An overview of microfinance and the environmental sustainability of smallholder agriculture

The interest and growth in microfinance have burgeoned during the last two decades with the involvement of both private and public sector agencies. As a result of the interest in this sector, microfinance services have grown rapidly. However, little attention has been given to the environmental impacts of microcredit, or ways to mitigate those impacts. This is of particular concern in a rural context where microcredit has a very direct impact on natural resources. Microcredit for agricultural development often goes to purchase pesticides, fertilisers, cattle, and land; activities which have serious environmental ramifications from deforestation to hazardous chemical pollution; and occupational safety concerns. The microfinance sector provides a valuable interface with the informal sector, and can help address the serious lack of environmental management institutions in the vast informal sector of developing countries. This article describes various methods and tools available to microfinance institutions for mitigating environmental impacts. Case studies and solutions draw upon the experience of micro drip irrigation, self-help groups, agroforestry, and sustainable agriculture, for improved watershed management.