Sierra Leone is a highly climate-vulnerable country, meaning that most of the population does not have appropriate coping strategies or resources to deal with the unpredictable effects of climate-related shocks. The country is also heavily dependent on agriculture. In 2020, the <a href="https://www.elibrary.imf.org/view/journals/002/2022/260/article-A001-en.xml#:~:text=High%20dependence%20on%20agriculture%20and%20poor%20infrastructure%20exacerbates,sector%2C%20constitutes%2059%20percent%20of%20GDP%20in%202020." target="_blank" rel="noopener noreferrer">IMF found</a> that the agricultural sector in Sierra Leone employed 54 percent of the population, and, together with fishing and tourism, it contributed 59 percent to the country’s GDP. Today, limited access to finance or crop insurance makes it challenging for farmers to manage climate-related risks, exacerbating the link between Sierra Leone’s climate vulnerability and poverty.

In partnership with Boston University’s Fulbright Humphrey Fellowship, CFI worked closely with Humphrey Fellow <a href="https://www.bu.edu/hhh/alumni/2022-23-hubert-h-humphrey-fellows/alfred-jusu/" target="_blank" rel="noopener noreferrer">Alfred Jusu</a> to conduct 12 key informant interviews with agriculture and financial services experts in Sierra Leone to understand how low-income and vulnerable populations respond to climate change. From these conversations, we found that farmers face three major climate-related challenges in Sierra Leone: flooding, extreme heat, and irregular rainfall. We suggest ways for inclusive financial services providers (FSPs) to support low-income and vulnerable communities in Sierra Leone – and other countries – to adapt to climate-related threats.
<h1><strong>Major Climate-Related Challenges for Farmers in Sierra Leone</strong></h1>
Climate risk impacts vulnerable populations in many ways, including increased food insecurity, waterborne diseases, dehydration-induced fatigue, biodiversity loss, and low agricultural production. Among these many challenges, based on the 12 interviews conducted, the three greatest climate-related concerns facing farmers in Sierra Leone are flooding, extreme heat, and irregular rainfall.
<h3><strong>Flooding</strong></h3>
Of the total number of people affected by disasters in Sierra Leone in the last 30 years, <a href="//www.undp.org/sierra-leone/publications/national-adaptation-plan-2021%20Documents/Communications/Blog/2023%20blog%20posts/Drafts%20(In%20progress)/Archive" target="_blank" rel="noopener noreferrer">90 percent were affected by flooding</a>. In recent years, the delayed onset of the monsoon rains caused water scarcity, followed by extensive flooding once the heavy rain eventually arrived. This year alone, by the beginning of the rainy season in <a href="https://floodlist.com/africa/sierra-leone-floods-freetown-may-2023" target="_blank" rel="noopener noreferrer">May</a>, flooding reportedly caused seven deaths in Freetown and six in Koinadugu.

Flooding also heavily impacts the country in other ways, including displacing farmers and people living in water catchment areas; flooding and the subsequent rotting of crops –  especially rice fields; flooding of roads that link farms to markets, making it difficult for farmers to transport their agricultural goods; property loss; and the proliferation of <a href="https://www.acaps.org/fileadmin/Data_Product/Main_media/20203107_acaps_start_fund_anticipatory_note_sierra_leone_final_augt_4_2020.pdf" target="_blank" rel="noopener noreferrer">waterborne diseases</a>, as water from flooded sewers enters broken city pipes.
<h3><strong>Extreme Heat</strong></h3>
<blockquote class="pullquote--right">In a country with weak energy infrastructure, many families struggle to acquire air conditioners to combat excessive night sweats that cause dehydration.</blockquote>
Sierra Leone’s average annual temperature has increased by 33.4 degrees Fahrenheit (0.8 degrees Celsius) since 1960. By 2060, the annual temperature is <a title="https://ora.ox.ac.uk/objects/uuid:73f9204b-37db-4cf1-b204-e264a8d60f0c/download_file?file_format=application%2Fpdf&amp;safe_filename=The%2BUNDP%2BClimate%2BChange%2BCountry%2BProfiles&amp;type_of_work=Journal+article" href="https://ora.ox.ac.uk/objects/uuid:73f9204b-37db-4cf1-b204-e264a8d60f0c/download_file?file_format=application%2Fpdf&amp;safe_filename=The%2BUNDP%2BClimate%2BChange%2BCountry%2BProfiles&amp;type_of_work=Journal+article" target="_blank" rel="noopener noreferrer">projected to increase</a> by an additional 33.8 to 36.7 degrees Fahrenheit (1.0 to 2.6 degrees Celsius). Extreme heat causes excess perspiration, dehydration, fatigue, reduced stamina, and increased rest times during physical activity. Many farmers struggle to work in these conditions, resulting in a decrease in the total area of cultivated land. In a country with weak energy infrastructure, many families struggle to acquire air conditioners to combat excessive night sweats that cause dehydration; others spend a significant amount of their limited budget on generators and fuel to keep cool at night.

The consequences of extreme heat are also significant for crops. <a href="https://bafs.org.sl/wp-content/uploads/2021/02/SL-Cocoa-Value-Chain-Policy-2019-.pdf" target="_blank" rel="noopener noreferrer">Cocoa</a> – the leading agricultural export of Sierra Leone – is particularly at risk from extreme heat. Extreme heat exacerbates the spread of diseases and pests on cocoa plantations. For example, a pest called a cocoa pod borer can damage cocoa plants and affect the quality of the beans. Warmer temperatures can also <a href="https://www.nature.com/articles/s41598-021-01427-8" target="_blank" rel="noopener noreferrer">decrease</a> the flavonoids and aroma compounds of the beans, negatively affecting the taste and quality and ultimately reducing farmers’ profits.
<h3><strong>Irregular Rainfall</strong></h3>
Over the years, Sierra Leone has seen changes in rainfall patterns and seasonal precipitation, with average <a href="https://ora.ox.ac.uk/objects/uuid:73f9204b-37db-4cf1-b204-e264a8d60f0c/download_file?file_format=application%2Fpdf&amp;safe_filename=The%2BUNDP%2BClimate%2BChange%2BCountry%2BProfiles&amp;type_of_work=Journal+article" target="_blank" rel="noopener noreferrer">annual rainfall decreasing since 1960</a>. Because Sierra Leone’s crop production depends on rainfed agriculture, this reduction in total rainfall takes a significant toll on the agricultural sector. Farmers decide when to till the land, plant, and harvest based on historical knowledge of when the rains fall. However, because of climate change, it is now more difficult to predict seasonal rainfall. As a result, birds or rodents may eat the seeds, seeds can die in the scorching heat, or their germination rates can decline. For cocoa plantations, changes in rainfall patterns affect the growth, development, and yield of cocoa trees – too much rainfall can cause cocoa pods to rot, while too little can lead to stunted growth and reduced yields.

Considering the climate risks that Sierra Leoneans – particularly farmers – face on a daily or seasonal basis, we must examine how financial institutions are helping them <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">adapt to changing landscapes and livelihoods, mitigate risk, and build resilience.</a> While some efforts are in place to support consumers responding to climate shocks, FSPs must prioritize products and services that offer clients flexibility and access during emergencies.
<h1><strong>How Can FSPs Help Consumers in the Face of Climate Change?</strong></h1>
<h3><strong>1. Offer voluntary savings</strong>.</h3>
Very few microfinance institutions in Sierra Leone offer voluntary savings accounts that clients can access when they want, regardless of any outstanding loans. However, offering this type of flexibility to consumers is important, as it allows them to access critical funds in an emergency. <a href="https://www.entrepreneursdumonde.org/en/program/munafa-social-microfinance-in-sierra-leone/">Munafa Social Microfinance</a> is one of a few MFIs offering voluntary savings for low-income clients.
<h3><strong>2. Mainstream social safety net payments</strong>.</h3>
Currently, the National Commission for Social Action (NaCSA) in Sierra Leone provides social protection payments for low-income and vulnerable citizens. These payments help people buy food and other essential supplies during floods and help cushion shocks from poor harvests. There is an opportunity for FSPs to take over the role of disbursing social safety net payments, which would help clients build transaction and credit histories. In 2020, Rokel Commercial Bank made <a href="https://tribunetimessl.com/nacsa-signs-cash-transfers-contract-agreement-with-rcb/">cash transfer payments</a> on behalf of NaCSA, amounting to approximately USD $4 million. As practiced in other countries, vulnerable individuals could use those funds to buy food and supplies or move themselves and their livestock to temporary shelters in anticipation of impending climate-induced disasters.
<h3><strong>3. Offer remittance services.</strong></h3>
Remittance services can help farmers and other vulnerable populations receive foreign and local funds to help cope with severe climate-related events, including poor harvests or famines. There are also efforts to link remittances to climate-friendly investments directly. For example, <a href="https://www.thesierraleonetelegraph.com/easy-solar-launches-online-sales-platform-to-expand-access-and-affordability/">Easy Solar’s</a> digital sales platform allows friends and relatives abroad to purchase solar products – solar lanterns, home systems, appliances, and cookstoves – through a secure online payment portal on behalf of people in Sierra Leone. Another example of how innovative models can promote climate adaptation is <a href="https://theshinecampaign.org/celebrating-the-success-of-small-grants-lessons-from-two-organizations/">Smiling Through Light’s PAYG</a>o (Pay-As-You-Go) business model, which allows rural and off-grid communities to pay for solar energy in a way that lowers transaction costs, improves transparency, facilitates savings, ensures privacy, and builds women’s autonomy.
<h3><strong>4. Mainstream the distribution of energy-efficient products like rechargeable solar lights and improved cookstoves</strong>.</h3>
Distributing energy-efficient products through FSPs, and making them part of standard credit offerings for clients, could help to increase their adoption. At the same time, purchasing these products allows first-time clients an opportunity to build a credit history, enabling them to access a range of financial services in the future.
<h3><strong>5. Offer innovative financing products.</strong></h3>
FSPs can provide innovative financing to help clients adapt and build resilience in the face of climate change. For example, a recent initiative in Freetown found that <a href="https://www.newscientist.com/article/2375769-city-in-sierra-leone-covers-buildings-in-mirrors-to-fight-extreme-heat/">covering homes with a cheap mirror film</a> can substantially reduce indoor temperatures. Additionally, the recurring floods can devastate livelihoods by washing away stock-in-trade and tools or submerging crop fields. FSPs could offer products that fund vocational training to support people transitioning to alternative livelihoods, such as welding, plumbing, or masonry.

Another resilience-building product is weather indexation insurance, representing a vast untapped market. This insurance system relies on established weather thresholds, such as a minimum or maximum predicted rainfall. If the actual rainfall in a given year exceeds the maximum or falls below the minimum, farmers will receive compensation, assuming that the rain – or lack thereof – has damaged their crops or reduced their yield. Typically, farmers purchase this insurance as part of a bundle when they buy their inputs.
<h3><strong>6. Finance the introduction of clean cookstoves powered by biomass</strong>.</h3>
The World Health Organization found that in 2021, <a title="https://www.who.int/data/gho/data/indicators/indicator-details/GHO/gho-phe-primary-reliance-on-clean-fuels-and-technologies-proportion" href="https://www.who.int/data/gho/data/indicators/indicator-details/GHO/gho-phe-primary-reliance-on-clean-fuels-and-technologies-proportion" target="_blank" rel="noopener noreferrer">less than 1% of Sierra Leoneans</a> use clean fuels and technologies for cooking. Although <a href="https://www.snv.org/update/biogas-food-security-and-climate-change">bio-slurry-fed clean cooking</a> is common in many parts of the world, it could be a transformative innovation if introduced in Sierra Leone. While the number of cattle in Sierra Leone may not be large enough to provide for a high volume of stoves, the innovation could trigger an expansion of the cattle value chain. If affordable and widely distributed, these products could also help reduce logging for firewood, further lessening the environmental strain. FSPs could mainstream these innovative products and allow clients to use such transactions to build credit and transaction history.
<h3><strong>7. Introduce climate-smart agriculture and digitize agricultural lending.</strong></h3>
Examples may include availing funding for high-value crop or livestock diversification and value chain linkages, drought-resistant crops, and irrigation pumps (e.g., hand, foot, and solar pumps). While Sierra Leone currently lacks the value chain organization required to digitize its agricultural lending, the case of <a href="https://sautitech.com/startups/how-a-village-hero-birthed-akello-banker-that-is-benefitting-thousands-of-people/">Akellobanker</a> in Uganda demonstrates that digitization can be an effective and efficient way to bundle services and offer them on a cash or credit basis. Agricultural credit has moved beyond appraising farmers based on the 5Cs of credit – character, capacity, collateral, capital, and conditions – to a simple system of appraisal based on transaction data, emphasizing the importance of having quality transaction data. Using transaction data for the appraisal process reduces administrative costs for FSPs and gives farmers access to finance to help them adapt, mitigate, and build resilience against climate-related challenges.
<h1><strong>Research-Driven Innovation is Key</strong></h1>
Sierra Leone’s temperature is rising, and 2021 was the <a href="https://www.extremeweatherwatch.com/countries/sierra-leone/average-temperature-by-year">warmest</a> year in the country’s history. The average daily high temperature was 89.8 degrees Fahrenheit (32.1 degrees Celsius), and the average low was 72.1 degrees Fahrenheit (22.3 degrees Celsius), indicating a correlation between rising temperatures, extreme heat, and irregular rainfall.
<blockquote>FSPs must work to understand their customers better and focus on how extreme flooding and irregular rainfall impact the incomes and livelihoods of vulnerable populations such as smallholder farmers and microentrepreneurs.</blockquote>
While mitigating these risks falls outside the scope of financial services, FSPs can help vulnerable clients <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">transition into alternative livelihoods.</a> However, this will require a commitment to research-driven innovation. FSPs must work to understand their customers better and focus on how extreme flooding and irregular rainfall impact the incomes and livelihoods of vulnerable populations such as smallholder farmers and microentrepreneurs. This foundational approach will allow FSPs to develop client-centric and climate-responsive products.

