Microfinance seeks to “provide financial services to households and micro-enterprises that are excluded from traditional commercial banking services.” (The World Bank, 2015). Often the beneficiaries of microfinance do not have assets or credit that allows access to traditional capital such as bank loans. Microfinance institutions (MFIs) are extremely diverse and include specialized organizations targeting agriculture, small enterprise development, or other specific areas. MFIs can be arms of larger banks, non-profit organizations, and even village based cooperatives. A successful microfinance model should address all three “sustainability criteria”; financial, social and environmental. One example of a reportedly successful microfinance model is the Village Savings and Loans Associations (VSLA) model which has been applied to support development in varying social and environmental contexts in Tanzania. Another example is the CAMBio project that has financed SMEs to integrate conservation of biodiversity into their business, products and services in 5 Central American countries (Forcella and Lucheschi, 2016)
Green Microfinance
Microfinance programmes that integrate green or environmental principles, criteria and/or assessments into lending policies. Criteria can include sustainable agricultural practices (e.g. organic agriculture) and measurement of environmental benefits associated with the economic activities.
Case Study: The Energy Links Project was a three-year pilot by the Center for Financial Inclusion at ACCION International, financed by USAID’s Microenterprise Development Office and the Wallace Global Fund. Energy Link’s aim was to determine how the established microfinance sector in African countries can alleviate energy poverty by increasing access to small-scale clean energy solutions at the household level. Read more about the Energy Links Project here.
Community Finance
Community finance-often considered part of microfinance-is of particular relevance for the communities living in or in the proximity of protected areas, including indigenous communities. Financial providers have a stated mission to deliver financial solutions for people in a defined community. Lending practices include community revolving funds and credit unions. The community itself is often the main shareholder of those institutions and can be the sole source of capital such as in village savings and loans.
Case Study: Microsfere is a non-profit organization that aims to improve the livelihoods of rural people living around areas that are protected for their ecological value in developing countries, and notably in West Africa. Their first two projects are in Ghana, in the Kakum National Park and the Amansuri Wetland. One of the principle measures implemented by Microsfere is Social Microfinance. Read more about Microsfere here.