Cash Grants and Microfinance in Livelihood Recovery: Experiences from Tsunami-Affected Areas of Sri Lanka

This study investigates the impact of cash grants on MFIs in tsunami affected areas of Sri Lanka.

The study describes local credit and debt markets in locations where cash grant programs coexisted with microfinance programs, typical level of debt immediately after the tsunami for a range of households and households preferences for loans over grants. Findings include:

• All major MFIs were involved in post tsunami relief and some provided cash grants;
• Clients used cash grants to repay existing debt and to restart livelihood activities;
• Cash grants helped clients to begin repaying loans;
• Uncoordinated cash interventions resulted in double delivery and duplication, which affected the credit culture of MFI clients;
• About 80 percent of self employed individuals in tsunami affected areas have not applied for a loan, despite their need for funds.

The paper states that relief and grants are essential for rebuilding disaster affected communities, but not sufficient to meet all incurred losses. Microfinance services enable beneficiaries to accelerate the rebuilding process. Cash grants and microfinance programs need to be implemented in post disaster recovery in a well coordinated manner for the long term development of affected communities.