with agricultural seasons to use game elements, online games, or fun activ-
Another common thread is overcoming mis- ities in non-game settings for value and impact
aligned income cycles of SMEs, in particular ag- creation or other specific purposes in order to
ribusiness, and repayment schedules for loans engage users more actively or reach new target
through smart restructuring of transactions and groups. For example, in the Last of Ours prototype
payment flows. The different approaches used model in Thailand, the online game communi-
include microleasing, restructuring of premium ty gets mobilised to contribute to financing so-
calendars for crop insurances as well as contract cial enterprises and philanthropic organisations
farming and three-party agreements between that support conservation initiatives. This general
technology providers, farmers, and buyers or ag- approach appears to be a highly promising ap-
gregators. In such models, the tranches for loan proach for getting new target groups excited about
repayments or insurance premiums by the farm- climate or adaptation finance. In adapted forms,
ers and SMEs are not due every month but rather this technique could be applied widely (e. g. for
during harvest seasons and revenue peaks when farmers and small entrepreneurs) within different
the businesses have sufficient liquidity and in- areas of climate finance for mobilising adaptation
come in alignment with agricultural seasons and investments and allocating funds to specific initi-
revenue cycles. atives or projects.
14INNOVATION BRIEF
7 Coupling of service offerings
A last approach worth mentioning here that has
been integrated in several prototypes is the cou-
pling of different service offerings by finan-
cial institutions or technology providers, such
as combining the provision of financing with
sharing information about business practices
or supplying technology solutions (e. g. agri-
cultural value chain financing (AVCF)). This is a
key element in all agriculture-focused prototypes.
For instance, the smart-irrigation models in Thai-
land and Uganda connect the delivery of the ir-
rigation equipment with financing schemes (e. g.
microleasing/hire-purchase in Uganda) as well
as with the provision of agricultural inputs (e. g.
seeds, fertiliser) rather than seeing this as sepa-
rate transactions. Furthermore, sharing informa-
tion and knowledge on climate smart agricultural
practices is closely integrated in the provision of
these services as well. This approach is also taken
in the microinsurance prototype for crop and har-
vest losses in Uganda. The coupling of different
service offerings and business streams is often
facilitated by the use of extension systems and
pre-existing business networks as good access
to target markets is a key success factor. Further
requirements for successful coupling of services
are strong partnerships between finance, knowl-
edge, and technology providers or solid in-house
capacities of the main provider in the respective
service areas.
15INNOVATION BRIEF
4
IMPORTANCE OF SPECIFIC
COUNTRY CONTEXTS FOR BOTTOM-
UP ADAPTATION FINANCING
The Lab process has reconfirmed that paying attention to the very context-specific and
local demands, requirements, and capacities of countries is fundamentally important for
identifying challenges and designing and implementing approaches and solutions for
adaptation finance. An inclusive process that integrates local perspectives and knowledge
about the specific context is likely to help pinpoint the challenges to be addressed in the
most accurate way while also furthering the needed acceptance and to increase the effi-
ciency and effectiveness of proposed solutions.
Despite the many similarities across the countries and prototypes, we have identified
some fundamental differences throughout the Lab process that need to be considered
when developing or replicating respective prototypes.
The most obvious varieties exist in the general In line with this, paying attention to the very
levels of economic development in the three context-specific demands, requirements, and ca-
countries that are directly reflected in the way pacities is fundamentally important when imple-
the respective banking sectors are structured. menting creative processes for developing inno-
Financial institutions in Thailand and India are vative solutions to existing challenges in specific
generally very well established but have limited sectors and countries, such as the prototypes for
interest and capacity to work in the specific field adaptation finance challenges in this case. It is in-
of adaptation finance. In contrast, the banking teresting to see the huge differences in the levels
sector in Uganda is significantly weaker and lacks of complexity in the prototypes across the three
capacity and presence in a couple of sectors and countries. What can be drawn from this is that
certain geographical areas. The development of challenges in a less developed sector can often
new financial instruments for adaptation need to be tackled most effectively by rather small but
take such differences into account in order to be focused innovations and straightforward solu-
effective. tions (e. g. irrigation financing model via microle-
16INNOVATION BRIEF
asing in Uganda) whereas overly complex instru-
ments might not even work that well in the same
context. On the other hand, in a highly technol-
ogy-driven country like Thailand, there is great
appetite for purely tech-driven innovations that
integrate blockchain technology and cryptocur-
rencies, whereas potentially effective but simple
solutions addressing a specific challenge might
fail in creating excitement among the target
group.
