Author: Alicia Ruiz
Specialist in Financing for Climate Change
The recent report of the Global Adaptation Commission (GCA) points to the imminent need for strengthened action, together with greater investment in adaptation to the effects of climate change. It also points out that the various efforts that countries have initiated must be capitalised with greater urgency, innovation and scale; in such a way as to avoid major economic and human costs along with an increase in poverty that affects the development of countries. Thus, adaptation also means creating conditions for better growth and development, protecting nature, reducing inequalities and creating opportunities.
One of the initiatives in adaptation that has much potential for expansion and impact is microfinance for ecosystem-based adaptation (EbA ), and that through programs such as MEBA of UN Environment show evidence of success stories; not only supporting the most vulnerable populations to adapt to the effects of climate change through good practices in sustainable ecosystem management, conservation and restoration; but also promoting the sustainable development of these populations by leveraging financial resources provided by private microfinance institutions.
Many must be asking then, why does microfinance work for EbA?
First of all, it is important to mention that there is extensive research showing that the poorest people are the most vulnerable to the effects of climate change, who are often linked to activities such as family farming, small agricultural production, traditional fishing, etc.; all of them highly dependent on biodiversity and the services provided by ecosystems. At the same time, there is literature showing that financial inclusion (in the form of savings, credit, insurance, remittances, etc.) is one of the best ways to develop individual and collective resilience to the effects of climate change .
Microfinance consists of small loans and grants provided to those who do not have access to traditional financial institutions, such as commercial banks. In that sense, they represent a great investment opportunity as almost three billion people in developing countries have little or no access to formal financial services. This is a major market for financial institutions and there is also the opportunity for three billion people to become more prosperous, have greater assets, increase their incomes and reduce their vulnerability to climate change and economic stress. Microfinance is also critical to empowering women, who represent 68% of the world's microfinance clients. Microfinance is therefore a very attractive tool to meet the needs of communities closest to EbA practices.
Microfinance Institutions (MFIs), unlike commercial banking, have the capability to handle high volumes of small transactions, replicating multiple small-scale actions which lead to major changes. In addition, its fields of action tend to be isolated territories that do not have a commercial banking presence. This is illustrated, for example, in the cases of 5 MFIs in Colombia and Peru that, with the support of the MEBA Project, have benefited from technical assistance to develop credit methodologies adjusted to climate variability, allowing them to innovate in the management of the associated risk and to implement financial products adjusted to the needs of their clients and linked to the EbA. MFIs also have tools that foster further expansion of these practices, such as a commercial workforce present in the territories, detailed information systems, alliances with technology suppliers, among others. This support has resulted in more than 12 thousand credits granted for EbA practices, more than USD17 million of private investment, more than 28 EbA measures promoted by MFIs, among others. Some of the benefits perceived by the recipients of microcredits via MEBA are higher productivity, product quality, higher income for productive investments, etc. MFIs benefit from increasing their participation in rural territories, diversifying their offer of financial products, improving their operational processes and the quality of their credit portfolio .
In a second phase of the project, which will run until 2020, it is expected to work with up to 8 MFIs not only in Latin America but also in Africa. Microfinance for EbA is an example developing countries can adopt to increase the resilience of their most vulnerable populations, fostering economic development and improved productivity.
Available at: https://cdn.gca.org/assets/2019-09/GlobalCommission_Report_FINAL.pdf
Ecosystem-based Adaptation (EbA) is defined as the use of biodiversity and ecosystem services, as part of a broader adaptation strategy, to help people adapt to the adverse effects of climate change. Source: https://www.iucn.org/sites/dev/files/import/downloads/abe_2012_spanish.pdf
Bancamía, Crezcamos and Contactar in Colombia. Solidaridad and Fondesurco in Peru.