Cover photos: Different climate conditions at different landscapes on the top Agricultural businesses and a palm in the middle
A man selling water melons in Mayaro and a Green House on the bottom (all photos by Wiebke Stein, Trinidad and Tobago, March 2015)
Master Thesis
The Role of Microfinance for Climate Change Adaptation and Mitigation –
A Case Study among Trinidadian Microfinance Users and Institutions
Name: Wiebke Stein Student number: 10863540
E-Mail: wiebke.stein@student.uva.nl
Course: MSc International Development Studies 2014-2015 Supervisor: Dr. Hebe J.L.M. Verrest
Second Reader: Dr. Nicky R.M. Pouw Date: August 21st 2015
Supervisor
Dr. Hebe J.M.L. Verrest
Assistant Professor, Research Master International Development Studies Graduate School of Social and Behavioural Sciences
University of Amsterdam Nieuwe Achtergracht 166 1018 WV Amsterdam The Netherlands Phone: +31(0)20- 5254180 E-mail: H.J.L.M.Verrest@uva.nl http://home.medewerker.uva.nl/h.j.l.m.verrest/ Second Reader Dr. Nicky R.M. Pouw
Assistant Professor, Research Master International Development Studies Graduate School of Social Sciences
University of Amsterdam Nieuwe Prinsengracht 130 1018 VZ Amsterdam The Netherlands Phone: +31(0)20-5254105 E-mail: n.r.m.pouw@uva.nl http://home.medewerker.uva.nl/n.r.m.pouw/
Acknowledgement
I would like to take this opportunity and thank everyone who has contributed to the success of this Master Project. First of all, I want to thank my parents, Petra and Michael! Your unconditional love and support have made all this possible and I would not be where I am today without your advice and selflessness.
I also want to thank my supervisor Hebe Verrest, for her patience and support throughout the whole thesis project. Your advice and feedback were of great importance to this thesis. Thank you!
I would also like to thank David, who supported me throughout the whole process of this Master Project. It would not have been possible without you! Thank you for everything!
Abstract
Microfinance has become famous during the 1970s through the work of Nobel literate Muhammad Yunus. Since then it has been advocated as a promising tool to lift people out of poverty and has been in the focus of development researchers and institutions. Parallel to the evolvement of microfinance institutions (MFIs), an ongoing discussion of climate change and the resulting threats for poor people’s livelihoods arose. Although climate change is a global issue, developing countries and their impoverished inhabitants are particularly affected by its negative impacts. These people are also the main target group of MFIs. In recent years some researchers (Hamill 2008; Agrawala & Carraro 2010; Gutiérrez & Mommens 2011) have highlighted the importance of microfinance in climate change adaptation and mitigation. Not only to make clients livelihoods more climate resistant, but also to ensure the sustainability of the institutions themselves. Clients and institutions need to adapt to climate change. However, literature on microfinance does not engage with this topic. The focus is much more on the assessment of the actual impacts of microfinance on poor people’s livelihoods, rather than the role that MFIs could have for climate change adaptation and mitigation. The same holds for literature on climate change. Researchers have stressed the lack of financial services as a constraint for successful adaptation. Still, the literature does not discuss the role that MFIs could have in this process.
This thesis seeks to contribute to the discussion about the role of microfinance in climate change adaptation and mitigation in an academic manner and with actual field data from Trinidad and Tobago; a small island state in the Caribbean, facing the negative outcomes of a changing climate. In doing it was of importance to understand the perceived impacts of climate change for microfinance users, how they deal with the topic of climate change and if and how microfinance services are used in this process. Various qualitative interviews have been collected among MFIs and microfinance clients in Trinidad and Tobago. They revealed that climate change is an issue impacting on the economic activities of the microfinance clients and thus on their livelihoods. Thereof clients involved in agriculture are affected most adversely. It also revealed that the MFIs engage only to some extent with the topic. The institutions that deal with the problem, because their clients are affected, focus more on short term adaptation than on long term measures. Only one institution really engages with the topic and wants to focus on climate change mitigation by funding green businesses.
Table of Content
List of Figures: ... IV List of Tables: ... IV List of Abbreviations: ... V
1. Introduction ... 1
1.1 The connection between climate change and microfinance ... 1
1.2 Objectives and research questions ... 2
1.3 Research relevance ... 3
1.4 Outline of thesis ... 4
2. Theoretical framework ... 5
2.1 The Sustainable Livelihood Approach – Concept and Framework ... 5
2.2 Conceptualizing Climate Change ... 8
2.2.1 The issue of climate change and the need for adaptation and mitigation ... 9
2.2.2 Perception of climate change and barriers to adaptation and mitigation ... 15
2.3 Microfinance, income generation and poverty reduction ... 16
2.4 Microfinance as a tool to adapt for and mitigate climate change? ... 17
2.5 Conceptual scheme ... 20 3. Methodology ... 21 3.1 Research Context ... 21 3.2 Epistemological stance ... 23 3.3 Unit of Analysis ... 24 3.4 Operationalization ... 24 3.5 Methods ... 28
3.5.1 Data collection and sampling ... 28
3.5.2 Data analysis ... 31
3.6 Ethics ... 32
3.7 Limitations ... 32
4. Microfinance in Trinidad and Tobago ... 34
5. Challenges of Climate Change for Trinidad and Tobago – Observed changes, future predictions, emissions and impacts ... 39
6 Micro entrepreneurs and climate change – a case study among Trinidadian microfinance users ... 45
6.1 Livelihood assets, income generating activities and the role of microfinance ... 45
6.2 Perception of Climate change and impact on livelihood assets and income generating activities ... 51
6.3 Adaptation strategies among microfinance clients ... 54
6.3.1 Crop farming ... 54
6.3.2 Livestock Farming ... 57
6.3.3 Fishermen ... 58
6.3.4 Non-agricultural practices ... 58
6.4 Mitigation strategies among microfinance clients ... 59
6.4.1 Greenhouse farming ... 59
6.4.2 Online food business ... 59
6.4.3 Recycling Business ... 60
6.5 Chapter Conclusion and answer to sub-questions: ... 60
7. The role of microfinance in Climate Change adaptation and mitigation in Trinidad and Tobago ... 63
7.1 Climate Change awareness and policy among microfinance institutions ... 63
7. 2 Discussion ... 67
7.3 Chapter conclusion and answer to sub-questions ... 69
8. Overall conclusion and recommendations ... 71