Another key aspect to keep in mind that has in-
tentionally been kept out of the creative process
in the Lab, but has come up in most groups, is the
policy and regulatory framework in the respec-
tive countries. The intention of the Lab process
was to develop private sector driven prototypes
and instruments rather than new policy recom-
mendations for the government. However, paying
attention to the existing policies in a country is
crucial for developing effective new approaches
and solutions. Therefore, the focus was to devel-
op instruments that can work in the given frame-
work without any conditions attached that min-
istries need to change regulations first. Examples
of relevant policies to pay attention to in the pro-
totype design include existing subsidy schemes
for specific sectors or banking regulations. It is
important to make sure that these framework
conditions are kept in mind even if policy con-
siderations are not dominant in the design stage
as all developed solutions need to be applicable
to the respective regulatory framework in the roll-
out stage in order to be effective.
17INNOVATION BRIEF
5
APPROACHES FOR BOTTOM-UP
ADAPTATION FINANCING
In the following Appendix, we present the six different prototypes of financial instru-
ments that have been created by the working groups in the Lab process 2018 in Uganda,
Thailand and India. The prototypes are presented in the form of mostly standardised Con-
cept Notes that have been pre-structured by the Lab facilitators but written by the respec-
tive Challenge Hosts and Prototype Developers within the working groups (see Appendix
II for more information on the process). Progress with regards to preparing the roll-out of
the models differs between the prototypes. As all approaches are still in prototype stage
or early roll-out, it is too early to draw any conclusions about their impact potential and
actual implementation at this stage.
Uganda India
1. Mobile-Enabled Microinsurance 3. Green MSME Finance Tool
hosted by Financial Sector Deepening (FSD) Uganda hosted by TARA and Grameen Capital
Offers smallholder farmers superior agriculture in- Offers a knowledge platform for providing data and
surance by leveraging mobile technology and relia- frameworks to banks for understanding green-tech-
ble weather indexing for improved product delivery, nology-based enterprises and evaluate them for fi-
servicing, and claims pay-outs. nancing. The Green MSME Finance Tool addresses
the information gap in banks on green finance and
2. Irrigation System Microleasing for High-Value Crops high transaction costs in assessing green enterprises.
hosted by Swisscontact
Directs deal flow to climate-smart irrigation sys- Thailand
tems to improve productivity and climate adapta- 4. Last of Ours – Blockchain-based Conservation Fund
tion capacities of small-scale agribusinesses. The hosted by KXmade
micoleasing product provides low-risk microleasing Offers a platform for wildlife conservation initiatives
with buy-back options, payments adjusted to crop to raise awareness and fund their projects. Last of
cycles, decentralised delivery via technology suppli- Ours brings people together to protect our planet‘s
ers, and awareness raising & training. endangered species & habitats and creates a shared
value between social entertainment & real-world
impact.
18INNOVATION BRIEF
5. Global Mangrove Trust – A Blockchain-based
Conservation Finance Incentive
hosted by Global Mangrove Trust
Offers a digital platform based on blockchain that
enables households and businesses around the
world to undertake direct, transparent and efficient
support for community-based mangrove forest
projects.
6. Smart-Irrigation-as-a-Service Financing Vehicle
hosted by UNFCCC Regional Collaboration Centre
(RCC) Bangkok / Institute for Global Environmental
Strategies (IGES)
Directs deal flow to climate-smart irrigation systems
to improve productivity and climate adaptation ca-
pacities of small-scale agribusinesses. The vehicle
provides microfinance alongside technical assis-
tance and aggregates smallholder farmers at the vil-
lage level.
19INNOVATION BRIEF
APPENDIX I
PROTOTYPE CONCEPT NOTES
Authors:
All concept notes have been primarily conceptualised and written by the respective
Challenge Hosts (mentioned at the top of each concept note) and their working groups.
The team of PLCF facilitators, namely Jonas Restle, Mirko Zürker, Maggie Sloan, and
Kathrin Kirsch have provided support in the process of compiling and writing the con-
cept notes.
