Fall and Recovery. Disruption and Catching Up Effects after Tsunami on a Sample of MFI Borrowers

This paper discusses the impact of microfinance as a recovery tool after a natural disaster such as the tsunami. The paper:

• Compares, cross-sectionally and inter-temporally, the levels of economic and social wellbeing of affected and not-affected borrowers before and after microfinance;
• Evaluates the effects of the tsunami shock on several monetary and non-monetary wellbeing indicators of 305 randomly selected microfinance institution (MFI) borrowers in southern Sri Lanka.

The paper:

• Analyzes the behavior of the economic and psychological wellbeing indicators over time;
• Evaluates the psychological reaction of neighboring unaffected people after the shock;
• Tests the existence of convergence and/or full recovery in material and psychological variables after the MFI refinancing;
• Evaluates the importance of microcredit as a recovery tool after natural disasters such as a tsunami.

It finds that:

• The psychological wellbeing indicators vary more than material ones when scaled on their own pre-tsunami standard deviations;
• People who had no economic damages did not report any significant psychological loss;
• Most of the material and psychological wellbeing indicators of the affected people are returning to their own pre-tsunami levels and converging to those of unaffected ones after MFI refinancing;
• There is a positive impact of the amount of MFI refinancing scaled by the post-tsunami income on real income growth.

The paper concludes by stating that governmental subsidies, donations and grants do not have any positive impact on the recovery.