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What are the options for Microfinance in water (governance) related projects? How does Microfinance relate to investment/rentability, livelihoods, development aspects from a water-angle?


Livelihood aspects

Rentability of Watershed investments

Usually, watershed management activities generate little value to those land users whose practices are to be changed. Value is generated more often to users downstream, such as hydropower facilities, canals, etc. Thus, it would make little sense for a land owner to get him or herself into a financial obligation which, in the end, will benefit someone else. An outright cross subsidy would achieve the desired results much better. A scheme along the lines of Costa Rica´s Payment for Environmental Services program or similar should be a much better option. Check for instance: http://www.fonafifo.com/paginas_english/environmental_services/servicios_ambientales.htm

(Jaime Echeverria, UNDP Costa Rica)

Example from Somaliland

A very good example is underway in Somaliland, north-eastern Somalia if there are those worried on political issues, where German Agro Action have taken forward a comprehensive watershed management scheme. Funded by the EC, contact our colleagues in UNDP Somalia who may have the primary contacts now.

This may link in with a wider initiative where UNICEF are also involved regarding the watershed for Hargeisa water supply. Be worth following.

(Paul Crook, UNDP)

Microfinance as entry-point for sustainable watershed management

There are no questions about the strength of environmental projects that incorporate a comprehensive approach to solution of problems linking environment-poverty reduction-participation/governance. Micro-finance initiatives in that sense are a very good entry point not only to deal with "income generation objectives", but also to facilitate community organization, women’s empowerment, promotion of transparency and accountability in public decision-making, and finally to promote a more sustainable approach towards the solution of problems associated to watershed management. A good source for looking at the combination of environment-poverty reduction-microfinance-governance is this:

World Resources 2005 -- The Wealth of the Poor: Managing Ecosystems to Fight Poverty. UNDP, UNEP, The World Bank, World Resources Institute.

In there you will also find references linked to watershed management.

(Lenni Montiel, UNDP Viet Nam)

Default rates

The question about default rates is per se a challenge to "any micro-finance project" and not only to those related to environmental issues. How to ensure that payment of credits does not become a problem has a lot to do with how well the project (institutions) is designed, managed and monitored/controlled. Have a look at the experience of UNCDF in micro-finance in least developed countries, to find lessons learnt about how to run micro-finance projects successfully (with several examples). Of course there are many other organizations with similar experience. For example, NGO Catholic Relief Services reports good results in India organising groups of people to establish watershed management projects, including savings groups that provide small loans to jump-start new businesses.

(Lenni Montiel, UNDP Viet Nam)

Experience:Watershed Management Projects and Microfinance comparative experiences

Further Readings - References - Links

Participatory Integrated-Watershed Management Project. The Gambia. IFAD

THE WATERSHED MANAGEMENT PROJECT (PABV) – Burundi. African Development Bank. Appraisal report.

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