Paper
Fall and Recovery. Disruption and Catching Up Effects after Tsunami on a Sample of MFI Borrowers
How effective is microfinance as a recovery tool after a natural disaster?
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36 pages
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.
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