The Practical Implications of Resilience in Financial Inclusion

When I first started putting together a business strategy to convince my current employer to invest in the concept of resilience five years ago, the section of the strategy I had the most trouble with was “evidence of donor interest.” At that time, the term resilience—and more generally an interest in how poor people manage risk—was largely absent from most donors’ vocabulary and programming.

Fast forward to 2012, and resilience skyrocketed to the top of the list of international development buzzwords. Suddenly, it’s as if the term is in almost every request for proposal and conference title.

That doesn’t mean, however, that the buzzword has turned into a new area of work with new sets of activities and related indicators. As I argued in a 2013 Devex blog, in order to graduate from the status of buzzword, resilience will need a solid conceptual framework and, at a minimum, terminology that most researchers and implementers agree upon. But it will also need to mean something different than the previous buzzwords and be able to rely on real, existing tools so that its practical implications can rapidly be seen on the ground. The remainder of this blog will shortly address these last two issues in turn. But first, a definition of resilience that is used by SEEP for the 2015 conference: Resilience is the capacity of individuals, their households, communities and systems to mitigate, adapt and recover from shocks and stresses in a manner that reduces vulnerability.

Is Resilience the New Sustainability?

Is resilience simply a new word for sustainability, as has been suggested? At the program level, it may well be (a sustainable activity requires resilience to the many vagaries of program implementation in the field), but where I think the term adds most value is by putting the focus on the individual and the household. That’s where the word “sustainable” doesn’t apply so well. Among its many eye-opening insights, Portfolios of the Poor has convinced most of us who thought we knew a lot about the poor’s financial lives that we really knew very little about the complexity and savvy that characterize the poor’s interaction with money. In a nutshell, low-income families around the world need risk management behavior that is in keeping with the variety and level of risk that they face on a daily basis. Their risk management techniques are on par with those of Wall Street money managers—not because they have a particular fascination for advanced money management, but because they simply need these skills to survive. What they lack are the affordable, flexible, reliable financial tools to leverage these skills to manage short- and long-term risk. That brings us to this year’s SEEP conference.

Wanted: A Variety of Tools for Helping Families in Need

It took the financial inclusion field close to 40 years to realize that low-income families need more than credit to stabilize their economic lives. Today, we know that these families need a balanced portfolio of savings, insurance, and credit—different tools for different needs. In the area of risk management, we are facing a similar issue. I hope this time it will take less than 40 years to come to a similar common sense realization: while we should celebrate the—admittedly difficult—rise of insurance to the front of conversations about risk management, we need to realize that insurance is a blunt tool that is not designed to protect households against every type of risk. For small and regular risks, savings and loans may be more affordable than insurance. I was particularly excited by the program of this year’s SEEP conference because its resilience track proactively focused on portfolios of financial tools to increase resilience, and on the role that technology can play in making these tools both more affordable for households—and more profitable for financial institutions. 

The following summarizes the great discussions that took place at the Conference as part of the resilience track:

• Few populations are more vulnerable to risk than pastoralists in the Horn of Africa. Constantly on the move, livestock is their only real asset, and so the availability of financial services adapted to their unusual livelihood conditions are particularly critical. The incorporation of cultural and religious principles in these services increases their attractiveness, as does the use of innovative technological solutions.
• Elsewhere around the developing world, innovators in financial institutions work tirelessly to develop and roll out affordable multi-risk coverage to provide families with a semblance of a private safety net. In addition to addressing the effects of climate change, such safety nets need to somehow tackle the cost of health care to be most effective. Hospital cash is emerging as one relatively easy to manage (and therefore relatively affordable) avenue to lower families’ financial exposure to health shocks. Though they usually don’t reimburse policyholders for medical costs per say, most hospital cash programs cover the cost of transportation, hospital stay, and supplies, as well as foregone income. In that fashion, however, they provide an entry point into the infinitely more complex and risky world of health insurance. Here again technology can be a game changer, as increasing numbers of mobile network operators in African and Asia are offering free hospital coverage to their cell phone customers as a part of their loyalty programs.
• As mentioned earlier, savings is an absolutely critical element of resilience portfolio. While they generally cannot compete with insurance when it comes to providing immediate protection against overwhelming expenses such as emergency surgery or prolonged hospital stays, savings may be a much better solution for those small but regular expenses that can be equally devastating when they add up. Savings Groups are leading the way in terms of combining simple, locally managed, financial tools with the seemingly boundless possibilities offered by mobile technologies.   

I welcome the increasing number of resilience-related activities that recognize the joint importance of insurance, savings, and technology to strengthen poor families’ ability to manage risks. In fact, I can’t think of many endeavors that are worthier than giving low-income families the tools they need to face an increasingly unpredictable future.

The Microfinance Gateway is proud to have been an outreach partner for the 2015 SEEP Network Annual Conference which had dual themes of Inclusion and Resilience.