20INNOVATION BRIEF
APPENDIX I
1 MOBILE-ENABLED MICROINSURANCE
Hosted by FSD Uganda in PLCF Uganda
1.1. Synopsis of Product Prototype
The Mobile-Enabled Microinsurance prototype catalyses mobile-based technology to in-
crease access to and improve the quality of agriculture insurance solutions offered to
small-scale agribusinesses in Uganda. Real-time risk management and efficient pay-
outs are major challenges to existing agriculture insurances. This is complicated by a lack
of public awareness of the purpose of agriculture insurance and the wide geographical
spread of agribusinesses across Uganda. The Mobile-Enabled Microinsurance product aims
to insure commercial small-scale agribusinesses against production and harvest losses.
Monitoring works through real-time weather indexing. Product delivery, servicing and
claims pay-outs are facilitated by a network of insurance agents supported by local-level
representatives as well as mobile-money and communication technology. This innovative
insurance product will:
• Extend the market penetration of agriculture insu • Increase investment in commercial crops and cli-
rance among small-scale agribusinesses across key mate-smart agriculture by freeing up capital pre-
commercial crop value chains viously spent on rebuilding from weather-related
losses
• Leverage mobile-based technology to inform and
deliver insurance solutions to remote areas while
allowing flexible consultation and pay-outs
The uptake of affordable agriculture insurance which employs weather indexing and re-
sponds in real-time to consumer needs strengthens the climate resilience and adaptation
capacities of small-scale farmers to the benefit of a climate-smart agriculture sector.
21INNOVATION BRIEF
FIGURE 1
Product design of Mobile-Enabled Microinsurance
Agro-insurance Delivery &
Subsidies Agribusiness Associations Servicing
Government Local Agents
Smallholder Farmers
Flexi-Payments Insurance Policy
(using mobile- (responsive to
money) weather indexing)
ssion
Investors $ mmi Insurance Agents
$ Co
ROI ( s
Re Sale
Inves turn on
tmen Microinsurance Companies
t)
Mobile-Enabled
Microinsurance
Tech
$ n ology
Microfinance s Mark Mobile Network
e rvice et Ac
Institutions led s cess Operators
Bund
Market Market
Penetration Knowledge
Agriculture Insurance
Consortium
FIGURE 2
Product mechanism of Mobile-Enabled Microinsurance
Mobile-Enabled
Microinsurance
Weather- Bundled services
based supported by
indexing mobile money
Agro-
Consortium
60,000+
Smallholder farmers insured
(in 2-year pilot phase)
Mobile Network
Insurance Agents Providers For a climate-resilient
(with agri associations) agriculture sector
Market penetration ROI
for agriculture (Return on
insurance Investment)
Customer satification via:
Government subsidies
Real-time servicing
Mobile-enabled technology
Decentralised delivery
Private-sector investors
Weather-indexed pay-outs
22INNOVATION BRIEF
1.2. Innovative Characteristics
Mobile-Enabled Microinsurance is equipped to improve market penetration and product
delivery and servicing through the following innovative characteristics:
Leverages mobile-based technology Streamlines claims pay-outs with
for bundled services weather indexing and mobile money
The prototype’s Insure Tech Platform utilises the tech- As a weather-based-index agriculture insurance, this
nical capacities of mobile phones, especially feature prototype pegs pay-outs to weather (i. e. rainfall and
phones, for improved geographical coverage and ease temperature fluctuations) rather than actual losses
of use. This platform is able to send messages, pro- in agriculture yields. Mobile-Enabled Microinsurance
cess complaints and efficiently issue claims pay-outs. employs existing weather indexing data used by the
Flexi-payments and a simplified refund policy im- Ugandan Agro Consortium and dispenses insurance
prove usability. The technology is provided free-of- pay-outs when levels deviate from the average by a
charge and is equipped to field requests in multiple certain degree. Pay-outs are efficiently delivered via
languages. The platform adopts a mixed technology the Insure Tech Platform’s mobile-money function and
interface that combines mobile-money with toll-free guaranteed within 10 – 20 days after the claims receipt.
calling and texting. Using weather data for pay-out decisions has several
Insure Tech Platform’s marketing platform offers key advantages: it helps to overcome the significant
consumers more than potential claims pay-outs. This monitoring issue of using actual harvest losses, it re-
technology allows for real-time climate risk and agri- duces transaction costs for insurance companies and
cultural market updates. The Insure Tech Platform in- farmers, and it allows a comprehensive country-wide
forms small-scale agribusiness networks of agriculture insurance coverage without insurance offices in all
input and technology promotions (e. g. promotions on regions.
fertilisers, irrigation systems or seeds in partnership
with agricultural input companies) and training. The Targets commercial crop value chains
bundled services offered are specifically aimed at im- The insurance product targets small-scale agribusi-
proving the adaptation capacities of smallholder farm- nesses which produce commercial crops, i. e. crops
ers. The combination of insurance and agricultural that lend themselves to commercial value chains. This
information incentivises policy purchase and allows focus on commercial crops emphasises the economic
farmers to derive further benefits from the capital in- value derived from insuring these crops and incen-
vested in premium payments. tivises private-sector cooperation, particularly the in-
volvement of insurance companies.
