On November 8, 2013 Typhoon Haiyan drew a path of destruction across the
Central Philippines that left millions of Filipinos homeless, injured, and
without a viable livelihood. Despite prudent preparations of households,
families and communities, this unprecedented event severely impacted all
aspects of individual, family and community resilience.
Across the world, disasters triggered by natural hazards pose an
increasing risk, especially to the poorest entrepreneurs, with the most extreme
of these events often creating debilitating impact that sets back economic
progress for years.
Microfinance is now a critical component of the financial lives of the
poor, but typically, after a disaster strikes, microfinance institutions (MFIs)
reduce their lending – in response to reduced capacity from impaired balance
sheets and perception of credit risk. This makes it even more difficult for
poor entrepreneurs and the economies they operate in to recover.
help of a recovery loan, Myrna from Leyte was able to build back her business
of making brooms. Photograph by Orlando Ducay.
But following Typhoon Haiyan, VisionFund’s Philippine MFI – Community
Economic Ventures (CEVI) chose to give the opposite a try. Working alongside
the World Vision Typhoon Haiyan Response Team, they implemented a ‘recovery
lending’ strategy. Clients were allowed to access fresh loan capital to jump
start their businesses, requiring only that they articulate a plan for a viable
use of the funds.
5 Important Lessons Learned:
review of the economic recovery of over 4,000 client households
badly affected by Typhoon Haiyan over the 18 months following the calamity
helped derive recommendations for future financial disaster risk management
solutions. Five key findings emerged:
1. Recovery lending enabled rapid client recovery: 96% of clients reported that the loans had supported their
recovery, with half of those reporting recovery as “full” or “better than
before the typhoon.”
2. Recovery lending was affordable and did not lead to over
indebtedness: both on-time repayment rates
and write off ratios were better than CEVI’s averages for regular loans; while
impact evaluation evidence indicates that very few clients, only 3-6%, faced
substantial difficulty in paying loans.
3. Recovery lending compliments other relief and recovery mechanisms: clients used the loans to supplement remittances and aid they
received, enhancing the speed and depth of their recovery.
4. Recovery lending covers its costs and does not have an abnormal
credit risk: CEVI’s recovery lending project
charged interest rates that fully covered the costs of making the loans, while
write offs were lower than average, creating an economically sustainable
5. Preparation “before the event” is needed to optimise speed and
effectiveness of recovery lending: Traditional
MFI funding sources were scarce, while relief funding was difficult for CEVI to
access. Our research indicates that this is typical after disasters and limits
MFIs ability to deploy recovery lending.
The immense success of the project led VisionFund to continue developing this
approach, seeing the potential it has to help recover livelihoods in similar
future disaster situations.
was destroyed during the storm, our clothes and things inside the house washed
away into the sea. We had nothing to eat because our boats were destroyed. The
loans helped me buy fish and sell to earn an income. That allowed me to buy
food to eat and buy house supplies from the market,” says Jessica from
Malangabang Island. Photograph by Orlando Ducay
To ensure funding is available to support such responses, VisionFund is
building an innovative insurance-backed liquidity fund supported by grants from
the UK government (DFID), the Rockefeller Foundation, FMO (the Dutch
Development Bank) and the Asian Development Bank.
This Financial Disaster Risk Management (FDRM) scheme combines climate
science, financial modelling, weather index derivatives/insurance and liquidity
funds to ensure funding for a recovery lending response tuned to meet our MFI
and client needs with an annual cost of under 2% of the MFI portfolio.
VisionFund’s biggest takeaway from this initiative is that people
affected by disasters are extremely resilient and practical. Providing access
to loans for rebuilding livelihoods supports not just their own capacity but
the economic recovery of their community. Working together, World Vision and
VisionFund programmes provide a variety of recovery options to communities for
deep and long-lasting impact.
For more information about this project and VisionFund’s Financial Safety Nets
for the Poor programme visit: http://vflink.it/disasterresmicro
Written by Michael Kellogg, Regional Business Development Manager Asia,