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Innovative Finance: Boosting Resilience in Kenya’s Climate-Vulnerable Communities

This post originally appeared on Climatelinks and was written by Nathanial Matthews of The Global Resilience Partnership (GRP).

The ability of the world’s poorest farmers and pastoralists to adapt to a changing climate will affect the food security of millions across the globe. In semi-arid Kenya, farmers and pastoralists face an uphill battle making a living in a precarious environment from season-to-season and building long-term resilience to climate change, which threatens local economies and food systems.

Farmers and pastoralists lack the financial capital to build their assets and mitigate the effects of unreliable rainfall and droughts. Banks often seem them as risky customers who don’t have the collateral needed to take out loans. Without sufficient financing, farmers can’t invest in their farms or support themselves when disasters strike.

The Global Resilience Partnership (GRP) partnered with USAID to discover innovative ways to bring financing to these communities, de-risk lending to farmers and pastoralists and help them build sustainable, resilient livelihoods.

Developing a unique loan system

Wajir County is home to half a million pastoralists, with 80 percent of their wealth from livestock. Their pasture, water systems and herds all depend on rainfall. Loans can make their businesses more efficient and resilient in the face of drought. In addition to the lack of financing for farmers in the region, previous loans were not compliant with the requirements of Sharia law and Muslim principles, which was problematic for the majority of the Muslim community.

Through GRP’s partnership with USAID, Mercy Corps worked with local credit lending institutions to develop a unique Sharia-compliant loan for livestock traders and pastoralists and financial training to ensure that groups take on loans effectively. The loans are interest-free and enable the sharing of business profits and losses between the financier and trader. Risk is spread across the network and not in the hands of those most affected: the pastoralists. The loans help strengthen the vital network of livestock trader groups by involving pastoralists, traders and market vendors selling animal feed.

During the pilot project, pastoralists were able to buy feed and animals every two weeks, increasing the quality of the livestock they sell to terminal markets in Nairobi, which were linked to trading agreements as part of the project. The project enhanced incomes that benefited the entire local community, bringing women into the loan groups. This provided women a voice in decision-making in the community and led to further empowerment in the household.

Helping farmers persist through dry seasons

Another USAID-supported partnership, the International Food Policy Research Institute (IFPRI), has developed a product called “Risk Contingent Credit,” which is a loan in the form of farming inputs linked to a rainfall index. In the event of failed rains, farmers with Risk Contingent Credit will have loan repayments covered to buffer against poor harvest. This system provides a much-needed social safety net. Farmers can persist through failed rains and poor harvests without their businesses entirely collapsing. By minimizing risk, the project gives farmers confidence to invest in their farms, increasing their resilience against risk and maximizing their incomes. This IFPRI project is part of the partnership’s broader work with farmers and credit lending institutions to extend loans to hard-to-reach communities in Africa in order to manage climate risks and build long-term resilience.

These innovative projects based on collaboration and partnership are working towards an inclusive financing system with Kenyan farmers and herders to decrease lending risks and ensure resilient food systems can thrive. Watch this video to learn more about these projects in action.