Microfinance and the Environmental Bottom Line
The Microfinance Gateway
Growing the green agenda
This Microfinance Gateway article was developed with GreenMicrofinance and informed by an online discussion on microLINKS.
Can microfinance and environmental sustainability go hand-in-hand? Some in the industry say it’s not only possible, but essential that microfinance works to prevent environmental damage. It is becoming increasingly clear that the impacts of climate change, pollution, poor waste management, and other environmental problems must be part of the long-term approach to economic development. Otherwise, we risk destroying natural resources that are essential for continued economic growth, as well as endangering public health and safety.
Environmental impacts are gaining prominence in the global development agenda and becoming a concern for some national governments and social and environmental investors. Building capacity for green microfinance may in fact be a smart way to prepare for shifting funding priorities and inevitable changes in environmental regulation.
How can microfinance help to address environmental issues? Conservation and environmental protection are global issues, and much of the responsibility for addressing them rests in the industrialized world. However, there is growing interest in “green microfinance,” which includes programs that encourage eco-friendly microenterprises and support microfinance clients’ use of renewable energy. The development of carbon-credit aggregation strategies also creates a new opportunity to include smaller enterprises in a green agenda.
Donors and investors can build capacity for green microfinance by providing necessary technical assistance and by supporting environmentally sustainable microfinance projects. For example, the Netherlands Development Finance Company (FMO) has developed evaluation criteria and tools to help MFI's assess and manage the social and environmental impacts and risks of microenterprises. CIDA has also produced an Environmental Sourcebook for MFIs. IFC, Triodos, Calvert, Shell Foundation, and EBRD are among other donors who are including the environmental bottom line on their agenda.
In this article, we explore some of the eco-microfinance initiatives promoted today, such as:
Green microenterprises
Renewable energy entrepreneurship
Carbon credit aggregation
Green microenterprises
Eco-friendly microenterprises can provide sustainable sources of income to microfinance clients, including the production of organic fertilizers and biomass charcoal briquettes, clean energy cookstove fabrication, and handicrafts made from sustainably sourced materials. Various industry standards, from groups like the Forest Stewardship Council, provide guidelines on “sustainable sourcing.”
MFIs that deal with agricultural clients can seek partners that will help clients adapt to evolving conditions through the adoption of environmentally-friendly farming techniques. Organizations, such as Sustainable Harvest International, help by providing key technical support. Subsidy can also play a positive role as clients shift their approach to a more eco-friendly standard.
Engaging in environmentally sound business practices can:
Help microentrepreneurs preserve and protect their long-term income
Microfinance clients often use fossil fuels like natural gas and petroleum as sources of energy. These fuel sources contribute to the greenhouse gas problem, the degradation of local ecosystems, and cause health problems. Implementing renewable energy systems, like solar, wind, and biogas can offer great cost savings, as well as health benefits. MFIs offering personal consumption “energy loans” can help microfinance clients leverage these resources for their homes and businesses.
Renewable energy can also be a source of income for a new class of business – renewable energy microenterprises. Social and environmental entrepreneurs from the industrialized world are helping to create this microentrepreneurship opportunity. For example, Barefoot Power is a socially-conscious business that employs microentrepreneurs to distribute solar-powered products and systems in the developing world.
Grameen Shakti is a nonprofit with the mission of eliminating energy poverty with renewable-energy entrepreneurs. They support programs in solar energy, biogas, and improved cookstoves, which include training and capacity building for entrepreneurs who promote the systems, as well as financial products tailored for renewable energy uptake. In the micro-utility model, one entrepreneur will install a solar system and sell power to those in the community who cannot yet afford to invest in their own.
Carbon credit aggregation
Carbon credit aggregators, like MicroEnergy Credits and E + Co, work with MFIs that provide renewable energy loans to clients. Each loan can be translated into a small carbon credit. Though these credits are too small to be traded on the multi-million or billion dollar carbon markets created by the Kyoto Protocol, aggregators bundle these credits and then sell them on the voluntary carbon market to net polluters. Carbon credit aggregation offers:
Financial rewards for MFIs that provide energy loans, creating an incentive to continue greening products
A better standard of living, and more control over energy resources, for clients who switch to renewable sources of energy for their homes or businesses
Business opportunities for microentrepreneurs who supply renewable energy services or systems
Conclusion
The conventional path of economic development has tied greater prosperity to increased energy consumption, with its corresponding negative environmental impact. This does not have to be the case. MFIs can contribute, along with their clients, to solving the crises we face today. Microfinance clients continue to be impacted by global climate change and environmental degradation, but we are also seeing that they can be part of the way forward.