Decentralises delivery and servicing
through insurance agents Guarantees affordable insurance pricing
A network of insurance agents will improve public Policy prices for Mobile-Enabled Microinsurance are
access to insurance information and mobile-enabled responsive to the buying capacity of small-scale ag-
technology. These agents are central to on-boarding ribusinesses in Uganda. Product pricing accounts for
(customer acquisition) as well as for complaints han- current government subsidies for agriculture insur-
dling and pay-outs. Agents work directly with commu- ance as well as the price barriers of value added tax
nities to ensure ease of delivery and continued support. (VAT) and stamp duty collected on agriculture insur-
They are equipped with training materials to empower ance. Prices are determined through a comprehensive
local community leaders to hand over components of pricing analysis that employs financial sector and de-
on-the-ground support. Agents earn commission on velopment index data provided by key private and so-
their insurance sales which incentivises their involve- cial sector actors.
ment during the early stages of product dissemination.
These financial incentives will be replaced by more
limited peer-to-peer information delivered through
the local representatives.
23INNOVATION BRIEF
Secures consumer buy-in through questions and concerns, raise awareness, and improve
community-based networks risk tolerance among small-scale agribusinesses. The
Insurance agents, fundamental to product roll-out, are respected status and position of local council leaders
supported by a network of agribusiness associations and extension practitioners in communities are lever-
and community leaders. Mobile-Enabled Microinsur- aged to promote agricultural insurance solutions and
ance capitalises on existing networks to respond to provide continual training.
1.3. Target Market
During the two-year pilot phase for Mobile-Enabled Microinsurance, the product aims to
insure 60,000 farmers through a USD 1 million investment. The product targets small-
scale agribusinesses that produce higher value commercial crops. These farmers are sig-
nificant contributors to economic growth in the agriculture sector and are particularly
vulnerable to weather shocks due to their lack of collateralisable farm assets available to
respond to climate-related production disruptions. These farmers are accessed through
partnerships with agribusiness associations. The 18 – 24 months pilot phase collates valua-
ble comparative data for improving the delivery and servicing of responsive and accessible
agricultural insurance.
Selection of pilot value chains and regions 2. Eastern Uganda
Two target value chains and two regions are selected In Eastern Uganda, maize, lowland rice and soya dom-
for the pilot stage which have a significant economic inate commercial crop production. Similarly to North-
impact on the agriculture sector and face unpredict- ern Uganda, smallholder farmers – who typically own
able weather shocks in Uganda. The regions selected their land or lease – rotate production between multi-
also have sufficient available weather data and strong ple crops throughout the year.
networks of farmers and community leaders. Pilot val-
ue chains have been selected for the level of available Mobile-Enabled Microinsurance financing model
rainfall and agricultural productivity data. The value Mobile-Enabled Microinsurance offers convenient in-
chains selected have proven commercial value and are stalment payments (beginning before the season) on
at the core of economic growth in Ugandan agriculture. affordable agriculture insurance. The product’s pricing
structure and use of mobile-enabled technology for
1. Northern Uganda payments address the shortcomings of existing agri-
Northern Uganda is a major (and growing) commer- culture insurance with complicated and slow payment
cial producer of sunflower, upland rice and soya. Soya systems. Mobile-Enabled Microinsurance is eligible
production typically rotates with that of other crops for government subsidies and leverages the success
and each crop has different rainfall requirements for to-date of the Agro Consortium’s insurance solutions
optimal yields. These crops are produced in Northern through a product that is able to multiply access to ag-
Uganda on a larger commercial-scale and by small- riculture insurance in Uganda.
holders. In terms of smallholder farming, land is typ- Expected initial investment costs over the two-year
ically owned by the smallholder farmers themselves pilot period total USD 1,024,000 (based on detailed cost
though the proportion of farmers who lease remains analysis – not included in this paper). With this level
high. These farmers are often unaware of the adapta- of investment, 60.000 smallholder farmers could be
tion advantages and availability of agricultural insur- reached.
ance. The land ownership structure among smallhold-
er farmers who both own and lease land and diversity
of rainfall requirements for each crop make North-
ern Uganda an ideal pilot region for Mobile-Enabled
Microinsurance.
