Problems and Prospects of Weather Index Based Crop Insurance for Rural Farmers in Bangladesh

Abstract

Weather index based crop insurance is a new product in developing countries that address the failure of traditional crop insurance due to the problem of adverse selection and moral hazard, cost of administration, monitoring, determination of indemnity, and standardization. This desk study conceptualizes weather index based crop insurance as an instrument to graduate poor farmers out of poverty trap. I examine the advantages of this product over traditional crop insurance based on developing countries experience. The author tries to address the problems and challenges in implementing this insurance product in low income countries. Based on literature it addresses some problems and issues in implementing this product in Bangladesh considering context specific issues of this country. Proper preparation for index measurement, premium determination, flexible product design, wider stakeholder involvement, public private partnership, and a ‘big push’ from government and donors through seed financing can promote weather index based crop insurance in Bangladesh.

Key Words: Crop insurance, poverty trap, weather index.