Solutions

Our chief contribution is eco-credit, a loan that adds an obligation for ecological restoration alongside repayment of principal and interest. The instrument has been deployed as “commercial eco-credit” by a large agri-lender, and as “community eco-credit” in a form designed for informal financial self-help groups (SHGs). The intention is that ecological restoration required by the loan balances the damage caused by the financed activity.

Commercial Eco-Credit

We designed eco-credit products for three major agri-lenders, embedding sustainable practices in loan terms, to show how rebalanced credit could reshape outcomes. We presented the idea to the World Bank and world governments after winning the Global Innovation Lab for Climate Finance. One large agri-lender piloted the approach, but lessons followed: environmental loan terms are seen as uncompetitive and may undermine other bank KPIs, board priorities rarely filter down to the branch level, and monitoring adds complexity and cost. Recognising that agri-lenders might individually see eco-credit as an uncompetitive proposition, we theorised that our projects might demonstrate the need for all agri-lenders to move to credit-approaches that recognise environmental value as a sectoral transition supported by regulation. However, central banks have broadly proved less keen: some feel environmental obligations require a democratic mandate, not the backdoor of bank regulation. Whilst that might be fair, it reveals the systemic trap. Specifically, if banks can’t act for reasons of competition, and governments can’t regulate, we’re in a "Catch22" deadlock situation.

This suggested the need to trial the approach at agri-lenders where profit margins are not the objective, hence community eco-credit, elaborated below.

Community Eco-Credit

We adapted eco-credit for informal financial self-help groups, which count hundreds of millions, perhaps billions, of members worldwide. Our focus is groups of 20–30 people with limited or no access to formal finance. Each is capitalised with $1,000–$1,500, held in a simple revolving fund, often a tin box with a padlock. Members borrow on condition of small environmental actions, like planting trees or adopting sustainable practices. This is now operated as the Greenfi.org project. The result was catalysing a first wave of green instruments for communities highly dependent on natural resources yet excluded from conventional finance. These are experimental, and a variety of organisations are trialling local adaptations to the model we set down within a growing ecosystem of innovation, explained in this deck.

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