How Can The Microfinance Industry Support Vulnerable Communities In The Fight Against Climate Change?

Introduction

In the last few weeks, we’ve witnessed widespread destruction and devastation caused by extreme weather events across the globe as a result of climate change. From raging forest fires in Spain and extreme drought in the United States (almost 50% of the country is experiencing some form of drought) to punishing heat waves in China and extreme floods in Pakistan, it seems like no one and no country has been spared.

It’s been nearly impossible to escape the sheer scale of human suffering caused by these climate anomalies. The situation in Pakistan has been particularly heart breaking, with over a third of the country being submerged entirely underwater as a result of severe monsoon and fast melting glaciers. And as the floodwaters slowly recede, the extent of damage caused has brought the country to its very knees — millions of people have been displaced, infrastructure worth billions have been damaged, disease and starvation are rampant among survivors and famine is considered inevitable.

As people around the world try to rebuild their lives after suffering from the unrelenting consequences of climate change, the one question everyone seems to be asking is ‘how can we help them in this struggle?’

This is where the microfinance industry plays a crucial role. As discussed in Part 2 of this series, our industry is uniquely positioned to help the most vulnerable sections of our society meaningfully and at scale. Climate change is no exception. There is a myriad of innovative ways through which we can not only mitigate but also build resilience in these communities against the impact of climate change.

Over the course of this article, I’m going to delve deeper into a few of these prospective methods:

Educating/spreading awareness among those most vulnerable to climate change

The tragic irony is that not only are those who contribute the least to climate change in terms of carbon emissions the most vulnerable to its impact, but these individuals are also usually unaware that this phenomenon is the root cause of their problems.

That’s because while rural communities are generally adept at being able to identify changes in weather patterns across various time periods, a lack of education and awareness about global warming makes it nearly impossible for them to identify it as the underlying culprit. This is obviously extremely problematic as it leaves them unable to protect themselves against the dire impact of climate change.

However, this is where the microfinance industry can leverage its position and networks in these areas to help create awareness on the subject. MFIs operate at a grassroots level and are directly in contact with the members of relevant communities. The pre-existing relationships and trust in addition to the factors mentioned before make it easier for MFIs to educate people on climate change through various awareness programmes.

Such non-financial services are critical as they can help increase both the preparedness and resilience to the impact of global warming. Eg. MFIs can:

Encourage people to use construction materials and practices to create housing and infrastructure that can withstand extreme weather conditions

Encourage farmers to adopt innovative agricultural techniques and materials that are more resistant to the effects of climate change

Creating products that specifically attempt to alleviate the impact of climate change

MFIs can also develop offerings that extend beyond the traditional microcredit historically provided by the industry. We can create financial products/services that are meant to help beneficiaries mitigate or fight against the consequences of global warming.

These include:

Wide-ranging insurance policies

That includes medical insurance as well as insurance for agricultural livelihoods like crops and cattle that help increase resilience to climate shocks. This is becoming increasingly necessary as farmers are already facing losses to their harvests as well as livestock as a result of global warming. For example, mango and wheat harvests in India this summer were less than one-third of last year’s yield due to an extreme heatwave that destroyed most crops.

Loans for businesses that help fight global warming

This can include low-interest credit extended to:

Fund new businesses that are green such as renewable energy (particularly solar energy), waste management solutions (food waste is responsible for over 6–8% of the total greenhouse gas emissions generated by human beings), green infrastructure technology, etc

Existing businesses to make investments in environmentally sustainable or adaptive solutions such as better irrigation, drought-resistant seeds, farm-productivity enhancing technologies (includes farm management software), etc.

Loans for affordable housing

This can cover helping individuals not only secure loans to adopt practices and materials that can make houses more resilient to climate shocks but also help them access such technology in the first place.

Financial services designed to help climate refugees & others impacted by extreme weather disasters

This can include extending credit services, business loans, etc. to internally displaced climate refugees looking to start over as well as using remittance and transfer services to channel financial aid to those impacted after the occurrence of a climate-related disaster.

Healthcare support such as medical services, infrastructure and insurance

Widespread disease outbreaks are one of the inevitable consequences of climate disasters be it floods, drought, fires or more. And the gaps in our country’s health infrastructure were laid bare by the COVID pandemic. MFIs can support in this regard by leveraging their existing grassroots network and relationships.

For example, at Pahal Finance, we’ve recently launched several e-clinics in rural areas. These clinics require little infrastructure and help connect our clients to relevant doctors/medical professionals using simple telemedicine and tablet solutions during their visits.

Enter into meaningful partnerships with other public as well as private sector enterprises

All of the initiatives mentioned above can be further amplified through partnerships with the government, banking and insurance companies, research institutions, fintech, health tech and other service providers with expertise in mitigating the impact of climate change. MFIs can leverage their grassroots networks to ensure that the products/services provided by these companies reach the vulnerable sections most in need.

For example, partnerships with companies working in renewable energy to help equip remote, rural areas with electricity.

Restructure our microfinance institutions to become resilient to climate change ourselves

While helping our clients adapt to climate change is crucial, it is equally integral for us to increase our resilience to its impact as an industry. MFIs will have to ensure operational continuity in the face of the ever-increasing frequency of climate change-induced disasters.

This means that we’ll have to build credit models that account for climate vulnerability while determining risk as well as create rapid response systems that can assess the debt-repayment capacity of our clients in the aftermath of a climate disaster.

As we’re racing against the clock to limit global warming to well below 2 degrees Celsius, (preferably to 1.5) compared to pre-industrial levels as per the Paris Agreement, it’s becoming clearer every day that there is not a moment we can afford to waste. The extreme weather scenarios climate change experts had predicted to occur years into the future are happening today.

Therefore, we can no longer pretend that the threat climate change poses to the very survival of the human race is not immediate. It’s our moral obligation as an industry to act now to help those who’ll be disproportionately affected by it.

And if that wasn’t reason enough, it’s also an extremely lucrative business opportunity — a chance to contribute towards the development of a massive, sustainable financing service.