4.2.5. Train MFIs to Prepare for Natural Disasters and Catastrophes
DESCRIPTION
Natural disasters can quickly wipe out a community’s homes, crops, livestock, and businesses. In the aftermath, affected populations often need money—accessed through savings or loans—to rebuild their lives and livelihoods. In many disaster-prone countries, however, getting cash is not as easy as walking into a neighborhood bank. Around the world, low-income households and small business owners frequently cannot access regular banks. Rather, they rely on various types of microfinance providers, from local savings-and-credit groups to credit unions and cooperatives. Recognizing the important role financial services play in reducing vulnerability to disasters and facilitating post-disaster recovery, USAID supports a number of efforts worldwide that increase people’s access to finance while strengthening the preparedness capacity of the providers themselves (Source: Pounds of Prevention).
CONSTRAINTS ADDRESSED
- Appropriate capital to meet borrower needs
- Ease / cost of collecting payments
- Exchange rate risk
- Interest rate risk
- Potential for higher inflation
- Unpredictable fiscal policy
- Off-take risks associated with target sector/region
- Production costs associated with target sector/region
- Rate of return on lending in target sector/region
ADVANTAGES
By training MFIs to prepare for natural disasters/catastrophes, communities can more easily access credit in a post-disaster environment, helping to facilitate recovery.
DISADVANTAGES
Limited measure of impact
MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER
Coming soon.
VIGNETTE: INDONESIA: DISASTER RESPONSE AND RISK REDUCTION
SITUATION
In Indonesia, many poor households and small business owners rely on microfinance institutions (MFIs), such as rural banks and credit unions, which provide financial services to lower-income populations. However, MFIs are often affected by the same disasters that increase the vulnerability of their clients.
STRUCTURE
Recognizing that MFIs can help communities recover after a disaster, USAID/OFDA partnered with a non-profit institution, technical experts, and a wholesale commercial bank to build the capacity of Indonesian MFIs. USAID/OFDA, through Mercy Corps, provides training and one-on-one assistance to Indonesian MFIs on disaster preparedness and supports the development of tools and financial services specifically designed for disasters, such as disaster recovery loans to help affected people repair homes and businesses or replace tools and inventories.
IMPACT
The public-private partnership also increases MFIs’ access to short-term, post-disaster funding by providing a mechanism for emergency cash injections to MFIs. In total, USAID/OFDA has provided more than $1.6 million in support of the ILFAD project, including more than $750,000 in FY 2014.