The Role of Microfinance and Microinsurance in Disaster Management

This paper studies ways in which microfinance and microinsurance provide social security to disaster-prone areas in Bangladesh, Sri Lanka and India. It also examines how microfinance and microinsurance institutions contribute to disaster management.

The paper compares indigenous methods of disaster management and social security mechanisms with the reach and relevance of microinsurance products. It analyzes opportunities for microfinance to integrate with microinsurance, and examines the role of NGOs, insurance sector, government and donors in developing microinsurance partnerships.

The paper is based on a study of flood affected communities in Bangladesh, areas affected by multiple natural disasters in Sri Lanka and areas affected by flood and tsunami in India. Conclusions include:

• Microfinance can reduce vulnerability by offering financial services, building social cohesion and linking people with donor agencies;
• Governments play significant roles in disaster relief and rehabilitation;
• Penetration of microinsurance is very low in disaster affected areas;
• Penetration of commercial and cooperative banks among the poor is low in Bangladesh;
• Disaster insurance can be provided for life, disability, assets and housing, employment and production;
• Policy gaps include lack of insurance penetration and lack of involvement of banks in disaster relief.