Microfinance institutions (MFIs) must develop natural disaster management skills, and in that, merge the double bottom line (financial and social objectives) with environmental concerns. This is important for many reasons, chief among which is that poor people are the hardest hit by natural as well as man-made disasters (which are caused by climate change) and it’s only natural that microfinance providers help their clients prevent and cope with emergencies such as seasonal floods, water shortage, droughts, hurricanes, earthquakes, tsunamis, etc.

Offering Logistic Support to Donor Agencies

The extensive and efficient distribution network of microfinance providers makes them ideal for distributing potable water, food and medical aid, and arranging medical clinics for victims of natural disasters.

These MFIs may team up with donor agencies, or carry out the relief effort on their own, in which case, the cost of the donated items may be recovered later. Care must be taken, however, to ensure that development aid is not confused with the financial contract between MFIs and borrowers.

Grameen Foundation’s partner Fonkoze, ACCION’s partner SOGESOL, FINCA International (all three participated in relief work in the aftermath of the recent earthquake in Haiti).

Develop an Emergency Plan and Fund

If microfinance providers operate in disaster-prone locations, such as Bangladesh or Indonesia, they must developed detailed disaster management plans that can be adopted efficiently, and setup an emergency cash fund, which may be used to cover the cost of loan defaults caused by the crisis. This precaution will benefit both the client, and microfinance provider itself in terms of their financial and social objectives.

BURO (Bangladesh), Palli Karma Sahayak Foundation (Bangladesh), ACODEP (Nicaragua) have disaster management plans and/or emergency funds.

Building up the Asset/Income Base of the Poor

The poor will become less vulnerable to natural disasters if they have a wide asset or income base (savings, houses, income, etc.) that will help them deal with the sudden cash outflow in case of emergencies caused by natural disasters, such as poor health, damaged property, death of livestock, etc. By simply offering products such as micro-savings, housing loans, micro-insurance, and consumption loans, microfinance providers can make their clients less susceptible to the shocks of climate change.

Additionally, MFIs can leverage mobile banking services to deliver the much needed cash to natural disaster victims.

Flexible Credit Recovery Policy After Disaster

Making loan terms flexible goes a long way in helping clients cope with natural disasters; repayment schedules can be relaxed or suspended, installment amounts can be varied, interest rates can be staggered, or new loans can be given out to help the poor resume their businesses. At the same time, loan officers can deliver the savings of these borrowers to their homes to offer a safety net.

Grameen Bank (Bangladesh), Small Business Administration (USA) offer specialized loans to deal with natural disasters.

Housing Loans for Well-Constructed Homes and Repair of Damaged Structures

Weak and poorly constructed homes of the poor often sustain great damage from hurricanes, floods, strong winds, earthquakes, etc., and repairs cause immediate and excessive expenditures.

Proactive housing loans by microfinance providers must mandate that homes are robust, (i.e. made of concrete, instead of manure and wood), built away from flood-prone zones, above flood levels, or that trees are planted around the structure to offer protection against high winds. Reactive home microloans can be advanced to repair roofs, rebuild walls, or shift the home to another, safer location.

Maxima (Cambodia), ACCION (International Agency), SEWA (India)

Other Preparations Before Disaster Strikes

Borrowers can be asked to stock up non-perishable food sources, which will come in handy if access to retail outlets, or retail outlets themselves were to be destroyed by floods, or some other event. At the same time, microfinance providers can ask borrowers to immunize their livestock against common water-borne diseases that are a result of floods.

Because of the high operating costs, microfinance providers are probably not ideal for relief work after the natural disaster has occurred; however, their importance in helping the poor mitigate and cope with the losses suffered as a result of these emergencies, cannot be undermined.

Resources and Further Reading:

Microfinance and Climate Change Adaptation (International Institute for Sustainable Development)

Climate Change and Microfinance (Grameen Foundation)

Microfinance and Climate Change: Threats and Opportunities (CGAP)

Mapping Local Institutions in the Disaster Risk Mitigation Cycle (FAO, UN)

Microfinance Theory and Practice

Measuring its Social Performance and Impact of Microfinance

P.S. If you’re looking for other ways to help people recover from natural disasters, check out these emergency management degrees and start a new career.