8.1 Answering the main research question ... 71
8.2 Contribution of study ... 72
8.3.1 Recommendations for policy and practice ... 73
8.3.2 Remarks for further research ... 73
8.4 Methodological reflection ... 74
Bibliography ... 75
List of Figures:
Figure 1: Sustainable livelihoods framework ... 7
Figure 2: Global patterns of impacts in recent decades attributed to climate change ... 10
Figure 3: Conceptual Scheme ... 20
Figure 4: Overview Economy of Trinidad and Tobago ... 22
Figure 5: Map of Trinidad ... 23
Figure 6: List of Interviews ... 30
Figure 7: Overview ‘microfinance’ sector Trinidad ... 35
Figure 8: Modified conceptual scheme………....90
List of Tables: Table 1: Mitigation Strategies ... 11
Table 2: Possible adaptation strategies for different sectors ... 13
Table 3: Operationalization ... 25
Table 4: The Green Fund Levy ... 42
List of Abbreviations:
ADB Agricultural Development Bank
ASCAS Accumulating Savings and Credit Associations
BDP Business Development Program
BP British Patroleum
BPTT British Patroleum Trinidad and Tobago
CC Climate Change
CCAM Climate Change Adaptation and Mitigation CCS Carbon dioxide capture and storage
CGAP Consultative Group to Assist the Poor
CSO Central Statistical Office (Trinidad and Tobago)
EMA Environmental Management Authority in Trinidad and Tobago DFID Department for International Development Studies
FSA Financial System Approach
GDP Gross Domestic Product
GHG Greenhouse gas
GHS Greenhouse gas emission
GORTT Government of the Republic of Trinidad and Tobago
HDI Human Development Index
H.O.P.E. Helping Our People Prosper Economically
IDB Inter American Development Bank
IDS Institute of Development Studies IGA Income generating activities
IPCC Intergovernmental Panel on Climate Change MEL Micro-enterprise Loan Facility
METG Micro-enterprise and Training Grant
MF Microfinance
MFI Microfinance Institution
MIPED Mayaro Initiative for Private Enterprise Development
MOLSMED Ministry of Labor and Small and Micro Enterprise Development MPE Ministry of Planning and the Economy
NCCP National Climate Change Policy
NEDCO National Entrepreneurship Development Company Limited
ODPM Office of Disaster Preparedness and Management
PLA Poverty Lending Approach
PoS Port of Spain
ROSCAS Rotating Savings and Credit Associations SIDS Small Island Developing State
SL Sustainable livelihoods
SLA Sustainable livelihoods approach SME Small and micro enterprises T&T Trinidad and Tobago
UNDP United Nations Development Program UNEP United Nations Environmental Program
UNFFC United Nations Framework Convention on Climate Change UWI University of the West Indies (gucken wo das introduced wurde)
WDR World Development Report
YB Youth Business
1. Introduction
The introduction gives a first idea on this thesis topic, the research context, its relevance and outline. The first section of the introduction provides a general description of the idea this thesis is based on. That is the role of microfinance in climate change adaptation and mitigation (CCAM). The data for this research was collected in Trinidad and Tobago (T&T). In the following section it is therefore outlined how the idea is applied in the Trinidadian context. It also includes the developed research questions. Moreover, the relevance of this research for academia and practice is explained. An outline of the thesis chapters finishes the introduction.
1.1 The connection between climate change and microfinance
Microfinance (MF) has become famous as a tool for poverty reduction since the final years of the previous century, mostly through the work of the Grameen Bank and its founder Muhammad Yunus. It has since been developed by many researchers and institutions. The idea is to provide financial services to low income households; such services include credits, insurances and savings (Robinson 2001). Households with low and irregular incomes are usually overlooked by formal financial institutions, such as commercial banks (Gutiérrez & Mommens 2011). Thus microfinance seeks to reach the poor and unbanked population (World Bank 2010). Access to financial services is said to have different positive impacts for the poor. One assumption is that access to financial risk management options (credits, savings and insurances) reduces the vulnerability to external shocks, such as climate change (Levin & Reinhard 2007).
Over the past decades climate change1 (CC) has become one of the most discussed topics among governments, policymakers, organizations and individuals around the world (UNDP 2011). Although climate change is a global issue, developing countries and their impoverished inhabitants are particularly affected by its negative impacts as they have limited income sources, which can get destroyed by climatic shocks and with it simultaneously their livelihood. For this reason even though climate change and its negative impacts are regarded as a global problem it is mostly a concern for developing countries (UNDP 2012; World Bank 2010). Two concepts have been developed as a response to the climate change. One being climate change adaptation that focuses on alleviating its negative effects of and the other
1
Climate change includes shifts in precipitation, increase in temperature, sea level rise, salt-water intrusion and a higher probability of extreme weather events like floods or draughts and melting glaciers (IPCC 2007).
being climate change mitigation, focusing on reducing the causes of CC through the reduction of GHG emissions (Füssel & Klein 2006).
Climate change as a threat for the poorest population of this world and microfinance as a tool to lift people out of poverty have gained considerable attention. As microfinance focuses on reducing vulnerability of poor people and climate change increases vulnerabilities of the poor one could expect a connection between microfinance and climate change. However, this has not been the case. In recent year some researchers (Hammill et al. 2008, Dowla 2009; Agrawala & Carraro 2010, Gutiérrez & Mommens 2011, Allet 2014, Forcella 2013) have therefore stressed the importance of microfinance in climate change adaptation and mitigation. Hammill et al. (2008) urge for a triple bottom line in microfinance that addresses economic, social and environmental returns, in order to implement a valuable contribution to vulnerability reduction and climate change adaptation in developing countries (p.120). The idea is that microfinance institutions engage with the topic by explicitly financing environmentally sustainable projects on a local scale, give lower interest rates for such projects or demand less collateral from clients proposing to engage in adaptation or mitigation strategies (Agrawala & Carraro 2010, Hammill et al. 2008). This research focuses on the role of microfinance for climate change adaptation and mitigation in T&T.
