1. Introduction to Dr. Arup Chatterjee
Arup Chatterjee is Principal Financial Sector Specialist with the Sustainable Development and Climate Change Department at the Asian Development Bank’s headquarters in Manila. He has over three decades of experience in the operational, regulatory and policy aspects of the insurance and pensions sector in Asian, African and Latin American countries.
In his current role, he is responsible for leading financial sector development initiatives and providing operational support in the areas of insurance, contractual savings, and financial inclusion. His technical assistance and program development work focuses financial sector reform and development, regulatory and supervisory oversight architecture, pension and health insurance reforms, disaster risk financing, agriculture insurance, public- private partnerships, and FinTech.
Arup represents ADB in International Association of Insurance Supervisors, Islamic Financial Services Board, International Actuarial Association, InsuResilience Global Partnership for Climate and Disaster Risk Finance, and Access to Insurance Initiative.
He has earlier served as Principal Administrator of the International Association of Insurance Supervisors at the Bank for International Settlements in Basel, Switzerland, Joint Director of Insurance Regulatory and Development Authority of India, and Officer on Special Duty of the Ministry of Finance, Government of India. He started his career as a direct recruit officer with the General Insurance Corporation of India.
He holds Bachelor degree with Honors in Economics and Mathematics from the University of Delhi, Master in International Economics from School of International Studies, Jawaharlal Nehru University and Master in International Business from the Indian Institute of Foreign Trade.
2. Impressions of Attending the ADBI-KREI Food Security and Sustainable Agriculture Forum
The ADBI-KREI Food Security and Sustainable Agriculture Forum in Seoul forum was an excellent opportunity to participate. Although the concepts of food security and sustainable agriculture are two important paradigms in food system discourse, they are often never addressed together, as they were at this forum.
I heard inspiring words about the application of new tools and techniques in Korea to foster a smooth transition toward sustainable food systems with long‐term food and nutrition security. The Korea Rural Economic Institute; the International Cooperation Bureau, Ministry of Agriculture, Food, and Rural Affairs; and the Korea Agency of Education, Promotion and Information Services in Food, Agriculture, Forestry and Fisheries assured their readiness to engage with developing countries to support smallholder farmers. This would include increasing farmer productivity and incomes by sharing knowledge about modern agricultural practices and technology, as well as linking them to markets through participation in the global value chain.
Budgets in developing countries for food security remain severely constrained, including agriculture and nutrition components. In addition to public funding, agricultural development requires high private investment. The latter lags potential in most developing countries because investors and banks show little interest in a sector associated with high climate, price, and counterparty risks, in addition to market failures.
Innovative financing needs to be encouraged and to complement traditional ODA, as well as to catalyze private investment in sustainable agriculture to achieve food security and nutrition objectives.
Climate change and demographics can undermine agricultural productivity. In this context, one needs to explore further the role of insurance and pensions as incentivizes to lending and transform rural livelihoods. Future dialogue should also include discussions on social assistance and protection, innovative credit, risk management tools, data, and public-private partnerships.
2. Key Problems of the Current Social Security System
The rural sector is vulnerable to a variety of shocks due to natural hazards and economic, social, and political risks, and the frequency and severity of shocks have increased in most countries. According to rough estimates, about 3 percent of extreme poor in low and 24 percent in middle-income countries have access to social insurance and social assistance programs. And for those who have access, the coverage of both contributory and non-contributory social protection is often meager, leaving poor households without effective mechanisms to manage risks and shocks. In addition, the coverage of both contributory and non-contributory social protection is usually narrow, leaving poor households without a minimum income or mechanisms to effectively manage risks and shocks.
What’s more, climate change, demographics, and urban migration are challenging informal coping or protection mechanisms where local communities traditionally played an important role.
A coherent policy framework, integrating growth and macroeconomic policies, employment, health and pensions policies, rural and agricultural development, and investment and financial inclusion policies, are needed to work together in addressing social protection gaps and poverty facing rural areas.
3. Better Social Protection Can Help Asia’s Rural Dwellers Join Prosperity
Rural dwellers in Asia and the Pacific need stronger social protection measures to help them share in the prosperity that has become the hallmark of the region. Measures such as pension schemes and health, crop, and livestock insurance can be combined with other often over-looked financial inclusion measures to cushion rural regions against declining and aging populations.
Despite impressive social gains and improvements in living conditions in many countries in the region, two-thirds of the world's poor and malnourished populations live here and are highly concentrated in rural areas. These communities are afflicted by underinvestment in rural infrastructure, lack access to finance, markets, and know-how, and suffer persistent rural gender inequality. Residents frequently rely on informal channels for credit and suffer weakening community systems and lack of financial instruments to diversify their risks.
Yet, agriculture remains an essential source of livelihood. Boosting agricultural productivity growth is, therefore, critical to reducing deep and widespread rural poverty and promoting inclusive growth. It is central to the modernization of agriculture, integrating with global value chains, increasing incomes, and reducing inequality.
