Pre-Disaster Planning to Protect Microfinance Clients

Publication Date: 1998
Published by: USAID - Microenterprise Best Practices (MBP) Project
Document Type: Paper

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What could microfinance institutions do to be more prepared for natural disasters?

This is the second of three MBP Technical Briefs focusing on natural disaster preparedness. It discusses techniques to prepare the microfinance client for a natural disaster

The majority of microfinance clients hit by natural disasters have loans outstanding, which they may have used for a variety of purposes such as petty trading, home improvements, livestock, agricultural activities, school fees, medical bills, or previous family emergencies. But when natural disasters strike, clients lose family members, health, homes, business assets, inventories, livestock, and crops hence exactly those things in which they had invested loan capital

Still indebted to the microfinance institution (MFI), clients lose assets or income-earning activities needed to repay MFI debts. At the same time, clients require emergency funds to buy food or medicine. Clients with the smallest personal safety net and the greatest loss of income or assets may cope by going deeper into debt, pulling children out of school, selling off remaining assets and livestock, and, in extreme cases, dividing the family as adults migrate in search of work

This brief conclusively examined disaster preparedness tools that MFIs can use to mitigate the effects of sudden natural disaster on their clientele:

• meet with clients to discuss natural disasters
• create accessible emergency funds
• consider insurance products that respond to aggregate crises
• encourage structurally sound housing
• support economic diversification
• health training and vaccination programs
• locate relief services to use in case of disaster
• collect and disseminate early warning information to clients