Posted by: Stefan Platteau, Global Group Lead, Microfinance
Client Victoriana Mairena, Tonalá, Chinandega with irrigation equipment funded by FDL
Where clients suffer, lenders do too. In Nicaragua, the Fondo de Desarrollo (FDL) was learning this all too well, as their rural clients suffered the consequences of climate change: droughts and then floods, brought on by unreliable rains. As the conditions worsened, FDL was determined to stay true to its mission, which meant that ending rural lending programs was not an option. A green finance product had to be the answer.
In 2013, FDL was one of the first MFIs to win the EcoMicro award, designed for Latin American and Caribbean microfinance institutions (MFIs) to support the development of green finance products, enabling clients to get access to sustainable energy solutions, increase their energy efficiency, or adapt to climate change. FDL worked with EcoMicro to develop a green finance loan product that would help their clients confront the growing environmental challenges, while contributing to sustainability on their farms and in their local ecologies and economies.
In 2014, a consortium headed by Enclude advised on how to directly address the climate change concerns through an aligned financial product. The Enclude team focused on developing the multi-component “Producto Financiero Verde” (PFV), which offers farmers medium- to long-term loans to invest in measures that adapt their farms to climate change realities. To ensure the technical viability of the types of measures that would be funded, Enclude has partnered with Climate Focus, for an in depth study on the effects of climate change on major local crops, and the respected agricultural research bureau Nitlapán, to develop the technical specs of a series of adaptation measures for farmers. In close coordination with FDL, agronomists of Nitlapán then advised farmers on the most effective climate change adaptation measures, from a menu that included water harvesting, irrigation usage, agroforestry measures, soil conservation, and crop diversification.
In 2015 in Western Nicaragua, a region highly vulnerable to increased drought, a pilot test of the resulting product showed that the Producto Financiero Verde can make a difference in the lives of farmers and the environment.
Two hundred twenty-six farmers took a PFV loan (average USD 2,000) to invest in one or more climate adaptation measures. Over 50% of the farmers increased their income. FDL will roll out the product to 500 farmers in 2016.