A Risky Rural Landscape
Numerous contingencies afflict rural populations, including sickness and maternity issues, accidents, disability, and the death of a breadwinner. Rural dwellers may lack steady incomes, including old-age pensions, and farmers may lose assets, crops, and livestock. Climate change compounds the risks.
Most of the time, short-term coping strategies—such as selling or drawing down household or community assets, formal and informal credit, targeted safety nets, and donor assistance—are the only recourse. Yet these carry long-term costs. Vulnerable groups such as migrant labor, rural elderly, religious and ethnic minorities, and women are more likely to be excluded, as formal social protection systems remain fragmented.
Also worrying are the steady declining agricultural labor forces, aging farmers, and that more than half of Asia's population has no social protection. Even where some social assistance exists, rural populations are less than 50 percent of the total population.
Mechanisms that assure old-age income security to farmers need to be introduced, not only for those who retire but also to attract enough young people to step into their shoes so agriculture can reach potential.
Social Protection in Targeted Rural Development Can Help
Social protection interventions can, therefore, be a catalyst for rural development efforts by helping overcome liquidity constraints and access to credit. Such interventions would better enable rural dwellers to build assets and manage risk and improve nutrition and food security.
With lasting effects on investments in human capital and adding skills to tomorrow's workforce, these interventions can raise the greatest number of people from extreme poverty. Universal systems, including social protection floors, can help ensure shared prosperity.
Combining traditional government social assistance measures—minimum support prices, subsidized farm inputs, loan waivers, cash transfers, and employment guarantees—with a mix of compulsory and voluntary insurance and pension schemes can help design a nationally appropriate social protection system. Programs can include crop and livestock insurance that extends coverage to loss of yield or income rather than mere input costs. It can also include life, health, and accident insurance and old age, and disability pensions.
Financial Inclusion—The Missing Half of Social Protection
Today, the financial sector does not adequately cater to the economic importance of agriculture and rural development. Livelihood losses thus remain the responsibility of governments with limited fiscal space, leaving poor farmers vulnerable as they instead fend for themselves. Even so, social protection and assistance are not a panacea for curing all the ills of the farm economy.
By linking social sector interventions with financial inclusion, therefore, rural populations can access such formal financial services as credit, savings, insurance, and guarantees. This will transform livelihoods, empower rural women as principal agents in poverty eradication for food security, and optimize economic multiplier effects.
Rural inhabitants also need help in managing their risks. This means market-based solutions that combine risk retention, risk sharing, and risk transfer carefully designed to de-risk agricultural finance and give farmers the incentive to take risks that will allow them to introduce modern agricultural practices.
Linking credit with insurance and guarantees is an essential aspect of this approach. The benefits of doing so include protecting debt-service exposure against catastrophic events and reducing default rates and thus maintaining creditworthiness. It will also help smooth incomes over time and build up savings and collateral, which eventually will translate into more significant loan amounts. For the government, higher farmer incomes can reduce emergency assistance outlays.
Governments can support agriculture and livestock insurance through a range of interventions. These include crafting an enabling policy environment that “crowds-in” private-sector players, providing data, and supporting product design and development. Governments can also provide subsidies and risk financing, stand as a reinsurer of last resort, and build awareness.
Meanwhile, social pensions for elderly farmers, especially in countries with significant informal employment, can incentivize rural dwellers to remain engaged in agricultural pursuits.
Also essential is a corresponding investment in agricultural infrastructure—farm-to-market-roads, irrigation, storage, and logistics facilities—if rural hinterlands are to connect to agriculture markets. Alongside enhanced research and development and technical training, this will boost employment opportunities for rural youth and help them to participate in the agriculture value chains.
For the transformation of the rural sector, financial markets with a rural focus need developing and linking with new technologies such as remote satellite-based sensing as well as fintech and agtech. This entails more investment in rural finance infrastructure and structuring innovative financing solutions, agricultural production, and trade.
The future is rural too
In short, the future doesn't belong to the city alone. We all need to be more responsible for sustainable food security. For far-reaching socioeconomic impacts, national policies and investments also need to help vitalize rural regions, enhancing their resilience and making growth more inclusive.
If governments do not allocate enough funding for rural development, efforts to free small-scale farmers from poverty and ensure food security will be a pipe dream. In this, expanded social protection systems and well-calibrated financial misrepresent to gain undue benefits from insurance. This will improve the management of insurance portfolio risk. Inclusion strategies using new technology are also crucial.
We must be mindful of unintended consequences. While ex-post mechanisms like social protection should not crowd out ex-ante financial instruments such as insurance. It also has to be remembered that insurance creates a moral hazard for credit providers. Appropriate checks and balances will ensure that beneficiaries do not intentionally deceive.
Rural transformation and poverty reduction take time. If not adequately planned for, agricultural development that is intensive in the use of natural resources can slow poverty reduction. As such, reducing poverty in the long term in rural areas needs planning that integrates social development.