Climate change has rapidly become a concern for central banks, financial regulators, and ministries of finance. In September 2017, AFI member institutions formulated the Sharm El Sheikh Accord on Financial Inclusion, Climate Change and Green Finance, which sets commitments to implement financial inclusion policy solutions that enhance efforts on climate change mitigation and adaptation. In November 2018 these commitments were formalised through the Nadi Action Plan, which kick-started AFI’s workstream on green financial inclusion. A recent AFI survey found that 75% of interviewed members have already linked climate change and financial inclusion in their national financial sector strategies.
In line with these efforts and in recognition of the urgency to address the dual threat that financial exclusion and climate change pose for financial stability, AFI hosted the Global Conference on Inclusive Green Finance in Rabat, Morocco in October 2019. This event brought together over one hundred financial sector regulators and policymakers from more than forty countries to discuss how inclusive green finance policies can mitigate and build resilience to climate change. This post builds on the learnings from the event to explain how mobile money is providing inclusive solutions for climate action.
What is Green Financial Inclusion?
Green Financial Inclusion (GFI) is a new area at the intersection of climate change and financial inclusion, which focuses on climate change as one of the greatest inhibitors of financial stability, poverty alleviation and inclusive economic growth. The impact of extreme natural disasters is estimated to generate annual global losses of $520 billion and force over 26 million people into poverty each year. Climate emergencies can displace communities from agricultural land, causing loss of jobs, property and assets. The effects of climate change can also exacerbate socioeconomic stresses by increasing food prices and health risks.
How can mobile money support Green Financial Inclusion?
Mobile money builds resilience to climate change by enabling services such as savings, credit, insurance, remittances and government transfers that can provide vital support for those managing new environmental realities. Mobile money-enabled insurance services can address the lack of financial protection that smallholder farmers need to deal with unpredictable weather patterns. Innovative rainfall index insurance models offer low-cost premiums and payments via mobile money for crop damage or poor harvests caused by drought or excess rainfall. These services can also be linked to credit which enable farmers to invest in agricultural inputs that enhance resilience, such as improved irrigation, fertiliser and pesticides, all of which can increase household and agricultural productivity.
According to the World Bank’s 2018 Groundswell report, climate change could displace as many as 143 million persons by 2050. Mobile money allows marginalized populations to receive cash transfers after disasters and provides a fast, targeted and cost-efficient channel for supporting affected communities. In Fiji and the Philippines, mobile money-enabled government-to-person (G2P) payments have been successfully used to reach vulnerable populations in the aftermath of extreme climate events and to disburse transfers to individuals helping to clear roads, buildings, schools and hospitals.
Mobile money also supports climate change mitigation efforts by providing access to clean and affordable energy and helping to reduce carbon emissions. Solutions like solar-powered home energy systems and cleaner cook stoves help to mitigate the effects of climate change and include those at the bottom of the economic pyramid in the transition to low-carbon economies. The mobile money-pay-as-you-go (PAYG) model is helping households replace dirty, non-renewable energy sources, such as kerosene, charcoal and wood, and enabling low-income consumers to access energy-powered assets, such as solar-powered irrigation pumps. This mitigates the detrimental effects of polluting energy sources and indirectly supports education, income-generating activities and entrepreneurship. Clean energy services are particularly valuable for displaced populations. In Kibiza Camp in Rwanda, 19 per cent of refugees who have energy in their home use mobile money to pay for it, and many receive remittances via mobile money to pay for their solar home systems.
What is the challenge ahead?
Digital financial services can support climate mitigation and adaptation by changing how products and services are delivered. Mobile money has been a catalyst for financial inclusion and is now evolving into a payments platform that enables households and businesses to invest in environmentally friendly assets and combat the effects of climate change. There is an opportunity to strengthen global efforts to tackle climate change by leveraging existing business models that are designed to reach the marginalised and underserved. Seizing the power of mobile money for climate action calls for an increased understanding that successful solutions to drive financial inclusion can be refined and strengthened to combat climate change and its impact.
Paraphrasing the words of Dr. Alfred Hannig, AFI’s Executive Director, “the recent shift in the attention towards climate change resembles the early days of AFI, when financial regulators were discussing how to include financial inclusion in their mandates.” The challenge for both regulators and the industry is integrating climate action as part of the vision for financial inclusion, while continuing to leverage the transformative power of digital financial services. Failing to make the connection between climate change and financial inclusion risks reversing the progress made on building inclusive and resilient financial systems, and undermining efforts to achieve the Sustainable Development Goals.