Managing drought risk for food security in Africa: An innovative solution in Malawi

Abstract

Malawi has experienced extreme droughts and the resulting macroeconomic instability has been a major constraint to growth and poverty reduction in the country. An innovative pilot transaction occurred in 2008 transferring the financial risk of national drought to the international risk markets. Weather-risk management transactions can be customized according to each country's needs. While the tool helped Malawi manage its risk, the tool is appropriate for any country whose staple food crop is at risk to systemic weather events, such as drought.