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Social Protection + Financial Inclusion = A Path to Climate Resilience

There is growing recognition that social protection programs have immense potential to enhance climate adaptation and enable a just transition. Financial inclusion is a key opportunity to further advance the climate goals of these programs yet, while promising examples exist, they remain nascent, representing a promise waiting to be realized.

Cash transfers: tried and tested

Social protection programs are proving essential for building climate resilience, particularly for communities most affected by climate shocks. By providing cash transfers during economic insecurity, these programs stabilize households and create a foundation for long-term adaptation. For instance, smallholder farmers in drought-prone regions often face erratic weather that threatens their livelihoods. Without this sort of financial support, they may resort to selling assets or taking high-interest loans just to survive. Social protection can not only prevent these negative coping strategies but also serve as a gateway to financial inclusion, enabling access to tools like savings, credit, and insurance that strengthen resilience.

Moving beyond cash transfers

Financial inclusion enhances the effectiveness of social protection programs by providing beneficiaries with the tools to proactively manage risks and invest in adaptation. By integrating these tools - and some already do – social protection and financial service providers can collaborate to deepen resilience among vulnerable populations with each playing distinct yet complementary roles. SP programs serve as crucial access points, identifying and reaching beneficiaries who might otherwise remain excluded from formal financial services. By establishing eligibility and delivering consistent, structured support—whether through cash transfers, work programs, or subsidies—SP systems provide an initial layer of financial stability, allowing households to focus on long-term resilience instead of immediate survival. Financial services providers, in turn, build on this foundation by offering specialized tools such as savings accounts, credit, and insurance products that empower beneficiaries to proactively manage climate risks. Banks facilitate secure savings to help households build reserves, while microfinance institutions offer loans for investments in resilient assets, and insurers provide targeted risk coverage against specific climate-related losses. This coordinated model leverages the strengths of both SP programs and financial services, giving beneficiaries not only the immediate support they need but also the means to invest in adaptive strategies that protect their futures.

Savings

Through linked savings accounts, households can build reserves, creating a safety net for climate shocks and enabling small investments in adaptive measures like purchasing drought-resistant seeds or installing water storage systems. In Kenya's Hunger Safety Net Programme (HSNP), for example, the social protection program, managed by the government and funded by development partners, facilitates digital cash transfers to beneficiaries. The HSNP program, which has enrolled approximately 101,800 households, routes transfers through local financial institutions like Equity Bank. These institutions offer digital savings accounts, enabling beneficiaries to gradually accumulate funds, which can be drawn on during climate shocks. The social protection program connects recipients to formal banking channels, while the bank manages secure access and provides a structured way for beneficiaries to build resilience through savings. Evaluations of HSNP have shown that regular cash transfers significantly improve food security, support asset retention, and reduce reliance on negative coping strategies like selling productive assets in times of drought.

Loans

Access to affordable loans helps households make larger, more transformative investments in resilience, whether by upgrading infrastructure or adopting energy-efficient technologies. In Brazil’s National Program for Strengthening Family Agriculture (PRONAF), a government-led initiative focused on agricultural development, supports smallholder farmers by providing subsidized credit to finance agricultural production and rural development. While not a social protection program, PRONAF plays a complementary role by fostering economic resilience and reducing vulnerability among family farmers. Public and cooperative banks serve as the main channels for PRONAF credit, offering affordable loans that enable farmers to invest in resilient agricultural practices, such as adopting drought-resistant crops and sustainable irrigation systems. PRONAF operates on a significant scale, having provided credit to millions of family farmers across Brazil, contributing to rural economic development and climate resilience. Additionally, PRONAF beneficiaries often overlap with recipients of Brazil's Bolsa Família program (now Auxílio Brasil), a conditional cash transfer initiative targeting low-income families. This intersection allows for a layered support system where Bolsa Família ensures immediate consumption needs are met, while PRONAF facilitates productive investments, collectively strengthening household resilience to climate and economic shocks.

Scaling insurance coverage through social protection

Climate-linked insurance products protect against losses from events like crop failure or property damage, ensuring households can recover quickly and continue to invest in adaptation. India’s Pradhan Mantri Fasal Bima Yojana (PMFBY) is another prominent example, led by the government and offering subsidized crop insurance to make coverage affordable. Since its inception in 2016, PMFBY has insured over 57 million farmer applications, shielding farmers from significant income losses due to climate-related crop failures like excessive rainfall or drought. The government lowers costs through subsidies, while public and private insurers administer the policies, manage risk assessments, and provide timely payouts. The program has paid out claims amounting to over 1.5 trillion INR (around 19 billion USD), highlighting its vital role in enabling farmers to reinvest in their livelihoods even after severe losses.

Bringing it all together

The R4 Rural Resilience Initiative, implemented by the World Food Programme (WFP) and Oxfam America, operates in multiple countries, including Ethiopia, where it provides a comprehensive, integrated approach to managing climate risks for vulnerable communities. The program enables resource-poor households to access index insurance by participating in risk-reduction activities like soil and water conservation or reforestation. These efforts reduce vulnerability to climate shocks while building agricultural productivity. In Ethiopia, for instance, between August 2021 and February 2022, over 28,000 pastoralist households in the Somali region received insurance payouts totaling $1.8 million during persistent drought conditions. A significant portion of these funds was used to protect livestock, ensuring that households could maintain their livelihoods without resorting to harmful coping strategies. The R4 approach goes beyond insurance by integrating it with savings, livelihood diversification, financial education, and credit. Participants establish small-scale savings as a financial buffer and gain access to resources for investing in more productive and resilient agricultural practices. This model strengthens financial resilience while reducing the long-term impact of shocks. By combining nature-based solutions, financial tools, and social protection systems, R4 creates a holistic framework that not only protects communities from catastrophic losses but also empowers them to invest in their own resilience and long-term adaptation.

These examples show how, when combined, social protection and financial services can enhance climate outcomes for beneficiaries. The question remains how to scale the prevalence of these initiatives. In our next blog, we’ll explore why financial inclusion hasn’t yet been integrated into social protection programs at scale, and what can be done to achieve this.

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