Climate change is increasing the frequency of extreme weather events, with low‐income countries being disproportionately impacted. However, these countries often face market frictions that hinder their ability to adopt effective adaptation strategies. In this paper, I explore the role of credit market failures in limiting adaptation. To achieve this, I collaborate with a large microfinance institution and offer a randomly selected group of farmers access to guaranteed credit through an “Emergency Loan” following a negative climate shock. I document three key results. First, farmers who have access to the emergency loan make less costly adaptation choices and are less severely affected when a flood occurs. Second, I find no evidence of adverse spillover effects on households that did not receive the Emergency Loan. Finally, I demonstrate that providing the Emergency Loan is profitable for the microfinance institution, making it a viable tool for the private sector to employ in similar circumstances.

Small firms struggle to grow beyond a few employees. We introduce monitoring devices into commuter minibuses in Kenya and randomize which minibus owners have access to the data using a novel mobile app. We find that treated vehicle owners modify the terms of the contract to induce higher effort and lower risk taking from their drivers. This reduces firm costs and increases firm profitability. There is suggestive evidence that some firms expand. These results suggest that small firms may be able to utilize monitoring technologies to overcome problems of moral hazard and enhance their profitability.