1.2 Objectives and research questions
The data for this thesis was collected in Trinidad and Tobago. It focuses on local microfinance users and microfinance institutions (MFI). The aim is to get an insight in how microfinance users in Trinidad are affected by climate change and how this impacts on their livelihoods. Furthermore the idea is to reveal how microfinance institutions engage with the topic and support clients in adaptation and mitigation. Therefore the following research questions have been developed.
Main Research Question:
How do microfinance clients in Trinidad and Tobago deal with climate change and to what extent do the microfinance institutions engage with climate change adaptation and mitigation?
Sub Questions:
SubQ1: How is climate change perceived by and impacting on the livelihoods of the micro-finance users?
SubQ2: What kind of adaptation strategies have been developed by affected microentrepreneurs?
SubQ3: Do clients develop green business practice, in order to mitigate climate change? SubQ4: What role do microfinance services play in the process of climate change adaptation and mitigation?
SubQ5: How do microfinance institutions support climate change adaptation and mitigation?
1.3 Research relevance
Microfinance has been much critiqued over the past years. Different studies revealed a mixed picture of the actual influence of microfinance on poverty reduction (Verrest 2013). It is also criticized that institutions do not consider the vulnerability context in which the clients operate (Armendariz & Labie 2011; Banerjee & Duflo 2011). Yet, there has been no engagement with the topic of climate change for microfinance institutions in this discussion. Even though, climate change is a factor increasingly impacting on the livelihoods of microfinance clients. Moreover, research on climate change adaptation and mitigation does not consider the role of microfinance for the process either. Some researchers (see 1.1) have started to highlight the importance of the idea. This thesis therefore contributes to reducing the research gap on this topic. It also provides field data from Trinidad and Tobago. So far only few papers Dowla (2009)Agrawala & Carraro (2010), Gutiérrez & Mommens (2011) shortly reported about existing microfinance projects engaging with climate change. This shows that there is a very limited amount of field data available assessing the topic, which further highlights the relevance of this research.
In addition this thesis seeks to understand the impacts of CC on microfinance clients from a livelihoods perspective. This means that this study also increases the knowledge and understanding of how livelihood strategies with regards to the use of microfinance.
1.4 Outline of thesis
The thesis is grouped into eight chapters, of which the first one is the introduction that gives an overview of the thesis topic and discusses the relevance of this thesis.
In the second chapter the theoretical framework for this thesis is defined, which is separated into four parts. The first one elaborates on the sustainable livelihoods approach, which gives a framework for the two main concepts of this thesis: climate change and microfinance. The second part attempts to conceptualize climate change and discusses concepts of climate change adaptation and mitigation. The third part gives an overview on the concept of microfinance. Part two and three of the theoretical framework give a general introduction of the concepts of climate change and microfinance and include a literature review. A description on how these two concepts are shaped in the Trinidadian concept is presented in detail in later chapters. Part four of the theoretical framework puts the concepts together and explains the relation between microfinance and climate change more precisely. It also includes the conceptual scheme, as to better show how the concepts are put together.
Chapter three focuses on the methodological part, including the research questions, a first description of the research area and context and the operationalization.
Furthermore, chapters four, five, six and seven present the findings derived from the field data and an analysis of different papers and policy documents. Thereby, chapters four and five function as context chapters, explaining the microfinance sector in T&T (4) and the problem of climate change in T&T (5), including an analysis of policies for adaptation and mitigation and perceptions of climate change. Chapter six consists of a case study conducted among microfinance clients in Trinidad. It reveals how the interviewed clients perceive climate change, how it impacts on their livelihoods assets and IGAs, what kind of adaptation strategies affected clients have developed and examples on how some clients engage with climate change mitigation through green business development. Subsequently chapter seven explains the role of microfinance institutions in climate change adaptation and mitigation for T&T. In doing so perceptions of climate change on the institutional level as well as policies towards climate change are presented.
Finally chapter eight concludes the thesis. First answers to the research questions are given, following a discussion on the findings in relation to the literature is given. Lastly some policy recommendations and ideas for further research are stated.
2. Theoretical framework
The theoretical framework for this thesis is based on theories about climate change adaptation and mitigation and microfinance. The Sustainable livelihoods approach (SLA) serves as a framework for these two concepts. Therefore the SLA is explained first. Afterwards information regarding climate change adaptation and mitigation, and microfinance follows. While explaining the concept of climate change, its termination and impacts on the human system, especially for the poor people on this earth, are described first. It continues with highlighting the need for adaptation and mitigation strategies. Following, the concept of microfinance and its implications for poverty reduction are explained. The last section includes a section on climate change adaptation and microfinance as a possible tool to adapt for and mitigate CC. This section reveals the main topic of this research and explains how the different theories and concepts interact with each other.
2.1 The Sustainable Livelihood Approach – Concept and Framework
The SLA became popular in the late 1990s when the Department for International Development Studies (DFID) made the concept central to their work on poverty alleviation (Morse & McNamara 2013; De Haan 2012). The SLA was developed as a concept to define and measure poverty. It focuses on the various factors, which shape peoples livelihoods and their ability to make a living in a sustainable manner. It is people centered and aspires to analyze people’s livelihoods out of their perspectives rather than from an institutional viewpoint (Farrington 1999). It therefore offers a more diverse and integrated concept to poverty analyses, than earlier approaches, which focused mainly on people’s income and asset accumulation (De Haan 2012; Ahmed et al. 2011; DFID 1999; Krantz 2001).
