By Faisal Bin Islam, Researcher, ICCCAD; and Tasfia Tasnim, Researcher, ICCCAD
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Numbers reveal that female-headed households in Bangladesh spend thrice as much as male-headed households (18.8% of total income compared to 6.5% for male-headed households) on climate-related expenditure. While this unequal burden of expenditure can be mulled over, it is far more important to recognise that female-headed households and women, in general, tend to give climate action a much higher priority and are key actors for promoting climate change adaptation within their local communities. To further their cause, they need proper support and access to low-cost finance.
This is where microfinance comes to light. Microfinance refers to the provision of financial services, typically in the form of small loans, savings accounts, insurance, and money transfers, to customers that lack access to traditional financial services usually due to poverty.
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There is thus growing interest in the role MFIs can play in facilitating adaptation to climate change. MFIs are well positioned to support climate change activities at the local level due to its broad delivery infrastructure across the country and a good reputation for reliable service delivery. Different MFIs have been pivotal in promoting innovative and sustainable livelihood solutions such as saline tolerant crop farming, vermicompost production for rural households. MFIs also run vocational training as well as awareness building programmes, which help build human and social capital and thereby enhance the resilience of local communities. Furthermore, the high volume and limited value nature of the services offered by MFIs allows for decentralized decision-making by households and communities. With a large majority of their clients being women, MFIs also promote social inclusion and equity. MFIs can, therefore, be considered as important catalysts for community-based adaptation in Bangladesh.
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It is therefore important to recognize the fact that promoting climate adaptive microfinance to people who are most vulnerable to the impacts of climate change can play a massive role in enhancing the adaptive capacity of local communities. With the looming impacts of climate change, MFIs need to mainstream climate change and disaster risk reduction in their operations and proactively consider devising climate sensitive schemes to help vulnerable communities in Bangladesh dealing with current and anticipated climate risks. Promoting various types of insurance, such as agricultural insurance, weather-based insurance, or index-based insurance can help unlock new and innovative financial instruments to fight against climate-induced loss and damage.