Grants and Loans in Livelihood Restoration Following a Natural Disaster

This brief provides guidelines for microgrants that MFIs can provide to microentrepreneurs following a natural disaster. It also examines the effects of combined grant-and-loan products on MFIs and their clients.

Grants are often provided to microentrepreneurs following a natural disaster. Relief agencies and microfinance providers should design these interventions in such a way that they contribute positively to restoration of livelihoods, without creating dependency or undermining efforts to provide market-based financial services over the long term.

The paper recommends that there must be deliberate and close coordination between relief agencies and MFIs to ensure effective interaction between grant and loan products. Other recommendations include:

• Grant size must be small;
• Grants and loans must be implicitly linked;
• Timing should be appropriate;
• Clear communication must be encouraged between MFI staff and clients;
• Regular loan cycles should be resumed immediately;
• Grants should ideally be provided through a relief partner and loans through the MFI;
• Grants should only be provided for a short time;
• Grants should be one-off, and there should be a graduation process to market mechanisms such as microcredit.