Financial Protection for Resilient Livelihoods Increasing the resilience of poor households to disaster events Why is financial protection important to reduce poverty and increase shared prosperity? Financial losses from natural disasters The Disaster Risk Financing and continue to rise. Developing countries Insurance Program (DRFIP) leads the and their low-income populations dialogue on financial resilience as part of experience the greatest impacts. the World Bank Group’s effort to support vulnerable countries in better managing disasters and climate shocks. How we support governments Disasters—and their economic and social impacts—are on the rise. during a crisis is essential to build the resilience and protect the wel- While disasters do not discriminate, they tend to have the greatest im- fare of poor and vulnerable households. Disaster risk finance (DRF) can pact on the poorest. These households have limited assets and limited play a role in ensuring that disaster response mechanisms react and capacity to absorb shocks, so disaster impacts can have long-lasting respond quickly. consequences for them. Furthermore, women and girls often bear The development objective of our work on Resilient Livelihoods is to brunt of direct (mortality rates higher among women) and indirect increase the resilience of chronic and transitory poor households to (negative impacts on nutrition and school performance are dispropor- disaster events. This is achieved through three outcomes: tionately high among girls) impacts of disasters1. Rapid assistance 1. Governments better 2. Financial/actuarial analyses understand the financial costs and tools are used to design of delivering assistance to the both the rules of response and poor during crisis events. the risk financing strategies to support scaling up of safety nets. 3. Financial strategies are monitored and evaluated to develop a more robust evidence base and support the global knowledge agenda in this new and evolving area of work. 1 1 Baez, de la Fuente, and Santos 2010 What we do Developing shock-responsive safety nets requires several kinds of expertise from the Disaster Risk Financing and Insurance Program (DRFIP) and strong collaboration within the World Bank Group as part of our cross-cutting, sectoral approach. Our work with Social Protection and Labor experts enables us to build systems, processes and procedures for delivering critical resources to households. We combine our efforts with World Bank Group initiatives on Social, Urban, Rural and Resilience to strengthen the national disaster risk management agenda and collect essential risk information that underpin our technical dialogue with governments. The Disaster Risk Financing and Insurance Program (DRFIP) contributes technical expertise and brings together critical partnerships from across the World Bank Group. Our technical work on Resilient Livelihoods is implemented through four finance-related activities and one cross-cutting activity: 1. Public sector capacity development aims to increase client governments’ understanding of the financial impact of disasters on the poor, and the potential costs of response mechanisms, through analytical outputs. Public sector capacity 2. Analytical tool development enables client governments development to (i) develop criteria for implementing crisis responsive a post-disaster safety nets; and (ii) make informed decisions about how to finance the safety net’s costs (e.g., through a contingency budget, reserves, insurance, or contingent credit). 3. Knowledge management and learning activities add to the growing and rapidly evolving knowledge base on this Implementation Analytical tool function. of a monitoring, development Cross-cutting 4. Implementation of a monitoring, evaluation, and learning evaluation, and activity: Gender framework facilitates the gathering of evidence on how learning framework disasters and rapid response impact the financial resilience of poor households. Learning will be critical for this effort, given its beginning stage of development. Knowledge 5. Gender is a cross-cutting theme that is mainstreamed management across each of the four financial pillars. Compared to activities men, women tend to experience increased insecurity after a disaster and must work harder to support their basic household needs, so it is important to ensure that financial planning for disaster response takes gender into account. The World Bank Group’s Disaster Risk Financing and Insurance Program (DRFIP) is a joint program of the Finance and Markets Global Practice and the Global Facility for Disaster Reduction and Recovery (GFDRR). As a leading provider of analytical & advisory services on disaster risk finance, it helps governments, businesses, and households manage the financial impacts of disaster and climate risk without compromising sustainable development, fiscal stability, and well-being. Partnership with the Swedish International Development Cooperation Agency In December 2016, the Swedish International Development Cooperation Agency and the Disaster Risk Financing and Insurance Program of the World Bank, through the Global Facility for Disaster Reduction and Recovery (GFDRR), signed a partnership on DRF for Resilient Livelihoods to increase the resilience of chronic and transitory poor households to disaster events. FINANCIAL PROTE C TION FOR RE SILIE NT LI V E LI HOOD S Impact KENYA Background. In Kenya, over 75 percent of farmers are smallholder subsistence farmers or pastoralists who are highly vulnerable to the economic effects of drought, flooding, and other natural disasters. According to the Kenyan government, damages from drought amounted to US$12.1 billion (approximately 5% of GDP) between 2008 and 2011, with the livestock sector accounting for 70 percent of these damages. To assist poor families affected by drought, the government of Kenya looked to develop a mechanism for scaling up its safety net programs in response to drought, starting with the Hunger Safety Net Program (HSNP), a cash transfer program in the four poorest counties of northern Kenya. Our engagement. Estimating the financial cost of such a scalability mechanism was a challenge for the government of Kenya, given the unpredictable nature of droughts. To support the government’s efforts to accurately estimate this cost, DRF RL delivered its first “social protection” analytics tool, designed to help the government quantify and manage the financial cost of the scalability mechanism. Impact. In April 2015, the HSNP triggered a scale-up in response to drought in northern Kenya: about 165,000 households received cash transfers directly in their bank accounts—90,000 more than those who already received regular cash assistance. In May 2015, the program was able to deliver emergency cash transfers to an additional 40,000 households. UGANDA Background. Uganda’s rural population is predominantly smallholder farmers and pastoralists who are subject to several production constraints and have limited capacity to cope with recurrent shocks. Vulnerable households in Uganda face considerable climatic risks, primarily related to drought. Our engagement. The US$130 million Northern Uganda Social Action Fund (NUSAF) III project has a US$12 million disaster risk finance component. Led by DRFIP, this component provides additional post-disaster support to vulnerable households through an automatic expansion of the NUSAF III Labor Intensive Public Works (LIPW) activities. The component seeks to develop and test a system for rapidly scaling up LIPW in response to shocks in order to build the resilience of beneficiary households. The DRF component was initially piloted in Karamoja, where households are acutely vulnerable to drought. The World Bank Group team worked closely with the government of Uganda to (i) streamline data collection and analysis to help officials better understand drought conditions in Karamoja and develop an appropriate index to monitor drought; (ii) establish clear triggering rules for disbursement of funds from the DRF mechanism; and (iii) establish a US$10 million reserve fund (using project resources) that can be drawn down to finance the expansion of LIPW. Impact. The 2016 El Niño caused widespread drought in the Karamoja region. The parametric index developed under the NUSAF project captured the drought and triggered a scale-up of LIPW. As a result, US$4.1 million was disbursed to finance disaster assistance to approximately 30,000 households, or 150,000 people, in Karamoja. These numbers were in addition to the core beneficiaries of approximately 5,000 households, amounting nearly/almost 25,000 citizens/people, who were already receiving assistance. Over the life of the operation, the DRF component of NUSAF III is estimated to finance the cost of scaling up LIPW to a total of 80,000 additional households (400,000 people). Olivier Mahul Barry Patrick Maher omahul@worldbank.org bmaher@worldbank.org www.worldbank.org/drfi