DONOR INFORMATION RESOURCE CENTRE

Helping to Improve Donor Effectiveness in Microfinance

www.microfinancegateway.org

Microfinance and HIV/AIDS

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December 4, 2003

Overview How does HIV/AIDS affect

poor households?

How can financial services best be used in communities grappling with HIV/AIDS?

How can financial institutions be effective in affected areas?

What can donors do to support an effective microfinance response to the HIV/AIDS crisis?

People with HIV/AIDS

Source: UNAIDS, AIDS Epidemic Update 2002.

• As of the end of 2002, an estimated 42 million adults and

children were living with HIV or AIDS

• Over 95 percent of them live in less developed countries

Sub-Saharan Africa

71%

South and Southeast Asia 14%

Latin America 4%

East Asia and the Pacific 3%

Eastern Europe/Central Asia 3%

Western Europe 1%

North America 2%

North Africa and Middle East 1%

Caribbean 1%

Australia and New Zealand <1%

A vicious cycle for poor people

Poverty deepens

Ability to protect against further economic losses decreases

How Does AIDS Affect Poor Households?

Vulnerability to disease increases

Why does income

decline in households

where persons

suffer from HIV/AIDS?

Lost income of a sick adult

Lost economic productivity of healthy adults who become caretakers

Dramatic increases in household expenses

How do households

handle economic

stress ?

• Liquidate savings

• Reduce food

consumption

• Borrow from formal

and informal sources

• Cut back on non-

essential expenses

• Sell assets, further

reducing the ability

to earn income in

future

Financial services alone cannot solve

the repercussions of HIV/AIDS

BUT

Access to a broad range

of financial services (especially savings) can

help households build a safety net to deal with

the impact of the disease

Help clients maintain or increase income

Provide clients with an opportunity to build savings which are secure, easy to liquidate quickly, and retain value

Reduce clients’ vulnerability to loss

Enable clients to avoid irreversible coping strategies that destroy future income earning (i.e., selling productive assets such as land or farming equipment)

How can financial services

help mitigate the

economic impact of

HIV/AIDS?

Who can use financial

services in regions

affected by HIV/AIDS?

Individuals who are HIV-positive, but still productive

Productive family members of HIV-positive individuals

Surviving spouses, children, or parents

Households unaffected by HIV/AIDS

Burial insurance

Emergency loans

Education trusts

for minors

Flexible savings

Loan insurance

Acceptance of younger

and older clients

What products and

policies are responsive to their needs?

How Can Financial Institutions Be Effective

in Heavily-Affected HIV/AIDS Areas?

Portfolio Management

Risk Management

Linkage Approach

MFIs can provide basic messages on HIV/AIDS prevention and care

MFIs can refer clients to specialized providers of health and insurance services

Linkage Approach

EXAMPLE: FINCA/Uganda negotiated an

insurance plan for its clients with Microcare, a

health-plan provider that offers coverage of acute

HIV/AIDS episodes

MFIs can operate successfully in communities affected by AIDS by maintaining a diverse portfolio

Explicitly targeting persons living with AIDS can:

– impair an MFI’s ability to achieve sustainability and scale

– overburden clients with debt they cannot manage

Portfolio Diversification

Financial institutions should prepare by :

Planning in advance how to respond to clients in crisis

Planning for reduced savings rates

Monitoring for higher dropout, absentee, and (possibly) default rates

Strengthening management information systems

Adjusting loan-loss provisioning

Risk Management

What can donors do

to support an

effective

microfinance

response to the

HIV/AIDS crisis?

Avoid explicit targeting

Support financial institutions

that are focused and specialized

Encourage

innovative

linkages and

strategic

partnerships

Facilitate the

exchange

and

dissemination

of lessons

learned

Avoid pushing MFIs to

launch operations in

markets specifically to

respond to the HIV/AIDS

crisis

Help MFIs already working

in heavily-affected regions

to manage the risks

Also support organizations

able to provide grants

instead of financial services

Avoid

Explicit

Targeting

Better understand the

prevalence of HIV/AIDS and

its impact on clients and

MFIs

Improve the ability of MFIs to

respond to the crisis (e.g.,

workshops on operational

planning)

Reduce the social stigma of

HIV/AIDS

Develop guidelines on non-

discriminatory HIV/AIDS

workplace policies

Facilitate the

Exchange and

Dissemination

of Lessons

Learned

Only sustainable, efficient

MFIs can provide

communities affected by

HIV/AIDS with permanent

access to financial

services

Most integrated programs

have poor results for

clients

Support

Financial

Institutions

That Are

Focused and

Specialized

Encourage

Linkages

and

Strategic

Alliances

Strategic alliances can provide opportunities for:

MFIs and HIV/AIDS programs to

cross-refer eligible clients

MFIs to invite HIV/AIDS NGOs to

provide information on prevention,

care, and support topics

HIV/AIDS groups to gain insights

from microfinance staff and clients on

income-earning topics

MFIs to reduce research costs for

lending innovations by using

information gained from HIV/AIDS

projects on clients’ economic coping

strategies

Donor

Good

Practice

Example

• In Zimbabwe, USAID funded training for staff from 15 MFIs on assessing the impact of HIV/AIDS on clients, staff, product demand, and financial results

• The training included a strategic planning exercise

• MFIs requested subsequent training on how to adapt financial products to HIV/AIDS settings

• After the training, seed funding to pilot test new or modified products was granted

Summary

Households affected by HIV/AIDS can use microfinance

services as one way to protect their economic resources

Launching a financial intervention specifically targeted at

persons with AIDS is not generally appropriate, since

financial services depend on the on-going ability of clients

to earn income

MFIs that operate in hard-hit regions can benefit by

planning for the institutional risk posed by HIV/AIDS

Donors can help by encouraging innovative linkages and

strategic partnerships between strong MFIs and

organizations providing HIV/AIDS-related services

Where to Get More Information

• Jill Donahue, Kamau Kabbucho, and Sylvia Osinde, HIV/AIDS—Responding to a Silent Crisis (Nairobi, Kenya: MicroSave-Africa, 2001).

• Joan Parker, MBP Microfinance and HIV/AIDS Discussion Paper (Washington, DC: USAID/MBP, 2000).

• Joan Parker, The MBP Reader on Microfinance and HIV/AIDS: First Steps in Speaking Out (Washington, DC: USAID/MBP, 2000).

• Joan Parker, Ira Singh, and Kelly Hattel, The Role of Microfinance in the Fight Against HIV/AIDS (Development Alternatives, Inc., report to the Joint United Nations Programme on HIV/AIDS, Washington, D.C., 2000).

Contact: Nataša Goronja

1818 H St., NW, Washington, DC 20433

Tel: 202-473-9594 Fax: 202-522-3744

E-mail: cgap@worldbank.org

Web: www.cgap.org