Climate change and biodiversity loss affect vulnerable populations, threatening livelihoods, access to basic services, and economic stability. These impacts are particularly severe in rural and remote areas, where communities often depend directly on natural resources and have limited capacity to adapt. In these contexts, microfinance institutions (MFIs) play a central role by providing loans and financial services to people and small businesses without access to traditional banks. Green inclusive finance builds on this role by promoting financial products that support climate change adaptation and mitigation, strengthen the resilience of vulnerable populations, as well as non-financial practices such as awareness-raising activities for clients and communities. Despite their importance, many MFIs are not yet adequately prepared to assess climate- and biodiversity-related risks. Existing tools are fragmented and mostly designed for large commercial financial institutions, hence not suitable to be applied to the realities of the microfinance sector. As a result, risks are often underestimated, mitigation strategies remain weak, and opportunities to develop resilient and sustainable financial products are missed.
This situation exposes MFIs to climate-related loan defaults, higher operational costs, and threats to their own financial stability. It also limits the effective use of support from investors and development programs, for which the assessment, monitoring, and reporting of climate- and biodiversity-related risks have become a key component.
The project aims to develop a practical framework and digital tools for the assessment of climate- and biodiversity-related risks tailored to the microfinance sector. It addresses both internal risks (institutional practices and operations) and external risks (activities financed through loan portfolios and their impacts on communities). Key goals include strengthening MFIs’ capacity to manage climate risks and improving transparency for impact investors.
The implementation will consider different directions. An initial research will provide a review of existing climate risk methodologies, available datasets, and existing practices in the context of microfinance. The results will be used to develop and validate assessment questionnaires and digital tools, implementing these tools with selected MFIs. The material will also serve for the provision of dedicated workshops with partner institutions.
Research stage. The initial phase focuses on an extensive literature review of existing climate risk assessment methods, as well as on the analysis of publicly available databases on climate hazards and exposures (e.g., temperature, water stress, areas at risk of biodiversity loss). The objective is to establish practical indicators for climate risks, biodiversity, and resilience that are specifically tailored to the microfinance sector. In addition, the project examines to what extent the available data can be technically and directly used by microfinance institutions. This phase also includes a mapping of relevant stakeholders in the microfinance sector to assess their current use of existing assessment methods and to better understand their effectiveness and areas of application.
Development stage. Building on the results of the first phase, sector-specific instruments, metrics, and indicators are developed and validated in line with the needs of the microfinance sector. This phase includes the development of (i) questionnaires for end clients to assess the sensitivity of different business sectors and types to climate- and biodiversity-related risks, and (ii) an assessment of the possibilities—and associated challenges—of digitally linking the collected data with existing climate data repositories. Interaction with project partners and relevant stakeholders (workshops and interviews) will be used to gather targeted feedback and to ensure an iterative, robust, and practice-oriented development process.
Pilot implementation and training stage. During the implementation phase, the developed methods and digital tools are tested in practice in collaboration with selected microfinance institutions. Pilot projects are carried out to evaluate the applicability and effectiveness of the methods under real-world conditions and are accompanied by targeted training activities. Different data collection campaigns will be carried out. The results of the pilot projects will form the basis for developing and expanding training programs for MFIs to promote the application of the new instruments.
Dissemination stage. The final phase will focus on the publication of the results and digital resources, and on the presentation of the findings at dedicated international conferences. Together with project partners (Inpulse Investment Manager and the European Microfinance Network), dissemination campaigns tailored to the European microfinance sector will be organized.