I was confused during previous time because I was unable to relate Microfinance and environment. As I am pursuing my master degree in Environment Management so I needed this information. Thank you very much....
India
11 Aug 2009
Healthy Environment for All
MFI have been working since last three decade to alleviate the poverty from the world. Global warming is the key factor for environmental change of the world. The indutrialised countries of the world is fully responsible for global warming. Environmental change will effect mainly the poor country of the world like Bangladesh, Sreelanka, Maldive, Malawi. Microfinance industries' approaches to his client has no link with this issue. MFI's mission and vision and the area of working is completely different and there is no scope to work in this issue. The first world ( USA, UK, Germany, Italy, Canada, Denmark, France, Spain, Switzerland, Sweeden, Norway ) have to come forward to the world community to keep healthy environment for all by active particiption with allocation of sufficient fund, rsearch work and proper message to the world community.
Microfinance is about providing the excluded people with a choice
Dear all, the authors of the article and the so-called investors and donors have taken a wrong strategy, thinking that their enlightenment and their intelligence will make that the poor citizens of this world will take part in a way forward for this earth. Microfinance is, as some others here defined it differently, about providing poor citizens with choices, with availability, with managing a life that can improve. Humanity is at the moment unfortunately led by opportunism, people who act and react to become acknowledged: "I wear a unique white coat and I want all to see that right now; another person then promotes a unique blue coat and wants to be seen even more often and immediately". And the poor see both of these people and wish they could wear copies of either one for totally opposite reasons based on everything else than the utility of the coat, if and how it will protect or even dress them better. Happiness requires self recognition, self confidence and a system in which a person can think for him and her self to develop such and develop her/his life in society that appreciates him/her for that. A healthy global environment requires from Microfinance experts to support local authorities and communities in countries with massive poverty challenges in efforts that enable the poor to think for themselves and to do the morally good thing in togetherness. And wealthy citizens in such countries would need to feel terrible accepting absolute poverty in their country for racist reasons such as religion, gender or class. Microfinance has a potential to providing sustainable financial services for sustained economic security and growth for the poor. Ensuring that the world will be a greener place tomorrow will require us to convince governments that it is essential that they respect all other countries, all peoples and that solutions grow from such mutual respect and understanding. The so-called donors and investors in the article, as well as some discussants, better learn that before they promote or ridicule coats.
Peter van Dijk Indonesia
01 Jul 2009
Partner
Microfinance does play a key role in the development of the green industry. Since many of these ideas may be from the grassroots, a source of viable funding must be in place to support these initiatives.
Susan White Orlando Vacation Homes United States
28 May 2009
Environment and Microfinance
I would say microfinance and environmental sustainability can go hand-in-hand. It will really depend on the particular MFI's policy and its relevance with environment. Except three areas raised in this article there are many other ways that microfinance can contribute to reduce the environmental degradation. For example: if MFI has a policy or agreement with its loan customer to plant one tree per loan , in some years there will be green forest... It could be tied with loan conditions such as interest rate or loan term. OR policy to finance environment friendly business with certain loan condition flexibility ... Specially in the city like Ulaanbaatar, where air pollution is 20 times more than normal value in winter time.
Nergui Sandagjav TERI Mongolia
20 May 2009
Matching solutions
At the household level, for small energy devices the technology is there and responses exist. On the other hand the demand for improved low-cost energy solutions is massive. So the question is how can we pair this existing supply and this unmet demand? More than research the role of microfinance is to provide options to match the energy needs of the BoP with the adequate solutions that are out there. Microfinance can be used as a platform to provide low income household with new opportunities to access services they know nothing about (information, training/education, financing...)
