Extreme weather events such as ENSO significantly impact global economies, particularly in regions
like Peru. The 1997-98 El Niño caused widespread devastation, with heavy rains leading to floods and
landslides, disrupting economic activities and increasing financial stress on microfinance institutions (MFIs).
While early events saw MFIs struggling with loan defaults, improved risk management and client diversification
strategies helped mitigate the impact of the 2015-16 event. These changes highlight the adaptive capacity of
financial institutions in the face of climate variability.
Research Methodology
This study employs a multiperiod difference-in-difference (DiD) model to estimate the impact of ENSO on the loan portfolios of Peruvian microfinance institutions (MFIs). The model compares changes in the proportion of restructured loans (PRL) between institutions exposed to ENSO-induced extreme weather and those operating in less-affected regions. By controlling for time-invariant and time-varying factors, the approach isolates the effect of ENSO on financial stability, highlighting how risk management practices have evolved over time.
The following visualizations are generated using sea surface temperature and wave direction data from the
Copernicus Climate Data Store (CDS). These satellite-derived datasets provide high-resolution insights into
the evolution of ENSO events and their impact on oceanic conditions.
ENSO Episode 1997-1998 Through CDS Copernicus Imagery
The 1997-98 El Niño event was one of the strongest on record,
characterized by significant sea surface temperature (SST) anomalies in the central and eastern Pacific.
Satellite data from the Copernicus Climate Data Store (CDS) shows how SSTs in the Niño 3.4 region rose by more than 2.5°C above the
long-term average, disrupting normal oceanic and atmospheric circulation.
The increased SST weakened the trade winds, shifting mean wave direction across the Pacific. As warm waters expanded eastward,
wave energy patterns changed, increasing coastal erosion and altering marine ecosystems along the Peruvian coast. This event
caused severe flooding, landslides, and economic disruptions, particularly in sectors reliant on stable oceanic conditions,
such as fisheries and microfinance institutions (MFIs).
ENSO Episode 2015-2016 Through CDS Copernicus Imagery
The 2015-16 El Niño, while comparable in strength to 1997-98, had a slightly different impact on ocean dynamics.
SST anomalies in the eastern Pacific peaked at around 2.3°C above average, leading to prolonged disruptions in trade wind patterns. This warming extended across the Niño 3.4 and 1+2 regions, resulting in a shift
in mean wave direction that propagated energy differently than the 1997-98 event.
Unlike the earlier El Niño, this episode saw better preparedness among financial and governmental institutions.
Despite heavy rains and flooding in Peru, microfinance institutions (MFIs) showed greater resilience due to improved risk
management and diversified portfolios. Copernicus satellite imagery illustrates how wave dynamics adjusted to the altered atmospheric
conditions, with shifts in wave height
and direction affecting coastal erosion and marine biodiversity.
Hersbach, H., Bell, B., Berrisford, P., Biavati, G., Horányi, A., Muñoz Sabater, J., Nicolas, J., Peubey, C., Radu, R., Rozum, I., Schepers, D., Simmons, A., Soci, C., Dee, D., Thépaut, J-N. (2023): ERA5 hourly data on pressure levels from 1940 to present. Copernicus Climate Change Service (C3S) Climate Data Store (CDS), DOI: 10.24381/cds.bd0915c6 (Accessed on 22-12-2025)