Microfinance and Climate Change Adaptation

This article discusses the role of microfinance services in helping poor people cope with climate change. Climate change has moved beyond being an environmental problem to one that threatens poverty reduction and development.

Microfinance has potential to help the poor adapt to climate change by providing them with the means to accumulate and manage assets, and capabilities to become less susceptible to shocks and cope with them. The article highlights the following limitations:

• Microfinance services typically do not reach the poorest of the poor, who have the most urgent needs;
• Microcredit may reinforce coping practices without increasing income through productivity gains;
• Microfinance may increase, rather than reduce vulnerability by increasing the debt burden of individuals and families;
• Microfinance may allow governments to get away without establishing appropriate safety nets for the poor.

Microfinance holds value for climate change adaptation through its outreach and long term relationship with clients. It has been helping clients build coping mechanisms, and educating them over time. The paper recommends the following:

• Leverage ability of microfinance to help families build and diversify assets;
• Match services with client needs;
• Encourage green microfinance.