The idea of Sustainable Livelihoods (SL) was first introduced by the Brundtland Commission on Environment and Development in 1987 and then further enhanced by the United Nations Conference on Environment and Development in 1992 (Krantz 2001). It draws on the early work by Sen on human capabilities (Sen 1984, 1985), which later resulted in the Human Development Index. However, the term sustainable livelihood was shaped mainly by the work of Chambers and Conway (De Haan 2012). They define SL as follows:
A livelihood comprises the capabilities, assets (stores, resources, claims and access) and activities required for a means of living: a livelihood is sustainable which can cope with and recover from stress and shocks, maintain or enhance its capabilities and assets, and provide sustainable livelihood opportunities for the next generation;
and which contributes net benefits to other livelihoods at the local and global levels and in the short and long term.
(Chambers & Conway 1992, p. 7)
Chambers and Conway (1992) were the first who described SL as a link between capabilities, equity and sustainability (Ahmed et al. 2011). In the following decade theories on the SLA were further evolved and shaped by other authors, such as Moser (1998), Scoones (1998), Ashley and Carney (1999), Bebbington (1999) and Ellis (2003). International institutions, for instance the UNDP, CARE, Oxfam, the Institute of Development Studies (IDS), the DFID and various Non-Governmental Organizations also adopted the approach. It then became a more applied framework, which was introduced into the policy making of these institutions (Morse & McNamara 2013). The SLA focuses on the need to analyze poverty from a multidimensional manner and it is aimed at understanding the needs of the poor to then shape the development process most effectively (Scoones 2009).
The SLA can be described in a framework of which different illustrations exist (CARE 1994; UNDP 1995; Scoones 1998; DFID 1999, Ellis 2000). Figure 1 expresses the framework developed by Scoones (1998), which is most suitable for the context of this thesis. It highlights the influence of institutions and organizations on people´s livelihoods, which is also a key element in this thesis. According to Scoones (1998) an analysis of institutional processes is crucial in livelihood research, because it helps identifying restrictions / barriers and opportunities to sustainable livelihoods. Ellis 2000 therefore amplifies Chambers definition of livelihoods and states that it comprises the assets (natural, physical, human, financial and social capital), the activities, and the access to these (mediated by institutions and social relations) that together determine the living gained by the individual or household (p. 10). Institutions have the power to enable or limit the access to livelihood resources, which affects livelihood strategies and outcomes (De Haan & Zoomers 2005). The nature of the institutions can thereby be formal or informal. There has been a distinction between institutions and organizations (Leach et al. 1999; Ellis 2000). Ellis (2000) even distinguishes between social relations, institutions and organizations. Social relations are described as comprising gender, caste, class, age, ethnicity, and religion. Institutions are made of both formal rules and conventions and informal codes of behavior, including laws, property rights and markets. Organizations can be government agencies, NGOs, associations and private companies. In that sense this research focuses on analyzing how organizations influence people´s ability to adapt to and mitigate CC, namely MFIs (government agencies, NGOs and
private companies) in Trinidad and Tobago. MFIs provide financial services for poor and low income households, meaning that they can influence the access to specific livelihood resources. These can be of importance for individuals when coping with external shocks such as those originating from climate change.
Figure 1: Sustainable livelihoods framework
Source: Scoones 1998 The framework brings together the different dimensions influencing people’s livelihoods. It outlines linkages between the different elements of the SLA and attempts to demonstrate the interactions between the livelihood assets and the different livelihood activities (Ashley & Carney 1999). The different elements of the framework are the livelihood context, resources, strategies, outcomes and the institutional processes (Scoones 1998). The DFID (1999) demonstration adds another element, which is the vulnerability context that impacts on people´s livelihoods and is similar to Scoones (1998) element of the livelihood context. Füssel (2007) notices that a variety of definitions and conceptualizations around the term ‘vulnerability’ exist and that none of them can be universally applied to all situations in which vulnerability is important. Given the aspect of climate change relevant for this thesis’ topic
vulnerability is defined according to the IPCC (2007), Vulnerability is the degree to which a system is susceptible to, and unable to cope with, adverse effects (climate change) (p. 6).
Following the DFID (1999) framework livelihood assets are today most often described as an asset pentagon that distinguishes between five different forms of capital (Morse and McNamara 2013). 1) Human Capital: skills, knowledge, labor, health; 2) Natural capital: natural resource stock e.g. land, forest, water; 3) Financial capital: credits, remittances, savings; 4) Physical capital: infrastructure (transport, shelter, water, energy), producer goods; 5) Social capital or sometimes referred to as political capital: networks, memberships of groups, relationships of trust. Livelihood assets are used to pursue various livelihood strategies, whereby different forms of capital can be combined. Livelihood strategies help to diversify the capital owned by a household and the sources they have (DFID 1999; Ahmed et al. 2011). In that sense people are also pursuing different strategies in order to adapt to certain vulnerabilities such as climate change (Moser & Satterthwaite 2008). The results of these strategies are livelihood outcomes, again shaped by the availability of assets and the exposure to certain risks. For the purpose of this thesis the focus is on what capitals microfinance clients in Trinidad rely on and how they are used for different livelihood strategies. Thereby it is of importance to understand how the vulnerability context (climate change exposure) and the institutional context (MFIs) influence livelihood assets, strategies and outcomes.
In the end this thesis attempts to pay attention to the institutional process surrounding the livelihoods of microfinance users. It therefore takes the critical assessments of the livelihoods approach by Scoones 2009 and later by De Haan 2012 into account. Both authors criticize the limited scope that many livelihood studies are subject to. According to them a stronger attention should be paid to the institutional surroundings influencing people’s livelihoods and the power relations that accompany those.
2.2 Conceptualizing Climate Change
The following chapter attempts to describe the problem of climate change for the development process. Moreover, the concepts of climate change adaptation and mitigation are explained. These concepts represent the two main options for policy makers and people to respond to the effects of climate change. It also includes information on possible adaptation and mitigation strategies. This chapter therefore explains one of the main concepts used in this thesis and reveals the relevance thereof for this specific thesis.
