Toward Achieving Sustainable Development Goal 13 in Developing Countries: Microcredit to Environmental Degradation

ABSTRACT This study examines the impact of microcredit on environmental degradation in 37 developing countries from 2005 to 2022. By applying various robust econometric techniques, it is found that microcredit tends to negatively affect the environment in the countries analyzed. The empirical results further confirm that strong governance and eco‐intensive monetary policy significantly moderate the adverse effects of microcredit on the environment, transforming it into a potential tool for sustainable development. The research also identifies trade and agriculture as key mediating channels through which microcredit deteriorates environmental quality. Furthermore, asymmetry analysis and robustness tests using machine‐learning methods such as Panel Quantile on Quantile Kernel‐Based Regularized Least Squares (PQQRS) and quantile random forest (QRF) confirm the robustness and reliability of the initial results. Based on these findings, we propose policy recommendations to integrate environmental protection into the microcredit initiatives of microfinance institutions. Specifically, stakeholders should adopt good governance practices, implement eco‐friendly monetary policies, and modify credit disbursement policies for the business and agriculture sectors in an environmentally sustainable manner. Such measures would enable microcredit to promote eco‐friendly and sustainable socioeconomic development in developing countries and support the achievement of Sustainable Development Goal 13.