Microfinance’s Role in Disaster Recovery

May 31, 2018

The Earth is changing. That is for certain. Though the future is undefined, especially on a climate scale, it is sure to contain an increase in both the frequency and intensity of storms. According to the National Weather Service, the past year was unusually active for hurricane formations. In a span of just three weeks, three major hurricanes passed through the same region if the Caribbean, a deadly and previously unheard-of frequency. This past week, it was confirmed by Harvard researchers that Hurricane Maria claimed an estimated 4,600 lives, making it quietly the second deadliest natural disaster in American history.

Hurricane Katrina, remembered as one of the most devastating American disasters of the millennium, along with three other major hurricanes that year, caused a total of $143.5 billion worth of damages. The trinity of destruction of Harvey, Irma, and Maria caused an estimated $200 billion. The frequency and concentration of the storm area meant that already thin supplies had to be distributed three separate times for three separate superstorms. Maria alone destroyed one-third of all homes in Puerto Rico, forcing massive scores of people to make shelter under tarps and lean-tos. Restoring power has been a huge issue and currently, over 150,000 homes and businesses are still in the dark.

With the deck stacked against the Puerto Rican people, recovery seems like a herculean task. Where to begin when nearly everything needs to be addressed? In these situations, growth occurs little by little and progress is slow to actualize. Aid money and food are crucial to providing a stop gap, but that only ever lasts so long.

This is where Microfinance can play a role. Given that many people have lost homes and businesses, they often have little collateral to place against traditional loans, making them far too risky for regular financial services. In this instance, they are pushed away from access to capital. Without this capital, people must rely on government aid and restarting businesses, two tasks that are slow to come into being. In the realm of post-disaster relief, microfinance offers a rare opening for affected persons to regain access to capital. These small loans and business assistance are crucial for laying a stable foundation on which to rebuild homes and lives. However, this sort of lending can bear similarities to aid money, and it is not until around one year after a natural disaster that the need for reliable capital really comes into its own.

At this point, aid money usually has dried up and people are returning to running businesses and rebuilding homes. With restored access to capital, microfinance loans often go to home repairs, expanding business inventories, or providing a safety net in case of additional misfortune. However, microfinance institutions themselves can be affected heavily by natural disasters, having connections and lending chains interrupted by the storms. They too can have a period of recovery needed before running at full operations again. Therefore, the damaged networks tend to regrow at around the same rate as the affected area.

Recovering from a natural disaster is, unfortunately, a skill that will become more and more necessary in the future. In order to combat this worrying trend, we have to be ready with a cadre of solutions and channels through which regrowth may occur. On the micro level, few practices reach a person or family as directly as microfinance can. Therefore, updated measures must be taken to mitigate the difficulty of recovery, and the recovery power of microfinance can be spread to the entire world.