24INNOVATION BRIEF
FIGURE 3
Target market of Mobile-Enabled Microinsurance
Selection criteria for pilot markets:
60,000 • Reliable rainfall and crop yield data
• Commercial value of crops
Investment required: Small-Scale • Land ownership
USD 1 million Agribusinesses /
Farmers
(~20 acres) REGION I REGION II
Northern Uganda Eastern Uganda
Soya, rice, sunflower Lowland rice, soya, maize
1.4. Impact Potential
Educate and secure buy-in of small-scale Improve climate resilience, productivity
agribusinesses / farmers and food security
• Improved awareness of insurance benefits among • Reduction of production losses from changing
small-scale agribusinesses rainfall
• More smallholders trained in sustainable agriculture • Adoption of climate-smart practices
and mobile-based technology • Improved commercialisation potential of crop yield
Extend agriculture insurance market
• Increased number of insured small-scale agri
businesses
• Improved customer satisfaction with superior deliv-
ery and servicing
1.5. Key Partners & Resources
To support the roll-out of the prototype, following players have been identified
as potential partners:
Mobile network operators (MNOs) and tech platform changing weather-related production risks. The Agro
providers deliver the technical support required to de- Consortium utilises quality data provided by EARS
velop and maintain information and communications Earth Environment Monitoring, which will be used for
technology (ICT) infrastructure. Airtel and MTN Ugan- Mobile-Enabled Microinsurance. The Food and Agricul-
da have the adequate mobile-money Unstructured ture Organization of the United Nations (FAO) offers
Supplementary Service Data (USSD infrastructure to weather-based risk mapping that will be referenced in
support the Insure Tech Platform by providing their in- the design and analysis of risk profiles in the determi-
frastructure for premium payments, claims pay-outs nation of microinsurance premiums.
and updates.
Insurance companies which offer insurance products
Weather indexing analysts facilitate the procure- specifically targeted at smallholder farmers and their
ment of real-time weather data which is responsive to risk profiles will provide their expertise and adapt their
25INNOVATION BRIEF
products through the use of mobile-enabled technolo- ed policies which incentivise commercial crop produc-
gy. The Mobile-Enabled Microinsurance prototype spe- tion using sustainable agriculture methods. Subsidies
cifically targets insurance companies involved in the administered by the Ministry of Finance through the
Uganda Agriculture Insurance Scheme (UAIS) – a key UAIS will ensure deal-flow to target consumers.
co-financing opportunity. m-Omulimisa (key product
developer) has a Memorandum of Understanding with Community leaders from local councils and Savings
the Agriculture Insurance Consortium. and Credit Cooperative Organizations (SACCOs) pro-
vide access to target markets and ensure localised
Sector-specific experts and agribusiness networks support networks available to support consumers with
comprised of agriculture-focused non-governmental payments, claims and troubleshooting.
organizations (NGOs), extension systems, agribusiness
associations and development organisations contrib- Microfinance Support Centre offers bundled products
ute consumer market analysis insights and facilitate of agriculture inputs (i. e. seeds and fertilisers primar-
access to target markets. ily) with agriculture insurance integrated. This micro-
finance centre facilitates access via loans to bundled
Government officials from the Ministry of Agriculture agricultural inputs through which the agricultural in-
must support the climate finance product with target- surance is delivered.
1.6. (Co-)Financing Opportunities
Multiple co-financing opportunities exist to coordinate activities with insurance compa-
nies and venture capitalists as well as through various government subsidy schemes and
grant programmes.
Uganda Agriculture Insurance Scheme (UAIS) Agro Consortium: UAIS
The major focus of the Mobile-Enabled Microinsurance The Agro Consortium in Uganda has helped to re-
prototype is to strengthen the efforts and delivery of duce the costs of agriculture insurance for small
agriculture insurance issued through the UAIS. This and large scale farmers through the UAIS, a pri-
private public partnership (PPP) with the Uganda In- vate public partnership launched in 2016 with
surers Association (UIA) is a consortium of insurance ten insurance companies from the UIA and the
companies and government bodies with the support Government of Uganda (Ministry of Finance).
of international financial sector, research and NGO The scheme provides government subsidies of
partners. 30 – 80 % for insurance premium payments, with
a 50 % subsidy provided to smallholder farmers
and 80 % to both small and large scale farmers in
particularly vulnerable areas.
