Promoting Inclusive Markets and Financial Systems
Microfinance Institutions (MFIs) largely cater to poor and near-poor populations. Not only are MFI clients excluded from the formal financial system, they are highly vulnerable to external shocks such as disasters, which puts them at greater risk. At the same time, many MFIs in India operate in communities and regions which are predictably hit by disasters year after year, while others work in more stable yet disaster-prone areas. Disasters hinder the ability of microfinance clients to repay loans efficiently by impacting their livelihood and productive assets. Given the demographic section that MFIs cater to, MFIs have a responsibility to and a vested interest in addressing the issue of disaster management within their “curricular” to ensure both their own institutional sustainability, as well as the resiliency of their clients. Through resiliency products, greater awareness of client needs and internal risk management procedures, MFIs can play a key role in continuing to support populations most affected by disasters. Promoting such activities would not only increase the ability of poor households to cope with different kinds of crises, but also in turn protect the MFIs’ portfolios.
Greater preparedness will require MFIs to participate in all phases of DRR from predisaster to post-disaster management. Through the phases of disaster planning and response, there are a number of opportunities for collaboration between MFIs and state-sponsored disaster management agencies. These include contribution to disaster management plans, risk mapping, communication of early warnings, mutual awareness raising, disaster relief and disaster assessments. At the same time, there are clear operational steps that MFIs can take that include developing contingency plans, staff training and developing risk-reducing products for clients. In emergency situations, MFIs can also contribute to overall relief efforts through partnerships with humanitarian agencies or through their own relief efforts, based on the financial and economic needs of existing clients.