Microfinance and Water Risk Mitigation and Crisis Management
Water risk mitigation is one of our best ‘insurance policies’ against water crisis and negative impacts of climate change. Risk mitigation costs can be limited to about one to three per cent of global GDP per year if we take strong, early action. Since most of all the natural disasters are directly or indirectly attributable to weather and climate, it is important to recognize that the total costs of risk mitigation and adaptation can be lower than costs of the impacts that would be incurred without any risk mitigation plan or policy action.
There are many uncomfortable truths related to our actions and water quality and supply management on our planet earth. It is also clear that climate change vulnerability and adaptation are insufficiently considered in the development of the management and policy areas that will be most affected, such as water quality or water supply.
The Role of Microfinance and Water Risk Management Solutions in the Global Water Crisis
Over the last years the world has had to come to terms with the world water crisis. Some fear that declining water quality, increased demand and competition for freshwater and depleting freshwater supply could potentially push more people into thirst, hunger and poverty.
H2oAlliance working group has been leading the efforts to bring microfinance and water risk mitigation education program and solutions to the process of global water crisis management.
Thirst and water risks are on the rise worldwide, fueled by floods and droughts. Today almost a two billion people do not have access to safe and clean drinking water and every day thousands of children die from water-related causes.
The team has taken a bold approach to addressing this challenge, launching an education program entitled “LetCleanWatersFlow” to ensure that investment in water risk and crisis management solutions is a productive investment in thirsty societies, and helping poor people access safe and clean drinking water and sanitation. Risk mitigation and crisis management eduation is critical to breaking the cycle of thirst at its root. H2oAlliance is committed to serve children and families who do not have access to safe and clean drinking water and sanitation.
H2oAlliance will do this by educating Social Entrepreneurs how to buy, sell and implement water risk mitigation and crisis management solutions to developing nations through MIF's.
H2oAlliance will also explore ways to create, fund and manage water risk and crisis management projects in a way that it allows Social Entrepreneurs to access credit and markets so they may help their own communities have access to safe and clean drinking water and sanitation, and escape the poverty trap.
Addressing the lack of risk mitigation and crisis management solutions and rural microfinance tools – including micro credit and micro insurance – will be keys to the success of this education plan. This education program has the potential to link life-saving water risk mitigation and crisis management solutions and tools to a powerful engine for long-term development.
A World of Risk
The thirsty poor live in risky environments. They face natural disasters, such as droughts, floods, cyclones, earthquakes, pests and they face diseases. Their life on the edge makes them risk averse because they cannot chance falling deeper into thirst, hunger and poverty. As a result, they stick to proven, but low-income activities and avoid adopting new solutions. This means that the poor, particularly those in rural areas, become entangled in a semi-subsistence poverty trap, where they do not have access to new solutions in order to produce or access clean and safe drinking water and sanitation.
People in rural areas are particularly subject to water risks. When small-scale investments are made by social entrepreneurs, the returns can be huge. The return on investment is often evidenced by healthier and more productive society.
When water disasters strike (and they have with increasing frequency in recent years), access to safe and clean drinking water becomes even more volatile. For these reasons, in rural communities risk itself has become a difficult conundrum solve. One solution may lie in increased collaboration between microfinance institutions (MGI's), the private sector companies, social entrepreneurs and water risk mitigation and crisis management solutions providers.
Through H2oAlliance, we will, for the first time in the world, offer Microfinance – Water Risk Mitigation and Crisis Management education program, with the intention of mitigating water risks and assisting the thirsty poor to escape the poverty trap. For this approach to succeed, it should be combined with microfinance facilities, which could provide loans secured against the forward contracts. This is one example of how MFIs, social water entrepreneurs and H2oAlliance education program could benefit from enhanced cooperation and new synergies, helping to break the vicious cycle of water crisis and poverty.
Without access to MicroFinance and H2oAlliance Assistance, the poverty trap is deeper
The low-income and thirsty poor often lack access to financial services, such as credit, savings and insurance. In Sub-Saharan Africa, only four percent of the population owns a bank account. There are several reasons for the lack of access to financial services. Foremost is the fact that banks are often completely missing in rural areas of developing countries. Formal financial institutions prefer urban areas due to higher incomes, and lower costs and risks.
Without access to collateral and credit, insurance and a safe place to put some money, it is difficult for low-income families to invest in water risk management solutions and poor households to buy tools that reduce risks.
