Disaster Preparedness and Portfolio Protection New and small MFOs have fewer mechanisms available to protect their portfolio than do large and established organizations. This is because, in addition to lacking experience, small and new MFOs have a small clientele, limited geographic coverage, lower levels of capitalization, and less experienced or less desirable clients. Portfolio protection requires exact post-disaster accounting procedures. Absence of such procedures can prevent an MFO from being able to measure damage to its portfolio. This is particularly true for programs that allow withdrawals and subsequent repayment of savings in addition to loan acquisition and repayment.
Some strategies are ineffective in protecting portfolios during a disaster.
For example, loan rescheduling, as noted above, is an ineffective mechanism for recovering old loans not backed by tangible collateral. State-contingent contracts can protect portfolios only if they include compensating incentives. It is not desirable to start a new MFO during the early stages of a disaster, especially if the MFO is expected to provide social services during the early stages of disaster. Established MFOs are better equipped to deal with early stages of disasters, especially if they have a dense network of branches. To avoid burdening long-term MFO operations with the costs of relief operations, it is appropriate for donors to provide grant funds for relief operations.