2.2.1 The issue of climate change and the need for adaptation and mitigation
Climate Change is a term widely used and different definitions have been developed over the years. The IPCC (2013) refers to climate change as a change in the state of the climate that can be identified by changes in the mean and / or the variability of its prosperities, and that persists for an extended period, typically decades or longer (p. 5). While the Framework Convention on Climate Change attributes those changes directly to human activities, the IPCC ascribes them to a variety of processes, from which human interactions are only one. In its 5th assessment report on climate change the IPCC (2013) states that the warming of the climate system is unequivocal and that the atmosphere and ocean have warmed, the amounts of snow and ice have diminished, sea level has risen, and the concentrations of greenhouse gases have increased (pp. 4-5). A further ascent in earth temperature, sea level and extreme weather events till the end of the 21st century are predicted (ibid).
Changes in the earth climate have various negative impacts for the different regions across the world and its inhabitants. Climate change harms natural systems and puts ecosystems at risk. It leads to more droughts, floods, storms or heat waves (ibid). Moreover, changes in precipitation have affected water availability and quality around the globe. Figure 2 displays the various impacts of climate change for different systems across regions.
Figure
This thesis focuses on the various impacts livelihoods, in particular for microfinance users in vulnerable to climate change
capacity
change (Satterthwaite 2007). It is therefore a particular concern for development efforts around the globe. T
reverse development generations
being especially Tompkins 2005;
Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the country.
2
Adaptive capacity
and extremes) in order to take advantage of opportunities, moderate potential d consequences” (WDR 2010, p. 353).
Figure 2: Global patterns of impacts in recent decades
This thesis focuses on the various impacts livelihoods, in particular for microfinance users in vulnerable to climate change
capacity2 (Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts around the globe. T
reverse development generations (p.37).
being especially vulnerable to the adverse outcomes of climate change (Pelling 2001; Tompkins 2005; IPCC 2013
Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the country.
Adaptive capacity refers to “ the ability of a system to adapt to climate change (including climate variability and extremes) in order to take advantage of opportunities, moderate potential d
consequences” (WDR 2010, p. 353).
Global patterns of impacts in recent decades
This thesis focuses on the various impacts livelihoods, in particular for microfinance users in vulnerable to climate change
(Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts around the globe. The World Bank (2010) states that,
reverse development progress and compro
(p.37). The Caribbean region and SIDSs in particular have been identified as vulnerable to the adverse outcomes of climate change (Pelling 2001; IPCC 2013). It is therefore of concern for the people living in Trinidad and Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the
refers to “ the ability of a system to adapt to climate change (including climate variability and extremes) in order to take advantage of opportunities, moderate potential d
consequences” (WDR 2010, p. 353).
Global patterns of impacts in recent decades
This thesis focuses on the various impacts livelihoods, in particular for microfinance users in
vulnerable to climate change than developed countries, as the poor have limited adaptive (Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts
he World Bank (2010) states that, progress and compro
The Caribbean region and SIDSs in particular have been identified as vulnerable to the adverse outcomes of climate change (Pelling 2001; ). It is therefore of concern for the people living in Trinidad and Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the
refers to “ the ability of a system to adapt to climate change (including climate variability and extremes) in order to take advantage of opportunities, moderate potential d
consequences” (WDR 2010, p. 353).
Global patterns of impacts in recent decades
This thesis focuses on the various impacts of CC livelihoods, in particular for microfinance users in
than developed countries, as the poor have limited adaptive (Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts
he World Bank (2010) states that, progress and compromise the well
The Caribbean region and SIDSs in particular have been identified as vulnerable to the adverse outcomes of climate change (Pelling 2001; ). It is therefore of concern for the people living in Trinidad and Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the
refers to “ the ability of a system to adapt to climate change (including climate variability and extremes) in order to take advantage of opportunities, moderate potential d
Global patterns of impacts in recent decades attributed to climate change
of CC for the human system and people´s livelihoods, in particular for microfinance users in T&T. Developing countries are more than developed countries, as the poor have limited adaptive (Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts he World Bank (2010) states that, Left unmanaged, climate change will mise the well-being of current and future The Caribbean region and SIDSs in particular have been identified as vulnerable to the adverse outcomes of climate change (Pelling 2001; ). It is therefore of concern for the people living in Trinidad and Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the
refers to “ the ability of a system to adapt to climate change (including climate variability and extremes) in order to take advantage of opportunities, moderate potential d
attributed to climate change
Source: IPCC (2013), p.4 for the human system and people´s
. Developing countries are more than developed countries, as the poor have limited adaptive (Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts Left unmanaged, climate change will being of current and future The Caribbean region and SIDSs in particular have been identified as vulnerable to the adverse outcomes of climate change (Pelling 2001; ). It is therefore of concern for the people living in Trinidad and Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the
refers to “ the ability of a system to adapt to climate change (including climate variability and extremes) in order to take advantage of opportunities, moderate potential damage, or cope with the
attributed to climate change
Source: IPCC (2013), p.4 for the human system and people´s
. Developing countries are more than developed countries, as the poor have limited adaptive (Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts Left unmanaged, climate change will being of current and future The Caribbean region and SIDSs in particular have been identified as vulnerable to the adverse outcomes of climate change (Pelling 2001; ). It is therefore of concern for the people living in Trinidad and Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the
refers to “ the ability of a system to adapt to climate change (including climate variability amage, or cope with the Source: IPCC (2013), p.4 for the human system and people´s . Developing countries are more than developed countries, as the poor have limited adaptive (Stern 2007). Hence, poor households are most adversely affected by climate change (Satterthwaite 2007). It is therefore a particular concern for development efforts Left unmanaged, climate change will being of current and future The Caribbean region and SIDSs in particular have been identified as vulnerable to the adverse outcomes of climate change (Pelling 2001; ). It is therefore of concern for the people living in Trinidad and Tobago. Chapter 6 gives a detailed overview of the problem of climate change for the
refers to “ the ability of a system to adapt to climate change (including climate variability amage, or cope with the
2.2.2 Climate change adaptation and mitigation:
Typically two measures have been defined as a response to climate change: adaptation and mitigation, whereby mitigation initially received more attention than adaptation (Paavola & Adger 2005). While climate change adaptation aims at alleviating the adverse outcomes of a changing climate, mitigation strategies intend to reduce greenhouse gas emissions (GHS), in order to prevent and / or limit global climate change (Füssel & Klein 2006, p. 303). More precisely mitigation can mean “using new technologies and renewable energies, making older equipment more energy efficient, or changing management practices or consumer behavior” (UNEP 2015). Both mitigation and adaptation strategies can be implemented on different scales; yet mitigation outcomes are beneficial for all systems as they aim at reducing the overall GHG emissions and thus the intensity of climate change. Adaptation strategies are developed for specific systems most often for and on a local or regional level; they therefore benefit selected systems (Füssel & Klein 2006). The following table depicts different mitigation strategies that have been proposed over the years.
