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As climate instability intensifies, frontline communities need better tools to adapt and recover. Yet, when extreme weather strikes, the institutions best positioned to help—microfinance institutions (MFIs)—have historically pulled back, reducing lending during crises, just when clients need capital the most. Today, a new wave of innovations is changing that equation, in ways that still make financial sense for lenders.
This episode explores two approaches that are flipping the script on how inclusive finance institutions respond to climate shocks:
- Recovery lending: Post-disaster loans that help households and small businesses rebuild quickly
- Contingent lines of credit: Pre-arranged financing that can be activated when a specific, objective trigger is met
We dive into real-world examples from Malawi and Colombia, where these approaches are helping MFIs stay engaged during crises and unlock faster recovery for climate-affected communities.
Featured Voices
- Karen Lewin, Financial Services Head, VisionFund International
- Juan Camilo Flórez Falla, Head of Digital Banking, Bancamía
- Grecium Kachingwe, a fish vendor from Phalombe, Malawi
Producer: Lamis Daoud, CGAP External Affairs Officer
Audio Editor and Sound Producer: Samantha Malhotra, World Bank Group Interactive Media Program
Executive Producer: Jahda Swanborough, CGAP Communications Lead
© CGAP/World Bank, 2026
Special thanks to Peter Zetterli and Michel Hanouch from CGAP for helping shape this episode.
Listen and subscribe for free on your favorite platform. To learn more, visit www.cgap.org. If you have any feedback, connect with us at podcast@cgap.org.
Transcript
Karen Lewin: In a regular loan, we know the income and expenses over the previous 12 months. All of that is flipped on its head after a disaster. And so, the assets might be gone, there might not be any stock, the crops could be withered in the ground, and in fact the client might've begun to miss installments since the disaster onset. So, what we have to do is we base the assessment on the cashflow history before the disaster, and we couple that with the future earnings plan from the restored business.
Lamis Daoud: Climate instability is rising, and frontline communities need better tools that help them adapt and build resilience. That’s why the next frontier in climate adaptation is funds flowing through inclusive finance institutions. And a wave of new innovations is showing just how powerful that can be.
Hello and welcome to this episode of Inclusive Finance Frontiers, a podcast by CGAP. I’m your Lamis Daoud.
Traditionally, when extreme climate events hit, microfinance institutions — or MFIs — tend to pull back. They scale down lending in affected areas, focus only on restructuring existing loans, and try to protect their portfolios. But that retreat cuts off capital at the very moment low-income clients need it most. And once trust erodes, it’s hard for clients or lenders to bounce back.
We see this dynamic play out in the long term too. In Pakistan, for example, CGAP research found that nearly half of financial institutions reduced lending in climate-vulnerable areas, and one in five stopped lending entirely to those climate vulnerable areas.
But two innovations are flipping the script and doing it in a way that still makes financial sense for lenders: one is recovery lending and the other is contingent lines of credit.
In this episode of Inclusive Finance Frontiers, we dive into both. We’ll hear how VisionFund is rolling out recovery lending from Malawi to the Philippines, and we’ll head to rural Colombia where Bancamía and Atram are testing a system that combines personalized extreme-weather alerts with an instant, pre-approved contingent loan.
Let’s start with recovery lending. We spoke with Karen Lewin, Product Director for VisionFund International, which owns over 20 MFIs. She broke down what recovery lending is and why it works.
Karen Lewin: Recovery lending is a set of tools and methods in microfinance, and what it's seeking to do is to enable the people who've been impacted by the disaster to get a loan with the objective of restoring their livelihood and it's really customized to the needs of the people facing the disaster. The overarching goal is so that people can rebuild their livelihoods and avoid this spiral that often happens in the case of a disaster.
MFIs need to be prepared for the disaster and have staff trained and ready, and we can't wait for a disaster and then start thinking about it or we won't respond in a timely way. And having been prepared, we then need to respond immediately after disaster onset. So it's on the ground assessment, working in collaboration with partners, and this is quite different to traditional microfinance where the lending is quite ongoing and there isn't a crucial start date, which is linked to a disaster.
Lamis Daoud: So that’s the core idea behind recovery lending: MFIs don’t wait for the dust to settle before taking action — they step in with fresh capital exactly when clients need it most. That’s very different from traditional credit risk management, where lending usually stops during a crisis.
Grecium Kachingwe is a fish vendor from Phalombe in Malawi. He took advantage of a recovery loan from Vision Fund to help his small business continue trading after the flooding in southern Malawi in 2023.
