Contingent Lines of Credit (CLOC): A Liquidity Tool for Customer Climate Resilience

Low-income households are facing increasing losses from floods, droughts, and other climate shocks that disrupt income, destroy assets, drive underinvestment, and force harmful coping strategies like distress sales or reduced consumption. These same shocks can ripple through the financial system, affecting financial service providers (FSPs) as well, showing up as portfolio stress and rising defaults. This often forces FSPs to scale back lending just when their clients need support the most, which creates reputational risk.

As climate shocks grow more frequent and severe, financial service providers need tools that go beyond portfolio protection. Contingent Lines of Credit (CLOCs) pre-arrange loan terms and eligibility in calm times, and release funds rapidly to enable coping when a shock occurs, giving retail clients a dignified way to recover and FSPs a structured way to protect portfolios. CLOCs can help institutions stay present and profitable in the face of climate volatility, turning risk into resilience.

This reading deck is for FSPs seeking to test and scale CLOCs, as well as for development partners, donors, DFIs, and governments looking to support promising resilience mechanisms for vulnerable households. It explores how climate CLOCs work, what design choices matter, and how they can complement savings, insurance, and other resilience tools.