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MFI’s: A Critical Partner in Disaster Mitigation and Relief

Guest post by: Grameen Foundation

Article Overview: Natural disasters are indiscriminate in their impact, but for poor communities – many of which are home to microfinance clients – the effects can be devastating.

MFI’s: A Critical Partner in Disaster Mitigation and Relief

Natural disasters are indiscriminate in their impact, but for poor communities – many of
which are home to microfinance clients – the effects can be devastating. Because MFIs are
interconnected with the impact of natural disaster devastation, whether or not they choose to be,
many have discovered that when faced with a disaster, such as the recent tsunami in Asia, they
have to participate and contribute to helping clients prepare for and cope with the aftermath of
natural disasters. Sareeram, an MFI that operates in Batticaloa, Sri Lanka, was quick to respond
when the tsunami struck. It did not attempt to replace or duplicate efforts by disaster
management agencies or relief efforts, but rather facilitated the delivery of relief efforts. It
leveraged its resources such as vehicles and local staff to help deliver food and essential supplies
to those who needed them. Because the MFI’s staff were familiar with the landscape and the people, it was much easier for them to help track individuals affected by devastation and connect
them to the much-needed resources from government and agency programs for disaster relief.23
Through the support of the Abdul Latif Jameel Group and others, Grameen Foundation also
surveyed the four countries impacted by the tsunami and has supported five MFIs in
implementing rehabilitation strategies using microfinance. This is another positive example of
what can be done.
We are not proposing that MFIs become natural disaster relief agencies by any means.
Rather, by learning more about the effects of these events on their clients and by participating in
some relief efforts, they are better positioned to ensure the viability of their organization as well
as their clients’ sustainability. By working with disaster management and relief agencies, MFIs
can understand how clients are affected economically, and develop repayment programs,
temporary relief, emergency loans, and even insurance plans that will help them deal with this
disaster and also prepare for the next one.
From the examples provided, the benefits of leveraging microfinance as a platform to
deliver other social services are many. By offering health care services, Pro Mujer is helping its
clients stay healthy and teaching them the importance of modern healthcare – services that they
use now in greater numbers than before. By offering education programs, Fonkoze is
contributing to a more knowledgeable client base that is better equipped to manage their loans
and their businesses, and therefore increasing their chances of success. And when partnering
with other organizations to deliver additional services to clients – such as disaster prevention and
relief – MFIs are helping the social service and development field by leveraging resources and
reaching clients more efficiently and effectively. Overall, an integrated approach to microfinance
to deliver more value-added services could lead to more services to clients, higher and
accelerated success rates, and ultimately a more rapid reduction in poverty.
We acknowledge that there may be some criticisms and arguments against leveraging
MFIs’ infrastructure to provide other empowerment services. These arguments are based on cost
and efficiency. It can be argued that it is too costly to provide additional services particularly for
a business that is trying to offer services where the margins are often low and there are upward
pressures on costs and competitive and regulatory pressures to reduce interest rates and fees.
Offering health or education to microfinance clients will add to the cost of service providers as it
does for Pro Mujer and Fonkoze, but the results also strongly suggest that the long-term benefits
to the client and the MFI outweigh the costs. The services may be an additional cost to clients,
but it is often more cost-effective for them to do so compared to using external service providers
of comparable quality. In addition, the advantage of having microfinance organizations provide
these services instead of a separate provider is two-fold: the cost is structured in a way that is
still affordable for clients, and clients actually use and benefit from these services because it
comes from a convenient and trusted provider.
Instead of trying to evaluate microfinance as a stand-alone business measured purely on
cost-efficiency and specialization, we encourage the field to look at it from a different point of
view—one of poverty alleviation. In measuring or analyzing the effectiveness of microfinance
models or strategies, microfinance institutions and experts should continue to serve their clients
with microfinance’s purpose in mind. If offering crucial services to microfinance clients
contributes to healthier, more educated clients who are better-prepared for potential disasters without compromising microfinance’s ability to increase access to financial products and
services, then we believe that it is a strategy worth pursuing.

Microfinance: A Platform for Social Change
by Marge Magner
March 2007
Grameen Foundation

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Article Tags: abdul latif, batticaloa sri lanka, devastation, disaster management, disaster relief agencies, emergency loans, insurance plans, management agencies, mfi, microfinance clients, natural disaster relief, natural disasters, poor communities, recent tsunami in asia, rehabilitation strategies, relief efforts, temporary relief, track individuals, tsunami in asia, viability



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