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What do we mean when we talk about adaptation to climate change? And in which way could Microfinance play an effective role for strategies to face Global Warming impacts in developing countries? Shardul Agrawala – OECD Environmental Directorate and co-author with Maëlis Carraro of the presentation Adaptation to Climate Change: What role for Microfinance? – answers to Climate Science&Policy’s questions during the International Workshop “The Social Dimension of Adaptation to Climate Change” in Venice.
Microfinance – Mr. Agrawala explains – is essentially the provision of loans and other financial services to the poor sections of the society; its effectiveness in responding to Climate Change impact demands attention to small project with a focus on local programs, specially in Developing Countries. The way in which the international community will be able to deliver loans for this small project is a big challenge for our the future and our capability to face Climate Change impacts.
What is Microfinance
It is essentially the provision of loans and other financial services to the poorer sections of society and has a very important role to play in facilitating responses to the impacts of Climate Change
When we’re talking about adaptation to climate change what we want to do is to facilitate actions by a whole range of actors in society to undertake the adjustments they need to take to respond better to the risks exposed by climate change. Obviously some of those measures would involve very large-scale investments, for example, building sea walls, dikes, or damns and reservoirs. But a lot of the actions will need to be taken by vulnerable sections of the society. In this particular context, Microfinance is essentially the provision of loans and other financial services to the poorer sections of society. Microfinance has a very important role to play in facilitating many of the actions that these sections of society need to take to respond to the impacts of climate change. As such it is a very good delivery mechanism when we are talking about delivering adaptation finance, and a very good mechanism to reach one segment of society, which is particularly vulnerable to the impacts of climate change.
Microfinance and Global Funding
The challenge is not only about estimating costs of impacts of Climate Change, but it is also about how to reach the most vulnerable sections of our societies
The short answer is that at present no link has been made between the discussions at the international level on financing for adaptation and there are no strategies in grounds like Microfinance. A lot of the focus in the last couple of years has been on estimating what the global costs of adaptation might be. Recently, there has been a lot of emphasis on scaling up financing at the global level to deliver adaptation finance. What we have not talked about so far is how to allocate this global financing, and particularly how we make sure that a significant section of this financing actually reaches some of the most vulnerable sections of society. So, it is in this context that Microfinance is quite important. But as far as I am aware, much of the policy debate at the international level has still been focused on the question of scaling up financial resources and they have not yet come down to addressing the appropriate delivery channels. I think this is more of a forward-looking research that we have done and hopefully it can add one more idea to the international discussion. While it is quite important to look at issues of global financing we also need to start actively addressing the issues of how to make that finance reach the right people. I would also say that Microfinance could be a potentially attractive vehicle to reach the poor, but it’s not the only vehicle, nor is it suited for all purposes. At a minimum it merits for the consideration by the global policy community.
Adaptation and Microfinance: Some Examples
Bangladesh: in a country that is particularly vulnerable to the impacts of climate change, there are lending programs encouraging people to build houses that are more resistant to frequent floods and monsoon winds
Currently the financing for Microfinance projects is not coming from any climate change related funding. These projects are funded by entities called Microfinance Institutions, which at times receive start-up subsidies or other funding from government agencies as well as international donor agencies. But if you are talking about specific projects, there are actually several projects, for example in Bangladesh, a country that is particularly vulnerable to the impacts of climate change. There are examples of lending programs, which Microfinance institutions have funded now, that are encouraging farmers to adopt more soil varieties, which are giving loans to people to build houses that are more resistant to frequent floods and monsoon winds. These are examples of measures, which would also be good adaptations to current climate risks, as well as some of the impacts of climate change.
Enhancing Microfinance Effectiveness
The keyword is synergy and we need, above all, is introducing Microfinance into the international debate, promote a global discussion on lending programs
I think we need to do several things. First of all, when we are talking about the international policy discourse, we need to introduce the idea of Microfinance into that discourse. As I said at the moment, Microfinance is not even a part of the discussion in adaptation finance. First we need to introduce this idea at the international level. But the other thing we need to do is reach out to existing Microfinance institutions and perhaps have a broader discussion with the lending programs. There might be a lot of synergies between what they are doing and what might be needed by adaptation climate change. But there might also be cases where they might not be exploring all possible opportunities on what they could do to facilitate adaptation. In a small subset of cases there might be activities which Microfinance lending is supporting right now which may actually enhance the vulnerability of society to longer-term impacts of climate change. So, in those cases there might also be some adjustments, which might be needed to exist in lending activities so that the projects that they support are resilient to the impacts of climate change.
