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Microfinance and the environment – an alliance to be fulfilled

The use of a microloan to buy a solar panel or a micro-pump for drinking water is an attractive proposition and, faced with environmental challenges in developing countries, Microfinance Institutions clearly have a role to play. However, they are often helpless or at least hesitant to take up this new prospect.

Two kinds of “green” microcredit

Since the mid-90s, with Grameen Shakti especially, green microloans are growing. Some, for professional use, are being used to create “green” businesses, such as for recycling waste or supplying drinking water. Another type of green loan, for domestic use, is used for buying an eco-efficient product or service for the home, such as a solar panel for lighting, a clean cooking oven or thermal isolation material. Both options are attracting more and more MFIs and funding agencies, which are supporting new experiments.

And with good reason: more than one and a half billion people have no access to an electricity network and, despite the efforts of public authorities, increase in coverage of national networks is slow. In this context, there is immediate usefulness in proposing individual solutions that are “cleaner” than a kerosene lamp or a wood oven. From Bangladesh to India or Africa, several cases show that this is possible on a large-scale basis.

Grameen Shakti and Selco – pioneers of green loans

In 1996, Muhammad Yunus, founder of Grameen Bank, launched Grameen Shakti, a Grameen Bank subsidiary specialising in renewable energy. 700,000 solar panels were bought by people who didn’t have access to the electricity network. In neighbouring India, Selco equipped 115,000 poor households with solar panels. To achieve this result, Selco set up partnerships with Microfinance Institutions, which brought with them their knowledge of the field and of poor customers. Let’s not forget either the microcredit solution, which was judged to be essential up against potential buyers’ lack of savings or available resources.

Just a drop in the microcredit ocean

However, while Selco and Grameen Shakti were indisputable successes, their combined total customer base represents only a tiny part of the potential market. Altogether, “green” microloans represent only a small percentage of the total number of microloans in the world, according to the estimations of David Levaï from Planet Finance link to his interview.

Numerous obstacles to overcome

While combining microcredit and eco-responsible products seems obvious on paper, it is more complicated to implement on the field.

The first challenge is to convince the MFI. Some believe, rightly or wrongly, that their mission is purely financial. Once they are on board, there remains the task of finding a suitable technical partner and of motivating and training their loan officers. In a second phase, there’s still the job of appealing to users, who are often suspicious as long as they haven’t seen systems already working for one of their neighbours…

Kiva took the plunge in 2011

Kiva, pioneer of online microcredit, waited six years before trying out its first green loans. Kiva’s green loans were launched in April 2011, starting with only eight MFIs! Out of some 150 partner MFIs of the American site, that seems pretty modest and, in fact, eight months after the start of the green loans, the site is often faced with a shortage of supply of green microloans…

Loan agencies’ technical and financial assistance

In this context, the spread of microfinance applied to the environment takes place in two ways. Firstly, the technical / financial assistance provided by international fund agencies and development aid agencies is crucial. In the field, several interesting initiatives were set up in 2011. In South America for instance, the Inter-American Development Bank launched the Ecomicro project and in Africa, the AFD (Agence Française de Développement – French development agency) and the European Investment Bank set up a fund for sustainable agriculture and fair trade.

Greatly increase the number of experiments

The second way of developing green microfinance is innovation. This is because, while Grameen Shakti is not an example that can be repeated outside Bangladesh, we have to imagine solutions adapted to other local contexts – micro-franchising, for example. This is one of the areas explored by Planet Finance in South Africa. However, innovation extends to all levels: product innovation, as in cooking bags, commercial, or process innovation, thanks to mobile banking, which makes micro-payments and micro-savings easier.

From among innovative experiments, we can also mention Aliniha in West Africa, with its project “A credit, a woman, a tree”, which links the planting of fruit trees to each loan granted. And let’s not forget WaterCredit from the NGO water.org, co-founded by the actor Matt Damon – WaterCredit has already granted more than 50,000 microloans in the field of water access.

However, as noted by Mehdi Dutheil, one of the innovation experts at Planet Finance, each experiment takes time, especially as there’s no question of bringing in from the outside a prefabricated solution designed behind closed doors. The involvement of future users and giving pride of place to co-construction are prerequisites for success. The economist Esther Duflo, in her book Poor Economics published in 2011, would be the first to agree.