Climate Change and Financial Inclusion
Climate change-induced natural disasters affect an estimated 230 million people worldwide. Droughts, flooding, pollution, and other weather events are especially threatening in developing countries, which have limited capacity to cope. Within those countries, the poor and marginalized are the most vulnerable, since climate change makes food more expensive, poses health risks through waterborne disease and extreme weather (particularly in areas with poor infrastructure and sanitation), and limits farmers’ ability to create and maintain sustainable livelihoods.
The poor are inadequately equipped to cope with income shocks that accompany extreme weather conditions. A study in India found that while farmers adjusted to weather fluctuations (in this case monsoons) by changing irrigation and crop choices, they only recovered 15% of profits lost. Substantial financial barriers may prevent farmers from adapting effectively to harmful impacts of climate change. For example, farmers may not have capital or credit available to invest in more resilient seeds or technology like irrigation. Additionally, they might not have access to affordable insurance products that can mitigate losses caused by extreme weather patterns.
As the effects of climate change intensify, it is critical to help the poor adapt to climate-induced challenges and empower them to reduce their impact on the environment. At IPA’s Financial Inclusion Program (FIP), we are discovering new ways that financial services and products can address the risks that climate change poses for the poor.