Joy Agwunobi
Climate-driven disruptions are increasingly shaping the financial realities of smallholder farmers in Nigeria and other emerging economies as unpredictable weather patterns continue to affect agricultural productivity and income stability.
According to GSMA, climate change has heightened farmers’ exposure to risks such as droughts, floods and irregular rainfall, deepening vulnerabilities within an already underserved segment of the financial system.
In an article published by GSMA, Lisa Chassin, senior insights manager for Mobile Money, noted that these climate-related risks have direct consequences for farmers’ financial relationships, particularly their ability to repay loans. She explained that income volatility, combined with the absence of traditional collateral and formal credit histories, often discourages financial service providers (FSPs) from extending credit to smallholder farmers.
As a result, many farmers remain excluded from formal financial services, limiting their ability to invest in essential inputs, equipment and labour that could improve productivity, resilience and long-term livelihoods.
Chassin highlighted weather index insurance as one approach that could help address these challenges. Unlike conventional agricultural insurance, weather index insurance triggers payouts based on predefined weather indicators such as rainfall, temperature or soil moisture levels rather than individual farm losses.
According to the GSMA analysis, this model allows farmers to receive compensation when adverse weather conditions occur, helping to stabilise incomes during climate shocks. Chassin stated that this form of protection can function as an alternative risk-mitigation tool for lenders, reducing reliance on traditional collateral or guarantees.
She explained that, when farmers are insured, FSPs may be more willing to offer loans with reduced collateral requirements, thereby improving farmers’ eligibility for credit.
Why smallholder farmers are perceived as high-risk borrowers
The GSMA article outlined several reasons why FSPs have historically been reluctant to lend to smallholder farmers, despite the sector’s scale and economic importance.
Chassin pointed to data limitations as a major constraint, noting that lenders often struggle to assess future cash flows due to limited information on farmers’ incomes and operations. Seasonal and irregular earnings further complicate credit assessments, while the lack of formal credit histories or transaction records reduces lenders’ ability to evaluate repayment capacity.
“Smallholder farmers often have irregular or seasonal income streams, which can make it difficult for FSPs to assess their creditworthiness and repayment capacity. Many smallholder farmers have little to no credit history or transaction records that FSPs can use to evaluate their financial stability and ability to repay loans,” She explained.
She also emphasised the role of collateral constraints, explaining that many smallholder farmers do not possess land titles or other assets typically required to secure loans. This limits lenders’ options for recovering funds in cases of default.
In addition, agricultural production remains highly exposed to both weather and market risks. Climate shocks can significantly reduce yields, while price volatility can erode revenues even in favourable seasons. According to Chassin, these combined risks increase income variability and heighten the likelihood of loan defaults, reinforcing lender caution.
Bundling insurance with loans to expand access
To address these barriers, GSMA highlighted the growing use of bundled products that combine weather index insurance with agricultural loans. Over the past decade, partnerships between insurers and FSPs have increasingly focused on integrating insurance into lending models, although their impact on credit access has often received less attention.
One example cited in the article is a partnership in Mali between insurance provider OKO and microfinance institution VisionFund Mali under the RMCR Network. Through this collaboration, VisionFund staff offer weather index insurance to farmers applying for loans.
According to GSMA, insured farmers who are members of cooperatives are not required to provide loan guarantees, while insured non-members are required to provide only half of the standard guarantee. This approach has eased a key barrier to borrowing.
The partnership has also delivered benefits for participating institutions. In 2023, 326 farmers were insured through RMCR, representing eight percent of OKO’s portfolio in Mali. VisionFund Mali earned commissions on policies sold and received compensation for weather-related loan losses, with insurance payouts contributing to the partial repayment of 100 loans during the year.
Survey findings from the GSMA AgriTech Accelerator further indicated that most OKO customers who successfully obtained loans attributed their access to credit to holding an insurance policy.
Regional adoption across East and Southern Africa
GSMA also referenced similar initiatives in East and Southern Africa, where insurance provider ACRE Africa has partnered with banks and microfinance institutions in Kenya, Tanzania and Zambia.
Under this model, weather index insurance is bundled with microfinance loans. In the event of adverse weather, insurance payouts are first directed to lenders to cover outstanding loan balances, with any remaining funds paid to farmers.
Chassin noted that this structure has been particularly significant in regions where collateral requirements are typically based on land title deeds. As land ownership is often inherited or shared among family members, many smallholder farmers lack individual titles, limiting their access to credit.
