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

The paper aims to discuss the following questions – can microfinance, which contributes to achieving MDG No.1 (eradicating extreme hunger and poverty), harm the natural environment? Or, more positively, can microfinance be a means to achieve MDG No.1 and MDG No.7 (ensuring environmental sustainability) at the same time?

Microenterprises can have a negative impact on the environment for different reasons. Some because of the nature of their inputs (inorganic fertilizer, pesticides), some due to the type of production methods (burning or mining), some because of the inefficiency of their production technologies (leading to overutilization of natural inputs), some because of their waste (litter, diesel smoke) and others by their outputs (lumber, sale of endangered species). These microenterprises create waste and litter, cause air and water pollution, damage riverbanks, ruin soils, and deplete forests and wildlife.

The authors note that it is true that the size and scope of microenterprises limits their negative impact. On the other hand, their sheer numbers, ubiquitous presence, extended hours of operation, lack of supervision by regulatory and environmental agencies, low technological level, and lack of supporting infrastructure and services (trash collection, enclosed marketplaces) all heighten their negative impacts. Some examples of microenterprises that have obvious negative impacts include charcoal production, livestock grazing, timber harvesting, tanneries, textile dyeing, slaughter of animals, and small mining operations.

It is, of course, also noted that microeneterprises can have a positive impact on the environment. Microenterprises that use green inputs for production, such as certified (sustainably grown) lumber, organic seeds, compost or green fertilizer, and organic dyes, can contribute to a healthier environment. Sustainable production techniques such as reforestation, controlled water usage, natural pesticide applications, and environmentally friendly technologies, including micro drip irrigation systems, solar water pumps, all conserve environmental resources. Microenterprises that recycle trash or used goods, and those that utilize recycled materials as inputs, are helping the environment.

The paper then looks at why the environmental impact of microenterprises is important for microfinance institutions. This bulk of the paper then considers how MFIs can make a difference. Furthermore, it seeks to answer the question of how MFIs can make a difference without affecting their own profitability and without passing on extra costs to their clients. This section is based around the actual MFI operations as well as environmental lending.

  • Resource type
  • Author Hall, J and Lal, A, with contributions from Israel, E
  • Organisation
  • Year of Publication2006
  • Region
  • LanguageEnglish
  • Number of pages13 pp.

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