|The Environmental Colours of Microfinance
2. Finding Economically Viable Solutions to Environmental Challenges
Finding economically viable solutions to environmental problems is the
core challenge. If solutions such as new technologies to environmental
problems cannot pay for themselves they will be rejected by
micro-entrepreneurs. The slim economic margins that micro-entrepreneurs
work with do not allow any room for absorbing additional expenses into
the overall operating costs even if some environmental benefit will be
achieved. The micro-entreprenueur along with the credit officer are
the best suited to determine the economic viability of environmental
Micro finance organisations such as BRAC, Actuar and SEEDs have
demonstrated that training and other non financial activities can be
introduced into micro credit schemes that entrepreneurs will pay for
because they feel it is in their financial interest to do so.
Environmental training and other activities should follow the same
In some cases where other benefits to the micro-entrepreneurs can be
achieved there may be some willingness to accept the additional cost.
This may be true if the environmental measures result in a safer
workplace. In fact the research on the links between occupational
health and safety and micro-enterprises indicates considerable success
in devising schemes that eliminate health risks while providing cost
savings to entrepreneurs. ( See Box 3 and Box 4 in Section 1 as examples).
Waste minimisation is another area to explore to find cost effective
ways to improve environmental performance. Although
micro-enterpreneurs are often very creative in their use of raw
materials, waste is not an uncommon feature. This is especially true
for those micro-enterprises employing outdated technologies. Again,
research and pilot projects involving small scale enterprises in the
developing world demonstrate the ability to find innovative ways to
minimise resource waste.
Box 5: Waste Minimisation: Project DESIRE
In India, Project DESIRE (Diverse, Environment, Simple, Innovative, Rational, and Economical) worked with 12 small-scale enterprises to identify different waste minimisation options. The companies were in the textile, pulp and paper, and pesticides industries. Some 540 waste minimisation options were identified. Over 38% could be implemented within 15 months. Another 32% of the options were deemed feasible; implementation of these options has already started. Only 30% of the options generated proved to be not feasible, and had been rejected by the participants. For these options, the technology was either not yet available or not yet available at an appropriate scale for small-scale industries. However, companies identified other methods for waste savings. The overall payback time of the 196 waste minimisation options implemented in project DESIRE was less then 6 months. The implementation of these waste minimisation measures has contributed significantly to environmental improvement in areas like:
- Minimisation of waste water discharge.
- Minimisation of air emissions.
- Minimisation of solid waste generation.
- Conservation of materials, energy, and waste.
- Reduction of the use of toxics.
- Minimisation of health and safety hazards both in the shop floor and local community.
The results of project DESIRE reveal the following important features of the waste minimisation potential for small-scale enterprises:
- Waste minimisation is diverse; waste minimisation is essentially a problem solving strategy rather than a solution; waste minimisation puts emphasis on examining the waste generating process, employing a preventive mind-set to develop solutions. A variety of technical operational, educational and managerial practices can be used:
- Good housekeeping
- Input material change
- Better process control
- Equipment modification
- Technology change
- On-site recycling
- Useful byproducts
- Product reformulation
- Waste minimisation protects the environment.
- Waste minimisation is simple. Waste minimisation is to a large extent based on common know-how and entrepreneurship. Simple but effective.
- Waste minimisation is innovative; the waste minimisation concept might boost innovations in processes, products and/or technologies.
- Waste minimisation is rational: Achieved by the rationalisation of production.
Waste minimisation is economical. The rationalisation of the production normally improves the material, water and energy efficiency which, in turn, might create attractive financial benefits.
Source: Van Berkel 1995.
Improvements can also be achieved by introducing technological change.
Promoting technological change in the production practices of micro-entrepreneurs is the most direct way to eliminate environmental problems. The objective is to promote cleaner production. Cleaner production is defined (UNEP 1994, 43) as the "continuous application of an integrated preventative environmental strategy to processes and products so as to reduce risk to humans and the environment.Invariably cleaner production means more efficient production.
