Expecting the Unexpected: Why Digital Financial Services Can Be a Post-Disaster Lifeline

> Posted by Isabel Whisson and Maria A. May, BRAC

Destructive and devastating, disasters threaten to rob communities of resources, households of livelihoods, and families of loved ones. Difficult to anticipate and inherently costly, is there hope of fostering resilience against them?

Certainly. This year at BRAC’s Frugal Innovation Forum, an annual congregation of development innovators, the conversation centered on “scaling resilience“. In responding to crises as diverse as Nepal’s earthquake, to Typhoon Haiyan, to the collapse of Rana Plaza, a common theme for solutions promoting resilience was to create systems in advance that enable immediate response and recovery.

Having access to financial services is key. According to Michael Kellogg of VisionFund International, “People know what they need following a disaster and are extraordinarily adaptable in identifying ways to meet those needs. Equipping them with money soon after the disaster enhances their capacity to quickly rebuild livelihoods and the economic recovery of the local market.”

The question resounds: What is the best way to make cash immediately available as soon as a disaster strikes? By enabling transactions to be made instantly and remotely, digital financial services can provide a critical lifeline in different ways.

They make it possible to:

Move money quickly

When floods flushed away crops and seedbeds in northwestern Bangladesh last year, BRAC used bKash, BRAC Bank’s mobile money company, to quickly issue relief to clients affected. Many had their livelihoods threatened, and the cash helped them make the immediate investments needed to get back on their feet. Recipients contrasted their earlier experiences of waiting in line for hours to receive cash (often in the rain) with cashing out at their convenience at a nearby shop.

Move money to the people who need it most

An advantage of this approach is that institutions can directly reach those most in need. For organizations distributing cash after disasters, there are many security risks for staff carrying money long distances and difficulties in ensuring that targeted populations know where to seek out relief.

Mobile money transfers also make it easier to monitor whether resources are going where they ought to be. Parul Agarwal of IFMR-LEAD is conducting research comparing cash-based transfers with mobile money transfers to households affected by flooding in northwest Bangladesh. She explains, “Cash-based relief programs are not as efficient because they are highly exposed to leakages, theft and loss. Discussions with sample households indicated that any transfers that reach the community are allocated randomly to few households with no proper targeting and reviewing of eligibility.”

Move money from many sources

One of the best ways to foster resilience is to help families to help themselves. Remittances sent between relatives can act as a key form of insurance for families without sufficient savings, as has been seen in Jamaica and Nepal. Mobile money enables support to be sent instantly to relatives in need. Many BRAC clients share stories of using mobile money when someone has an emergency and needs to mobilize resources quickly. Often they ask neighbors and friends with money in their mobile wallets to send it directly to a relative in need, and pay them back in cash over the next few days.

Move money on demand

Freedom from Hunger’s “resilience diaries” of the poor in Burkina Faso found savings was the most commonly used coping mechanism in the event of illness, loss of assets, or family members. Yet, even saving with a formal cash-based institution remains a challenge for the millions of households globally without access to savings accounts, opting instead to save insecurely in pots or with neighbors. Mobile money-based savings enables households to quickly access finance without having to rely on branches.

Preparing for the unexpected

The promise of using digital financial services is not to understate the benefits of cash: it is reliable and user-friendly. Indeed some organisations, such as VisionFund International have had great success using cash-based recovery loans.

The challenges of using digital financial services after a disaster should be recognized too. There is much work to be done in order to foster the eco-systems needed to support effective digital financial networks. For one, if clients are to receive finance instantly, ideally they will have already opened accounts: post-disaster mobile wallet registration can add burden and delay. In addition, financial institutions using mobile money should consider the size of the agent network. Mercy Corps, which provided e-transfers to victims of Typhoon Haiyan, faced difficulties from a limited agent presence in affected areas where clients were trying to cash out.

Digital financial services can help to considerably increase resilience to shocks and disasters in a way that is convenient and sustainable, if the appropriate systems are put in place ahead of time. With the risk of disasters always lurking, now is the moment to learn from the successful models available, and invest.

Image credit: BRAC

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