Page 77 - The Economist Asia January 2018

The Economist January 27th 2018
Finance and economics 61
2 come, holdings and spending, it will create after a disaster, helping them meet in-
new sources of value. The firm employs creased demand, for an annual premium
16,000 financial advisers (formerly known of about 0.5% of the value of their portfoli-
as brokers) who, over time, may form os, in addition to the normal cost of funds.
teams made up of people with very differ- Global Parametrics provides insurance
ent skills, such as in taxes or inheritance cover through a contingency-credit facility
law. A linked online offering that the firm from the InsuResilience Investment Fund
hopes will appeal to millennials was re- (formerly known as Climate Insurance
cently launched, enabling investment de- Fund), an initiative ofKfW, a German gov-
cisions to take into account preferences ernment development bank, and riskcapi-
such as environmental concerns. tal from the Natural Disaster Fund, backed
The firm sees its best opportunities in by the British government. Both also aim
cosseting its clients so well that they bring to raise money from private investors.
in some of the vast investments they hold Other institutions could help. The
elsewhere. The rub is that others doubtless World Bank has created a disaster risk-
feel the same. Wells Fargo and Bank of pooling system that covers the Pacific Is-
America Merrill Lynch have somewhat lands, which are very prone to climate-re-
similar approaches and are doing well, as lated hazards. The countries pay a pre-
are many independent financial advisers. mium into a common pot, from which
Electronic start-ups such as Wealthfront they can draw cash after a calamity. Some
and Betterment claim to do most of what of the bank’s programmes also include a
the older firms do, but at a fraction of the “zero” component, where funds allocated
cost. They are attracting younger custom- to a project can be switched to emergency
ers. Betterment says its clients are, on aver- Small pots of liquidity relief at the government’s request, if a di-
age, 37; Morgan Stanley’s are in their late saster is declared. In both cases, a share of
50sorearly60s. Aharder-to-trackcohort of tion of risk increases, microfinance institu- the proceeds could go to recovery lending.
investorsignore advisersaltogetherand in- tions(MFIs) rein in lending; theyreceive lit- Whether MFIs would qualify for that
stead invest directly in cheap, passively tle support from donors and relief money is up to the government. And that
managed funds. programmes, which tend to favour hu- hints at a broader problem. Though inde-
In short, with so many ways to fail, manitarian aid. Stewart McCulloch, Vi- pendent, microlendersmaybe hindered in
even Mr Gorman’s decade-long record sionFund’s insurance boss, says that “re- times ofcrisis ifthey are not part of nation-
cannot quell all doubts. But scepticism is covery lending”—small loans with special al disaster-contingency plans, says Mi-
countered by the fact that it all seems to be terms—can act as a “safety net” by helping chael Goldberg of the World Bank. Private
working. And enough consistent progress stricken households restart businesses. dollars can help make recovery lending a
has been made to suggest Morgan Stan- Evidence suggests the money is usually bigger thing. But to gain greater currency,
ley’s returns may one day climb beyond paid back. In 2016, using a £2m ($2.7m) local regulators and governments must
the “barely adequate”. 7 grant from the British government’s devel- also be convinced it works. 7
opment arm, VisionFund’s MFIs provided
microloans to 14,500 families in Kenya,
Microfinance and climate change Malawi and Zambia hit by El Niño, a Private debt in Europe
droughts and floods. In all three countries, The direct route
Bucks after the weather system that caused severe
bang MFIs ended up lending far more than ex-
pected. Yet 93% of loans were repaid by
May 2017, and missed payments were rarer
than usual. Many borrowers made their
livelihoodsmore disaster-proofby starting MILAN
Some investmentfunds will lend where
more drought-tolerant activities such as
Using microcreditin disasterrelief banks fearto tread
trading or horticulture. MFIs, for their part,
OTH, in different ways, worry about li- found new clients among those their nor- HEN Caronte & Tourist, a Sicilian fer-
Bquidity. And global warming may, in- mal lending criteria excluded—without W ry company, needs a new ship, it is
deed, be bringing meteorologists and fi- jackingup interest rates. cheap and easyto borrowfrom a bank. But
nanciers together. On January 18th, Encouraging though this is, expanding in 2016, when Caronte’s controlling fam-
VisionFund, a microlending charity, and operations at such a juncture is difficult. ilieswanted to buybackthe minority stake
Global Parametrics, a venture that crunch- According to Jonathan Morduch of New held bya private-equityfirm, banksbalked
es climate and seismic data, launched York University, the effectiveness of such atthe loan’s unusual purpose. Edoardo Bo-
what they billed as the “world’s largest loans relies heavily on their speedy dis- nanno, the chieffinancial officer, also wor-
non-governmental climate-insurance pro- bursement. Yet MFI staff often live near af- ried that the €30m ($33m) in extra bank
gramme”. The scheme will offer microfi- fected areas and so need time to get back debt might make shipping loans harder to
nance to about 4m people across six coun- on their feet after disaster strikes; many obtain from them in future. So he turned
tries in Asia and Africa affected by climate- lack, for example, backup IT systems. Lots instead to a direct-lendingfund run by Mu-
-change-related calamities. oflendersare inhibited from offering more zinich & Co, an asset manager.
Natural disasters are becoming more flexible terms to theirunfortunate borrow- Such funds are only about a decade old
frequent and severe. They disproportion- ers by loss-provision rules and write- in Europe (and not much older in America,
ately affect poor countries, where many down formulas set by regulators. where they started). Assets under manage-
eke livings from vulnerable agricultural But the biggest difficulty is in raising fi- ment at Europe-focused funds increased
land. Yet it is often in the aftermath of di- nance for recovery lending. Grants may from a mere $330m at the end of 2006 to
saster that credit is hardest to obtain. As not be available. This month’s initiative $73.3bn by mid-2017, which includes
non-performing loans rise and the percep- will give MFIs prompt access to liquidity $27.9bn of“dry powder”, or funds yet to be 1