Microfinance in the Wake of Natural Disasters:Challenges and Opportunities (AIMS Brief)

This paper documents the experiences and experiments of microfinance organizations (MFOs) that have found themselves on the front line in natural disaster situations.

The paper identifies the conditions under which MFOs can protect their clients post-disaster:

• Some contribution to relief activities by governments/donors;
• At least partially monetized local economy;
• From early-warning, access to information to MFOs for client preparedness and portfolio protection;
• Cohesive community for effective utilization of peer pressure;
• Geographic/environmental diversity for crop/disaster insurance to diversify risks effectively.

Further, the paper studies:

• Operating costs of providing services, post-disaster;
• Elements of successful program design for post-disaster settings;
• Role of MFOs in relief, rehabilitation, and reconstruction;
• Mechanisms for disaster preparedness and portfolio protection.

Finally, the author makes certain recommendations for:

• Donors:
  • Should specify clear exit dates for any disaster-related grant facility;
  • Can provide seed capital to form disaster-management funds;
  • Can extend funding for training in disaster preparedness;
  • Should encourage research on disaster-proof financial products.
• Policy Makers:
  • Can channel government grants through MFO networks;
  • Should encourage and actively support coordination among the several agencies active in the post-disaster situation.
• MFOs:
  • Should keep their relief activities brief and should not involve loans or financial grants;
  • Should use separate windows/special names for disaster-management financial products/programs;
  • Should implement comprehensive disaster-preparedness programs, during normal times.