Learn which green microfinance practices work best for your MFI in the areas of policy, footprint, awareness-raising, risk assessments, and green products and services. According to the MIX and European Microfinance Platform report "Assessing Green Microfinance", there are four essential strategies or practices of green microfinance, "managing internal environmental risk; managing external environmental risk; fostering green opportunities; and adopting a formal environmental strategy," (MIX & e-MFP, 2015).
Having a formal written environmental policy or a sustainability action plan is a core component of green microfinance and can help to lay the groundwork for more robust sustainability practices. This policy could be a plan that outlines short- and long-term sustainability goals for the organization, both internally (staff and company-facing) and externally (client-facing). The policy could also outline specific policies and rules related to sustainable purchasing, lending or other aspects of the business. Sustainability KPIs could also easily be added to an MFI's existing KPI metrics tracking items such as the number of clients with green loans or who have made sustainable improvements to their business.
Keeping track of your MFI's footprint involves tracking the change in electricity, energy, resource, and fuel consumption over time. A good way to start this initiative is to get a baseline of what consumption levels are currently like and to set goals for reduction moving forward. A reduction in consumption of any resource will also result in a cost-savings for the company.
Just as important as an internal sustainability focus, is also expanding awareness to community members by offering awareness-raising or training activities for clients and community. This could be a great opportunity to work with local sustainability organizations or to promote sustainable ways of doing business. Sustainable business improvements could also be further incentivized by offering better interest rates, longer repayment times or other benefits.
Climate change impacts and other environmental risk factors should be included in MFI risk assessments both from an institutional and lending standpoint. According to a World Bank study, just a 1 meter rise in sea level will impact 10% of Egypt's population and a 1 degree Celsius rise in temperature reduces annual economic growth by 1.1% (Dowla, 2009). In the Middle East, it is estimated that GDP per capita will decrease between 5% (Jordan) and 25% (Iraq) by 2040 (Burke et al., 2015) leading to increased political, economic, and social tensions. As the climate continues to warm and sea levels rise, more and more people will migrate to urban areas. MFIs should consider these impacts when expanding operations or opening new branches. Environmental risk should also be assessed at loan application and for outstanding loans.
Green Products & Services
There are a myriad of ways to integrate green products and services into an MFI's existing products and services offerings. Providing green loans and micro-insurance to clients to increase environmental resilience are two options. Green loan products could include a special loan rate or terms for clients who are determined to be of low environmental risk, or these benefits could be extended to clients who make sustainable improvements to their businesses (e.g. switching to sustainable farming practices or installing solar panels). Other ways to boost client resilience to climate change-related extreme weather include: offering personal savings accounts, providing requirements on where or how homes funded by loans can be built (e.g. not on a floodplain, trees must also be planted etc.), and providing loan credits to entrepreneurs who shift to new businesses less susceptible to droughts or other climate change impacts. Some MFIs may also benefit from cross-selling of non-financial products such as clean cookstoves or solar lighting or providing loans to clients to purchase these items. And finally, the carbon trading market could offer a new investment opportunity for MFIs. Check out MicroEnergy Credits and Plan Vivo for innovative ways to join sustainability and microfinance.