Working with an MFI to de-risk their portfolio against climate risks
BY BLUE MARBLE MICRO
REGION
Asia
INDUSTRY
Financial Services
PARTNERS
Financial Institution
CATEGORY
Modeling
SERVICE
Consulting
RISK
Drought and excess rainfall
STRUCTURE
Meso
IMPACT
Climate resilience and adaptation
Challenge
Microfinance institutions face growing exposure to climate risks as they lend to smallholder farmers and rural entrepreneurs whose livelihoods are directly tied to weather conditions. Climate events such as droughts and storms can rapidly erode borrowers’ incomes, triggering widespread loan defaults and weakening the financial health of the financial institution. Since MFIs often operate with limited risk transfer mechanisms, a single extreme event can jeopardize portfolio stability and undermine their ability to extend credit in the future. To remain sustainable and continue serving vulnerable communities, MFIs need to de-risk their portfolios to manage their risks against climate shocks.
Solution
To address this gap in protection, Blue Marble consulted and designed a customized meso-level insurance product in partnership with a microfinance institution to de-risk their loan portfolios from climate shocks. This product provides coverage directly to the MFI, triggered by weather-based measures such as rainfall deficits or excess precipitation across lending regions. When a payout is activated, the funds flow to the institution, enabling it to stabilize its balance sheet, maintain liquidity, and continue serving clients even in seasons of widespread losses. This meso-level approach creates a sustainable framework that safeguards both lenders and their clients against climate volatility.
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