Role of Microfinance in Environment Protection
By Stewart Craine, Founder-Barefoot Power
In 2006, a Noble Peace Prize was given for the poverty-alleviating impacts of microfinance. In 2007, a Nobel Peace Prized was given for environmental impacts of clean energy. There is no clearer indication that these are major challenges of our era, yet the overlap of microfinance and the environment has barely reached the tiniest fraction of its potential. This is good news for environmental agencies who are trying to reach the poor with clean, efficient services, as well as for microfinance, which is looking for new avenues for growth in sometimes locally saturated markets.
There are a host of environmental services that could be considered – new farming techniques that reduce fertilizer use or more efficiently use water, clean water, more efficient cook-stoves that reduce biomass consumption and indoor air pollution, even better human waste disposal can create organic fertilizers or generate electricity. However, some key characteristics of microfinance enable analysis of which services are most suited – many green businesses require 3-10 year investments by the end user or the service retailer, whereas microfinance loans are generally 1 or 2 years. Also, some technologies like improved or solar cook-stoves need to be refined to fit local cultural conditions, whereas simple technologies like LED lighting to displace kerosene lamps is universally applicable. Some technologies, like wind farms, hydropower and biomass gasification, do not scale down well to the micro/individual size, hence these technologies require community/village level participation and/or group lending of $5,000-$50,000 or more. In contrast, solar power scales down to individual ownership much better and hence are more suited individual $50-$500 loans that are typical in microfinance. Simple checks on payback period and capital intensity for the customer or retailer and cultural adaptation requirements can help identify which environmental services are the easiest fit with microfinance.
Lighting, one of first uses of electricity by the poor, is an example which fits this category. The poor often spend $0.30-$2 per week, or $20-$100 per year, on kerosene for lamps and disposable batteries for torches and radios. For 300 million households that lack electricity worldwide, this expenditure totals around $5-20 billion/year, and hence a significant growth opportunity for the microfinance industry. White LED lamps and 1-5W solar panels have helped reduce the cost of affordable lighting for the poor to $10-$100, allowing both end customer microfinance loans for the larger systems, and cash sales of smaller systems which infers business loans for micro retailers of micro renewable energy. Each lamp eliminates about 1 liter per week of kerosene, or 50 L per year, reducing CO2 gas emissions by around 0.1 tonne/year. This pollution reduction can, if verifiably accounted, generate additional income for MFIs and their technology partners via the creation of carbon credit certificates. These certificates are sold to polluting companies, often in Western countries, for around $10/tonne. Hence a $10-20 lamp can create $1/year of additional carbon credit income.
MFIs have a variety of ways to participate. The lightest way is to treat environmental loans like any enterprise loan, and once the loan is given for the business idea, is with most existing microfinance loans, the entrepreneur goes to another shop to buy the products for the business – in other words, physical distribution of the technologies, and follow-up service, occurs completely outside the MFIs branch offices. However, the MFI could agree to handle the product themselves as retailers, so that instead of a cash loan being handed over, the actual pre-packed business products are instead. The technical partner would still remain responsible for manufacture, international shipping and national/regional distribution. In very few cases, MFIs may be interested to get involved in manufacture and national-level distribution as well – Grameen Shakti, for example, manufacturers their own solar control equipment and lights, then distributes them via their offices around the country. There are advantages and disadvantages to both models, and the initial chosen model may even change over time, as experience grows.
Sustainable energy and other environmentally beneficial products and services are as critical to a peaceful world as the elimination of poverty and provision of financial services to all. There are alternatives to burning fossil fuels on our way to better living standards, as there are alternatives to provide banking services to the remotest corners of the planet. Developing countries have an opportunity to leapfrog old models to new sustainable models, and demonstrate that economic growth need not always come at the cost of environmental degradation. It is in all our interest to find these solutions, so that our children can inherit an earth at as ecologically and culturally rich and diverse as it has been, but hopefully far less financially polarized than it is now.
*******************
