In world of extreme weather, plan financial inclusion for the weakest

Poor households are the most vulnerable in extreme weather. Women bear a disproportionate burden as they source scarce water and work in high temperatures

Brown slopes greeting winter tourists in the Himalayas are the latest in a series of headlines on climate change. The year 2023 was the world’s warmest on record. For India it was the second-warmest after 2016, with monsoon rainfall hitting a five-year low. This change hasn’t happened overnight. Research by the Council on Energy, Environment and Water found startling numbers: 2005 had 140 floods, a record, in 69 districts. The number of affected districts rose to 151 in 2019. As much as 80 per cent of India lives in districts vulnerable to extreme climate events; a third of the districts are switching rainfall patterns. Flood-prone areas are becoming drought-affected and vice versa. Heat waves are increasing in frequency and intensity, and we have flash floods due to short bursts of high-intensity rainfall.

The impact of weather shocks on local economies is obvious: The most vulnerable are low-income households and financially stressed small businesses. Women bear a disproportionate burden, as they source scarce water and work in higher than normal temperatures. Financial inclusion is aimed at serving this segment of low-income, informal households, and the costs of extending services are becoming tougher with the challenge of extreme weather. While our financial inclusion mission has spread across the country, there are dark spots of access and usage even in basic banking. Financial service providers may back off from reaching out in areas where financial viability is already strained, and climate change is making daily household finances even more unpredictable. The onus now lies on the government.

Here, the first step would be to ensure as granular data as possible for weather prediction. The India Meteorological Department (IMD) has made a beginning by launching panchayat-level daily weather updates on an app. Granularity calls for a significant upgrade of data collection infrastructure at more locations, particularly in urban areas. For instance, when it comes to urban heat waves, these are declared at a metro sub-division level with a temperature threshold. But there can be significant neighbourhood variation – temperatures in the concrete core of a city and its relatively green border can differ by as much as 20 degrees Celsius. This means that daily-wage workers working and living in urban heat islands need attention.

The next step would be decentralisation and building hyper-local climatic factors in policies and action plans. The National Disaster Management Authority (NDMA) held a workshop in January to discuss heat action plans (HAP), bringing out recommendations on early warning systems and urban planning. What is important is that financial inclusion measures can be woven into the HAPs through products like heat-linked insurance plans, direct benefit transfers ahead of the event, or even by financing credit under priority-sector loans for interventions at the household level like cool-roofing material.

NDMA’s approach of collaboration across stakeholders should be extended to include financial service providers. Similarly, the IMD’s National Framework for Climate Services should link to financial services.

Sensitising of the banking and financial services industry on hot spots for extreme weather events can bring out innovative savings, insurance and credit products.

Every Indian needs to be made aware that it is not business as usual. With sea surface temperature graphs spiking beyond previously imagined limits, climate scientists are now working in uncharted territory.

The World Economic Forum’s ‘Global Risks Report 2024’ put extreme weather at the top of its list of crises. While the challenge is huge, implementation will be hyper local. It is time to work together and strengthen financial resilience at the bottom of the pyramid.

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The writer is CEO and senior fellow, Indicus Foundation