Inclusive green finance for mitigation & resilience of the most vulnerable

The broader community of Luxembourg stakeholders gathered on 25 June to discuss with AFI how financial inclusion policies and regulation, developed and implemented in emerging and developing markets, are enabling mitigation and resilience building to the negative impacts of climate change,

The event was an opportunity to highlight ongoing collaborations between AFI and its partners in Luxembourg and look at additional cooperation opportunities with InFiNe.lu, its members and the broader community of Luxembourg stakeholders working in policy development. 

“Climate action and sustainability are our priorities and are integrated into all our projects and strategic operations”, said Paul Weber from the Directorate for Development and Cooperation and Humanitarian Affairs of the Luxembourg Ministry of Foreign and European Affairs.

In his opening remarks, Weber noted that “although climate change affects all countries, sectors and demographic groups, they are not all affected in the same way. The magnitude of the consequences, the level of vulnerability and the ability to recover from climate shocks depend on many factors. As with Covid-19, the poorest and marginalized are most affected by these changes”. He noted that “financial inclusion is arguably one of the most effective approaches to building individual and collective resilience to the impacts of climate change. Also, there is now momentum for inclusive green finance, which we as donors fully support”.

“Micro, small and medium size enterprises (MSMEs), women and youth are at the center of all our financial inclusion interventions”, Weber highlighted.

Explaining how the use of digital financial services (DFS) can provide adaptation strategies for climate change, AFI’s head of IGF, Johanna Nyman highlighted the spread and use of savings, credit and insurance, money transfers as well as humanitarian assistance provided after sudden and extreme weather events.

In addition, financial inclusion can also expand access to green technologies that help mitigate climate change, Nyman said in her presentation, adding that the cost of these technologies can make them inaccessible to the poor and MSMEs.

“Central banks and regulators have been adopting a range of policies to expand access to financial inclusion and include the poor in the transition to a low-carbon economy.  In all this, FinTech plays a key role in advancing and enhancing inclusive green finance”, Nyman underlined as she clarified to participants how supporting green financing can help.

Discussions focused on the global state of IGF policy practices categorized into four key pillars, known as the 4Ps of inclusive green finance: Provision, Promotion, Protection and Prevention. Concrete examples put in place by financial regulators and central banks from the AFI network, and current IGF policy trends were also shared.

“The 4P Framework provides financial regulators with an intuitive way in accessing a full range of policies they can adopt for inclusive green finance”, Nyman said.

Bangladesh Bank introduced a regulatory target of five percent on the annual disbursement of green finance in 2014, while Bangko Sentral ng Pilipinas (BSP) appealed to commercial banks to recognize the business case for green lending. BSP has also sought to fill knowledge gaps on green lending and investment for commercial banks and other financial institutions, primarily through capacity building activities.

The Central Bank of Armenia has been a part of establishing and supervising a system of agricultural climate insurance. The Agricultural Insurers’ National Agency is a public-private partnership responsible for market development of agriculture insurance. The program is subsidizing insurance premiums, and for 2020 the subsidy rate is 50 to 60 percent depending on the product.

Playing an important role in the implementation of the United Nation Sustainable Development Goals (SDGs), inclusive green finance is an evolving policy area pioneered by AFI member institutions, on how implementing policies, regulations and national strategies can mitigate or build resilience to climate change.

“We are starting to see the impact of the European Green Deal in widening the scope of investments, including in inclusive green finance. Luxembourg, as an important sustainable finance hub, is helping lead the way”, Chair of the LuxFLAG Denise Voss said in her closing remarks.

AFI’s IGF workstream is part of the International Climate Initiative (IKI), which is supported by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), based on a decision of the German Bundestag.

About Infine:

The Inclusive Finance Luxembourg Asbl (InFiNe.lu) is the Luxembourg platform that brings together, public, private and civil society stakeholders working in inclusive finance. InFiNe.lu envisions a society with a universal access to responsible and affordable financial services and products to contribute to the socio-economic inclusion of vulnerable populations. 

Capitalizing on the Grand-Duchy’s leading position in both financial and development sectors, InFiNe.lu was created to further stimulate an inclusive and sustainable economy as a tool for poverty alleviation.

About AFI:

The Alliance for Financial Inclusion (AFI) is the world’s leading organization on financial inclusion policy and regulation. Currently, 100 member institutions make up the AFI network including central banks, ministries of finance and other financial policymaking or regulatory institutions from 88 developing countries and emerging markets. AFI empowers policymakers to increase the access and usage of quality financial services for the underserved through sustainable and inclusive policies and the effective use of digital technologies.   

AFI opened the AFI European Representative Office (ERO) in Luxembourg in the autumn of 2020.  ERO aims to bring more insights from the diverse and rich sustainable finance ecosystem in Luxembourg to the AFI members, but also share progress from the AFI membership with the ecosystem in Luxembourg. Sustainable and inclusive finance is a shared priority between AFI and its partners and stakeholders in Luxembourg.  Through the ERO, AFI is also strengthening cooperation with standard setting bodies and Europe’s financial policymaking and regulatory authorities.