Microfinance and climate change adaptation

Microfinance and climate change adaptation

Can investing in microfinance reduce vulnerability to climate change?

This paper talks about possibilities of using microfinance as a coping strategy or tool for reducing peoples’ vulnerability to climate change. In doing so, the paper identifies possible links between microfinance services and climate adaptation and highlights the opportunities and the risks for reducing vulnerability among the world’s poorest populations.

Reducing peoples’ vulnerability to climate change is closely linked to the poverty reduction agenda, since poverty is both a condition and determinant of vulnerability. The paper presents views from various studies which note that the poor are already vulnerable to climate risk due to factors such as settlement on marginal lands, high dependence on climate-sensitive livelihoods, and limited access to or availability of resources to respond to shocks and stresses. Climate change will amplify, modify or introduce new types of threats, which may affect natural and human systems independently or in combination with other determinants to alter productivity of ecosystems and livelihoods. If people do not have the resources to deal with today’s stresses, then they are unlikely to be able to deal with the additional stresses associated with climate change, a condition known as the ‘adaptation deficit’ This is where, the paper suggests that     microfinance can be an entry point.

The Microfinance services (MFS) have been part of the development toolbox for some 30 years. The paper suggests that the value MFS holds for climate change adaptation is:

  • in its outreach to vulnerable populations through a combination of direct and indirect financial support
  • the long-term nature of its services that help families build coping mechanisms over time, especially through savings – and increasingly, micro insurance – products and sharing of knowledge and information to influence behaviours.
In conclusion, the paper while appreciating the various concerns raised about microfinance, also cautions that microfinance deserves careful consideration by the climate change adaptation community. The most powerful case for MFS with regard to climate change adaptation is its ability to help families build and diversify assets, so that they have more than one means of livelihood.
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