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Assessing the Role of Microfinance in Fostering Adaptation to Climate Change

Despite the recent focus on ways to scale up financing for adaptation there has been little discussion so far of actual delivery mechanisms to channel these resources to target those most vulnerable to the impacts of climate change. It is in this context that microfinance merits a closer look. This report offers the first empirical assessment of the linkages between microfinance supported activities and adaptation to climate change. Specifically, the lending portfolios of leading microfinance institutions in two climate vulnerable countries – Bangladesh and Nepal – are analysed to assess the synergies and potential conflicts between microfinance and adaptation. The paper identifies areas of opportunity where microfinance could be harnessed to play a greater role in fostering adaptation, as well as its limitations in this context.