Financial protection can be established internally through the accumulation of funds set aside for future use or obtained externally through pre-arranged credit facilities. In addition, the banking sector, capital markets and international lending institutions are sources of risk financing.

For assessing the financial demand, consideration must be given to how much funding will be needed to match the capacity to disburse required funds:

• Analyse and determine the risk retention capacity of individual producers and SMEs: Informal mechanisms such as borrowing are usually used by individuals and SMEs, although covariant shocks pose challenges to the lenders, who are equally affected by the disaster impact. In addition, SMEs need financial services for recovery of their businesses according to BBB standards.

• Analyse the financing capacity of aggregators, particularly financial institutions: Financial institutions’ capital and capacity should be assessed in terms of their ability to offer support and respond after an extreme weather event. Prior to disasters, financial institutions are important actors for stimulating SME investments and securing the livelihoods of producers. This vital role for (rural) financing should be considered when designing a sustainable financial strategy.

• Analyse and determine the risk retention capacity of the government: The risk and impact analyses of extreme weather events provide data pertaining to the required amounts for response and resilient recovery. This needs to be set in relation to the current and projected budgets of the government to identify the financial gaps that need to be closed by developing a financial strategy plan.

• Develop a disaster risk financing plan: All results of the risk retention assessments are to be incorporated into the DRF plan. This includes a gap analysis, financing options for developing and implementing an inclusive finance policy that benefits individual smallholder farmers and SMEs, as well as regulatory issues.