Mobilizing Microfinance for Local Resilience and Jobs

Climate shocks are exacerbating the vulnerabilities of 1.2 billion people, eroding incomes, assets and people’s ability to cope with hazards. In low-income countries hit by natural disasters or extreme weather between 2021 and 2024, the impact was staggering: more than two‑thirds of affected people reported losses of income (69%) or assets (72%). For many, it was both. These losses undermine people’s financial stability just as risks are rising.

Many of the day‑to‑day climate impacts in low‑ and middle-income contexts — such as income loss from delayed rainfall, flood damage to small businesses or extreme heat — can be addressed through adaptive financial solutions like insurance, flexible credit and investments in resilient infrastructure. Yet, the finance needed to cope with these shocks does not always reach the local level where impacts are felt and absorbed. As climate shocks damage collateral, disrupt livelihoods and raise operating costs, the financial service providers serving vulnerable communities face increasing pressure to depart exposed regions and value chains to manage risk.

The retreat of financial services where climate risk is greatest can create a self-reinforcing cycle. Limited access to finance constrains adaptation investments, which heightens vulnerability and risk, further reducing access. The imperative is not simply more finance, but more appropriate finance. Financial products must be designed for how local groups and microenterprises actually invest, borrow and manage risk. At the same time, financial institutions need to better understand and manage climate exposure. 

Why does finance struggle to reach the local level?

Three constraints challenge progress:

1. A lack of knowledge among financial institutions on client-level climate risks and the solutions needed. As a result, few financial products directly address climate adaptation and resilience via features like flexible repayment, hazard coverage or linkages to nonfinancial solutions. Without deeper understanding of environmental risks and opportunities, providers struggle to adjust their business models. 
2. Underdeveloped policy frameworks, like regulatory standards or taxonomies of climate-sensitive sectors, which are needed to guide green investments.  
3. Demand-side constraints. Local groups often lack appropriate financial products, trust in formal providers, and sufficient financial and climate literacy. They also tend to lack the organizational capacity, collateral, or transaction history to prove the need for specialized products or that their projects are worth the investment.

Fixing the system requires moving beyond traditional lending to build a better connection between global capital and local needs. By addressing the hurdles for both institutions and borrowers, financial support can reach the people on the front lines of climate change.

Bridging the finance gap: Building on what works

The building blocks for a response already exist. In many low- and middle-income settings, locally led programs have established projects that are ready to receive funding, strong borrowing and savings groups and climate-resilient livelihoods. The next step is developing financial sector capabilities that consider environmental impacts and deliver capital responsibly.

This is the logic behind the Global Microfinance Initiative, financed with $10 million from the Global Environment Facility (GEF) and implemented by the World Bank Group. The Initiative strengthens microfinance ecosystems by supporting financial institutions, policymakers and clients, while expanding access to tailored financial solutions for entrepreneurs and local groups working in environmentally sensitive sectors across Brazil, Colombia, Madagascar, Nigeria, South Africa, Tanzania and Türkiye.

The initiative’s operating logic follows three steps:

1. Diagnose the problem from both sides of the market. Understand demand for climate-informed financial products from local groups, as well as the supply-side constraints faced by MFIs. 
2. Identify and engage partners at local and national levels. Include governments, technical agencies and implementors to remove bottlenecks, enable scale and support replication. 
3. Innovate locally, based on demand. This means creating financial products that address the specific needs of local groups, not applying a one-size-fits-all model, and building national-level standards and systems that strengthen microfinance’s role over time, sustaining bottom‑up support to advance financial inclusion.

Partnering for a coordinated ecosystem

No single actor can solve this challenge. Making green finance viable requires collaboration and coordination across financiers, policy regulators, technical experts, local actors and financial institutions.

This collaborative framework is visible in the initiative’s design: 

• The World Bank Group acts as the operational anchor for public and private solutions, coordinating the program across countries while building the knowledge architecture to scale innovations.
• The GEF provides dedicated financing and embeds the initiative within a network of programs to facilitate cross-context learning.
• CGAP draws on its deep research of inclusive finance for adaptation to help financial institutions design better environmental products while protecting themselves from climate-related losses. 

Listening to clients so finance follows local demand

Across the seven participating countries, the initiative adopts a locally led approach to identify and respond to the needs of producer groups and entrepreneurs. This approach ensures that financial solutions address the right challenges, while supporting MFIs to design green financial products and working with governments to create the policy conditions for those products to reach clients. In Nigeria, for example, the initiative builds on government efforts to promote women’s financial inclusion as a foundation for economic growth and resilience. In South Africa, it supports access to finance for small business development in communities affected by the energy transition.

Strong engagement at a recent knowledge exchange in Jakarta highlighted how much governments value learning from one another. Policymakers explored how community and local development programs can better manage local investments, set priorities and prepare for climate risks while creating new economic opportunities. The Global Microfinance Initiative builds on this momentum, facilitating additional exchanges to share insights on how to deliver environmentally sensitive financial products at scale. 

What we stand to gain: Resilient economies that power job creation

Over the next decade,1.2 billion young people in developing countries will become working-age adults. To create jobs for them, we must support MSMEs, which account for over 90% of firms and roughly 70% of employment globally. However, many of these businesses operate informally and face extreme climate risks that put 260 million existing jobs in jeopardy. 

The cost of inaction is steep — not just in lost economic opportunity, but in rising vulnerability for the 1.3 billion adults who remain outside the formal financial system. Getting financing to these individuals and businesses is key to building a resilient labor market — generating more jobs, higher earnings for those already working and enterprises better equipped to absorb shocks and grow. This is what the Global Microfinance Initiative aims to do: expand access to the financial products that local entrepreneurs and small businesses need to grow, create jobs, and build resilient economies.