Index insurance has been heralded as a potential solution to systemic risks faced by smallholder farmers in
developing countries by covering risks such as drought, low crop yields, and low market prices. Despite its
potential, demand has remained low in many early experiments and field trials. Little research has been
done, however, on demand for insurance as it is coupled with other services such as loans. Here, willingness
to pay for drought index insurance backed loans is investigated using contingent valuation methodology.
Results demonstrate that on average the sample population has a willingness to pay high enough to sustain
a market viable insured loan product without subsidization with 56% of the target population expressing a
willingness to pay for an insured loan at the market price. Results also show a positive and significant WTP
for individual policies and to avoid basis risk resulting from rainfall measurement.