Mitigating Environmental Risks in Small-Scale Activities: What Role for Microfinance? A Case Study from El Salvador

This case study identifies challenges that an MFI can face when implementing an environmental risk management program. The analysis is based on a case study of a pilot program in El Salvador. The study conducted semi-structured interviews with microfinance clients, loan officers, and managers of Integral, an MFI, 18 months after it launched the pilot program. Small-scale activities in developing countries face environmental risks that threaten populations' health and livelihoods. Recently, some donors and experts have claimed that MFIs could help foster pro-environmental behaviors among their clients. The study aimed to identify internal challenges faced by Integral when developing new skills and procedures to implement an environmental risk management program, and external challenges faced by Integral when trying to address barriers to behavior change in small-scale activities. Study findings indicate that:

• Integral experienced difficulties in building internal skills and conciliating environmental and performance objectives, despite interest from its staff. This compromised effective implementation of the program;
• Program design did not sufficiently take into account the psychological and economic barriers to behavior change;
• MFI's effort was in some cases countered by external factors out of its reach, such as inadequate national regulations.