Does access to credit lead to the adoption of climate change adaptation?

Access to credit doesn’t necessarily lead to the adoption of climate change adaptation. That is the main message from a new meta-analysis by the Independent Evaluation Unit (IEU) of the Green Climate Fund (GCF) and the German Institute for Development Evaluation (DEval).

As Nobel laureates Abhijit Banerjee and Esther Duflo noted in 2015, the empirical evidence on the impact of credit offers a mixed story. Many households do not take small loans when they are available. Those that do take loans often see limited benefits. And whilst the average effects are positive, little is known about the effects of credit on the poorest and most marginal borrowers.

The IEU and DEval aimed to fill this gap testing the assumption that improved credit access leads to better climate change adaptation. In this meta-analysis, building upon the recently published evidence gap map of climate change adaptation, the authors reviewed 44 quantitative research articles to assess the role that access to credit plays in supporting households to adopt climate adaptation measures in the agricultural sector in developing countries.

The majority of studies reviewed by the IEU and DEval showed no significant effect whilst just over 10% showed that access to credit actually led to a negative effect on the decision to adopt adaptation measures. Still, one third of studies showed that access to credit increases households’ adoption of measures to adapt better to climate change.

Prof. Dr. Jörg Faust, Director of DEval explained this finding further: “Credit alone is not sufficient to support households to better adapt to climate change. There can be many factors, other than access to credit, that influence individual households’ decisions to adapt their farming practices and livelihoods to climate change. Households may prefer to, or need to, use credit for their immediate consumption goods, rather than for productive investment for mid- to long-term benefits.”

Better targeting of credit could improve its influence on climate change adaptation and ultimately climate resilience. For example, climate funds could provide “financial products specifically aiming at adaptation purposes and delivered under comprehensive programs that include, among others, consumption and transport needs, as well as training, to increase the adaptation benefits of credit for all social groups” said Dr. Martin Prowse, Evaluation Specialist at the IEU and also one of the authors of the meta-analysis report.

While the meta-analysis provides valuable insights, the authors highlight that caution is needed when aggregating studies. For example, study designs, different definitions and units of measurements can complicate the synthesis of effects from many different studies.

For more information, please contact the focal persons below.

About the publication

The publication “Access to credit as a determinant of autonomous adaptation to climate change: A meta-analysis of the evidence in low- and middle-income countries” is available on the IEU’s Evidence Reviews page and the DEval website. The suggested citation for this report is: Fernandez de Velasco, G., G. Leppert, K. Moull, M. Prowse, J. Puri, A. Reumann and L. Sanchez Torrente (2021), Access to credit as a determinant of autonomous adaptation to climate change: A meta-analysis of the evidence in low- and middle-income countries. DEval Discussion Paper 1/2021, German Institute for Development Evaluation (DEval), Bonn, Germany. Independent Evaluation Unit, Green Climate Fund. Songdo, South Korea.

About GCF-IEU and DEval

The Independent Evaluation Unit (IEU) was established by the Green Climate Fund (GCF) Board as an independent unit to provide objective assessments of the results, effectiveness, and efficiency of the GCF and its funded activities. The IEU fulfils this mandate through Evaluation, Learning and Communication, Advisory and Capacity Support, and Engagement. The IEU has approximately 30 people.

The German Institute for Development Evaluation (DEval) is mandated by the German Federal Ministry for Economic Cooperation and Development (BMZ) to independently analyse and assess German development cooperation. The Institute's strategically and scientifically well-founded evaluation reports help make development results more transparent, and provide policymakers with a sounder basis on which to take decisions and make development policy effective. DEval is one of the German Government's ministerial research institutes.

Since August 2018, the IEU and DEval have exchanged technical expertise and knowledge on the evaluation of climate change adaptation in particular.
 

Scientific contacts

Dr. Sven Harten
Head of Competence Center for Evaluation Methodology/
Deputy Director of DEval
Phone: +49 (0)228 33 69 70-950
E-mail: sven.harten[at]DEval.org

Dr. Martin Prowse
Evaluation Specialist
Independent Evaluation Unit (IEU), Green Climate Fund (GCF)
Phone: +82-32-458-7750
E-mail: mprowse[at]gcfund.org

Press contacts

Ms. Jelana Vajen
Head of Press and Public Relations, DEval
Phone: +49 (0)228 33 69 70-980
E-mail: jelana.vajen[at]DEval.org

Ms. Yeonji Kim
Communications Officer
Independent Evaluation Unit (IEU), Green Climate Fund (GCF)
Phone: +82-32-458-7784
E-mail: yjkim[at]gcfund.org