AUTHORS:
Dr Russell Toth, Chris Hoy

This report from Mercy Corps presents key findings and recommendations based on a survey of 600 households in Indonesia on levels of actual and perceived vulnerability to natural disasters, and how this links to the demand for and use of financial products for coping and recovery. This quantitative household survey was conducted in parts of Yogyakarta and West Sumatra that had experienced either earthquakes and/or volcanic eruptions over the last ten years. All households in the survey were clients of financial institutions in these regions, and half of them used financial institutions that offered disaster related financial products.

  • Financial services are more readily used by households to support recovery, but currently do not compensate for relief immediately after disasters. Relief programs must continue to serve as a critical immediate safety net for basic needs for disaster affected households, but recovery should focus on increasing financial options and allowing households to better leverage their existing financial options towards long-term resilience.
  • Existing access to financial services may not translate to use of savings and financial services for disaster risk mitigation. Development actors and financial institutions must do more to support households with financial planning and understand financial protection options for disaster risk reduction. The relative barriers for using particular products to manage risk must be better understood.
  • Expected losses from disaster are more pronounced for business income than wages, and for households with lower job and asset security. Financial service providers and development actors supporting financial institutions must place greater emphasis on developing financial products that help business owners mitigate disaster effects.
  • There is little demand for commitment savings and insurance products for risk reduction, in contrast to high-demand for flexible savings accounts. Development actors working on financial services should focus on savings and loans products that more broadly meet clients’ needs, while increasing awareness around the potential use of products for DRR. Insurance should be targeted only to a specific client base with income streams most likely to be impacted by disaster.
  • Access to disaster-related financial services can have net psychological and behavioural benefits for investment. Cost-benefit analyses of disaster-related financial products should consider the broader psychological, productive and other benefits from holding these products.

Source: Mercy Corps

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