managing risk.pdf

Managing Risk and Creating Value with Microfinance97related impacts. Those new products can build client loyalty and minimize the response time to client requests.Such products include emergency loans, housing loans, cereal banks, remittance services, and subsistence loans(see table 7.2).Table 7.2 New Financial Products, Results, and ImplicaonsFinancial Product Results ImplicaonsEmergency loans Increased client loyalty occurs. Goodrepayment is recorded only withexisng clients.Loans are effecve only duringrelief stages. Paral safely net isprovided for exisng clients.Housing loansRemianceservicesSubsistenceloans for disasterpreparednessSource: Adapted by authors from Nagarajan (1998).Moderate repayment occurs. Timelyloans based on demand and flexibleterms and condions are rare. Loansare made only to those who ownedhouses prior to a disaster.Services ease cashflow problems ofclients and increase repayments. Clientloyalty to MFI increases.Loans are required for buying andstoring subsistence goods duringemergency stages and result in goodrepayments and increased clientloyalty.Loans are effecve only whenissued quickly during rehabilitaonand when reconstrucon stages arebased on demand.Services are required immediatelyaer disaster up to reconstruconstages. A quicker return tonormalcy is facilitated. Use shouldbe demand based.Paral safety net for clients isprovided. Loans are effecve withonly trusted long-term clients.Restoration of sustainable livelihoods and assets. This is the most important time in the recovery cycle for MFIs,because they can play a fundamental role in assisting the recovery of microbusinesses. If predisaster planninghas been effective, many decisions on clients, loans, and procedures will already be in place. However, it ishelpful to discuss the types of products that might be of most use to clients as the livelihood restoration processbegins and as the stock of productive assets is rebuilt.There are also important implications for the types of products and delivery mechanisms following a disaster.MFIs have responded with new policies for existing products and even new loan products for limited periods.When new policies are put in place, they are related to client selection, contract enforcement, funds management,delivery methodology, and additional complementary services. For example, if the MFI provides emergencyhousing loans, it may be more efficient to make arrangements with large wholesalers of construction materials,warehouses, and delivery companies to get better prices and to pay the supplier directly in the name of clients.In other words, it may be sensible for the MFI to provide products it would usually avoid, like in-kind loans orlimited loan rescheduling.ConclusionThis chapter has shown the broad repercussions and huge costs of a disaster. Experts have identified five stagesof disaster preparedness and recovery. Whether they are slow onset or instantaneous shocks, disasters can have