Grecium Kachingwe: The recovery loan helped me build temporary storage. I had a proper storage house before but it was one that the floods damaged. One problem was how to keep stock and the loan has been helpful, since now I can secure the stock for the business. Right now, I am happy that my stock is safe with the assistance of the recovery loan, enabling me to buy items in bulk for resale.
Lamis Daoud: VisionFund began experimenting with recovery lending more than a decade ago, during the Horn of Africa drought. Together with World Vision, they offered loans for drought-resistant farming inputs and to help businesses restart.
And the results? Pretty striking.
Karen Lewin: The result of that was a repayment rate of 97%. And I think that was quite a wake-up call to us. We were like, "Oh, that gave us the confidence that people do repay when they have an opportunity like that after a disaster."
Lamis Daoud: But one question looms large: if clients’ livelihood assets have been destroyed and climate events stand in the way of ever resuming their same line of work, how can MFIs mitigate the risks associated with these loans?
It turns out VisionFund has learned a lot from doing this across different countries and different kinds of crises — and the numbers have been surprising.
Karen Lewin: We have found very low write-offs across multiple countries, different types of disasters, and we have found that recovery lending risk is not as great as lenders might think.
And so, I can just share what are those key success factors, recognizing that clients have different businesses, they've been affected in different ways and the loan might be for something different. So, for one person it might be they have to restore a boat, someone else, it might be a shop that they're trying to rebuild, but maybe in other cases it's a farmer. So, if you restrict the loan to say, "Oh, we are only ever going to one and a half times the previous loan, or we don't want to put too much in this."
That is actually going to increase your credit risk because then the client won't have enough money to restart their business. And what you are really pushing people down the road of is using that new amount of money for consumption, which then leaves person with an extra problem they didn't have before, which is an extra debt in addition to not having the livelihood. So, it's very important not to try to apply the same product features to everyone.
If we lend some time after the disaster, so if you're not ready and then the loan comes in six, seven months after the disaster's hit, people have already found other ways of coping and then the loan becomes superfluous to needs. And again, it can really be used in consumption or ways that are not useful.
Lamis Daoud: And when it comes to creditworthiness after a disaster, VisionFund takes a very different approach. Instead of looking only at the client’s current situation — which might be totally upended — they look at their cashflow and payment behavior before the shock, and pair that with a realistic plan for the rebuilt business.
Karen walks us through how that works.
Karen Lewin: In a regular loan, we know the income and expenses over the previous 12 months, all of that is flipped on its head after a disaster. And so, the assets might be gone, there might not be any stock, the crops could be withered in the ground, and in fact the client might've begun to miss installments since the disaster onset. So, what we have to do is we base the assessment on the cashflow history before the disaster, and we couple that with the future earnings plan from the restored business.
Another aspect related to credit history is of course the credit bureau. So, if people are indebted with multiple borrowings, then that will definitely cause more difficulty for them in a recovery lending situation where they've now got extra debt.
Lamis Daoud: So, what’s ahead for recovery lending? How can this approach scale?
Karen describes what VisionFund believes needs to be in place to make recovery lending work more widely.
Karen Lewin: I think part of that is building capacity before the event so that you've got your people ready, your systems are ready, your tools are there, people know what to do when a disaster hits. Because I think that's been our growing recognition is that it's not really anymore if a disaster hits, it's really increasingly when. I think the other area is opening up the risk appetite. So, in VisionFund, every MFI has a standing 10% portfolio concentration limit for their recovery lending strategy.
I think finally having access to capital. So, in one of our MFIs that had some recent disbursements for the earthquake recovery, they found that they could have actually lent 50% more, increase their disbursements by 50% if they had had sufficient capital. So having pre-approved capital that's ready available for a drawdown as needed is one aspect. Blended finance, so a loan and grant or paying back a grant in the future, some of those combinations and having donors that people have relationships with that can reach out to.
Lamis Daoud: Now, recovery lending is one piece of the puzzle. Another tool, which works almost like a financial early-warning system, is contingent lines of credit. These are small, pre-arranged loans that only activate when a specific, objective trigger is met — like rainfall levels or flood alerts. Think of them as money that becomes available only when you really need it. A safety net you can draw on instantly, without paperwork or long processes.
