Swiss Re has entered into a weather derivative contract to pay up to $US5 million ($7.6 million) if Malawi’s farmers suffer from a drought-related shortfall in maize production.

The contract with the International Development Association, a World Bank division that assists poor countries, works so the maximum payout is reached if maize production drops to 10% below the historical rainfall average.

Swiss Re says the strategy will help mitigate the financial impact of drought in Malawi.