Microfinance: An important tool to fight environmental degradation

Many people may be sceptical about the impact and the important role that poor rural communities may have on the environment. They may argue that rural communities are too small to create irreversible damages to it. They may say that large companies and governments are the ones to blame for causing environmental degradation, and the ones that must respond to this crisis.

However, many scholars and professionals have argued that the cumulative impact of poor rural communities can do much to prevent and mitigate environmental degradation. In this respect, a study conducted in 2008 by Hall, Collins, Israel and Wenner cited the 2004 microcredit summit report as providing support for the potential impact that microfinance can have on the environment (Hall et al., 2008, 6).

                

One of the most interesting data that came out was that microcredit summit members had 92 million microfinance clients in 2004. What is even more remarkable is that the scholars have placed emphasis on the fact that this quantity is only ‘a small fraction of the total number of micro and small enterprises operating in developing countries’ (Hall et al., 2008, 6). For instance, it would be interesting to hypothesize that this “small fraction” of 92 millions microfinance client are rural poor, who would receive financial services in exchange of adopting environmentally friendly activities and behaviours. This would certainly generate an important cumulative positive impact on the environment.

However, the number of poor rural families that need financial services goes far beyond 92 million. As recognized by many global organisations the world’s population in poverty represents approximately a fifth of the total, of which three quarters live in rural areas. This means that a number closed to 1.05 billion of poor people directly depend on land and water resources from their surrounding environment (IFAD, 2009). It is necessary to recognise that the cumulative impact of these rural communities has the potential to play a critical role in preventing or mitigating environmental degradation and climate change.

Why Microfinance?

Microfinance is considered by many development agencies as a tool which ‘has helped many of the world’s poor communities to increase their incomes through self-employment and empowerment’ (United Nations, 2008). The reason for microfinance success relies on the fact that development institutions have trusted poor people knowledge and capacities.

Through the use of microfinance activities such as credit, savings, insurance and other financial services, microfinance institutions provide access to poor populations to small amounts of credit at fair interest rates (IFAD, 2009), while reducing poor communities’ dependence on informal money lenders who tend to set excessive rates of interest, and trap their clients in a state of perpetual debts (Wood, 2003, 466; Robinson, 2002, 104).

The idea is to promote the use of microfinance services as tools which can canalize humans’ efforts in meeting their needs, through the use of new activities judged environmentally friendly. Once new environmental businesses start giving signs of improving rural poor’s socio-economic conditions, rural communities should loose their interest in coming back to their old activities and in the over-exploitation of their environment (Sununtar Setboonsarng, 2006, 18). The reasons for this are mainly two; the first is related to rural poor’s knowledge. As green microfinance services require environmental compulsory training, rural poor communities will learn how to manage their natural resources without damaging their eco-system.

Secondly, as green financial services aim is to improve the relations between rural communities and their environment then their clients will be induced to start diversified income generation activities such as tourist restaurants, organic agriculture produce linked to fair trade networks and so on. Thus, rural communities will start to become aware that their habitat is a fragile good that has to be protected because their livelihoods depend on it (Wild et al., 2008, 6).

Way forward

            Linking microfinance activities to environmental issues must be a priority in development projects. Otherwise, many microfinance project may try to overcome poverty by implementing non-sustainable activities that may affect rural poor’s availability of natural resources. In this way, projects could obtain positive results in the economic dimension, but just for a short or medium term.

In addition, development projects which do not take into account the environmental characteristics of the area they are working in can lead to results that may worsen the livelihoods of their clients.  In other words, the results will depend on how the projects will be conducted. But, as Wild et al. wrote ‘To be fully effective as an environmental intervention […] microfinance needs to be part of a suite of related activities that operate in concert. Its effectiveness as a stand alone ‘conservation action’ is likely to be at best limited. The other suite of activities will be site specific but may include some of the following:

• Enabling policy development;

• Institutional capacity building (at community, government and civil society levels);

• Environmental education;

• Common property resource management;

• Enterprise development;

• Judicious resource protection;

• Development and conservation education;

• Cost and benefit sharing’ (Wild et al., 2008, 22).

The point is: every single contribution, no matter how small it is, can play a part to prevent and/or mitigate environmental damages. Why shouldn’t we involve poor rural communities in this fight? It is a matter of fact that they can have an impact on environmental degradation. What is more, rural communities benefit from development programmes that aim to improve their environment. Health of community members is improved because of a reduction in the use of chemicals and polluting activities, their livelihood will be more sustainable and in many cases their sources of income and/or food will be diversified.

To conclude, promoting green microfinance services will contribute to reduce rural poor vulnerabilities, making them more flexible in the case of need, while protecting their environment and contributing to the fight against climate change.

