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The Role of Microfinance in Disaster Risk Management

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.

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The Role of Microfinance in Disaster Risk Management

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  1. 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

  2. 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

  3. 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

  4. 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

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

  6. 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

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

  8. 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

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

  10. 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

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