Global Parametrics (GP), provider of parametric protection against climate risks in emerging markets, has structured two risk transfer solutions using its new Water Balance Index (WBI), to enable partners to provide drought and excess rainfall protection for smallholder farmers in India and Tanzania.

The company describes the WBI as a multi-scalar meteorological index using monthly cumulative rainfall and potential evapotranspiration to estimate departure from the climatological norm.

The Index utilises 40-years of daily atmospheric reanalysis data supplied by the European Centre for Medium Range Weather Forecasts (ECMWF) at a 31km resolution.

In the first of the two programs, GP has structured a risk-transfer solution for Luxembourg Insurtech, IBISA, providing them with a backstop that will mitigate the impact of extreme weather events allowing them to scale their operations in India.

In the second of the two programs, GP has partnered with One Acre Fund (OAF), a non-profit social enterprise which provides training and finance to smallholder farmers in East Africa.

The program will make use of the WBI in Tanzania to provide OAF with a tailored product to manage adverse impacts from drought and excess rain to its network of 70,000 maize farmers.

Should the index trigger, payments will be made directly to OAF who will use the capital for loan forgiveness to the farmers across impacted sites.

Both solutions in India and Tanzania are structured as an over-the-counter derivative and are backed by GP's Natural Disaster Fund (NDF). Through its partnership with Hannover Re, the NDF cedes 50% of the risk, bringing the global reinsurer into the transaction.

Professor Jerry Skees, Director and co-founder of GP commented: “Our Water Balance Index enables us to characterise agricultural risk anywhere in the world, particularly in areas where reliable information is not available. Deploying the Index means we can now extend our footprint into India and Tanzania and provide protection for communities who need it most.”

The company states that nearly 65% of the population in Tanzania is employed in agriculture and the incomes and livelihoods of much of the population are tied to annual yield, which is severely impacted by fluctuating rainfall levels.

Similarly, in India, agriculture employs over half of the workforce, yet 68% of cultivatable area is vulnerable to drought impact as a result of unexpected climate and weather events.