How FSPs Can Help Low-Income Populations in Sierra Leone Respond to Climate-Related Shocks

When the temperatures in a wheat field pass a threshold of around 104 degrees Fahrenheit (40 degrees Celsius), the seed starts to break down. <a href="http://www.icar-crida.res.in/Pubs/Heat%20wave%202022%20-%20Causes%20Impacts%20and%20way%20forward%20for%20Indian%20Agriculture.pdf" target="_blank" rel="noopener noreferrer">Photosynthesis stops working</a>, and growth stops. Wheat cannot grow in these temperatures. For the farmers of that wheat, reduced production means reduced incomes. During India’s 2022 heatwave, <a href="https://www.theguardian.com/world/2022/may/21/india-wheat-farmers-40c-heat-food-security" target="_blank" rel="noopener noreferrer">farmer incomes were reduced by as much as 50%.</a>

Periods of extreme heat can have a similar impact on urban environments. When summer temperatures reach a certain level, the livelihoods of many vulnerable groups – construction workers, day laborers, waste recyclers, miners, food vendors, and market traders – are hit. Working outside in the middle of the day becomes impossible. Foot traffic falls as people stay inside. Jobs that involve working around heat sources, like cooking and welding, become increasingly dangerous.
<h1>Understanding the negative impacts of extreme heat on household finances</h1>
The health implications of working in extreme heat are well known. Prolonged exposure to extreme heat can lead to heat exhaustion, cramps, dehydration, nausea, sunburn, dermatological issues, and other heat-related illnesses that impact health and the ability to work. The macro-level financial costs are also reasonably well-understood; for example, it is estimated that extreme heat and humidity <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/will-india-get-too-hot-to-work" target="_blank" rel="noopener noreferrer">could cost India’s economy USD $150-250bn, or 4% of GDP, by 2030</a>.
<blockquote class="pullquote--left">To understand what inclusive finance can achieve, we need a better understanding of how extreme heat impacts incomes and expenditures.</blockquote>
However, we know less about the impact of extreme heat on household finances. To understand what inclusive finance can achieve, we need a better understanding of how extreme heat impacts incomes and expenditures. I was excited to talk to Mahila Housing Trust (MHT), a grassroots development organization based in Ahmedabad, Gujarat, India. MHT provides microfinance and other services to groups of low-income urban women. Ahmedabad and the surrounding area are one of the hottest places on the planet, and its population is highly vulnerable to extreme heat. In response to the 2022 heat waves, MHT conducted focus group discussions with its members and found evidence of how extreme heat periods impacted incomes and expenditures.

On the income side, extreme heat had a significant negative impact on family income. This outcome was true for both home-based and non-home-based workers, particularly women. Home-based workers -- making papad, rolling beedi, sewing clothes -- tended to avoid working in hot afternoons, thus reducing their productivity. As a result, the average loss of income was 2,650 rupees (USD $33) over the five-month period.

As another example, the Arsht-Rock Resilience Center detailed how <a href="https://onebillionresilient.org/hot-cities-chilled-economies/" target="_blank" rel="noopener noreferrer">extreme heat impacts the income-earning potential of women</a> in the informal economy in Delhi:
<h4><em>In the Old Ahmedabad, New Delhi textile market, female workers pack and sew bales of clothes and transport them by carrying the parcels or using pedal rickshaws or carts. They are paid by parcel delivered. This work only begins after 1:00 p.m., which leaves them no option but to work in the scorching heat. They cannot miss a day’s labor without risking forgone wages.</em></h4>
At the same time as extreme heat causes incomes to fall, it causes expenditures to increase. For example, women interviewed by MHT had to spend more on electricity to run fans. In addition, they bought more cold drinks for their families to stay cool and hydrated. Additionally, without adequate health insurance systems, every medical treatment caused by extreme heat has a financial cost.
<h1>Climate change is increasing the probability and severity of extreme heat</h1>
March 2022 was the hottest in India since records began <a href="https://india.mongabay.com/2022/06/heatwave-takes-a-toll-on-north-indias-wheat-yield/" target="_blank" rel="noopener noreferrer">122 years ago</a>. Temperatures are the highest in urban areas, where a concentration of heat-absorbing buildings, concrete, and limited green spaces creates a “heat island” effect. High temperatures in India and Pakistan are not new, but climate change made the 2022 heat waves <a href="https://www.bbc.com/news/science-environment-61484697" target="_blank" rel="noopener noreferrer">30 times more likely</a>. <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/will-india-get-too-hot-to-work" target="_blank" rel="noopener noreferrer">As highlighted by McKinsey</a>, the probability of a lethal heat wave in South Asia is projected to grow dramatically over the coming decades.

<img class=" wp-image-45994 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/04/Extreme-Heat_Image.png" alt="" width="1349" height="550" />

The situation has been most acute in South Asia and parts of the Gulf -- such as <a href="https://www.nytimes.com/interactive/2022/11/18/world/middleeast/extreme-heat.html" target="_blank" rel="noopener noreferrer">Kuwait and southern Iraq</a> -- but this is a global phenomenon. Extreme heat threatens lives and livelihoods across parts of <a href="https://theconversation.com/heat-stress-is-rising-in-southern-africa-climate-experts-show-where-and-when-its-worst-198455" target="_blank" rel="noopener noreferrer">Southern Africa</a>, <a href="https://onebillionresilient.org/2023/01/20/freetown-on-the-frontlines-of-climate-action-the-citys-plan-for-extreme-heat/" target="_blank" rel="noopener noreferrer">West Africa,</a> and richer countries like the <a href="https://onebillionresilient.org/extreme-heat-the-economic-and-social-consequences-for-the-united-states/" target="_blank" rel="noopener noreferrer">USA</a> and Australia. Some estimates show that by 2050, between 700 million and 1.2 billion people will live in areas with a non-zero chance of lethal heat waves -- not factoring in air conditioner penetration. Furthermore, like most aspects of climate change, extreme heat will disproportionately impact those already economically and socially marginalized: women, informal workers, refugees, and <a href="https://onebillionresilient.org/extreme-heat-the-economic-and-social-consequences-for-the-united-states/" target="_blank" rel="noopener noreferrer">people of color</a>.
<h1>Small loans can help people adapt to extreme heat</h1>
The staff at MHT have been thinking about this for some time, and in the past five years, they have begun offering their members small loans to buy <a href="https://scroll.in/article/842568/with-a-touch-of-reflective-paint-women-in-an-ahmedabad-slum-are-beating-extreme-heat" target="_blank" rel="noopener noreferrer">heat-reflecting white paint</a> or roof panels to reduce heat absorption in their homes. These low-cost innovations -- which can cost as little as USD $75 -- can reduce indoor temperatures by <a href="https://www.bbc.com/news/world-48395221" target="_blank" rel="noopener noreferrer">up to 5 degrees</a> at the peak of the day. As such, they can be the difference between normal functioning and extreme discomfort while influencing the likelihood of elevated health risks. In addition, MHT supports other passive cooling adaptations, such as potted plants and increased ventilation.

To cope with rising temperatures -- without exacerbating the situation by increasing the use of ineffective air conditioners -- it is essential to invest in sustainable cooling technologies at every level. For example, in 2019, India’s government launched the India Cooling Action Plan (ICAP) to boost investments in energy-efficient, climate-friendly cooling solutions that do not cause a spike in electricity demand. However, further investment in sustainable cooling options is necessary, and a <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099920011222212474/p15743300f4cc10380b9f6051f8e7ed1147" target="_blank" rel="noopener noreferrer">2022 report from the World Bank</a> outlines the role of concessional finance in supporting climate investment opportunities.
<blockquote class="pullquote--right">As households, businesses, and other organizations adapt to extreme heat, many financial service providers will also find the need to adapt.</blockquote>
As households, businesses, and other organizations adapt to extreme heat, many financial service providers will also find the need to adapt. For example, I recently spoke with another microfinance institution (MFI) in Ahmedabad that has experienced a spike in depositors a few minutes before closing; traders are waiting for the heat to abate before depositing their cash. As a result, the MFI extended its business hours into the evening to accommodate those unable to visit during the sweltering afternoons. Due to this extension, staff members work into the evenings, and cashing out must happen after dark. This behavior shift increases security risks and changes the nature of banking, which has historically been a daytime activity with strictly regulated business hours. Extreme heat will change how financial services are delivered, and the systems must adapt.
<h1>New forms of parametric insurance can help build resilience</h1>
Promoting adaptive behavior is important, but the residual risks are a loss of income, increased expenditures, and health costs. However, parametric insurance can help mitigate these risks. One form of parametric insurance is extreme heat index insurance, a relatively new concept that borrows from years of work on parametric insurance for another climate-related shock: <a href="https://www.climatepolicyinitiative.org/gca-africa-adaptation-finance/case_studies/agriculture-and-climate-risk-enterprise-acre-2/" target="_blank" rel="noopener noreferrer">irregular rainfall</a>. Similar to rainfall index insurance, heat index insurance is a risk transfer solution that triggers <a href="https://onebillionresilient.org/2023/03/07/fighting-extreme-heat-with-parametric-insurance/" target="_blank" rel="noopener noreferrer">an automatic payment to members’ bank accounts</a> when extreme heat thresholds are forecast or reached and it is deemed unsafe to work.

MHT developed a heat index insurance that supports low-income urban women and is piloting a new program in the summer of 2023. Market research conducted by MHT found that women would be willing to pay up to $2 per month for this insurance and designed the triggers to cover up to a few days of lost income. <a href="https://meetingorganizer.copernicus.org/EGU22/EGU22-7269.html" target="_blank" rel="noopener noreferrer">Early evidence</a> from the pilot suggests that the necessary preconditions for such a product are:
<h4>1. A clearly defined index and data sources</h4>
<h4>2. A strong local distribution channel</h4>
<h4>3. A strong capacity to deal with basis risk</h4>
As with all such innovations, it will need calibration. For example, should this cover only extreme or very high heat? How localized is the data, and how is the basis risk managed? How effectively can this work at the micro-level? Moreover, what is the role of subsidy/social protection in such schemes? The rising temperatures will soon create the conditions to test this product, answering some of these questions.
<h1>Over the long term, financial services will need to support transitions to new livelihoods</h1>
Extreme heat will render many jobs unviable, forcing people to seek new livelihoods. In 2019, the ILO estimated that <a href="https://catalogue.unccd.int/1206_wcms_711919.pdf" target="_blank" rel="noopener noreferrer">by 2030, heat stress would lead to the loss of 34 million jobs in India</a>, mostly in agriculture and construction. Those workers will need somewhere to go. Along with some regions of the Gulf -- such as Kuwait and southern Iraq -- parts of north India will be the first in the world to experience heat waves that exceed the limit of human survivability. As a result, people will migrate to new locations and livelihoods, and the number of <a href="https://www.unhcr.org/en-us/climate-change-and-disasters.html" target="_blank" rel="noopener noreferrer">climate refugees</a> will necessarily increase. Extreme heat will fundamentally alter geographies and demographics, and financial services must support these transitions.
<h1>A call to action</h1>
Temperatures are already rising across South Asia. In <a href="https://www.telegraphindia.com/my-kolkata/news/met-office-predicts-heatwave-in-kolkata-and-several-west-bengal-districts/cid/1929242" target="_blank" rel="noopener noreferrer">Kolkata</a>, they have already passed 104 degrees Fahrenheit (40 degrees Celsius) -- the temperature at which wheat seeds start to break down. Moreover, this year will likely be an El Niño year, bringing <a href="https://weather.com/en-IN/india/news/news/2023-02-28-extreme-heat-due-to-el-nino-could-hurt-india-gdp-food-and-power-sectors" target="_blank" rel="noopener noreferrer">higher late-summer temperatures and a deficient monsoon</a>.

There is little that the financial sector can do to mitigate these temperatures, but they can help people <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">build adaptive capacity, become more resilient, and transition to less vulnerable livelihoods</a>. However, this will take some ingenuity. Financial service providers will need to understand their customers better and focus on how extreme heat and other climate risks affect real micro-level financial factors, such as incomes, expenditures, and assets and risk management of different low-income and vulnerable segments. Only then can financial service providers start to build financial products -- and a financial system -- that is truly responsive to climate-related risks.

