Together We Stand

[ 124 ] Image: AIDMI Participants of a roundtable consultation on ‘Linking Disaster Risk Reduction with Risk Transfer: Protecting Small Businesses in Urban Areas’ at Guwahati, India In late 2014 AIDMI, along with Stanford University and a grant from the Enhanced Learning and Research for Humanitarian Assistance Humanitarian Innovation Fund, began a randomized controlled trial in India, enti- tled ‘Innovating Disaster Microinsurance for Local Market Recovery’. The core challenge addressed by this project is promoting local market and livelihood recovery for urban resilience rather than reliance on international aid. The project highlights local markets as an advantageous feature of urban crises to deliver goods and services for affected populations. Increasingly, humanitarian aid employs cash assis- tance as a means to allow clients to drive local demand and thus recover markets. In the absence of any type of insurance cover- age, most small informal businesses employ traditional coping mechanisms following a disaster, involving dramatic increases in high-interest debt and sales of personal and business assets. Those small informal businesses that cannot bear the losses shut down for long periods of time and many never reopen. This initiative intends to complement cash programmes to address the supply side of the recovery equation so that community resilience is established by enabling markets to recover more quickly. The objective of the project is to create a rigorous evidence base for humanitarian and development agencies, urban authorities, global financial institutions and insurance providers to take up risk transfer issues in their policies and to practice and scale-up risk transfer approaches for this rapidly growing and important segment of urbanizing economies. Most urban populations obtain many of their basic needs from local small businesses, which remain untargeted and unreached by traditional financial institutions. These businesses also provide important livelihoods that have multiplicative effects on creating and sustaining employment. However, the vast majority of the small businesses in urban settings lack access to traditional disaster insurance. As this innovation can be implemented in the pre-disaster phase, the growth potential or scalability is immense. Small enterprises in urban areas play an important role in local market, community and livelihood recovery following a disaster. They cannot, however, play this role effectively when they themselves are affected. Access to microinsur- ance products can help these enterprises recover faster. The growing insurance market in India is certainly capable of covering these enterprises with well-designed products. The demand survey study in disaster-affected urban areas showed a high demand and willingness to pay for such products. 9 These enterprises are also willing to address disaster risk by adopting risk reduction actions. The low level of insurance coverage is an opportunity for the authorities, private sector and aid agencies to promote risk reduc- tion approaches through convergence of microinsurance with mitigation and microcredit facilities in developing countries like India. State and donor support for combining microfinance and disaster risk reduction during recovery (between two disasters) could make a huge difference in reducing losses and mitigating the slowdown of vital economic activity in India’s cities. T ogether W e S tand