Loans, credit, insurance and other financial services have significant potential to help lessen the impact of climate change on people’s lives in low and middle-income countries. But the way these services integrate into lives – including women and the most vulnerable – must be taken into account. Otherwise, in some instances the gender and inequality gap could widen even further, and in others, programs and services will not have what they need to be sustainable and scale.

A Dalberg project with the Consultative Group to Assist the Poor (CGAP) related to strengthening climate resilience and adaptation through financial services, and the ‘Women in Rural and Agricultural Livelihoods’ program, is unearthing interesting findings about the unintended, and often negative, gender consequences of climate programs.

Building on the work of CGAP, Dalberg conducted two extensive literature reviews of over 300 secondary research sources to identify current information available at the nexus of financial inclusion and climate change, and better understand how financial services can be a more effective tool to support the vulnerable – especially women – adapt and grow more resilient to climate change.

It turns out that many financial services designed to help people prepare for climate risks, as well as reduce, adapt and recover from them, remain inaccessible to vulnerable groups – especially women – because they are not structured around their low accessibility, ability and willingness to adopt and use such services.

The exclusion of vulnerable women from financial services suggests that many climate programs are unknowingly gender negligent, or neutral at best – and this must change if climate programs are to achieve their goals.

While not malintended, what is seen in practice is that programs promoting the adoption of climate resilience practices – such as carbon credits for agroforestry or flood insurance schemes – can unintentionally exclude women in rural and agricultural livelihoods: for example by requiring legal land titles for registration, or defining eligibility criteria by the size of land farmed. Given the wide gender gap that already exists around land tenure and ownership, women rarely own the land on which they farm, and consequently are unable to produce land titles to qualify for certain schemes, or offer it as collateral for others.

In the case of a group of women in rural India who responded to climate change by reducing their land holding through crop diversification, they then failed to meet the stipulated acreage for PMFBY, a crop insurance scheme covering farmers against crop failure, which in turn stabilizes incomes and encourages innovative practices. With little awareness of these restrictions, no knowledge of alternatives, and without formal insurance, these women’s livelihoods are gravely at risk in the event of a climate crisis.

Like them, countless women in low and middle-income countries remain unsupported by financial services that could help them manage climate risk. Instead they face increased vulnerability and risk falling even further behind.

Broad engagement is needed from all stakeholders to increase financial inclusion and enable the wider adoption of climate-resilient practices. These include non-financial service providers such as buyers, input providers and digital providers; financial service providers including banks, microfinance institutions and insurance companies; and sector support organizations, policy makers, and funders.

Unearthing the gender consequences of climate-related financial services programs

Financial services play an integral role across all stages of climate risk management. Investment in climate-smart agriculture practices, for example, can soften the blow against drought and floods, and reduce the need to resort to negative coping mechanisms like limiting food intake or selling assets.

A broad range of financial services can serve as catalysts for improving and protecting livelihoods, especially in cases where planning and preparedness are vital in managing climate risks. Used effectively and with all stakeholders in mind, financial services lay the groundwork for allowing people to unlock their economic potential by building up savings and investing in productive assets that improve livelihoods.

Well-designed financial services that reach target audiences are already showing promise. A study in Ghana found that the offer of rainfall index insurance led farmers to make larger investments, choose production with higher risk and higher potential reward, and spend more on inputs such as chemicals, land preparation, and labor, than farmers who were given cash.

Similarly, among female-headed households in West Africa that took up insurance: they increased their investments at a higher rate, took out more loans, decreased the amount of land that they sharecropped, increased their investments in hired labor, and increased their total planted land.

Farmers in Kenya who were affected by a drought in 2021 and had purchased the IFAD supported KCEP-CRAL insurance policy to protect rainfed crops in arid and semi-arid areas against droughts and floods, each received $57 in payouts in 2022, having paid less than $11 in premiums.

But somewhere at the intersection between the provision of financial services and people strengthening their climate resilience and adaptation, lie a number of impacts experienced by the most vulnerable – particularly women – that remain largely hidden and unexplored, and which limit the wider adoption and effectiveness of financial services that could help these people against growing climate risk.

At the intersection of financial services and climate change: savings can be a lifeline but are not enough

As a result of existing socio-cultural norms and lower access to productive assets, women in rural and agricultural livelihoods are affected differently by climate change than men – and they respond differently. They face greater constraints when it comes to accessing and using formal financial channels, and so are more likely to use informal channels such as village savings and loan associations which offer easier accessibility –- like low registration requirements – and other broader benefits valued by women. Women also often demonstrate greater risk aversion, which can influence their preference for savings channels over climate-specific borrowing or insurance products that are perceived as being more complex and risky. These include both informal and formal savings, including those with restricted access and requiring savings commitments.

In addition to being an alternative channel for excluded groups, savings groups provide an easier way to save money. They are convenient, easy-to-use, and trustworthy because they are flexible, innovative, and tailored to the needs of vulnerable people. They also offer added benefits like deepened social networks based on trust and reciprocity that contribute to mutual solidarity when weather shocks occur, and help improve social support systems among members, in this way increasing their resilience.