Table 1: Mitigation Strategies
Sector Mitigation Strategies
Energy Supply
Switch to more efficient and sustainable energy resources, i.e. gas and renewable heat and power; early applications of carbon dioxide capture and storage (CCS) (e.g. storage of removed CO2 from natural gas); CCS for gas, biomass and coal-fired electricity generating facilities; advanced nuclear power; advanced renewable energy, including tidal and wave energy, concentrating solar, and solar photovoltaics.
Transport
More fuel-efficient vehicles; hybrid vehicles; cleaner diesel vehicles; biofuels; modal shifts from road transport to rail and public transport systems; non-motorised transport (cycling, walking); land-use and transport planning; higher efficiency aircraft; advanced electric and hybrid vehicles with more powerful and reliable batteries.
Buildings
Efficient lighting and daylighting; more efficient electrical appliances and heating and cooling devices; improved cook stoves, improved insulation; passive and active solar design for heating and cooling; alternative refrigeration fluids, recovery and recycling of fluorinated gases; integrated design of commercial buildings including technologies, such as intelligent meters that provide feedback and control; solar photovoltaics integrated in
buildings.
Industry
More efficient end-use electrical equipment; heat and power recovery; material recycling and substitution; control of non-CO2 gas emissions; and a wide array of process-specific technologies; advanced energy efficiency; CCS for cement, ammonia, and iron manufacture; inert electrodes for aluminium manufacture.
Agriculture
Increase soil carbon storage by improving crop and grazing land management; reduce waste and inefficiency; improved rice cultivation techniques and livestock and manure management to reduce CH4 emissions; improved nitrogen fertilizer application techniques to reduce N2O emissions; dedicated energy crops to replace fossil fuel use; improved energy efficiency; improvements of crop yields.
Forestry/forest
Afforestation; reforestation; forest management; reduced deforestation; harvested wood product management; use of forestry products for bioenergy to replace fossil fuel use; tree species improvement to increase biomass productivity and carbon sequestration; improved remote sensing technologies for analysis of vegetation/soil carbon sequestration potential and mapping land-use change.
Waste
Landfill CH4 recovery; waste incineration with energy recovery; composting of organic waste; controlled wastewater treatment; recycling and waste minimization; biocovers and biofilters to optimize CH4 oxidation.
Source: IPCC 2007; UNEP 2015 Since the third Assessment Report of the IPCC in 2001 climate change adaptation has become the focus of attention for many researcher and policy makers (Adger et al. 2005). Many definitions have been developed over the years; for the purpose of this research the definition by Adger et al. (2005) is used. They define adaptation as an adjustment in ecological, social or economic systems in response to observed or expected changes in climatic stimuli and their effects and impacts in order to alleviate adverse impacts of change or take advantage of new opportunities (p. 78). The development of specific adaptation strategies is crucial to combat the adverse outcomes of climate change and reduce vulnerabilities, especially for people whose livelihood depends on or can be destroyed by, climate related changes or shocks. Climate alterations can destroy income generating
resources, such as crops and livestock; damage properties and infrastructure; or even cause people’s death directly (World Bank 2010). Low-income households have limited income, but assets and capabilities. These can be enhanced and strengthened, in order to reduce climate vulnerability (ADB et al. 2003). These assets were defined as social capital, natural capital, physical capital, human capital, and financial capital in section 2.1. According to Moser and Satterthwaite (2010) vulnerability is closely linked to a lack of assets. The more assets people have, the less vulnerable they generally are; the greater the erosion of peoples assets, the greater their insecurity (p. 7). As noted in section 2.1 people pursue different strategies to adapt to vulnerabilities; such as combining and accumulating different assets or risk diversification. Table 2 displays some specific adaptation measures that have been developed by locals and regional or national institutions over time. Overall, successful adaptation can reduce vulnerability to climate change and enhance adaptive capacity across scales (Bryan et al. 2009).
Table 2: Possible adaptation strategies for different sectors
Sector Adaptation Strategies
Water
Expanded rainwater harvesting; water storage and conservation techniques; water re-use; desalination; water-use and irrigation efficiency
Agriculture
•Technological development: develop improved crop varieties; early warning systems / weather forecasts on a daily and seasonal basis; land and water management systems; integrated pest management
•Government subsidies: agricultural subsidy among other, farmer´s support services to cushion farmers against the impact of climate variability
•Change farm production practices: usage of different crop types, planting trees, soil conservation, changing planting dates, irrigation, land use, diversify livestock, use of other technologies (Greenhouse farming), change from farming to non-farming practices
•Farm financial management: crop insurance, crop shares and futures, income stabilization programs, diversify household income
Infrastructure/Settlement (including coastal zones)
Relocation; seawalls and storm surge barriers; dune reinforcement; land acquisition and creation of marshlands / wetlands as buffer against sea level rise and flooding; protection of existing natural barriers.
Human Health
Heat-health action plans; emergency medical services; improved climate-sensitive disease surveillance and control; safe water and improved sanitation.
Transport
Realignment / relocation; design standards and planning for roads, rail and other infrastructure to cope with warming and drainage.
Energy
Strengthening of overhead transmission and distribution infrastructure; underground cabling for utilities; energy efficiency; use of renewable sources; reduced dependence on single sources of energy.
Shelter/Buildings
Built and rebuilt in a more climate adjusted way, so that floods cannot destroy them so easily; relocate to less climate sensitive areas; install flexible flood and typhoon resistant houses that can be easily restored after a disaster hits.