References:

Hall, Collins, Israel and Wenner, The Missing Bottom Line: Microfinance and the Environment, 2008.

Marguerite S. Robinson, The Microfinance Revolution, Volume 2: Lessons from Indonesia, 2002.

Sununtar Setboonsarng, Organic Agriculture, Poverty Reduction, and the Millennium Development Goals, Asian Development Bank Institute Discussion Paper No. 54, August 2006.

United Nations, End Poverty 2015, Millennium Development Goals, Make it Happen, High-level Event on the Millennium Development Goals, United Nations Headquarters, New York, 25 September 2008.

Robert Wild, Altemius Millinga and James Robinson, Microfinance and environmental sustainability at selected sites in Tanzania and Kenya.

Geof Wood, Staying Secure, Staying Poor: The ‘‘Faustian Bargain’’, World Development Vol. 31, No. 3, pp. 455–471, University of Bath, UK, 2003.

IFAD, 2009, http://www.ifad.org/governance/index.htm

Biogas: a form of clean energy

In recent years energy sources have become one of the main concerns related to global warming. However, the need of energy to support development and alleviate poverty is a key issue that affects all countries with no distinction (Howells et al., 2005, 1834).

To date developed and developing countries experience different energy contexts and policy strategies that fuel their development while try to mitigate the effects of their emissions towards the environment. Whilst developed countries are able to supply almost all their population’s energy needs and have adopted binding targets to mitigate their energy GHGs emissions, developing countries struggle to provide the basic energy needs to large part of their populations, in particular poor rural and isolated communities (IISD, 2004).

One of the characteristics of developing countries is that their rural poor inhabitants live in areas where distances prevents them to be connected to national energy grids. In this regard, the International Institute for Sustainable Development country study on Argentina states that ‘rural people without modern energy services and without access to grid electricity are typically those living in scattered, remote communities where the level of development is low’(IISD, 2004, 30).

The key relation between climate change and development issues is that under the guise of fighting global warming, renewable energy production combined with the CDM represents an interesting opportunity for reducing rural poor vulnerabilities while mitigating the impacts of GHGs emissions. In this regard, many studies estimate that providing energy to poor rural communities is a critical element that has the potential to alleviate poverty while fostering development (Lloyd et al., 2009, 241). In particular, it has been argued that ‘energy is a determinant for poverty and development, supporting basic needs such as cooking, lighting, water supply, health care and communications, and it facilitates agricultural production, commerce and transportation. In rural areas of the developing world, introducing even small amounts of energy can have a positive multiplier effect in terms of increased’ and diversified ‘income, education opportunities, health and food security’ (IISD, 2004,  31).

1. Biogas: environmental, social and economic benefits

           

Biogas is a natural form of energy that can be stocked to support rural and urban lifestyles. Its production comes from biodegradable waste. In rural areas biogas can be produced from animal and human manure, and other organic waste (IFAD, 2006).

The strength of this source of energy lies in its possible uses, low costs and potential to mitigate the effects of methane gas and promote rural development. For instance, on a poor rural family scale biogas can be used to cook and lighting (Fischer et al., 2001, 1). Thus, allowing rural poor to save time, money, produce natural fertilizers (IFAD, 2006), transform biogas into an extra source of revenue if connected with the Clean Development Mechanism (CDM) and reduce their global warming effects. These potentials makes biogas plants very attractive as a to improve development in poor rural areas.

2. Biogas barriers

The first major challenge that rural biogas programmes have to face is the lack of funding to finance biogas plants. This is given because of the small size of the projects (Yapp et al., 2005, 4). Even though building biogas plants represent a cheap alternative, compared to other types of projects that aim to reduce GHGs emissions, its size and market potential makes it difficult to find funding other than those provided by NGOs and IGOs. The reason is that renewable energy produced from other sources such as wind farms or urban waste management, attract national and international companies because in addition to the revenues produced by CER units, they also produce income by selling the energy within national or international markets.

A further obstacle of rural biogas programmes is related to the capacities of such projects to mitigate GHGs. Typically, rural biogas plants are deployed in small communities where the quantities of energy consumption are low. Thus, the effects of switching from unclean energy to clean energy does not involve a radical change in GHGs emissions (Lloyd, 2009, 237). It is arguable that the solution to this concern consists in creating cooperatives among small communities. By doing so, rural communities are able to generate an interesting amount of CERs that could attract a larger quantity of potential buyers. Another important economic result of such strategy is that the costs of certification, administration and other transactions are improved (Yapp et al., 2005). In this way, the resources saved can be invested in infrastructure or community works that improve the living conditions of poor rural communities.

