To achieve the goal of a resilient world, considerable transformations are required to significantly increase investments and activities aimed at coping with the immediate and inevitable effects of climate change.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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To achieve the goal of a resilient world, considerable transformations are required to significantly increase investments and activities aimed at coping with the immediate and inevitable effects of climate change.

Climate change has emerged as a major cause of concern in terms of ensuring food and nutritional security for the world’s rising population. We must work together to implement solutions for both adaptation and resilience since millions of people worldwide are already experiencing climate impacts on their economies, society, and ecosystems. In response to the catastrophic effects of climate change affecting vulnerable people all around the world, the COP27 Presidency unveiled the Sharm-El-Sheikh Adaptation Agenda on November 8, 2022, working with the High-Level Champions towards adaptation initiatives, but the growth of funding is neither rapid nor equal across all regions. To achieve the goal of a resilient world, considerable transformations are required to significantly increase investments and activities aimed at coping with the immediate and inevitable effects of climate change. Adapting to climate impacts is necessary for ensuring the safety of populations and the security of resources.

A lot of investments in the broader ecosystem will be needed to boost agriculture’s resilience, with a primary focus on natural resource management, technological integration, community empowerment, infrastructure development, financial inclusion, etc. All things considered, farm machinery and technology will be crucial in helping smallholder farmers find better livelihoods and combat climate change. Nearly 80% of farmers are small and marginal, with excessive reliance on natural resources and higher dependence on rain. Building the adaptive capacity of small and marginal farmers (SMF) to climate change impacts is critical for maintaining their livelihoods in a dignified manner for a resilient food and agricultural system.

With this objective, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and Sa-Dhan Association have joined hands with Sustain Plus Energy Foundation (SPEF) to get financial institutions to build up financial models for scaling up proven technologies focusing on climate resilience of agricultural systems. This is being done under the Indo-German Development Cooperation project ‘Climate Adaptation and Finance in Rural India’ (CAFRI) commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ) with the National Bank for Agriculture and Rural Development (NABARD) as a partner.

The SPEF programme of CInI was the runner-up for the Ashden Awards 2022 in the awards stream of ‘Energising Agriculture’. The Ashden Awards, which aims to accelerate climate innovation, is two decades old. The potential awardees are found via a rigorous global search. The unit cost of these climate-resilient technology solutions is small enough to fall under the purview of Microfinance Institutions (MFIs) and small finance banks (SFBs) but still warrants the need for finance to facilitate the use by farmers. However, most of these devices/products cannot avail of financing support from financial institutions currently.

Initial “trial” attempt to enable financing of climate-resilient technology products

The focused technologies and products in the space of soil strengthening and management, water extraction and management, mechanisation, crop diversification, etc are closely demonstrated to a certain scale of the smallholders through various stakeholders. As these products get scaled, affordable and timely availability of finance is one critical enabler that will make these products available on a scale to smallholders. To address this gap and support SMF in meeting both the livelihoods and climate aspects, an event was held on December 3’ 2021 in New Delhi. Three technology products were displayed to a collection of Micro Finance Institutions, who showed keen interest, and subsequently, two MOUs were signed between one of the products displayed and two MFIs.

The interest of MFIs, constraints faced, and solutions thereof

MFIs were prima facie interested in financing the products presented. It can be fairly deduced that the interest was largely there as there was economics in the products- and the farmers were perceived to be economically better off by adopting the products. There are MFIs who have associations with many NGOs, and while there can be many possible working models, NGOs acting as sales vehicles can form a working model.

A major barrier to the adoption of these products is that MFIs generally are structured in a manner that they cannot spare resources to build capacity around understanding new products. There is, however, a set-up and infrastructure in the country by means of which capacity can be developed, via field trials at the respective catchment areas, creating the right product manual, creating videos for product demonstration, etc. It is also desirable that there is some compensation for the “man-hours” spent by the MFIs.

Access to funds as well as the high cost of funds for MFIs was a concern and so are the limited opportunities to diversify their sources of funding. A line of credit from institutions like NABARD, or any of the multilateral DFIs would be a significant incentive to direct finance toward this portfolio. Thus, re-financing by a specialised line of credit would need a portfolio creation of a certain size which will warrant more momentum in the adoption of these devices by FIs than is currently visible. An instant solution to the current situation could thus be involving impact finance players, where relatively flexible systems and small deal sizes could be the reason for some quick re-financing.

Connecting technology players with financial institutions

The Indian start-up ecosystem needs no elaboration, and some diligence and interaction with the World Resources Institute (WRI) Land Accelerator and the “Start-up India Agricultural division” and others point out no dearth of a pipeline of start-ups whose products can impart climate resilience. Thus, there should not be any dearth of products for MFIs to onboard- and in time this can be a substantial portfolio of the financial system. While it may be more apt to start with MFIs who have the highest reach, after some products become popular, it can be envisaged that other FIs might also start participating, increasing the availability of the product and the loans to finance the same.

The programme has connected financial institutions and technology players through Sa-Dhan and SPEF with a focus on supporting and bringing in financial institutions to meet the aspirations of SMF. Financial services are key for enabling resilience, and MFIs are well-placed to promote climate change adaptation products and services, given the close mapping between the future incidence of climate impact and the microfinance sector footprint. The emphasis here is on capacitating the MFIs and technology players during the program to then take the actions at scale. The initiative intends to reach large numbers of beneficiaries and farmers with proven climate-resilient technologies in existing or new geographies.

(This article is co-authored by Anindya Das, Junior Climate Change Advisor, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH)

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members