According to the 2018 World Economic Forum’s World Risk Report, the Philippines ranked third among all countries with highest risks worldwide. In 2017, the Global Facility for Disaster Reduction and Recovery reported that at least 60% of the country’s total land area is exposed to multiple hazards and 74% of the population are susceptible to their impact.
Microfinance is the provision of access to financial services such as savings, insurance and loans to low income groups – usually women in urban poor and rural areas. It is largely credited in closing the gender gap to financial inclusion since most of its clients are women.
According to the Bangko Sentral ng Pilipinas’ financial inclusion report, as of March 2019, microfinance is a Php245 billion industry. SEDPI estimates microfinance institutions currently serve approximately 7.2 million low income households.
Hotspot for climate crisis that leads to disasters
There is high vulnerability of communities, especially low-income groups, to the negative impact of climate crisis. In Social Enterprise Development Partnerships, Inc.’s (SEDPI) research after the aftermath of typhoon Yolanda and Pablo, 86% of the poor lose their livelihood and 76% of farming communities reported little to no agricultural output which leads to deeper level of economic debt.
Figure . Figure 1. Sunset in Tacloban after typhoon Yolanda
Index for Risk Management
Index for Risk Management (INFORM 2019), a global tool which measures the risk of humanitarian crises and disasters sites that the Philippines lacks coping capacity and resources that could alleviate the impact of disasters and climate crisis. There is lack of physical infrastructure, health care service needs improvement and challenging governance.
Inadequate social protection is obvious for climate crisis adaptation. Social protection mechanisms, especially insurance, are limited in scope. Only a few, mostly upper to middle income groups, are able to access crop insurance, disaster insurance and social insurance.
Government interventions on disaster response, recovery and preparedness are slow. Coordination among local government units, national government agencies and local actors needs improvement.
Coping mechanisms of vulnerable groups in times of disaster
In the same SEDPI research, access to loans; distress selling of assets; finding additional work outside the community; remittance assistance from family members outside affected communities and donations/relief operations were mentioned as coping mechanisms of vulnerable groups in times of disaster.
The respondents mentioned savings and insurance are not priority coping mechanisms due to lack of access and lack of income. However, they recognized that these are highly effective coping mechanisms.
Climate smart microfinance programs
Efforts has been made in the microfinance industry to address vulnerabilities of low income groups to the negative impact of climate crisis. There were programs pilot tested and implemented to demonstrate effectiveness of climate crisis adaptation strategies to make communities more resilient. Special focus is given to vulnerable groups since they bear the heaviest burden and cost to climate crisis hazards.
In 2007, SEDPI implemented a financial literacy program with Microfinance Opportunities and Opportunity International for a microinsurance agency based in Visayas. A training program focusing on microinsurance was locally adapted to teach microfinance clients of the protection insurance products provide in times of emergencies and disasters.
A comic book was also developed used as an information, campaign and education material targeting low income households. More than 50,000 copies of the comic book were distributed to 50 microfinance institutions nationwide.
One of the most effective ways to mitigate risks of climate hazards is through microinsurance. Metro Ormoc Credit Cooperative (OCCCI) provided disaster insurance to its members through CLIMBS Life and General Insurance Cooperative. Out of OCCCI’s net surplus in 2012, it earmarked a budget to provide free disaster insurance to 80,000 of its members for 2013.
Later that year, typhoon Yolanda struck and a significant number of its members were adversely affected. As a result, 22,000 of its members were able to claim PhP10,000 each as benefit. OCCCI paid PhP100 premium for each member.
Unfortunately, the insurance product was discontinued since the reinsurance company of CLIMBS did not want to renew the policy.
Climate adaptation support service
In 2015, SEDPI implemented the Climate Adaptation Support Service (CASS) program of Climate Change Commission (CCC) with support from the German Corporation for International Cooperation (GIZ). The program’s objective is to compensate community members for sustainable management of natural resources. It is a conditional cash transfer program where community members need to comply with certain activities before cash is given to them.
The conditions for the initial cash transfer include adopting alternative livelihoods that protect and preserve the environment; and avoid those that have negative impact such as mangrove deforestation and illegal fishing. They must also attend financial literacy trainings that will eventually link them to microfinance institutions for savings mobilization, insurance protection and credit access.
Most of the participants in the program went into vegetable farming and a training program on organic farming was designed and delivered to them. Attendance to the training was a requirement as a condition for the succeeding cash transfer.
The final cash transfer’s condition was to require participants to deposit income derived from their organic farming livelihood to their savings accounts in microfinance institutions. This is to ensure that they familiarize themselves and gain appreciation in accessing financial services. It is also a way for the microfinance institutions to build track record and relationship with the participants.
After a year of implementation, the participants who belong to vulnerable groups were able to open savings accounts; gain income stream from the backyard organic farming they started; and were able to deposit a small amount to their savings accounts. Some acquired insurance protection and also applied for loans to grow their organic farming from microfinance institutions.
The program did not include monitoring and evaluation and further capacity building support to ensure that the sustainability of climate-adapted livelihood activity after the first year. This would have been a good opportunity to demonstrate sustainability of effective climate crisis adaptation strategies for low income groups.
Recovering and rehabilitating livelihoods
Building resilience of communities entails that they have enough economic means to prepare, respond and recover when climate hazards strike. This was the focus of People in Need’s (PIN), a Czech international non-government organization, project with SEDPI in 2016.
The project aimed to recover and rehabilitate livelihoods of farmers that were victims of typhoon Yolanda. SEDPI provided capacity building interventions to microfinance institutions in the design and delivery of micro-agri financial products as well as linking farmers to markets and enabling them to access local technical assistance through the local government unit.
