When the farm is gone – but the loan remains: how can we build climate-resilient microfinance?

Rita Abiodun Agriculture, Climate Change, Innovation

When floods destroyed one Pakistani farmer’s crops and income, they also destroyed her ability to get and repay the credit on which she, like millions of smallholders, depends. Rita Abiodun looks at a programme that offers much more protection from climate shocks to microfinance users.

Rukhsana in her cotton farm in rural Sindh, Pakistan (picture: Oxfam Novib)

“As I watched the flood wash away my farm and break down our home, my dreams and hope came crashing down with it,” said Rukhsana, a 43-year-old farmer living in rural Sindh in Pakistan, an area particularly vulnerable to climate shocks.

The mother of two and smallholder cotton farmer from the district of Sanghar in Sindh was one of millions hit by devastating monsoon floods in 2022 that claimed over 800 lives and left more than 2 million houses, 8000 roads, and 165 bridges in ruins. Crops covering about 3.7 million acres were damaged, and more than 400,000 livestock were lost. A staggering 12.3 million people were affected, with 7.4 million displaced.

“Before the disaster happened, my cotton farming was a success,” said Rukshana. “I consistently secured a loan from SAFCO microfinance institution to expand and invest in equipment to improve the quality of my crops. I provided for my family and had a simple, comfortable life.”

Rukhsana had been supported by the SAFCO microfinance company based in Pakistan, which delivers small-scale loans to unbanked communities and poor households, with a special focus on women in rural areas. Her case illustrates the growing threat to the business model of microfinance and to the livelihoods of their clients from climate change.

The right kind of microfinance can help build climate resilience

Oxfam Novib believes that microfinance institutions (MFIs) can reduce the adverse effects of climate change-related disasters on their customers. That’s because they are well-positioned to both build resilience and support recovery because of their close association with rural communities and their commitment and mandate to serve the poor.

Today our Oxfam Novib Fund aims to support countries affected by climate-change disasters, offering both credit lines that are dedicated to financial support after disasters and the piloting of new climate resilient products. This will be combined with targeted technical support to MFIs.

As part of this work, the fund has partnered with Rukshana’s loan provider SAFCO to invest in disaster resilience for clients, for SAFCO itself and for the wider microfinance industry. And Rukshana herself has already seen the benefits.

“One day while we… were thinking of where to build back from the rubble, we got a call from SAFCO asking about our situation. They told me that they wanted to help us weather the storm. It was a lifeline for me and my family,” she said.

“I was not only given a loan of PKR 200,000 (€650) but they also gave me an additional grant of Rs. 30,000 (€100) to help revive my business. The counselling sessions they provided strengthened my heart to build again, and the awareness of the impact of climate change they provided me and how to be better prepared for the future was an eye-opener for me,” she said.

The importance of insurance and preparedness

Building on its work with Oxfam Novib on disaster risk reduction, SAFCO is now embarking on a pilot that will provide clients such as Rukshana with crop loan credit that, crucially, will be bundled with affordable insurance. Providing insurance alongside loans will provide clients with a safety net to protect their assets and livelihoods in the event of climate-related losses. To complement these products, the programme also offers client education and training programs on disaster preparedness and risk reduction. This leaves clients better equipped to make informed decisions and take proactive steps to protect their assets.

With the support of Oxfam Novib, SAFCO is building on the pilot to adjust their lending approach so that their credit portfolio and clients’ livelihoods are better protected from the effects of climate change.

Time to rethink microfinance in a changing climate

The urgent need for more microfinance providers to follow SAFCO’s lead is clear from the UN report “The Human Cost of Disasters 2000-2019”. This reveals approximately 4.2 billion people have been affected by disasters related to climate change over the past two decades. The devastating cost of these is already being paid by the people of Sindh – and without preventative action will only spiral for vulnerable communities across the Global South.

It is of course deeply unfair that communities who contribute little or nothing to climate change, should suffer such loss and damage caused by the changing climate. Rich-country governments, international institutions and agencies have a duty to address and prevent this – and that must include a fresh approach to microfinance. Climate resilience deserves a greater emphasis in the microfinance sector, and we hope collaborations such as our partnership with SAFCO point the way forward.

“SAFCO offered a helping hand when I needed it the most. Now, when I look at my fields, I see how strong I can be when I don’t give up. Even when things are tough, with determination and some help, we can turn things around,” said Rukhsana.


Rita Abiodun

Rita Abiodun is Communications Specialist at Oxfam Novib

This post is adapted from a post on Oxfam Novib’s website