European Microfinance Week 2015

PRESENTATIONS

Hannah SIEDEK welcomed the audience, highlighting that the presentations of the speakers would address the role of financial services after the Typhoon Haiyan in November 2013. Haiyan was one of the strongest tropical cyclones ever recorded, devastating portions of Southeast Asia, particularly the Philippines. The typhoon left 1.6 million people displaced in the country.

Stewart McCULLOCH, Global Insurance Director at VisionFund International, illustrated Haiyan’s devastating effect on people’s livelihood with a video. The video showed that, following a humanitarian disaster, microfinance has the potential to support people’s recovery by empowering them economically. VisionFund set up the Livelihood Restoration Loan which was launched three months after the typhoon. The critical feature of the loan has been the increased flexibility in terms of loan amount, and loan term as well as the lowered service fee. This assured that the loans were designed to work for each individual client. An impact evaluation, almost two years after Haiyan, showed that 97 percent of the 3,000 clients surveyed found that the loan had been helpful in restoring their livelihood and the majority of clients reported a quick recovery thanks to the loan. McCulloch concluded that the loan helped people to restore their income through microfinance. Additionally, the 97 percent on-time repayment rate proves that “active management of clients through disasters is also good business”. The success of the livelihood restoration loan has led VisionFund to set up recovery lending in fragile African states affected by El Niño.

James KURZ, manager of Institutional Financial Services, introduced the global humanitarian relief and development organization Mercy Corps. The organisation builds financial services companies and other social-businesses to increase financial inclusion. Mercy Corps believes that access to financial services before, during and after a disaster has a meaningful impact on recovery and outcomes. Kurz gave several examples of cases when access to financial services supported people’s recovery. After the Bosnia/Serbia floods in May 2014, Partner, one of 12 MFIs founded by Mercy Corps, enabled the rapid identification of victims in need of assistance to rebuild their homes and businesses. In the Philippines, following Haiyan, Mercy Corps leveraged its close relationship with BanKO to deliver emergency cash via mobile money. Since microinsurance for natural hazards is scarce and has not achieved critical scale, one of Mercy Corps newest projects includes the social-business MiCRO (Microinsurance Catastrophe Risk Organisation). With several pilots of micro- and mesoinsurance running, MiCRO is committed to the idea that microinsurance can be brought to scale by using a deal maker in the middle of the chain. This actor can make critical upfront efforts and bear first-mover risk, bridge the gap between global and local actors and demonstrate demand and feasibility.

Annalisa BIANCHESSI provided a sector point of view from the Microinsurance Network, a global multi-stakeholder platform for microinsurance industry and experts. Given the fact that the Philippines has the highest insurance penetration in Asia and Oceania, the unfortunate disaster in the Philippines allowed for a study to understand how microinsurance service providers responded and performed in terms of claims processing and benefits payments in the aftermath of Haiyan, as well as how that affected the clients of these service providers. The study showed that as of July 2014, 111,000 out of 126,362 microinsurance claims had been paid out, with 27 percent of reported claims already paid in the first 4.5 weeks after the typhoon. The quick response was especially facilitated by strong agent-client relationships and a good collaboration between regulators, insurers and intermediaries to serve the client’s needs. Moreover, some intermediaries had a disaster team that had been trained for typhoons, allowing for a quick response. In addition, the trust between intermediaries and providers enabled faster claims settlements. The quick response after the typhoon led to a greater demand for microinsurance after the event. Bianchessi concluded that the loans brought added value to the clients and that microinsurance should be a formal part of the Disaster Risk Management Framework as it has an important role to play in disaster rehabilitation and recovery.

DISCUSSION

Bruno Molijn from Oxfam Novib questioned the possible roles of funders, if it makes sense to lobby governments to make funds available to MFIs as an important part of emergency funding. McCulloch stressed that there is a role since funds are needed. Next to funds, organisations like VisionFund play a key part to provide information on how to use those funds to best manage clients through disasters in a sensible way. Nevertheless, McCulloch mentioned that there are maybe better ways, referring to meso level insurance packages which take small amounts of premium and create institutional shock absorber schemes. VisionFund is creating one, MiCRO is another example. This way, the industry could deal with shocks themselves. Kurz agreed and stated that capital markets and mechanisms such as catastrophe bonds have a crucial role to play. Capital markets have more financial resources available than many aid agencies or governments from developing countries. In addition, Kurz mentioned that timing is an important issue in disaster relief management and ex-ante solution can make funds available much faster than donors can raise funds.

Silke Mueffelmann from the Frankfurt School of Finance & Management questioned the novelty of microfinance in disaster rehabilitation and recovery. McCulloch agreed that recovery lending is nothing new, but highlighted that the bureaucratization of the ex-ante financing techniques is. Kurz shared his experience that it might take up to six months to raise money after a disaster, with adverse effects on the livelihoods of clients. Once ex-ante techniques are institutionalized, it is possible to make resources available a few days after a disaster has occurred.

Further discussion revolved around differing lending techniques depending on types of disasters and if prices of financial services increase directly after a disaster. Kurz explained that depending on the severity of a disaster, prices may go up. Usually science and risk profiling at larger scale determine the pricing.