&nbsp;

<em>The author would like to thank the Mahila Housing Trust staff for their insightful and valuable contributions to this blog post.</em>

Inclusive Finance and Extreme Heat: How Small Loans and Parametric Insurance Can Help Vulnerable Populations Manage Through Deadly Heat Waves

<span class="TextRun SCXW263472838 BCX0" lang="EN-GB" xml:lang="EN-GB" data-contrast="auto"><span class="NormalTextRun SCXW263472838 BCX0">The impacts of climate change are diverse and wide-ranging</span><span class="NormalTextRun SCXW263472838 BCX0">. Its </span><span class="NormalTextRun SCXW263472838 BCX0">most immediate </span><span class="NormalTextRun SCXW263472838 BCX0">manifestations, such as natural catastrophes and extreme weather events, sea level rise, damage to biodiversity, and communicable diseases, amplify the hardships on developing economies</span> <span class="NormalTextRun SCXW263472838 BCX0">which</span><span class="NormalTextRun SCXW263472838 BCX0"> are often more vulnerable to damage and have fewer resources available to </span><span class="NormalTextRun SCXW263472838 BCX0">support the recovery</span><span class="NormalTextRun SCXW263472838 BCX0">.</span> <span class="NormalTextRun SCXW263472838 BCX0">The</span> </span><a class="Hyperlink SCXW263472838 BCX0" href="https://globalrff.org/december-2022" target="_blank" rel="noreferrer noopener"><span class="TextRun Underlined SCXW263472838 BCX0" lang="EN-GB" xml:lang="EN-GB" data-contrast="none"><span class="NormalTextRun SCXW263472838 BCX0" data-ccp-charstyle="Hyperlink">December </span><span class="NormalTextRun SCXW263472838 BCX0" data-ccp-charstyle="Hyperlink">2022 RFF</span></span></a><span class="TextRun SCXW263472838 BCX0" lang="EN-GB" xml:lang="EN-GB" data-contrast="auto"><span class="NormalTextRun SCXW263472838 BCX0"> discussions explored the links between responsible finance and the challenges posed by climate change.</span></span>
<h1>Preparedness, Risk Management, and Insurance</h1>
<span data-contrast="auto">Along the lines of the three key themes of the December 2022 RFF convening – consumer protection, the role of stakeholders, and the path forward in the face of climate change – insurance has an important role. Insurance can strengthen the resilience of vulnerable communities and help them adapt to the climatic changes impacting their lives. If leveraged systematically for both transition and physical risks, it can contribute to the health of the entire financial sector.</span>
<blockquote class="pullquote--left"><span data-contrast="auto">If leveraged systematically for both transition and physical risks, insurance can contribute to the health of the entire financial sector.</span></blockquote>
<span data-contrast="auto">The role of insurance supervision in this extraordinarily complex challenge is far-reaching and multifaceted. As the guardians of consumer protection and financial stability, enablers of innovation and market development, and policy influencers, supervisors are in a position to contribute to financial literacy efforts, establish standards and expectations for financial institutions, remove regulatory barriers for new or innovative solutions, assess risk management practices, support the efforts of the government bodies, and convene forward-looking multistakeholder initiatives. </span><a href="https://a2ii.org/en/home" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Access to Insurance Initiative (A2ii)</span></a><span data-contrast="auto"> has supported insurance supervisors in promoting the development of inclusive insurance markets in low- and middle-income countries, in the context of climate and disaster risk, among other key focus areas.</span>

<span data-contrast="auto">But strengthening the financial system’s resilience in the face of climate change requires systemic solutions and a comprehensive disaster risk management strategy. This can only be achieved through collaboration and innovative approaches from various stakeholders. Supervisory engagement with the industry players, for instance, develops an understanding of the practical challenges and regulatory barriers that providers face in bringing new products to consumers.</span>
<h1>A2ii’s Work on Climate and Disaster Risk</h1>
<span data-contrast="auto">In recognition of this, the A2ii launched the third </span><a href="https://a2ii.org/en/iii-lab" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Inclusive Insurance Innovation Lab</span></a><span data-contrast="auto"> on climate – the first lab with a thematic focus. As part of the project, regulators and other key stakeholders of the insurance space (i.e., government representatives, the industry, distribution, and the nonprofit sector) convened in a year-long process of finding innovative approaches to closing the protection gap against climate change headwinds.</span>

<span data-contrast="auto">The selected country teams of Costa Rica, Grenada, Zambia, and Zimbabwe emerged from the lab process with the following:</span>
<ol>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto"><span data-contrast="auto">A web-based platform for small hoteliers providing risk assessments and sustainable solutions (Costa Rica)</span></span></li>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto"><span data-contrast="auto">A mutual risk pool providing direct relief to farmers and fisherfolk after a climate-related disaster (Grenada)</span></span></li>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto"><span data-contrast="auto">An awareness-raising campaign for agriculture stakeholders jointly with community champions (Zambia)</span></span></li>
 	<li data-leveltext="%1." data-font="Calibri" data-listid="12" data-list-defn-props="{&quot;335552541&quot;:0,&quot;335559684&quot;:-1,&quot;335559685&quot;:1080,&quot;335559991&quot;:720,&quot;469769242&quot;:[65533,2],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">A bundled product – the Farmer’s Basket – offering Affordable Area Yield Index Insurance with inputs like pesticides, fertilizers, and irrigation equipment (Zimbabwe)</span></li>
</ol>
<span data-contrast="auto">On the capacity-building side, </span><a href="https://connect.a2ii.org/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Connect.A2ii</span></a><span data-contrast="auto">, A2ii’s learning and exchange platform for supervisors, offers trainings on the topic.</span>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="11" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">The </span><a href="https://connect.a2ii.org/supervision-of-climate-related-risks-in-the-insurance-sector" target="_blank" rel="noopener noreferrer"><span data-contrast="none">Supervision of Climate-Related Risks in the Insurance Sector</span></a><span data-contrast="auto"> training is based on the </span><a href="https://www.sustainableinsuranceforum.org/publication/application-paper-on-the-supervision-of-climate-related-risks-in-the-insurance-sector/" target="_blank" rel="noopener noreferrer"><span data-contrast="none">joint IAIS-SIF Application Paper</span></a><span data-contrast="auto"><span data-contrast="auto">. The training module includes recommendations for supervisors on five key areas: i. supervisory review and reporting; ii. corporate governance, risk management and internal controls; iii. enterprise risk management for solvency purposes; iv. investments; and v. disclosures.</span></span></li>
 	<li data-leveltext="" data-font="Symbol" data-listid="11" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><a href="https://a2ii.org/en/event/inclusive-insurance-training" target="_blank" rel="noopener noreferrer"><span data-contrast="none">The Inclusive Insurance Training</span></a><span data-contrast="auto"> is delivered multiple times per year in English, Spanish, and French and features an important foundational climate and environmental risk module. The module is designed to provide insight into the nature and effects of climate risks on insurers, economies, and consumers, with a focus on inclusive insurance markets. It also explores the role of financial institutions and the role of the supervisor.</span></li>
</ul>
<span data-contrast="auto">Index insurance is undoubtedly on the path forward in the face of climate change. However, in emerging markets globally, regulatory frameworks are adapting cautiously with solutions coming from the industry. Supervisory capacity-building, information, and peer exchange on how to regulate and encourage the development of responsible and sustainable index-based solutions are critical.</span>
<blockquote class="pullquote--right"><span data-contrast="auto">Supervisory capacity-building, information, and peer exchange on how to regulate and encourage the development of responsible and sustainable index-based solutions are critical.</span></blockquote>
<span data-contrast="auto">Looking to support supervisors in understanding the mechanics of index insurance, A2ii has recently partnered with the UNCDF Pacific Insurance and Climate Adaptation Programme (PICAP) to publish a </span><a href="https://a2ii.org/en/knowledge-center/index-insurance/joint-publication-on-index-insurance-best-practices-for-insurance-regulators-and-practitioners-in-the-pacific-island-countries" target="_blank" rel="noopener noreferrer"><span data-contrast="none">best practices report on index insurance</span></a><span data-contrast="auto">, sourcing from the Pacific Island countries. The publication provides valuable insight for the region and beyond and guidance on enabling regulatory frameworks to develop index insurance.</span>

<span data-contrast="auto">Additionally, the upcoming </span><a href="https://a2ii.org/en/event/public-dialogues/index-insurance-public-dialogue" target="_blank" rel="noopener noreferrer"><span data-contrast="none">A2ii-IAIS Public Dialogue – Index Insurance Best Practices</span></a><span data-contrast="auto"> will provide a platform to meet and discuss key insights from the report, including regulatory guidelines for index insurance solutions.</span>

<span data-contrast="auto">In conclusion, supervisors are increasingly recognizing the importance of addressing climate change impacts as well as the emerging opportunities arising from the challenge. Doing things differently will require building new partnerships for novel products and business models, aligning regulation and technology to be hand-in-hand. The goal is to build more robust insurance value chain ecosystems and resilient communities. A2ii is committed to accompanying supervisors on this learning journey through future capacity building, multistakeholder initiatives, knowledge generation, and dialogue.</span>

&nbsp;

<i><span data-contrast="auto">A2ii is a unique global partnership working to ensure that the excluded and underserved have access to insurance, allowing them to take control of their lives and reduce their vulnerability against risks. A2ii supports insurance supervisors and regulators in creating the conditions necessary for an inclusive insurance market to grow.</span></i>

<i><span data-contrast="auto">A2ii is the 'implementation arm' of the International Association of Insurance Supervisors (IAIS) on Inclusive Insurance.</span></i>

Envisioning Responsible Finance in the Context of Climate Change – the Role of Insurance Supervision

This report and infographic examine data from the 250+ eligible fintech applicants from the fourth Inclusive Fintech 50 competition to better understand the state of early-stage fintechs. CFI analyzes all applications to identify trends and to find innovations with disruptive potential. The massive scale that is only possible with digitalization matters greatly to the financial inclusion agenda, and this year’s IF50 applicants are already collectively reaching 54 million people, many of whom were previously underserved, across 101 countries of operation. The fintechs are young and small now, but as we’ve seen in past years, they grow to reach millions more people and raise millions more in investment. However, despite this tremendous outreach and potential, there are also areas that require attention: funding and gender gaps, inconsistent practices around data privacy and consent, and limited data collection for outcomes management.

Insights from the 2022 Inclusive Fintech 50 Applicant Pool

<span class="TextRun SCXW87520962 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW87520962 BCX0">Global development has not just stalled. </span></span><a class="Hyperlink SCXW87520962 BCX0" href="https://www.undp.org/papua-new-guinea/blog/human-development-index-reverse-why-are-we-ignoring-world-breaking-point" target="_blank" rel="noreferrer noopener"><span class="TextRun Underlined SCXW87520962 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="none"><span class="NormalTextRun SCXW87520962 BCX0" data-ccp-charstyle="Hyperlink">UNDP’s Human Development Report 2022</span></span></a><span class="TextRun SCXW87520962 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW87520962 BCX0"> showed that </span><span class="NormalTextRun SCXW87520962 BCX0">the global Human Development Index (HDI)</span><span class="NormalTextRun SCXW87520962 BCX0">, which measures three dimensions of human development (</span><span class="NormalTextRun SCXW87520962 BCX0">life expectancy, access to education, and standard of living), </span><span class="NormalTextRun SCXW87520962 BCX0">has been falling since 2020</span><span class="NormalTextRun SCXW87520962 BCX0"> for the first time since 1991</span><span class="NormalTextRun SCXW87520962 BCX0">. </span><span class="NormalTextRun SCXW87520962 BCX0">The </span></span><a class="Hyperlink SCXW87520962 BCX0" href="https://www.climate.gov/news-features/understanding-climate/climate-change-probably-increasing-intensity-tropical-cyclones" target="_blank" rel="noreferrer noopener"><span class="TextRun Underlined SCXW87520962 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="none"><span class="NormalTextRun SCXW87520962 BCX0" data-ccp-charstyle="Hyperlink">increasing frequency and intensity</span></span></a><span class="TextRun SCXW87520962 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW87520962 BCX0"> of climate shocks and changing weather patterns are a key driver </span><span class="NormalTextRun SCXW87520962 BCX0">for th</span><span class="NormalTextRun SCXW87520962 BCX0">is</span><span class="NormalTextRun SCXW87520962 BCX0"> negative HDI trend. </span><span class="NormalTextRun SCXW87520962 BCX0">We know that the world’s </span><span class="NormalTextRun SCXW87520962 BCX0">develop</span><span class="NormalTextRun SCXW87520962 BCX0">ing</span><span class="NormalTextRun SCXW87520962 BCX0"> countries and </span><span class="NormalTextRun SCXW87520962 BCX0">lowest-income </span><span class="NormalTextRun SCXW87520962 BCX0">people face the highest risks and vulnerabilities due to climate change. </span><span class="NormalTextRun SCXW87520962 BCX0">At </span><span class="NormalTextRun SCXW87520962 BCX0">CFI</span><span class="NormalTextRun SCXW87520962 BCX0">, we have </span><span class="NormalTextRun SCXW87520962 BCX0">developed a </span></span><a class="Hyperlink SCXW87520962 BCX0" href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks" rel="noreferrer noopener"><span class="TextRun Underlined SCXW87520962 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="none"><span class="NormalTextRun SCXW87520962 BCX0" data-ccp-charstyle="Hyperlink">framework for Green Inclusive Finance</span></span></a><span class="TextRun SCXW87520962 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"> <span class="NormalTextRun SCXW87520962 BCX0">to</span><span class="NormalTextRun SCXW87520962 BCX0"> help understand </span><span class="NormalTextRun SCXW87520962 BCX0">the role of inclusive finance in building resilience </span><span class="NormalTextRun SCXW87520962 BCX0">by</span><span class="NormalTextRun SCXW87520962 BCX0"> helping people </span><span class="NormalTextRun SCXW87520962 BCX0">reduce their vulnerability </span><span class="NormalTextRun SCXW87520962 BCX0">and </span><span class="NormalTextRun SCXW87520962 BCX0">increase </span><span class="NormalTextRun SCXW87520962 BCX0">their ability to respond to</span> <span class="NormalTextRun SCXW87520962 BCX0">climatic </span><span class="NormalTextRun SCXW87520962 BCX0">shocks and stresses</span><span class="NormalTextRun SCXW87520962 BCX0">.</span></span>
<h4><em>"I had nearly Rs100,000 [about $1,176] in cash buried in an earthen jar under the mud floor of my home. There was confusion as we fled and I thought my wife had retrieved it. But we both failed to do so, and now the money has gone." – </em><a href="https://reliefweb.int/report/pakistan/pakistan-flood-survivors-savings-washed-away" target="_blank" rel="noopener noreferrer">Pakistani flood survivor, 2010</a></h4>
Ensuring that vulnerable consumers are protected and treated fairly and with dignity is a crucial but overlooked aspect of resilience. Financial products such as insurance, savings, and payments can play a very important role in building household resilience before, during, and after climate shocks. However, there are challenges with financial products and services related to climate change. Insurance policies can be slow to pay out, and the money often is not accessible when people need it most. Viable models of weather-indexed insurance for low-income and vulnerable communities have also been difficult to develop, and <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">climate change will only make such policies more expensive</a>. Savings held informally risk being destroyed. For instance, during the major floods in Pakistan in 2010, there were reports of <a href="https://reliefweb.int/report/pakistan/pakistan-flood-survivors-savings-washed-away" target="_blank" rel="noopener noreferrer">hundred-rupee notes carried downstream</a> with the floodwaters; families’ savings lost forever.
<blockquote class="pullquote--right">Is mobile money any more useful with mobile networks down, absent agents, and nowhere to charge your phone?</blockquote>
There are challenges with savings held in formal accounts as well. We know from the <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer">2021 Global Findex</a>, that the proportion of Pakistanis with any form of financial account increased from 10 percent in 2011 to 21 percent in 2021. In the latest devastating floods to hit the country, more people will have their savings at a financial institution. But with power infrastructure out, ATMs flooded, <a href="https://www.telegraphindia.com/world/pakistans-flood-victims-forced-to-put-rebuilding-on-hold/cid/1893463" target="_blank" rel="noopener noreferrer">bank branches shut down</a>, how accessible is that money? Is mobile money any more useful with mobile networks down, absent agents, and nowhere to charge your phone? To help respond, the Pakistan government has established “<a href="https://www.bisp.gov.pk/Detail/NDhjOWU5ZmQtZTNiMi00OWJiLTlhMmEtZjhlYTU0MDMzNWZh" target="_blank" rel="noopener noreferrer">payment campsites</a>”, where Rs. 25,000 (approximately $112) in cash are distributed to families in affected provinces as part of the Benazir Income Support Program (BISP). But people need more than emergency relief. After floods devastated a region in Australia earlier this year, a group of five local credit unions <a href="https://www.afr.com/companies/financial-services/choppers-fly-cash-in-to-devastated-lismore-flood-zone-20220307-p5a2i5" target="_blank" rel="noopener noreferrer">helicoptered in cash and an ATM</a> to help savers access their money, but with natural disasters occurring <a href="https://news.un.org/en/story/2021/03/1087702" target="_blank" rel="noopener noreferrer">three times more often than 50 years ago</a>, and affecting developing countries the most, such solutions may be out of reach for low- and middle-income countries.

