The Missing Bottom Line: Microfinance and the Environment

This paper examines the role of microfinance in addressing the environmental impact of microenterprise activity. Microenterprises create environmental impacts that include small-scale industrial pollution, land degradation, deforestation and destruction of natural protective barriers. The low technological level of microenterprises, lack of regulatory supervision and absence of supporting infrastructure combine to make the environmental impact of microenterprise activity significant. There are various reasons why the microfinance industry needs to care about its environmental impact. These include:

• Cumulative negative impact of microenterprises on the environment increases as their number increases;
• Environmental issues affect an MFI's profitability by increasing its risk;
• Governments are soon likely to regulate environmental impact of microenterprises;
• MFIs' ability to attract financing will increasingly depend on its environmental policies and practices;
• Environmental technologies offer MFIs an opportunity to differentiate themselves from competition;
• Ethical considerations will increasingly play an important role in decision making.

MFIs can influence the environmental performance of microenterprises through environmental education and training, environmental assessment and screening, adapting product mix, market research, participatory sub-sector analysis, partnerships, building networks and promoting regulation.