News

08.07.2013

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How MFIs manage natural disasters?

Floods, droughts, tropical cyclones, hurricanes, torrential rain are all extreme climates are faced by many microfinance institutions (MFIs).

Many MFIs currently operate in countries particularly vulnerable to natural disasters, and must cope with the constraints they imply.

Before the disaster : emergency plan and anticipation

To prepare to cope with natural disasters , all MFI must first define and implement an emergency plan which take into account the environment thereof. It will help to know what to do during the crisis but also to protect the assets of the MFI .

To protect its physical and financial assets , the MFI has to go through some of the following steps:

  • ensure its physical assets
  • Establish a backup system and data recovery
  • Secure storage of credit records
  • Protect assets in cash via bank accounts
  • Diversify loan portfolio (location, type of customer, type of loan)
  • Expand the range of financial products: micro-insurance , savings ...

  • MFI must have the means to help clients anticipate and thus to prepare for a possible disaster . The MFI can then offers responsible lending , can implement mandatory deposits to financially assist customers victims of the disaster or possess usable resources post-disaster via regular money transfers.

    After the disaster: evaluation of loan portfolio

    After a natural disaster, MFI must take stock of the situation. It goes through several stages as check the assets, the personnel safety and implement a crisis cell, analyze the impact of the disaster, assess the treasury or find cash to meet customer needs.

    Then comes the phase of analysis and monitoring of client portfolio , the change in the methodology of repayment and refinancing as well as the creation of new emergency products .

    Finally, the MFI must implement a medium-term strategy of reconstruction by examining the supply of specific products, evaluating new markets and sources of funding necessary for its clients .

    As with any natural disaster , the IMF must also conduct an assessment of affected customers including via surveys to determine the severity of damage, the immediate concerns of customers and whether or not if they have the ability to continue to repay the loan. At any point, the MFI must position itself as a support and demonstrate sensitivity to losses.

    After assessing clients, each loan will be evaluated on a case by case basis to determine the best possible credit adjustments and to avoid situations of over-indebtedness .

    In which cases can MFIs provide emergency disaster loans?

    Emergency loans are designed to cover the basic needs of customers or replace lost property immediately after a disaster.
    This type of loan is not appropriate in all situations, that is why it is necessary that MFIs take into account all investigations conducted previously on the client and its current situation.

    MFI should ask the following questions: Does the client have a livelihood? Does the customer have an existing source of income? Is the asset being replaced an income-earning asset?

    If the answers to these questions are positive, then an emergency loan may be appropriate because the client has the means to repay a loan. Otherwise, other options are more appropriate as financial assistance or subsidy.

    What are the limits of MFIs in the resolution of a disaster?

    Even if financial services of MFI are important in this type of situation, they are only one part of what is needed to help rebuild the country and victims of natural disasters . Medical services, food distribution, temporary housing, reconstruction and others ... are also crucial means after a disaster that can not be provided by MFIs .

    Sources : Microfinance Gateway (1), Microfinance Gateway (2)

    Tags : MFI, microfinance institution, natural disaster, disaster, microworld