The World Bank has approved a USD10-million scale-up of the Index Based Livestock Insurance Project (IBLIP) in Mongolia. IBLIP, introduced in 2006, provides herders with insurance through partnering with local private insurance companies, to get protection against climate-related losses to livestock.

Managing risk in the livestock sector requires a combination of risk mitigation and financial approaches. Pastoral risk mitigation, including winter shelters, fodder crop storage and improved management of winter pastures, can help herders better prepare for moderate weather events. In extreme events, like the dzud Mongolia is currently experiencing, high levels of livestock mortality are often unavoidable. Pastoral and herd management must therefore be complemented by financial mechanisms that provide herder households with immediate liquidity after a disaster.

This additional funding was approved following the success of the pilot project which is currently being implemented in four provinces. With the new funding, IBLIP will now be expanded, with the potential to reach all 21 provinces by 2012.

“Since IBLIP began, the technical viability of the insurance has been sufficiently demonstrated for a gradual scale-up to be appropriate. The number of herders purchasing insurance has increased every year and local insurance firms remain committed to selling the product. In 2009, indemnity payments were made to all 2,117 herders who were eligible following livestock losses,” Andrew Goodland, Senior Agriculture Economist and the Task Team Leader, has said.

The program is a combination of self-insurance, market based insurance and a social safety net. Herders bear the cost of small losses that do not affect the viability of their business, larger losses are transferred to the private insurance industry. Only the final layer of catastrophic losses is borne by the Government.

“The scale up will enable the Government of Mongolia to support herders in a way that is market-oriented. At the same time it allows herders to focus on the quality of their livestock, instead of quantity, by not having to worry about keeping large herds as a way of protecting themselves from losses,” Goodland added.

World Bank Country Manager Arshad Sayed said, “World Bank support for IBLIP should help place this project on a sustainable path for the future, and serve both Government and herders in providing a valuable tool to manage climatic risks. It is very pleasing that the Government of Mongolia has supported this scale up with an additional USD10 million equivalent credit. It is recognition of the importance of a project like this and the positive impact IBLIP is having on herders.”

IBLIP is co-financed by the Japanese Government and the Swiss Agency for Development and Cooperation. A grant from the Korean Government is also pending.