Why Do Microfinance Institutions Go Green?

Understanding the motives of ecological responsiveness in microfinance
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This study attempts to identify why MFIs have recently started looking at environmental impact. It collects data through a quantitative survey of 160 MFIs and qualitative semi-structured interviews of 23 MFI managers. Green MFIs opt for different strategies such as screening loans according to environmental criteria, offering microcredit to support clean technologies, or training their clients on pro-environmental practices. The paper states that understanding the motives of ecological responsiveness in microfinance is important for various reasons and could help practitioners identify mechanisms that would foster the implementation of the most effective green microfinance strategies. The relevance of a third bottom line is still subject to debate in the microfinance sector. Some professionals argue that environmental management is burdensome and would make MFIs drift away from their objectives. Study findings indicate that:

  • MFIs that are the most proactive in environmental management are motivated by social responsibility, competitiveness, and stakeholder pressure;
  • MFIs for which stakeholder pressure is the dominant driver tend to adopt a defensive approach and set up superficial negative strategies to appear green;
  • MFIs for which social responsibility is the dominant driver tend to be more proactive and innovative, and develop services to promote environmentally-friendly practices.