Social networks and remittances are valuable tools for resilience and there is plenty of evidence that friends and family are critical sources of emergency funds. <a href="https://www.cgap.org/blog/era-urgent-climate-risk-does-financial-inclusion-matter" target="_blank" rel="noopener noreferrer">CGAP documented</a> how mobile money transfers in Mozambique spiked after the floods in January 2013. However, the covariant nature of climatic risks means that if you are impacted, there’s a good chance that everyone around you is as well. This diminishes the value of social networks that act as a proxy insurance. <a href="https://fordschool.umich.edu/rsie/workingpapers/Papers526-550/r535.pdf" target="_blank" rel="noopener noreferrer">Evidence from the Philippines</a> found that remittances served as effective insurance to a rainfall shock only for households that had a family member overseas who was not affected by the shock.

There is good evidence that formal financial services can help improve people’s resilience when faced with shocks. However, the issue of consumer protection in light of weather events is less researched.

Consumer protection risks arise due to vulnerabilities caused by:
<ol>
 	<li>The inability to access financial services in a climate emergency</li>
 	<li>The inability to negotiate fair terms for products and services</li>
</ol>
Each of these factors is also interrelated and can exacerbate consumer stress.
<h1>Consumer Protection Risks Arising from the Inability to Access Financial Services</h1>
<h4><em>“Hurricane Jeanne took all that I had…my job and my home are gone. I used to have food: Now I beg in the market.” </em>– <a href="https://sarpn.org/documents/d0002915/5-HDR_2007-2008.pdf" target="_blank" rel="noopener noreferrer">Consumer in Haiti, 2005</a></h4>
This quote from an individual in Haiti in 2005 is eerily similar to <a href="https://karandaazmain.wpenginepowered.com/wp-content/uploads/2022/09/Flood-Report-2.pdf" target="_blank" rel="noopener noreferrer">stories from Pakistan</a> in the aftermath of the July 2022 floods. Even when it is possible to access formal financial services, disruptions can take place due to failure in infrastructure or lack of physical access to banks, agents, and ATMs, which in turn impacts liquidity of these channels as well as the ability to serve consumers. The inability to access up-to-date information, and the absence of channels that could provide this information, paves the path for exploitation.

In our interviews with stakeholders from Pakistan, anecdotes emerged about middlemen who charged a higher fee to enable access to government-to-person (G2P) payments. Government response to deliver emergency relief through G2P payments can be disrupted unless telecom operators and financial service providers have business continuity plans to deal with climate shocks. And, as with most emergencies, targeting can be an issue. Experiences from the <a href="https://odihpn.org/publication/are-cash-transfers-the-%c2%91new-normal%c2%92-in-the-philippines-challenges-and-opportunities-from-typhoon-haiyan/" target="_blank" rel="noopener noreferrer">Philippines in the aftermath of Typhoon Haiyan</a> show that standardized indicators may not reflect the nuances of debt and vulnerabilities. For instance, a community member in the Philippines was excluded from benefits since she had used credit to buy fish cages before the Typhoon struck. However, the typhoon had destroyed her boat, leaving her to deal with income loss and the need to service debt, and she was excluded from relief funding. Finally, women tend to be disproportionately impacted due to information gaps. <a href="https://vidhilegalpolicy.in/research/financial-inclusion-of-women-during-the-pandemic-the-role-of-jan-dhan-accounts-and-cash-transfers/" target="_blank" rel="noopener noreferrer">Evidence from India during the COVID-19 pandemic</a> showed that women are impacted more by information gaps. This can be even worse during a climate-induced disaster.

Some solutions have emerged to mitigate the information gap challenge. In floods that impacted both Chennai and <a href="https://www.bbc.co.uk/news/world-asia-india-45218556" target="_blank" rel="noopener noreferrer">Kerala</a>, social media has emerged as a crucial tool for coordination between citizens and civil society organizations to inform affected people about which ATMs have cash and other critical information. However, ensuring that this information is accessed by low-income households, and women within these households can still be a challenge. The National Payments Corporation of India (NPCI) is <a href="https://www.cioinsiderindia.com/news/npci-tests-a-solution-to-allow-payment-without-internet-nwid-3696.html" target="_blank" rel="noopener noreferrer">testing solutions</a> that allow Unified Payments Interface (UPI)-based digital payments without active internet connections. This can allow G2P payments even when infrastructure is disrupted in the immediate aftermath of a climate shock.
<h1>Consumer Protection Risks Arising from the Inability to Negotiate Fair Terms</h1>
<h4><em>“During those days (with the Brahmaputra floods), my husband goes to Dhaka to work as a rickshaw puller and we struggle. To start cultivating again after the floods we would borrow from a mohajon (local money lender).” </em>– <a href="https://www.brac.net/program/finance-for-flood-hit-families-reducing-risk-and-raising-resilience/" target="_blank" rel="noopener noreferrer">BRAC customer</a></h4>
It is common to see a rise in informal borrowing at high interest rates as a response to cope with climate disasters. Desperate times and the lack of formal channels make it hard for people to negotiate fair terms, which often leads to overindebtedness. Recent reports from the <a href="https://tribune.com.pk/story/2381326/rights-activists-fear-spike-in-bonded-labour" target="_blank" rel="noopener noreferrer">flood hit province of Sindh</a> in Pakistan speak of informal loan agreements in exchange for work, resulting in debt bondage.

Those with access to formal loans can also be impacted adversely. For instance, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3934688" target="_blank" rel="noopener noreferrer">a study in Mexico</a> found that exposure to extreme temperatures even for a day can increase delinquency rates of small business borrowers by 0.012 percentage points.
<blockquote class="pullquote--left">Desperate times and the lack of formal channels make it hard for people to negotiate fair terms, which often leads to overindebtedness.</blockquote>
Agent fraud or charging excessive fees are common complaints when consumers are desperate for access to relief. In Pakistan, we heard anecdotes of <a href="https://www.biometricupdate.com/202209/pakistan-arrests-suspects-over-digital-id-fraud-in-floods-cash-relief-program" target="_blank" rel="noopener noreferrer">agents charging between $4 – $12 for cash withdrawal,</a> a steep premium over the usual fees of $0.10. With increasing digital financial services, there are also reports of <a href="https://www.biometricupdate.com/202209/pakistan-arrests-suspects-over-digital-id-fraud-in-floods-cash-relief-program" target="_blank" rel="noopener noreferrer">cyber frauds</a> in Pakistan. The lack of complaint mechanisms makes grievance redressal difficult. Credit reporting mechanisms and the absence of policies that allow formal financial institutions to restructure these loans can result in further exclusion of consumers. Our research revealed that people who are unable to repay their loans in the aftermath of floods and other climate shocks in Nepal get blacklisted.

Providing emergency loans to people in areas that are prone to climate risks can help address the challenge of overindebtedness and informal borrowing at high interest rates. BRAC piloted an <a href="https://www.brac.net/program/finance-for-flood-hit-families-reducing-risk-and-raising-resilience/" target="_blank" rel="noopener noreferrer">emergency loan product</a> in partnership with the University of California, Berkeley and found a much lower incidence of missed payments among those who took the emergency loan. BRAC also observed a 5 percent increase in savings deposits among the emergency loan borrowers, compared to just 1 percent for non-borrowers. In southern Nepal, a region prone to floods, the World Food Programme (WFP) distributes <a href="https://www.wfp.org/stories/nepal-wfp-un-climate-summit-cas-2021-floods-monsoon" target="_blank" rel="noopener noreferrer">cash support</a> in anticipation of floods. Forecast-based financing (FbF) uses early warning forecasts to catalyze early actions and humanitarian funding ahead of an extreme weather event. Funds are distributed in the short window between the forecast trigger and the disaster and must give sufficient time to people to use the funds for evacuation, fortifying their houses, purchasing necessary materials, and other mitigation measures.
<h1>Call to Action</h1>
Policy responses are emerging to help financial institutions and consumers deal with emergency crisis situations. In the United States, the President can declare supervisory guidance during a disaster or emergency, which includes climate disasters. Some of these responses include waiving ATM fees, increasing ATM withdrawal limits, waiving penalties on early withdrawal of time deposits, expanding the availability of short-term unsecured credit, and offering payment accommodations. However, these measures, while useful, must be systematically embedded into the business continuity plans of financial institutions to ensure low-income consumers do not bear these event costs.

The intersection of consumer protection and climate is a relatively new area of research and brings together two of CFI’s key research themes. Consumer protection risks in the context of climate change presents a <a href="https://www.stonybrook.edu/commcms/wicked-problem/about/What-is-a-wicked-problem" target="_blank" rel="noopener noreferrer">wicked problem</a> and cannot be addressed without the effort and collaboration of multiple stakeholder groups. Our hope is that by exploring this intersection, and how low-income and vulnerable people can be effectively protected in the context of climatic risks, we can contribute towards a new perspective on responsible finance – one that looks ahead to emerging challenges with the needs of customers at its core.

&nbsp;

<em><span lang="EN-US">Special thanks to colleagues from </span><a href="https://karandaaz.com.pk/" target="_blank" rel="noopener noreferrer">Karandaaz, Pakistan</a>, <a href="https://www.dvarakgfs.com/" target="_blank" rel="noopener noreferrer">Dvara KGFS India</a>, and <a href="https://www.nabilbank.com/individual" target="_blank" rel="noopener noreferrer">Nabil Bank, Nepal</a> for their support with this blog post.</em>

Climate Change and Rising Consumer Risks: The two go hand-in-hand

The <a href="https://www.inclusivefintech50.com" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> application data from the third year signals continued progress on innovations to onboard low-income customers, despite the challenges posed by the pandemic:
<ul>
 	<li><strong>Inclusive fintechs are using creative approaches to serve new customers</strong>. From retail partnerships that help drive customer acquisition, to insurance platforms offering micro-coverage, to native language chatbots, to enhanced biometric identity verification solutions, early-stage inclusive fintechs are pursuing outside-the-box solutions to reach un/underbanked people around the world.</li>
</ul>
Nevertheless, there are two areas of concern:
<ul>
 	<li><strong>Funding concentration persists</strong>. While fintech investments across emerging markets have been increasing, early-stage inclusive fintechs continue to face disparities based on geography, funding status, and gender.</li>
 	<li><strong>Potential customer risks persist around data usage</strong>. Although data is central to the business models of inclusive fintechs, some applicants require customer consent related to data, and some still do not.</li>
</ul>

Insights from the 2021 Inclusive Fintech 50 Applicant Pool

A savings product helps pastoralists in northern Kenya smooth consumption during periods of drought. A microloan allows a woman in northern India to buy heat-reflecting white paint for her roof. An insurance policy from a fintech in Mali offers smallholder farmers insurance against increasingly unpredictable rainfall. A mobile money-linked clean cookstove allows a family in Zambia to reduce their exposure to harmful smoke. A combination of remittances and savings helps a family in Bangladesh that was forced to migrate due to rising sea levels.

While each of these is an example of a link between financial services and an aspect of climate change, there's little else tying them together. Customers are urban and rural. Financial service providers are old and new. Channels are analog and digital. Products relate directly and indirectly to climate change. The impacts of climate change are immediate and long-term.

But as the COP26 summit swings into action, one message is clear – climate change is going to affect everyone and in numerous ways.

