Financial inclusion is often seen as critical to development and would make sense even without climate change. It may also help vulnerable groups in developing countries become more resilient to climate extremes and global warming. The poorest and most marginalised in society are most affected by climate-related shocks because they often live in hazardous places and typically have fewer resources and access to social safety net. Resilience is derived from various capacities that are interlinked: absorptive, anticipatory and adaptive capacities. A social system with these capacities is less likely to beundermined by shocks and stresses, so well-being can be ensured and human development can continue to progress in locations exposed to climate extremes and disasters.
Saving and borrowing can strengthen some of these capacities, helping people to plan ahead, adapt to changes, and absorb shocks when they happen, but these services are not always accessible to the most vulnerable in society. Financial inclusion is therefore a key policy area for building resilience and should focus on increasing access to saving and money transaction services for vulnerable groups as well as the provision of credit and insurance at an affordable cost.
Key policy messages:
- financial services inclusion helps build climate resilience and non-traditional financial services are better able to reach the most vulnerable, but action is needed on the demand and the supply side
- a more transparent regulatory framework for these services can help promote inclusion and growth in the sector (and so competition and flexibility), alongside protection for users and improved physical access for the most vulnerable
- support to service provider is needed to build capacity, financial literacy and trust of vulnerable and disadvantaged groups in the banking system