Faced with climate change that is already underway, Nicaragua, especially in its rural areas, is having to adapt rapidly. Local temperature rises, for example, are disrupting low-level coffee production and having a direct impact on coffee farmers’ incomes. In this context, Financiera FDL is the leading financial microfinance institution addressing these issues. Nearly 80% of its customers live in rural areas, and 37% of its loan portfolio is dedicated to agriculture. It decided to become involved in green microfinance 20 years ago.
The MFI has gradually developed a series of products to support producers to adopt more resilient cultivation practices. For instance, it promotes the planting of fuel wood around plots and provides loans for solar photovoltaic equipment. Financiera FDL also offers innovative products such as the “credito ambiental” (environmental loan). This long-term credit, which also comes with technical support, has an interest rate which decreases after one year if the producer adopts sustainable agricultural practices. The MFI considers this an incentive for the “environmental services provided”.
The most recent credit product launched by Financiera FDL, Ecomicro, specifically concerns customer climate risk mitigation measures. Such measures include the financing of water tanks, wells, micro-irrigation systems or the planting of trees in pastures, known as silvopastoralism.
Moreover, the MFI has adopted responsible practices: it excludes the financing of projects in protected areas, the acquisition of polluting equipment, as well as the purchase of land, in a context where many producers aim to increase their income by purchasing plots rather than by improving yields. The MFI noticed that extensive production requires deforestation at the local level. Conversely, intensive models, such as agroforestry, are particularly productive and ecologically sustainable.
Since support for changing cultural practices is costly, one of the MFI’s main difficulties is finding external financing. Despite these challenges, Financiera FDL has resolutely turned towards green finance in order to tackle the causes of climate change, trying to influence its customers’ environmental impact as well as the consequences, with measures to adapt to climate risk.
In this case, Financiera FDL’s goal is to offer “win-win” solutions, since reducing climate risk for producers leads to a reduction in risks for the MFI. It even goes so far as to consider that the ecological transition is necessary to ensure the sustainability of its services, and therefore its survival.