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Assessing the Role of Microfinance in Fostering Adaptation to Climate Change

Author

Listed:
  • Shardul Agrawala

    (OECD Environment Directorate)

  • Maëlis Carraro

    (OECD Environment Directorate)

Abstract
Much of the current policy debate on adaptation to climate change has focussed on estimation of adaptation costs, ways to raise and to scale-up funding for adaptation, and the design of the international institutional architecture for adaptation financing. There is however little or no emphasis so far on actual delivery mechanisms to channel these resources at the sub-national level, particularly to target the poor who are also often the most vulnerable to the impacts of climate change. It is in this context that microfinance merits a closer look. This paper offers the first empirical assessment of the linkages between microfinance supported activities and adaptation to climate change. Specifically, the lending portfolios of the 22 leading microfinance institutions in two climate vulnerable countries – Bangladesh and Nepal - are analysed to assess the synergies and potential conflicts between microfinance and adaptation. The two countries had also been previously examined as part of an earlier OECD report on the links between macro-level Official Development Assistance and adaptation. This analysis provides a complementary “bottom-up” perspective on financing for adaptation. Insights from this analysis also have implications for OECD countries. This is because microfinance is also being increasingly tapped to reduce the vulnerability of the poor in domestic OECD contexts as well and may therefore have the potential to contribute to adaptation. The paper identifies areas of opportunity where microfinance could be harnessed to play a greater role in fostering adaptation, as well as its limitations in this context. It also explores the linkage between the top-down macro-financing for adaptation through international financial mechanisms and the bottom-up activities that can be implemented through microfinance.

Suggested Citation

  • Shardul Agrawala & Maëlis Carraro, 2010. "Assessing the Role of Microfinance in Fostering Adaptation to Climate Change," Working Papers 2010.82, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2010.82
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    Citations

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    Cited by:

    1. Khan, Tahsina & Khanam, Shamsun Nahar & Rahman, Md Habibur & Rahman, Syed Mahbubur, 2019. "Determinants of microfinance facility for installing solar home system (SHS) in rural Bangladesh," Energy Policy, Elsevier, vol. 132(C), pages 299-308.
    2. Karl Harvey Schultz, 2012. "Financing climate adaptation with a credit mechanism: initial considerations," Climate Policy, Taylor & Francis Journals, vol. 12(2), pages 187-197, March.
    3. Oberlack, Christoph & Neumärker, Bernhard, 2011. "Economics, institutions and adaptation to climate change," The Constitutional Economics Network Working Papers 04-2011, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    4. Azad, Md Javed & Pritchard, Bill, 2022. "Financial capital as a shaper of households' adaptive capabilities to flood risk in northern Bangladesh," Ecological Economics, Elsevier, vol. 195(C).
    5. Nicole D. Peterson, 2012. "Developing Climate Adaptation: The Intersection of Climate Research and Development Programmes in Index Insurance," Development and Change, International Institute of Social Studies, vol. 43(2), pages 557-584, March.
    6. Fenton, Adrian & Paavola, Jouni & Tallontire, Anne, 2017. "The Role of Microfinance in Household Livelihood Adaptation in Satkhira District, Southwest Bangladesh," World Development, Elsevier, vol. 92(C), pages 192-202.
    7. Dumisani Chirambo, 2017. "Enhancing Climate Change Resilience Through Microfinance: Redefining the Climate Finance Paradigm to Promote Inclusive Growth in Africa," Journal of Developing Societies, , vol. 33(1), pages 150-173, March.
    8. Moser, Rafael Magnus Barbosa & Gonzalez, Lauro, 2016. "Green microfiance: a new frontier to inclusive financial service," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 56(2), March.
    9. Cheng-Wen Lee & Andrian Dolfriandra Huruta, 2022. "Green Microfinance and Women’s Empowerment: Why Does Financial Literacy Matter?," Sustainability, MDPI, vol. 14(5), pages 1-13, March.
    10. Rafael Moser & Davide Forcella & Lauro Emilio Gonzales Farias, 2016. "Microfinance and climate change: threats and opportunities, the case of Brazil’s largest rural MFIs, Agroamigo and Cresol," Working Papers CEB 16-010, ULB -- Universite Libre de Bruxelles.
    11. Heuson, Clemens & Gawel, Erik & Gebhardt, Oliver & Hansjürgens, Bernd & Lehmann, Paul & Meyer, Volker & Schwarze, Reimund, 2012. "Fundamental questions on the economics of climate adaptation: Outlines of a new research programme," UFZ Reports 05/2012, Helmholtz Centre for Environmental Research (UFZ).
    12. Alex Bowen & Sarah Cochrane & Samuel Fankhauser, 2012. "Climate change, adaptation and economic growth," Climatic Change, Springer, vol. 113(2), pages 95-106, July.
    13. Davide Forcella & Rafael Moser & Lauro Emilio Gonzales Farias, 2016. "Rural Microfinance and Climate Change: Geographical Credits Allocation and Vulnerability. An Analysis of Agroamigo in Brazil’s Northeastern States," Working Papers CEB 16-011, ULB -- Universite Libre de Bruxelles.
    14. Heuson, Clemens & Gawel, Erik & Gebhardt, Oliver & Hansjürgens, Bernd & Lehmann, Paul & Meyer, Volker & Schwarze, Reimund, 2012. "Ökonomische Grundfragen der Klimaanpassung: Umrisse eines neuen Forschungsprogramms," UFZ Reports 02/2012, Helmholtz Centre for Environmental Research (UFZ).
    15. Castells-Quintana, David & Lopez-Uribe, Maria del Pilar & McDermott, Thomas K.J., 2018. "Adaptation to climate change: A review through a development economics lens," World Development, Elsevier, vol. 104(C), pages 183-196.
    16. Terfa W. Abraham & William M. Fonta, 2018. "Climate change and financing adaptation by farmers in northern Nigeria," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-17, December.
    17. Namita Vikas & Smitha Hari, 2023. "Innovative Financing Mechanisms to Leverage Ecosystem Based Adaptation (EbA) Finance for Vulnerable Communities," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 11(1), pages 116-125, May.
    18. Oberlack, Christoph & Neumärker, Bernhard, 2013. "A diagnostic approach to the institutional analysis of climate adaptation," The Constitutional Economics Network Working Papers 01-2013, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    19. Kifayat Ullah & Abdul Qayyum Mohsin & Abdul Saboor & Saranjam Baig, 2020. "Financial Inclusion, Socioeconomic Disaster Risks and Sustainable Mountain Development: Empirical Evidence from the Karakoram Valleys of Pakistan," Sustainability, MDPI, vol. 12(22), pages 1-26, November.
    20. Castells-Quintana, David & del Pilar Lopez-Uribe, Maria & McDermott, Thomas K.J., 2018. "A review of adaptation to climate change through a development economics lens," Working Papers 309605, National University of Ireland, Galway, Socio-Economic Marine Research Unit.

    More about this item

    Keywords

    Microfinance; Climate Change; Financing; Adaptation; Bangladesh; Nepal;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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