This paper explores how inclusive finance increases the ability of vulnerable populations to “anticipate, cope and adapt to climate shocks and stresses.” Savings groups, for example, can “enhance social capital by building group solidarity and networks,” and they have been successful outside of the financial arena, such as in circulating health information during the COVID-19 pandemic. The UK-funded Progress savings program assisted farmers in Kenya in smoothing “consumption during prolonged periods of drought.” A study in Malawi found that farmers using savings accounts were able to boost agricultural production by 21 percent.
In regard to savings and climate adaptation, the authors found that savings groups often were used to accrue capital for “income diversification activities.” For example, a village savings and loan association (VSLA) in Ethiopia trained members in running micro-businesses. The resulting income was reinvested in the VSLA to buy feed in bulk to help livestock survive a period of drought. Further, savings allowed individuals to increase investment in “climate-smart agriculture.” While the authors do not cite examples of this, such innovations can include catfish farming and growing drought-resistant varieties of maize.
Although savings groups mostly generate positive impact, they sometimes lead to investment in “climate vulnerable activities.” For example, women’s savings groups in Ethiopia planted crops and bought livestock through a Partners for Resilience project in order to diversify their incomes. However, a prolonged drought resulted in poor crop yields and deaths of many of the animals. Hence, when climate variability is high, it may be wiser to pursue income diversification in sectors unrelated to agriculture.
The authors conclude with four main findings: 1) While informal savings are important for alleviating smaller shocks, its effectiveness wanes when shocks are larger; (2) The advantages of savings are increased when combined with other interventions, such as the “adoption of climate-smart technologies and innovations to reduce exposure to climate shocks,” for example, the use of high-quality rainfall forecasts; 3) There is great need to support communities during and after climate shocks, given the increasing frequency of such events; and 4) Further research is needed on financial inclusion and climate resilience to ascertain “what combination of initiatives/services are proving to be the most effective….”
This is a summary of a paper by Elisa Sandri, Leonie Beckmann and James Robinson; published by Itad; April 2021; 17 pages; available at https://www.itad.com/wp-content/uploads/2021/04/Savings-and-Climate-Resilience_Knowledge-Review.pdf
By Bradley Shulman, Research Associate
Additional Resources
Itad homepage
https://www.itad.com
CGIAR/CCAFS description of climate-smart agriculture
https://csa.guide/csa/what-is-climate-smart-agriculture
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https://www.microcapital.org/?s=wrap
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