Pula, a Kenyan insurtech startup that specializes in digital and agricultural insurance to derisk millions of smallholder farmers across Africa, has closed a Series A investment of $6 million.
The round was led by Pan-African early-stage venture capital firm, TLcom Capital, with participation from nonprofit Women’s World Banking. The raise comes after Pula closed $1 million in seed investment from Rocher Participations with support from Accion Venture Lab, Omidyar Network, and several angel investors in 2018.
Founded by Rose Goslinga and Thomas Njeru in 2015, Pula delivers agricultural insurance and digital products to help smallholder farmers navigate climate risks, improve their farming practices and bolster their incomes over time.
Agriculture insurance has traditionally relied on farm business. In the U.S. or Europe with typically large farms, an average insurance premium is $1,000. But in Africa, where smallholding or small-scale farms are the norm, the number stands at an average of $4.
It is particularly telling that the value of agricultural insurance premiums in Africa represents less than 1% of the world’s total when the continent has 17% of the world’s arable land.
This disparity stems from the fact that the traditional method of calculating insurance through farm visits is often unaffordable for these smallholder farmers. Thus, they are often neglected from financial protection against climate risks like flood, drought, pestilence, and hail.
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Pula is solving this problem by using technology and data. Through its Area Yield Index Insurance product, the insurtech startup leverages machine learning, crop-cut experiments and data points relating to weather patterns and farmer losses, to build products that cater to various risks.
But getting farmers on board has never been easy, Goslinga told TechCrunch. According to her, Pula has understood not to sell insurance directly to small-scale farmers, because they can suffer from optimism bias. “Some think a climate disaster wouldn’t hit their farms for a particular season; hence, they don’t ask for insurance initially. But if they witness any of these climate risks during the season, they would want to get insurance, which is counterproductive to Pula,” said the founder in a phone call.
So the startup instead partners with banks. Banks provide loans to farmers and make it compulsory for them to have insurance. With the loan, banks can pay the insurance on behalf of the farmers at the start of the season. But at the end of the season, the farmer has to repay the loan with interest.
“The unit economics doesn’t work for us to work with farmers directly. But with banks, we know they provide loans to farmers with much better margins to pay for insurance. Also, we work together with government subsidy programs since they’re also interested in protecting their farmers.”
Through its partnerships with banks, governments, and agricultural input companies, Pula is at the center of an ecosystem that provides insurance to smallholder farmers and has amassed 50 insurance partners and six reinsurance partners.
Its clientele includes the likes of the World Food Programme and Central Bank of Nigeria, as well as the Zambian and Kenyan governments. Social enterprises like One Acre Fund, startups like Apollo Agriculture, and agribusiness giants like Flour Mills and Export Trading Group are also among Pula’s clients.