When the financial sector development community talks about climate change and green finance, it tends to focus on the macro role of the financial sector in channeling investment to cleaner technologies and large-scale mitigation efforts. This is obviously critical, but what is the role of inclusive finance? How can we support the financial sector to work better for low-income people to improve their outcomes in the context of large-scale climatic risk as well as deteriorating localized environmental conditions?
<blockquote class="pullquote--right">We have mapped out a new way of thinking about green inclusive finance.</blockquote>
Putting a green lens on inclusive finance – or green inclusive finance – is one of CFI’s strategic priorities. Having studied various taxonomies at the overlap of the green economy and inclusive finance, we have mapped out a new way of thinking about green inclusive finance. These four distinct but interrelated pathways provide the framework for understanding how inclusive finance can help low-income populations prepare for and respond to climate change while improving green outcomes.
<h2>Mitigation</h2>
The poorest half of the world’s population only accounts for 10 percent of global CO2 emissions, and their carbon footprints are, in a global context, tiny. However, low-income communities are hit the hardest by climate-related disasters and environmental impacts resulting from climate change. Mitigation supports investments in cleaner technologies that can improve local environmental conditions for households and communities. For example, pay-as-you-go models for clean cookstoves can help reduce localized air pollution, and loans to build toilet facilities can reduce groundwater pollution.
<h2>Resilience</h2>
In this context, we think of resilience as the role financial services can play in low-income people’s ability to reduce their vulnerability to, and their ability to respond to, climate-related events. Index insurance, protecting people against extreme weather events, is an obvious example, but just as important is the ability to save money securely and access networks through which funds for emergency response and rebuilding can arrive. This includes everything from a social protection payment from the state to an emergency loan from a fintech to the operations of a local savings group.
<h2>Adaptation</h2>
Climate change will significantly impact the livelihoods of low-income people across the globe, and financial services are needed to help people and communities manage these changes. We often think of these changes in a rural context -- with smallholders adapting their farming practices and investing in different crops as climatic patterns shift, but urban populations will also need to adapt, for example by investing in low-cost cooling techniques for homes.
<h2>Transition</h2>
At times, climate change and deteriorating environmental conditions will fundamentally change people’s ability to sustain their current livelihoods, and financial services will help transition to new ones. This may mean investing in education and training, making long-term commitments to climate-smart agriculture, or the range of financial services need to liquidate assets in one location to start again in another.

While some of these pathways may be relatively simple to implement, others are quite complex. For example, when climate change leads to resource scarcity, which in turn causes localized conflict and hence forced migration, there may be a critical need for digitized savings and remittance services. This is also an inclusive finance solution to a climate challenge, albeit through a longer-impact pathway. These issues might seem abstract, but the World Bank estimates that the impact of climate change in reducing arable land could see over <a href="https://www.worldbank.org/en/news/press-release/2018/03/19/climate-change-could-force-over-140-million-to-migrate-within-countries-by-2050-world-bank-report" target="_blank" rel="noopener noreferrer">140 million people forced to migrate</a> within their own countries by 2050. These are some of the complex pathways that green inclusive finance will need to support.

This complexity also means that green inclusive finance will intersect with other areas of the inclusive finance landscape. The connections with smallholder agriculture and rural livelihoods are clear. The fact that <a href="https://www.un.org/en/chronicle/article/womenin-shadow-climate-change">poor women are particularly vulnerable to the impacts of climate change</a> means that green inclusive finance approaches must be gender intelligent. The fact that so many potential solutions leverage digital financial services presents both new opportunities, but also challenges (what happens if the storm that leaves people highly vulnerable also knocks out mobile money networks?).
<blockquote class="pullquote--left">For financial systems to support all four of these impact pathways, it’s going to take large-scale, systemic changes, and there is a role for all types of financial institutions.</blockquote>
For financial systems to support all four of these impact pathways, it’s going to take large-scale, systemic changes, and there is a role for all types of financial institutions. We will need to leverage the existing networks of microfinance institutions and build on community-based models, particularly to support rural transitions. Banking sectors need to become better at intermediating funds towards sustainable agriculture and cleaner technologies. New players, including fintechs, need to continue to push out the innovation frontier. Insurance companies need to incorporate more data relating to climate risks. Policymakers, investors, and donors need to support incentives and a positive enabling environment for investment, innovation, and learning in green inclusive finance.

Green inclusive finance isn’t on the agenda at COP because inclusive finance doesn’t have a huge role to play in reducing global emissions. However, it is critically important that we support low-income populations to weather the changing environments around them. What green inclusive finance can do is provide a diverse range of financial tools that can help low-income people and communities reduce their vulnerabilities and make the investments needed to improve their outcomes in the context of climate change.
<h3>Learn more about green inclusive finance at the <a href="https://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> plenary session "<a href="https://app.swapcard.com/event/financial-inclusion-week/planning/UGxhbm5pbmdfNzEyMTM5" target="_blank" rel="noopener noreferrer">Greening Inclusive Finance</a>" on Nov. 3, 2021 and by watching the video below:</h3>

Green Inclusive Finance: A Framework for Understanding How Financial Services Can Help Low-Income People Weather Climate-Related Risks

Earth Day was held on April 22nd to celebrate and promote environmental protection, including climate action. In the past decade, it has served as a momentary reminder of the need to respond to the causes and effects of climate change.

For much of the world, though, a reminder is hardly necessary. Dramatic shifts in weather patterns yield bizarre, destructive conditions at an increasing rate. The impact of these shocks on low-income people is profound as this population is more likely to be affected by and have difficulty recovering from climate shocks. The evidence shows that financial tools can help low-income people prepare for and respond to these negative events. However, more work needs to be done to develop appropriate financial products that help low-income households, entrepreneurs, and smallholder farmers mitigate and adapt to climate risk, which is why this topic is one of CFI’s four <a href="https://centerforfinancialinclusion.org/crisis-and-opportunity-reimagining-inclusive-finance-after-the-pandemic/" target="_blank" rel="noopener noreferrer">strategic pillars</a>.

In an effort to build the evidence base on this topic, CFI launched a dipstick survey of urban MSME owners on their experiences with climate shocks. This is part of our broader four-country, longitudinal survey <a href="https://centerforfinancialinclusion.org/research/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">monitoring the impact of COVID-19 on MSMEs</a>. The goal of the dipstick survey was to illuminate MSMEs’ resilience to climate change by examining the shocks that impacted them, the consequences of those events for their businesses, and whether there was a correlation between experiencing negative impacts in the recent past and the ability to recover from COVID-19 today.

CFI completed the first of these dipstick surveys with its panel of MSME owners in Lagos, Nigeria, in early March, and the data is striking, showing a large portion of owners have been negatively impacted by recent climate events and those that have been impacted are recovering more slowly from COVID-19 than their peers. This research is part of our partnership with the <a href="https://www.mastercardcenter.org/" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a>.
<h3>A quarter of MSME owners have had their business negatively affected by a climate shock in the past 5 years.</h3>
A coastal megacity, <a href="https://lcluc.umd.edu/hotspot/urbanization-lagos-nigeria#:~:text=Lagos%20experienced%20an%20influx%20of,urban%20area%20in%20the%20world." target="_blank" rel="noopener noreferrer">Lagos has grown dramatically</a> in the past twenty years, with surrounding wetlands paved in favor of poorly planned urban development. Simultaneously, weather patterns have shifted, making Lagos <a href="https://qz.com/africa/628387/an-unusually-intense-lagos-heatwave-reminds-nigerians-theyre-not-ready-for-climate-change/" target="_blank" rel="noopener noreferrer">hotter</a>, encouraging the formation of massive thunderstorms with <a href="https://qz.com/africa/1054825/climate-change-in-nigeria-floods-in-lagos-abuja-niger-delta-are-going-to-get-a-lot-worse/" target="_blank" rel="noopener noreferrer">heavy rainfall</a>. With no meaningful flood control system to speak of, these conditions have given rise to frequent, <a href="https://www.cnn.com/2017/07/09/africa/lagos-flood-storms" target="_blank" rel="noopener noreferrer">destructive urban floods</a>. Rising sea levels and increased vulnerability to storm surges <a href="https://guardian.ng/news/how-rising-seas-may-wipe-off-lagos-others-by-2050/" target="_blank" rel="noopener noreferrer">exacerbate the risk of flooding</a> throughout the city.

Over the course of the past five years, 24 percent of MSME owners in CFI’s survey reported that they had been negatively impacted by at least one of these trends, with flooding from heavy rains being the most common shock owners experienced. Of those owners who experienced a negative shock, most experienced a disruption to the supply of goods to their business and a reduction in customer traffic to their stores (see the graph below). Significant shares of respondents also reported longer-lasting, and likely more costly, impacts such as damage to or loss of inventory or their place of business.

<img class="aligncenter size-full wp-image-42354" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/04/Negative-Impact-of-a-Climate-Shock.png" alt="" width="800" height="204" />
<h3>MSME owners who experienced a major climate shock in the past 5 years are struggling more than their peers to recover from the COVID-19 pandemic.</h3>
A surprising finding from this survey was that there were no meaningful differences in the characteristics of owners—such as owner gender, industry, business size, and pre-pandemic profit level, among others—who experienced these shocks and those that did not, and yet these two groups are experiencing dramatically different outcomes during the COVID-19 pandemic.

<img class="alignleft size-full wp-image-42355" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/04/Covering-Expenses-Climate.png" alt="graph covering expenses" width="500" height="485" />For instance, MSME owners who experienced a climate shock were less likely to report that they could cover their operating expenses from revenue. In addition, owners who did not experience a shock were much more likely to report that their profits were trending upward compared to their peers, suggesting a stronger recovery from the initial pandemic-induced downturn.

Their households were struggling too. Owners who experienced a climate shock were less likely to be covering household expenses from earned income than an owner who had not experienced a shock. And strikingly, of the respondents who reported that they were experiencing extreme household food insecurity, all of them had been impacted by one of these shocks in the past five years.

This is correlation, not causation — based on the survey design, CFI cannot say that experiencing a negative impact in the past five years caused an owner to be less resilient to the COVID-19 pandemic with certainty. However, there is a large body of research on the <a href="https://openknowledge.worldbank.org/handle/10986/25335" target="_blank" rel="noopener noreferrer">compounding effects of disasters on well-being</a> — including livelihood opportunities, asset loss, and physical health — and the lack of resources available to low-income populations to recover from them. It is not hard to imagine that an MSME owner who leveraged her financial resources to recover from a flood is less likely to have resources available to respond to a future disaster.

<img class="alignright size-full wp-image-42356" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/04/At-Least-One-Household-Member-Has-.png" alt="table" width="400" height="234" />There is data from the survey to support the hypothesis that it is harder for low-income households to leverage their portfolio of financial resources to respond to a series of shocks, even when those shocks are years apart. For instance, MSME owners who experienced a climate shock in the past 5 years reported they would be less likely to use credit, savings, or cash transfers from friends or family to recover from a similar shock in the future. The COVID-19 data shows that this phenomenon is in play currently: owners who experienced a climate shock saved and borrowed less often than their peers who had not been impacted by a shock in CFI’s most recent survey wave. They are sending money to and receiving it from their social networks at similar rates, though. Use of insurance is negligible in both groups despite <a href="https://www.poverty-action.org/sites/default/files/publications/Building-Resilience-through-Financial-Inclusion-English.pdf" target="_blank" rel="noopener noreferrer">strong evidence</a> that it is an effective tool for helping people plan for and respond to economic shocks.
<h3>Stakeholders can help MSMEs build back better, but careful consideration will need to be given to the financial tools they need to make it through inevitable systems changes.</h3>
In the wake of COVID-19, there have been calls for communities to “build back better” by investing in development that makes them resilient to future disasters. For communities in Lagos, this data suggests that low-income entrepreneurs who have experienced a climate-related shock will need more support to build back better than their peers who have not experienced such shocks.

In the medium-term, this support will likely need to take the form of systems-level investments in infrastructure by the government to mitigate the risk of future shocks. Lagos needs improved flood control systems. But any large, public works project in densely populated areas is likely to disrupt MSME owners that live and work in affected communities. The government would need to consider how to keep an investment in resilient infrastructure from becoming another economic shock for these people. Offering grants or low-cost, government-sponsored loans to affected businesses during construction may help them survive.
<blockquote class="pullquote--left">FSPs, regulators, and policymakers will need to work together to ensure MSME owners have continued access to appropriate and affordable financial services.</blockquote>
In the meantime, financial service providers (FSPs), regulators, and policymakers will need to work together to ensure MSME owners have continued access to appropriate and affordable financial services. As climate science is mainstreamed into <a href="https://www.mckinsey.com/business-functions/risk/our-insights/banking-imperatives-for-managing-climate-risk" target="_blank" rel="noopener noreferrer">credit risk models</a> and <a href="https://www.swissre.com/risk-knowledge/mitigating-climate-risk/decoding-climate-change-what-does-it-mean-for-the-underwriter.html">insurance underwriting</a>, financial services will become more costly for low-income consumers living and working in risky areas. In their current iteration, certain financial products, like flood insurance, are likely to become unaffordable as the systemic nature of the risk grows. It will be critical for the government and the private sector to work collaboratively in such circumstances to ensure the supply of financial services to underserved communities. This could involve things like packaging government-sponsored flood insurance with private loans to de-risk lending and investment for FSPs and MSME owners, respectively.

This will not be easy to do. The government will need guidance on what policy measures are effective; FSPs will need to discover new, effective business models; and consumers will need additional support to ensure that they understand and are protected from risks associated with climate-focused financial products. These takeaways underscore the need for CFI’s focus on these elements as part of our climate agenda.

