Govt Sets Up Climate Risk Fund to Support Small Farmers Under World Bank Project

The federal government has established the Climate Risk Fund I (CRF-I) under the World Bank’s Resilient and Accessible Microfinance (RAM) Project, with financing of $125 million. The initiative aims to promote climate-resilient farming and provide liquidity support to small farmers affected by floods. The State Bank of Pakistan will manage the fund under a trust created by the federal government to enhance the resilience of microfinance providers (MFPs) and their clients in the agriculture sector against flood-related shocks. Pakistan, being one of the most climate-vulnerable countries in the world, has witnessed severe climate-related disasters over the past several years. The agriculture sector, particularly small, subsistence, and landless farmers, mostly served by the microfinance sector, remains the most vulnerable. This was evident during the 2022 floods, which not only devastated livelihoods but also raised loan delinquency risks, created liquidity shortages in microfinance institutions, and hindered the sector’s growth. The CRF-I is designed to support climate resilience, adaptation, and recovery while enhancing access to finance. It will provide liquidity and financing to MFPs for on-lending to eligible micro-borrowers. The fund is expected to achieve several objectives, including: The CRF-I will provide financing to eligible MFPs through two facilities: The IAL facility will provide financing to MFPs to pilot agricultural loans bundled with agri-tech services for their borrowers. This will enable farmers to adopt climate-resilient crops and techniques, increasing productivity and resilience against climate shocks. The CLF will provide financing to MFPs after a flooding event for onward lending to affected borrowers. This will allow borrowers to continue income-generating activities, gradually repay their loans, and help MFPs preserve asset quality and maintain operations during climate-related disruptions. Under this facility, MFPs will be able to restructure and top up existing loans or issue new loans to flood-affected clients.