On Risk News today, the World Bank's latest foray into climate derivatives:

The World Bank will close a weather derivatives trade by October 1 intended to hedge the Malawian government against the financial risk of severe or catastrophic drought.

The pilot trade, of approximately $3 million in notional size, is expected to be the first in a series intermediated by the institution aimed at hedging developing countries against weather risk. Indicative prices for the transaction are being gathered from market participants, and the World Bank intends to finalise it by the end of the month.

It will be part-financed by the UK Department for International Development.

The trade will be linked to an index based on the average daily rainfall between October and April across 23 individual weather stations in Malawi. The so-called water requirement satisfaction index will be weighted with a bias towards regions that are more important for producing maize, which is the country’s staple crop...

Interesting, in this context, is this paper on the link between rainfall and civil war (via economic growth) in sub-Saharan Africa. If it works, the WB scheme could do more than simply make fundraising easier.