Many impoverished tsunami-affected families are now taking advantage of a micro-finance system arranged by the Red Cross Red Crescent.
In the four years since the tsunami struck, most of the affected families along Sri Lanka's coastline have received some form of help to rebuild their homes and restore their livelihoods.
However, it is not uncommon to find that humanitarian assistance programmes have failed to bring lasting benefits to some of the poorest and most marginalized families. One of the key obstacles has been gaining access to loans and financial services via the commercial banking sector.
The International Federation of Red Cross and Red Crescent Societies (IFRC) and Sri Lanka Red Cross Society have stepped in to help some of these families via a partnership with SANASA, a well respected Micro Finance Institution (MFI) cooperative, with more than 800,000 members and 25 years of experience in Sri Lanka.
A four-year pilot project is beginning in the southern district of Matara where 750 of the poorest families in the district will be provided with access to SANASA's micro-finance services. Backed by the Swedish and Belgian Red Cross societies, the project aims to strengthen, diversify and protect livelihoods in a way that is sustainable over the long term. As well as improving the socio-economic and political status of these households within their communities, the project will also serve to build social unity between the host communities and families that have been resettled.
Most of the selected households are currently over-reliant on very unpredictable sources of income such as seasonal agriculture, fishing and daily labour. Rising costs of basic commodities and soaring inflation has meant their economic security has become increasingly precarious.
"These families have fragile coping mechanisms and need better financial security. By reducing the barriers that prevent them accessing credit and financial services we are helping to reduce the risks they face in the future," explains Tissa Abeywickrama, chairman of the International Red Cross and Red Crescent Movement task force.
Micro-finance institutions traditionally specialize in group-lending. When a group in the community takes out a loan, peer pressure between the members serves as encouragement to ensure that individual repayments are made on schedule. Quite often the poorest families are excluded as they are considered to be too high risk.
The Red Cross Red Crescent negotiated a broad risk reduction package with SANASA. Social mobilizers will help each household to gain a better understanding of what SANASA membership means and what services are available. General awareness raising and training on basic finances such as savings, debt, and household cash flow will also be given. The project will provide six months' compulsory savings to each family, the purchase of SANASA shares and any admission fees.
According to Kumari Madurangi, manager at a local branch of the SANASA community bank, people's attitudes towards bank savings accounts are changing.
"Earlier villagers who wouldn't even deposit 100 Rupees (one Swiss franc) into an account are now saving money with the bank. If people are paid in cash there is always the temptation to spend everything but if payment is made into a bank account, they will always leave a little bit behind when they withdraw funds".
Each household will be supported with training from the SANASA Education Campus that is intended to strengthen either the main or a secondary income to the household and SANASA Development Bank loans will be offered with lower rates of interest (eight per cent per annum fixed for the first three years compared to average interest rates of around 20 per cent).
Another safeguard against future disasters is the provision of a SANASA insurance bundle for a five year period that provides cover for loss or damage to household or livelihoods equipment, funeral expenses, accidental death and illness including medial costs relating to the head of the household.
Each household has to prove their own motivation and commitment to the scheme by meeting the membership requirements of the cooperative. This means attending monthly meetings and maintaining compulsory savings. Only then can they access further services.
"Teaming up on a project of this scope with an established micro finance institute is a new departure for the Red Cross Red Crescent. The project offers a truly holistic package that includes everything from training to credit and insurance", explains Emma Delo, IFRC livelihoods coordinator.
"By subsidizing the micro-finance services for the first few years, each of the households in the project will become stronger and more able to access other financial services under their own right".