The recent reduction in the United States Agency for International Development’s (USAID) budget has led to several projects being cancelled worldwide, as well as funding freezes and even the closure of some programmes or organisations. This change is part of the US Government’s shifting priorities towards national security and economic interests as the main aims of its international development policy. Several microinsurance providers and others involved in covering low-income populations are among the organisations affected.
Based on data collected by Brian Banks, a Business Data Analyst at USAID, at least $2.35 million in awards made to organisations providing insurance to smallholder farmers are thought to have been terminated. Affected companies include Pula Advisors and Sprout in Kenya, and Fondo Acción in Colombia. Pula’s grant, awarded in 2023, was worth $1.5 million and was to be used as part of its work for Zambia’s government-led Farmer Input Support Programme. Several other organisations, which are not yet listed among the terminated awards, have also felt the impact of the USAID cuts – or may do so soon.
Box 1: Selected microinsurance players that may be affected by USAID cuts
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Case study: How the USAID cuts have affected Luxembourg-based OKO
One of the organisations affected by these funding cuts is OKO, a Luxembourg-based Insurtech that provides weather-index insurance to smallholder farmers in Sub-Saharan Africa. Last year, Simon Schwall, OKO’s CEO, explained that the company had just launched an insurance product for the diaspora in France to buy for relatives in Côte d’Ivoire and Mali. Barely six months later, USAID had halted a flagship initiative on climate insurance for smallholder farmers in Côte d’Ivoire. This marked OKO’s first setback. What compounded the insurtech’s troubles was the suspension of its largest-ever project, as well as another sizable contract – both with USAID.
Overall, the company faces a sizable drop in revenue. The loss of such a significant sum of money has harmed OKO’s operations and financial position. A loss of revenue has resulted from unpaid invoices. In turn, this has led to reduced activity, some staff being laid off, delays in salary payments for others and a postponement of investments. Importantly, this funding change has affected some of OKO’s other partners too, which may compound the difficulty in securing alternative funding.
In the short term, this has led to increased competition for funding from other donors and investors. In OKO’s case, being part of Luxembourg’s inclusive finance ecosystem places the company at the heart of a thriving financial startup ecosystem: the Luxembourg House of Financial Technology (LHoFT). Given that financial inclusion is a core part of Luxembourg’s international development strategy, OKO offers an opportunity to promote inclusive insurance as part of developmental objectives. However, the current environment means that help is hard to come by.
For OKO and others in a similar position, this funding crisis has prompted a faster-than-anticipated move towards private-sector partnerships. Several microinsurance providers typically work with the private sector within their respective value chains; many companies act as aggregators. In OKO’s case, having previously piloted an insurance product for farmers supplying a brewery in Uganda, approaching major breweries is a natural next step. Others include agricultural companies and microfinance institutions in markets where the company operates.
Working with the private sector may offer more long-term opportunities, but these partnerships will take time to develop and scale. While exploratory conversations may continue with private entities, some microinsurance providers may face the risk of winding down projects or even closing altogether. This is a possibility not lost on Simon and his team, who are looking to merge with competitors or seeking buyers for their established businesses.
“Despite our other plans, one option we are now considering is to sell OKO to a larger organisation. In fact, we are in discussions with some brokers, reinsurers and insurance companies – including one based in the UK.” Simon Schwall, CEO of OKO |
Over the last few years, USAID funding has supported several microinsurance initiatives, particularly on using parametric insurance to improve climate resilience. While the size of the grants awarded has varied, it is clear that USAID’s intervention was having an overall positive impact. Parametric insurance, once not seen as accurate enough, has been enjoying a renaissance thanks to better-quality data availability and investments in improved technology. This has helped to lead to more congruence between parametric triggers and the ground truth.
While the change in US policy towards development objectives will continue to have an impact for some time, development agency funding has started to shift elsewhere too. From 2027, the UK will reduce its aid budget to 0.3% of gross national income. As other countries look to balance other priorities, such as defence needs, with ongoing development commitments, this moment can serve as a turning point. Deeper partnerships are necessary with the private sector, while philanthropic capital from alternative sources, such as foundations, should be carefully considered for use as pioneering capital that is subsequently followed by great private-sector involvement.