2. Emergency Loans The Other Side of Microcredit Craig Churchill
International Labour Organization Social Finance Programme 3.
Features of an Emergency Loan
For unexpected (or unplanned for) expenses
Allow households to smooth a temporary cash flow
constraint
Small, short-term loans that are immediately available
4. Why MFIs Do Not OfferEmergency Loans
Bias against non-productive, consumption loan
Concerned about credit risk
Only one loan per client at a time
Delivery systems are not sufficiently responsive
Regulatory restrictions
5. Why MFIs Should Offer Emergency Loans
Vulnerability is not eliminated by IG loans
Consumption loans are not bad as long as the household can
repay them
Expands the market to community members who do not want IG
loans
Easier for most MFIs to offer than savings or insurance
Experience can positively influence the design of IG loans
The other half of microcredit
6. Two Sides of the Same Coin Microenterprise Loans to Boost
Household Income Emergency Loans to Lessen the Impact of Risks 7.
Multipurpose vs. Specialised
There is a trade off between having a very flexible generic
product and a series of more specialised loan products. Issues to
consider include:
Marketing
Staff training
Credit risk
Monitoring
Loan capital stipulations
8. Coping with Economic Stresses Risk Effect Coping Strategy
Economic Stress Reduces income Increases expenses Reduce
consumption Draw down on savings Seek an emergency loan 9.
Designing Emergency Loans
Issues to consider:
Interest rate
Controlling credit risk
Delivery mechanisms
10. 1) Interest Rate
Do not discount the price of emergency loans (might be
different for disaster loans)
Could possibly make them more expensive than IG loans because
risks and transaction costs are (probably) higher
