Analyzing Effects of Climate Variability in the Nexus of Informal Microfinance Institutions: A Case Study of Tharaka South Subcounty, Kenya

Abstract

Climate variability is variation of climate elements from the longterm mean state on all spatiotemporal scales. Climate variability affects microfinance institutions directly and indirectly through physical and transition risks. However, no studies have analyzed the effects of climate variability in relation to informal microfinance institutions. The study, therefore, aimed to analyze the effects of climate variability in relation to informal microfinance institutions. It used a descriptive study design and multi-stage sampling design. Data was analyzed using thematic analysis, descriptive analysis, and Kendall’s tau-b correlation analysis. The study found a positive trend in climate variability (τ b = 0.174, α>0.05). Local people are highly vulnerable to climate variability as confirmed by 98.7% of the respondents who observed that climate variability affects their livelihoods. This vulnerability stems from the effect of climate variability on access to capital assets and livelihood strategies. Vulnerability to climate variability has a significant negative effect on loan repayment performance, loan access and sustainability, and hence on informal microfinance performance (τ b = - 0.109**, P <0.01). Nevertheless, climate variability increases participation in informal microfinance institutions as shown by the positive relationship with the number of people who joined informal microfinance institutions (τ b = 0.239**, P <0.01) and the number formed per year (τ b = 0.137, P <0.01) from 1981 to 2018. This is because informal microfinance institutions help vulnerable households in building resilience to climate variability as observed by 80.8% of the respondents.. The characteristics of informal microfinance institutions have positive or negative relationships with vulnerability to climate variability. These relationships are and could be further leveraged upon to address effects of climate variability on informal microfinance institutions. Detailed contextual analysis of informal microfinance institutions in the nexus of climate variability is thus imperative to inform actions aimed at cushioning the groups and their members against the impacts.