With "green" on everyone's tongues, it was only a matter of time before the question of environmentally-friendly practices arose in microfinance.  Practitioners and microfinance partner groups have focused their efforts on asking questions about the impact of microfinance clients on the natural environment.  I, on the other hand, can't help but wonder if we should be asking what microfinance can do to protect the most vulnerable from environmental woes brought about by climate change. 

Back in 2001, the United Nation's Intergovernmental Panel on Climate Change surmised that "the impacts of climate change will fall disproportionately upon developing countries and the poor persons within all countries."

This is already evident in Mauritania (West Africa), where environmental degradation has wiped out livelihoods, livestock, and homes. An October 2008 U.N study reported that the potential annual revenue losses and health care expenses due to land degradation in the country are an estimated US$200m, Further, the report estimated that 14% of the government's budget--about US$192m--will be consumed by environmental degradation.

If we truly care about empowering individuals to be protagonists of their own development, we must be vigilant about the challenges faced by the poor and the devastating impact climate change can have on their livelihoods.  Steps have already been taken by actors in the international arena: an Adaptation Fund to help poorer countries cope with the impact of effects of environmental crises was on the agenda at a meeting of 100 environment ministers convened in December 2008 in Poland.

Climate change has already had an impact upon land, the value of property in the developing world, and the ability of low-income individuals' to cultivate resources and leverage their assets.  When assistance shifts from providing long-term access to sustainable financial services to communities to emergency relief, this only intensifies the problem.  Richard Muyungi, the deputy-director for the environment in the office of the Tanzanian vice-president, acknowledged that this has already occurred in his country, where drought has had grave effects on the energy sector, health, and food prices. The country has already had to scale down its forecasted economic growth rate for 2008 from 7% to 6%. The need to provide safeguards for livelihoods of those most vulnerable to the effects of climate change is therefore imperative. 

In a speech made earlier this year,iv IMF Deputy Managing Director Takatoshi Kato insisted that countries' efforts to adapt to climate change must fit with their broader development agenda, maintaining that social and economic development "is one of the most powerful ways to increase the capacity to adapt to climate change"

If development and climate change are, so intricately linked, how can development programs and assistance be focused to help sustain livelihoods?  And what role can microfinance play in order to protect the assets of those who are particularly vulnerable to the effects of climate change?

The answers are twofold. First, microfinance needs to facilitate a means of asset protection as well as asset creation. Microfinance has the tools not only to empower low-income individuals, but also to protect them and their assets in times of heightened vulnerability.  The recent evidence of climate change's adverse effects upon the world's poorest suggests that the protection of livelihoods is a particular area where MFIs may have a marked impact.  Agriculture, often a primary source of livelihood for those in developing countries, is an area that has keenly felt the consequences of climate change.  Emphasizing rural financing is one way of addressing this problem.  Likewise, structuring microinsurance products as a vehicle to protect assets--and even create assets if, for example, if they include a savings component--is another means by which MFIs could address climate change's destructive impact on livelihoods. 

Perhaps the simplest but most underutilized safeguard is providing those without access to financial services with incentives, and a safe place, to save. A rainy day fund takes on a whole new meaning when we talk about climate change. Having the resources to weather certain storms will become vital in communities that are increasingly vulnerable communities, and in increasingly environmentally volatile areas.  So, where governments and aid agencies cannot provide, MFIs can play a key role in protecting the livelihoods of those adversely affected by climate change.  As the recent global financial crisis has demonstrated, foresight and planning are often underutilized qualities that are crucial to minimize the impact of disruptive phenomena that leave many feeling helpless.  While the effect of climate change on low-income and vulnerable populations is only beginning to manifest itself, it is imperative that microfinance practitioners take seriously the possibility that this trickle may very well become a flood.