Climate change is having severe economic impacts globally, and low-income, vulnerable populations are being disproportionately affected. Many low-income countries are experiencing longer, hotter heat waves and more extreme storms, which is leading to food insecurity, income losses, lost livelihood opportunities, adverse health impacts, and displacement.

Additionally, climate change is a <a href="https://www.ipcc.ch/sr15/chapter/spm/" target="_blank" rel="noopener noreferrer">threat multiplier</a>, exacerbating inequity for low-income households discriminated against based on gender, race, socioeconomic class, age, and disability.
<h2>Mitigating Climate Risk</h2>
The international consensus is that systems change is necessary to mitigate these climate risks. In this context, systems change refers to altering systems of production and consumption to stabilize the amount of greenhouse gases emitted into the atmosphere. For example, the ongoing shift from non-renewable to renewable energy is an outcome of systems changes and required policy initiatives by government, public and private investment in renewable technology, and changes in fuel utilization by households.
<blockquote>Financial services will play an important role in helping low-income households adapt their livelihoods</blockquote>
Systems change will impact low-income communities through the creation and elimination of livelihood opportunities. The types of systems changes required to mitigate climate impacts at a global level will impact livelihoods in communities across the globe as carbon emitting industries are replaced or innovated with climate resilient technologies. Some estimates project 1.5 billion jobs will be created by this process. Arguably more importantly, many jobs will be <a href="https://unfccc.int/resource/docs/2016/tp/07.pdf" target="_blank" rel="noopener noreferrer">altered, eliminated, or replaced</a>. Financial services will play an important role in helping low-income households adapt their livelihoods to cope with these changes as they will require significant investment to update production processes.
<h2>Resilience, Adaptation, and the Role of Financial Services in the Meantime</h2>
Systems change is a process which will occur in the medium to long-term. In the short term, financial services can support low-income households to improve their resilience to climate shocks. Before a shock, low-income households can prepare in a variety of ways, such as improving housing, diversifying their livelihoods, adopting climate-resilient business practices, and accumulating financial resources to respond to shocks when they happen. After a shock, low-income households need to respond to food insecurity, livelihood disruption, loss of assets, and increased health and safety risks. In addition to their pre-shock preparation, low-income households may seek to draw in other household and community resources to boost their resilience. Households may also choose to migrate to areas less exposed or better prepared to respond to climate events.

There is broad evidence of the critical role financial tools – cash transfers, savings, insurance, and credit – play in helping households respond to shocks. There is strong evidence for the role of person-to-person (P2P) and government-to-person (G2P) cash transfers in helping households survive in crisis environments. Studies have shown that P2P and/or G2P transfers have <a href="http://documents.worldbank.org/curated/en/537771507750178892/Philippines-Lessons-learned-from-Yolanda-an-assessment-of-the-post-Yolanda-shortand-medium-term-recovery-and-rehabilitation-interventions-of-the-Government" target="_blank" rel="noopener noreferrer">helped households respond</a> to various weather events in Kenya, earthquakes in Rwanda, and rainfall shocks in the Philippines.

A large body of impact evidence makes clear that savings is also a powerful financial tool in these environments. Innovations for Poverty Action (IPA) has summarized the evidence supporting the role of savings in preparing for shocks. For formal financial services, they found evidence that low and no-fee savings accounts helped households self-insure against shocks, and there was strong evidence for the role of <a href="https://www.poverty-action.org/sites/default/files/publications/Building-Resilience-Through-Financial-Inclusion-January-2019.pdf" target="_blank" rel="noopener noreferrer">behavioral approaches</a> (such as commitment savings devices) in promoting savings for shock mitigation.

There is some positive evidence on insurance and credit as well. Weather-indexed crop and livestock insurance can promote investment by smallholder farmers in communities likely to experience extreme weather events, and a review of the evidence by IPA articulates examples of credit products encouraging investment in farm inputs and technology by smallholder farmers in sub-Saharan Africa. In addition, a <a href="https://www.adb.org/publications/microfinance-disaster-recovery-lessons-nepal-earthquake" target="_blank" rel="noopener noreferrer">limited</a> <a href="https://www.mercycorps.org/blog/nepal-impact-report-earthquake" target="_blank" rel="noopener noreferrer">number</a> of studies have shown households with access to formal credit had better short and long-term outcomes following a crisis compared to similar households without access to credit.
<h2>Critical Gaps in the Current Knowledge Base</h2>
The evidence makes clear the promise of financial services in supporting low-income households’ response to climate change, but there are numerous demand side and supply side challenges that need to be studied in order to maximize the utility of financial services. Additionally, the role of government in creating an enabling environment and enacting social safety nets to promote mitigation and adaptation needs to be explored.

