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11. Elements of a Typology of Successful Local Institutions in Disaster Risk Mitigation

At the institutional level, disaster risk exposure - and eventually disaster impact - is related to the size, age and level of financial and operational sustainability of a local organisation. Yet, the picture emerging from the literature is too patchy and thin to allow more conjectures about what a “typical” local institution that is successful at DRM looks like, mostly, because the vast heterogeneity of actors involved defies such extrapolative attempts. Common traits are definitely transparency and flexibility, in technical, administrative and financial terms (see the Box in this Section).

One area where some work has been carried out is in the realm of MFIs. Pantoja (2002) suggests that, at a general level, the potential of microfinance institutions to deal with their own disaster risk exposure and to assist their clients in disaster risk management will depend on sector and institutional level factors. At the level of individual institutions, these factors include the degree of formality or informality, the dependence on donor or government funds, the level of financial and operational sustainability, and the decision to offer subsidised credit for poverty alleviation. Overall, small, locally based MFIs are thus likely to be more vulnerable to natural disasters or fluctuations in agricultural yields than larger, more geographically dispersed institutions (World Bank 2000). Pantoja (2002) concludes that although it is likely that a microfinance institution which is a good micro lender and good in micro savings will have more alternatives at hand to mainstream disaster risk management strategies to protect its clients, its portfolio and its facilities, convincing evidence has not yet been collected.

Flexibility at work (1): ACK-MDO, Kenya

In the Marsabit Drought Relief Project (implemented by the Anglican Church of Kenya-Marsabit Develop-ment Office, funded by DfID), the ability to switch from animal destocking to restocking in response to changing needs was critical. One of the lessons of the intervention was the importance of donor flexibility: without the need for a second proposal, DFID was able to approve the implementing agency’s switch from destocking to restocking within two weeks.

Flexibility at work (2): Pro-Mujer, Nicaragua

Pro-Mujer is a medium-sized institution in Nicaragua with direct international links providing financial and non-financial services such as basic health services and technical assistance in business skills to about 5,800 women. After hurricane Mitch devastated the region in October 1998, it assumed a relief agency role as, for about two weeks, the focal centres of Pro-Mujer became relief facilities. Pro-Mujer staff temporarily stopped credit and training operations, postponed disbursements to new associations, and used training centres to counsel clients and distribute food donations. Moreover, it quickly managed to deploy trainers who could teach clients and their families on hygienic strategies and preventive health measures for a post-disaster situation. Pro-Mujer staff also worked directly with clients to determine their needs and reassure them that the programme would continue, and brought in a consultant to conduct workshops on emotional recovery (Pantoja 2002).

Local institutions including very poor members or reaching very poor clients will tend to be more vulnerable to disasters. The client profile, at the same time, is affected by the lending methodology of the organisation, which in turn may affect financial viability of its programmes. Mostly, a trade off exists between reaching poorer groups and financial sustainability. In this respect, some have questioned the financial viability of village banking institutions, while others have found these institutions to be more vulnerable than solidarity group or individual lending institutions due to their focus on rural areas and on delivering small loans to very poor clients. Typically, for instance, the younger and/or smaller institutions have a more difficult time in responding to disasters, in operating during the emergency period, and in implementing effective disaster risk preparedness and mitigation strategies.

In the case of MFIs, the characteristics described above underline another important factor: outreach, which influences external risks related to clients’ socio-economic profile, competition environment, and the physical environment where the institution delivers its services and its clients live. The scale or breadth of outreach will also influence risk exposure of the institution depending on whether its clients tend to concentrate in economic sectors and activities that are highly exposed to disaster risk. As experience suggests, geographical diversification through a wide network allows MFIs to cross-subsidise (through risk-pooling) disaster risk management activities. On the other hand, geographical dispersion may increase risk exposure of an institution if most of its network is located in remote, disadvantaged areas that under normal circumstances represent higher operational costs.

When MFIs link credit directly with nonfinancial services such as training in disaster preparedness, to borrowers these costs are very rarely recovered by revenues. Provision of auxiliary services such as disaster preparedness training tends to be negatively correlated with financial sustainability, which is vital for any microfinance institution to face future disasters and to develop a viable disaster risk management strategy. In practice, many NGOs in the process of becoming formal financial institutions have chosen to transfer the majority of their microfinance portfolio to the formal institution they have created, while keeping the original NGO structure to address credit needs of the poorer clients and implement developmental activities.

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