In Ghana, collective savings from village savings and loans associations (VSLAs) have enabled women to purchase higher quality agricultural inputs such as seeds and fertilizers and to expand their farms beyond growing just one staple crop. VSLAs are also used by women smallholder farmers in Niger to diversify their income beyond agriculture to increase their household resilience in coping with frequent droughts, unreliable rainfall, and other climatic pressures. Women with access to mobile savings accounts in Kenya have been able to use their savings to diversify their income from agriculture to more reliable positions in business and retail that have lower risk to climate change, in this way mitigating their climate risks.

For vulnerable people, informal savings groups are often the first source of funds during emergencies until more formal support can be provided by the government, reducing the need for negative coping strategies such as reduced food consumption, sale of assets, and taking children out of school.

But informal savings are not reliable solutions when large shocks hit. Shocks can affect everyone in the group and vulnerable people are unable to help each other – hence the limitation of informal savings and the need for formal products.

The unintended negative consequences of climate programs – the day-to-day challenges faced by vulnerable groups

Women’s actual use of financial services is largely influenced by the greater barriers they face in accessing and using formal financial products. Factors such as time and mobility constraints often mean they are unable to access financial services in-person, and low device ownership and digital low literacy also limit their access to providers’ digital channels.

But even if vulnerable women wanted to adopt sustainable climate practices and take steps to build resilience, their lower financial literacy levels mean that they often have a poor understanding of financial products and their potential benefits – and many do not qualify for formal products due to high screening requirements, transaction costs, and collateral requirements.

What is also seen in the research is that among vulnerable women who do have sufficient access and ability to use financial products, many are reluctant to use such products, owing to a general mistrust of formal financial service providers because of high fees and interest rates, and the fact that many products are ill-tailored to meet their specific needs. The average number of working hours for women has even been shown to increase with the implementation of sustainable land management practices, while not affecting the employed working hours of men.

Even when it comes to borrowing, and given the constraints many face in accessing formal credit, women typically rely more on informal borrowing rather than formal loans to prepare for climatic events and cope and recover in their aftermath – and so the cycle of existing patterns continues.

What more effective financial services could look like – and how far we have to go

In order to effectively meet the climate needs of vulnerable people – especially women – more awareness of financial services is needed, and people’s ability to actually use services must be increased.

Education around products will be key in getting more people in target populations to know about the use and the benefits of financial tools in building climate resilience.

Financial services providers, who face a number of their own constraints such as prohibitive legislation, can partner with other providers, such as locally trusted microfinance institutions, input providers, and other organizations, to build trust and create services and products tailored to the specific needs of the vulnerable to incentivize their willingness to use these services.

Product ‘bundles’’ are an increasingly attractive financial service bundling financial products such as insurance and credit with other financial or non-financial products or services such as technical assistance, information, and education. Often, the offer of product information and how it can be used is useful for households, like in Kenya where farmers purchasing Bima Pima are given crop information and seeds bundled with an index insurance that protects their livelihoods and households from the risk of falling into poverty as a result of drought.

Eligibility requirements that are more flexible for products such as climate insurance and credit, will help lower the barrier to entry for underserved groups. A weather index insurance provider in Bangladesh, for example, allowed the registration requirement of a land title deed to be flexibly applied in the case of landless farmers. With the help of a local microfinance institution, farmers obtained a photocopy of their respective landlord’s title deed, and the insurance policy could be registered in the tenant’s name.

That same insurance service was launched using a range of media that allowed more literate farmers to read the printed materials such as posters and leaflets, while face-to-face discussions in courtyards, mosques and marketplaces, street dramas, and especially video, were the most effective means of reaching small, marginal and landless farmers. In this way farmers were made aware of the insurance scheme, and came away understanding how it could support climate resilience and how it would operate. Women in particular were reached through street dramas and screening videos in places in the community that were accessible to them.

Video was the preferred medium across all farmer classes and women for learning about the insurance product.

Vulnerable people do not often have a consistent flow of income, and repayment terms and premium payments could be more flexible and tailored to climate vulnerable needs. With this in mind, PEG, an asset finance company offering solar irrigation financing plans in Ghana, offers non-collateralized financing that enables women to pay for the pump over a 17-month period, with flexible repayments that can be tailored to cropping cycles to allow for higher payments once the harvest is complete.

In one of many other steps, training schedules and delivery systems could be adjusted to accommodate women’s additional time burdens and childcare demands, for instance by offering digital training rather than attending in-person women farmers are able to learn and save time.

Steps towards more inclusive financial services as climate change intensifies

Due to the highly complex and diverse nature of vulnerable people’s exposure to climate risks from droughts to floods and storms, and the range of factors such as livelihood, gender and age that must be considered in promoting adaptation and resilience, no single solution can address the disproportionate exposure of vulnerable people to climate change. Rather, a range of financial and non-financial solutions, often in different combinations, will be increasingly vital to support vulnerable people – especially women – as they adapt and build resilience to climate change.

A deeper awareness and understanding of the experiences of vulnerable individuals and households as climate change imposes new and intensifying challenges will be the first steps towards the development of inclusive and appropriate financial services and climate programs that can improve these experiences.

The literature reviews are a start, and lay the foundation for better understanding the intersection between vulnerable people – particularly women – climate change and financial services – and help identify where more detailed research is urgently needed.

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