The Role of Microfinance in Climate Change Adaptation: Evidence from Rural Rwanda

Karin Helwig, Clementine Hill-O'Connor, Michael Mikulewicz, Patrick Mugiraneza, Emanuella Christensen

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Climate change poses serious risks for rural livelihoods and food security in Rwanda. At the same time, a significant number of Rwandan farmers pool their resources together through cooperatives and Village Savings and Loan Associations (VSLAs) in order to increase productivity. Therefore, it is important to consider on the one hand the future impacts of climate change on the microfinance sector in Rwanda, and on the other to ensure that the benefits of
microfinance can decrease rural residents’ vulnerability to climate impacts. This research project focuses on the clients of Urwego Bank, one of Opportunity International UK’s local partners in a development project funded by the Scottish
Government, with the aim to provide microcredit loans to 8,500 smallholder farmers working in government-supported agricultural cooperatives. The study specifically investigates the impacts of small loans on the vulnerability and adaptive capacity of farmers in southern and western Rwanda (Huye
and Rubavu districts).

The study involved field visits to the districts of Huye (Southern Province) and Rubavu (Western Province). Both regions are being increasingly affected by climate change in the form of increasing drought spells and erratic rainfall.

Farmers involved in this study formed part of two distinct forms of associations: a rice cooperative (Huye field site) and VSLAs specialised in potato production (Rubavu site). Membership of these allows access to Urwego Bank loans
used to procure seeds and fertiliser. A total of 28 interviews were conducted: 24 with farmers (20 cooperative/VSLA members and 4 non-members), 3 with Urwego Bank staff and one with a government agency representative. The study
was supplemented by analysis of documents, including government reports and policies, and grey literature. The farmers in the study viewed loans as one of the most effective ways to increase agricultural productivity and income. Loans increase disposable incomes in the short term, allowing farmers to direct resources to other household expenses. The loans also give farmers access to higher quality seeds and fertiliser, helping them to close the ‘yield gap’.
Specific aspects of the Urwego Bank model, including cashless loan delivery, the timing and efficiency of loan disbursement were also valued by the farmers interviewed.

Most participants had direct experience of both droughts and floods in recent years. Farmers reported a range of adverse climate impacts on their crops, which could significantly reduce harvests. These had led to food scarcity, financial
difficulties - with several mentions of struggling to pay for school fees – and migration of labourers. To cope with climate impacts, participants reported to have implemented hydrological solutions (contours and water channels),
changed farming practice (planting earlier, crop rotation, or climate-resilient crops), increased pesticide use, engaged in off-farm income generation or made changes to their financial management. Microloans of fertilisers were perceived to ensure at least some harvest and thus income, even in adverse conditions, which helped participants cope with climate impacts. In some instances, the seeds provided through microloans by Urwego Bank appeared to be of climate-resilient variety.

Microloans were not available for other climate adaptations, such as contour digging, irrigation or pesticide application. Overall, the loans seemed to provide greater financial flexibility which helped with general expenses. However, several participants reported that paying back the loans to the cooperative was challenging after harvests had failed. The financial and ‘good agricultural practice’ training provided by Urwego Bank was generally perceived as helpful by the farmers and appeared to include broader farming guidance not directly related to the seed or fertilisers provided. There was however no evidence that long-term impacts of fertiliser or pesticide use on water and soil quality were considered during the training, something that is recommended in Rwandan government policies. Non-members indicated that not having access to training could be an impediment to adaptation but that they had sometimes learned from

Cooperatives and VSLAs serve both as a safety net and a catapult for their members’ economic and social development by way of enhanced access to loans, training and markets. However, interviews with both members and non-members suggest that there is also the risk of reduced social mobility (involving technical, economic, social and political entry barriers that complicate access to such groups) and consequently growing socio-economic stratification, posing a serious challenge to inclusive development. Study findings do not support the theoretical effectiveness of the ‘trickle-down’ approach to development, whereby increasingly productive farmers will indirectly share their wealth with poorer farmers.

Farmers reported that both the cooperative and VSLAs did not have any major issues with repaying loans for members who have defaulted, which protects Urwego Bank from financial loss. Farmers and Urwego Bank employees highlighted that there is an informal understanding between the Bank and its clients whereby there is a certain degree of flexibility in repayment if crops are negatively affected by changes in weather. While this certainly benefits the clients, questions remain on the financial sustainability of the Urwego Bank model if the frequency and intensity of climate events increases in the future.
Farmers’ feedback on how their livelihoods can be improved include changes to the purpose, scope and timing of loans, training opportunities, meteorological information, crop insurance and connections to other development partners.

The research team suggest a number of recommendations centred on similar issues (loan purpose, training, and crop insurance) as well as on the financial, social and environmental sustainability of the microfinance sector, the needs of young people, partnerships, the need for large-scale investments and future research directions.
Original languageEnglish
Place of PublicationGlasgow
PublisherGlasgow Caledonian University
Commissioning bodyOpportunity International UK
Number of pages36
Publication statusPublished - Apr 2020


  • adaptation
  • microfinance
  • climate justice research
  • Rwanda
  • development policies
  • climate change adaptation
  • climate change
  • Africa


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