Disaster Recovery Lending
Disaster Recovery Lending

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. 

2.5M

beneficiaries in five countries can be supported by scheme benefits

89%

clients who reported some recovery in the 12 months after the East African El Niño
When Disaster Strikes

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.

Our Approach

Disaster Recovery Lending

Our Approach

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.

ARDIS blog

Disaster Recovery Lending

Lending After A Disaster

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.

The '4Cs'

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.