A considerable amount of research and critical thinking has gone into looking at how micro and small-scale productive enterprises can be improved. Important knowledge and technology exist regarding processes, materials, equipment, tools, products, and skills, and the organisation of production and marketing to improve efficiency. Box 6 demonstrates that many sound practices are already utilised at the micro-enterprise level.
Box 6: Informal Sector Trade Fair - El Canelo de Nos
El Canelo de Nos, a Chilean NGO, organised a fair to encourage the necessity to link technology to environmental aspects and economic interest. In order to identify exhibitors for the Fair, the technicians of El Canelo de Nos visited NGO regional fairs, independent working class inventors and other sources in search of alternative technologies. The final selection for the year in question, 1992, included 110 specific technologies originating from three different sources; El Canelo de Nos, professionals working for other support organisations, and traditional technologies that had been salvaged and improved upon by NGOs. Exhibitors from Chile and the rest of Latin America, Asia and North America participated in the Fair. The Fair organisers considered it to have been a success.
Source: Bengtsson 1995, 23.
In the small-scale agriculture sector, there is an equally large opportunity for improving technical performance (Chambers and Conway 1992, 23):
The livelihood potentials of resource use have been habitually underestimated. The underestimation has been made in two domains. First, in small-scale farming there is better understanding now that for the complex, diverse and risk-prone agriculture of much of the South, bio-economic productivity is enhanced and stabilised not by simplifying with high-input packages, but by complicating and diversifying with multiple interlinking [uses]. Mixed cropping, agroforestry, aquaculture, cut and carry stall feeding of livestock, the creation and protection of micro-environments which concentrate soil, water and nutrients and intensified highly diverse home gardening are labour- and livelihood-intensive responses to risk and to rising population-to-land ratios.
These innovations need to be promoted on a wider basis. In some cases it will be more appropriate to develop new technologies and processes. This is an area of micro-enterprise development where there is relatively more experience collaborating with entrepreneurs. One technique already used by MFIs is Participatory Sub-sector Analysis (PSA) (Chen 1996, 128-33). PSA involves working with micro-entrepreneurs and their employees to examine every stage in the production or distribution of a particular good or service to identify inefficiencies. This process can be used to understand a whole array of factors related to the production process, working environment, technology, resource use, and end use of waste. The DESIRE project in India, described in Box 5, is an interesting example of applying existing knowledge and working with entrepreneurs to find new ways to minimise environmental impact and reduce costs.
Certain criteria should be respected when promoting or developing a new technology or process (Hyman 1992, 7-8). These include:
- Economic viability: financial benefits to users in return for their own investment of time and money.
- Cultural acceptability.
- Improved resource efficiency.
- Reduced environmental risks.
- Improved health and safety standards.
- New technologies should not lead to the displacement of workers.
Given the small margins within which micro-entrepreneurs operate, the ability to pay for new technologies will sometimes be an issue. On this concern, Hyman (1992, 8) adds:
As much as possible, technologies should be chosen that are affordable enough and beneficial enough for small-scale producers to adopt without the need for extensive subsidies in the long run. . . In the dissemination phase where the benefits of a productive technology can be appropriated by the users, the full capital and operating, maintenance, and replacement costs should be borne by the users so that the technology can be sustainable after the project is over. In exceptional cases where the users would have to bear the costs while the benefits accrue to others through environmental externalities, there may be a social justification for some subsidisation.
Two important options that should be explored in finding cost effective
solutions are to work closely with entrepreneurs and local communities
and collaborate with partner groups.
The beneficiaries of MFI loans are best suited to understanding the environmental impact of micro-enterprises. The next best group are the communities in which micro-enterprises operate. Working with both micro-entrepreneurs and communities will enable MFIs to differentiate between environmental protection practices that are essential for environmental and community well-being and those that unnecessarily interfere with the operations of micro-enterprises. In addition, there are many benefits from involving communities and entrepreneurs. Such involvement:
- Provides opportunities to influence and control and learn.
