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Green Microfinance and Ecosystem Services - A quantitative study on outcomes and effectiveness

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  • Davide Forcella
  • Frédéric Huybrechs

Abstract

There has been growing interest lately in the role of microfinance to support environmental management of micro-enterprises and poor households. Worldwide, the number of green microfinance projects increases, yet there seems to be little discussion on how effective green microfinance is in achieving its environmental goals. This paper aims to position itself in this debate. We look at the first large-scale green microfinance programme for biodiversity conservation: Proyecto CAMBio. It consists of a combination of credits, technical assistance and conditional payments for environmentally friendly agricultural activities (PES). We focus on its implementation in Nicaragua by the microfinance institution FDL and the NGO Nitlapan. We perform an in-depth econometric analysis of a survey we conducted on a sample of 128 rural producers. We assess the clients’ characteristics that influenced the evolution of the environmental value of their farm –as defined by the indicators we used– on a span of five years, and we assess Proyecto CAMBio’s possible role in this evolution. Moreover, we further look into the effectiveness of PES in rewarding environmental betterment. Factors such as the decision to change the main economic activities, or clients’ strategies or opportunities in land accumulationappear to have the strongest influence on the evolution of the environmental value of the clients’ farm. While the project per se, even if carefully implemented in agreement with its guidelines and well performing at financial level, does not appear to have significantly influenced the evolution of the environmental value of the clients’ farm. Moreover, the PES does not seem to reward environmental improvement while instead it rewards the more credit-worthy activities, producers with more access to land and credit and in addition producers that plant fewer trees per hectare. With these results, we underline the importance of the local territorial dynamics and the complexity of the socio-environmental systems against a vision based simply on single economic actors. From our results it appears that green microfinance, without strategic articulation with local actors and broader territorial dynamics, would tend to (indirectly) support preexisting socioeconomic structures and the possibly related environmental degradation processes. We hence call for a more proactive engagement of green microfinance in the territorial dynamics and with local actors with the aim to support more sustainable livelihood trajectories and development pathways.

Suggested Citation

  • Davide Forcella & Frédéric Huybrechs, 2016. "Green Microfinance and Ecosystem Services - A quantitative study on outcomes and effectiveness," Working Papers CEB 16-018, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/228525
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    More about this item

    Keywords

    Microfinance; Green Microfinance; Rural Development; Payments for Environmental Services; Agricultural Finance; Ecosystem Services; Biodiversity; Central America; Proyecto CAMBio; Quantitative Analysis;

    JEL classification:

    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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