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close this bookDisaster Economics (Department of Humanitarian Affairs/United Nations Disaster Relief Office - United Nations Development Programme , 1994, 56 p.)
close this folderPART 3 - Financing options
View the document(introduction...)
View the documentThe traditional route
View the documentDebt swaps
View the documentBlocked funds
View the documentTriangular food aid
View the documentTrust funds
View the documentDisaster insurance
View the documentRevolving funds
View the documentCentral Bank Assistance
View the documentCoordinating foreign disaster assistance

Revolving funds

While funds will be available at a national level from multilateral, bilateral and relief agencies when a disaster occurs, certain of these funds must be channeled to disaster-affected households at the local level to help them rebuild houses, replace household goods, and return to income producing work quickly. Start-up capital of this type is likely to come from the creation of a revolving fund credit program, operated through government, the formal banking system, or local or international NGOs.

A further advantage of this type of local level finance is that it is generally directed at smaller entrepreneurs and farmers who are among those most likely to be hit hardest under a disaster scenario.

Where possible, it is preferable to use existing village level savings clubs such as “tontines” found, for example, in Togo and Cameroon. The establishment of a revolving fund may also involve the creation of a credit union movement at the local level which, over time, can be replicated nationally. Credit unions provide an on-site loan function, which is often lacking in existing formal government credit programs located outside the village.

Village credit unions have a further advantage over government or project-related credit programs. For example, the cost and time required to process a loan is reduced, because unions are centrally located. The credit union borrower's loyalty to fellow members and savers promotes high turnover and low default rates. A further advantage of this type of local level finance is that it is generally directed at smaller entrepreneurs and farmers who are among those most likely to be hit hardest under a disaster scenario. Also, participation in such schemes is generally conditional on individuals engaging in some very simplified form of business/accounting training, which raises overall business management skills.

Revolving loan programs can provide needed capital for small business expansion and growth. These funds may help capture “relief dollars” that can be used in an ongoing way to promote development. Subsidized below market interest rates on such loans can provide incentives for new business formation or expansion of existing businesses.