<em>For us, studying climate risk will not be just an Earth Day affair: we will continue our dipstick surveys in Colombia, India, and Indonesia in the coming months to study MSME owners' experience with climate shocks. Stay tuned for announcements of new data releases to CFI’s <a href="https://centerforfinancialinclusion.org/research/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">data dashboards</a>. Follow us (<a href="https://www.linkedin.com/showcase/center-for-financial-inclusion-at-accion/?viewAsMember=true" target="_blank" rel="noopener noreferrer">LinkedIn</a>, <a href="https://twitter.com/CFI_Accion" target="_blank" rel="noopener noreferrer">Twitter</a>, <a href="https://centerforfinancialinclusion.us5.list-manage.com/subscribe/post?u=394352ae963270aef6c51680d&amp;id=9df382106a" target="_blank" rel="noopener noreferrer">newsletter</a>) on our journey of learning and advocacy.</em>

Climate Change is Exacerbating Obstacles to COVID-19 Recovery for MSMEs in Nigeria

The severe economic impacts of COVID-19 on low-income households and small businesses have underscored the need for innovative solutions that can build greater financial resilience. Findings from <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">surveys of MSMEs</a> conducted by the Center for Financial Inclusion (CFI) show that since COVID-19 struck, many small businesses in Indonesia, Colombia, and Nigeria have either had to close or found their profits significantly decreased. At the same time, the pandemic has provided opportunities for inclusive fintechs to <a href="https://centerforfinancialinclusion.org/rapid-innovation-how-fintechs-are-adapting-under-covid-19/" target="_blank" rel="noopener noreferrer">leverage their agility and adaptability</a> to strengthen and support the financial resilience of low-income, financially underserved customers.

Financial resilience is the ability to mitigate, adapt to, and recover from shocks and stresses in a manner that reduces chronic vulnerability and facilitates inclusive growth. Individuals must deftly navigate a delicate balancing act to stay afloat and may be thrown off course by a whole host of shocks, ranging from unexpected health crises to weather-related disasters that can disrupt otherwise appropriate financial plans. The nuances associated with financial resilience can complicate the financial service industry’s ability to develop and design comprehensive solutions for low-income customers.
<blockquote class="pullquote--right">PesaKit and reach52, two winners of the 2020 Inclusive Fintech 50, have responded to the extraordinary challenges posed by the COVID-19 pandemic by continuing to innovate to meet their customers’ needs.</blockquote>
PesaKit and reach52, two winners of the 2020 <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> -- a competition founded by MetLife Foundation and Visa, with support from Accion and IFC, and additional funding from BlackRock and Jersey Overseas Aid &amp; Comic Relief -- have responded to the extraordinary challenges posed by the COVID-19 pandemic by continuing to innovate to meet their customers’ needs. In this paper, we share insights on how these two fintechs have adapted to a challenging economic landscape to serve as early examples of how fintechs have leveraged their agility and innovation during crisis. These findings build on the 2020 Inclusive Fintech 50 <a href="https://www.inclusivefintech50.com/white-paper-2020" target="_blank" rel="noopener noreferrer">white paper</a> that draws on the data submitted by the 2020 cohort of applicants and highlights how fintechs are continuing to advance financial inclusion and resilience for the estimated 3 billion financially underserved people worldwide.

Agility Breeds Resilience: A Tale of Two Fintechs Innovating in the Face of a Pandemic

<em>This blog post reflects CFI’s early thinking on the intersection between climate change and inclusive finance. Learn more about CFI’s latest thinking and research on our </em><a title="https://www.centerforfinancialinclusion.org/research/financial-services-to-mitigate-and-adapt-to-climate-risks" contenteditable="false" href="https://www.centerforfinancialinclusion.org/research/financial-services-to-mitigate-and-adapt-to-climate-risks">Climate research page</a><em>.</em>

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

Alfred Jusu

Howard Miller

Dunja Latinovic

Jayshree Venkatesan

Eric Noggle

Tess Johnson

Mayada El-Zoghbi

Garrett Jaso

Dr. Thomas Kirengo

Peter  Gross

Elisabeth Rhyne

Garance Wattez-Richard

Amee Parbhoo

Rob Stevens

Sierra Leone

Sub-Saharan Africa

India

South Asia

Nigeria

Cambodia

East Asia and Pacific

Kenya

Philippines

Tanzania

Agricultural and Rural Finance

Challenges and Crises

Enabling Environment

Financial Health

Insurance

Resilience

Smallholder Farmers

Underserved Groups

Refugees and Migrants

Consumer Protection

Risk Management

Alternative Data

Credit

Digital Financial Services

Digital Payments

Fintech

Fintechs

Remittances

Savings

Blockchain

Human Centered Design

Rural Populations

Microfinance Institutions

Small Business Owners

Agent Banking

Inclusive insurance

Financial Inclusion Strategy

Policy, Regulation and Government Initiatives

Insurtech

Blog Post

Report

Brief

Webinar

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

The coronavirus pandemic has continued to ravage Western countries and is encroaching in a much more aggressive way into developing economies in Latin America, Africa, the Middle East and Asia. In developing countries where the vast majority of the labor force is in the informal economy (estimated at <a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_627189/lang--en/index.htm">over 60 percent</a> worldwide), COVID-19 is revealing the limits of individual financial behaviors for coping with the pandemic. This raises questions: Which public policy measures should be prioritized to support resilience? What are the economic policies that are creating the underlying vulnerability and marginalization in the first place?
<blockquote>Which public policy measures should be prioritized to support resilience? What economic policies are creating underlying vulnerability and marginalization?</blockquote>
COVID-19 is revealing that no matter the degree of someone’s financial cushion in the form of savings or remittance networks, it is simply not sufficient to cover a loss of income. From a research perspective, no matter how much information we obtain on someone’s behaviors, attitudes and circumstances, we will not be able to have visibility into their vulnerability to shocks, as these issues only marginally contribute to someone’s resilience. To be better equipped to understand the impact of shocks such as COVID-19 on the lives of the BOP, we need to understand critical variables such as income, wealth and safety nets available to them. This means we need to adapt the financial health measurement tools that were previously developed to serve the narrower purpose of helping providers understand the financial health of their customers. These frameworks were tailored to the information that providers needed to know and the tools available to them to improve the resilience of their customers. Broader contextual variables, like safety nets, let alone income variables, were not part of the equation as FSPs do not have the mandate to address these larger policy issues.
<h2>Need to Ask Bigger Questions</h2>
But for many of us working in the inclusive finance space, our toolbox is bigger. Advocacy on public policy is squarely within our mandate and having the right information to inform this advocacy work should be integral to the types of research work we undertake. Demand-side research such as the <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">Findex</a>, <a href="http://finmark.org.za/programmes/finscope/" target="_blank" rel="noopener noreferrer">Finscope</a>, financial diaries, and the new crop of financial health surveys, all reveal a similar story. They tell us that being poor is bad and poverty <a href="https://cenfri.org/news-and-events/webinar-the-impact-of-covid-19-on-financial-health" target="_blank" rel="noopener noreferrer">limits people’s resilience to shocks</a>. These demand-side tools don’t tell us much about the underlying causes of this lack of resilience. So, narrowing our research efforts only to demand-side data can be misleading. Too often actors draw the wrong inference from it: that people’s behaviors and attitudes are the reason for their poverty or vulnerability, even though this has long been <a href="https://www.dandc.eu/en/article/development-jargon-helping-people-help-themselves" target="_blank" rel="noopener noreferrer">discredited</a>. Focusing only on what providers can do is also too narrow in scope: the ideology that markets can solve all problems has also been pronounced dead by many economists, including the Nobel Laureate <a href="https://www.theguardian.com/business/2019/may/30/neoliberalism-must-be-pronouced-dead-and-buried-where-next" target="_blank" rel="noopener noreferrer">Joseph Stiglitz</a>.
<blockquote>The economic fallout of this pandemic can’t be solved through any individual choices or actions or a ready-made market solution.</blockquote>
The economic fallout of this pandemic can’t be solved through any individual choices or actions or a ready-made market solution. We need to ask bigger questions around why people are vulnerable to economic shocks in the first place and the role of the financial system in addressing this vulnerability. How are public policy, social safety nets, systemic discrimination or other underlying issues influencing people’s financial health circumstances? What would make people resilient and how should the financial system be set up to improve resilience and well-being for the BOP? There is really no amount of planning and sound financial management that would be sufficient under these circumstances. For systemic shocks like COVID-19, we need other research tools and a different body of evidence.
<h2>Creating Financial Protections for the BOP</h2>
We should be thinking about the systems that undergird the financial system and how to use it to create financial protections for the BOP. There are at least three priorities that COVID-19 has revealed for the inclusive finance field. I argue that these should be elevated in our collective research and evidence-gathering agendas.
<h3>1. Strengthening the ability to distribute payments</h3>
If nothing else, this pandemic has made it clear that countries with robust digital payment infrastructures can quickly get money out to people who are most in need. It is heartening that countries like <a href="https://www.ft.com/content/adc604f6-7999-11ea-bd25-7fd923850377?accessToken=zwAAAXF1NqZAkdOtxgT2eZkR6tO9JX_ZI4UDdw.MEYCIQCq8LPiLCFzDU973kkOf7P9UFkYEYGATGjkdNeE4ORSaAIhAMR64HuZniONRGR2qjVaFlZm78iaJRht2C1EKlVruFsQ&amp;sharetype=gift?token=5f6d3c51-58ac-46c1-a629-fc74a677c3b2" target="_blank" rel="noopener noreferrer">Togo</a> are taking action to get money into people’s hands using digital payments. Pakistan’s <a href="https://nation.com.pk/09-Apr-2020/payments-under-ehsaas-emergency-cash-programme-started" target="_blank" rel="noopener noreferrer">Ehsaas Emergency Cash Transfer Program</a> is able to disburse to over 12 million families hardest hit by COVID-19. <a href="https://centerforfinancialinclusion.org/mobile-money-in-times-of-crisis-an-unlikely-hero/" target="_blank" rel="noopener noreferrer">Jordan has taken impressive steps </a>to expedite reforming electronic customer due diligence, expanding the cash in cash out (CICO) networks and other reforms to use a digital channel to disburse aid. These cash transfers are not only a critical lifeline for those most impacted by COVID-19, they also serve as a demonstration of the importance of the financial system for crisis response and for economic recovery. The challenge will be for those countries that do not yet have robust digital infrastructures or where there are still many limitations to getting certain groups -- like women or the elderly -- to engage with these digital channels. The inclusive finance community should focus its problem-solving skills on answering:
<ul>
 	<li>What will it take to extend digital infrastructure quickly? How can donors and investors partner with policymakers to make this a priority?</li>
 	<li>What are quickly scalable, second-best solutions for cash distribution in markets without digital infrastructure? Can MFIs, postal networks, and other community groups serve this last mile distribution?</li>
</ul>
<h3>2. Improving financial protection through “safety net-like” insurance</h3>
Prior to COVID-19, the role of insurance in the inclusive finance field was perceived as good to have or a problem of the health sector, but not the primary focus of our field. The challenge of commercializing micro-insurance was the main obstacle limiting progress. COVID-19 reveals the clear inadequacy of our solution set to date. The concept of employer-backed private insurance in situations where millions of employees are losing their jobs (an estimated <a href="https://www.epi.org/blog/3-5-million-workers-likely-lost-their-employer-provided-health-insurance-in-the-past-two-weeks/" target="_blank" rel="noopener noreferrer">3.5 million in the US alone</a>) is fundamentally flawed; and this has always been the case in developing countries where the vast majority of the BOP has never had a formal employer in the first place, let alone employee-backed private insurance. We must start to see universal health insurance as part of the solution set for inclusive finance. And beyond health insurance, we should be looking for public-private solutions for other types of protections like unemployment insurance or disaster insurance. The inclusive finance community should be focusing on answering:
<ul>
 	<li>What are the private-public models that can be deployed to scale micro-insurance?</li>
 	<li>What are other ways we can reimagine safety nets to leverage private-sector insurers and balance the costs for policymakers and employers?</li>
</ul>
<h3>3. Linking food producers to the financial system</h3>
In <a href="https://larepublica-pe.cdn.ampproject.org/c/s/larepublica.pe/economia/2020/04/09/atender-la-emergencia-en-lo-rural-por-carolina-trivelli/?outputType=amp" target="_blank" rel="noopener noreferrer">La Republica</a> (in Spanish), Carolina Trivelli sounds the alarm bells on food security in Peru. Immediate demand reductions on one side of the value chain are having longer term effects on small producers who are at risk of not getting the seeds, fertilizer and other inputs they need to plant for the next season. A different but also compelling call to action comes from Maha Agriculture Public Co., Ltd., in Myanmar. In an effort to limit the spread of the virus, government policy is <a href="https://centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis/" target="_blank" rel="noopener noreferrer">inadvertently shutting down the financial services providers</a> who are financing critical food production cycles. Maintaining the flow of capital to farmers, regardless of the pandemic, is paramount for all of us if we want to see food at the grocery store in six months and not allow the effects of the pandemic to include food shortages and starvation. The questions that are priority for our collective attention include:
<ul>
 	<li>How can we ensure that money is flowing to food producers? How can we expand work on value chain finance in critical food commodity value chains? Is there specific data that can increase investment to value chain finance? Are there important actors, like buyers or distributors, with whom our community needs to engage?</li>
 	<li>What would it take to support the FSPs that serve agricultural producers? How can we ensure the business continuity of agricultural cooperatives or other financial service providers that serve the agricultural sector?</li>
</ul>
The complexity and gravity of the impact of COVID-19 are demanding that we not only respond immediately, but also reflect deeply on what we prioritize as a community in the future. Do you agree with the ideas put forward here? Let us know what you think.

