SAFCO Microfinance Company investigated clients’ needs and launched climate-resilient products
The Oxfam Novib Fund (ONF) supports vulnerable communities by providing funding and technical assistance to Micro Finance Institutions (MFIs). This support helps MFIs develop climate-resilient products and services and manage climate risks, while achieving social and financial returns. Oxfam Novib’s technical assistance helps MFIs create environmental strategies, build capacity in climate risk management, and develop new products tailored to their clients' needs.
Impact climate change on SMCL’s borrowers
One of the clients of the Oxfam Novib Fund is SAFCO Microfinance Company Private Limited (SMCL), based in the Sindh region in Pakistan. SMCL's mission is to deliver small-scale loans to unbanked communities and poor households with a special focus on women in rural areas. Their clients are prone to natural disasters such as heavy rains and floods. Due to climate change, recent years have seen an increase in such disasters, severely impacting SMCL's borrowers. Take for instance Rukshana, a mother of two and a small-holder cotton farmer from the district of Sanghar, Sindh province in Pakistan. “All was going well until heavy rains and a big flood hit and ruined my crops and destroyed my home,” . Read the full story HERE.
Project Overview
With the support of Oxfam Novib, SMCL has investigated the risks of their current products and services to climate shocks the opportunity to adjust their offerings and lending approach so that their credit portfolio and clients' livelihoods are better protected from the effects of climate change. The project included a climate risk assessment phase, where a consultant evaluated the climate vulnerability of SMCL’s regions and products, assessed clients' awareness of climate change, and developed a disaster risk reduction framework. This phase concluded with an implementation plan outlining prioritized actions.
In the product development phase, SMCL worked with insurance companies to explore bundling crop loans with insurance and assessed clients' interest in these new products. In addition, their staff received training on the new climate-resilient offerings.
Key findings and next steps
SMCL's clients are particularly vulnerable to climate disasters like floods. The demand for insurance is low, primarily due to limited awareness, but increases when clients better understand its benefits. Awareness raising and training is needed so that clients get a better understanding of the concept of livestock and crop insurance, but also on cashflow accounting. Preventive practices such as water management to protect assets are often costly, and coping mechanisms like stress-selling cows can lead to long-term financial difficulties. Training in cashflow accounting could help clients to compare the costs associated with existing risk management practices versus the costs of insurance.
The main achievements of the project include the adaption of the current livestock loan bundled with insurance and the introduction of a new product: a crop loan bundled with insurance against flooding and heavy rain. This new product is currently being offered to a selected group of 65 crop farmers. Upon the successful completion of the pilot program, crop insurance will become mandatory for all crop loan borrowers.
