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Do Financial Services Build Disaster Resilience?

Mercy Corps
Dan Hudner
Jon Kurtz
Publication date: 
Sunday, March 1, 2015

In November 2013, the Philippines was devastated by Typhoon Yolanda. In response, Mercy Corps initiated programming aimed at speeding affected households’ economic recovery and promoting their resilience to future natural disasters. The interventions were designed with the assumption that access to formal financial products, such as savings accounts, as well as the provision of cash assistance would increase households’ resilience to future shocks. This study analyzed survey data from households in Western Leyte, Philippines to test this and other common assumptions regarding what characteristics contribute to disaster resilience. Specifically, it tests the extent to which formal financial products, diversity of income sources, social capital, and other sources of support are linked to households’ recovery from effects of the typhoon and their perceived ability to cope with similar disasters in the future.

The analysis found that use of savings among households is positively associated with greater recovery from Yolanda, while both savings and loans are positively related to families’ perceived ability to manage future shocks. The results suggest that informal financial tools are as effective as formal ones in supporting disaster resilience. Both informal assistance from neighbors and formal government aid both are also positively linked to households’ recovery. Livelihood diversification is not shown to be linked to greater resilience or recovery, but this may reflect that diversification often occurs due to economic necessity rather than as intentional risk management in preparation for disasters. The findings shed new light on the potential effectiveness of increasing access to formal financial services, supporting livelihood diversification, and enhancing bonding social capital in contributing to household-level resilience to natural disasters.