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
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:
- 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
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
11. 2) Controlling Credit Risk
12. 3) Delivery Methods
- Mobile providers (e.g., SafeSave)
- Internal accounts of SHGs or Village Banks