Drought-affected maize field in Kenya
Affected maize field during a 2018 drought.

Boosting the Resilience of Kenya’s Most Climate-Vulnerable Communities Through Innovative Climate Finance

By Nathanial Matthews

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 world. In semi-arid Kenya, farmers and pastoralists face an uphill battle in 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, they are often seen by banks 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.

Image

Group playing a risk-contingent credit game as part of financial education in Kenya.
Group playing a risk-contingent credit game as part of financial education in Kenya.

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 loan is interest-free and enables 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 this 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 and feed 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 and brought women into the loan groups that provided them a voice in decision-making in the community and led to further empowerment in the household.

Helping farmers persist through dry seasons

Image

Financial training session in Kenya.

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. Through minimizing risk, the project gives farmers confidence to invest in their farms, increase their resilience against risk and maximize 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.

Country
Kenya
Strategic Objective
Adaptation, Integration
Topics
Climate Finance, Resilience
Region
Africa
Nathanial Matthews headshot

Nathanial Matthews

Nathanial Matthews leads the technical element of GRP’s offering. He provides oversight and leadership into GRP’s Challenge competitions and projects and oversees the technical work streams including: Markets and Innovative Financing, Technology and Infrastructure and Policy. Previously, he was Global Research Coordinator at the CGIAR Research Program on Water, Land and Ecosystems and held various positions in the water sector and private sector. He has also been an advisor and consultant to a wide range of organizations, including McKinsey and Company, UNEP, UNDP, WB, UNESCO, WWF, SIWI and Oxfam. Nathanial holds a PhD in Geography from King’s College London. He is also Senior Visiting Fellow at King’s College London, a Visiting Fellow at the University of East Anglia Water Security Centre and a Fellow of the Royal Geographic Society.

More on the Blog

This blog series features interviews with the winners of the 2020 Climatelinks Photo Contest. This photo, submitted on behalf of SERVIR West Africa, is available on the Climatelinks Photo Gallery.
This blog series features interviews with the winners of the 2020 Climatelinks Photo Contest. This photo, submitted on behalf of iDE Nepal, is available on the Climatelinks Photo Gallery.
The Feed the Future Innovation Lab for Markets, Risk and Resilience (MRR Innovation Lab) invites researchers at U.S. universities to submit proposals for research projects that support our mission to generate and transfer into action innovations that will bolster resilience, keeping rural individuals, households, communities and markets in positions of economic viability from which they can sustain and accelerate a path of inclusive agricultural growth.