Microfinance institutions in the Masaka sub-region are struggling to enforce environmentally responsible lending practices as limited public understanding and resistance among borrowers undermine efforts to promote green investments.
The lenders say some borrowers view environmental safeguards attached to loans as restrictive conditions intended to deny them access to credit, rather than measures designed to protect the environment and promote sustainable livelihoods.
Uganda adopted the Environmental, Social and Governance (ESG) framework of the United Nations in 2022, requiring organisations to embrace responsible business practices that support environmental sustainability and biodiversity conservation.
The government subsequently directed financial institutions to implement the framework by avoiding financing activities that harm the environment or promote social and ethical exclusion. However, microfinance institutions say enforcing the requirements remains difficult because some borrowers continue to engage in activities that degrade the environment, while others allegedly provide misleading information when applying for loans.
Betty Mukasa, the Board Secretary of Ssese Oil Palm Growers Cooperative (SOPGco) in Kalangala District, says limited public understanding of the ESG framework is contributing to poor compliance and continued environmental degradation. She says many clients consider environmental safeguards attached to loans unnecessary restrictions and bureaucratic requirements.
Mukasa is calling for increased public sensitisation, particularly targeting local leaders who can help communities understand environmental regulations, adopt sustainable practices and identify violations. She says some borrowers deliberately provide false information in loan applications because they have not fully appreciated the importance of environmental conservation and continue to engage in activities that degrade biodiversity as a means of survival.
Lydia Nalubwama, the Head of Marketing and Customer Growth at Masaka Microfinance Development Cooperative Trust Limited (MAMIDECOT), says some borrowers continue to divert loans into activities that contribute to environmental degradation despite efforts by lenders to enforce the policy.
She says some clients use borrowed money for environmentally hazardous activities such as charcoal production and the trade in timber and firewood, which contribute to deforestation. Nalubwama is calling for increased sensitisation about green-energy alternatives, alongside stricter enforcement of environmental laws by government agencies.She says some borrowers comply with environmental requirements during the loan application process but later divert or share the funds with people engaged in activities that degrade ecosystems.
Daniel Kintu, the Manager of Sembabule Savings and Credit Cooperative Society (SACCO) in Sembabule District, says the government should provide incentives to borrowers who comply with environmental lending requirements.
Kintu says such incentives could encourage more borrowers to adopt sustainable practices at a time when communities are increasingly experiencing the effects of environmental degradation, including prolonged droughts. He argues that many communities remain reluctant to adopt recommended climate-change mitigation measures, requiring more proactive approaches to enforcing the ESG framework.
However, David Kaweesa, the Manager of Financial Services Development at aBi Finance, one of the policy implementers, says microfinance institutions should become more innovative and deliberately promote green financing. Kaweesa says borrowers are more likely to adopt environmentally friendly practices when sustainable alternatives are readily available, affordable and attractive.
He urged microfinance institutions to prioritise financial products that promote climate-change resilience, arguing that access to such financing could encourage borrowers to shift away from environmentally harmful activities. The lenders say stronger public awareness, incentives for environmentally responsible borrowers and access to affordable green financing will be critical to making the ESG framework effective at the community level-URN. Give us feedback on this story through our email: kamwokyatimes@gmail.com
