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Without rural finance, mitigation and adaptation is futile. Rural resilience starts with developing innovative financing mechanisms.



This project entail the establishment of a revolving loan fund to provide concessional loans to individuals and institutions to enable them to  initiate projects or obtain loans that can improve the livelihoods of rural people.  Using a Microfinance-Climate Finance Framework that I developed and was nominated for the 2014/2015 UNDP MDG Carbon Climate Finance Innovation Award, the project will be able to improve rural resilience of Sub-Saharan Africa countries by removing some barriers that lead to poverty, environmental degradation and food insecurity in Africa. High interest rates and low levels of financial inclusion contribute to rural poverty by deterring investments and use of appropriate technologies in rural areas.  This project will improve the accessibility and affordability of financial and non-financial products and services in rural areas in-order to promote job creation based on inclusive growth that has a focus on youth and gender empowerment, climate change resilience, technology diffusion and transfer, etc.

The Fund will therefore provide loans at 30% effective APR as opposed to 60-120% effective APR from other financial institutions hence saving marginalised households approximately $108.00 - $252.00 annually and agribussinesses/entrepreneurs/NGOs 100%-400% of their borrowing costs.

Category of the action

Mitigation/Adaptation, Changing public attitudes about climate change

What actions do you propose?

In-order to foster sustainable development and effective climate change management, various countries have adopted different approaches, visions, models and tools in accordance with their national circumstances and priorities. Even with such flexibility, many countries in Africa such as Malawi have found it challenging to effectively manage climate change impacts as there are funding and knowledge gaps for effective climate change management (i.e. most people in the country consider climate change as a change in rainfall patterns hence are oblivious to the fundamental aspects that perpetuate susceptibility to climate change and/or measures that they can implement to improve resilience to climate change). In addition to this, poverty is also noted to be influencing communities to undertake unsustainable activities such as the over-exploitation of natural resources (i.e. deforestation) which can provide them with a short-term source of income, but this could be at the expense of the capacity of the environment to be more resilient to adverse weather leading to communities becoming vulnerable to climate change. Climate change is also anticipated to prevent households from escaping poverty, or bring non-poor households into poverty as floods, droughts and disasters can prevent the asset accumulation (i.e. the accumulation of (1) human capital including health and education; (2) physical capital including housing and productive assets; (3) financial capital (currency and savings in financial institutions); (4) natural capital (especially eco-systems and subsoil resources); and (5) social capital including formal and informal networks, institutions, and migrated household members who send remittances) and portfolio diversification for communities (Hallegatte et al., 2014).

Poverty in Africa is characterised by three important features: (i) predominance of rural poverty- poverty is noted to be at least three times higher in rural areas than in urban areas because of poor rural infrastructure, youth unemployment, limited access to quality education and high child labour; (ii) feminisation of poverty- women are noted to have limited access to productive assets such as land due to traditional restrictions on women’s property rights; and  (iii) intensity of informality- most African workers are  noted to be engaged in the informal sector as self-employees or casual employees without a contract and access to social security (UNECA,  2014).  In addition to this, climate change is a threat to global sustainable development and poverty reduction. Consequently, the United Nations Sustainable Development Goals suggest that to end poverty, there is a need to build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social and environmental shocks and disasters. However, levels of Aid to assist with promoting socio-economic development in developing countries are recorded to be falling. New strategies to facilitate rural resilience should arguably be private sector, civil society or non-governmental organisation led pro-poor and gender-sensitive development models that can facilitate investment in poverty eradication actions and inclusive businesses.

Our project entails the establishment of a revolving loan fund which will provide loans at below market interest rates in-order to enable various stakeholders to implement projects that can assist with developing income generating farm and off-farm enterprises in rural areas. Just as the Clean Development Mechanism (CDM) and other carbon trading schemes have encouraged various private sector entities into developing environmentally sensitive projects because the carbon credits act as an incentive which reduce project costs, we are deploying a similar but simpler mechanism where our concessional loans will act as an incentive to encourage various stakeholders to undertake initiatives and enterprises that can enhance rural resilience.

