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These transactions are typically of smaller amounts and shorter tenure than corporate loans and target small business owners or commercial clients whose operations are generally small.

The environmental and social risks associated with microfinance are typically low partly due to the small size of the operation and the industry sector. However, in some cases clients may be involved with handling dangerous substances such as pesticides that can pose health or environmental risks, but frequently they lack the necessary environmental and social management capacity to do so safely.

Although at the individual transaction level the environmental and social risks associated with microfinance are low, given the smaller size and shorter tenure of transactions, there are credit or liability risks for the microfinance institution in cases where environmental and social issues, such as an accident, affect a micro-entrepreneur’s ability to repay a loan. Microfinance institutions often consider the environmental and social impacts associated with their transactions in the context of the developmental role they play in their communities and are therefore concerned with reputational risks. In addition, many see the promotion of good environmental and social practices as part of their role in the community.

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