Financial innovations and their efficacy for risk reduction at the community level

Lack of economic opportunity has been identified as one of the important bottlenecks for achieving development and empowerment as a result of which several financial inclusion projects and programs have been introduced globally in the past several decades. These financial inclusion instruments range between providing cash at hand to invest in gainful livelihoods on one end and to buffer financial shocks emanating from global changes including climate variability, change and economic uncertainties on the other end. However, there is very little systematic evidence on to what extent these approaches are designed keeping in mind the vulnerability aspects of communities to climate change and natural disasters, how well these approaches have embraced the principles of vulnerability and risk reduction and to what extent these interventions are able to help the last mile communities who need these instruments at most but are not often reached due to their geographical, political and social isolation. This chapter will bring out the available evidence on the extent various financial inclusion interventions are able to address the risk and vulnerability aspects of these last mile communities, identify bottlenecks and their root causes and bring out opportunities wherein the financial inclusion instruments and approaches can be more effective in reducing especially the long-term vulnerability reduction. The chapter will look at various financial inclusion instruments including smart subsidies, savings, different forms of credit including micro-finance, Islamic finance, different forms of insurance including takaful and cash transfers and evaluate them using case studies, drawn from examples not just limited to Asia and Pacific region, using an indicator framework that underlines the well laid out principles of vulnerability and risk reduction.