By replacing collateral requirements with insurance coverage, the bundled products have enabled close to 70,000 farmers across the three countries to access financing for farm investments, according to GSMA.
Despite the benefits identified, GSMA observed that bundling weather index insurance with agricultural loans remains uncommon in many markets. Chassin attributed this to several constraints, including insurance pricing.
She explained that premiums can be high due to limited expertise in agricultural risk assessment, restricted underwriting capacity for microinsurance products and the cost of distributing insurance in rural areas. High premiums can make bundled products unattractive or unaffordable for farmers, undermining efforts to expand credit access.
While subsidies from governments or insurers can help lower costs, Chassin cautioned that such measures may not be sustainable over time, highlighting the need for more innovative and scalable business models.
She also stressed the importance of training frontline credit officers. According to GSMA, inadequate training can result in poor customer understanding of insurance coverage, weak communication and low trust, all of which can hinder adoption. Ongoing capacity building and education were identified as essential for scaling bundled products effectively.
Outlook for agricultural finance
Chassin concluded that weather index insurance offers a viable pathway for addressing persistent financing challenges in smallholder agriculture. By mitigating weather-related risks, insurance can reduce uncertainty for lenders and improve farmers’ access to credit.
When incorporated into loan assessments, GSMA noted that insurance can lower guarantee requirements, enabling farmers to invest in productivity and climate resilience. However, wider adoption will depend on collaboration among insurers, FSPs and policymakers to develop affordable products, strengthen institutional capacity and increase awareness of bundled insurance-credit models.
Implications for Nigeria’s smallholder farmers
GSMA’s analysis carries particular relevance for Nigeria, where climate-related shocks have continued to disrupt agricultural production and rural livelihoods. In 2025, several farming regions experienced severe weather extremes, including prolonged dry spells, erratic rainfall patterns and destructive flooding, all of which disproportionately affected smallholder farmers.
States such as Niger, Benue, Ebonyi,etc were among the hardest hit, with floods destroying farmlands, washing away crops and displacing farming communities. Similar weather-related losses were reported across parts of the Middle Belt and northern Nigeria, where rainfall variability and drought conditions undermined planting cycles and reduced yields. These developments further exposed the vulnerability of smallholder farmers whose incomes depend almost entirely on weather conditions.
In line with the challenges outlined by GSMA, Nigerian smallholder farmers continue to face structural barriers to accessing formal credit. Many operate without land titles, lack formal credit histories and earn seasonal incomes, making them appear high-risk to financial institutions. Climate-related losses in 2025 have further strained their repayment capacity, reinforcing lender caution at a time when access to capital is critical for recovery and replanting.
Weather index insurance, as described in GSMA’s analysis, could offer a potential risk-mitigation mechanism within Nigeria’s agricultural finance landscape. By providing payouts linked to predefined weather thresholds rather than farm-level loss assessments, such insurance could help stabilise farmers’ incomes following adverse climate events and reduce the likelihood of loan defaults.
GSMA’s findings suggest that, if bundled with agricultural loans, weather index insurance could lower collateral or guarantee requirements for Nigerian smallholder farmers, many of whom are excluded from credit due to land tenure arrangements and informal ownership structures. This is particularly relevant in rural Nigeria, where farmland is often inherited or communally managed, limiting farmers’ ability to meet traditional lending criteria.
The Nigerian context also mirrors GSMA’s observations on the importance of institutional partnerships. Collaboration between insurers, microfinance institutions, mobile money operators and agricultural cooperatives could play a role in extending bundled insurance-credit products to underserved rural communities. Such models could also align with broader efforts to deepen financial inclusion and improve climate resilience within the agricultural sector.
However, GSMA’s cautions around affordability, insurance pricing and capacity building are equally applicable to Nigeria. High premiums, limited underwriting expertise and distribution challenges in remote areas could constrain adoption if not addressed. Training credit officers and improving farmer awareness would also be critical to ensuring trust and effective use of insurance-linked loans.
As Nigeria continues to struggle with climate-induced agricultural losses, GSMA’s analysis underscores the potential role of weather index insurance as part of a broader strategy to de-risk smallholder farmer lending. While still underutilised, bundled insurance and credit products could become increasingly relevant as financial institutions seek ways to manage climate risk while expanding access to finance for one of the country’s most vulnerable economic groups.
