Microfinance for Disaster Recovery: Lessons from the 2015 Nepal Earthquake

Evaluation and Lessons Learned
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  1. Disasters can hit anybody, but it is often the poor who are the most affected. The poor have little financial resources they can rely on during emergencies. Due to their low social and economic status, they tend to live in disaster-prone areas or places which lack essential infrastructure resilient to disasters. They often have limited knowledge and capacity for disaster risk management, preparedness, and mitigation.

  2. Once hit, the poor must allocate their scarce resources to cope with the disaster, sometimes by reducing essential spending for food, education, and health. Also, as most of the poor depend on agriculture and farming as their means of livelihood, natural hazards such as floods, cyclones, and droughts may cause considerable damage to their farming activities, thus severely affecting their incomegenerating capacity. Without proper post-disaster coping mechanisms, the poor often sink deeper into poverty.

  3. After a disaster, governments, international relief agencies, donors, nongovernment organizations (NGOs), and the private sector often provide relief and rehabilitation assistance. However, in most cases, such post-disaster relief and rehabilitation assistance is insufficient and hardly compensates for the actual damage from the disasters. Also, such assistance takes a long time to reach the affected households—missing critical time to minimize the immediate disaster impacts. Generally, post-disaster relief and rehabilitation assistance is phased out over a few years after the disaster; however, actual recovery takes much longer, especially for the poor.

  4. To help the poor recover from the disasters, microfinance institutions (MFIs) can play an important role.1 In the Asia and Pacific region, there is a relatively dense network of MFIs, including cooperatives. Generally, MFIs have in-depth knowledge on the poor households, and frequently interact with the local communities. More importantly, most MFIs have a strong commitment and mandate to serve the poor. MFIs provide mainly savings and credit services, but at the time of disasters, they can also provide emergency relief, concessional loans, and other relief services to their members. Recently, the growing number of MFIs has started providing microinsurance and other emergency financial services.
    MFIs can be an effective channel to deliver disaster relief and rehabilitation support, as well as to promote disaster risk reduction among rural poor communities.

  5. The objective of this report is to assess the impact of microfinance to the disaster-affected households based on experiences in the 2015 earthquake in Nepal. After the earthquake, Asian Development Bank (ADB) provided assistance for the livelihood restoration microcredit to enable the affected households to recover their means of livelihood damaged by the earthquake. The microcredit was channeled through the Small Farmers Development Bank (SFDB), an apex microfinance bank of small farmers’ agriculture cooperatives (SFACs), to its affected small farmer members in the three districts: Dhading, Nuwakot, and Rasuwa. The report also tries to identify ways to promote disaster risk management among the rural communities through MFIs.

  6. The impact assessment is based on three surveys: (i) earthquake-damaged household assessment conducted on 130,444 SFAC members in the 24 affected districts during April–May 2015; (ii) focused group interviews with 110 affected SFAC members during May–June 2017; and (iii) household impact survey conducted on 700 SFAC members who are microcredit borrowers (the beneficiaries) and 175 nonborrowers (the nonbeneficiaries) during March–July 2018.

  7. The survey results indicate that, in July 2018, beneficiaries of the livelihood restoration microcredit had higher household incomes, and person-days of employment as compared to nonbeneficiaries. It was assessed that the beneficiaries’ income level recovered and exceeded the pre-earthquake level; however, the nonbeneficiaries’ income level had yet to reach the pre-earthquake level. Those results may indicate that post-disaster access to finance is highly useful for the affected households’ livelihood recovery. The assessment also found that nonfinancial support, such as skills training for income-generating activities, has a positive impact on the affected households’ recovery.

Asian Development Bank
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