Green microfinance

Evolution

Since its creation, microfinance has been based on two of the three pillars of sustainable development: the economy and the social. But recently, microfinance institutions are increasingly seeking to introduce environmental aspects and have thus developed green microfinance. Today, this concept is attracting more and more microfinance institutions.

Role of microfinance institutions

In the face of environmental challenges in southern countries, microfinance institutions have a very important role to play as they are well positioned to promote sustainable development . In addition, it should be noted that micro-entrepreneurs generally create activities that are relatively polluting for the environment, such as the dyeing industry, mining, tanning, and so on. Micro-entrepreneurs are therefore exposed to major environmental risks but also expose their local environment to these risks.

Different types of green microfinance

The link between microfinance and sustainable development can be achieved through various means on the part of microfinance institutions ¹ :

• Financing so-called green activities, ecological projects (eg waste management, recycling, composting, installation of renewable energy equipment, etc.);
• The reduction of the ecological footprint by the microfinance institute itself internally (management of its transport, waste, etc.);
• The provision of non-financial services such as awareness, training or customer support on this theme.

Environmental Performance of Microfinance

Green microfinance is a recent concept and there is currently no methodology to measure its real impact on the environment ² . A tool was developed by Marion Allet: the performance indicator in green microfinance (MEPI for Microfinance Environmental Performance Index ).

It is based on five environmental management strategies that can be adopted by microfinance institutions (MFIs):

• 1. the adoption of environmental policies: the MFI can integrate the environmental problem into its policy, its principles or its missions;
• 2. the reduction of the internal ecological footprint: the MFI can put in place tools to evaluate its ecological impact and have reduction objectives;
• 3. environmental risk management of the portfolio: the MFI may choose to finance activities with a low environmental impact or exclude certain activities that are harmful to the environment, through the adoption of an exclusion list or the monitoring of progress made by their clients;
• 4. the granting of green micro-credits: the MFI can develop green microcredit to support the development of environmentally-friendly activities: listening, agroforestry, recycling or to facilitate access to clean technologies;
• 5. Setting up non-financial environmental services: the MFI can develop services such as awareness campaigns or training on environmentally friendly practices.

Limits

Attention, it is today an emerging concept, still little widespread and little studied, because for a microfinance institute it is an additional constraint that is complicated to implement on the ground. In addition, microfinance is not intended to solve all problems.

This is why commitment to green microfinance must be done in a prudent and responsible way.

Notes and references