SPECIAL REPORT: Sibling Rivalry, Pre-disaster Microinsurance Payments, Protecting Climate-displaced People via International Law at European Microfinance Week

At today’s opening plenary of European Microfinance Week, Manuel Tonnar, who leads Luxembourg’s Directorate for Development Cooperation and Humanitarian Affairs, said that his country “is committed to transforming itself and helping others transform their economies into sustainable economies.” This is “not for charitable reasons,” he argued, “but because it’s the most efficient way” to move forward. Mr Tonnar also said, “Financial inclusion should be closely allied with other development interventions to provide the most value to disadvantaged populations.” In closing, he quoted Jean Monnet, who said, “I am not optimistic. I am not pessimistic. I am determined.”

Journalist Tim McDonnell told the stories of several families who have been displaced by climate events. One in Bangladesh had all of their farmland eroded away by flooding. Another in Nigeria lost two sons by drowning while fleeing violence between ranchers and farmers. This violence has killed more people than Boko Haram, Mr McDonnell points out. In Guatemala, he said, drought is the biggest driver of migration, contrary to the popular perception that gang violence and poverty are primary.

Two members of the US Congress have proposed a bill that would protect people displaced by climate change. Mr McDonnell cited an estimate that the number of people in these situations soon will grow into the hundreds of millions. He suggests that international law should protect climate-displaced people, perhaps using a mechanism similar to the UN recognition for which refugees from violence can apply.

The leaders of the three finalists for the European Microfinance Award spoke about their interventions related to climate change. To begin, they discussed their motivations for developing climate-related products. Sarfraz Shah of Kenya’s APA Insurance explained how – a few years ago – drought dragged down the entire Kenyan economy, of which 50 percent depends on agriculture and raising livestock. Rolando Victoria of the Philippines’ ASKI said that his microbank “realized that microlending is not enough.” Indeed, he said, “I believe that climate change is an inspiration.” Pedro Emilio Marchetti of Nicaragua’s FDL sees things similarly: “We could think the climate is our enemy. We at FDL believe that the microfinance industry is uniquely posed to make climate its ally.” For example, he states that planting trees can return carbon to the earth, reducing global warming. Rather than climate, Mr Marchetti says, “It’s our practices that are the enemy.” And microfinance has a track record of helping people to improve their practices.

Part of a winning strategy is to listen to clients. Mr Marchetti argues, “It’s about taking our hands off, letting our clients design the products they want. Clients asked us for solar panels, so we created a product. They asked for trees; we scaled it up, but they started it.” Over time, FDL has offered 600 different products to address various needs. Now it offers about 30, one of which combines loans, technical assistance and “bio awards” for using practices that “work with nature instead of fighting it.”

One of APA’s main products is designed to prevent the loss of livestock. When satellite data indicate that rainfall has been dangerously scarce, the insurance pays farmers so they have funds to re-locate or otherwise care for their for livestock before the animals are in serious danger of death. APA also has a product for crops that pays off farmers’ loans in case of inclement weather, and it gives cash to farmers to replant. However, in talking to clients, his team found that many families’ priority is school fees, rather than replanting immediately.

Mr Victoria discussed ASKI’s work in renewable energy, tree planting, waste segregation and serving out-of-school youth. The organization also has built a value-chain program through which it organizes farmers into cooperatives and gives them technical training. When it began getting involved in insurance, it set up a separate entity for this purpose. Five of the seven members of this entity’s board are clients.

Mr Shah described the importance of partnerships, in particular working with microfinance institutions (MFIs) to distribute APA products in rural areas. He sees this as an easy sell to MFIs. He asks: Why would an institution lend to a farmer knowing that weather conditions could easily wipe out any chance of repayment? From the borrowers’ perspective, Mr Shah finds that bundling insurance with input loans, over time, leads farmers to think of insurance as an input cost, similar to seed or fertilizer.

“Without partnerships,” Mr Shah says, “it’s too difficult to do what we want to do.” Regarding the challenges of partnerships, he jokes: “You may fight with your sibling, but in the end you grow together.”

This feature is part of a sponsored series on European Microfinance Week, which is taking place from November 20 through November 22, 2019. The event is held each year by e-MFP, and MicroCapital has been engaged to promote and document the event on-site each year since 2012.

Sources and Additional Resources

European Microfinance Week 2019
https://registration.european-microfinance-week.eu/emw2019

MicroCapital coverage of European Microfinance Week Since 2012
https://www.microcapital.org/category/european-microfinance-week/