Greening Small Businesses through the Microfinance Sector

When the largest corporations began taking about the green agenda by introducing eco-friendlier products or by reducing their operations' environmental impact, many marked this as a victory in the environmental front.

There is, however, a diverse segment of economic drivers called micro, small and medium enterprises [MSMEs] who have an innate vision for improving the plight of their local economies but are also generators of environmental wastes affecting ecological issues such as climate change, hazards, water availability, among others.

"There's a powerful segment that we need to collaborate with if we are to significantly reduce the negative environmental impacts from business activities." says Foundation for a Sustainable Society (FSS) Executive Director Emma Lim-Sandrino. This she says in the context of a country where 99.6 percent of establishments are categorized as MSMEs that produces a third of total domestic production.

As early as 1991, Lawrence Kent, author of the study entitled, The Relationship Between Small Enterprises and Environmental Degradation, has already provided evidence to suggest that small-scale economic activity can be more harmful on a per unit of output basis than large enterprises.

Today, more development planners are taking the view that whether big or small, it is sensible that environmental considerations be present in all forms of economic planning, even at the humblest and neophyte enterprises.

Microfinance Institutions as windows

Haunted by financial crunches, taxes and competition, MSMEs would have difficulties to consider their social and environmental bottomlines. "To survive, it seems logical that we have to put our focus on our financial bottomline," explains Christopher Castillon, Manager of Siargao Bank in Surigao del Norte.

Such focus proved to be shortsighted for microfinance institutions wishing to develop sustainable local economies. Natural hazards from climate change, for instance, could erode all the gains in agri-entreprises to nothing.

Policies and financial institutions have a lot to do in shaping how enterprises run their operations. "It is later that we understood that greening our operations builds the resiliency of families in times of disasters and that I think is the way to sustainability," Castillon says.

Microfinance institutions (MFIs) support a diverse range of MSMEs with equally diverse levels of potential impacts on the environment. Without efforts to build the awareness of MFIs on environmental management, they would perhaps continue to extend support to enterprises with environmentally-harmful impacts.

MSMEs are important engine for economic growth and employment throughout the country. While there is no local study providing evidence for MSMEs contribution to environmental pollution, industry reports indicate that MFIs are into supporting, mostly vending and small scale-processing dependent on environment for raw materials.

The absence of regulatory requirements for financial sector organizations to integrate environmental management and protection programs in their operations contributes to the lack of interest among MFIs. But there's more.

A series of studies and consultations conducted by FSS revealed that most MFIs are not aware of the economic and environmental benefits that can be derived from adopting these new tools. They have the impression that the implementation of an environmental management system is a costly undertaking and that the nature of their operations are not hazardous and does not, in any way, pose a danger to the environment.

This is bad news in a business environment where MFIs extend support to most MSMEs in the country.

MFIs providing financial support to chemical-intensive agriculture or textile and crafts industries, with unmanaged wastes that may deposit or produce harmful particulates and chemicals that may find their way to water bodies or blend in the air, contribute indirectly to environmental degradation. Mining, regardless of scale, affects the quality of a community's resources and lifeways and by providing financial support, MFIs may just be a guilty party as well. Other enterprises like food processing, tricycle services are supported by MFIs have their specific impacts to the environment as well.

Environmental management lessons

In April 2007, FSS launched the Greening the Microfinance Sector training program as a core strategy in capacitating MFIs to improve the sector's environmental performance.

The first module explains the concepts and methodology of the greening the MFI project as it relates to the local and global environmental problems which rationalize the need for such an effort.

The second module discusses the importance of environmental management systems and provides basic know-how on environmental management accounting (EMA). EMA offers 16 tools to help in identifying and measuring the full spectrum of environmental costs of current production processes and the financial benefits of pollution prevention or cleaner processes.

The participants are then led to a series of mentoring sessions during the third module, which will guide the MFI in installing, documenting, implementing, and evaluating their environmental management systems.

The fourth module, focuses on developing skills and competence of MFI clients on EMS auditing.

"Our coaching program begins from the basics including how to draft an environmental management policy to teaching them how to apply the tools taught to them," says Sandrino. "We hope that these exercises would open the eyes of MFIs to integrate green measures into day-to-day business decision-making."

The four-module ladderized training program has been given to 26 MFIs from all over the country since it launched the training program last year.

There is potential

In the course of the trainings, Sandrino narrates, she has come to know what MFIs have already done to make their operations and impacts greener like allocating resources for green enterprises like organic farming and production of organic inputs, solid waste facilities, alternative energy cooperatives. There are also those who have reduced their own consumption of electricity and paper in their operations. Others are influencing policy decision-making at the local levels on environmental issues like mining.

George Pupa, Chief of Loans Division of the United Sugar Plantations of Davao shared that the lectures convinced them on the importance of environmental integration in their operations. Pupa, has assisted in the drafting of USPD's environmental management policy which they will present to the board of directors for review and approval.

"MFIs understands how environmental degradation affect business and their unique responses are wonderful.

But we have to harness our interventions, apply science in what we do and invite more so that our impact could be bigger in the long run," says Sandrino.(Bulatlat.com)