Micro loans can offset effects of climate change: analyst

Microfinance institutions should modify their financial products for those at vulnerable climate zones to deal with global warming, a keynote speaker at a climate change seminar said yesterday.

The MFIs offer three types of products: loans, savings and insurance.

Each product can be modified depending on the type of shock the MFI customers might be suffering from, said Fazle Rabbi Sadeque Ahmed, coordinator of Palli Karma-Sahayak Foundation's Community Climate Change Project.

For instance, in areas that are becoming more prone to flooding, MFIs can encourage: aquaculture initiatives among farmers, floating gardens, investment on raised tube wells for safe water and new houses to be built on raised beds or raised embankments.

All these measures can be supported by making use of loans, savings and insurance products that include a set of climate sensitive conditions, he said.

Ahmed's comments came at the inaugural session of a daylong seminar styled 'climate change adaptation at community level: the role of MFIs', jointly organised by the Institute of Microfinance and Bangladesh Water Partnership.

The event was aimed at identifying the bankable projects and overcoming the challenges at village level in implementing climate change resilience through microcredit.

Ahmed suggested the MFIs should change the conditions of loans, introduce flexibility in savings products and scale up the offering of health and livestock and crop insurance.

The increased frequency and intensity of natural disasters and disease outbreaks will adversely affect MFIs and their work.

“Due to multiple consequences of climate change, MFIs are likely to see an increase in default rates, and many MFIs will face repayment crises.”

Climate change will decrease the productivity of agriculture and will make investment by MFIs in this sector less profitable, he said.

“In future, climate change will create pressure on MFIs to forgive debt and such action has the potential to destroy the cherished culture of repayment that MFIs have painstakingly built over time.”

Climate change will affect the operations of MFIs through its impact on agriculture, Ahmed said while presenting a keynote paper.

Although MFIs are providing less agricultural credit, they have not been able to completely separate their activities from agriculture.

Evidence suggests that repayment rate of these MFIs is highly correlated with crop production. Most of the customers of micro enterprises are farmers, and any change in their income affects MFIs, he said.

“Climate change is the threat for future development, growth and poverty alleviation. However, it can be treated as an opportunity for employment generation, both for adaptation and mitigation.”

The MFIs are already involved in a limited scale with adaptation activities such as introduction of new, resistant and improved varieties, adaptive cropping pattern, adaptive and resilient housing and alternate income generating activities.

“MFIs could increase the volume and areas of these kinds of activities.”

He said the MFIs can develop a detailed disaster risk reduction and climate change adaptation plan in order to deal with various kinds of disasters, such as natural disasters and the major outbreak of diseases.