Disaster Insurance and Government Help Needed to Stablize Microfinance

This this blog entry, Mr. Bai argued that there needs to be a systematic and comprehensive mechanism to help microfinance institutions and borrowers during major disaster.

The Sichuan earthquake certainly brought extra urgency to this discussion. But the problem was first encountered by Grameen Bank during a devastating flooding in Bangladesh in 1998. 80% of the population were impacted by the disaster, many of the lenders couldn't keep up with their payments. Grameen had to reschedule a large amount of its loans. Consequently, its own credit standing took a hit.

Since then, many large microfinance institutions and their hosting countries have worked toward a more systematic approach to deal with emergencies, including trainings and emergency procedures for such situations.

Mr. Bai suggests that China has not done enough in this regard. Although, a week after the quake happened, the national banking agency did issue a policy guidance forbidding banks to charge late fees for quake victims, the guidance was inadequate to serve as a comprehensive, long term solution.

He further argues that, because natural disaster is a national tragedy and has traditionally been handled by the central government (vs. by the local community alone), the central government should take the lead in designing and implementing policies and regulations that will serve to stablize the financial industry--particularly the section that serves the poor--during emergency.

However, from this essay, it is not clear what Mr. Bai thinks the policies should be, although any policy changes will likely involve some kind of disaster insurance.