How Ecuador’s Environmental and Social Risk Management guidelines are changing lives

Ecuador is increasingly vulnerable to climate impacts like rising sea levels and shrinking water resources. Natural disasters are becoming more frequent and more severe, leaving the country’s low-income communities more vulnerable than ever to the effects of climate change.

The country’s credit union supervisory body, SEPS introduced SARAS – a social and environmental risk management framework – to guide credit unions in directing loans to environmentally sustainable businesses. 

“Social and environmental risk management is essential,” says SEPS Superintendent, Margarita Hernández Naranjo. “Especially in Ecuador, a country so exposed to environmental risks – in order to provide sustainability to small businesses and to people living in the poorest areas.”

Many farmers and small businesses in Ecuador struggle to qualify for credit. And if they do, the interest rates are so high and repayment periods so short, that they easily slip into default.  Through SARAS, environmentally friendly ventures can qualify for green loans with more lenient interest and repayment conditions.

SARAS credit is distributed based on a tailor-made toolkit that helps credit unions evaluate their partners’ environmental risk levels. Partner businesses are classified as either red, green, or yellow – with red indicating high environmental risk, yellow indicating medium risk, and green indicating low risk.

Credit unions across the country have adopted SARAS. Making up a third of Ecuador’s financial sphere, the sector plays a vital role in greening the country’s economy.