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.
Highlights
IntroductionIntroduction variabilityThe financial sector addresses climate risks in various ways including integrating the risks into lend-Climate variability is the variation of climate elements from ing decision making processes, capacity building, focus the longterm mean state on all spatial and temporal scales on low risk investments and leveraging on mitigation and [1,2]
Introduction variabilityThe financial sector addresses climate risks in various ways including integrating the risks into lend-Climate variability is the variation of climate elements from ing decision making processes, capacity building, focus the longterm mean state on all spatial and temporal scales on low risk investments and leveraging on mitigation and [1,2]
Detailed contextual analysis of informal microfinance institutions in the nexus of climate variability is imperative to inform actions aimed at cushioning the groups and their members against the impacts
Summary
Introduction variabilityThe financial sector addresses climate risks in various ways including integrating the risks into lend-Climate variability is the variation of climate elements from ing decision making processes, capacity building, focus the longterm mean state on all spatial and temporal scales on low risk investments and leveraging on mitigation and [1,2]. Just like other economic sectors, microfi- repayment burdens without increasing the risk of default nance institutions are affected by climate variability [6] with [26,33,34]. Those in low income countries being more vulnerable [7]. Is aggravated by the high vulnerability of their clients who The risks and opportunities posed by impacts of climate mainly earn low incomes, inhabit marginal areas and largely variability on microfinance institutions are not clearly undepend on climate sensitive economic activities [8,9]. In derstood and integration of the existing knowledge into a study on the dynamics of microfinance and financial vul- their decision making processes is minimal [8,12,16,35]
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