FACULTY ARTICLE October2023

Climate change poses a great threat to human and economic development worldwide. Global warming, as reported by the Intergovernmental Panel on Climate Change (IPCC), is a major cause of weather patterns change and is hindering the progress towards achieving the Sustainable Development Goals (SDGs). Interestingly, microfinance institutions can play a key part in delivering climate resilience services to vulnerable populations.

Experiences during the COVID-19 pandemic showed how MFIs can perform a key role in building resilience to severe shocks among developing country communities. For example, numerous MFI in India, Indonesia, and Nepal provided training on COVID-19 prevention and management to 15 million people, while the Small Finance Bank in India ran over 30,000 vaccination camps, vaccinating over 3.8 million people. With this kind of reach to local communities, MFIs have the capability to promote climate adaptation and resilience. MFIs are well-placed to promote climate change adaptation products and services, given the close mapping between the future incidence of climate impact and the microfinance sector footprint across the globe. The financial services provided by the MFIs are already a key tool for enabling resilience, while many large MFIs are also providing other services such as training and agricultural extension services for many of the communities they serve. Therefore, both financial and non-financial services will be crucial in helping MFI clients adapt to climate change.

Poor people across the world mostly depend on agriculture for their livelihood. Therefore, any decrease in productivity and consequent increase in price due to climate change shocks impacts them both as producers and consumers. Credit provided by MFIs to poor people provides them with the necessary capital to exploit their capacities for income production such as job creation, enterprise growth, or increased production. This allows them to participate in asset building, and diversification, and the returns can further be used from consumption, savings, and reinvestment. Loans offered for non-productive purposes also contribute to reducing vulnerability of medical, educational, social or dwelling expenses requirements. Similarly, microinsurance provides the poor people with protection against specific perils such as injury, death, natural hazards in exchange for regular premium payments. This allows protecting assets and giving people the freedom to pursue profit without fear, which would ideally lead to increased income production. Finally, microsavings are small balance deposits for the safe storage of money, allowing people to access a large sum of money to meet both predictable and unpredictable expenses. They can be used as insurance and/or for investment, yielding to asset accumulation.

Some of the measures that are being adopted by MFIs are (i) linking the agricultural loans with some overrides such as planting drought and saline-tolerant crops (ii) disseminating knowledge related to consequences of climate change and possible remedies (iii) providing weather updates (iv) offering microinsurance, which includes both life and non-life (v) promoting the usage of renewable energy and sustainable practices of agriculture. Such climate-proofing products and programs are mutually beneficial to both the clients as well as MFIs. It increases the adaptive capability and resilience of MFIs’ clients while ensuring better financial viability of the MFI.

The work done by The Self-Employed Women’s Association (SEWA) in India is commendable. Founded in 1972 by Indian lawyer and social activist Ela Bhatt to address the unique needs of female informal textile workers. SEWA went on to register itself as an urban cooperative bank and started providing banking services to self-employed women in Gujarat. SEWA members are organized locally into workers’ cooperatives, producers’ groups, rural savings and credit groups, and social security groups, and they cater to various issues, including education, housing, health care, childcare, and violence against women. In 2001, during the Gujarat earthquake, SEWA responded to the disaster by rebuilding livelihood rather than just providing relief. Therefore, SEWA’s members’ priority was returning to work and rebuilding their homes which were their workplaces. Disasters devastate precarious livelihoods and threaten already low consumption. Moreover, the impact of disasters on the poor is different from that of the wealthy.

Furthermore, as a long-term response, SEWA together with international organisations and the Government of India launched the Jeevika programme, which is an integrated, demand-driven, need-based seven-year livelihood security project for earthquake-affected rural households in Gujarat. The programme is a comprehensive rural development project with the objective of rebuilding livelihoods. By organizing women into Swashrayee Mandals, the Jeevika programme has been effective in delivering both credit and relief services. These microfinance interventions were aimed at both strengthening ex-ante coping strategies as well as providing easy access to affordable credit for an effective ex-post coping strategy. Over the years, SEWA has also designed an innovative insurance product that covers all kinds of insurance requirements including life, health, and assets, which reduces the complexity of managing multiple premiums and policies.

Such experiences can help and guide other MFIs in India and other countries to align their product to cater to the growing need for managing climate change and natural disaster shocks. However, there is always a need to be cautious as the possibility of maladaptation can never be ruled out.

 

References:

Agrawala, S., & Carraro, M. (2010). Assessing the role of microfinance in fostering adaptation to climate change.