Journal Article

IDS Bulletin Vol. 39 Nos. 4

Microfinance and Climate Change Adaptation

Published on 1 September 2008

In 2006, the Nobel Peace Prize was awarded to Mohammed Yunus and the Grameen Bank for their roles in developing microfinance as an ‘ever more important instrument in the fight against poverty’ (Norwegian Nobel Committee 2006).

The following year, the award was given to Al Gore and the Intergovernmental Panel on Climate Change (IPCC), for their roles in educating the world about the unprecedented global challenge of climate change. In making these unusual and even controversial awards, the Nobel Committee recognised the remarkable fact that, in the space of just three decades, microfinance and climate change science have generated broad social movements grounded in the belief that these processes have the capacity to radically transform life around the world.

Ironically, while in their most optimistic expressions, the proponents of microfinance imagine cutting global poverty in half within a few years, scientists have identified the same population of desperately poor as among the first people who will confront the negative impacts of climate change. Specifically, the IPCC has identified developing countries as more vulnerable to climate change damages and argues that ‘this condition is most extreme among the poorest people’ (IPCC 2001: 227). Development assistance agencies have warned that climate change may stall or reverse development efforts, making it more difficult to achieve the Millennium Development Goals (MDGs) (ADB et al. 2003). If climate change is indeed a threat to which the poor are acutely vulnerable and if microfinance is in fact a tool that can reduce the vulnerability of the poor, then the possibility of linking this tool to climate change adaptation is of considerable importance.

Some caution is appropriate however, since in many ways microfinance is ‘an immature and unproven field … anyone can say almost anything, and with the public relations surrounding the field, much of it goes unquestioned’ (Dichter 2007: 4–5). The flurry of activity and interest surrounding microfinance has in some ways obscured the fact that the microfinance industry is still fragmented, composed of a broad range of operators offering different products and services at different scales, often with insufficient data to quantify or prove results (Hulme 2007; Karnani 2007). The industry itself is undergoing significant transformation, as more and more nongovernmental organisation (NGO) microfinance institutions become regulated financial institutions, and as more commercially oriented investors begin to finance their growth, raising concerns about mission drift (Frank et al. 2008). Industry proponents appear to be taking steps to manage expectations and improve transparency, noting that microfinance was not intended to serve the very poorest of the poor, but the ‘economically active poor’ and represents only one (sometimes minor) strategy for poverty reduction.

While appreciating the various concerns raised about microfinance, our review of what is an increasingly sophisticated literature suggests that microfinance deserves careful consideration by the climate change adaptation community. We believe that the potential for a constructive linkage is there – in some cases much has already been realised – and should not be ignored. Hence the purpose of this article is to identify possible links between microfinance services and climate adaptation and to highlight the opportunities and the risks of these links for vulnerability reduction among the world’s poorest populations.

Related Content

This article comes from the IDS Bulletin 39.4 (2008) Microfinance and Climate Change Adaptation

Cite this publication

Hammill, A., Matthew, R. and McCarter, E. (2008) Microfinance and Climate Change Adaptation. IDS Bulletin 39(4): 113-122

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Anne Hammill
Richard Matthew
Elissa McCarter

Publication details

published by
Institute of Development Studies