Why should the Microfinance Industry be especially concerned by the disproportionate impact of climate change on vulnerable communities?
A microfinance expert’s take.
Welcome to Part 2 of the Climate Change series.
If you want a deeper understanding of how climate change is putting the most vulnerable members of our society at even greater risk, read this article: Is climate change further crippling vulnerable communities?
Here’s a quick overview of what we covered in Part 1 of this series:
Disasters tend to affect people disproportionately — this is a painful truth that we’ve already witnessed during the Covid-19 pandemic where certain communities bore its brunt due to some inherent vulnerabilities. The same applies to climate change.
So how should we assess an individual’s/community’s vulnerability to climate change?
The answer lies in not only identifying the extent and urgency of risk but also in evaluating the ability to adapt to/overcome the same. While there are several frameworks which help determine the extent of the impact of climate change, I’ve tried to simplify the process by viewing it from the 4 primary lenses outlined below:
1. Economic vulnerability
- Income levels
- Industry of employment
- Financial security/stability
2. Social vulnerability
- Gender
- Age
- Race/culture
3. Geographic vulnerability
- Certain areas are more susceptible to the extreme natural disasters caused by climate change simply because of where they are located. The IEP predicts that by 2050, 1.2 billion people could be displaced by such climate-related events.
4. Health vulnerability
- Scientists and other health experts across the world have labelled climate change as the greatest threat to human health in recorded history. As the air, water and other pollution levels rise and infection outbreaks become more common, individuals with weaker immune systems and pre-existing health conditions will face a greater threat to their lives.
Similar to its impact, the responsibility for causing climate change is also incredibly unequal. Historically speaking, the largest contributors to the global carbon dioxide emissions that have led to this crisis are the Developed Countries. Additionally, the carbon footprint of the more affluent members of society far outweighs those of poorer individuals due to their lifestyle and consumption patterns.
Introduction
As discussed in Part 1, those who are the least responsible for climate change are the ones who’ll unfairly bear its worst consequences. It is the most vulnerable sections of our society — the poor and the historically marginalised — who are most susceptible to its wrath.
Having been a part of the microfinance industry for over a decade, I’ve directly worked with these communities very closely. And in recent years, I’ve witnessed firsthand how their struggles are being exacerbated by environmental problems while they remain largely unaware of the root cause.
Our industry should pay special attention to the disproportionate impact of climate change on the most vulnerable sections of society largely due to two reasons:
- These communities form the bulk of the microfinance industry’s clients
- We are an industry created with the intent of directly serving the economic & social interests of these marginalised sections of society
Over the course of this article, I’m going to delve deeper into the above reasons starting with:
1. These vulnerable communities form the bulk of the microfinance industry’s clients
Due to the very nature of the microfinance industry, its borrowers are largely individuals living in abject poverty who would have limited or no access to financial services.
Microfinance has played an essential role in creating credit and distribution models which are now mainstream and reaching millions of borrowers across the country and the globe. These credit lending models allow for collateral-free, microcredits which rely on collective group responsibility for the repayment of the loan.
If we delve deeper into the demographics of these borrowers, data indicates that rural borrowers make up the significant majority — the client outreach of MFIs in rural areas is over 75% compared to approximately 25% in urban areas. In fact, smaller MFIs are largely rural-centric.
Of these rural borrowers, most are engaged directly in agriculture or agriculture-related activities such as cattle farming. Furthermore, marginal farmers with small land holdings further form the bulk of clients. Therefore, the ability of these borrowers to repay their loans is highly dependent on crop production and related activities — which as we’re all aware, are highly susceptible to the negative impacts of climate change.
The urban borrowers are not faring any better with most being employed in the informal sector as daily wage labourers or self-employed street vendors. Their livelihoods too are closely impacted by ever-frequently occurring climate disasters. Seasonal floods often leave these individuals stranded — unable to commute to work or with their inventory swept away by the currents.
A classic example of this is the annual floods that inundate the state of Bihar every monsoon. The rainfall patterns of the region have become increasingly erratic over the years, with unusually heavy downpours falling each season. Additionally, these heavy rains are also concentrated across a few days, leading to severe flooding that causes widespread damage and loss of life. Those affected are forced to live in makeshift shelters of tarp and rely on government/other assistance for their day-to-day survival — this is something I’ve witnessed firsthand when visiting our clients who reside in these areas.
While unplanned development and misuse of land are cited as reasons for this unprecedented climate disaster, scientists are increasingly attributing this phenomenon to global warming. A study indicates widespread extreme rainfall over central India has increased by as much as 3 times since 1950 due to the warming in the northern Arabian Sea. Rainstorms in north India have also increased by over 50%.
In fact, this severe flooding caused by heavy rainfall in the monsoon (typically during the months of July and August) has become so common that the locals have started preparing for the same months in advance. They store food, drinking water, wood and other essentials to help sustain them during the floods. Those employed in agriculture fear the loss of their crops while cattle farmers try to keep their livestock safe by herding them on roads and other areas not damaged by flooding. Safety, security, hunger and hygiene — all become a daily battle for the locals.
Another key demographic when it comes to the clients of MFIs is women. They notably make up the majority of MFIs’ client portfolios (nearly 99% in my personal experience).
Unfortunately, women are also proven to be more sensitive to climate risks. This is due to rampant gender inequality which impacts their socio-economic status and therefore, their autonomy as well as ability to earn a living. Essentially, even within vulnerable communities, it is the women who are usually most vulnerable.
A recent study shows that increased participation of women in the workforce reduces their vulnerability to climate change. But what’s critical is understanding that women are crucial in effectively leading the fight against climate change. This is because women possess unique knowledge and experience, particularly at the local level, which makes their frontline involvement in the battle against climate change essential. For example, if all female small landholders were given equal access to productive resources, their farm yields would increase by nearly 20–30%. This would mean enough food to feed an additional 100 to 150 million people without increasing the land under agriculture. Therefore, it could reduce the pressure to deforest more land and reduce additional emissions.
2. We are an industry created with the intent of directly serving the economic & social interests of these marginalised sections of society
When Mohammed Yunnus set out to establish what would become the foundation of
modern microfinance in 1976, his intent and objectives were extremely clear. He wanted the poor to have access to fair credit at reasonable interest rates, so they could lift themselves out of poverty — instead of being excluded and seemingly punished for their inherent socio-economic circumstances.
His conviction ran so deep that he began by lending money to a group of women out of his pocket.
Therefore, for the microfinance industry, our role has always been to give the poor and the marginalised access to fair credit/financial services to help them overcome poverty.
And today, climate change and poverty are inextricably linked. Not only is climate change threatening to set back decades of global effort in eradicating poverty, but it’s also estimated to push an additional 68 to 130 million into poverty by 2030.
So in my opinion, the microfinance industry has a duty to safeguard the poor from the impact of climate change by building credit models that not only help them tackle but actively adapt to this threat.
The good news is, that we are extremely capable of doing so.
*Please note that the views expressed in this article are personal.