With the absence of financial services, the thirsty are deprived of a coping mechanism. Exclusion from credit and insurance also reduces their ability to survive income or price shocks.
Access to financial services plays an important role in reducing and transferring the versatile water risks the thirsty poor have to deal with. The microfinance revolution has generated a stream of innovations in the area of financial services and water risk and crisis management innovation, addressing needs and providing financial services to low-income families and poor households.
Innovating to Adapt to a Changing Environment
H2oAlliance's strategic program is a response to the changing nature of thirst and the rapidly evolving environment in which social entrepreneurs (low-income families) can operate. H2oAlliance acts as a water risk and crisis management education and assistance agency, deepening and broadening analysis of the root causes of thirst and empowering social entrepreneurs with qualified knowledge and solutions, bringing a variety of water risk mitigation and crisis management tools at the fingertips of the poor to address world water crisis at local level.
In fighting thirst, we assess, analyzes and determines the proper response, depending on the context. H2oAlliance is expanding in one water market area specifically: the use of simple and affordable water risk mitigation and crisis management tools and technologies to impact low-income families (social entrepreneurs) and poor people directly, and the development of water risk mitigation-based practices.
Connecting Microfinance and Water Risk and Crisis Management Solution providers to Markets
Social entrepreneurs in the developing world often do not invest in water risk mitigation and crisis management solutions because of the initial cost. Providing a more secure market allows these low-income families to break the poverty trap.
H2oAlliance will work with the private sector partners, other non-profits, UN and NGOs to explore ways to better use its education program. The programs also upports Gender Education initiatives to better serve women and girls to enhance the impact of gender education in developing countries. The majority of water haulers are women and girls. Therefore, they often are excluded from education opportunity and face bigger risks of poverty.
The ultimate goal is to guide social entrepreneurs and empower communities to effectively mitigate water risks and respond to crisis, and ensuring that clean and safe drinking water and sanitation becomes part of the long-term solution to thirst.We also intend to share our lessons learned in “development-oriented contracting” with private sector water solution providers and encouraging them to adopt similar models.
Need for Water Risk Mitigation and Crisis Management Solutions
Declining water quality, increasing demand and competition for freshwater and depleting freshwater supply will increase the potential and need for effective water crisis mitigation and crisis management solutions to those in need for life sustaining assistance.
H2oAlliance draws on a number of innovative mechanisms including decades of in-house water, risk and crisis management experience and expertise and support to water management programs. This provides value added to education programs and water projects.
H2oAlliance leadership team has worked in developing countries. They understand and find tremendous potential for productive partnerships as the optimal use of effective water risk and crisis management solutions and the support of credit facilities provided by MFI’s.
Weather-based Risk Insurance
H2oAlliance will educate and assist social entrepreneurs in the development of weather-based insurance products, where the trigger for a disbursement is based on a rainfall index. H2oAlliance will pilot such insurance policies and assist governments in designing and piloting drought and flood risk management instruments. Index-based risk financing heralds an innovative and effective way for assisting poor people whose livelihoods are threatened by extreme weather conditions and natural disasters. A thriving market for weather index-based insurance and pilots is currently developing, and will only become more important as climate change inevitably lead to a rise in weather-related catastrophy.
Potential Synergies
H2oAlliance is learning to be more focused on water risk mitigation and crisis management solutions within the humanitarian challenges we face, but we need partners to solidify and expand our efforts. Our weather-based insurance and education projects are dependent on an array of partners, with MFIs of primary importance.
Innovations are at the core of the water risk mitigation and crisis management microfinance evolution. It serves the thirsty low-income families and poor well. Yet, more needs to be done. Areas where collaboration between MFIs and H2oAlliance could increase include:
• Accepting risk mitigation and crisis management contracts as collateral for loans
• Providing financial services in remote rural areas, including innovative savings and insurance products
• Implementing weather-based insurance products
• Capacity development in financial literacy
• Providing financial services and training to social entrepreneurs' associations
H2oAlliance would like to appeal to the global community community to keep innovating and encouraging MFIs to work with H2oAlliance partners, to link H2oAlliance to solutions and education programs, and create new ways to address world water crisis challenges. Together we can do it. Together we are much stronger.
Contact: H2oAlliance Microfinance team.
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