Interventions such as crop diversification, mixed farming, cultivation of drought-tolerant crops, implementation of weather-based insurance schemes for crop and livestock production, irrigation, etc. can all assist with improving rural resilience. However, these interventions need to be supported by auxiliary measure such as increasing access to information, credit and markets, and making a particular effort to reach small-scale subsistence farmers in-order to ensure their effectiveness and uptake (Bryan et al., 2009). In countries where government funding for development and social services is limited, it therefore becomes problematic for effective measures that can improve rural resilience to be undertaken. Revolving funds have been shown to be effective in easing credit constraints by reaching poorer communities, providing financial services to those households which rely on informal lending, and leveraging financial contributions from various sources  (Menkhoff and Rungruxsirivorn 2011) as well as reducing poverty, facilitating the accumulation of assets improving  the social and economic situation of women, contributing to a long-lasting increase in income by means of a rise in investments in income generating activities and to a possible diversification of sources of income (Hermes and Lensink, 2011). This therefore makes our approach and project sustainable and ideal in enhancing rural resilience in the context of Malawi and other Sub-Saharan Africa countries.

Sources of funding to this revolving loan fund will include individuals, governments, multilateral and bilateral development banks, bilateral development cooperation agencies, the private sector, civil society, research and development institutions, and social investors. The framework for our project also aims to also utilise diaspora savings and remittances to improve the sustainability, impact and outreach for the project. This follows that African migrants have the potential to provide more than $100 billion a year to help develop Africa and an there is an estimated $50 billion in diaspora savings that could be leveraged for low-cost project finance (Arezki and Brückner, 2012). Moreover, remittance charges to and within Africa are almost double the global average hence if lowered to reach the world average levels and the 5% G8 target, remittance transfers would increase by $1.8 billion annually (Watkins and Quattri, 2014).


Who will take these actions?

The project will be led by Northern Alliance Financing Corporation Ltd. Northern Alliance Financing Corporation Ltd is a private Microfinance Institution that strives to promote entrepreneurship, job creation and household income security through the provision of innovative financial products and services in Malawi.


Brandenburg University of Technology Cottbus-Senftenberg (BTU) (Germany) is involved in the project to assist with the capacity development, monitoring and evaluation of the project, loan recipients and various stakeholders. Moreover, as a University that has undertaken various studies and research in various countries, BTU is anticipated to support the project in developing more innovative products as the needs and expectations of the beneficiaries change over time.

The Environmental Affairs Department which falls under the Ministry of Natural Resources, Energy and Mining is Malawi’s leading government agency on maters related to environmental management and climate change. The department will be involved in the project to assist with the coordination of other government departments and stakeholders that could have a part to play in the project.

Where will these actions be taken?

This project will be implemented in Malawi in Southern Africa. Malawi is one of the world’s poorest countries, ranking 160 out of 177 countries on the 2009 UN Human Development Index. It is a landlocked country with a high population density - 15.6 million people on 118,484 km2. The GNP per capita was only US$318.00 in 2009. Approximately 85% of the population live in rural areas, with micro-scale farming (mostly subsistence farming) as their main source of income. As the population is very poor, they rely heavily on nearby natural resources for energy purposes, such as fuelwood, which puts great pressure on the environment and farmland (UNEP RISOE, 2013). The intensive use of firewood has caused Malawi to have one of the highest annual deforestation rates in Africa (2.8% per annum). Biomass energy contributes more than 88% of the total energy demand. In urban areas, both firewood and charcoal are distributed, and over half of the urban population uses charcoal for cooking purposes, whereas 38% of the urban and peri-urban population uses firewood. In total, 97% of the rural population uses firewood for cooking (UNEP RISOE, 2013).

Funds permitting within the next eight years, I anticipate to roll out similar projects in other Southern African Development Community countries (SADC) since they share similar challenges in addressing inclusive growth, unemployment and urban-rural inequality like Malawi.  The other fourteen member states of SADC are: Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe.

What are other key benefits?

