New Loans After a Natural Disaster
The paper looks at the needs of clients after a disaster. It suggests that microfinance clients need capital infusions to meet emergency cash requirements, replace productive assets, or rebuild their houses. Access to capital speeds up the pace of re-establishing livelihoods and income-earning activities, enabling clients to recover from the disaster as well as meet their MFO obligations of repaying new loans and rescheduled old loans. And from a long-term perspective, new loans help an MFO retain good clients and protect its future portfolio through regular repayments.
Three types of loans have typically been extended to clients in good standing:
- Emergency loans;
- Housing loans;
- Asset replacement loans.
The paper concludes that after a natural disaster, the best policy for an MFO to follow is to make new loans only to clients in good standing. In the case of small emergency loans, this policy may be stretched to include the entire clientele. In deciding whether or not to extend new loans, MFOs should also consider whether clients will be better served by rescheduling their current payments, and by providing access to compulsory savings accounts.
[Adapted from author's abstract]
