For the farmers of Colombia’s Sur del Meta region, the land has long been their only reliable support. But years of intensive agriculture, cattle ranching, and hunting have taken their toll, leaving the region’s forest and the biodiversity it supports in decline.
In response, a new Reducing Emissions from Deforestation and Degradation (REDD+) carbon project developed by Karbon-X is leveraging global carbon markets to invest in protecting local forests. And with CGAP’s support, Karbon-X recently partnered with local microfinance bank Bancamía, an entity of the BBVA Microfinance Foundation, to better understand how inclusive financial services might support its efforts.
The results of our research in Colombia suggest that financial services can play a critical role by enabling rural households to build resilience, invest in income-generating activities that do not rely on deforestation.
While REDD+ projects rely on benefit-sharing agreements to encourage behavior change, lasting climate impact depends on communities having secure, sustainable livelihoods. The results of our research in Colombia suggest that financial services can play a critical role by enabling rural households to build resilience, invest in income-generating activities that do not rely on deforestation, and become long-term stewards of their forests.
Carbon provides a lifeline for post-conflict communities
After decades of armed conflict, the communities of Sur del Meta continue to suffer from poor access to public services and limited economic opportunities. For many households, farming provides most of their income, and off-farm income remains rare. This heavy reliance on land-based activities makes families especially vulnerable to climate shocks like droughts and floods.
By organizing and training the region’s communities in forest conservation, Karbon-X aims to protect an estimated 42,000 hectares of forest while improving both local livelihoods and biodiversity. Importantly, Karbon-X plans to redistribute 60% of revenues from the sale of carbon credits to approximately 1,000 households participating in the project, offering a vital new income stream in exchange for their contributions to conservation.
Financial inclusion is the missing ingredient
Carbon revenues may offer a new source of income, but only financial services can convert that income into investments in more resilient and sustainable livelihoods. Despite the resources Karbon-X is delivering to communities in Sur del Meta, the results of a CGAP-funded survey with 966 households revealed that this key ingredient was missing. With the nearest bank branch 15-20km away on average, access to and use of formal financial services remains constrained. Indeed, just about half of adults in Sur del Meta own a bank account, with sharp disparities by gender and location.
Limited access to formal financial services leaves community members with few ways to invest in practices that would allow them to preserve the local environment while continuing to provide for their families—such as sustainable cattle management, drought-resistant crops, and agroforestry. This may explain why we found strong demand for savings and credit products that could help households manage their money and build more sustainable livelihoods. While only 12% of households reported having a loan from a bank, cooperative, or microfinance institution, nearly two-thirds (59%) expressed interest in a loan for climate adaptation.
Saving products were shown to be in even higher demand, with 73% of respondents expressing interest in a new savings product, despite 50% reporting that they already owned a savings account. This indicates a substantial unmet need for accessible, tailored savings mechanisms, as even families with accounts tend to save in cash at home or in livestock, which can be risky. Notably, men and women were equally enthusiastic to save.
Near universal mobile phone access (99%) highlights an opportunity to overcome distance-related barriers through mobile money or mobile banking services. Still, only 15% of surveyed households had used a mobile wallet, while just 26% reported using the internet or mobile apps for conducting financial transactions. But our research suggests that a solution is possible, especially for women, who were more likely to have used a mobile wallet than men (20% vs. 13%). Overall, 61% of respondents told us that they would be willing to learn how to use digital financial services so that they would no longer need to travel in order to transact.
Overcoming decades of neglect begins with investments in local infrastructure, capacity, and trust
Despite strong demand, the results belie a prevalent mistrust of financial institutions following decades of neglect. In response, Bancamía implemented a financial education program called “Creciendo Juntos” or “Growing Together.” The training has already reached hundreds of residents, helping to develop skills in budgeting, responsible credit use, savings habits, and digital financial tools. Participants also learn how financial products such as adaptation loans and parametric insurance can support their climate resilience.
Carbon revenues may offer a new source of income, but only financial services can convert that income into investments in more resilient and sustainable livelihoods.
Early results suggest that the investment is paying off. More than 90% of participants reported that the workshops were useful, and assessments showed meaningful gains in financial understanding. “Now I clearly see how my money is slipping away,” remarked one participant. “And how I can save a little bit each month.”
An opportunity to pair carbon projects with inclusive finance
While the findings from our work may be specific to the communities of Sur del Meta, they highlight several opportunities for carbon project developers and financial service providers to come together to drive impact for communities and the planet:
- Develop carbon-linked savings and loan products: Savings products can allow households to manage earnings from carbon projects, while adaptation loans can enable a transition into more sustainable and resilient income-generating activities.
- Leverage mobile channels: For carbon projects working with rural communities, digital tools can help overcome distance from physical branches and ensure that recipients can easily access and use digital funds.
- Design for women's inclusion: Designing and delivering women-centric financial services can address gender gaps in account ownership by making financial services more relevant and readily available. This is particularly true for digital accounts, which can address mobility constraints and ensure that women have control over any income received from carbon projects.
- Build capacity and trust: Providing in-person training and disseminating information via mobile phones can help build familiarity with formal financial services. Recruiting local community members to act as agents of financial service providers can begin to build trust, with these local agents playing a key role in reinforcing training, providing customer support, and performing basic transactions.
Moving the market forward
Inclusive finance is not peripheral — it is a critical component of making carbon markets work for people and nature. Building on what we’ve learned so far, CGAP and its partners are working to design a pilot in Sur del Meta that has the potential to show how this can work in practice, with lessons that will be relevant well beyond Colombia.
By demonstrating best practices for integrating financial inclusion into carbon projects, we hope to guide carbon project developers, financial services providers, and funders seeking to ensure that emerging carbon markets deliver real benefits to people living in poverty. For CGAP, this work is part of a broader effort to underscore the important role that inclusive finance plays in equipping low-income communities to benefit from a green transition and adapt to a changing world.
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