Local access to finance for adaptation

Photo: USAID Southern Africa

Last week I highlighted a few topics which I think are important in the adaptation field in 2018. Today I’m going to elaborate a little on what I think is one of the key ongoing debates around adaptation; how to ensure that local communities have access to the finance they need in order to adapt to climate change.

The International Institute for Environment and Development (IIED) estimate that only around 10% of international climate finance reaches the local level, and as such is failing to meet the needs of the poorest communities. With most climate finance currently invested in large-scale projects (a natural result of the desire to reduce financial risk for the funds – and the cause of significant tension) there is a clear need for approaches which allow vulnerable communities access to the financial resources they need in order to increase their resilience. On this front, one promising mechanism to address this gap is the creation of decentralized climate funds, which help local governments and communities to access climate finance which can used for locally developed projects and priorities.

Beyond international climate funds, another key development is establishing ways in which private sector actors work together to ensure that small businesses (SMEs, or associations of smallholder farmers) can secure the finance they need to access products or services to increase resilience. Resilience dialogues carried out by our Private Markets for Climate Resilience project have highlighted access to finance and credit as a major barrier for many small businesses which stops them taking the steps they would like to build resilience to climate change. Ongoing work through the project shows that there is appetite to bring together financial institutions, technical experts and farmers to design mechanisms that would facilitate access to finance and could incentivise the roll-out of resilience-enhancing techniques such as alley cropping or conservation agriculture. For financial institutions the incentive is that they are keen to reduce the exposure to climate risks across their portfolio of loans or insurance products, and as such could provide finance at preferential rates to fund the uptake of practices which reduce climate risks to farmers.

While there are lots of details to be defined, there are promising engagements along these lines in several PMCR countries which could significantly improve the resilience of smallholder farmers and SMEs. Watch this space for country case studies over the next few months!