Updated Aug 31, 2020

Index-Based Emergency Loans allows Micro-Finance Clients to recover from floods and stay a "Good-Borrower"

Tara Chiu

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Researchers worked w/ microfinance partners (BRAC) to explore flexible risk-handling instruments offering assistance in the event of a shock, w/o compromising clients' ability to save and repay loans. The index-based emergency loan innovation is an avenue to access financing in times of distress, avoiding costly coping mechanisms, while also allowing clients to maintain good standing w/ their M...
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Researchers worked w/ microfinance partners (BRAC) to explore flexible risk-handling instruments offering assistance in the event of a shock, w/o compromising clients' ability to save and repay loans. The index-based emergency loan innovation is an avenue to access financing in times of distress, avoiding costly coping mechanisms, while also allowing clients to maintain good standing w/ their MFI. Families w/ access to these loans reinvest in their productive capacity, purchase new seed and replant their field once the floodwaters recede, repurchase cattle, repair shops and purchase new stock.
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Stage 4: Transition to Scale

Focus Areas:

Economic Empowerment, Gender Equity and Mental Health

Economic Empowerment, Gender Equity and Mental HealthSEE LESS

Implemented In:

Bangladesh, Tanzania, Burkina Faso and 2 MoreSEE ALL

Bangladesh, Tanzania, Burkina Faso, Mali and MozambiqueSEE LESS

5
Countries Implemented In
10,000
Customers
20
Employees
Verified Funding
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Problem

Uninsured risks in rural Bangladesh, in particular to recurrent floods and droughts and to health and disability risks, take a heavy toll on welfare, productivity, income, and asset ownership for small-scale farmers. These risks are a main cause of impoverishment when shocks occur, and they keep people in chronic poverty due to the high cost of self-insurance and the constraint they place on investments in greater productivity.

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Solution

This portfolio of flexible risk-handling instruments offers assistance in the event of a shock, without compromising clients' willingness and ability to save and repay loans. The Emergency Loan is designed to offer clients an avenue to access additional financing in times of distress while also allowing them to maintain good standing with the microfinance institution.

Target Beneficiaries

BRAC, the microfinance partner for this research, currently provides financial services to 5.5 million borrowers, educational services to 1.14 million children, and sanitation services to 25 million people, in 11 countries, including five Feed the Future focus countries (Bangladesh, Haiti, Liberia, Tanzania, and Uganda).

Competitive Advantage

Other financial innovations for risk management, including index-based insurance, have been explored in a number of contexts, but have proved difficult to promote among farmers due to incomplete coverage of risk, high cost due to insurance company loadings, lack of trust in insurance providers, and a lack of willingness to insure. By adapting traditional financial products delivered by microfinance institutions, and making them more flexible to meet the needs of farmers and rural inhabitants, many of these challenges faced by index insurance can be overcome.

Milestone

Date Unknown
New Country Implemented In
Mozambique
Date Unknown
New Country Implemented In
Mali
Date Unknown
New Country Implemented In
Burkina Faso
Date Unknown
New Country Implemented In
Tanzania
Date Unknown
New Country Implemented In
Bangladesh