COVID-19 Reveals the Limits of Individual Action and Market-Based Solutions

Dr. Kirengo, co-founder and CEO of <a href="https://imaramed.org/">Imara Mediplus Hospital</a>, wasn’t your typical <a href="https://centerforfinancialinclusion.org/board-leadership-for-impact-program-overview/" target="_blank" rel="noopener noreferrer">Board Leadership for Impact Program</a> (BLI) participant. Rather than a financial inclusion organization, the social enterprise he leads is a multi-specialty healthcare facility focused on providing quality medical services to low- and middle-income earners living in smaller cities and towns in Kenya. Last fall, a time that feels so long ago now, Dr. Kirengo was interested in strengthening board leadership at Imara, so he and two colleagues attended BLI. In this Q and A, Dr. Kirengo discusses the state of health insurance in Kenya, the economic impact of the virus, and even homemade hand sanitizer production and locally sourced masks. He also provides invaluable advice to the financial inclusion community and general public on how to make workplaces safer.
<h3>Q: What are you seeing on the frontlines of the COVID-19 response in Kenya?</h3>
<strong>Dr. K:</strong> Over the past two weeks, we have seen an increase of 10 to 20 patients per day because people are scared. Patients come in with a sore throat or with symptoms the news is telling them is coronavirus. This has been difficult because we are trying to tell people to maintain social distancing. We’ve had to increase security to prevent people from coming in with visitors. We want people to come so we can treat them, but we need to limit our risk especially since we have limited protective equipment.

Because of the lack of supplies in Kenya, we’ve also had to experiment and build our own face shields and masks. Just recently, one of our suppliers increased prices by 5 times, so we are looking for alternative ways to buy or make our protective equipment. We’re also making hand sanitizer for the public and organizations to use. Another concern is with delays to insurance payments as the insurance companies see an insurgence in demand for payouts.
<h3>Q: What’s been the response to making and distributing hand sanitizer? Who have you distributed it to?</h3>
<strong>Dr. K:</strong> We experienced a price hike for sanitizers immediately when the first case of COVID-19 hit Nairobi. For example, one of our suppliers tried to sell us, for $100, a quantity we normally buy for $20. We realized quickly that this would be an unsustainable cost, so we talked to our pharmacist and nurses, ordered supplies and started making our own. Businesses around Embu, where we operate, told us they were facing similar challenges and risked receiving and using substandard hand cleaning material or none. So, we started making in surplus and selling to them. We have provided sanitizer to banks, hotels, restaurants and even individuals.

[caption id="attachment_38108" align="alignleft" width="500"]<a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/04/Sanitizer-and-Mask-e1587576109170.png"><img class="wp-image-38108 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/04/Sanitizer-and-Mask-e1587576109170.png" alt="hand sanitizer and homemade masks" width="500" height="324" /></a> <em>Hand sanitizer and a face mask created by Imara Mediplus Hospital in Kenya.</em>[/caption]
<h3>Q: Economically, how will the pandemic affect your patients and their communities? What might be the repercussions of this on Kenyan society?</h3>
<strong>Dr. K:</strong> There is less cash flowing through the economy. Everyone is saving money. Businesses are shut down due to lock down and curfew, as well as reduced footfall and increased cost of running businesses. We have seen a change in the spending habits of most of our patients. Currently, patient numbers for regular clinics have declined. We are largely attending only to urgent and emergent care cases.

A lot of companies and SMEs have either enforced salary pay cuts or laid off people. The changes will not be reversible in the near term. It will take a while for businesses and the economy to bounce back to where it was. Tourism, one of the major economic activities in the country, is nearly at a standstill. Things may get worse as we haven’t had a full shutdown, and this may still happen.
<h3>Q: Can you speak to insurance coverage? Do your patients have insurance? Is it public or private? And does this insurance adequately cover COVID-19 testing or treatment? How might this affect livelihoods?</h3>
<strong>Dr. K:</strong> Less than <a href="https://www.nation.co.ke/newsplex/Worldhealthday/2718262-4375778-dhdk0ez/index.html">25 percent of the population of Kenya is covered</a> by health insurance. More than 90 percent of this insurance is the government run social insurance (National Health Insurance Fund, or NHIF). NHIF, however, provides very limited coverage and has low reimbursement rates, while private insurance that pays better has limited coverage and number of subscribers. With COVID-19, private health insurances had declined to cover their clients against the condition. This received a lot of negative publicity, so they reverted and accepted covering the condition, but only in government hospitals, where care is cheaper but generally considered to be of lower quality due to poor patient to staff ratios. Therefore, currently, COVID-19 is “exclusively" under government management. Some private hospitals are offering care, but I’m not sure how that is financed.
<blockquote>The challenge I foresee is the inability of the majority of the population to pay for COVID-19 healthcare needs.</blockquote>
The challenge I foresee is the inability of the majority of the population to pay for their healthcare needs when it comes to COVID-19, considering most businesses are shut down, experiencing tough financial times or have to cut salaries. For example, the cost of a single COVID-19 test in a private lab is $130. If positive, two more tests are needed that come out negative before a patient is released. On top of this, patients are placed in quarantine for two or three weeks. How does a common Kenyan afford this?
<h3>Q: What advice would you give leaders of financial service providers who are feeling the impact of the coronavirus on their employees, business operations, and clients?</h3>
<strong>Dr. K:</strong> For businesses that are lucky enough to work online or remote, just do it.  For any organization, it is important to reiterate the basics:
<ul>
 	<li><strong>Wash your hands</strong> for at least 20 seconds or use hand sanitizer.</li>
 	<li><strong>Avoid touching your face</strong>, especially if you haven’t washed or sanitized your hands.</li>
 	<li><strong>Wear masks</strong> as appropriate. First and foremost, what people often forget about masks is that they are disposable. I’ve seen a lot of companies buy just one mask per staff member; however, staff should not be wearing the same masks day in and day out.
<ul>
 	<li>If it is an N95 mask, and you are using it day to day, you should dispose of it after two days and get a different one.</li>
 	<li>Surgical masks should be disposed after a few hours of use, maybe a day maximum.</li>
 	<li>Wash your hands before and after touching the mask.</li>
</ul>
</li>
 	<li><strong>Eye protection</strong> is key. Do your employees have glasses or something to protect the eyes from droplets? This could be an eye shield as well.</li>
 	<li><strong>Social distancing</strong> must be enforced. How are you ensuring distancing? If it is a bank, how are you training your employees to ensure a safe distance is kept? You can put stickers on the floor to highlight the appropriate distance and where people should stand. Remember a safe distance is 1 to 1.5 meters. This goes for security guards and staff as well.</li>
 	<li>Anyone with <strong>symptoms</strong> may cause anxiety for fellow employees and clients, so you need to have a way to subtly and respectfully separate them from everybody else. You should know where to refer them to if they feel sick, so they can get the necessary attention. Send people home who are symptomatic.</li>
 	<li>If there are people who can <strong>take leave</strong> now, have them take leave because most places are locked down and a curfew is in place, at least in Kenya.</li>
 	<li>If you have <strong>SMS and message capability</strong>, you should be sharing information and highlighting the importance of social distancing and sanitation through your client channels.</li>
</ul>
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"We're Also Making Hand Sanitizer": Kenyan Doctor on COVID-19 Impacts

In my wallet, I have three bank cards. When I opened the accounts, I remembered reading a vague reference to insurance, but until today, I had no idea what the insurance actually covered, how to use it, or what I’m paying for the privilege.

I have now learned I have 26 kinds of insurance coverage on those three cards. However, in spite of several dozen clicks, 90 minutes of reading, and two aborted phone calls, I still don’t understand many of the basics of when and how I can use the coverage. None of the card companies could tell me the fees I’m paying them. Some of the click paths online were circular. And every long list of claim requirements included an escape clause, allowing the insurer nearly unlimited power to deny the inexplicable benefits for which I’m unknowingly paying.

In the religion of the Internet, user experience is gospel; if there were an inquisition into my experience today, insurance would be excommunicated.
<p style="text-align: center">*****</p>
Nearly nine years ago, I joined <a href="https://microensure.com/">MicroEnsure</a>, a pioneer in the field of inclusive insurance. Low-income customers in emerging markets experience risk as a fundamental fact of life. Opportunity – the focus of many a financial "inclusioneer" – is about something that doesn’t yet exist; meanwhile, risk is a present reality every day. If you’re a low-income mother in sub-Saharan Africa, risk is your breakfast, lunch, and dinner; you wake up in the morning worried if the bus driver will be drunk again, and you go to sleep hoping your rural uncle’s illness doesn’t get any worse.

The problem MicroEnsure wanted to tackle was how to protect these “emerging customers” – people in emerging markets who earn $2 to $20 per day – with sustainable solutions, since traditional insurance companies had no model to serve them. Traditional insurers have depended for decades on mandatory distribution channels: car owners must insure their vehicles, businesses their properties, and so forth. I like to call this, “making money in the dark,” where the product (like my credit card insurance) is largely hidden from view. In such an approach, customer preferences became less important to insurers. If a customer ever did really want insurance, that individual was likely to be either high-risk or a fraudster. Over time, this led to customers knowing little about their coverage, and being pushed away if they did try to access benefits. In the end, insurance became an industry that sees customers as the enemy. If you disagree, just consider that the industry calls claims “losses.” Let that sink in: when customers receive the service they paid for, insurers see a failure, not a success.

MicroEnsure, then, was clearly facing an uphill battle: we had no mandatory channels to leverage, and we had customers who faced significant risk. How could we protect customers who faced more risk than the average insured person, with less money to pay premiums, and no easy way to reach them?

The resolution we found, paradoxically, was to use these two problems to solve each other. If emerging customers faced more risk, then they would be more likely to buy products that help them, which meant that it should be easier to create channels to reach them.

The key to making the formula work was to upend the traditional insurance model. Instead of making money in the dark, we needed to make our value as clear as possible: to offer products that were easy to understand, valuable for the price, and straightforward to claim. We needed to respond to customer needs and requests quickly. We needed to be dissatisfied with low usage rates and nervous about unsustainably high profit margins. And we needed to think about our customers not only from a financial perspective, but also from social and emotional ones as well. In short, we needed to act like a company in any other industry, where customers are seen as an asset rather than a liability.
<blockquote>Instead of making money in the dark, we needed to make our value as clear as possible: to offer products that were easy to understand, valuable for the price, and straightforward to claim.</blockquote>
To be sure, there were tradeoffs to be made. Instead of paying the full cost of a customer’s loss, in most cases we paid a fixed part of it. Instead of covering many different customer needs, we limited our service to a few major ones. But by making our product and back office simpler, we also enabled scale much more quickly than traditional insurance. As a result, MicroEnsure reached more than 50 million low-income customers with their first insurance policies in less than a decade.
<p style="text-align: center">*****</p>
I recently had the privilege to speak at the <a href="http://financialinclusionweek.org/cfi10/">CFI 10th Anniversary Symposium</a>, which marked an important career transition for me. Having helped MicroEnsure to build its model, I attended the Symposium on my first day as part of AXA, the world’s 2nd-largest insurance group. AXA sees that the old insurance model is limited: there are only so many mandatory insurance policies that can be sold in existing markets. And while it looks to emerging customers for growth, at the same time it recognizes that the business model for emerging customers holds some of the keys for renewing the insurance industry overall.

Which brings me to my credit card experiment.

Emerging customers who now have insurance – <a href="http://www.impactinsurance.org/about/facts-on-microinsurance">more than 500 million of them</a>, at last count – don’t often feel the way that I did today as an insurance customer. They don’t have to slog through endless jargon when the <a href="https://www.theguardian.com/global-development/2013/may/02/ghana-mobile-free-insurance">policy wording is contained in 3 SMS messages</a>. They don’t have to struggle for six weeks to get a small travel insurance claim paid, as I did last year, but can <a href="https://www.youtube.com/watch?v=vX6TySibSU8">receive a claim payment in West Africa in two hours</a>. They are provided with clear, simple products, not sold with traditional ads that – almost unbelievably – show <a href="https://www.google.com/imgres?imgurl=http%3A%2F%2Ffile.vintageadbrowser.com%2Fl-gwjbeo488h2lj7.jpg&amp;imgrefurl=http%3A%2F%2Fwww.vintageadbrowser.com%2Fmoney-ads-1990s&amp;docid=Xh9R6D9rEBQhiM&amp;tbnid=1Si3I3mwhFCe6M%3A&amp;vet=1&amp;w=660&amp;h=903&amp;source=sh%2Fx%2Fim">activities that aren’t covered by their policy</a>. Instead of seeing insurance as an annoyance, emerging customers tend to <a href="https://www.youtube.com/watch?v=0FOH9E1pe9o">see it as a blessing</a>.

The reason emerging customers feel this way isn’t because they are fundamentally different from traditional customers; it’s because the industry changed to reach them in the first place. And if the changes have succeeded in reaching this new market, then – at least for me – the lessons learned are relevant for existing markets as well. Insurers will become consumer-centric, lest Amazon and Google do it for them. They will find ways to make money in the light – where customers who have 26 covers actually know that they are covered in the first place. User experience will eventually drive the insurance industry, just as it does everywhere else.

For me this is why, while the last decade has seen an explosion of micro insurance, the next decade may be when “micro” insurance becomes “macro.” On the one hand, emerging customers will continue becoming insured, as more and more commercial insurers see the <a href="https://microinsurancenetwork.org/groups/microinsurance-risk-protection-4-billion-people">size and potential of the market</a>. On the other hand, though, I’m making a bolder bet: that the emerging customer model will go mainstream.

It should be an exciting few years.

Insurance: from Micro to Macro

In celebration of its 10th anniversary, the Center for Financial Inclusion at Accion asked 10 leaders in the financial inclusion community to set out their agenda for Getting Inclusion Right. The resulting essays and webinar series creates a roadmap to take financial inclusion into the next decade.