- Builds skills and knowledge that entrepreneurs carry with them to other activities.
- Creates programming options by tapping into the knowledge and skills of entrepreneurs.
- Offers intrinsic value for participants in the form of building confidence and stimulating interests.
- Provides information on community goals, attitudes, values, perferences and priorities which can serve long-term planning needs.
- Increases awareness of the causes and solutions of environmental problems.
- Lowers costs.
Micro-entrepreneurs may be reluctant to participate in activities to improve the environmental management of their enterprises. The challenge for MFIs is to identify and work with factors that encourage the involvement of micro-entrepreneurs. Micro-enterpreneurs will almost certainly not show an interest if there is no financial payback or if the payback is only long-term. Fortunately, much can be done in the short term to facilitate the achievement of both environmental and business goals, a win-win situation.
It has long been the practice to underestimate the extent to which a community understands and cares about its environment (Pallen 1996). Community membersknowledge can be essential in understanding the wider impacts of micro-enterprises and in finding solutions. Community members can be affected in different ways by an environmental problem or resource use patterns. Key stakeholders may include members of a community who have no direct involvement in a given entreprise. On a more general level, community members offer valuable knowledge and insight on everything from resource use patterns to changes in environmental conditions.
It is likely that, provided the right approach is found, entrepreneurs and communities will participate in collaborative environmental management of micro-enterprises. The experiences of the International Labour Organization (see Section 1) confirm this. Although collaborative involvement may, in some cases, be time consuming, getting micro-entrepreneurs on side on this issue will ensure that approaches to environmental improvement are adapted to their special characteristics and conditions.
Although much can be accomplished independently, more can be gained by working with partner groups. Partnership presents the possibility of using knowledge and expertise from a number of fields, all necessary for tackling environmental problems. Partnership is both an opportunity to resolve environmental problems and to introduce new ideas, perspectives and expertise into the field of micro-credit lending. Strategic alliances can be developed with different groups based on shared interest. MFIs can work with different groups on different challenges. There is an opportunity to understand and resolve problems in greater depth.
MFIs should begin by contacting established partners to determine their abilities and interest regarding a given topic. It is quite likely, however, that MFIs will find it more rewarding to develop new partnerships. Due to the cross-cutting nature of the environment and micro-enterprise question, there are many different organisations that have a stake in a clean environment. Many of these groups are challenged by budget cuts. The need to share resources and encourage collaborative strategies has never been greater. The experience of MFIs in providing financial services to entrepreneurs and implementing cost-recovery schemes would be a key contribution in developing appropriate environmental management activities.
One element of a successful strategy is to make the best use of the strengths of different groups. For example, groups in the environmental field possesses knowledge which, combined with the experience and resilience of micro-entrepreneurs and the know-how of MFIs, creates a fertile ground for innovation and business development. The main role of the micro-entrepreneurs and MFIs in this context is to keep new partner groups focused on the main objective of creating viable micro-enterprises. Following is a list of potential partner groups:
- Environmental Groups both Local and International.
- Multilateral and Bilateral Donors.
- Embassies from countries such as Canada that provide assistance to micro and small business.
- Local Municipal Departments.
- Science and Research Groups.
- Community Groups.
- Trade and Business Groups both formal and informal.
- Housing and Health Advocate groups.
- Other MFIs.
- Public and Private sector Agricultural Research Institutions.
- Mid- and Large-Scale Manufacturers.
- Urban Planners.
- University Departments.
- Local Consultants
Different forms of collaboration can be envisaged. For example, even when formal partnerships cannot be developed, groups remain sources of information, technical expertise and possibly financial support. Working with different perspectives and more specialised knowledge is essential.
If you have resources to suggest, project descriptions or activities, lessons learned or internet links with related contents, please send an email to
Hari Srinivas - firstname.lastname@example.org or Dean Pallen - email@example.com
Hari Srinivas - firstname.lastname@example.org
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