Source: Own representation based on: Smit & Skinner 2002, p. 96-97; IPCC 2007, p. 57; Lobell et al. 2008, p. 607; Apata et al. 2009, p. 14; Bryan et al 2009, p. 418; Ngigi 2009, p. 42 Adaptation and mitigation strategies do not have to be separated from each other; they can also be complementary. Laukkonen et al. (2009) argue that both measures have to be combined appropriately on a local scale in order to ensure sustainable development. This can for example mean that farmers opt for greener farming practices, because they are more climate resistant. In addition, greener techniques reduce the use of pesticides and harmful emissions, which would be classified as mitigation.
This thesis focuses on local adaptation and mitigation measures of microfinance users in Trinidad and Tobago. It is further stressed how the Trinidadian microfinance institutions engage with the topic. In addition an overview of existing government strategies towards climate change is given, in order to present the institutional circumstance in which the microfinance clients operate (see chapter 5).
2.2.2 Perception of climate change and barriers to adaptation and mitigation
The previous section described the severity of a changing climate and the need for adaptation. However, changes in the climate are perceived differently across groups and regions. A study by the Gallup Institute revealed that two thirds of the world´s population has knowledge about global warming, one third, however, is not aware of global warming, nor its negative impacts. Climate change awareness ranges from 15 % awareness in Liberia to 99 % in Japan. The severity of perception can vary across regions and people; sometimes people, who live in the most vulnerable regions, such as Asia or Sub-Saharan Africa, feel the least threatened by climate change3 (Pelham 2009; Pugliese & Ray 2009). This discrepancy in perceptions among people who are actually affected, but are not aware of climate change can be of concern for both adaptation and mitigation. Different studies have noticed the importance of climate change perception as an important prerequisite for adaptation and mitigation (Hansen et al. 2012; Vogel & O´Brien 2006; Thomas et al. 2007; Osberghaus et al. 2010)). In other words, if people are not aware of climate change, they might fail to implement proper adaptation measures. However, this does not mean that perception automatically leads to action. People might still not take any measures, which was revealed by literature on climate change adaptation (Smit et al. 1996; Bryan et al. 2009).
On this note barriers to climate change adaptation and mitigation are explained. Main constraints are on all levels are financial and technological barriers, the acceptance of new technologies, the lack of knowledge and information about adaptation strategies, the availability and access to alternative resources and technologies (IPCC 2007). On the household level limited access to financial resources is one of the main constraints towards successful adaptation. A study by Bryan et al. (2009) among farmers in Ethiopia and South Africa revealed that even though the majority of the farmers were affected by climate change, only a limited number actually adapted to it. Reasons were shortage of land, poor soil fertility, shortage of labor, shortage of farm inputs, lack of information and knowledge, lack of farm animals, lack of access to credit / money, lack of water, insecure property rights and lack of market access. In South Africa credit / money restrictions was the biggest constraint, it was named by 36% of the farmers. In Ethiopia shortage of land (27%) was the prevalent constraint, still 21 % named a lack of access to credit as the main barrier for adaptation.
In this thesis investigations on climate change perceptions are carried out to a certain extent. Microfinance users were asked if they perceived changes in the climate over the past,
3
Various factors determine people´s risk perception on climate change. For studies on determinants of climate change perception please review: Whitmarsh 2008; Leiserowitz 2006; Brody et al. 2008; Semenza et al. 2008; Spence et al. 2011; Völker et al. 2011; Safi et al. 2012; Barnes et al. 2013.
and if yes what kind of changes they perceived. However, the purpose of this research was not to reveal determinants of climate change perception.
2.3 Microfinance, income generation and poverty reduction
The term microfinance refers to the provision of small-scale financial services, such as credits, savings or insurances to poor people, usually in developing countries. The concept became popular through the work of Nobel literate and founder of the Grameen Bank, Muhammad Yunus. During the 1980s the concept of the Grameen Bank became a success and was adopted in many other countries around the world (Robinson 2001). Initially institutions mainly focused on the supply of microcredits, therefore the two terms were sometimes used interchangeably. Over the past two decades the term has evolved and microfinance now includes a range of financial services, such as insurance, fund transfers and savings (CGAP 2015). The services can be provided either on an individual level or through community or group based lending and saving schemes (Armendáriz & Morduch 2005). It targets those people, who are excluded from the formal financial sector, mostly women or the rural poor (Hammil et al. 2008). Commercial banks usually do not offer financial services to poor people, due to a lack of collateral or a regular income. Moreover, commercial banks often state that the provision of microfinance is not profitable for them (IDB 2011; World Bank 2014). The idea of microfinance has therefore contributed greatly to the financial inclusion of low income households. Still, two billion adults remain unbanked (Demirguc-Kunt et al. 2015). Among those, financial services are most often obtained via informal sources, such as moneylenders. The idea is that microfinance institutions fill the gap between supply and demand for financial services and provide them to the excluded population.
Microfinance services, especially loans, can be used for income generating activities, such as investments in a new business or for business expansion. Ideally this investment results in a higher income and improves people’s livelihoods and strengthens their livelihood assets (Human, natural, financial, physical and social capital). However, microfinance services are not exclusive to small entrepreneurs. People in wage labor might also use them to diversify and enhance their capital base (CGAP 2015). An adequate access to financial services helps households to build assets, manage risks, and smooth consumption. Especially savings and insurance services are of importance for households risk management strategies (World Bank 2014). Microfinance services can be provided via various different organizations, including commercial banks, government institutions, international organizations, insurance companies, credit unions and NGOs (Armendáriz & Morduch 2005).
For the purpose of this research all possible providers and forms of small-scale financial services are relevant.