For the first virtual event in the series, Garance Wattez-Richard, Head of AXA Emerging Customers and Elisabeth Rhyne, Managing Director of CFI discussed the topics of getting insurance right and getting inclusion right from the customer’s perspective.

Webinar: Getting Inclusion Right

For the insurance industry, 2008 is more often reminiscent of the bailout of AIG than of new beginnings. However, 2008 also launched an unexpected wave of creative destruction. This essay series not only celebrates the 10-year work of the Center for Financial Inclusion, but also  several pioneers that strive to make insurance inclusive for all: the ILO’s Impact Insurance Facility, the Centre for Financial Regulation and Inclusion and the Microinsurance Network—all of which began a decade  ago.

As a more recent settler on the inclusive insurance planet – although almost three years have flown by – others may keep the flame, but I would like to offer a personal opinion on the past decade of innovation, and my perspectives into what more needs to happen to combine sustainable business and social impact for those who need insurance most.

Back in 2008, microfinance institutions predominantly distributed what was then called microinsurance. MFIs provided insurers with a readily available pool of clients for credit life insurance, which reimburses the outstanding loan amount in case of death or disability of the borrower.

This was the first era of inclusive insurance.

Ten Years Gone, Ten Years to Go: Taking Inclusive Insurance from Adolescence to Adulthood

<em>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.</em>
<p id="d33a" class="graf graf--p graf-after--figure">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.</p>
<p id="9f1f" class="graf graf--p graf-after--p">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. <strong class="markup--strong markup--p-strong">Pula uses cutting-edge technology coupled with expansive distribution partners to make large-scale agricultural insurance feasible for rural farmers</strong>.</p>
<p id="8d1f" class="graf graf--p graf-after--p">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.</p>
<p id="cf02" class="graf graf--p graf-after--p">At Venture Lab, we’re most excited about a few core areas of the typical microinsurance value chain that Pula disrupts:</p>
<p id="2264" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Eliminating the purchase barrier</strong>: 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.</p>
<p id="2945" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Increasing yields for customers with massive need</strong>: 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.</p>
<p id="9622" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Lowering the cost to serve</strong>: 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.</p>
<p id="3f7f" class="graf graf--p graf-after--p">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.</p>
<p id="38d2" class="graf graf--p graf-after--p">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><strong class="markup--strong markup--p-strong"> there is a massive market opportunity to support the world’s most vulnerable as they grow food to provide for their communities</strong>. 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.</p>
<p id="d671" class="graf graf--p graf-after--p">Venture Lab is excited to be supporting Pula as they take on one of the world’s most significant challenges.</p>
<strong>Have you read?</strong>

<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

<em>This post is adapted from the recently-released publication “</em><a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf"><em>Inclusive Insurance: Closing the Protection Gap for Emerging Customers</em></a><em>,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.</em>

With <a href="https://cfi-blog.org/2018/01/18/how-technology-is-propelling-inclusive-insurance/">digital channels</a> and <a href="https://cfi-blog.org/2018/01/29/inclusive-insurance-its-a-team-effort/">effective aggregators</a>, it becomes possible to offer insurance to lower-income segments. But the products themselves must also be designed with both cost control and the needs of the client segment in mind. After all, the financial margins for inclusive insurance are smaller, and the value proposition of insurance is typically tough to sell to customers.

Drawing on insights from our recently-released report <a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>, here are a few of the key approaches for building inclusive insurance products that work for the insurer and the customer.
<h3>Simplicity</h3>
Simple products are a requirement for this market segment, and many successful products we are seeing described are extremely simple. Simplifying user interfaces is, of course, in keeping with trends in product design across companies like Alibaba, Amazon, and Walmart that allow consumers to transact with just one click. Simple insurance products are easy to understand, easy to enroll in, and easy to claim against. Simplicity is perceived as transparent and “friendly,” helping to create trust.

Simplicity is essential not only because customers love it, but also because streamlined products are easy to manage, cutting administrative costs. Assessing claims can eat up premium revenue, particularly when a customer does not have a fixed address, is illiterate, or lacks standard documentation, and we are seeing some products, such as index insurance, that pay out without a claims process. Radical insurance designers also make products that do away with exclusions. In mainstream insurance, exclusions allow insurance companies to avoid customers with disproportionate risk, bringing down premiums for the majority. However, oversight of exclusions requires expensive verification. With very small-ticket insurance policies, exclusions may simply not be worth the money it takes to manage them.
<h3>Microterms and Micropayments</h3>
The same radical thinking can also be applied to the term length of coverage. In pay-as-you-go (PAYG) models, inclusive insurers calibrate timeframes to the size of the payments consumers have available. Customers who miss a payment can re-up without penalty. BIMA offers simple PAYG products with life, personal accident, or hospital insurance coverage that can be bought in monthly blocks, much as mobile credit top-up cards are sold.

Pioneer Life President and CEO Lorenzo Chan Jr. talked with us about “insurance in a sachet.” Throughout the Philippines, as in many parts of the developing world, neighborhood stores sell tiny packets, or sachets, of detergent, shampoo, spices, and other goods. Insurance “in a sachet” allows low-income customers to purchase small levels of cover, for short terms, at low premiums.
<h3>Building Customer Acceptance – Touch and Tech</h3>
Insurers are aware that their product is “sold, not bought”— especially by customers who are new to the very concept of insurance. A standard approach to building customer interest is to bring elements of high touch alongside high tech enrollment and payment interfaces.

Particularly in rural areas, customers may have <a href="http://www.centerforfinancialinclusion.org/storage/Uniting_TechandTouch_Kenya_FINAL.pdf">strong preferences for interacting with people</a>, especially people they already trust, and may need continuing interactions to create a feeling of connection. High tech can be used to create a sense of high touch: Allianz Indonesia’s fictional character, Mrs. Ali, provides a comfortable, homey interface with clients as “she” sends text messages to customers about their products and their lives.
<h3>Trust and Understanding</h3>
Particularly for low-income people, it is hard to consider putting the little money they have into something that may never yield a tangible benefit. As Matthew Myers of LeapFrog Investments puts it, customers view the insurer’s pitch as: “Give me money and I’ll give you a promise, rather than anything tangible right now.”

As hard as enrolling a new customer is, many providers find that renewals are equally challenging. Customers may purchase insurance, but if they don’t see a benefit or receive a claim payout, they often do not renew. Michael McCord of the Microinsurance Centre notes that a very low rate of claims (such as five percent) is a sign that customers do not understand the product or may not even realize they have coverage. One response is educating clients about the products and their benefits, both to get customers on board and to help them stay.
<h3>Bundling and Cross-Selling</h3>
Martin Hintz, former coordinator of microinsurance at Allianz, notes that one solution to increasing uptake is, “Sell something else, then attach insurance into the package.” Many new customers have begun with compulsory products, such as credit life or loyalty products. “Freemium” models introduce customers to a new product free of charge, in the hope that they will see its merits and later start paying premiums.

Insurance providers and their partners can jumpstart an insurance relationship by bundling insurance, either with other insurance products or with other financial or nonfinancial services. Insurance can also be tied to tangible products, such as school fees, food, or discounts on medicine.
<h3>Aligning Organizations to Serve Unserved Markets</h3>
The frontline staff of financial service providers often don’t understand insurance themselves, or have no incentive to sell it. At CARDPioneer Microinsurance Inc. (CPMI) everyone in the company, from top management to frontline staff, spends three to five days per year in immersion visits with clients. The investment of time has paid off. As one example, CPMI learned that, although it had been paying claims to its partners within five days, the partners were slow to pass the payments through to customers. It reviewed its claims process and was able to fix the bottlenecks.

With these examples of keen attention to unserved and underserved customer segments, Garance Wattez-Richard, Head of Emerging Customers at AXA notes that the innovations required to make insurance work at the base of the pyramid can be relevant for more mainstream insurance markets. “Reverse innovation is occurring as new products, business models, and technologies pour over into traditional insurance,” she says.

<em>For more on inclusive insurance, read “</em><a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf"><em>Inclusive Insurance: Closing the Protection Gap for Emerging Customers</em></a><em>.”</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2018/01/08/inclusive-insurance-closing-the-protection-gap-for-emerging-customers/">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>

<a href="https://cfi-blog.org/2018/01/18/how-technology-is-propelling-inclusive-insurance/">How Technology Is Propelling Inclusive Insurance</a>

<a href="https://cfi-blog.org/2018/01/29/inclusive-insurance-its-a-team-effort/">Inclusive Insurance - It's a Team Effort</a>

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The Radical Reinvention of Inclusive Insurance

<em>This post is adapted from the recently-released publication “</em><a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf"><em>Inclusive Insurance: Closing the Protection Gap for Emerging Customers</em></a><em>,” a joint-report from the Center for Financial Inclusion at Accion and the Institute of International Finance, in partnership with MetLife Foundation.</em>

New technologies are dramatically changing the landscape for insurance around the world and enabling insurers to reach new mass market segments. New data sources and analytical tools are changing risk models by enabling new ways to create, capture, and analyze valuable information that can help insurers better calculate and manage the risk associated with customers. Machine learning applied to satellite imagery is changing agricultural and disaster insurance, allowing for more sophisticated claims management, even facilitating pre-loss payments that can help minimize the cost of a disaster before it is full-blown. The expansion of identity solutions and onboarding options is lowering operations costs and enhancing convenience. These innovations are helping the global insurance industry transform from a passive risk-transmission industry into an active risk mitigation and advisory partner for individuals, businesses, and governments.

The use of mobile phones to deliver insurance is no longer a novelty, but there is tremendous scope for growth. Mobile phone penetration in emerging markets is now 80 percent, making mobile devices excellent distribution channels. Mobile phones are convenient for enrollment, transmitting premiums and paying claims. Mobile phones have also been helpful for customer service, policy management, consumer education, and other vital functions.

While mobile insurance products have already broken important new ground, there is a much broader array of more recent innovations paving the way for growth. The joint CFI-IIF report found providers using technology to solve both front-end and back-end challenges. Here are some of the ways providers are addressing customer and business needs through technology.
<h3>Instant Enrollment</h3>
In many countries, advances in identification systems have made it possible to enroll customers instantly. Garrance Wattez-Richard, Head of Emerging Markets at AXA, notes, “National ID is changing everything in China and in India.” In Colombia, Margarita Henao Cabrera reports that customers can enroll in DaviPlata’s insurance in seconds by entering their national IDs into their mobile phones. Richard Leftley, CEO of MicroEnsure, notes that even basic questions such as the customer’s name, age, and other demographics can create a barrier to enrollment, so enrolling customers based only on phone numbers eliminates those barriers. “We don’t know anything about them until they make a claim, not even their name or age,” says Leftley. Depending on the market, automated enrollment mechanisms include internet-based products in China and point-of-sale devices among retailers in Latin America.
<h3>Technology-Enabled Claims Verification and Payouts</h3>
<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/daviplata.png"><img class="wp-image-24911 alignright" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/daviplata.png" alt="" width="465" height="507" /></a>

Since paying claims fast builds trust and adds customer value, Allianz is experimenting with payments that do not require customers to submit a claim—for instance, if the distribution partner reports that a customer has been in an accident. Parametric or index insurance using data from weather satellites enables automatic payments for farmers. Claims payouts and management are even being enhanced by drones. Drones allow access to isolated and dangerous areas after disasters to collect aerial data and assess loss through cutting-edge imagery analytics. Munich Re has been experimenting with the technology and has partnered with U.S.-based drone company PrecisionHawk. The two companies worked together in the aftermath of the April 2016 earthquake in Ecuador.
<h3>Back-Office Systems</h3>
Modernizing back-office IT systems helps bring down administrative costs, making low-premium products cheaper to manage. When AXA acquired MicroEnsure, its first investment was to improve legacy IT infrastructure. LeapFrog Investments also prioritizes IT with its microinsurance investments. To further reduce transaction costs, some experiments use blockchain technology, such as Consuelo, offered by the Mexican-based mobile platform Saldo.mx, in this case to facilitate microinsurance for Mexican migrant workers in the United States. By providing a universal and tamper-proof record of transactions, blockchain technology could reduce human error, fraud, data duplication, processing delays, and opaqueness—ultimately increasing efficiency and lowering operational and administrative costs for the insurance industry. (Though at a very high energy cost.)
<h3>Using New Data to Reappraise Risks</h3>
Historically, there has not been enough data to feed actuarial analysis that can inform a relevant product at a fair and attractive price for newer and lower income market segments. However, data has now become available on people who have a national ID or mobile phone number. Data analytics can then be effective at identifying prospective customers and their behavior patterns. Salmaan Jaffery of DIFC Authority looks forward to using artificial intelligence and machine learning in product development and risk assessment. With new data tools, the sector will look at risk differently. As Jaffery explains, “It may become apparent, through the analysis of behavioral and social data, that lower-income people may not be any greater risk than those with higher income profiles.”

<em>For more on the uses of technology in inclusive insurance, including how it’s enabling integrated services for health insurance, read “</em><a href="http://www.centerforfinancialinclusion.org/storage/Inclusive_Insurance_Final_2018.01.06.pdf"><em>Inclusive Insurance: Closing the Protection Gap for Emerging Customers</em></a><em>.”</em>

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2018/01/08/inclusive-insurance-closing-the-protection-gap-for-emerging-customers/">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a>

<a href="https://cfi-blog.org/2017/04/13/making-microinsurance-work-in-bangladesh-three-takeaways/">Making Microinsurance Work in Bangladesh: Three Takeaways</a>

<a href="https://cfi-blog.org/2014/10/06/bundling-mhealth-info-and-microinsurance-to-improve-health-outcomes-in-kenya/">Bundling mHealth Info and Microinsurance to Improve Health Outcomes in Kenya</a>

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