Bridging the Climate Finance Gap: Adaptive Capacity and Vulnerability of Smallholder Farmers’ in the Drought-Prone Northwest Region of Bangladesh

The threat of climate change-induced drought poses a serious challenge to Bangladesh's smallholders, and despite the effectiveness of the adaptation measures, financial barriers often hinder their adoption—a factor frequently overlooked in existing studies. This study addresses that gap by investigating the nexus between farmers' financial situation and their production, vulnerability, and the effectiveness of various adaptation strategies. Using cross-section data from 300 farm households across two climate-affected districts of northwestern Bangladesh, the study employs a two-step Stochastic Frontier Model (SFM) analysis to evaluate the nexus between rice productivity and climate adaptation strategies. To further explore the financial barriers to adaptive capacity, the Harrod-Domar growth equation and Multivariate Probit (MVP) regression were utilized. Moreover, the Foster-Greer-Thorbecke (FGT) index was applied to assess farmers' vulnerability to climate change. Results from the two-step SFM reveal that the use of seedlings and expansion of farm size significantly enhance productivity. The Harrod-Domar growth equation reveals an average finance gap of $190 per bigha, with 93% of farmers requiring $300 or less to enhance efficiency. Moreover, the MVP regression shows that reducing the financial gap substantially increases the likelihood of adopting water harvesting (81.89%) and drought-tolerant crops (77.25%), both of which contribute to higher productivity. Finally, FGT analysis reveals that 87% of farmers are vulnerable to climate impacts; however, providing just $90 per farmer could notably reduce this vulnerability. The results highlight the crucial importance of focused financial assistance in enhancing resilience. Therefore, government agencies and NGOs should prioritize the provision of appropriate loans, financial assistance, advanced irrigation technology, and agricultural extension services to empower smallholder farmers to optimize productivity and meet production targets.