On the demand side, low-income households have less access to and are <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">less likely to use formal financial products</a> compared to middle and high-income households. This is also true of climate-related financial tools. For instance, the evidence shows that voluntary take up of weather-indexed insurance products is <a href="https://www.poverty-action.org/sites/default/files/publications/Make-it-Rain-Policy-Bulletin.pdf" target="_blank" rel="noopener noreferrer">too low to sustain a market</a> for them without subsidy despite their effectiveness. There are numerous product design challenges that may be contributing to this. Gender bias in program and product design persists, making <a href="http://documents.worldbank.org/curated/en/484541544643269894/pdf/130659-REVISED-PUBLIC-Managing-Coal-Mine-Closure-Achieving-a-Just-Transition-for-All-November-2018-final.pdf" target="_blank" rel="noopener noreferrer">interventions less effective</a> for women and multiple studies have articulated the need for improved financial capability to promote uptake and regular, effective use of financial tools.

On the supply side, there is little visibility into the range of products and financial service providers (FSPs) offering climate-focused financial products to low-income households. This hinders industry learning about what products or services are working and why. This opacity contributes to financial institutions in emerging and developed markets being admittedly unsure about how to best design their products to support households’ resilience to climate change. There is good reason to think providers will need to learn what innovative models work as analysts expect climate risks to create new challenges for pricing credit and insurance products, among others. For instance, in 2019, Munich Re, the world’s largest reinsurance firm, warned that climate-risk could <a href="https://www.theguardian.com/environment/2019/mar/21/climate-change-could-make-insurance-too-expensive-for-ordinary-people-report" target="_blank" rel="noopener noreferrer">make insurance premiums unaffordable</a> for most people.

Governments play a critical role, too. However, there are a limited set of evidence-based best practices for responding to this situation. For instance, unemployment insurance and other social safety nets have proven to be important tools in supporting livelihoods during systems change, but such benefits are less common in emerging markets than in advanced economies. They are also less effective at reaching low-wage and informal workers. How can governments establish policy and programs to better protect the livelihoods of these workers? Are there innovative safety net systems that they could use, or are other policy tools effective?
<h2>CFI’s Climate Agenda</h2>
CFI is embarking on an ambitious agenda to address these gaps. Our immediate focus is on building the evidence for what works on the demand and supply side and for government policies.

On the demand side, CFI will focus on two major activities. First, CFI will map the impact evidence, identifying what financial products and services help low-income households effectively respond to climate change. This is a critical early step as it will inform the industry of what is known and unknown about this topic. It will also serve as a foundation from which CFI will operate, helping us identify what evidence gaps need filling. Second, CFI will conduct qualitative and quantitative research with consumers to establish a baseline understanding of consumers’ experience with and financial needs for mitigating and adapting to climate change.
<blockquote>CFI will map impact evidence and conduct research to understand consumers' experiences with and financial needs for mitigating and adapting to climate change.</blockquote>
On the supply side, CFI will leverage the expertise acquired through its strategic <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX to shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions for low-income households. CFI will do this through two main activities. First, CFI will inventory financial products to understand their target market, design, reach, and effectiveness. This will enable us to promote the development of appropriate climate products with FSPs. Second, CFI will track investment in climate-related finance by monitoring funding flows from public and private sources. Given the attention to climate-related finance, it will become increasingly important for funders to have visibility on funding flows related to climate change and finance that impact low-income households.
<blockquote>CFI will shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions.</blockquote>
Emerging market governments are enacting policies to help their countries mitigate and adapt to the effects of climate change. This gives us a sense of <a href="https://www.afi-global.org/publications/3036/Inclusive-Green-Finance-A-Survey-of-the-Policy-Landscape" target="_blank" rel="noopener noreferrer">what governments are doing</a> in response but it is unclear which policies are most effective for low-income households and why. In order to identify effective policy solutions, CFI will conduct mixed-method case studies of climate policies and their impact on the supply and demand side of the ecosystem.

