• Chrysalis Proj. Mgr. Deshani Herath on the importance of the said Fund

Last month (October) marked the International Day of Rural Women – a reminder that climate disasters hit rural women the hardest. Globally, 80% of those displaced by climate change are women, many losing livelihoods tied to land and water. 

But, there is hope for women in Sri Lanka. Over one million Micro-, Small, and Medium-Sized Enterprises (MSMEs) now stand to benefit from the first Climate Resilience Revolving Fund under the national Climate and Disaster Risk Financing and Insurance (CDRFI) vision. Led by Chrysalis with global partners, it boosts preparedness and resilience. 

Project Manager Deshani Herath discussed this on ‘Kaleidoscope’s Dialogues’.

Following are excerpts from the interview:

What are the climate-induced disasters facing MSMEs?

The most obvious disasters are linked with very heavy periods of rain, so, most MSME businesses, their operations, and assets, get impacted by floods and landslides. But, there are different types of disasters that are not actually visible, such as extreme heat or fungal infections due to heavy humidity or prolonged periods of rain. These affect agricultural MSMEs as well as textile MSMEs. 

We have identified that extreme heat is becoming a huge problem for MSMEs. In some case studies, our apparel and textile industries show labour productivity reducing during the daytime because of the heat. So, there are many impacts, but these are the main concerns for MSMEs in Sri Lanka at the moment.

How will this Fund address the challenges faced by MSMEs?

This is actually not a solution for all the issues related to MSMEs. But, during our ground-level work and the studies that we conducted with MSMEs, we identified that there is no customised financial instrument for MSMEs to recover from climate-induced disasters. 

Therefore, we thought that it would be better to develop such a product and pilot test it to see how this mechanism can be connected with existing ground-level scenarios and check the reality of how this is going to work.

Working on a revolving mechanism, how are repayments and reinvestments structured to ensure the continued support and sustainability of these MSMEs?

The initial beneficiaries of this Fund will be registered MSMEs in the District consortiums. In the event of a disaster, this Fund will act as a recovery Fund for MSMEs in need. It has to be as quick and efficient as possible. It should also be very hassle-free and low-cost – that’s the main goal of this Fund. 

To ensure its sustainability, we introduced a repayment mechanism detailed in the revolving Fund guideline. We request post-dated cheques for the period of the Fund and for the loan amount. This Fund is provided to MSMEs as a loan, with six-months and one-year loan periods. During this period, the MSMEs provide post-dated cheques to ensure repayment and continuity. We can’t stop the Fund after one loan cycle, so, this mechanism ensures sustainability. 

We have also provided training and capacity building to the MSME consortiums on the proper management of the Fund. 

The Uva and Central Provinces are two regions that are very vulnerable to climate impacts. What mechanisms do you have in place to ensure that MSMEs in these Provinces can actually access the Fund?

The Fund is currently in its primary pilot test stage. It is available only for registered MSMEs under the MSME consortiums developed in these two Provinces. We have four consortiums in the Badulla, Nuwara Eliya, Matale, and Monaragala Districts. The idea is to develop this Fund as part of a broader effort on climate disaster risk financing and insurance. 

Our ultimate target is to develop an insurance product that will cater to climate disaster risk recovery for the MSME sector. This Fund is designed to gain practical local experience from the ground level to move towards proper, sustainable risk transfer mechanisms in the future. 

We provide the MSME consortiums with training and capacity building on how to access the Fund and manage the process. 

The Fund is completely managed by the consortium but guided by the Government Agent (GA) office and Chrysalis. Therefore, the whole process is transparent — anyone can inquire about it, and the consortium is required to provide monthly, quarterly, and annual reports to the GA office and Chrysalis.

Are there any tailored training or capacity building initiatives in place?

Yes. When we developed the Fund, we conducted several capacity building and training sessions for MSMEs to identify the actual needs and concerns. We also raised awareness about climate change, its impact on businesses, and provided financial literacy training because these are entrepreneurs who need that knowledge. 

Apart from the SME consortium, we are also working with a multi-actor partnership in each District. This partnership includes the District Secretariat, the Disaster Management sector, the National Enterprise Development Authority (NEDA), the Industrial Development Board, regional banks and financial institutions, and insurance providers. It serves as a capacity building platform for MSMEs. Whenever they need training or assistance, they can approach the partnership. We are currently working closely with them to build the capacity of MSMEs to better withstand future climate-induced disasters.

How would you evaluate how quickly an MSME recovers post-disaster? 

As there is currently no established climate and disaster risk financing and insurance mechanism in Sri Lanka to compare how this space is working, it is only once this Fund is in operation that we will be able to compare recovery processes. 

We can also evaluate the performance of MSMEs that receive support through the Fund, versus those that don’t. This data can then be used for future learnings and improvements, helping us move towards more effective climate and disaster risk financing mechanisms. We can then develop a proper insurance product in the next phase.

How does this Fund align with Sri Lanka’s broader CDRFI framework?

Currently, the CDRFI is a relatively new area in Sri Lanka’s climate change sector. We do have insurance under the Agricultural and Agrarian Insurance Board, but it mainly covers disasters, not specifically climate-induced disasters. There is also a difference between traditional insurance mechanisms and what we aim to achieve through the CDRFI. 

Sri Lanka’s National Adaptation Plan and Nationally Determined Contributions are now being revised, and both incorporate elements of the CDRFI, especially green and risk insurance, into national plans and policies. Additionally, the Climate Investment Plan, developed by the ADB with the Climate Change Secretariat, and the ongoing Adaptation Fund process, also provide opportunities to integrate the CDRFI. 

Chrysalis is now working closely with the NEDA, which is revising the National SME Policy of Sri Lanka. We are looking for ways to incorporate the CDRFI into this policy, because climate-induced disasters significantly affect businesses and their sustainability.

Is there potential to scale up or replicate similar resilience-based financial instruments?

There is definitely a strong need for it. But, before scaling up, MSMEs themselves must see this as a successful tool. Everything depends on their experience – if they see it as beneficial and effective for recovery and business growth, then, there is great potential to expand it into a full CDRFI mechanism in the future. 

The main idea behind this Fund is to gain practical, local experience and use those insights to develop a proper CDRFI mechanism. Since multiple actors are involved – financial institutions, insurance providers, and Government bodies – the learnings from this pilot will be valuable for developing future policies and tools. 

Also, this project, implemented by Chrysalis, operates across three Continents. So, our international partners are closely observing how this Fund functions, what challenges arise, and what improvements can be made. 

After the first loan cycle, we plan a comprehensive monitoring and evaluation process to identify gaps, challenges, and opportunities for improvement. I’m confident that this will eventually lead to a strong and effective climate and disaster risk financing and insurance product for the future.

(The writer is the host, director, and co-producer of the weekly digital programme ‘Kaleidoscope with Savithri Rodrigo’ which can be viewed on YouTube, Facebook, Instagram and LinkedIn. She has over three decades of experience in print, electronic, and social media)