Microfinance Gateway>Looking into Gift Horse's Mouth: Implications of Cash Grants for Disaster Response by Microfinance Institutions in Mozambique

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Library » Looking into Gift Horse's Mouth: Implications of Cash Grants for Disaster Response by Microfinance Institutions in Mozambique

Looking into Gift Horse's Mouth: Implications of Cash Grants for Disaster Response by Microfinance Institutions in Mozambique
2001, Nagarajan, G.
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How effective are cash grants in protecting MFIs and their clients in the wake of a natural disaster?

This paper examines the effectiveness of the cash grant approach used by MFIs in Mozambique in response to floods in February-March 2000. It focuses on the cash grant programmes of two MFIs, who distributed cash grants in the wake of the floods to both active and non-active clients. Grant recipients with active loans had the option of applying part or the entire grant to repay their outstanding loan balance in order to qualify for a new loan, or to receive the entire cash grant and reschedule the repayment of their loans over a period of time decided by the MFIs

The article found that the following factors influenced the effectiveness of the product:

Delivery was as or more important than the product itself;
The size of the grant;
Levels of MFI competition;
Timing of the grant;
Well functioning markets and aid from other relief agencies;
Frequent contacts with clients before the grant was effective;
Immediate resumption of regular loan cycles;
Client use of compulsory savings to extend funds available.

The paper concluded that cash grants protected the clients and the MFIs:

By helping clients to wipe out their debts and restore their credit line, thereby opening the access to a new loan from the MFI;
By providing grants to both active and non-active clients they provided a much wider protection;
By direct disbursal of cash they provided clients with the freedom to use the fund as per their preferences;
Repayment effected through the grants helped the MFIs avoid cash-flow problems, service their clients and protect their credibility;
Resumption of the new loan cycle helped to quickly revive the business and as a result incomes at the year end were not significantly different from the previous year.

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29 Sep 2011



kasumba herbert ACFON UGANDA Uganda

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Journal Volume/Pages:
29

Publisher(s):
U.S. Agency for International Development