Reducing social vulnerability to climate change: the role of microfinance organisations

In theory, the work of microfinance organisations (MFOs) should help to reduce social vulnerability to climate change, and there is growing interest in using microfinance for this purpose. However, evidence of a relationship between MFOs and social vulnerability is limited and piecemeal, as is knowledge of which of their various services associate with the diverse dimensions of vulnerability. This paper investigates the role that MFOs play in reducing social vulnerability to climate change in Bangladesh, a country that has both a long history of microfinance services and many people who are acutely vulnerable to climate change. Quantitative and qualitative data were collected through interviews with 60 households across four villages in a disaster-prone coastal area in the south-west of Bangladesh. The results indicate that households who have engaged with at least one MFO have less social vulnerability than those who have not, and that the principal ways in which MFOs help reduce social vulnerability are through helping households to save regularly, providing vocational training, and facilitating participation in diverse social groups. Yet climate hazards can undermine these positive benefits, such as when cyclones damage infrastructure for which housholds still have outstanding loans. There are also households for whom accessing MFOs is difficult, such as those with very low levels of education or with chronic health issues. Such limitations need to be addressed if microfinance organisations are to provide more comprehensive and long-term reductions in social vulnerability to climate change.Key Policy Insights Membership of microfinance organisations is associated with lower social vulnerability to climate change.Microfinance organisations have the potential to further reduce social vulnerability to climate change through greater investment in health care, providing access to drinking water, facilitating access to saleable assets, and supporting the establishment of networks that facilitate non-local sources of income.Microfinance organisations provide a network of social support that can be more purposefully harnessed to reduce social vulnerability to climate change.There is potential to further extend the reach of microfinance organisations to households with low levels of education.