Why invest in post-disaster loans to entrepreneurs who have lost their business assets?

Creating a virtuous circle of investment after a natural disaster 

With climate change comes the increasing frequency and intensity of natural disasters. Floods, drought or storms threaten lives and livelihoods, especially in the world’s poorest and most vulnerable communities. Poverty lurks for entrepreneurs who have seen their assets and means to generate an income vanish from the face of the earth. And as these effects propagate downstream, those relying on them for employment are also affected.

Emergency assistance and humanitarian aid are readily available after a natural disaster. But when immediate needs are taken care of, people still need to rebuild their lives and businesses. As the resulting demand for credit grows, and rates of non-performing loans increase, the perceived risks also begin to rise. Access to credit is stifled as Microfinance Institutions (MFI’s) become more cautious. The key to revitalizing the economy and breaking this vicious cycle is via recovery lending.

ARDIS: a climate disaster recovery program

ARDIS (African, Asian and Americas Resilience in Disaster Insurance Scheme), the world’s largest non-governmental climate insurance program, provides extra liquidity to MFI’s and the capital to support recovery lending in vulnerable low-income countries in Africa and Asia.

The ARDIS program has protected up to 4 million uninsured people in Asia and Africa against the consequences of climate change. ARDIS provides post-disaster recovery loans that can instantly be disbursed to farmers and small businesses to help maintain or restart economic activities. These loans complement the relief aid required for survival needs in disaster situations. They help victims recover economic activities and thus mitigate the risks of poverty, reduced schooling, hunger and migration for work.

ARDIS was developed by VisionFund International (VFI), which is the microfinance arm of World Vision. World Vision is a relief, development and advocacy organization. VFI's global network of 28 microfinance institutions across Asia, Africa, Eastern Europe and Latin America has over 1,000,000 clients. Together they are responsible for creating and sustaining more than 1.5 million jobs.

FMO contributed at different levels to the launch of ARDIS in 2018. The Dutch development bank brought in 10 million USD of funding to VFI, provided by the MASSIF fund, which FMO manages on behalf of the Dutch government. More importantly, FMO has worked in partnership with VisionFund and Global Parametrics, an innovative FinTech partner that provides information and financial tools that enable quick response and recovery in disaster-struck communities.

Predictions that aid in preparation

High quality and intelligible climate data can reduce the impact of disasters on the population. Global Parametrics provides MFIs with such data to make better financial decisions. It’s these insights that allow MFI’s and their clients to prepare themselves in advance for extreme weather events and thereby reduce risk.

For example: Not that long ago, the absence of seasonal rains caused Vision Fund’s branch in Zambia (VFZ) to consider a significant reduction of lending levels. However, Global Parametrics’ data showed that despite the perceived drought, soil moisture levels were acceptable for planting, because of heavy rains the previous season. Thanks to this, VFZ followed through with a full lending program.

A program that stabilizes the financial system

Global Parametrics and VFI have spent years carrying out research. The main finding was that well-structured managed lending at crucial points after a tragedy doesn’t turn out to be high risk at all. It actually results in better credit returns and more punctual repayments. Contrary to what many believe, people tend to embrace the opportunity to restart their lives after a disaster, and need the ability via fresh lending to kick start the businesses and livelihoods.

Restoring and improving livelihoods

With the use of climate science and financial disaster risk management tools, ARDIS created an innovative and low-cost climate disaster recovery program.

In its first year, ARDIS protection was provided to VisionFund’s clients living in Cambodia, Kenya, Malawi, Mali, Myanmar and Zambia. 80% of the beneficiaries were women. The recovery loans provided by ARDIS have reached approximately 690,000 families, most likely benefitting up to 4 million people. 

VisionFund and its partners aim to strengthen the ARDIS program, and plan on adding more MFI’s in years to come. Already the program has committed to providing an assessment of climate and country risks for new MFI’s in Uganda, Tanzania, Mexico and Sri Lanka. Increasingly, activities will be monitored and more knowledge will be shared while new and existing participants will receive training on an ongoing basis. 

Together with their partners, VisionFund International and Global Parametrics will continue to meet ambitious social goals to improve financial inclusion, facilitate recovery lending and build resilient communities.

Doing makes the difference.