Finding Financial Solution For Climate Vulnerable Communities In Bangladesh

Bangladesh is located in one of the largest river deltas in the world and is consequently prone to climate disasters. Every year, the country sees severe riverbank erosion. It worsens during the monsoon season in areas along the Jamuna, Padma, and Meghna rivers. 

According to reports, river erosion claims around 8,700 hectares of land annually, affecting over 200,000 people. The crises do not always receive the necessary funds and relief. So, they largely depend on financial investment for recovery. 

Micro Finance Institutes (MFIs) play a vital role here, offering small and flexible loans. However, their higher interest rate remains unaffordable to the climate-affected population. Due to the lack of comprehensive credit information, it becomes difficult for MFIs as well to operate in places. 

On the other hand, bank loans are not easily accessible to community members for its complicated processes and documentation requirements. Sometimes, the banks offer small climate-sensitive loans that are negligible compared to the growing demand and fail to address the broader impacts of climate change. 

Both banks and MFIs face challenges like delayed repayments and growing loan demands caused by frequent climate shocks. These challenges underline the urgent need for solutions to reduce the impact of climate-induced disasters.

The United Nations Development Programme (UNDP) Bangladesh is working with the Bangladesh Bank to strengthen climate mainstreamed reporting of the banks and financial institutions by developing Climate Damage Function (CDF). It will safeguard assets and enhance resilience in climate-affected areas. This tool will also help banks and financial institutions to design innovative blended finance model to increase financial flow to the most affected communities.

For example, Merina Begum, a resident of Char Alatuli Union in Chapai Nawabganj, is forced to leave their household with 1200 others because safe drinking water became inaccessible to them due to river erosion.  

"The river is taking over our land. We live in constant fear of displacement and struggle to find clean water", said Merina Begum.

Many like Merina, are suffering in Kurigram, Netrokona, Moheshkhali, and other climate vulnerable areas.

By developing this Climate Damage Function and implementing blended finance approach, UNDP aims to enhance financial accessibility for climate-vulnerable communities. This model will ensure that financial institutions are better equipped to address climate challenges while prioritizing long-term sustainability. 

UNDP along with the funding from the Government of Sweden and Foreign, Commonwealth & Development Office (FCDO) is working closely with the Government of Bangladesh, regulators and financial institutions to bridge financing gap for climate action. 

With strengthened financial support mechanisms, Bangladesh can take a significant step toward building climate resilience and securing the livelihoods of its most at-risk populations.