The Marsabit district in rugged northern Kenya is the size of Ireland. It has ten tribes and seven languages but only 160,000 people. The manager of the local branch of Equity Bank says it takes two crunching days of driving his jeep through burning deserts to reach some of his customers.

Marsabit depends on cattle, camels, sheep and goats, to be sold or eaten as needs be. But for several reasons—perhaps climate change, certainly population growth—livestock losses have risen in recent years. The district has been hit by four severe droughts since 2000. The one last year killed off a third of domestic animals, a massive loss of capital.

The International Livestock Research Institute in Nairobi wants to lessen the damage by offering herders insurance for their animals. The standard types of insurance are too costly. So the institute has come up with a model that makes use of satellite data on vegetation. When rainfall and forage drop below a level that has in the past killed the animals, policyholders would be paid. The system is imperfect but cheap, and hard to defraud. A cow’s value is set at $200, a camel’s at $280. Herders pay 3-5% of their worth in annual premiums, depending on past rainfall data on the land they graze. The economist running the scheme, Andrew Mude, says it could pay its way. With tweaking to cater for varying local conditions, he thinks it can be extended across dry bits of Africa.

Read more … (The Economist)