News

10.29.2014

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Why are we going towards a green microfinance?

The microfinance sector has grown and consolidated with the goal of being financially viable and demonstrate a real social impact. It is only during the last 10 years that microfinance institutions have decided to also consider the impact of their activities on the environment. This is the "triple bottom line": social, environmental and economic performance (Triple Bottom Line: People, Planet, Profit).

The impacts of climate change, pollution, waste and other environmental issues should be part of the long-term approach for businesses, organizations and institutions to allow a continued economic growth.
Following the same logic of development, we see microfinance institutions turning towards the green microfinance .

What is green microfinance?

Green microfinance is a financial service which tries to improve the environmental conditions by creating incentives for the poor. It provides the poor with microfinance that encourages them to use more sustainable environmental-friendly practices.

The environment friendly practices can take many forms, such as:
- Help microentrepreneurs to preserve and protect their income in the long term
- Protect the health of communities
- Lower overhead for microenterprises
- Allow MFIs to invest in a growing market in line with the "triple bottom line" investors

What types of microfinance institutions are turning to green microfinance?

Differences in sources of microfinance institutions motivation allow us to see a difference in their way to think and develop green microfinance technologies:

- MFIs primarily motivated by social responsibility and competitiveness: they are generally more proactive and innovative in the development of environmentally friendly practices
- MFIs primarily motivated by pressure from stakeholders: they generally tend to adopt a defensive approach and implement too superficial strategies and therefore not viable in the long term.

What involves the implementation of green strategies?

Engaging in green microfinance green involves putting in place a management of innovation.
Indeed, adapting financial products to promote technologies and environmental practices, or develop non-financial environmental services, requires mastering specific skills and implement new management procedures.

This necessary expertise is emerging as a major factor limiting the commitment of microfinance institutions in this green approach.
This is where other actors of microfinance can play a key role in promoting a positive ecology by facilitating the exchange of experiences and technical knowledge with microfinance institutions .

However, the sector of microfinance must be cautious in the introduction of this environmental strategy because we still don't know much about the effectiveness of these green programs and their real impact on the microentrepreneurs .

Thus further studies are needed to answer the following questions: Can microfinance contribute to the protection of the environment? What are the most effective strategies? What are the effects of green programs on microentrepreneurs?

Sources : PlaNet Finance Publication, Microfinance Gateway, Microfinance Gateway 2

Tags : green microfinance, triple bottom line, microfinance institutions, environment, green strategies, MicroWorld, microentrepreneurs