We spoke with Juan Camilo Flórez Falla, Head of Digital Banking, at Bancamía – a Colombian microfinance bank that is running a pilot in rural Colombia with Atram, a climate fintech company. This pilot explores how a small business could get a personalized extreme weather alert a few days ahead of time, along with an immediate contingent line of credit. Using that, they can activate their individual emergency plan.
Juan Camilo Flórez Falla: For many entrepreneurs, traditional credit lines arrives too late, and informal credit lines arrives too fast and with a very high cost. So, this type of line fills an important gap. It gives timely liquidity right at the moment where the shock happens, helping clients protect their business and avoid over-indebtedness.
Lamis Daoud: Bancamía is currently piloting this approach with Atram in rural Colombia, pairing predictive weather alerts with an instant, optional line of credit. I asked Juan Camilo to walk us through what the pilot looks like on the ground.
Juan Camilo Flórez Falla: We know that people have a flood in their zone and that represents a problem because the income of that business obviously low. So, what we're trying to understand is that if you create a contingent line and give them some resources to try to make the business up again, that is going to really help them grow their business again, or that is just doesn't have any impact in their income or in their business.
Juan Camilo Flórez Falla: The pilot is built around three simple ideas. First, Atram uses predictive weather models to identify early signs of heavy rains, droughts or other conditions that may affect rural clients.
Second, we send these alerts through channels people use every day, like for example, WhatsApp, and these messages are short, clear, and very easy to understand.
And finally, the third step is that Bancamia keeps a contingent credit line available in the background. So, if the model predicts eventually, it actually happens, the client can access the money immediately without paperwork or long processes. And if the event does not happen, nothing is activated actually, and there is no cost for the client.
Lamis Daoud: What’s interesting about Bancamia and Atram pilot is that customers can choose if they would like to avail the line of credit right before crisis strikes, during, or even after. The key is that the credit only activates when the model shows clear evidence that income might drop. Juan Camilo told us about a smallholder farmer who recently used the line of credit at a time of heavy rain.
Juan Camilo Flórez Falla: We have a small farmer at the coastal zone here at Colombia who grows a plantain in the rural area. He actually usually knows his crop very well, but he cannot predict extreme rains. Three weeks ago, he received a WhatsApp message from us saying something like, "Heavy rain is expected in your zone next week. This may affect your production. If it happens, you will have access to a special credit line for support."
At first, he doesn't do anything. He just keep the message in mind and a few days later the heavy rain actually arrived. The entire zone floods slightly, and he knows this, will of course reduce his harvest for the next weeks. So, in a normal situation, he would go to an informal lender, for example, or definitely destroy the entire harvest.
But this time, like a week ago, he received another short message that the event has been confirmed and your contingent credit line is now available. He opens the link, confirms the amount and receive the money the same day.
So, he's to buy inputs, pay workers for the cleanup. It's very important and keep[s] the business course moving.
So, the amounts that we give are very small and designed to help during short-term difficulties. The idea is not to push more debt, but to give the client the support they need to keep their business running and avoid informal lending for them.
Lamis Daoud: So, if this pilot proves successful, what’s next for contingent lines of credit?
Juan Camilo Flórez Falla: This pilot shows that climate data adaptation can be very practical. When you give people early information and financial tools that is ready at the right moment, it makes a big difference in their stability and peace of mind. Our goal now is to scale this model.
Funders are essential for this. First, they need to accept some flexibility. There may be months with no activity and then sudden increase during the climate event. Second, funders need to support the early learning phase, which is what we are here at the Bancamia are trying to do. Predictive models improve over time and communication with clients become more effective.
These learning curves require patience and long-term vision. And I would say finally, funders help create confidence in the ecosystem. When funders support this type of solutions, financial institutions feel more comfortable expanding it or scale this kind of solutions to a new regions or to more vulnerable populations.
Lamis Daoud: As these examples show, there are simple but powerful innovations that financial institutions can make to support their clients, before as well as after a shock. These innovations can also be critical for the resilience of the bank, paying off in lower portfolio risk, fewer defaults, and more loyal clients. CGAP will continue to monitor how such innovations and others are reimagining how inclusive finance can meet the climate challenge head-on.
That’s the end of our podcast today. Thank you so much to Karen and Juan Camilo for talking to us and to Grecium for sharing his experience with us.
And of course, thank YOU, for joining us for this episode of Inclusive Finance Frontiers, a podcast by CGAP. I’m your host, Lamis Daoud.
For more information on our work in inclusive finance and other topics, please visit our website at cgap.org.
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