Will COVID-19 usher in third wave of microfinance revolution?

OPINION

Uganda, like any other country around the world, has taken the brunt of the financial and economic impact of the coronavirus pandemic and as such, has taken measures to protect its population against the spread of the coronavirus COVID-19. While these measures and restrictions including movement restrictions, social distancing, curfew, closure of schools, etc. are commendable, they have had severe effects on the poor and marginalized people without access to adequate social and economic safety nets.

It is generally agreed that climate change and environmental degradation is the greatest challenge the world faces in the 21st century that threatens low-income households and microenterprises. Beyond the coronavirus pandemic, rising global temperatures and increasing humidity, coupled with the increasing frequency of extreme weather events have caused changes in the seasonality and floods, which may enhance the spread of infectious agents like insects, bacteria, and viruses.

According to the disaster committee interim assessment report May, 2020 the appearance of the desert locusts that followed a period of extreme weather in Uganda and the devastating floods that ravaged the districts of Bundibugyo and Kasese have affected 24,760 houses and an estimated 173,000 people and may potentially increase the spread of infectious diseases. Frequent, high intensity floods further threaten the livelihoods and food supply and may put enormous constraint to Uganda's development potential (FAO, May 2020).

Worldwide, it is known that the poor depend greatly on natural resources and ecosystems especially forests, wetlands fisheries, range-lands and arable lands. They also have limited other resources, assets and coping mechanisms such as savings, insurance schemes. This means that they suffer most from effects of climate change such as droughts, floods and landslides, but have the lowest ability to cope with them and hence, both the rural and urban poor require support to affordable and easily accessible funds.

With the current COVID-19 crisis, these vulnerabilities of the poor and marginalized have substantially increased. With experts predicting that the effects of the COVID-19 pandemic may stay until the year 2023, the microfinance practitioners must devise efficient, effective and innovative ways to continue providing the financial services support in a difficult time to achieve financial inclusion and help the clients cope with the financial effects of the pandemic while ensuring that their clients, agents and staff are kept safe from the effects of the pandemic.

Greater efforts and innovations by microfinance institutions are required to effectively respond to the emerging community needs to support people to remain resilient and be adaptable to the effects of the pandemic. Such products should address their credit needs not only for productive uses but also for social needs (education, health care,etc.).

To rise up to these challenges, one of the leading Microfinance Institutions in Uganda; the Microfinance Support Centre Ltd (MSC), a government agency mandated to manage micro-credit funds and offer business development services on behalf of the Government, reckons with the fact that using a climatic and pandemics' perspective in its programming is not only essential but critical and urgent to the future growth of the Microfinance Industry.

As such, the company has targeted green enterprises and green projects among other initiatives and has embarked on developing innovative green finance products for effective implementation of green finance; a third wave of the microfinance revolution (Lia 2020). The green microfinance is the alliance between microfinance and issues related to the environment and refers to all microfinance activities (micro-credits, etc.,) that take into account the impact of the activity and the institution on the environment.

The first wave of the micro finance revolution was on poverty alleviation as pioneered by the Grameen Bank of Bangladesh while the second was characterized by a series of social technological innovations in form of new microfinance products and services for pro-poor growth through village-based inclusive growth for accelerated poverty reduction.

MSC has finalized its five-year strategic plan 2019-2024 and reviewed some of its policies and delivery approaches with a view to enhancing its clients' adaptive capacity to the climatic changes as well as the emerging challenges presented by the pandemic. Specifically, the MSC will support registered Cooperatives and social enterprises, and associations (VSLAs) that produce or distribute renewable energy products or conserve ecosystems or enterprises that utilize natural resources wisely for other purposes while generating income in the process.

In doing this, the Microfinance Support Centre will deploy its Business Development services in building the capacity of the cooperatives, VSLAs and MSMEs to a level where they can qualify and in building a Revolving Fund mechanism among its Clients that will contribute towards sustainable development of the renewable energy sector through a multiplier effect.

Together with the partners, MSC will deploy it market systems development mechanisms to ensure quality products and support the increased sale of renewable energy products made by the financed clients. The system will operate on a credit mechanism that involves SACCOs, SMEs and VSLAs in direct equity with MSC for purposes of making beneficiary members/ enterprises viable to guarantee the repayment of the credit.

The Microfinance Support Centre has equally developed the tools that will be used to address community financing needs in the most innovative and most-environmentally friendly ways and is encouraging partnerships in financing and building the necessary institutional capacities and capabilities of the SACCOs, SMEs and VSLAs to jointly embrace green financing in a bid to weather the effects of pandemics and climate change.

By devising ways of identifying their business and policy needs/ recommendations and the best strategies and practices for addressing the identified the current challenges, Microfinance Institutions act as true development agents for climate change mitigation and adaption and the microfinance sector in general becomes an invaluable partner with the Government in discharging its obligations in line with its Vision 2040, the successive National Development Plans (NDPs), the nationally determined contributions (NDCs) and climate change policies.

The Paris Agreement (November 2016) presents a framework for addressing climate change through appropriate mitigation and adaption strategies (CCM& CCA) and it is implemented through regular UN conferences on climate change (UN CCC). The 2019 conferences in Madrid prioritized green financing, among other critical actions for climate change mitigation and adaption as the two core areas for green economies. Green economies prioritize ecosystems conservation for environmental protection leading to more "green jobs", sustainable livelihoods and greener and cleaner cities. Hence the need for green financing mechanisms to ensure that benefits of green economies and urban centers are realized.

The microfinance value chain is widespread country-wide in both rural and urban villages. This is where climate change impacts such as drought, floods, landslides and crop failures have the most damaging impacts hence, the critical importance of community-based green finance services as vehicle of climate change mitigation and adaption. Embracing green finance will not only help farmers but also artisans and SMEs to adopt innovations and projects that deserve microfinance services.

The writer is a business management and development expert