Takaful Insurance will pay livestock farmers about Sh500,000 for losses incurred during the December to March dry season.
The farmers, 30 women and 71 men from Wajir County, are the first to be compensated after they took up the Shariah compliant Index-Based Livestock Takaful (IBLT) cover in August 2013.
The cover uses algorithms to predict losses that livestock farmers in arid and semi-arid areas are likely to face.
Losses in excess of 15 per cent of what had been predicted are compensated.
Takaful Insurance said that about 4,000 livestock farmers had taken up the cover, out of an estimated population of 92,000.
The insurer said its focus is to make the Shariah-based policy more popular.
“Our goal is to show pastoralists that they can use a fair and ethical business model to protect their assets from a natural hazard of keeping livestock in East Africa,” said Takaful Insurance chief executive Hassan Bashir.
Takaful makes revenues through management fees and pays out any surpluses made. The International Livestock Research Institute (ILRI), which was part of the team that designed the policy, also said that the popularity of the package is the priority at the moment.
“This payout is critical for building confidence in the concept of insurance for drought-prone regions of East Africa where life revolves around livestock and droughts can bring disaster,” said Andrew Mude who leads the IBLI programme at ILRI.
ILRI estimates that livestock farmers in northern Kenya have cows, goats and sheep worth Sh46 billion. Cornell University and the Index Insurance Innovation Initiative (I4) at the University of California at Davis are the other partners in the project.
The World Bank has also shown interest in the livestock industry. The lender has set aside a Sh6.7 billion grant for building infrastructure meant to reduce risks for Kenyan livestock farmers.
The bank estimates that the Eastern Africa region has a livestock population of between 12 to 22 million.