Role of Microfinance Sector in Disaster Risk Reduction in India

Microfinance Institutions can provide wider support during natural disasters to poor households by implementing Disaster Risk Reduction (DRR) activities. This study aims to assess the gaps between existing DRR practices of MFIs and disaster related vulnerabilities of clients to inform disaster preparedness strategies.

Background

India is among the top five countries affected by the highest number of natural disasters. Apart from widespread physical destruction, disasters bring with them devastating social and economic consequences, particularly for the poor. 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. Microfinance Institutions (MFIs) largely interact with the poor to very poor, occupying a unique position where they have direct access to communities regularly affected by natural disasters. Due to the demographic they serve, MFIs have a responsibility and a vested interest in incorporating disaster management policies to ensure their institutional sustainability. By promoting DRR activities, they can play a key role in increasing the resilience of at-risk population and their ability to cope with crises. The objective of this study was to understand the existing DRR practices of MFIs 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. 

Approach

The pan-India study was conducted using primary and secondary data. Desk research was undertaken to understand the global and Indian disaster risk management context 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).

Key Findings

The study found that the Indian microfinance sector is in a very nascent stage of development regarding disaster risk reduction. This is partly due to weak stakeholder engagement with regard to the disaster management agenda as well as a lack of a concrete vision of the role that MFIs can play in it. Despite being in a position to play a significant support role, a lack of awareness and knowledge about disaster management means there are no standard organizational policies or protocols in place within MFIs to address this challenge. Currently, MFIs provide limited support during response and recovery phases.

Implications

There is widespread evidence of robust operational and financial risk mitigation mandates and practices within MFIs. This indicates that these institutions would be capable of scaling these practices to the disaster context, provided there is capacity building and orientation from the perspective of disaster preparedness.

Thematic area

Financial Inclusion

Project Leads

Parul Agarwal, Rupika Singh

Location

Pan India

Partners

SEEP Network

Status

Completed