Dealing with Natural Disasters- Experience of MFIs in South Asia. Asif Dowla Hilda C. Landers Endowed Chair in the Liberal Arts and Professor of Economics St. Mary’s College of Maryland USA

Bangladesh Floods, cyclones and tornados are common occurrence 1998-the flood of the century affecting more than two-thirds of the country $2 billion direct damages equivalent to 8.6% of the GDP

Effect on the Microfinance sector in Bangladesh Liquidity crisis faced by all organizations Difficult funding situation for small and medium sized organizations Out of 2.3 million members of Grameen Bank about 1.2 million were affected by the floods Grameen Bank needed $100 million to replenish the depleted disaster fund

Grameen Bank’s Disaster Plan Preparation before the flood – Raise awareness about the incoming flood season in June – Organize a special meeting of center chiefs of branches in the flood prone areas – Urge the members to save extra to deal with flood – Store feed for the livestock and the poultry and make sure they are immunized – Urge borrowers to buy and store vegetables with long shelf life – Flood proof the house by raising the level and build a loft to store to be used as a shelter and to store valuables – Allow the branch manager to declare “disaster centers”, suspending collection of repayments for two weeks initially

Loft as temporary shelter and storage during the flood

Activities during the flood The top priority is to protect the lives of the borrowers and their family. “Make sure no one should be allowed to go hungry no matter what sacrifices the institution has to make” Help the members to move to the shelter Help them to continue business, if possible Help them to protect valuable document such as passbook, proof of insurance, etc. Provide emergency supply of essential food, e.g., rice, candles, molasses Distribute Oral Saline and water purification tablets Deliver borrowers savings in the shelter of in their homes

A borrower conducting business during the flood

Staff preparing packets of alum for distribution

Staff distributing alum packets at the borrower’s home

Staff distributing essential foodstuffs during the flood

A banner pronouncing that the borrowers will take the food during a disaster, but will return the money equivalent during better times. Food Security.

Activities after the flood Help the borrowers to re-settle into their homes and resume normal activity. Provide funds from the center disaster funds as well as Central Rehabilitation fund Organize health camps for the affected members and their family Reschedule the loans Provide fund to rebuild the houses

Medical camps after the flood

Source of funds for the post-flood rehabilitation Center Disaster Fund – WFP and the flood of 1987 Central Rehabilitation Fund – Tax exempt dividend income as a source of fund

Disaster response of MFIs in Bangladesh Most of them have Grameen-type plan in place PKSF-the wholesale Microfinance organization – Provide temporary funds for the partner organization – Require all partner organization to contribute 1% of interest income to endow a Disaster Management Fund Synergy with a vibrant NGO sector

Tsunami in Sri Lanka Effect on the microfinance sector – Face liquidity problem due to the decline in the inflow of cash – Increase in withdrawals – Decline in repayment rate

The response Some distributed cash grants Involved in relief operations Implement livelihood recovery project: cash for work, microfinance and asset restoration Conditional cash grant Some wrote off loans using grants received from donors Many affected individuals used a commercial bank, Ceylinco that mimicked MFIs: low interest rate, no collateral and quick processing (WSJ, Feb 17, 2005)

Problems Cash grants and write offs affecting the credit culture

Overall lessons Have a detailed disaster plan Create disaster funds using contributions from the borrowers and cash, and in-kind grants from the donors Avoid loan write offs as much as possible Decentralize decision making—allow local staff to take prompt decision Cash is the king Take advantage of the crisis by showing your loyalty to the borrowers