Role of Microfinance Sector in Disaster Risk Reduction in India

Research Team: Parul Agarwal, Amulya Champatiray, Rupika Singh, Shambhavi Srivatava (IFMR LEAD)
LEAD Centre: Centre for Microfinance (CMF)
Focus Area: Financial Inclusion
Project Geography: Pan India
Partner: Seep Network
Status: Completed

Background:

Disasters – natural disasters, slow-onset crises, conflict and instability – have spiked over the past several decades with 2.7 billion people affected and 1.3 trillion US dollars lost in disasters between 2000 and 2011 alone (UNISDR). Beyond the immediate devastation caused by disasters, they post long-term, negative, social and economic consequences, particularly for vulnerable communities. As these communities struggle to recover, they find themselves facing health problems, indebtedness and unemployment. While the initial humanitarian and emergency response to crisis is crucial, there is a growing recognition of the value of Disaster Risk Reduction (DRR) strategies in preparing for and thus reducing economic losses associated with disasters.

The concept of mitigating risks associated with disasters is not a new one for financial institutions. What is new is that crises have become more frequent and severe than ever before and are often long, protracted and cyclical in nature, doing away with the concept of “post disaster” in many contexts. Within this context, a convergence around the concept of resilience has opened up the opportunity for greater coordination between these divergent interests to the benefit of poor and vulnerable populations. Financial markets that are more resilient, where clients and financial service providers have the capacity to learn, cope, adapt and transform in the face of shock and stresses, will reduce the negative impact of crisis, increase the efficacy and efficiency of recovery efforts, increase development impact and contribute to more inclusive financial systems.

About the Study

The objective of the study was to understand the existing DRR practices of Microfinance Institutions (MFI) in the Indian market and to map out the disaster-related vulnerabilities of clients affected by crisis in order to assess gaps for more effective disaster preparedness. The pan-India study was conducted using primary and secondary data. Desk research was undertaken to understand the global and Indian disaster risk management con¬text and the MFI sector’s role in disaster management practices. Secondary data was also used to select the geographical locations for the study, isolating areas where high- and medium-impact disasters have taken place in India over the last five years. To keep the study representative of India’s overall disaster management initiatives, in-depth interviews were conducted with MFIs and NGO-MFIs of varying size and reach from different parts of the country. Based on the information about the microfinance market that was reported and collected in this study, the organizations interviewed cover approximately 32 percent of the customer base (Bharat Microfinance Report, 2016).

Related Resources
Report: Building Resiliency Through Disaster Risk Reduction: An Assessment of India’s Microfinance Sector