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
To learn more about this author, visit Grameen Foundation's Website.
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