Climate Change and Microfinance: A Wake-up Call for Policy Makers

People in the Hindu-Kush Himalayan region are particularly vulnerable to food insecurity related to climate change because of poor infrastructure, limited access to global markets, physical isolation, low productivity, and hazard exposure (IPCC, 2019). Farmers in this region are facing more frequent floods as well as prolonged droughts with ensuing negative impacts on agricultural yields and increases in food insecurity (Hussain et al. 2016; Manzoor et al. 2013). Drought, forest fires, floods and landslides are nowadays magnified by climate change. In Nepal, changes in monsoon patterns, increasing hydropower projects and poorly planned rural road projects will greatly exacerbate the situation of unacceptable presence of poverty and inequality of opportunities in the country. Climate change adaptation and mitigation measures at household level and micro business are urgent for policy makers. Microfinance can play a crucial role in fostering such good practice if capital is constrained by policy rules. Through the provision of credit and other financial services, microfinance helps rural people develop alternate livelihood opportunities, build assets and spread risks. There is a significant potential for taking benefit from financial innovations such as risk insurance, microfinance, conditional cash transfer programs, and targeted subsidies by scaling up these initiatives through policy and community level initiatives. However, mitigation and adaptation measures are not enough to prevent climate change adverse impacts: loss and damage (L&D) measures is becoming increasingly urgent and unavoidable. As a consequence, a full multi-level governance is needed. The Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts (2013) needs concrete implementation that requires the support of national policies and mechanisms. Following the case of Bangladesh, we call for both a top-down and bottom-up approach for addressing in a more comprehensive way L&D within the territory of Nepal. This policy paper is targeted at policy makers to urgently take action to design and implement effective strategies to tackle climate change impact to achieve economic and social progress.