Africa has the youngest population in the world whereby the continent has almost 200 million people aged between 15 and 24. If Africa’s young population continues to grow rapidly, the number of young people in Africa will double by 2045 and the continent’s labour force will be 1 billion by 2040, making it the largest in the world, surpassing both China and India (UNECA, 2014). This project therefore aims to tackle the problem of youth unemployment first in Malawi and then in the other SADC countries as the project grows.

Youth unemployment can affect the social and economic development of Malawi by perpetuating poverty, crime, political violence and social backwardness. Our project will facilitate the development of financial products and services that are structured to support youth empowerment by providing special youth focused financial products and services to support initiatives that can particularly create jobs for skilled and unskilled youths.

What are the proposal’s costs?

Infrastructure (Information Management System and Website/online portal)- $10,000.00; Fund Capital- $100,000.00; Sensitisation  and Capacity Building- $15,000.00; Monitoring and Evaluation- $5,000.00; Overheads/Liquidity Reserve Funds- $20,000.00; Total- $150,000.00.

The project can inadvertently potentially fund or finance activities that could generate adverse environmental, social and economic consequences on their local communities. This risk will be mitigated by having a section on the application form where the applicant will highlight any potential adverse impacts that their proposal could have on the environment and socio-economic set up. This will be later followed up or verified when undertaking monitoring field surveys.

Time line

The project’s main challenges are mostly in the short term. Securing an initial amount of $150,000.00 to properly implement the project and then capitalising to $500,000.00 so that the fund will be able to be licenced to take deposits are the greatest challenges. Some Malawi microfinance reports indicate that the number of beneficiaries  from comparative microfinance institutions range from 1,500 - 117,356 borrowers and 64,812 - 668,415 depositors depending on the mission, location and focus of the microfinance institutions (Mix market, 2014). An  analysis of these reports concludes that the number of depositors always surpasses the number of borrowers for deposit taking microfinance institutions hence signalling a high demand for savings products. The project focus is therefore not only to be deposit taking in-order to have a higher number of beneficiaries, but because with deposits, it will be possible to mobilise more funds locally which can then assist with the expansion of the Fund not only in malawi but also in the SADC region. Savings interest rates in Malawi range from 3%-10% p.a. while lending rates from microfinance institutions are above 60% p.a. With such a wide margin between deposit rates and lending rates, it can be anticipated that even with the proposed concessional lending of 30% p.a., the savings products and deposits will also greatly assist in enhancing the sustainability, outreach and impact of the project.

Assuming that the project is successful in becoming deposit taking in Malawi in the short term, the medium and long term plans will consists of capitalising the various funds in different SADC countries so that they all become deposit taking microfinance institutions/revolving funds.

Related proposals

I have not identified a Climate CoLab proposals that relates to this proposal.



Arezki, R., Brückner, M. (2012). Rainfall, financial development, and remittances: Evidence from Sub-Saharan Africa. Journal of International Economics 87, pp. 377–385.

Bryan, E., Deressa, T.T., Gbetibouo, G.A., Ringler, C. (2009). Adaptation toclimate change in Ethiopia and South Africa: options and constraints. Environmental science & policy 12, pp. 413 – 426.

Hallegatte, S., Bangalore,M., Bonzanigo,L., Fay, M., Narloch, U.,  Rozenberg,J.(2014). Climate Change and Poverty: An Analytical Framework. Policy Research Working Paper 7126, World Bank Group.

Hermes, N., Lensink, R. (2011). Microfinance: Its Impact, Outreach, and Sustainability. World Development 39(6), pp 875–881.

Menkhoff, L., Rungruxsirivorn, O. (2011). Do Village Funds Improve Access to Finance? Evidence from Thailand. World Development 39(1), pp110–122.

Mixmarket (2014).

UNECA (2014). Assessing Progress in Africa toward the Millennium Development Goals: MDG Report 2014- Analysis of the Common African Position on the post-2015 Development Agenda. United Nations Economic Commission for Africa. Addis Ababa.

UNEP RISØ (2013). Emissions Reduction Profile Malawi. UNEP RISØ CENTRE.

Watkins, K., Quattri, M. (2014). Lost in intermediation: How excessive charges undermine the benefits of remittances for Africa. Overseas Development Institute.