Rosina Das used a loan from Accion’s partner Annapurna Finance to keep her grocery store in Odisha, India, open during the COVID-19 pandemic. Credit: Accion
By Debdoot Banerjee
MUMBAI, India, Sep 7 2023 – Thunderstorms, flash floods, and landslides have made headlines this year’s monsoon season, as rainfall in northern India was far more intense than forecast. This comes hot on the heels of what was for many, the warmest pre-monsoon season on record. These extreme weather patterns are creating chaos for farmers, with smallholders hardest hit.
When the temperature in a wheat field exceeds 104 degrees Fahrenheit (40 degrees Celsius), seeds start to break down. During last year’s heatwave, some farmers saw their incomes reduce by as much as 50%, as thousands of hectares were affected.
Tailored financial tools – such as heat-indexed insurance, emergency loans that compensate for lost income, and even facilitating relocation to more liveable climates as a last resort – are essential. Although microfinance is widely available in India, few financial services have been tailored to address the climate crisis
As temperatures around the world continue to break records, India is among the most affected. Reports indicate that almost 80% of the country’s 1.4 billion people are vulnerable to climate shocks.
In the context of these rapid onset disasters, new tools are needed to help low-income communities respond and build their resilience. Digital tools and services provided by inclusive fintechs have an important role to play here and will be key to helping communities adapt.
Heat insurance, emergency loans key to helping people adapt
In partnership with the Government of India, the country’s financial services sector has a vital role to play in ensuring low-income individuals have the knowledge, financial tools, and resources they need to survive a crisis and adapt to climate change. Doing so will also benefit the economy as a whole, as it is estimated that by 2030, heat stress alone could lead to the loss of 34 million jobs in India, mostly in agriculture and construction.
Tailored financial tools – such as heat-indexed insurance, emergency loans that compensate for lost income, and even facilitating relocation to more liveable climates as a last resort – are essential. Although microfinance is widely available in India, few financial services have been tailored to address the climate crisis.
One pioneering exception comes from the Mahila Housing Trust (MHT) in Ahmedabad. Their research revealed the heavy financial losses suffered by low-income urban women during heat waves and determined that the women would be willing to pay up to $2 per month for a heat-index insurance program with predetermined payouts designed to cover several days of lost income.
The pilot program has already offered insights into the necessary preconditions for such a product, including a clearly defined index and data sources, and a strong local distribution channel. Its lessons can guide the development of similar financial solutions for other low-income groups and climate events, such as floods.
As climate change accelerates, not everyone is able to adapt where they are, and growing numbers of people are being displaced. Digital records of assets, income, and lending histories could be critical to ensuring displaced persons are able to start new businesses and lives elsewhere with climate-sensitive financial tools, such as emergency loans, microloans, and bundled products.
Digital delivery increases options for end users
Rosina Das who runs a small grocery shop in Odisha is one of the thousands of Annapurna clients to benefit from an emergency loan during the COVID-19 pandemic. Accion worked with Annapurna to develop the digital emergency loan product as part of a wider program with the Mastercard Center for Inclusive Growth to connect small businesses to the digital economy.
Debdoot Banerjee, Director of Digital Strategy and Transformation with Accion’s Global Advisory Solutions team, based in India
These types of emergency loans can help smallholder farmers and micro businesses survive in the face of climate crises and supply chain disruption. With rapid capital injections, businesses can stay open and continue to benefit the local community during the unpredictability of the monsoon season.
And bundled insurance and loan products like those offered by agricultural insurance company Pula provide smallholder farmers across Africa protection they have never had, as well as incentives to switch to resilient seeds and other measures to protect against climate-related losses in future years.
Finally, continuing to expand access to digital financial platforms is key to building an inclusive financial system and resilience in the context of climate change. Governments and fintech companies can use these platforms and data analytics to identify communities most vulnerable to extreme heat and use this information to target relief efforts, including financial solutions. Residents can access the information on their mobile and smart phones, and for providers, the cost of servicing and acquiring their clients is far lower through digital channels.
To be sure, financial solutions are only one part of the larger changes needed for low-income communities to adapt to climate change.
In the long term, India and all countries must develop a financially inclusive green economy. This takes a comprehensive approach that includes greater investments in renewable energy, the development of climate-resilient infrastructure, and the widescale promotion of sustainable agriculture, aided by digital tools and financial solutions that enable farmers to increase their productivity while playing a vital role in the sustainable management of rural environments.
Policymakers and financial technology developers in India must act swiftly to address both the short-term and long-term solutions. Policymakers’ support could incentivize green financing initiatives, including through subsidizing climate-sensitive financial products for the poor.
Financial technology developers need to collaborate with local communities and organizations to design and implement innovative solutions that cater to the specific needs of low-income individuals in different situations and facing different climate threats.
Unless we find a way for rural farmers and low-income working people to survive today’s climate extremes, there will be no sustainable, prosperous future. And for this, digital financial services designed for the most impacted communities are an indispensable solution.
Debdoot Banerjee is the Director, Digital Strategy and Transformation with Accion’s Global Advisory Solutions team, based in India.