Green Microfinance Strategy for Entrepreneurial Transformation: Supporting Growth and Responding to Climate Change

As some environmental production processes can improve a firm's efficiency, this study examines the impact of training a sample of Bangladeshi firms in green production methods on both ecological benefits and economic profitability.

Growing evidence suggests that the millions of micro-enterprises that dominate the private sector in low-income countries (LICs) pose a threat to the environment by using inefficient production technologies and adopting unsustainable waste and output management practices. Further, micro-enterprises in LICs tend to be informal businesses, and as such escape the supervision of regulatory and environmental agencies. However, some environmentally responsible production techniques such as the use of solar power, recycling, using recycled materials as inputs, controlled water usage and micro-drip irrigation systems, hold the potential to improve the efficiency of firms’ production processes. If such practices can in fact increase the profitability of micro-firms, this would provide micro-entrepreneurs with an economic incentive to reduce the environmental damage from their operations. To test this hypothesis, this study proposes to estimate the impact of increasing micro-entrepreneurs’ environmental awareness on their businesses performance - a question which has been little explored so far - in Bangladesh.

The research team will first survey about 280 micro-enterprises located in two climatically affected districts of Bangladesh about their inputs, technology, and production process – to assess the degree of pollution associated with their operations. Then, 50 firms will be randomly selected into the treatment group and 50 will be randomly selected into the control group. The treatment enterprises will be offered an aid bundle including awareness trainings on the environmental impact of their operations, skill development trainings on green and organic production, recycling and green technologies, and market linkage assistance. Monthly financial diaries for all 100 firms will be kept for up to a year after the intervention, when a follow-up survey will also be conducted on both the control and treatment groups and the firms’ ecological footprints will be collected. These measures will allow the researcher to quantify both the economic and the environmental benefits, if any, of this ‘green microenterprises’ intervention.

If the study finds green microenterprises to be ecologically beneficial as well as economically profitable, this programme could set a pioneering example of ‘ecological modernization of micro-enterprises’ in LICs and inspire government institutions, rural development agencies, and MFIs to replicate  the intervention’s successful components with other micro-firms.