By Johan Bastiaensen
The urgency and profoundness of the climate crisis begs serious thought about the spending of climate related international donor and investment funds. Our research group at the Institute for Development Policy argues that these should be used to sponsor transformative pathways out of the upcoming climate crisis rather than focusing mainly on useful but ultimately insufficient band-aids to help some adapt to the worst of its consequences. Especially rural and agricultural microfinance institutions could play an important role in the transformation and restoration of the current socially distorted and ecologically disastrous agricultural model.
Unfortunately, this year’s European Microfinance Award, does not point in the direction of the structural changes required by the current climate emergency and is, in my view, a missed opportunity. With its overall topic ‘Strengthening Resilience to Climate Change’ it could have supported projects that build resilience in terms of mitigation and urgent climate action instead of focusing primarily on adaptation measures. I find support for my line of argument in the short but very strong keynote speech delivered at the award ceremony by the Indian scholar and environmental activist, Sunita Narain.
It was a passionate call for urgent efforts to address climate change: Climate change is real and is now widely accepted as a fact, but few people seem to understand what it actually means: i.e. not a gradual linear change with increasing consequences, but rather a catastrophic and abrupt deterioration that will affect everyone on the planet, especially once we irreversibly cross critical tipping-points. She stressed that we should therefore not cultivate the illusion of simply adapting to climate change, but act quickly for a paradigmatic transformation of our current destructive, unsustainable productive activities and lifestyles. Narain argued that those who risk being affected first, and most, i.e. the poor in the South and especially rural workers and farmers, paradoxically also hold a key to restoration. The activation and strengthening of their diversified farming systems could indeed contribute to capture millions of tons of carbon, through capture by reforestation and rejuvenated soils, while also transforming socially unsustainable rural societies towards increased equity and livelihood security.
A mistaken signal
Given that our Nicaraguan academic partner institution, as part of the Grupo Fondo de Desarrollo Local (FDL)/Nitlapan-UCA, was one of the three finalists, we attended the Award Ceremony with great expectations. The jury awarded the first place to an innovative index-based crop and livestock insurance initiative addressing the consequences of extreme weather events and pests. In itself, this initiative certainly constitutes a valuable financial instrument that can soften the impact of climate events on vulnerable small farmers in regions such as draught-prone North Kenya. Since the Press Release from the European Microfinance Week however rightly stresses that such a financial instrument falls short of the type of action that is most needed and that this Award might send a mistaken signal about the way in which microfinance should and could contribute to such indeed very urgent action for the climate.
The activities submitted and presented for the Award by two of the three finalists focused much more on adaptation and damage control than on structural transformation of productive and consumer frameworks. As for any insurance, the partially government-subsidized index-based crop and livestock insurance of the insurance company APA-Kenya is mainly a matter of sharing (a part of) the climate risk. ASKI-Philippines provides an articulated package of disaster-related services to increase client preparedness and post-disaster resilience, in particular related to the ever more frequent and severe typhoons.
Only the FDL/Nitlapan UCA group presented an initiative which moves more directly in the direction of transformative peasant-based on-farm reforestation and soil restoration. They presented their historical efforts to support and strengthen peasant production systems through an integrated Microfinance Plus package (credit, technical assistance, bio awards for ecosystem services) which is 80% self-financed from profits and partially subsidized by development assistance and innovative Payments for Ecosystem Services programs such as. Proyecto CAMBio. For the Award, they argued that their support for diversified peasant-based production systems contributed to both the resilience of the clients and the ecosystems, i.e. to the restoration of local ecosystems through agroforestry and forest-pasture cattle systems, and to the mitigation of planetary GHG-emissions by putting carbon back in soils and trees, as well as contributing to local biodiversity.
Agenda of financial inclusion
The choice of the High Jury of the European Microfinance Award in favour of the APA-Kenya insurance company as the most promising innovation in the field of strengthening the resilience to climate change matches well with the dominant agenda of financial inclusion, focused on bringing the financially excluded into the realm of the global financial system.
In this way, it unfortunately appears in line with the current reduced social ambitions of financial inclusion, i.e. to help the poor to manage their vulnerability rather than to strive for the initial – and now largely discredited – promise to eradicate poverty and put it in a museum; a promise which prompted the international donor community to invest billions of dollars in the creation of the microfinance industry. We -and the planet – cannot afford a repetition of this experience.
For this reason, we do not hide our disappointment that the FDL/Nitlapan-UCA initiative was not selected as the recipient of the Award. Not that their initiatives are perfect or fully effective already; as they recognize themselves. We do think however that the FDL/Nitlapan-UCA emerging Green Microfinance Plus approach foretells a more promising and more ambitious contribution to the required paradigmatic transformation and human-nature restoration. It is this belief that underlies our motivation to write this blog: we wish to draw attention to what their approach offers in terms of the urgent action needed for the climate by the broader microfinance sector.
As we have amply discussed in our research about FDL’s initiatives, microfinance alone cannot and should not pretend to make the difference. Indeed, ‘microfinance narcissism’ needs to be overcome in order to combine finance with additional services and resources These could include e.g. educational, technical, business, legal issues, as well as targeted subsidies and payments for ecosystem services enabled and sustained by sufficiently broad political coalitions and partnerships engaging in a real and co-created transformation of (agricultural) production and the restoration of nature. Here also lies a crucial key to remedy microfinance’s historical deficit in terms of outreach to the agricultural sectors which is a precondition for the sector to play a really significant role in the urgent transformative action needed for the climate.
Through our Truepath research project we are trying to achieve progress in articulating and strengthening actor-coalitions, linked to FDL/Nitlapan-UCA financial and non-financial service delivery, that could really transform the destructive development pathways in the Nicaraguan Agrarian Frontier. Currently, it witnesses intense deforestation and encroachment of indigenous territories by extensive cattle ranching, while also being the target area of a new international REDD+ initiative. Similar initiatives should be promoted and researched elsewhere in order to generate experience and knowledge for the scaling-up and scaling-out of such transformative microfinance.
No more “business as usual”
We absolutely agree with Dr. Hoyer, President of the European Investment Bank in his introduction to the Award Ceremony that climate change “is an existential threat for many nations and communities” and that “(h)ow we combat and adapt will shape our future.” We also believe, however, that – in line with the widely shared consensus in the Transformation to Sustainability literature – such action requires profound structural transformation, and not business as usual with some green corrections.
We therefore hope that the microfinance industry chooses to participate in the urgently needed transformative partnerships and finds ways to mobilize its own as well as additional, complementary funds and networks in order to make a more ambitious and transformative contribution. In the face of the emergency, we hope that it does not solely focus on financial opportunities but looks for ways to contribute to the structural changes that are needed. Merely contributing to make the climate disaster more manageable will not be enough.
Declaration of Interest
As academic of the University of Antwerp, I have been partnering with the Fondo de Desarrollo Local/Nitlapan-UCA group (in particular with the research division of Nitlapan-UCA) to investigate the opportunities and pitfalls of FDL and microfinance in the transformation to social and environmental sustainability. As independent researcher I do not speak for the FDL/Nitlapan-UCA.
Image: Landscape Study Area. Credit: Milagros Romero