When I reflect on my visits to disaster-affected areas over the past thirty years, certain images return again and again: a small poultry farm flattened by the strong winds of a cyclone, scattered with the bodies of lifeless birds; a flattened betel nut plantation facing six months of toil to regain production capacity; a local musical instrument maker whose entire inventory, tools and workshop lay crushed under rubble after an earthquake.
Technically, the owners of these small and micro-enterprises are neither below poverty line nor considered amongst the “most vulnerable.” Yet even the mildest economic disruption can push them into poverty.
On the edge of insolvency
In the aftermath of disasters, micro-, small and medium-sized enterprises (MSMEs) often facecrippling disruptions to local markets and supply chains, disrupting their ability to operate. Many of them use borrowed capital, and the interruption of business only exacerbates their debt burden, pushing them closer to insolvency.
Despite the scale of economic loss and closure among MSMEs following disasters, they have little access to recovery finance, whether in the form of affordable credit or assistance from government and relief agencies. This widespread collapse of micro- and small businesses remains under-recognized, despite the long-term consequences for local employment and economic recovery.
Policy blind spot
A fundamental problem lies in how these enterprises are positioned within post-disaster frameworks. Assistance tends to focus on households and public infrastructure, andfew norms exist for assistance to MSMEs– even defining such norms would be complicated, given the varied nature of these enterprises.
They are often not considered poor enough to qualify for social protection schemes, yet they lack the financial capacity to afford commercial insurance products. This leaves them in a policy blind spot.
Yet,when MSMEs do begin to recover, their communities do too. They create jobs, they stimulate local markets, they restore confidence, and instill a sense of agency.
In short,the resilience of MSMEs is a building block of community resilience.
Five action points for business resilience
Today, on Micro-, Small and Medium-sized Enterprises Day, I take the opportunity to propose a five-point agenda for the resilience of MSMEs in the face of disaster risk.
The agenda reflects the lived reality of MSMEs. An overwhelming majority in developing and high-risk settings operate in the informal sector – unregistered, unaccounted for, and uninsured. Many are in the micro and nano categories, often operating within cash economies, with minimal savings or access to credit – but nonetheless they are often the economic backbones of their communities. The most vulnerable are frequently women-led local enterprises.
- First, we need to work with formal and informal local MSME associations to developaccessible tools for risk self-assessment– both for physical disaster risks, and the financial risks they trigger. These tools should help MSMEs assess the risks to their own businesses and to all those who depend on them for their livelihood.
- Second, we needa suite of solutionsto reduce the risks identified by the assessments. This toolkit should be coupled with access to affordable finance so MSMEs can implement resilience measures in a prioritized and graded manner.
- Third, we should createlocally appropriate risk-transfer solutions. This may require aggregation across a large number of enterprises, and perhaps even the creation of risk pools.
- Fourth, disaster recovery finance systems must include provisions for support to MSMEs– through a judicious combination of grants and low-interest loans.
- Fifth, MSME owners should be given a clear role in developing and implementing local level disaster risk reduction and recovery strategies. In post-disaster recovery, MSMEs should be encouraged to create new and more robust livelihood opportunities in their communities. The notion of “building back better” should apply to creating more resilient MSMEs after disasters. In the broader disaster risk reduction discourse, locally-led approaches are gaining prominence. MSMEs should be leading these approaches.
We can harness innovation
Across all five of these actions, emerging digital technologies and innovative insurance models can play a catalytic role – while opening business opportunities for resilience-focused entrepreneurs.
From digital payments and financial inclusion to participatory mapping and localized risk assessments, new digital toolscould help bring informal and under-served enterprises into resilience-building frameworks – and ensure they are seen, supported, and strengthened before the next crisis hits.
MSMEs need access to group-based, subsidized insurance models that pool risk across similar enterprises to reduce premiums. Governments could actively promote and enable such group-based insurance mechanisms, tailored for MSMEs, to support business continuity and faster recovery in the face of disasters.
In most regions of the developing world, there is little availability of smaller scale property insurance; and where they exist, policy structures usually fail to reward risk reduction. Insurance offers should provide incentives for investment in risk reduction (like strengthening business premises against cyclones) with lower premiums.
Parametric insurance schemes – which pay out on a pre-agreed threshold (such as storm strength) – have been shown to be successful in eliminating costly loss assessments, payout delays and disputes, providing innovative and responsive solutions for MSMEs and other small-scale policy holders.
A network for resilient businesses
For the past 15 years, UNDRR has been supporting a global community of MSMEs who prioritize disaster risk reduction through the ARISE Network. Network members have demonstrated remarkable innovation to address disaster risk in their enterprises.
It is important that we further strengthen and expand such efforts to help the small businesses that are so vulnerable to disasters, but who can offer so much in building resilience for their communities
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