How MFIs and their Clients can have a Positive Impact on the Environment

This paper was commissioned by the Microcredit Summit Campaign in 2006.

The paper argues that microfinance can, and should, contribute to a healthier natural environment for the benefit of the poor. It lists the following negative impacts of microfinance:

• Disturbances, such as sound pollution and litter;
• Negative health consequences;
• Worsening of the impact of natural disasters through the destruction of natural protective barriers.

The paper lists:

• Reasons for the negative impact: nature of inputs, production methods, inefficient technology, waste and outputs;
• Factors that heighten the negative impact of microfinance: large numbers, ubiquitous presence, long hours of operation, lack of supervision, low technological level, and lack of supporting infrastructure.

The paper discusses the following positive impacts of microfinance on the environment:

• Use of green inputs such as organic seeds and manure for production;
• Sustainable production techniques such as reforestation;
• Utilization of recycled materials for production.

The paper states the microfinance practitioners should be interested in their impact on the environment because:

• Environmental issues can affect a MFIâ??s profitability by increasing its risk;
• Governments are beginning to promulgate and enforce environmental regulations;
• The investment community has started to use environmental criteria in their due diligence procedures for lending;
• Other ethical or religious considerations.

The paper states that a MFI can become environment friendly by:

• Avoiding environmental damage in operations;
• Raising environmental consciousness amongst staff;
• Using environment-friendly technologies.