In recent years much attention has been paid to the actual impact of microfinance services on poverty reduction (Morduch 2000; Rosenberg 2010; Armendariz & Labie 2011; Banerjee et al. 2014). It has been critiqued that institutions do not pay enough attention to the processes and vulnerabilities that influence peoples attempts to generate a income for themselves and their families. Moreover, it was observed that microfinance clients sometimes do not use loans for the stated purpose, but rather for consumption smoothing or other purposes (Bateman & Chang 2009). Overall, these studies report a mixed picture of the actual impact of microfinance programs (Verrest 2013). Yet, programs that focus on the provision of microcredit and Business Development Programs (BDPs) for small and micro enterprises (SMEs) have been proposed as successful tools in the development process of low income countries. In the Caribbean SMEs built the backbone for most economies and make up the majority of the businesses. Overall they contribute about 40% to the Gross Domestic Product (GDP) and 50% of employment, whereby the majority operates in the informal sector (CANARI 2014). These structures can also be found in Trinidad and Tobago. Over the past 15 years more and more attention was drawn towards the SME sector and business development programs that could lift people out of poverty (Kataroo-Ragbir 2013). This thesis draws on this development and researches how the Trinidadian microfinance institutions support climate change adaptation and mitigation among Trinidadian microentrepreneurs. The following section will elaborate more on the concrete thematic. Furthermore, chapter 4 provides a detailed overview of the microfinance sector in Trinidad.
2.4 Microfinance as a tool to adapt for and mitigate climate change?
The following section brings together the different concepts explained so far and therefore simultaneously illustrates the core issue of this thesis, which is the role of microfinance in climate change adaptation and mitigation with field data from Trinidad and Tobago. The conceptual scheme demonstrates the relationships between the different concepts (see section 4.4). The specific research questions were defined in the introduction.
Although the concept of microfinance has now been promoted for several decades, as has the challenge of climate change for development efforts around the world, the idea of microfinance institutions engaging with the problems of climate change and promoting climate change adaptation and mitigation is a relatively new topic. It only evolved during the past decade and literature on the topic is therefore limited. This section describes strategies
and examples on how institutions can support clients on adaptation and mitigation. But first it is discussed why MFIs would even engage with the topic. The reason is that climate change is not only a threat for the livelihoods of the microfinance clients, but also for the MFIs themselves. Promoting adaptation and mitigation can therefore provide several opportunities for both, the institutions and the clients. In 2011 the IDB released a detailed document engaging with the topic. The authors state that the clients of microfinance institutions are more vulnerable to the adverse outcomes of climate change than clients of commercial banks. Microfinance clients live and operate in areas and sectors which are most vulnerable to CC. They have limited resources and environmental changes can interrupt their economic activities and thus affect their loan repayment capacity negatively. Therefore several risks resulting from climate change can affect the business operations of MFIs: (1) delays and default on payments from clients, resulting from productivity losses due to CC; (2) greater uncertainty with regard to interest rates, because of loan defaults from CC affected clients could result in altered interest rates; (3) a lack of liquidity, if clients withdrawal their savings after severe climate events; (4) negative impacts on repayment culture in general, if debts are forgiven after clients were affected by a climate related shock; (5) Loss of facilities and assets, like MFI offices or equipment, if MFI is based in climate prone area (Gutiérrez & Mommens 2011). Therefore it is also of interest to the MFIs that clients successfully adapt to climate change. Moreover, engagement with CC adaptation and also mitigation offers new business opportunities for MFIs. By facilitating services related to climate change adaptation and mitigation, such as microcredits for technical irrigation, installation of mini-greenhouses, use of improved seeds and crop varieties, less energy intensive technologies and many more, MFIs can expand their market portfolio and thus increase demand for MFI services. Furthermore, MFIs engaging with the topic of CC have the opportunity to access additional sources of financing. Several funds exists, which were designed to finance projects, that intend to reduce GG emissions and facilitate adaptation mechanisms. Although these funds were not specifically designed for MFIs, it is possible to access them as a MFI. Such funds are for example the Adaptation Fund or the World Bank climate investment fund (Ibid 2011). Therefore microfinance institutions should incorporate the problem of climate change into their business activities, reducing vulnerabilities for the institution itself and the clients. Adaptation
In the past sections it has been discussed that poor households are most adversely affected by climate change. These are also the households which are usually not reached by formal financial institutions and thus targeted through microfinance institutions. Access to
financial services is crucial for a successful adaptation to climate change, as money is needed to pursue the different adaptation strategies described in section 2.2.1 (Bryan et al. 2009; Ngigi 2009). Financial services such as credits, savings and especially insurances can support adaptation strategies and reduce climate vulnerability. Microfinance services can sustain people´s livelihood asset base via different effects: 1) direct income effects, 2) indirect income effects, e.g. education and training and 3) non-monetary effects, such as stronger social networks or increased confidence (Hammill et al. 2008; Agrawala & Carraro 2010).
Financial services provided by microfinance institutions can have various positive impacts. Loans can provide the financial resources needed to buy tools and equipments or to replace damaged and lost assets. Loans can also finance disaster preparations and the diversification of livelihood strategies towards more disaster resilient livelihoods. Savings can be used to rebuild houses or for consumption matters after a climate related shock (floods, storms, landslides, forest fires, salt water intrusion and so on). The same holds for index based weather insurances, which pay out a certain amount of money to their clients to rebuilt their houses. Cropinsurances can be useful, if a farmers harvest was destroyed by heavy rainfalls or other climate related events (Hammill et al. 2008; Rippey 2009; Agrawala & Carraro 2010). Successful microfinance programs towards climate change adaptation have already been reported by some researchers. In Bangladesh and Nepal significant projects were implemented. These were mostly credit programs, supporting crop diversification, improving access to irrigation, and provision of better sanitation facilities (reducing water borne diseases). Some programs also supported the construction of water resistant housing and the adoption of drought and salt tolerant seeds (Agrawala & Carraro 2010). Similar projects have been reported from Latin America (Gutiérrez & Mommens 2011). It is therefore apparent that there is a potential for microfinance institutions to support clients in adapting to the adverse outcome of a changing climate.
Mitigation
The concept of CC mitigation has also attracted the attention of MFIs over the past years and researchers refer to it as green microfinance. Even though a clear definition of the concept does not yet exist, some first definitions of the term have been proposed. Green microfinance can therefore be defined as “any environmentally friendly initiatives implemented by an institution that provides microfinance services” (Forcella 2013, p. 10). This could include the establishment of an environmental policy; programs to reduce energy consumption within the institution; clients' environmental risk assessment; microcredits for environmentally friendly technologies, such as: renewable energy systems or interventions for
