World Bank approves $125M for Pakistan’s climate-resilient microfinance project

The World Bank has approved $125 million in financing for Pakistan’s Resilient and Accessible Microfinance (RAM) project, designed to bolster the country’s microfinance sector against climate risks, particularly flooding, while enhancing access to credit for vulnerable borrowers.

According to details posted on the State Bank of Pakistan’s (SBP) website, the RAM project seeks to improve the resilience of microfinance providers (MFPs) and their clients, who are among the most exposed to climate shocks. The initiative builds on lessons from Pakistan’s devastating 2022 floods, which severely impacted agriculture and rural livelihoods.

The project is being implemented through the Climate Risk Fund I (CRF-I), a trust registered with the government of Sindh and owned by the federal government. SBP has been designated as the trustee of the fund, which will be capitalized with World Bank financing.

The CRF-I aims to support climate resilience, adaptation and recovery while enhancing access to finance. It will provide liquidity to MFPs for on-lending to eligible micro-borrowers, including women, small farmers, rural residents, and low-income households who have traditionally struggled to access mainstream banking.

The CRF-I has two key facilities. One is the Innovative Agriculture Liquidity (IAL) Facility, which provides financing to MFPs to pilot agriculture loans bundled with agri-tech services. Borrowers will be able to adopt climate-resilient crops and farming techniques to increase productivity and reduce vulnerability.

The other is the Contingent Liquidity Facility (CLF), which is activated after a flooding event. It offers liquidity to MFPs for onward lending to affected borrowers. This will allow borrowers to continue income-generating activities, restructure loans, and sustain repayment capacity while helping MFPs preserve asset quality.

The fund is also expected to reverse disintermediation in high-risk flood zones by providing contingent liquidity, preserve MFP balance sheets after flooding, and enhance capital adaptation in agriculture.

Pakistan, one of the most climate-vulnerable countries in the world, has faced repeated climate-related shocks in recent years. The microfinance sector, which primarily serves subsistence and landless farmers, was among the hardest hit during the 2022 floods, with loan delinquencies and liquidity shortages threatening its stability.

“The CRF-I essentially aims at promoting climate-resilient farming and providing liquidity support to small farmers affected by floods,” SBP said. “It will also help MFPs maintain operational continuity during climate-related disruptions.”

The 2022 floods damaged millions of acres of farmland and underscored the risks Pakistan faces from climate change. By channeling financing through RAM, the World Bank and Pakistan aim to support both immediate recovery and long-term resilience in agriculture and financial inclusion.