Sliders Preview: Inclusive Green Finance Policies for MSMEs

Climate change poses a significant risk to the performance, competitiveness and sustainability of MSMEs.

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From machinery to inventory damage, the increased frequency and intensity of exteme weather events and slow-onset of disasters threatens to disrupt MSME business models in many ways.

Definition of MSMEs: The term “MSMEs” encompasses a highly diverse group of enterprises, ranging from small family-owned “sari-sari” stores in the Philippines and tuk-tuk drivers in Thailand, to firms with several hundreds of employees involved in international export.

IGF policies & regulation for MSMEs: AFI member institutions have adopted a number of policies and regulations that target low-income groups and MSMEs. These policies are categorized into the “4Ps of inclusive green finance.”

Promotion policies and initiatives prepare the private sector to offer financial services for green projects or related climate action activities to qualified beneficiaries.

The SMEFWG has identified capacity building as essential in promoting MSMEs adaptation and mitigation of climate change impacts, both for the public and private sectors.

Provision policies help to ensure that financial resources for green projects or related climate action activities are provided to qualified beneficiaries, whether through lending policies, refinancing, structural adjustments or other financing schemes.

Bangladesh Bank used refinancing facilities to promote low-carbon technologies, by providing subsidized credit for solar energy, biogas and waste treatment projects.

Prevention policies aim to avoid undesirable outcomes by lowering financial, social and environmental risks.

With green investment opportunities abound, there is a growing demand for alternative energy sources and green technology.

Protection policies reduce financial risk by “socializing” potential losses through insurance, credit guarantees, social payments or any other related risk-sharing mechanisms.

In Armenia, the Central Bank has responded to the challenge of climate change by establishing a system of agricultural climate insurance.

Conclusion: It is important to indicate that the response to climate change would not only adapt and mitigate against impacts but also provide avenues through which MSMEs can reduce their operational costs, hence improving profitability.

In international fora, knowledge sharing is essential to build capacity and knowledge on inclusive green finance.