Our goal for developing the evidence base is to provide information that decision makers need to deliver climate-informed financial products to vulnerable populations across the globe with the hope that it ultimately helps facilitate the transition to a more sustainable economy for all. Financial Inclusion Week is the first step in our journey, and we look forward to sharing our impact in the months to come.

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Financial Services are Needed to Help Low-Income People Mitigate and Adapt to Climate Change

Financial Inclusion Week 2020

Challenges and Crises

Enabling Environment

Crop Insurance

Insurance

Financial Inclusion Strategy

Payments

Index Insurance

Smallholder Farmers

Underserved Groups

Blog Post

Eric Noggle

Amee Parbhoo

Rob Stevens

Jeffrey Riecke

Sub-Saharan Africa

Cambodia

Yemen, Rep.

Zambia

Financial Service Providers

Fintechs

Agent Banking

Mobile Banking

Youth

The following post was <a href="http://blogs.accion.org/features/changing-climate-technology-provides-agricultural-insurance-farmers/">originally published</a> on the Accion blog.
Smallholder farmers are the bedrock of sub-Saharan Africa’s and Asia’s agricultural markets, providing <a class="markup--anchor markup--p-anchor" href="http://www.fao.org/3/a-i4036e.pdf" target="_blank" rel="nofollow noopener noreferrer">over 80 percent of the food supply</a>, but they are growing increasingly vulnerable. Climate scientists estimate that over the next few decades, droughts will <a class="markup--anchor markup--p-anchor" href="https://www2.ucar.edu/atmosnews/news/2904/climate-change-drought-may-threaten-much-globe-within-decades" target="_blank" rel="nofollow noopener noreferrer">frequently affect Africa and Asia</a> as a result of climate change. As weather conditions cause decreased stability for family farms, there is an increased need for risk mitigation solutions that can add security to the lives of those most affected.
Pula, <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/content/pula-secures-funding-global-investors-support-smallholder-farmers-africa-and-south-asia" target="_blank" rel="nofollow noopener noreferrer">one of Accion Venture Lab’s latest investments</a>, provides insurance to smallholder farmers across Africa and India, enabling income security for a population whose livelihoods depend on climate patterns. Pula uses cutting-edge technology coupled with expansive distribution partners to make large-scale agricultural insurance feasible for rural farmers.
Across their product portfolio, Pula uses various technologies, including automated voice calls to register customers, satellite imagery to monitor cloud cover, and SMS messages to provide agronomic advice. In the event of a drought or poor season, Pula uses weather data and yield samples to offer compensation to farmers for their losses. By coupling technology with large-scale distribution, Pula can make insurance practical for smallholder farmers at scale.
At Venture Lab, we’re most excited about a few core areas of the typical microinsurance value chain that Pula disrupts:
Eliminating the purchase barrier: Pula’s distribution model circumvents the challenges of customer adoption and education that we’ve seen insurers struggle with in the past. Customers read about Pula’s coverage on a sticker on the bag of seed or fertilizer they’re purchasing, and then they register their unique policy via their mobile phone. Pula’s partners put stickers on every bag sold in a region, and there’s no visible added cost to the products, simplifying the farmer’s decision-making process. To that farmer, Pula’s coverage is easy to activate and presents pure upside.
Increasing yields for customers with massive need: Pula focuses on some of the most vulnerable populations on Earth, and the insurance coverage is only the beginning of the benefit they receive from the product. By de-risking the purchase of farm inputs, such as seed, fertilizer, or credit, Pula is also able to incentivize farmers to purchase higher-quality products than they otherwise might — without the risk of failure. As a result, they can attain higher yields and incomes. Further, Pula provides the farmer with direct agronomic advice via SMS, leveraging the farmer’s GPS coordinates and their climate science team, and boosting the farmer’s yields.
Lowering the cost to serve: With its innovative distribution, Pula has the potential to reach a customer that has previously been prohibitively expensive to serve. Formerly, insuring smallholder farmers required multiple field visits to determine if conditions were right for crops to grow and to educate the farmer about the benefits of insurance, ultimately convincing them to pay for coverage. Pula can automate and significantly cut costs by assessing the farm’s weather remotely using satellite and regional yield data. Working through distributors also enables Pula to offer free and straightforward insurance coverage that is fully integrated with the input.
Venture Lab is thrilled to be working with the Pula team on their mission to provide insurance to smallholder farmers across Africa and Asia. Co-founder Rose Goslinga is a pioneer in the space, with a decade of experience and a <a class="markup--anchor markup--p-anchor" href="https://www.ted.com/talks/rose_goslinga_crop_insurance_an_idea_worth_seeding" target="_blank" rel="nofollow noopener noreferrer">TED talk</a> on her resume. She is working alongside Thomas Njeru, who provides actuarial experience and financial expertise as the company’s CFO.
As <a class="markup--anchor markup--p-anchor" href="https://www.microinsurancenetwork.org/sites/default/files/Microinsurance%20Network_Africa%20landscape%20full%20report-WEB_0.pdf" target="_blank" rel="nofollow noopener noreferrer">microinsurance in most African markets hovers at or below 5 percent,</a> there is a massive market opportunity to support the world’s most vulnerable as they grow food to provide for their communities. Pula tackles the arduous task of customer awareness by partnering with known brands and uses cutting-edge technology to make the product scalable. <a class="markup--anchor markup--p-anchor" href="http://www.thp.org/knowledge-center/know-your-world-facts-about-hunger-poverty/" target="_blank" rel="nofollow noopener noreferrer">Half of the world’s hungry</a> are farming families, and Pula strives to reach those most in need with security and stability.
Venture Lab is excited to be supporting Pula as they take on one of the world’s most significant challenges.
Have you read?

