Microfinance: Climate change connections

Thursday, April 10, 2008

In 2001, the IPCC concluded that “the impacts of climate change will fall disproportionately upon developing countries and the poor persons within all countries.” The poor are least able to cope on their own with the threats to their homes, communities, livelihoods and health. What role might microfinance-the delivery of financial services, including credit, savings, and insurance to the poor-play in reducing our greenhouse gas emissions and helping vulnerable low-income populations adapt to the impacts of climate change?

Just a few years ago, most people working in microfinance viewed environmental concerns as a luxury. While such worries were undoubtedly important for society as a whole, expecting their low-income clients to adapt their enterprises and lifestyles towards “greener” practices were not only unrealistic, but tantamount to levying a tax on those least able to afford it. Innovation in the microfinance field focused on products that would help poor people increase their incomes and reduce vulnerability in the short term.

The past year has brought a sea change in this perception. The notion is gaining acceptance that incorporating a climate change lens to microfinance is essential and urgent. A growing circle of microfinance institutions (MFIs), networks and funders has launched new products and partnerships aimed at the microfinance-environment connections. For example, a pilot program-funded by the Citigroup Foundation and the US Agency for International Development and managed by the Small Enterprise Education and Promotion (SEEP) Network-teamed up six MFIs in Asia and Africa with renewable energy companies and organizations to explore potential collaborations and business models (SEEP 2007). A number of respected MFIs and networks-including ACCION, BASIX in India and Equity Bank in Kenya-are exploring products to respond to climate change challenges and opportunities.

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Source: Development Outreach (link opens in a new window)