Microcapital about Green Inclusive Finance

5 December, 2016

Original source: Microcapital 

During one of Friday’s sessions of European Microfinance Week, Hatem Mahbouli, an investment officer with Dutch development bank Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO), described his institution’s plans to direct 20 percent of its investments each year to environmental efforts. FMO, which reports the equivalent of USD 9 billion in total assets, has disbursed about USD 120 million of its financial services investments in the “green” sub-sector. To move further toward its goal, FMO is looking particularly to Asia and Latin America. Hoa Le, representing Switzerland-based “impact” investor BlueOrchard Finance, argued that there are markets such as “Africa, where there is too much low-interest and donated liquidity, so the return is often insufficient to balance the risks and expectations of commercial investors.” On the other hand, Davide Forcella, a senior researcher at Belgium’s Centre for European Research in Microfinance and Co-Head of the e-MFP Microfinance and Environment Action Group, reported that “MFIs [microfinance institutions] state the absence of dedicated green [wholesale] funds is a hampering factor.” Mr Le agreed that dedicated green funds are “critical.”

Sonja Ooms, the manager of programs – with a special focus on the environment – for Dutch social investor Oikocredit, explained how working toward goals for an organization’s internal footprint can lead to success in meeting its external green targets. Since 2012, Oikocredit has had an environmental policy including elements such as reducing the carbon footprint of its internal operations, assessing the environmental impact of its investees, looking actively for green projects and helping its investees prepare for natural disasters. In Guatemala and Costa Rica, Oikocredit arranged open-ended meetings for financial services providers, consultants and environmental products providers. Ms Ooms said, “If you bring together the right group of people, it takes care of itself. From those lunches, there was a lot of spinoff of businesses talking together… It started out with us helping MFIs earn certification that they were carbon-neutral and realizing that this was both mutually beneficial and inspiring.”

There is certainly growth in the sub-sector. Ms Ooms said that 59 percent of Oikocredit’s MFI investees have environmental policies as of 2016, compared with 28 percent as of 2009. Dr Forcella said that 210 MFIs informed the US-based Microfinance Information Exchange that they offered green microcredits as of 2014. He also stated that 79 percent of microfinance investment vehicles are using environmental metrics in their investment decisions as of 2015, up from 58 percent in 2011. Mr Mahbouli argued that if an investor is to encourage an MFI to offer green products, there “has to be a win-win approach with a clear (future) business case” for both parties. Mr Mahbouli explained that expanding into green products can be good for a retail financial institution’s image, allow for cross-selling to existing clients and also bring in new clients. In addition to investors pushing MFIs to offer these loans, Mr Mahbouli stated that some solar companies are willing to pay for access to MFIs’ clients.

As for attracting investment for green finance, Mr Le explained that it can be hard for an MFI to source money from commercial lenders if the MFI lacks a track record in that area. He suggested creating public-private partnerships to blend funds from development finance institutions with commercial investment to engage and scale the sub-sector.

Arguing for the importance of this work, Ms Ooms described her role as Chair of the Green Inclusive Finance Working Group of the Netherlands Platform for Inclusive Finance. “Yes, we [as member investors] are sometimes competitors, but we work together on this because the environment affects us all.”

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