More than 2,000 farmers who are members of three local microfinance institutions also received financial literacy trainings that emphasizes the importance of savings and insurance as risk mitigation strategies in climate crisis adaptation.
Micro-agri loan product
In 2014, SEDPI implemented a program of the Department of Agrarian Reform (DAR) to rollout micro-agri loan product to 23 microfinance institutions nationwide.
Climate hazards usually have the most negative effect to agricultural farming communities. With the program, farmers were given free crop insurance coverage through DAR’s intergovernmental arrangement with the Philippine Crop Insurance Corporation (PCIC).
DAR paid PhP2 Billion in premiums to PCIC to cover vast majority of agrarian reform beneficiaries nationwide. Through this program, it is hoped that farmers would realize the value of crop insurance and access the service voluntarily when they see its effectiveness.
SEDPI assisted the microfinance institutions in designing more climate-adapted agricultural financial products, and also helped them formulate disaster management plans. After almost two years of implementation, the program was able to release PhP343 million micro agri loans and mobilize PhP75 million in savings and share capital from 17,000 farmers.
Green microfinance products
The two largest microfinance institutions in the Philippines CARD Mutually Reinforcing Institutions and ASA Philippines, implement green microfinance products that address disaster preparedness and recovery strategies.
CARD MRI, for instance, offers microcredit to its clients to purchase solar panels for households in rural areas; use energy efficient cooking stoves; and build biogas plants for microenterprises. It also has programs for mothers to cultivate green farms and grow bamboos as a means of livelihood, providing them with technical assistance support.
Through CARD MRI’s microinsurance group that includes a mutual benefit association, a microinsurance agency and a partnership with a commercial insurance company; it is able to provide insurance coverage to low income groups nationwide. In April 2019, the Insurance Commission reported that CARD MRI serves more than 25 million individuals in the Philippines.
ASA Philippines implements Water Sanitation and Hygiene (WASH) financing where microfinance clients are able to access credit to build latrines and toilets that are crucial infrastructures needed especially in times of disasters. SEDPI provided training to key ASA Philippines staff in the initial design and implementation of the program with support from Water.org.
The case studies above show some past projects that could be replicated and scaled up as well as ongoing programs of microfinance institutions to mitigate risks of climate hazards through microfinance. While most are successful and showed good level of effectiveness, there are still much to be done to make vulnerable groups, especially low income households, to become more resilient.
Government and MFI partnership
National government agencies and local government units should recognize the vast network of microfinance institutions already directly providing anti-poverty measures to vulnerable groups. There are approximately 6,500 microfinance institutions composed of cooperatives, microfinance NGOs and rural banks that are present in the most remote and hazard-prone areas of the Philippines.
This presence of microfinance institutions in virtually every nook of the Philippines is an asset for relief operations, information dissemination and evacuations for disaster response; livelihood assistance for disaster recovery and rehabilitation; and capacity building for disaster preparedness. Partnership with government and microfinance institutions for disaster management could make delivery of assistance more effective and timely.
Rehabilitation and recovery fund for microfinance
Microfinance institutions do not require marketable collateral from its clients as security to their loans. As a result, they take a direct hit in terms of loan losses when clients cannot repay their loans due to climate hazards and disasters. To ensure financial sustainability, a disaster rehabilitation and recovery fund for microfinance should be established.
The fund could be financed by government and contributions from microfinance stakeholders. This will provide needed liquidity during disaster recovery phase and also provide financial shield from climate crisis-related losses.
Government-sponsored disaster insurance
Like universal health care, disaster insurance should also be provided to low income and vulnerable groups because climate hazards heavily affect them. A disaster insurance that provides cash assistance to victims as institutionalized government programs would avoid the current practice of distribution of assistance (relief goods, livelihhod programs, rescue etc.) based on patronage politics.
Policy guideline for damayan
Damayan is an indigenous practice that we Filipinos have as an effective coping mechanism for emergencies and disasters long before commercial insurance entered our shores. It is the essence of our bayanihan in helping each other financially. However, this practice is neglected for the most part. Only cooperatives practice damayan and institutionalized this in their service delivery.
The insurance commission could come up with clearer guidelines in the implementation of damayan to bring back this almost forgotten culture that emphasizes non-profit and pooling of risks. This could be integrated in the microfinance NGO act.
Mutual benefit associations
More MBAs should offer disaster/calamity insurance in addition to their life and non-life insurance products. MBAs work closely with microfinance institutions and is a quick way to provide microinsurance access to low income groups. Like damayan, this could also be integrated as an enhancement to the microfinance NGO act.
To emphasize importance of savings and insurance as effective coping mechanisms in times of disaster, financial literacy programs should be made integral part of marketing and orientation efforts of microfinance institutions.
In the fields of climate smart agriculture and agricultural financing, research is much needed. Due to climate crisis, the agriculture sector is changing rapidly and communities should be able to adapt to ensure resiliency in this sector and avoid deepening poverty among vulnerable groups.
Past climate hazard experiences and the Philippines always belonging to reports of think tanks and multilateral agencies as hotspot for disasters are enough proof that a more concerted effort is needed for disaster management. Government, civil society and the private sector should come together to address this.
A good source for funding to support for the initiatives mentioned above is through the People’s Survival Fund (PSF). It was created by Republic Act 10174 as an annual fund intended for local government units and accredited local/community organizations to implement climate change adaptation projects that will better equip vulnerable communities to deal with the impacts of climate change.
Government should continue supporting climate crisis programs and scale up or replicate successful and effective programs. Civil society and the private sector, where microfinance institutions belong, should continue delivering financial products and capacity building interventions that build resiliency to climate hazards and disasters among vulnerable groups. They should also actively engage and seek support from the government for assistance and cooperation.
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