In times of crisis and natural disaster, most of VisionFund’s clients have no access to insurance for themselves or their businesses. This can lead to impaired livelihoods and damage prospects of accessing further financing, as a result of the inability to repay outstanding loans. VisionFund is changing families’ ability to recover, and even thrive, through innovative disaster recovery lending programs.
Disaster Recovery Lending
When Disaster Strikes
After times of disaster, both the client and the microfinance institution (MFI) suffer. The client, deemed too risky to lend to in times of loss, is often obligated to pay back their loans to the MFI quickly, even after potentially losing their livelihood, and may find it almost impossible to get new credit. This leads to a reduced standard of living, the selling of personal possessions, and sometimes even the migration of one or both parents to find other work.
For the MFI, no new loans and increasing non-performing loan ratios are likely to lead to a weakened balance sheet and may impact their ability to borrow funds themselves. Everyone can lose in times of crisis, and it can be almost impossible to recover economic development in the community. Children are often the most severely affected by a family’s loss of income and assets.
Disaster Recovery Lending
VisionFund believes that, with the right microfinance product and careful situational analysis, both families and MFIs can thrive in the recovery phase of a disaster.
By restructuring old loans, distributing new loans, and helping clients develop new business plans, VisionFund is changing the traditional microfinance mindset by proactively making new loans during times of crisis. Such loans in the market mean more families can begin rebuilding their lives with the finances they need, while keeping VisionFund’s microfinance institutions strong.
We even see higher loan repayment rates amongst those recovering from crisis, and new markets established through more disaster-resilient small enterprises.
Disaster Recovery Lending
Disaster Recovery Lending for COVID-19
Our lessons learnt from recovery lending from previous disasters, such as Typhoon Haiyan and El Nino, are informing our ongoing response to the COVID-19 pandemic. We are applying best practice from the external studies on our disaster response from Tango and the Asian Development Bank and developing appropriate products to best support clients at this difficult time. Leaders within VisionFund who have experience of disaster recovery lending are running webinars and coaching colleagues in other countries in the network and the wider sector on how we can best support clients recover their livelihoods.
As VisionFund walks with clients during the troubling and disrupting pandemic of COVID-19, it is evident that clients' livelihoods will be severely impacted. VisionFund has substantial measures in place to enable clients to manage their loans, however, Government restrictions and limits on mobility are affecting the clients' ability to operate their businesses. Potential customers also have less income and have stopped purchasing goods. VisionFund anticipates that by the time the pandemic has passed, our clients will need a new injection of capital to re-start their businesses. We are planning to assist clients through recovery lending and through increasing lending to World Vision and other NGO Savings Groups.
Disaster Recovery Lending
The ARDIS Project
VisionFund’s innovative program ARDIS – the Africa Asia and Americas Resilience in Disaster Insurance Scheme – working in partnership with the German Development Bank’s InsuResilience Investment Fund and Global Parametrics, is the world’s largest non-governmental climate-insurance program.
VisionFund is using the ARDIS programme to provide the necessary tools for recovery lending following major natural catastrophes, and in doing so, provide outcomes like those traditional insurance would provide.
The program offers microfinance solutions to about 2.5 million people across five countries in Asia and Africa, and to new and existing clients who are or will be affected by climate-related disasters.
ARDIS brings a '4C' approach to disaster recovery lending:
Credit: Our partner IIF supplies VisionFund, through ARDIS, a revolving line of credit available to its member MFIs, which contains a climate index threshold. If a disaster triggers this index, the credit is offered at pre-disaster interest rates. The amount is matched to the severity of the event, which also matches the impact on the ground. As the indexed nature of the cover means no assessment of loss is needed, new loans can be made to help families start recovering straight away.
Capital: Our partner, Natural Disaster Fund, provides the ARDIS scheme with a derivative that pays out in the event of a natural disaster, triggered by a similar climate index to credit. This can be used to support the operational costs of making recovery loans and as capital to support the making of these loans without exceeding regulatory limits.
Climate Data: Our partner, Global Parametrics, builds the indexes for the credit and capital products. Data used for this is adapted for ARDIS and its member MFIs to make lending decisions around the potential impact of drought, flood and windstorm on the agricultural season. These decisions drive farming activity for a more productive season and greater benefit for the community.
Catastrophe Planning: Recovery lending can seem counterintuitive – lending to a client who is already in debt after a disaster would appear at first to be high risk – but the ARDIS model seeks to inject loans into the market, rather that withhold them. MFIs are encouraged to make loans after smaller local or even individual disasters, from their own balance sheets. In this way, MFIs ensure that they plan for recovery lending programmes from their own balance sheets. Recovery lending can act as insurance for all our clients to assist them, their families and communities to start recovering their livelihoods straight away.
Reports and Case Studies
Typhoon Haiyan - ADB Report
The following report sets out the experience, analysis and conclusions of VisionFund International and their Philippine microfinance operation Community Economic Ventures Incorporated (CEVI). This analysis follows the economic recovery of over 4,000 client households badly affected by typhoon Haiyan over the 18 months following the disaster and seeks to derive recommendations for future financial disaster risk management solutions. The work was funded by the Integrated Disaster Risk Management Fund of the Asian Development Bank (ADB) with financial support from the Government of Canada.
Typhoon Haiyan - Video
This film documents how recovery loans from VisionFund helped rebuild lives after Typhoon Haiyan.
Recovery Loans Help After a Fire
Life can be cruel at times. This is a story of a woman entrepreneur, who invested all her energy and funds to boost up her family's livelihood by engaging in a cosmetic business in the Lilongwe market. She lost everything during a fire that razed the Lilongwe market on 23rd September 2016.
El Niño Report
Summary report on the VisionFund “Recovery Lending in Fragile African States affected by El Niño” Project: November 2015 to June 2017
Webinar: Learning From Past Crises to inform our response for COVID-19
Host: Christian Economic Development (CED) Network
World Vision and VisionFund International share learning from past crises and how that experience informs strategy during the COVID-19 pandemic.
How Microcredit Can Help Poor Countries After Natural Disasters - The Economist
On January 18th, VisionFund, a microlending charity, and Global Parametrics, a venture that crunches climate and seismic data, launched what they billed as the “world’s largest non-governmental climate-insurance programme”. The scheme will offer microfinance to about 4m people across six countries in Asia and Africa affected by climate-change-related calamities.
Climate Insurance Scheme Targets Women Farmers in Africa, Asia - Reuters
The African and Asian Resilience in Disaster Insurance Scheme (ARDIS) is being led by VisionFund International, the microfinance arm of development charity World Vision, and Global Parametrics, a new venture backed by the British and German governments.
Finance Responds to Climate Change: How 'Recovery Lending' Can Help Victims of Weather-related Disasters - Next Billion
VisionFund International pioneered this type of lending as a response to Typhoon Haiyan in the Philippines – one of the strongest storms ever recorded – supporting more than 5,000 families in their recovery efforts. Another of our recent recovery lending projects supported 14,500 families in rural areas of Kenya, Malawi and Zambia, who were dealing with the severe effects of droughts and floods caused by 2015/2016’s very strong El Niño. Funds helped clients to avoid extreme poverty by quickly re-establishing their farming businesses and diversifying their income to help bridge the gap between planting seasons.