The EMF Enabling Microfinance Foundation supports one of our projects at heart, dedicated to make capital available where and when it’s needed most, with CRED.
Since 1990, natural disasters have affected about 217 million people every year. When natural disasters and other climatic calamities occur, the impact can be multidimensional: households’ physical assets, income levels, and their ability to contribute to the local economy are affected, disrupting communities and the livelihoods of the people that live there. Alarmingly, a recent study by the World Bank highlights that poor populations are particularly vulnerable to natural disasters such as floods or drought and tend to be hit the hardest.
When such events occur, recovery depends on the speed and agility with which Micro- and Small Businesses can be rebuilt. To rebuild, they must repair, re-invest, and at times re-invent their businesses to adapt to changing needs of the community in a post-disaster scenario. This requires ingenuity and, often, capital. The latter can be challenging to access by existing clients of microfinance institutions if they fall behind on their loan payments or if lenders themselves have liquidity issues. As a result, Micro and Small Enterprises may turn to costly, inefficient solutions to survive. This can include depleting savings, selling productive assets, turning to expensive money lenders, or migrating in response.
As a tool of support, the EMF Microfinance Fund can provide financial services for such devastating events so that the recovery process is not halted by a lack of liquidity. In collaboration with Global Parametrics, Enabling Qapital designed the Climate Resilience Enhanced Debt (CRED) Facility to provide counter-cyclical financing to financial institutions. CRED is intended to promote business continuity and resilience in the face of extreme climate events and other natural disasters.
CRED is structured as a tailored blend of multiple financial tools. It starts with a standard loan from the EMF Microfinance Fund, that include enhancements such as (1) an emergency liquidity facility that can be drawn when a climate event or a natural disaster occurs, (2) a subordinated loan in case the event has eroded capital levels of the financial institution and (3) the opportunity for partial interest or loan forgiveness in case extreme events materialize. With this suite of products, Enabling Qapital and Global Parametrics aim to support the financial institution’s business recovery-based lending program and, in turn, its clients.
In 2021, the first CRED facility was granted. Cambodia was selected as the first country as it is one of the most vulnerable countries in the world and will likely face many climatic challenges. According to the World Bank, it is one of the poorest countries in Southeast Asia, with 30% of the population living below the poverty line. Additionally, it is one of the most disaster-prone countries in Southeast Asia and is seasonally affected by floods and droughts. Because nearly 80% of the population live in rural areas and 60% work in the informal sector, the Cambodian population is particularly vulnerable to climate change.
For all these reasons, Chamroeun, an MFI in Cambodia, was chosen for the first CRED funding. Additionally, the MFI, along with the CRED fund, receive technical assistance from EA Consultants, who have significant experience in inclusive finance as well as insurance. EA Consultants worked side-by-side with Enabling Qapital and Chamroeun’s team to develop and monitor a recovery-based climate loan product for Chamrouen’s clients.
While we hope that Chamroeun will never need to use the climaterisk product, they are now able to respond to natural disasters and support their clients in the event of major natural disasters.
