Assessing the Role of Microfinance in Fostering Adaptation to Climate Change

Much of the current policy debate on adaptation to climate change has focussed on estimation of adaptation costs, ways to raise and to scale-up funding for adaptation, and the design of the international institutional architecture for adaptation financing. There is however little or no emphasis so far on actual delivery mechanisms to channel these resources at the sub-national level, particularly to target the poor who are also often the most vulnerable to the impacts of climate change. It is in this context that microfinance merits a closer look. This paper offers the first empirical assessment of the linkages between microfinance supported activities and adaptation to climate change. Specifically, the lending portfolios of the 22 leading microfinance institutions in two climate vulnerable countries – Bangladesh and Nepal - are analysed to assess the synergies and potential conflicts between microfinance and adaptation. The two countries had also been previously examined as part of an earlier OECD report on the links between macro-level Official Development Assistance and adaptation. This analysis provides a complementary “bottom-up” perspective on financing for adaptation. Insights from this analysis also have implications for OECD countries. This is because microfinance is also being increasingly tapped to reduce the vulnerability of the poor in domestic OECD contexts as well and may therefore have the potential to contribute to adaptation. The paper identifies areas of opportunity where microfinance could be harnessed to play a greater role in fostering adaptation, as well as its limitations in this context. It also explores the linkage between the top-down macro-financing for adaptation through international financial mechanisms and the bottom-up activities that can be implemented through microfinance.Microfinance, Climate Change, Financing, Adaptation, Bangladesh, Nepal

Adaptation, Mitigation and Innovation: A Comprehensive Approach to Climate Policy

The ultimate question that most interests policy makers is how to reduce the climate change vulnerability of socio-economic systems in the most cost-effective manner. Extended literature has investigated the different dimensions of mitigation strategies, whereas much less can be found on adaptation. Even less can be found on the interactions between adaptation and mitigation. The increasing emphasis on adaptation raises a set of still unanswered questions concerning the design of an optimal mix of mitigation and adaptation measures. This paper presents an Integrated Assessment Model (IAM) that explicitly models the connections between mitigation, climate change impacts and adaptation. Compared to the few existing studies in the field, our framework provides a more detailed characterisation of adaptation processes. Adaptation activities have been distinguished from adaptive capacity building. We also provide an updated quantitative support for the calibration of adaptation costs and benefits. Using this framework, we explore issues such as the optimal timing of mitigation and adaptation, the trade-off between mitigation and adaptation, and the regional distribution of investments and residual damage.Climate change impacts, mitigation, adaptation, integrated assessment model

The Drought and Humanitarian Crisis in Central and Southwest Asia: A Climate Perspective

A persistent multi-year drought in Central and Southwest Asia has affected close to 60 million people as of November 2001. Chronic political instability in many parts of this region and the recent military action in Afghanistan have further complicated the situation. This report provides a climatic perspective on the severity and spatial extent of the ongoing drought and its social and economic impacts. The target audience for this report includes national, regional and international policymakers, humanitarian relief agencies, members of the research community as well as others with a general interest in Central and Southwest Asia and the causes and consequences of the persistent drought in the region. The report discusses underlying climatic mechanisms that might explain the causes for the persistent drought, and presents seasonal climate forecasts and their implications for the region. The principal conclusions of this report are as follows: Central and Southwest Asia represents the largest region of persistent drought over the past three years anywhere in the world. From a regional perspective, the ongoing drought is the most severe in the past several decades. Significant shortfalls in precipitation have led to widespread social and economic impacts, particularly in Iran, Afghanistan, Western Pakistan, Tajikistan, Uzbekistan and Turkmenistan. Agriculture, animal husbandry, water resources, and public health have been particularly stressed throughout the region. Preliminary analysis suggests that the drought is related to large-scale variations in the climate across the Indian and Pacific Oceans, including the recent “La Niña” in the eastern Pacific. Current seasonal climate forecasting skill in Central and Southwest Asia is modest. IRI seasonal forecasts for the period November 2001-April 2002 are consequently for climatology or equal likelihood of above-, near-, or below-normal precipitation in the region. While not indicative of any pronounced trends, a climatology forecast is less dire than one indicating enhanced probabilities for below normal precipitation

Assessing the Role of Microfinance in Fostering Adaptation to Climate Change

Much of the current policy debate on adaptation to climate change has focussed on estimation of adaptation costs, ways to raise and to scale-up funding for adaptation, and the design of the international institutional architecture for adaptation financing. There is however little or no emphasis so far on actual delivery mechanisms to channel these resources at the sub-national level, particularly to target the poor who are also often the most vulnerable to the impacts of climate change. It is in this context that microfinance merits a closer look. This paper offers the first empirical assessment of the linkages between microfinance supported activities and adaptation to climate change. Specifically, the lending portfolios of the 22 leading microfinance institutions in two climate vulnerable countries – Bangladesh and Nepal - are analysed to assess the synergies and potential conflicts between microfinance and adaptation. The two countries had also been previously examined as part of an earlier OECD report on the links between macro-level Official Development Assistance and adaptation. This analysis provides a complementary “bottom-up” perspective on financing for adaptation. Insights from this analysis also have implications for OECD countries. This is because microfinance is also being increasingly tapped to reduce the vulnerability of the poor in domestic OECD contexts as well and may therefore have the potential to contribute to adaptation. The paper identifies areas of opportunity where microfinance could be harnessed to play a greater role in fostering adaptation, as well as its limitations in this context. It also explores the linkage between the top-down macro-financing for adaptation through international financial mechanisms and the bottom-up activities that can be implemented through microfinance