Building resilience to climate change starts with financial inclusion 

Kabinda Kawesha, Manager – Financial Sector Development, Bank of Zambia; Chair, AFI Inclusive Green Finance Working Group 

Around the world, many countries are suffering from the effects of climate change. My country, Zambia, is struggling to deal with a crippling drought which has devastated food production and electricity production. Our fear is that, rather than an isolated incident, this is simply a taste of things to come. 

Across the developing world, environmental disasters impact the poorest communities most, especially in rural areas where people have inadequate coping mechanisms. When farmers depend on rainfall for agriculture, drought brings disruption, damage, loss of productivity and loss of income. 

The question, then, is what can we do about it? Should we bemoan our fate, passively accepting the environmental and social damage wreaked by climate change?  

On the contrary. Developing world countries may be stretched for resources, but we have levers at our disposal to help our communities to prepare for, and recover from climate shocks. 

Chief among them is financial inclusion, which can serve as an imperative, pre-requisite foundation to help people deal with the impact of climate change, and to strengthen their resilience. 

But for financial inclusion to be effective, it must not be reactive, in response to disaster. We need to provide access to savings, insurance, credit, e-money, and payments services before disasters occur. Access to financial services allows communities to take adaptative actions, including the purchase and instalation of infrastructure and tools which can help them adapt to, and cope with, our changing climate. 

In times of emergency, communities’ access to savings, insurance, e-money services or credit is critical. The absence of savings or other assets that can be sold to provide liquidity prolongs the adverse impact of any crisis, and makes recovery more difficult.  

In 2020, Bank of Zambia made a commitment under the Sharm El Sheik Accord on Financial Inclusion, Green Finance and Climate Change to develop policy guidelines on Climate Change and on Inclusive Green Finance (IGF),an approach which works to advance climate resilience and emissions reduction through access to financial services. 

This commitment was achieved through the formulation and issuance of the Bank of Zambia Green Finance Framework 2023 and the Banking and Financial Services (Green Loans) Guidelines 2023. These guide our approach to greening the financial sector and enabling financial services providers to provide inclusive green loans for smaller transactions, micro-small-and-medium enterprises, and households. The guidelines also embed principles of gender equity. 

Through this regulatory framework and other collaborative initiatives with the Ministry of Green Economy and Environment, we now have a much better understanding of how the financial sector can support the country’s climate agenda, and how financial inclusion can contribute to climate resilience. 

This is in large part thanks to lessons learnt from peers in other countries, notably the central banks and financial regulators which form the Alliance for Financial Inclusion. 

AFI’s Inclusive Green Finance workstream is a particularly valuable resource.  

Around the world, we see countries taking action to boost vulnerable communities’ climate resilience. 

Initiatives such as Fiji’s parametric insurance scheme allow people affected by tropical cyclones to receive rapid payouts. The Central Bank of Egypt is financing projects that address vulnerable segments who are affected by climate change, including women and people in rural areas. Superintendencia de Economía Popular y Solidaria (SEPS) of Ecuador has launched environmental and social risk management guidelines for the credit cooperative sector. 

It is right to fear climate change. But it is also right to be optimistic about our ability to grow resilient to its impact. Financial inclusion is a great place to start. 

AFI’s Inclusive Green Finance workstream is supported by Agence Française de Développement.