EcoMicro
partners with
Financial Institutions
to create Green Finance Products that build resilience of
Micro, Small and Medium Enterprises
(MSMEs) and
low income households
to Climate Change. This is an innovative approach to developing products that
facilitate access to sustainable, low-cost energy or adaptation technologies
for MSMEs and low-income households.
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Adaptation in Focus:
Lessons from the Dominican Republic
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What can the Dominican Republic teach us about adaptation finance? As it turns out, quite a lot!
At the end of 2016,
Fundaciόn Sur Futuro (FSF)
completed the roll-out of its EcoMicro project to facilitate implementation of climate change adaptation measures for smallholder farmers in the southern region of the Dominican Republic. FSF, who worked alongside the German consulting firm
Frankfurt School of Finance and Management,
had as its main goal, the development of green finance products centered around loans and technical assistance.
The challenges facing these smallholder farmers were numerous. A
market study
carried out within the project framework in 2015 captured farmers’ concerns over the growing threats of climate change, including intense heat and sharp changes in temperature, changes in the pattern of rainfall, hail and hurricane-force winds. These were further compounded by their more tangible and damaging effects, among them: Increase in droughts and the number of pests, greater need for agricultural inputs, reduced crop yields, and the overall loss of productivity.
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While this negatively affected smallholder farmers’ ability to generate income, most of the farmers interviewed continued to finance their productive activities and household consumption through traditional farming activities and personal savings. Interestingly, very few took out loans prior to EcoMicro.
Based on the market study findings, the team designed
‘Futuro Verde’
, a loan for climate adaptation measures such as efficient irrigation systems, water reservoirs, diversified fruit trees, and improved seeds and crop varieties.
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This would be
accompanied by technical assistance
to ensure proper implementation of the adaptation measures being financed. Technical assistance was offered by in-house FSF agronomists, and financed by FSF under its counterpart contribution to the project.
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Through a mini pilot (‘
Pilotillo’)
, FSF began by raising awareness among farmers in eight communities. This was followed by visits to potential clients as well as the undertaking of credit and technical evaluations. Despite these efforts, however, the ability to extend loans (even in the most affected areas) was severely constrained by the following factors: lack of income diversification and repayment ability; negative credit history; low expected yields and/or largely subsistence yields. As well, despite farmers’ requests for specific adaptation measures, this was not always possible in certain agriculture zones; for example, irrigation systems in areas without a ready water source.
Following a mid-term review, several adjustments were made, including the identification of additional agriculture zones and better-suited adaptation measures.
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Out of the
77
loans
disbursed during the EcoMicro project, a total of
146 adaptation measures
were financed.
This broad offering allowed farmers to adopt climate-resilient solutions to their specific on-farm needs.
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All clients are now repaying their loans in a timely manner.
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Quite impressive as well is the
scale-up
of the project to date – in the 12 months following the pilot, FSF placed an additional
76 adaptation loans
valued at
US$84,000
in the market, effectively
doubling the loan amount of the pilot!
This brings us to several key lessons learnt:
- Development of appropriate green finance products aligned to demand and specific needs of farmers.
- Ensuring that accompanying extension support through technical assistance to farmers. In the case of ‘Futuro Verde’, technical assistance has supported the calculation of investment costs and has overseen implementation of the financed measures. It has also helped to identify potential clients as well as to identify additional agriculture zones, new areas of intervention, and appropriate adaptation measures.
- The cost (whole or part) of technical assistance should be incorporated into the interest rate of the loan, thereby shifting the financial obligation from the credit agency to the farmer.
Perhaps the most important lesson learnt through the Dominican Republic experience is that
climate change adaptation is a process
- one that needs to run its course, and one to which farmers themselves must also adapt to achieve the expected results.
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Current Status and Future Opportunities for Green Microfinance in Latin American
and the Caribbean
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Across Latin America and the Caribbean (LAC), microfinance institutions (MFIs) and their clients are increasingly confronted by the growing threats from climate change and environmental degradation.
Despite this reality, green microfinance continues to play a minor role in the microfinance sector.
Development of green microfinance products and strategies could help transform threats from climate change and environmental degradation, market saturation and risk of over-indebtedness, into market and social opportunities.
This Report explores the current status and near future opportunities for green microfinance in LAC. The analysis estimates that the market for
green finance products
for MSMEs and households could grow up to
25% in volume
and
80% in value
over the coming years.
The Report concludes that
green microfinance represents a unique opportunity for MFIs to generate new business and attract new clients
.
However, to ensure optimum uptake and impact of green microfinance the report finds that MFIs need technical capacity to develop appropriate financial products and new tools to enable them to introduce climate vulnerability assessment in loan approval processes. MFIs will also need to develop strategies for better coordination within the ecosystem, in particular, with Renewable Energy/Energy Efficiency technology providers.
Successful business models should be explored to overcome present challenges and achieve the full potential of a very promising and dynamic green microfinance sector in LAC.
Full Report
T
he EcoMicro program is currently working with over 15 MFIs across LAC to pilot, replicate and scale green finance products, that build resilience of MSMEs and low-income households to climate change.
Learn more about these models in our online
Library.
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EcoMicro is a Technical Cooperation Program by the
Inter-American Development Bank’s Multilateral Investment Fund (MIF), co-financed by
Global Affairs Canada,
the MIF and
Nordic Development Fund. The
Global Affairs Canada contribution supports
The
EcoMicro Caribbean Program
.
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Inter-American Development Bank | Multilateral Investment Fund (MIF) | (246) 627-8500 [email protected] | www.ecomicro.org
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