Financial markets often operate under gender biases that further conditions of credit scarcity among women in low- and middle-income countries. Highly gendered decision making in the governance of these banks diminishes the flow of capital into women’s projects and to women’s enterprises. This restricted access to credit services particularly hurts women-headed households. With women borrowers also being generally associated with lower portfolio-at-risk, lower write-offs, and lower credit-loss provisions, development organizations have, over the last decades, focused on extending credit to women to lift them and their families out of poverty.
Microcredit refers to the practice of giving a small loan to someone living in a low-income country to improve small business ownership and increase their household’s disposable income. When they pay back the loan, the money is recycled and extended to more borrowers to do the same. This form of microfinancing has largely been self-sustaining as it uses creative methods to reduce the transaction cost of the loan and the risk of default from the borrower. Not surprisingly, the microcredit movement has been undeniably successful in opening up financial services to low-income people across several countries, but its promise to eradicate or significantly alleviate poverty remains unmet. A randomized evaluation in six countries on four continents, urban and rural areas, concluded that the success of these programs is more anecdotal than empirical.
In climate-vulnerable countries, most located in low- and middle-income regions, women’s scarce access to credit is a critical concern. With women’s lives and livelihoods often tied to their natural resource base and without the purchasing power to participate in climate mitigation and climate adaptation markets, the loss incurred by women from environmental degradation tends to be significant and the opportunity to recover is limited without microcredit programs. Financial markets that allow for the opening of a savings account, provide forms of borrowing, and support income-generating activities, become necessary for the wellbeing of women living under these conditions.
Climate change can, in effect, behave as an enabler for women’s economic prosperity. In an anecdotal account, a woman who received a loan for consumption purposes utilized the refrigerator they purchased to offer cooling services for drinks, ice production, and storage facilities for their neighbors at a fee. This anecdote highlights the general pattern for low-income women to transform their consumption goods into capital goods that generate income in the informal economy. Such income-generating activities become critical for household’s wellbeing during times of instability and extreme weather events.
Women remain a largely untapped resource in the fight against climate change and it would be unwise to continue to exclude them as the impact of humankind’s climate crisis has begun to already hit low- and middle-income countries. With the economic gender gap growing wider, the financial inclusion of women in environmental efforts could provide the missing empowerment this demographic needs.