Microfinance and Climate Change Adaptation

Climate change is understood as a threat to which the poor are acutely vulnerable. Microfinance services (MFS) are recognized as tools for helping to reduce the vulnerability of the poor.

In this report, we explore the possibility of linking MFS to climate change adaptation. MFS can provide poor people with the means to diversify, accumulate and manage the assets needed to become less susceptible to shocks and stresses and/or better able to deal with their impacts. Yet these links may not hold for everybody. MFS typically do not reach the chronically poor, may encourage short-term coping instead (or at the expense) of longer-term vulnerability reduction, or even increase vulnerability. These limitations and risks aside, MFS can still play an important role in vulnerability reduction and climate change adaptation among some of the poor, provided services better match client needs and livelihoods.