Banking for the Environment

This is a briefing paper for bankers on the need and methods for better rural investment lending to promote sustainable environmental practices.

The paper aims to:

• Synthesize the principal sources of environmental degradation, especially deforestation and agricultural intensification;
• Explore the economic forces that provoke this degradation;
• Outline some of the methods currently in use to evaluate environmental degradation and presents a brief summary methodology which financial institutions can use to evaluate the environmental consequences of their lending programs;
• Explore the economics of banking and the internal structural factors that may militate against developing environmentally beneficial lending programs;
• Argue that these constraints are not as severe as they first appear and that there are sound and compelling reasons for banks to develop environmentally beneficial lending programs;
• Present the institutional framework for environmentally sustainable lending programs and a method of institutionalizing this program within the present operating procedures of the banks;
• Explore the informal sector's importance as a non-institutional source of agricultural credit is explored;
• Outline a paradigm to permit a societal response to this flow of funds to agriculture in order to preserve, protect and rationally exploit environmental capital and existing agricultural land.