> Posted by David Levai
Asif Dowla, a microfinance expert and professor of economics at St Mary’s college of Maryland, has a great idea: engage the microfinance industry to adapt to climate change. He posted a call to action on CGAP’s blog yesterday after releasing a report that he wrote for Grameen Foundation and Oxfam America and interviewing with Paul Rippey, another microfinance and climate change specialist. His piece is a reminder to us all—during the last days of the Copenhagen Summit—that microfinance has not been paying close enough attention to the threat of climate change, despite the fact that it will affect the world’s poor first—the very ones whom MF aims to help.
In recent years, the microfinance industry, maybe more than the rest of the development community, has failed to provide scalable and replicable solutions to address the rising climate threats. No surprise here, as in the last decade, microfinance institutions have proven reluctant to disrupt a highly successful credit-based business model growing at exponential rates.
Asif Dowla calls for a “climate proofing” of microfinance products and institutions in order to adapt to the new environmental conditions that have already started to impact the poor (recurrent droughts, rising water levels, diseases and pests expansion). He recommends institutionalizing a change of model allowing flexibility of repayment schedules and installments for clients struck by natural disasters. His argument: MFIs need to incorporate these climate-related threats in their strategic plan for fear of being hurt.
But I believe that adapting to these unknown conditions is not the only answer to protect our clients when it comes to climate change. At the Center for Financial Inclusion at ACCION, we believe that MFIs have an important role to play in mitigating the effects of climate change by changing their clients’ behavior and offering clean energy solutions. Through our Energy Links program, we empower MFIs to become agents of change by providing environmental and energy literacy, a market for clean energy products, and financing solutions—three conditions that allow a massive uptake of pro-poor energy solutions. MFIs are particularly well-positioned through their relationships with low-income families across the globe to become not only a platform to support adaptation but also to promote mitigation of climate change.
Another incentive for MFIs to be innovative around the climate crisis is a financial one: carbon finance. Despite the numerous conversations going on today, carbon credits traded on the voluntary market are not a true and reliable source of income yet, but will most certainly become one in the near future. It is hard for an MFI today to access carbon finance mechanisms and revenue since they are supposed to broker structurally complicated deals due to a high dispersion of sources and costly monitoring requirements. Moreover the volumes of carbon savings sought after by western corporations, the main actors on the voluntary market, are massive. Large energy savings schemes or clean power plants are therefore more attractive to carbon investors. But, as the frequency of these deals happen and as the price of a ton of carbon increases, this could become a steady source of finance for MFIs to support mitigating and adapting to new climate conditions.
A solution might just be to simplify trading platform and requirements for carbon trading on the voluntary market, offering an easy way for concerned individuals to offset their emissions by funding green MFIs. It’s time to launch a green Kiva! But it does exist already thanks to the approach of a new company Yurtcozy. And they have a carbon footprint calculator. Isn’t the end of the year the perfect time to reflect on our personal carbon footprint and ask ourselves the tough question: how much will I offset this year?