David Levai Center for Financial Inclusion France
20 May 2009
Microfinance and the Environmental Bottom Line
Micro finance and Environment sustainability can go hand in hand. What is needed is designing micro financial products in the area
Green Micro credit
a) agriculture- compost of organic manure, b) forestry credit - social forestry
c) Renewable energy - solar power and gobar gas (bio gas) for cooking and lighting (more social benefit to gender and arresting de-forestation)
Green Micro savings- In India, some banks accept donations for preservation of forest in the name of the local God ($40 to 60- new plants are planted and maintained in the name of the donors) for the purpose of regeneration and protection of forest resources spread over in the holy hills where popular ethnic deity is enshrined (for example in India Thirumala Thirupathy - seven hills- where the Hindu God Lord Venketeswara is enshrined and the name of the savings product "Sri Venketeswara Vana Abiviridhi scheme"). Good demand for the saving product is reported. Poor men's cultural and religious needs are met on one hand and protection of forest on the other hand.
Under SHG-Micro financing system group activities can also take up green micro enterprises as a collective venture.
For promoting these products three essentials - innovations , incentives ,and close follow up during post micro credit sanction are required. How to motivate the MF players to involve in this arena ?
Varadarajan Rengarajan Independent consultant -Microfinance India
20 May 2009
Poverty alleviation and Suatainable Energy Geberation
World at large and Microfinance in particular must try at first to reduce the sorrow of poverty and by doing so the Developed and The Developing countries and the Researchers of these countries must aim to provide sustainable energy to the people. For sustainable energy development, huge Research and Development Work is required, if we are serious to make the world sustainable. Developed countries, where the fuel consumption is the most, must sponsor research in each and every university of developing countries in renewable energy/ solar energy etc.
Amrit Ghosh Assam University India
18 May 2009
The Environment Challenge: Whose Responsibility is it
Having worked through the challenges of the leading a multicultural team, I have heard phrases like "minimum european levels of comfort" etc. which even development institutions have to afford to expat staff. This to me is the easiest pointer about whose responsibility it is.
European/American levels of consumption today average about 35 times that of an Indian. What is the responsible rate of consumption? If people in developing countries are to take the environment challenge, the people in developed countries will have to show the way. Are they willing to come down to a more sustainable level of consumption? If they are and we say in today's terms that the sustainable level of consumption is 17 times that of an average Indian then the people in developing countries need to come down to half their levels of consumption and not worry about the rise in the consumption of Indians till it reaches 17 times the level it is today.
Is that doing to happen? I doubt it will. And till then the environmental challenge is the responsibility of those that have created it and are still not willing to let their comforts go!
Shivendra Sharma Plural India India
15 May 2009
Micro finance/enterprise and Biodiversity Conservation
We have community projects on enterprise and biodiversity using microfinance to keep the projects going. However, since most of our funding agencies provide financial support for 3 years or less, the sustainability is at stake. Though we provide techical support to the community project after project implementation, microfinance project will keep them on sustainable, given another 3-5 year of supervision and assistance.
Philippines
14 May 2009
Renewable energy and MFI
The main goal of MFI is to provide social benifits with profit for ensuring sustainability. The promotion of renewable energy cant be the primary focus of any MFI. Specially if we look at developing country like india where poverty alleviation is the major agenda, the promotion of renewable energy will definately take a step back.
Bhaumik Shah KIIT School of Rural Management. Bhubaneswar, Orissa India
08 May 2009
Hand in Hand: Microfinance and the Environment
In a related article (http://tinyurl.com/MFinsights) written by Kathleen Robbins of Green microFinance, for the Jan/Feb issue of Microfinance Insights, she mentions that MFIs are adopting branchless banking technology quickly, allowing poor customers to go from zero to sixty in their utilization of mobile phones and applications. The article questions if:
- We can do the same for alternative energy sources, i.e. transform developing world consumers into clean, renewable energy users?
- MFIs have the power to push this agenda; do they also have the responsibility?
India
07 May 2009
MicroFinance, Enviroment & MicroInsurance
Indeed, it's essential that microfinance works to prevent environmental damage. However, the role of micro-insurance in all these should be taken into consideration.
The enviroment do go side by side security and this is where micro insurance come in. it's great to know though that some organizations like www.us-overseas.com do provide grant towards micro insurance extablishment and (or)expansion
Can microfinance and environmental sustainability go hand-in-hand? Some in the industry say it’s not only possible, but essential that microfinance works to prevent environmental damage. It is becoming increasingly clear that the impacts of climate change, pollution, poor waste management, and other environmental problems must be part of the long-term approach to economic development. Otherwise, we risk destroying natural resources that are essential for continued economic growth, as well as endangering public health and safety.
Renewable energy entrepreneurship
Carbon credit aggregation
