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  • Dec 11, 2018

Small loans, big impact: Microfinance and Climate Resilience

CIF Action 

The Climate Investment Funds (CIF) is well known for making big investments in large-scale projects that benefit millions of people, such as the 6,000+ acre Noor concentrated solar power facility in Morocco, and South America’s highest-altitude geothermal plant.

But CIF also recognizes the outsize role of microfinance in building a more resilient future for all. 

Big things really do come in small packages. 

Microfinance consists of small loans and grants given to those who lack access to traditional financial institutions. It helps low-income households strengthen livelihoods and allows small enterprises to enter new markets.

This is especially important in the age of climate change. Poor people have the fewest resources to cope with climate-related phenomena such as sea level rise, flooding and other extreme weather events. Without urgent action, the World Bank estimates that climate change could push an additional 100 million people into poverty by 2030.

In collaboration with Oxford Policy Management and OneWorld Sustainable Investments, CIF organized a session on demystifying climate microfinance at the Adaptation Futures conference in Cape Town, South Africa.  The event gave a platform to CIF beneficiary countries, including Jamaica, Mozambique, Rwanda and Tajikistan, to share experiences, opportunities, and challenges around using microfinance to build resilience and improve lives.

These were the three takeaways:

1. Microfinance is an essential catalyst of climate resilience, but it remains a mystery for most.

In order to benefit from microfinance, climate-vulnerable communities must know that it exists in the first place. Not only that, they need to know it is available to them at favorable rates. Lack of awareness about microfinance — not only among potential beneficiaries, but also, crucially, financial institutions — persists worldwide. With support from CIF and the Inter-American Development Bank (IDB), Jamaica addressed this by launching a campaign to sensitize its citizens and banks to ways of accessing and disbursing microfinance products. It took just one year for the first set of microfinance products to be launched, and the program is growing every year to the benefit of climate-vulnerable sectors including agriculture and tourism.

2. Microfinance presents a great investment opportunity.

Nearly three billion people in developing countries have little or no access to formal financial services. That represents a huge market for financial institutions. It also means—as CIF’s own experiences demonstrate—there is the potential for three billion people to be more prosperous, have greater assets, increase incomes, and reduce their vulnerability to climate change and economic stress. Microfinance is also critical to empowering women, who make up 68% of global microfinance customers. For example, in Mozambique, a CIF and African Development Bank-supported effort is strengthening climate-smart farming and irrigation management equally among male and female subsistence farmers. They are now in a better position to not only access microfinance loans, but also pay them back.

3. Microfinance can trigger innovation in climate adaptation.

Concessional microfinance is key to enabling early adopters of climate adaptation. For example, Tajikistan’s CLIMADAPT, supported by a combined CIF and European Bank for Reconstruction and Development investment of $10 million, is helping small businesses, farmers, and households access otherwise unaffordable climate-smart technologies that raise incomes and sustain livelihoods. Meanwhile, in Rwanda, the government is exploring ways microfinance can give small and medium enterprises the resources they need to take their first steps toward drought-resistant agriculture, better irrigation systems, and crop insurance.

Learn more about CIF’s Pilot Program for Climate Resilience (PPCR) and its work on microfinance here.

PPCR Projects with microfinance focus:

  1. Tajikistan
  2. Jamaica
  3. Saint Lucia
  4. Mozambique

 

This piece is co-authored by Loreta Rufo, Climate Change Specialist PPCR, and Sailas Nyareza, Senior Knowledge Management Officer.