By Abdul Ghani
Pakistan’s central bank has introduced a new fund to help small farmers and microfinance institutions deal with climate shocks.
The State Bank of Pakistan (SBP) has created Climate Risk Fund-I, aimed at making the country’s microfinance sector stronger and more resilient to extreme weather events.
The fund, launched under the World Bank’s Resilient and Accessible Microfinance (RAM) initiative, will support climate-smart farming, flood recovery, and liquidity management for microfinance institutions (MFIs).
It is designed to help farmers invest in technologies like drought-resistant seeds, solar-powered irrigation, and crop-insurance programs.
The SBP explained that this new facility comes after years of stress on the microfinance industry caused by the pandemic, economic tightening, and the devastating 2022 floods.
Despite these challenges, the sector improved in the 2024-25 financial year: total assets rose 13.9 percent to Rs 891 billion, loan defaults dropped, and provisions exceeded non-performing loans.
Overall losses fell from Rs 18 billion in FY24 to Rs 5.9 billion, marking a threefold improvement in profitability.
Helping Farmers and Microfinance Institutions
Climate Risk Fund-I will provide refinancing and concessional credit lines to MFIs and microfinance banks (MFBs).
It will also offer liquidity support to institutions serving borrowers in areas affected by disasters, ensuring their operations continue smoothly and depositors’ money is protected.
Microfinance continues to be a vital part of Pakistan’s financial system. MFBs mainly serve low-income groups and small businesses that regular banks often overlook.
In FY25, about half of MFB asset growth came from investments in government securities, which helped them meet the Statutory Liquidity Requirement (SLR) of 12 percent introduced under updated regulations.
Advances increased 10 percent, reflecting a gradual recovery in rural credit demand.
Linking Climate Finance and Financial Stability
The SBP emphasized that climate finance is now essential for maintaining financial stability.
Pakistan is one of the world’s most climate-vulnerable countries, and extreme weather can threaten both livelihoods and loan portfolios.
By supporting climate-smart initiatives, the fund links environmental sustainability with the health of the financial sector.
The RAM program also includes measures such as enhanced supervision, stress-testing of MFBs, and guidance on disaster-risk management.
The government and the SBP will continue to work with international partners to expand the facility.
Future phases will reward institutions that make measurable progress in climate adaptation and community outreach.
Supporting Inclusive Growth
The SBP noted that the fund supports its wider goal of financial inclusion and economic resilience.
By reducing the risk of default among farmers and climate-exposed borrowers, the initiative also helps maintain overall credit quality in the banking system.
The central bank reaffirmed that strengthening microfinance is key to sustaining inclusive growth in Pakistan.
Author Profile
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Abdul Ghani is a sharp analyst focused on Pakistan's industrial transformation. His reporting reveals the textile sector's pivot from basic cotton to high-growth value-added apparel.
Ghani's work underscores the triumph of knitwear and garments in boosting exports, while warning policymakers to tackle energy costs to secure long-term global competitiveness.
