A New Model for Disaster Preparation and Response for Microfinance Institutions

This summary report presents the VisionFund view of a new role for microfinance in disaster preparation and response based on the Fund's experience of making “recovery loans” to restore the livelihoods of the poor following Typhoon Haiyan in the Philippines. In addition, it draws on their work developing Global Parametrics (GP), a new social venture that will offer Financial Disaster Risk Management (FDRM) solutions to support recovery-lending responses on a global basis.

Some of the key points in the paper include:

• Immediately following a disaster, microfinance institutions (MFIs) can help their clients in a number of effective ways including: repayment holidays, loan forgiveness and access to compulsory savings. More broadly they can also help disburse cash aid from humanitarian programs if needed.
• MFIs have a potentially bigger role in the recovery and reconstruction phases after a disaster taking advantage of their local knowledge and resources. 
• Recovery loans are not suitable for the highly indebted or those without viable cash generating livelihood options; but rather for the economically active poor, including (but not limited to) those not normally targeted for humanitarian aid. The support to this group should have a disproportionate effect on the community’s economic recovery.
• A “before the event” funding model is proposed using insurance-like Financial Disaster Risk Management (FDRM) that offers a sustainable and affordable way to build the resilience against disasters of MFIs, and the clients and communities they serve.
• The ability to transfer risk should allow microfinance networks to expand their coverage in at-risk (particularly rural) areas, improving financial inclusion and stimulating growth.