Can Microfinance Meet the Poor's Financial Needs in Times of Natural Disaster?

USAID's Microenterprise Best Practices (MBP) Project has focused on the ability of MFIs to serve poor communities affected by crisis, and to reduce poor communities' vulnerability to crisis. Can microfinance be effective in the context of sudden natural disasters or other emergencies? It is this question that the present document seeks to address.

By undertaking a broad examination of microfinance as an industry, and looking at specific experiences in the natural disaster context, the authors draw several broad lessons about microfinance’s role in disaster preparedness and response, in helping reduce some of the hardships caused by natural disasters, and in providing emergency loans quickly after a disaster strikes, while offering reconstruction support once the household has fully passed the emergency stage.

Along with these broad lessons, this report explores the bottlenecks that limit the role MFIs currently play in natural disaster response and mitigation, including liquidity and resource challenges, unpreparedness, regulatory restrictions and limits to institutional capacity that will keep most MFIs from mobilizing voluntary savings for the foreseeable future.

The report concludes with recommendations on how to remove or reduce these bottlenecks.