After a natural disaster, microfinance clients need capital infusions to meet emergency cash requirements, replace productive assets, or rebuild their houses. Access to capital speeds up the pace of re-establishing livelihoods and income-earning activities, enabling clients to recover from the disaster as well as meet their obligations of repaying new loans and rescheduled old loans. New loans also can help a microfinance institutions (MFI) retain good clients and protect its future portfolio through regular repayments.
Three types of loans have typically been extended to clients in good standing after a disaster:
- Emergency loans
- Housing loans
- Asset replacement loans
After a natural disaster, MFIs may make new loans only to clients in good standing. In the case of small emergency loans, the MFI may make them to their entire clientele. In deciding whether or not to extend new loans, MFIs consider whether clients would be better served by rescheduling their current payments and/or by providing access to compulsory savings accounts.