What is the role of microfinance in the immediate aftermath of a natural disaster? The short answer is that, under the circumstances, microcredit is less effective. A prerequisite for microcredit is a functioning economy. Goods and services need to be worth money for capital infusions to make a difference. For example, an MFI lends money to a woman for the purpose of opening a general store. The woman uses the loan to buy soap from one retailer and soft drinks from another. She hires a local contractor to build the addition on her home, or at least purchases the materials. The money flows around community, and everyone becomes wealthier. But in the immediate aftermath of a natural disaster, the communities served by microfinance are so devastated that the system doesn’t work. There is no electricity, no fuel, no food, no water, and no shelter. Homes have been destroyed and people are starving. A sack of rice becomes invaluable – to a starving person, no amount of money would lead them to part with food. So it becomes a barter economy, if there is anything to barter at all. As with everything, these points are best illuminated by example. The most obvious is the recent earthquake in Haiti. In reality, Haiti needs aid money, and it needs aid workers to deliver services. Microfinance – microcredit, in particular – cannot immediately help during the relief period because there is no economy to stimulate. Continue reading
Helping Haiti: Microfinance and Natural Disasters
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