The United Nations Development Programme (UNDP) is collaborating with the Bangladesh Bank (BB) to develop a Climate Damage Function (CDF) aiming at strengthening climate-sensitive financial reporting and supporting banks and financial institutions in protecting assets and enhancing resilience in areas affected by natural calamities. The CDF will facilitate the design of innovative blended finance models, increasing the financial flow to the most vulnerable communities.
With funding from the Government of Sweden and the Foreign, Commonwealth & Development Office (FCDO), UNDP is working closely with the Government of Bangladesh, regulators, and financial institutions to bridge the financing gap for climate action. Strengthened financial support mechanisms will play a crucial role in building climate resilience and safeguarding the livelihoods of Bangladesh’s most at-risk populations.
Bangladesh, situated in one of the largest river deltas in the world, continues to struggle with severe climate-induced disasters, particularly riverbank erosion. Each year, approximately 8,700 hectares of land are lost to erosion, affecting over 200,000 people, particularly in areas along the Jamuna, Padma, and Meghna rivers. The monsoon season exacerbates this crisis, leaving many communities displaced and vulnerable.
Despite the scale of the problem, adequate funds and relief efforts often fall short. The affected populations rely heavily on financial support for recovery, yet accessing such funds remains a challenge. Microfinance Institutions (MFIs) provide small, flexible loans to those in need, but their high interest rates make borrowing unaffordable for many. Additionally, the lack of comprehensive credit information makes it difficult for MFIs to operate efficiently in these regions.
Meanwhile, bank loans remain out of reach for most community members due to complex documentation requirements and lengthy processes. While some banks offer small-scale climate-sensitive loans, they fail to meet the growing demand or address the broader impact of climate change. Furthermore, both banks and MFIs face increasing difficulties in recovering loans due to delayed repayments caused by recurring climate shocks.
The plight of Merina Begum, a resident of Char Alatuli Union in Chapai Nawabganj, highlights the urgent need for financial intervention. She and 1,200 others were forced to abandon their homes due to river erosion, which made safe drinking water inaccessible.
“The river is taking over our land. We live in constant fear of displacement and struggle to find clean water,” said Merina Begum.
Similar struggles are faced by communities in Kurigram, Netrokona, Moheshkhali, and other climate-vulnerable regions. By implementing the Climate Damage Function and a blended finance approach, UNDP seeks to improve financial accessibility for affected communities. This initiative will equip financial institutions to better address climate-related challenges while promoting long-term sustainability.
