Protecting climate-vulnerable: How microloans and microinsurance can build systemic disaster resilience

Bangladesh faces a climate reality that our current financial systems struggle to withstand. We are at the frontline of climate change as recurring disasters, such as cyclones, floods, droughts, and salinity intrusion, erode livelihoods and financial stability. The impact is more profound for low-income households, as climate shocks disrupt their incomes and the financial tools they depend on, which span savings, loans, and informal support networks. 

In our work across districts, such as Satkhira and Rangpur, we have seen how households navigate pressures. Our findings, published in "Building the resilience of BURO Bangladesh's customers to the impacts of climate change," reveal behavior patterns that vary entirely with the timing of climate events.

When climate disasters strike, households rely primarily on savings as their first line of defense. They withdraw deposits or sell small assets to cover food and medical needs. The initial income shocks suppress borrowing, but demand for credit rebounds once reconstruction begins. As savings dry up and formal loans face delays, many households turn to informal lenders. Women face additional barriers because limited mobility restricts their access to timely finance. These behaviors align with the BRACED 3A framework of anticipation, absorption, and adaptation. Yet, we believe, coping strategies remain fragile. Without quick financial support, households spiral deeper into debt.

Microfinance institutions (MFIs) provide essential support, but remain constrained by market realities. BURO Bangladesh offers repayment deferrals and temporarily pauses disbursements to protect liquidity and ease the pressures of default. Emergency loans help families meet basic needs, although loan sizes often fall short of actual losses. Flexible policies allow clients to withdraw savings for repairs or food purchases. Field staff also shift from regular operations to relief efforts during extreme events to help households regain stability. 

These responses remain largely reactive because they activate only after damage occurs. MFIs face mounting risk of customers' over-indebtedness, delayed repayment that hurts liquidity, and increased provisioning requirements. Operational disruptions, such as damaged roads and power outages, further restrict service delivery. These barriers highlight a critical gap in our current system. MFIs help households absorb shocks, but they do not yet enable them to anticipate or adapt effectively.

Global experience shows how inclusive finance can evolve from reactive relief to proactive resilience. Insurance represents one major gap. The Microinsurance Network's 2023 report shows that while approximately 330 million people across 36 countries now have some form of inclusive insurance, nearly 88% of vulnerable households worldwide still lack coverage. Another example is the InsuResilience Global Partnership, which reported that 319 million people benefited from climate and disaster risk finance in 2024, while micro-level beneficiaries in low-income countries almost doubled year-over-year. This momentum could be harnessed more effectively in Bangladesh through MFIs and their agent networks to extend protection to those most exposed.

Evidence shows that anticipatory action works best when finance follows pre-arranged triggers. The International Federation of Red Cross uses thresholds to unlock funds before disasters strike. BRAC tested this approach in Bangladesh and found that pre-approved loans helped households maintain higher consumption levels. New initiatives, such as Atram.ai, are further advancing this logic through AI-driven models that trigger financing for households and small businesses before climate shocks occur.

Finally, capital must be scaled to create systemic resilience. Small, fragmented loans need to be aggregated into investable pools. Regulators and supervisors have started to recognize this. The Network for Greening the Financial System (NGFS) has urged the integration of climate adaptation into financial supervision to create structures that enable microloans to be bundled, de-risked, and financed at scale. Such approaches could help bridge the protection gap and give MFIs the resources they need to serve clients in increasingly volatile conditions. The message is clear. Proactive finance reduces losses and strengthens resilience far more than reactive aid.

The experience of BURO Bangladesh and its clients shows both resilience and strain. Families often rely on savings, loans, and informal networks to make ends meet. Meanwhile, MFIs provide lifelines through repayment deferrals, emergency loans, and flexible withdrawals, which are primarily reactive measures to help people survive, rather than prepare them for the future. 

As climate risks intensify, Bangladesh needs to redesign its financial systems to ensure that vulnerable households go beyond survival in the face of shocks and build the capacity to anticipate and adapt. This shift from reactive coping to adaptive resilience is no longer optional. It is essential to protect Bangladesh's most climate-exposed communities and ensure long-term financial security.

Shahrukh Ahmed is a manager at Microsave Consulting, Farmina Hossain is a director of Operations at BURO Bangladesh and Graham Wright is the co-chair and group managing director of Microsave Consulting.