<a href="https://cfi-blog.org/2018/01/22/7-fintech-trends-to-watch-in-2018/">7 Fintech Trends to Watch</a>

<a href="https://cfi-blog.org/2018/02/27/the-radical-reinvention-of-inclusive-insurance/">The Radical Reinvention of Inclusive Insurance</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

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In a Changing Climate, Technology Provides a Lifeline for Farmers

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18949" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/08/8-10-2015-e-zine.png" alt="" width="615" height="330" /></a>

The latest edition of the <a href="http://newsfeed.financialinclusion2020.org/">Financial Inclusion 2020 News Feed,</a> our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are the release of a New America Foundation report on account dormancy in youth savings, Yemen exploring mobile banking to combat the hardships of war, and Cambodia launching its first agricultural insurance programs. Here are a few more details:
<ul>
 	<li>The New America report considers how to understand the challenge of youth account dormancy in large-scale account-based initiatives and policy efforts, describing the range of issues related to account engagement from the perspectives of financial institutions, policymakers, and account-holders.</li>
 	<li>Yemen, following its central bank passing regulation on e-money and mobile money in December, is looking to the development of digital finance to cover critical services during wartime, as 30 to 40 percent of bank branches are closed.</li>
 	<li>The Cambodian Center for Study and Development in Agriculture (CEDAC) has launched the country's first agricultural insurance programs, in the form of pilots for the next year and a half, protecting rice farmers against loss from drought and floods.</li>
</ul>
For more information on these and other stories, read the latest issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

Youth Savings, E-Money in Yemen, Agricultural Insurance – the Latest FI2020 News Feed

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

<a href="http://www.flickr.com/photos/50383637@N07/6673225753/"><img class="aligncenter wp-image-15175" style="border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/06/6673225753_8fd491315f_b.jpg" alt="" width="575" height="431" /></a>As if we needed more motivation to support the expansion of microinsurance, the increase in extreme weather is highlighting the ability of the financial service to spur climate change adaptation.

Farming in developing countries is responsible for 70 percent of the world’s food supply, and farmers in developing countries are vulnerable to the effects of climate change. What will happen to the world’s food and to those making a living from small-scale agriculture when the frequency and intensity of extreme weather arising from climate change take stronger hold?

