BFA Global conducted a preliminary assessment survey with Financial Service Providers (FSPs) across Latin America and East Africa to understand how institutions adapt and innovate in response to climate challenges, including managing climate-related risks and integrating gender-sensitive strategies. The findings highlight the opportunities and obstacles these institutions face as they adapt their financial offerings to address climate change.

The cost of adaptation: A grassroots imperative

The financial burden of adapting to climate change is significant. The UN estimates that by 2030, developing countries will need $140-300 billion annually for adaptation, with this figure potentially rising to $500 billion by 2050 if immediate action is not taken. Compounding this challenge is the disproportionate impact on women, who account for 80% of those displaced by climate disasters. Despite their vulnerability, women often act as first responders and are more likely to acquire financial products to support their families and communities. This reality underscores the necessity for grassroots action that prioritizes women and provides tailored financial solutions to build resilience at the community level.

Adaptation goes beyond large-scale infrastructure projects for communities on the frontlines of climate change—both in emerging and developed markets. It requires targeted financial products and solutions that address individuals' and small businesses' economic realities and vulnerabilities. Financial Service Providers (FSPs) are crucial in this regard; they must innovate and deploy products tailored to these needs, ideally within a reformed financial system that fully accounts for the profound changes climate change brings.

A snapshot of climate risk preparedness

The survey included responses from diverse microfinance institutions and cooperative banks across Mexico, Brazil, Panama, the Dominican Republic, Kenya, and Senegal, collectively representing over seven million clients. The findings illustrate a broad spectrum of approaches to managing climate risks, ranging from emergency loans to more comprehensive risk assessment tools.

The case for emergency loans: Adaptation and profitability

Our survey resonates with findings from Women’s World Banking and CGAP’s reports on inclusive finance. Emergency loans, for example, are increasingly recognized as a dual-benefit solution: they help clients adapt to climate shocks and provide a profitable avenue for FSPs. Evidence from BRAC’s and the Resilience+ Innovation facility trials in Bangladesh shows pre-approved clients reported a 9% increase in consumption levels post-flood​. Similarly, our survey reveals that only 28.6% of FSPs in LATAM offer such products, underscoring a significant gap and opportunity for expanding these offerings.

Comparing regional approaches to climate risk preparedness

The contrast between LATAM and East Africa is notable. While 100% of FSPs in East Africa report having insurance policies and tools to assess client risk exposure, only 14.3% of LATAM institutions have avoided losses from climate events in the past year​. This difference underscores the need for LATAM FSPs to build on East Africa’s model by adopting insurance mechanisms and advanced risk assessment tools to better manage climate-related challenges.

Barriers to action and opportunities for innovation

Both regions face common barriers to effective climate action, such as limited financial resources and technical expertise. CGAP’s Inclusive Finance as a Catalyst for Climate Action emphasizes the importance of technical assistance and partnerships to fill these gaps. 

While interest in climate-related financial products is growing, the survey indicates that such offerings remain limited. There remains a need for structured support to develop and implement these solutions​. In Latin America, only 28.6% of institutions currently offer emergency loans for climate events. On the other hand, East African FSPs show a greater inclination toward smart financial solutions, with 66.7% integrating climate risk-focused products, such as agricultural loan guarantees and eco-friendly technology financing.

Gender-sensitive strategies: Progress and gaps

Addressing gender in climate finance is critical, yet our survey found that 71.4% of LATAM FSPs do not integrate gender elements into their climate initiatives. This contrasts sharply with East Africa, where all surveyed institutions reported implementing targeted financial products for women. Women’s World Banking report highlights the untapped potential of gender-specific products to enhance resilience and profitability. For example, emergency loans targeted at women-led enterprises can significantly improve economic recovery post-disaster. FSPs in LATAM could leverage these insights to develop and scale gender-focused climate products.

Strategic path forward: Innovation and collaboration

These findings call for a strategic approach that blends innovation, technical support, and collaboration. The CIFAR Alliance’s Inclusive Climate Finance Initiative, which offers training and technical assistance to FSPs, provides a platform for building expertise and scaling solutions. By engaging in such initiatives, FSPs can better navigate the complex climate landscape, much like BRAC has done in Bangladesh with CLOCs, which combine credit and insurance elements to provide households with immediate liquidity after income shocks​.

Moreover, integrating gender-specific elements and digital finance solutions could amplify the impact of these products, addressing gaps highlighted in our survey and aligning with CGAP’s Report “Inclusive Finance as a Catalyst for Climate Action, which emphasizes the role of inclusive finance in climate resilience.

Building for the future: The role of inclusive finance

Recent devastating events in the US and other regions highlight the urgent need for systemic change, demonstrating that climate adaptation is a global learning curve. This challenge is not exclusive to emerging markets; developed economies like the US also require grassroots action to build resilience and implement financial solutions tailored to local communities, particularly Small and Medium Enterprises (SMEs). 

The financial inclusion sector has a unique opportunity to catalyze climate action. By aligning product offerings with client needs and leveraging partnerships to overcome barriers, FSPs can drive social and financial value. The path forward involves scaling successful pilots like BRAC’s and expanding emergency loan offerings tailored to diverse client needs. By doing so, FSPs enhance community resilience and unlock sustainable business growth.

For a deeper understanding of how financial service providers are adapting to climate challenges, we invite you to explore the CIFAR Alliance's preliminary assessment survey.