Loan Rescheduling After a Natural Disaster
The paper looks at loan rescheduling schemes. Loan rescheduling in the wake of natural disasters has become a common practice among microfinance organizations (MFOs). MFOs are aware that clients hit by disasters are unable to repay loans according to a pre-disaster schedule. Therefore, in the wake of a disaster, MFOs have only one choice that serves its clients and is true to institutional goals - loan rescheduling for affected clients.
There are different methods of loan rescheduling between which MFOs can choose, such as postponing payments of loan and deferring both principal and interest.
The paper gives the example of Grameen Bank and suggests that one method of rescheduling based on damage assessment is illustrated by Grameen Bank's disaster centers. The success of Grameen's approach depended upon having a disaster preparedness plan and staff trained in disaster response.
The paper concludes that terms and conditions of rescheduled loans must match the realities of the disaster area. Specific issues to consider include:
- The disaster's breadth and depth of damage should be considered in setting the length of the rescheduling period;
- For disasters that affect larger numbers of the population and have a larger effect on infrastructure, productive assets, and agricultural production, longer periods of rescheduling are in order.