Temperature is another important factor to take in consideration while assessing the efficiency of rural biogas plants. Akinbami et al. (2001, 109) argue that ‘the temperature that is best suited for maximum biogas production is put at between 30–35°C. Fermentation comes to a standstill when the internal temperature of the digester falls to 15°C’. Unfortunately, there are zones in developing countries that might not be ideal to put into practice biogas projects. Their prolonged periods of average temperatures below 15°C mean that the projects will not generate the environmental, social and economic expected benefits.

Finally, the lack of expertise and innovation stimulus by national governments (Bleviss et al., 2006) and development practitioners on biogas plants risk to slow down the development of poor rural communities.

3. Way Forward

Although there exists a variety of risks that hinder developing countries progress potential, biogas projects have shown a large effect on the living conditions of the rural poor. Among the many implications the important role of biogas in cooking and lighting activities represent a drastic change in the quality of life of isolated rural communities, allowing them to spend more time in productive activities (IFAD, 2006) or to benefit from improved services provided to the rural community as a whole.

In order to be able to capitalise the benefits from biogas projects, poor rural communities need to be able to access the carbon market with competitive offers. In this respect, we argue that further reforms in the CDM, that give additional incentives to develop biogas small scale projects, may lead to real changes in promoting sustainable development among rural vulnerable populations (Lloyd, 2009).

References:

J.-F.K. Akinbami, M.O. Ilori, T.O. Oyebisi, I.O. Akinwumi and O. Adeoti, Biogas energy use in Nigeria: current status, future prospects and policy implications, Renewable and Sustainable Energy Reviews 5, Elsevier, 2001.

D. Bleviss, E. Hoyt, D. Marsh, S. Dubardzic, Financing Barriers for Clean Energy Investments in Latin America and the Caribbean, The Inter-American Development Bank, 2006.

T. Fischer and A. Krieg, Agricultural Biogas Plants - Worldwide, International Congress, Renewable Energy Sources in the Verge of XXI Century, Warschau, 10-11 December, 2001.

M.I. Howells, T. Alfstad, D.G. Victor, G. Goldstein and U. Remme, A model of household energy services in a low-income rural African Village, Energy Policy 33, Elsevier, 2005.

International Institute for Sutainable Development, Seeing the light, Adapting to climate change with decentralized renewable energy in developing countries, IISD, 2004.

B. Lloyd and S. Subbarao, Development challenges under the Clean Development Mechanism (CDM) – Can renewable energy initiatives be put in place before peak oil?, Energy Policy 37, Elsevier, 2009.

J. Yapp and Adrianus Rijk, CDM Potential for the Commercialization of the Integrated Biogas System, UNAPCAEM, 2005.

Selected Web resources:

IFAD, Photo, Audio and Video Gallery, 2006:

http://www.ifad.org/\media\video\index.htm

Why the Environment is Important

Under an economic perspective the environment is important because of a matter of resources. However, natural resources are mainly important since they allow us to live. As resources in our planet are finite it is important to protect the ones that allows us to exist. The issue is that everything in nature is connected. Thus, changing one thing in nature has the potential to affect the entire ecosystem.

What is impressive is that mankind is pretty good at altering it. And most people that could do something to change their and our impacts towards the environment, seem to not pay attention to what they do or what they could do.

Economists would say this is mainly an issue of resource access. As the majority of people have enough economic resources to buy what they want/need, most of the times they do not consider in changing their way of living. But what would happen if this assertion would end? Imagine if one day we would instantly lack of potable water, or unpolluted land to raise our cattle, or grow our fruits and vegetables. How about oxygen? Would we reconsider our lifestyle? Many scholars are ready to declare that this is what will happen in a future scenario if we do not act to prevent it. Thus, why should we wait to do something before reaching that point?

On the other hand, there already are millions of people whose livelihood are compromised by climate change and environmental degradation issues. Part of the fault is because of the privileges we enjoy. Just think about the oil we use for our cars, the food we buy at the supermarket or the diamonds we buy to our fiancés and where they come from. Large part of these resources come from developing countries which tend to sacrifice their populations needs and environments in exchange of foreign investments.

One does not have to be a scholar to see that a non correct use of the resources may increase the scarcity of other resources (even those that are vital for us) or directly compromise the lives of others. Most people I know believe the environment should be considered as a government priority. But, when it comes to act in protection of it they do not pay attention to their impacts. Now that you know you can make a difference, what will you do?

So, before you do something think about where the stuff you are going to use or buy comes from and how you could reduce your environmental impact. For instance, if you have to take the elevator think if it is really necessary, before buying food think how much food you really need and where it comes from, if you leave a room then switch off the light. It is hard to believe, but things like that make a huge difference.

In the future we will post some videos with tips on how to reduce your environmental impact. 

This blog has the aim to introduce people, civil society, private sector and governments to Environmental Sustainable behaviors and technologies. Our hope is that you learn from it, put into practice the solutions we suggest and share it with your family and friends.