1.7. Challenges in Implementation
ICT specifications and infrastructure Insurance and digital literacy
Technology specifications are multi-faceted, mixing Many small-scale farmers and potential community
mobile-money USSD with toll free support. This re- leaders lack knowledge of mobile money and agricul-
sults in complex structures and high costs associated ture insurance. This is a major challenge to improved
with the delivery of mobile technology infrastructure market penetration for agriculture insurance. Insur-
and troubleshooting. This challenge needs to be miti- ance agents and MNOs are required to improve the
gated in partnership with major MNOs. insurance and digital literacy of smallholders through
product training and support mechanisms.
26INNOVATION BRIEF
Regulatory constraints Distribution and customer service
Regulators are largely unfamiliar with innovative mo- The dispersed network of insurance agents and com-
bile technologies and taxes (VAT and stamp duty) re- munity leaders and adoption of largely unused mo-
main high on agriculture insurances. The pilot phase bile technologies for insurance purposes complicates
for Mobile-Enabled Microinsurance depends on effec- product distribution and customer service. The mixed
tively communicating the need for mobile-enabled structure of delivery – with insurance agents moving
agriculture insurance to address the limitations of between and community leaders remaining in com-
current insurance schemes and to reduce taxes that munities – ensures efficient product training and con-
render these risk management solutions unaffordable tinuous customer support.
for small-scale agribusinesses.
1.8. Market Analysis for Mobile-Enabled Microinsurance
Overview of agriculture sector attractive insurance options to protect them from such
SMEs, including small-scale agribusinesses, play a shocks are rare.
significant role in economic growth and inclusion in Weather shocks can destroy expected returns from
Uganda. The 2018 World Bank report on the status of harvests and trap farmers and households in cycles
Ugandan agriculture reports that the agriculture sector, of poverty. Weather-related risks also limit the will-
which contributes half of all exports and one quarter of ingness of farmers to invest in advanced technology
Uganda’s Gross Domestic Product (GDP), employs 70 % and resources to increase their productivity and pro-
of Ugandans primarily on smallholder farms. The cur- duce higher value crops. Without insurance, farmers
rent National Development Plan in Uganda identifies dedicate tremendous resources to protect themselves
the strategic importance of the agriculture sector on against risks or rebuild their assets in response to loss-
economic growth and inclusion. However, issues with es. Insuring smallholders against weather-related pro-
productivity and crop value have a destabilising effect duction risks would increase their resilience to these
on the sector and food security in Uganda. These chal- shocks and ensure that capital is available to invest
lenges drain potential income from farmers and are in more sustainable and climate-resilient produc-
exacerbated by the increasing occurrence of weath- tion measures. A climate resilient agriculture sector
er-related shocks and a lack of collateralisable farm depends on insurance solutions which are targeted
assets to respond to these shocks. Targeted insurance at small-scale agribusinesses and account for their
solutions help to mitigate production risks and protect unique risk profiles while enabling the further adop-
small-scale agribusinesses from losses incurred from tion of climate-smart agricultural practices.
unpredictable weather.
Overview of insurance sector
Overview of climate resilient agriculture Despite the potential for insurance solutions to sup-
Global food security depends on a stable agricultural port a climate resilient agriculture sector, only 1 % of
sector that is resilient to climate-related shocks. Fluc- the Ugandan population is insured with particularly
tuating temperatures and rainfall patterns threaten the low levels of insured small-scale farmers. This is de-
productivity of millions of smallholder farmers global- spite 11.75 % growth on average in the insurance sector
ly who are at the core of agriculture systems and a ma- since 2012, as calculated by the UIA.
jor source of employment, supporting approximately Despite the financial incentives offered by the Agro
two billion households. These smallholder farmers are Consortium’s agriculture insurance, Ugandans struggle
central drivers of climate-smart agriculture through to afford insurance products and many insurance pro-
their common adoption of environmentally friendly viders and associates, including the UIA, are lobbying
production methods which actively preserve biodiver- for the reduction of VAT and stamp duty on insurance
sity. Despite the contributions of smallholder farming services. Public trust in and understanding of insur-
to global food security and sustainable, income-gen- ance products remains low and technology has largely
erating agriculture, small-scale agribusinesses remain not been leveraged to disseminate insurance informa-
highly vulnerable to the impacts of climate change and tion and sales.
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