Many see microfinance as a solution to poverty. It may be a powerful tool, but what can it do to finally build the sustainable economy we desperately need? Of what use will microfinance be if it contributes to the environmental degradation that aggravates inequality and poverty?
There is no shortage of policies that govern the environment and policies that regulate the microfinance sector. Many microfinance institutions have their own internal environmental policies. Voluntary policies are nice, but there is a lack of action on the part of government to impose sustainable practices in the microfinance sector, but, it isn't for a lack of ideas for such policies. Here are some:
One policy is to “require companies to disclose the nature of their dependence and impact on Natural Capital through transparent qualitative and quantitative monitoring.” Even if lenders are not being forced to favour more sustainable projects, this level of transparency can influence their decisions.
The Asset Owners Disclosure Project is an initiative from Australia working towards this level of transparency. While they have not gained much support as of yet, this campaign is part of a larger conversation about the need for reporting and transparency that holds promise.
A green credit policy is one that calls on banks to direct loan financing away from dirty and inefficient projects and toward clean ones. Enforcement hasn’t been easy, as regional banks have been reticent to recall loans from lucrative projects that have failed to pass environmental muster. The IFC has continued to work with the government to support the policy by engaging with banks in training and the development of assessment systems.
Since that time, the conversation about getting the prices right to create such an environment has gotten louder and louder. Subsidies, free access to resources and a lack of limits on pollution create perverse incentives that do not take into account the enormous value of ecosystem services.
If policymakers can take into account the value of ecosystem services, they will realize that unfettered, dirty business is actually not cheap, and regulations and taxes need to make them less competitive. Subsidies and tax breaks for clean projects should be considered an investment on the part of the government in the economy’s ability to continue to function in the face of environmental change.
The financial sector is among the slowest industries to respond to change. Financial institutions generally don’t change until it is absolutely necessary. Governments have the ability to force these changes to make the market more welcoming to small-scale, environmentally-sound economic activity. The question is: how much political capital do they have to do so?
By Mariana Gerard, Charles Ojei, Windhi Trianugrayati, Jacquelyn Pinckney, Sovanlyna Phin, and Samuel Benoit. The authors are Master of Social Entrepreneurship candidates at Hult International Business School.