The Role of Microfinance in Disaster Risk Management Presentation to the Inter-Agency Task Force for the ISDR May 25, 2005 Margaret Arnold, Program Manager Hazard Management Unit

ProVention activities on role of microfinance in DRM Microfinance and Disaster Risk Management: Experience and Lessons Learned – by Enrique Pantoja Surviving Disaster and Supporting Recovery: A Guidebook for Microfinance Institutions – by Eileen Miamidian, Margaret Arnold, Kiendel Burritt and Marc Jacquand Both available on proventionconsortium.org or worldbank.org/hazards

Microfinance: Valuable Tool for Poverty Reduction Majority of MFI clients cluster above and below the poverty line Strengthens the risk management capacity of the poor – capacity to engage in high risk/high return activities Thus increases the prospects of escaping poverty

Disaster risk is often neglected by MFIs Disaster risk is INTRINSIC to the MFI portfolio MFIs serve the population at highest risk to disasters (higher exposure and lower risk bearing capacity) Disasters represent a covariate risk that can hit an entire community, i.e., MFI client base at the same time

Household impacts Physical impacts – death, injury, illness Household assets – homelessness and incapacity to generate income Income loss – also due to market disruptions

MFI impacts Direct damages to offices, equipment, staff, systems and records Indirect impacts disruptions to service delivery Impacted clients cannot repay loans Macro impacts Impacts of changes in macro picture (inflation, devaluation, etc.) undermining of long-term efforts due to influx of relief aid

MFIs must be prepared! Critical to their capacity to improve the well being of their clients Protect themselves Better serve communities – enhanced poverty reduction

MFIs neglect disaster risk Review found that NO MFIs had expressly decided to integrate DRM comprehensively with management of other risks However, through experience, some MFIs have started to develop measures to prepare for operational and financial risk triggered by disasters and economic crises

Guidebook aims to help MFIs integrate DRM Exercises and reference tools around 5 key areas: 1.Risk assessment 2.Institutional preparedness 3.Client preparedness 4.Emergency response 5.Recovery phase

Not a silver bullet, but much potential Microfinance is one tool among a mix of available informal, market based, and public mechanisms for risk management Great potential to Support recovery in a more effective way Contribute to ex ante risk reduction