Smallholder farmers - about 2.5 billion people live in 500 million smallholder households in developing countries - <a href="http://www.agrifinfacility.org/segmentation-smallholder-households-meeting-range-financial-needs-agricultural-families" target="_blank">comprise the majority</a> of those living in absolute poverty. A lost harvest from lack of rain can trigger a cascade of seasons with compromised production and profits if farmers end the season without adequate funds to purchase seed and inputs. Microinsurance can provide a weather-linked safety net so that this cycle of poverty doesn’t have to happen. It can also elicit adaptive behavior change, like the purchase of drought-resistant seeds, that better positions farmers for resiliency during irregular rainfall seasons.

A recent <a href="http://api.ning.com/files/XewtWaR3V6ZqR5Km0aVUVKrIav3amJja0gNM1y5U5aJ0adjpdWIGLqgGtYmNPF0uUUVjpiI5MLBajivroEA6xgipHjCYK9ZP/Endeva_ChangingClimateChangingBehavior_2013.pdf">joint-paper from Endeva and Climate Analytics</a> highlights this potential for microinsurance in climate change risk mitigation and adaptation, sharing information about on-the-ground microinsurance schemes that have been successful, and the behavior change mechanisms that these services have employed.

In Kenya, the agricultural insurance product Kilimo Salama provides coverage for farmers’ seeds, fertilizer, and crops. The catch is that participating farmers will only be insured if they purchase drought-resistant seeds. To ease the burden of purchase, potential customers are given access to loans or can have the seed cost incorporated into their insurance premium price. The set-up of Kilimo Salama, along with offering general agricultural insurance, incentivizes productive investments that mitigate risk - which also makes the clients more insurable. If this service was not available, the chances of farmers investing in drought-resistant seeds would fall.

In the area of health insurance, some providers offer the benefit of lower premiums for subscribers who take part in healthy actions – for example, taking a yoga class. Similarly, Red Hairy Caterpillar Insurance, a product offered in India by People Mutuals to cover crop damage by caterpillars, provides discounted rates for farmers who plough their fields during the summer, a measure that decreases the likelihood of caterpillar occurrence. Evidence suggests that climate change is linked to the increased incidence and severity of crop-related pests. People Mutuals also offers free training and information services on climate risk mitigation and adaptation (for example, drought and water management) for subscribers, imparting knowledge and skills to farmers that they might not otherwise have, and reducing risk for all parties involved.

Another risk reduction mechanism involves providers accepting labor that contributes to climate change adaptation as payment for insurance premiums. The Rural Resilience Initiative known as Harita in Ethiopia allows subscribers in drought-prone areas to work on community-identified projects that build resilience to climate change, like irrigation improvement and soil management.

Many microinsurance services for farmers have payouts structured on indexes registering weather that is likely damaging for land and crops. As an altered take on this, policyholders may receive a payout via index readings prior to the extreme weather event, allowing farmers to prepare with risk management methods. This is the model of ENSO Business Interruption Index Insurance (EBIII) by La Positiva, a Peruvian insurance company. The product provides insurance for climate-related disasters related to the El Nino Southern Oscillation.

More research and experimentation on linking microinsurance with climate change risk mitigation and adaptation needs to be done, the paper advises. And on the whole, microinsurance services need to spread: in 2011, the total value of agricultural insurance premiums paid in developing countries was $5.2 billion, whereas globally the total was $23.5 billion.

Image credit: <a href="http://www.flickr.com/photos/50383637@N07/6673225753/" target="_blank">Bioversity International</a>

Have you read?

<a href="http://cfi-blog.org/2013/08/28/the-synergy-potential-of-financial-and-energy-inclusion/" target="_blank">The Synergy Potential of Financial and Energy Inclusion</a>

<a href="http://cfi-blog.org/2009/12/18/in-the-face-of-climate-change-adapt%E2%80%A6-and-mitigate/" target="_blank">In the Face of Climate Change, Adapt... and Mitigate!</a>

<a href="http://cfi-blog.org/2014/03/27/agriculture-microinsurance-in-africa-to-subsidize-or-not-to-subsidize/" target="_blank">Agriculture Microinsurance in Africa: To Subsidize or Not to Subsidize?</a>

Climate Change Adaptation for Smallholder Farmers