Business Partnership Facility

Climate insurance embedded in microloans

Lead partner

IBISA (Luxembourg)

Local partner(s)

Association for Peoples’ Development Stream – APDS (Bangladesh)

Amount of co-financing

EUR 147,402

Bangladesh
2025
Ongoing

Challenge

Bangladesh is among the world’s most climate‑vulnerable countries, largely due to its extremely low‑lying deltaic landscape, positioned between the Himalayas and the Bay of Bengal. Agriculture plays a crucial role in the nation’s economy and daily life: around 40% of the population depends on it for their livelihood.
In some years, flooding can cover up to 70% of the country, while droughts are becoming increasingly severe in the north. Monsoons are growing more erratic, disrupting planting cycles, causing unpredictable yields, and leading to repeated crop losses.
Faced with these climate shocks, farmers often fall into cycles of debt, borrowing to compensate for their losses. This instability also affects microfinance institutions (MFIs), whose sustainability depends on borrowers’ ability to repay their loans.

Innovative solution

IBISA, an expert in parametric insurance, has teamed up with APDS, a microfinance institution providing small loans to Bangladeshi farmers. Together, they are pioneering a model that blends parametric insurance with microfinance loans, enabling smallholder farmers to better manage the growing risks linked to climate change.

Unlike traditional insurance—which compensates losses after lengthy assessments—parametric insurance triggers automatic payouts as soon as predefined weather thresholds are reached. This means farmers receive rapid financial support immediately after an extreme event, helping them stay afloat, avoid loan defaults, and ultimately strengthening the financial resilience of APDS as well.

A pilot version of this model was successfully tested in 2024 with 500 dairy farmers in the Haluaghat region, using an insurance product designed to protect livestock against heat stress. Building on this success, the BPF project, launched in 2025, is now working to develop a broader range of insurance products covering other major climate risks: heatwaves, floods, cyclones, and excessive rainfall.

Impact

10,000 farmers protected through IBISA’s insurance solution

20,000 microfinance clients reached through awareness‑raising and financial education sessions

Targeted Sustainable Development Goals

10,000 farmers are now insured, giving them a vital safety net against weather‑related shocks and helping protect their livelihoods from slipping into poverty.
By shielding farmers from climate risks, the project strengthens their ability to repay microfinance loans. This, in turn, enhances the financial resilience of microfinance institutions, enabling them to extend more loans to more clients, and supporting broader local economic growth.
The project helps to reduce the financial impact of climate‑related hazards and boosts the resilience of insured farmers, enabling them to better withstand increasingly frequent and severe climatic events.