Nº 22-52: Flood, Farms and Credit: The Role of Branch Banking in the Era of Climate Change

Using a rare flood in April 2019 in Iran as a natural experiment, we study the role of local banks in mitigating the financial consequence of natural disasters to smallholder farmers. We find that local branches immediately react to the disaster by increasing their lending for two months following the flood. Analyzing proprietary information on more than 70,000 farmers, we find that farmers with a stronger relationship with their bank - in particular when they are young and female - have a higher chance of access to new credit. Our findings underscore the importance of the presence of local banks in agricultural areas which are exposed to climate risk.