At a conference on extreme poverty in Bangladesh, the Finance Minister of Bangladesh, Mr. Abul Maal Abdul Muhith, announced that “global climate change poses the greatest challenge today in our poverty mitigation efforts.” He added that microcredit is not the prime tool for poverty alleviation, but that it can “very well be an aid to mitigating poverty” [1, 2].
Bangladesh, bordered by the Himalayas to the north and the Bay of Bengal to the south, is extremely vulnerable to natural disasters, particularly flooding. Studies suggest that as the sea level rises by over 81 inches over the next 40 years, the country’s land mass will reduce by 15 percent, creating 30 million “climate refugees” by the end of the century [3]. Furthermore, crop yields are predicted to fall by up to 30 percent. Mr. Richard Damania, World Bank Senior Environmental Economist for the South Asia Region, stated, “We are going to see the wet parts of South Asia become wetter, causing flooding and affecting more people. We will also see the arid areas getting drier. This will hurt the poor the most” [4]. Forty-five percent of the population of Bangladesh lives in poverty and 63 percent of the labor force works in agriculture [5].
While Mr. Muhith has said that microcredit is not a sufficient tool for poverty alleviation, other organizations, including the World Bank, are proposing a more recent arm of microfinance that addresses climate change, known as index-based weather insurance (IBWI) [6, 7]. IBWI is funded by premiums, which are disbursed to clients during excessive or insufficient rainfall and extreme temperatures. The World Bank´s Commodity Risk Management Group implemented the first IBWI pilot program in India in 2003. By 2006, 11,000 customers had been “sold rainfall and multi-peril weather contracts including temperature and relative humidity.” Similar projects have since been implemented in Ukraine, Ethiopia, Malawi and Kenya. The World Bank has “explored the prospects of introducing Index-Based Weather in Bangladesh by highlighting the successful experience in India.”
In June, MicroCapital reported that Oxfam and Swiss Reinsurance Company committed to launch a pilot IBWI program, which would allow premiums to be paid with labor instead of cash, complementing a larger government-sponsored food for work program. Previous MicroCapital stories on microinsurance are laid out in the bibliography [8] through [12].
By: Stefanie Rubin, Research Assistant
Bibliography:
[1] bdnews24.com: “Climate the Major Hurdle in Fighting Poverty: Muhith”: http://bdnews24.com/details.php?id=145122&cid=2
[2] The New Nation: “Lack of Monitoring Turns Anti-Poverty Programme Less Effective”: http://nation.ittefaq.com/issues/2009/10/17/news0911.htm
[3] Telegraph.co.uk: “Ed Miliband Warns of ´Climate Change Poverty´”: http://www.telegraph.co.uk/earth/6123553/Ed-Miliband-warns-of-climate-change-poverty.html
[4] The World Bank: “South Asia and Climat Change: A Development and Environmental Issue”: http://www.telegraph.co.uk/earth/6123553/Ed-Miliband-warns-of-climate-change-poverty.html
[5] CIA World Factbook Bangladesh: https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html
[6] The World Bank: “Helping Rural Finance to Grow Its Full Potential”: http://www.worldbank.org.bd/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/BANGLADESHEXTN/0,,contentMDK:21325159~pagePK:141137~piPK:141127~theSitePK:295760,00.html
[7] United Nations. Sustainable Innovation Briefs, Issue 2, March 2007. “Developing Index-Based Insurance for Agriculture in Developing Countries”: http://www.un.org/esa/sustdev/publications/innovationbriefs/no2.pdf
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