GREENING THE MICRO

FINANCE SECTOR
Strategy to Improve Ecological Soundness of Micro Finance
Institutions

INTRODUCTION

Micro finance businesses – which no less than the United Nations hailed as today’s
instruments of the poor and powerless in combating poverty – are no different from
typical businesses: they also pose environmental threats, although not as severe as
that of commercial giants.

But the good news is that there are many ways to check, report and mitigate the
negative impacts of micro finance businesses on the environment without sacrificing
their economic benefits to communities.

In recent years, environmental soundness has become synonymous to good

business. Businesses which have adopted tools such as environmental management
system (EMS), environmental management accounting (EMA), Cleaner Production
and waste minimization programs have somehow created a market niche as socially
responsible and fair companies.

MFIs and the Philippine Environment

In the Philippines, financial sector organizations are not required to integrate

environmental management and protection in their operations. Lack of legislation
indicates that most sectoral players, including micro-finance institutions (MFIs),
regard environmental management as an unlikely approach to enhance business
performance.

EMS also remains remote among MFIs because of lack of knowledge on links
between the environment and entrepreneurial efficiency.

Bulk of clients in micro finance operations are in micro and small enterprises (MSE),
which many experts say may not be totally innocent of harming the environment.
The website www.greenmicrofinance.org listed the following MSEs that pose
environmental hazards:

• Agriculture - crop, and cattle grazing

• Aquaculture
 • Metal work and electroplating
• Forest product collecting, including fuel wood and non-timber forest products
• Pesticide and chemical manufacturing
• Tanneries
• Small-scale mining
• Textiles and dyeing operations
• Automobile and motor repair
• Wood processing (carpentry and construction)
• Transportation (rickshaws, taxis, and small buses)

These businesses, the website says, poorly dispose of their own hazardous wastes
because of lack of awareness, competence and commitment in waste management.
Weak enforcement of environmental laws and poor waste disposal infrastructure
further increase the threats from these businesses. More so, an individual MSE may
not pose a major threat but the problem looms when looking at the collective impact
of MSEs.

The Foundation for Sustainable Society, Inc, with its goal to lead in establishing eco-
enterprise standards, considers these developments as lush grounds in enabling
partner MFIs to pursue environment-friendly enterprises.

MFIs play roles in advancing the environment component of the triple bottom line
(3BL) framework of FSSI. They should all the more become active partners since
most of their clients fall under the abovementioned industries.

It is in this context that FSSI comes up with the strategy “Greening of the Micro
Finance Sector.” This paper is FSSI’s attempt to offer a matter-of-fact guide for MFIs
in using environmental management tools that would also suit their clients’ needs.

THE FRAMEWORK

MFI partners are engaged to use EMS and other environmental management and
productivity tools to improve environmental and financial performance.

The framework below involves interventions which are grounded on the

environmental policy of both FSSI and its MFI partners.
 GREENING THE MICRO FINANCE SECTOR
PROJE
Inclusion of
Environmental Policy and environmental criteria
in investment and
Program financial appraisal

Business
Clients/Partner
• Support on EMS Promotion of s
Installation environmental
• Training Provision on Management &
FSSI various
MFI Productivity Tools
environmental Partners (EMA, Cleaner
management and Production, Good
productivity tools Housekeeping, Waste
• Incentive Provision Minimization

Improved Environmental and Financial Performance

INTEGRATING EMS IN MF SECTOR: SOME TOOLS AND

APPROACHES
(1) Awareness-raising programs and management trainings

MFIs are encouraged to use different techniques on raising environmental

awareness. These include dissemination of readily available information, education
and communication (IEC) materials such as flyers, video showing, and songs among
others; discussion sessions; individual orientation; and discussions during project
visits.

MFIs are also encouraged to maximize their built-in training program such as pre-
loan training to impart knowledge on environmental protection and management.

In the long term, FSSI would develop a social marketing plan to help promote the
greening strategy.

(2) Environmental assessment

MFIs are encouraged to use the environmental impact assessment (EIA) to influence
environmental management of client businesses.

EIA is an established tool in natural resource management that estimates the

environmental impact of a particular project, identifies measures to lessen impact,
and maps necessary alternatives.
(3) Loan application analysis

Loan applications are effective means to ask potential MFI clients on their activities.
Along the way, these could even complement EIA among their clients.

For instance, the material and energy flow accounting (MEFA), an established tool
on environmental management accounting, is used to determine environmental
impact of an enterprise based on input and output analysis in its production
processes.

MFIs could also simply discuss with clients on the potential environmental effects of
their operations, focusing on source of inputs, outputs and waste management
techniques.

(4) Sector and sub-sector based assessment and intervention delivery

MFI enterprise-borrowers are clustered into sectors or sub-sectors to facilitate

systematic EIA and effective implementation of environmental management
programs and projects.

This assessment tool is already embedded among enterprise development

organizations to enable entrepreneurs to identify production lapses, usually the
sources of environmental degradation.

(5) Incentives

MFIs provide their enterprise clients with incentives to encourage them to

incorporate environmental management in the production systems. Incentives may
include low interest rates, longer repayment schedules, and prospective loans or
investments. Another form of incentive is rewarding enterprises with the least
negative impact on the environment.

Net effect of these incentives is good banking reputation to the enterprises. This will
give them a cutting edge in selling their products and services in the market.

(6) Networks and partnerships

MFIs build networks in the public and private sector to improve knowledge and
skills on environmental management.

At some point, partner organizations assist in the implementation of environmental

management systems through training and technology development. They could
also obtain environmental certification at the MFI and their enterprise client level,
which could be an added value to certain products. MFIs work with organizations
that promote environment-friendly products, which actually provide credit or
business training needs of small producers.
Networking with government agencies and environmental groups also aim to
support entrepreneurs involved in recycling and waste management and small-scale
transportation. Government now require small transportation operators to improve
their efficiency or to switch to cleaner alternatives.

CONCLUSION

With their diversity and reach, micro finance institutions play significant roles to
achieve environmentally sustainable development. Their contributions are even
magnified because they are set in societies where the environment continues to face
strains from rapid population, industrialization and weak environmental awareness.

Tools and methods to mitigate environmental impact of small enterprises are

already in place. The larger task now is to institutionalize these systems in the target
enterprises and to ensure that they are efficiently implemented.