Pre-Disaster Planning to Protect Microfinance Institutions
MFIs operating in chronic disaster areas have put ever greater resources into disaster preparedness and mitigation activities, and demonstrated significant improvement in the quality and speed of their responses to natural disasters, greater ability to deal with clients' post-disaster needs, and smaller financial losses.
This brief identifies nine steps to prepare and protect MFIs before disaster strikes. These steps serve two purposes: first, to reduce the impact of a sudden natural disaster on the MFI's portfolio and solvency, and second, to allow the MFI to respond rapidly and effectively when disaster strikes.
Steps to protect the MFI's portfolio and solvency:
- Identify the Potential Population at Risk and Undertake Financial Projections. This can include creating a "risk map," conducting a risk assessment, and estimating the amount of liquidity necessary;
- Update and Store Duplicate Client Records out of the Disaster Zone;
- Create a Disaster Fund. Liquidity concerns are the foremost problem for MFIs following a disaster. MFIs can develop internal disaster funds, or a centralized disaster funds as are present in Bangladesh.
Preparatory steps to respond quickly and effectively when disaster strikes:
- Develop Disaster Policies and Procedures: For example, whether there will be emergency loans to clients, and whether the MFI will provide any emergency relief services;
- Create a Disaster Mitigation Team: This should be a task force of 8-10 people ready to coordinate MFI activities;
- Develop an Internal and External Disaster Communication Strategy: This may include investing in communications technologies such as cell phones;
- Train Staff: Focus on response procedures and guidelines;
- Open Discussions with Donors and Commercial Banks for Emergency Capital;
- Liase with Early Warning Systems and Relief Organizations.
The paper concludes that these nine steps cannot fully prepare or protect an MFI from a natural disaster, but they can lessen the shock of the disaster on the institution and its staff, and hasten the return to normal MFI operations.
