UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 9 / February 2005

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Report from the Field

By Katharina Ganz, University of Zurich

The tsunami has devastated wide and long stretches of the South-East Indian coast. The worst affected areas on the mainland are the Cuddalore, Nagapattinam and Kanyakumari districts of the Tamil Nadu coast. In no time, the coastal communities, which depend mainly on marine fish resources, were deprived of their assets: gear and craft, habitats, access to health services, schools and other infrastructure. But it is not only material loss they suffered, they lost family members, they forfeited their social and institutional networks, they lost their entire livelihood. Almost 8,000 people are confirmed dead, and 140,000 [1] have become dependent on the aid provided by regional relief centers. Most of the families in the tsunami-hit areas must start from scratch to rebuild their lives.

In such a situation, the most pressing need is for a large volume of external capital to provide immediate relief to the people. Additional funds are needed to promote the medium-term and long-term development of the region. It is crucial that the relief funds provided by the Government as well as by private and international donors be made available without any ties and be distributed without any great formalities so that no new dependencies are created.

Microfinance after the Tsunami

In the post-disaster context of the Tamil Nadu coast, as we find it at present, microfinance plays a subsidiary role. The local economy has almost come to a standstill and is unstable and weak. The people depend on the money transferred into the area by the Government and other donors, and on the organizations that assist them to rebuild their livelihood.

However, the moment the people regain a minimal level of economic capacity, microfinance measures can and should be applied: (1) micro credits to support small entrepreneurship such as coffee shops, craft repair workshops, ice-making units, fish-peeling and drying centers, tailoring, cattle, goat and poultry rearing or taxi services, (2) saving facilities for groups and individuals (including pool savings) to strengthen people’s economic capacities, (3) health insurance, insurance for fishing gear or crops, to avoid such tremendous losses as occurred on December 26, 2004, (4) leasing opportunities, for example for trawlers, small buses and auto-rickshaws, to maintain the mobility of the people, and (5) asset-building opportunities that help them generate and save part of their income. As a supporting measure, microfinance institutions need to be promoted and strengthened to build up the basic structures for a growing local economy.[2]

Microfinance becomes especially important when it comes to the long-term rebuilding process of the tsunami-affected areas, a process that the United Nations estimate will take at least 10 years.

The work of the Self-Employment Women’s Association (SEWA) in Gujarat shows how effective microfinance services and measures can be. After the earthquake in Kutch, Gujarat, in 2001, SEWA set up a relief program that promoted, in a first step, regular aid such as health care and housing and, in a second step, introduced microfinance measures such as local craft as livelihood activities. As accompanying measures, salt farming, agriculture and gum collection were encouraged. At the same time, the local communities, that participated in the program, had access to the SEWA microfinance institutes, which provided banking services such as micro credits and saving facilities; additionally, extended capacity building trainings were offered. After two years, SEWA registered its Trade Facilitation Center (STFC), which links rural micro-enterprises with mainstream markets. STFC allows a greater access to markets, results in a limitation of middlemen and connects different producer groups within the informal sector. SEWA, in partnership with the World Bank, is about to mount a rehabilitation program in Tamil Nadu.[3]

Tackling Social, Political and Environmental Issues with Microfinance Programs

The immense devastation and human casualties caused by the tsunami are also a result of complex social, political and environmental problems and conflicts.

Coastal communities are adversely impacted by natural calamities such as tsunamis due to (a) their social, political and institutional deprivation and marginalization, and (b) the lack of natural barriers as a result of beach sand removal (sand dune destruction), cutting down coastal flora such as pendanus and mangroves,[4] and breaking down coral reefs.[5] This is a consequence of overexploitation and destruction of natural resources and at the same time of ill-management and un-coordinated development by the fishing communities themselves as well as by the local and state governments.

(a) Most of the marine fishing communities of Tamil Nadu belong to the lower castes. They are culturally, socially and politically social outliers.[6] The fisher folks have no credible organization that represents them at the political level and that can carry their interests through to the policy-making level. Additionally, there is a lack of clear policies that would address the safety of the fishing communities and their livelihoods (on- and off--shore).[7] As a consequence, no true effort, until December 26, 2004, was given to develop and implement appropriate settlement plans that would allow the fishing communities to construct their buildings further away from, but with direct access to the sea.

However, it is not only the government that lacks greater commitment but the fishing communities as well. In 1991, the Indian government released the Costal Regulation Zone (CRZ) Notification (all development activities within 500 meters of the High Tide Line and near creeks, backwaters, estuaries and other water bodies influenced by tidal action are regulated),[8] which was implemented by the state governments but caused mixed reactions among the fishing communities.

(b) The Tamil Nadu coast is burdened with increasing industrialization and urbanization, which have a major impact on the coastal ecosystem. The discharge of sewage from cities such as Chennai, industrial effluents and beach based tourism development along the east coast have led to the deterioration of the marine diversity. Although the coral reefs of the Gulf of Mannar are protected under the United Nations Man and Biosphere program, the oil pollution from major shipping routes is a threat to the delicate coral life.[9]

The destruction of vast stretches of mangroves in the estuarine and backwater areas of the coast amplified the devastation brought about by the tsunami. Industrialized aquaculture has lead to the clearance of mangrove forests along some parts of the Tamil Nadu coast. Although the Supreme Court ordered in 1995 that no further shrimp and aquaculture farms were permitted,[10] the harmful practices of shrimp and fish farming continued unabated until 1997, when the Supreme Court confirmed the Madras High Court order to close down farms without licenses.[11] However, the harm had been done. Apart from areas of Pichavaram and Muthupet, where dense mangrove forests can still be found and which suffered few human casualties and economic damage from the tsunami, these natural barriers were lacking and the wave hit the shore with its full strength.

With the implementation of microfinance programs that do not focus only on economic development but also take socio-political and environmental development processes into consideration, a repetition of these unfavorable tendencies can be avoided or, at least, limited. Extended training for providers and beneficiaries of microfinance programs will advise them on how to deal with microfinance services and how to best make use of them. This can help the beneficiaries invest their credits more efficiently and in an environmentally sound manner. For example, credits or leasing contracts for production processes or gears that are environmentally harmful or destructive should not be given. Business and housing construction that ignore the coastal zone management plan should not be funded. Or, group savings that help to overcome social segregation should be promoted. Sensitive and locally-adapted programs and services can help to avoid the pitfalls of the past.

Footnotes

1) Rebuilding Livelihood in Tsunami-Affected Areas of Tamil Nadu and Sri Lanka. Empowering Women through Traditional Skills, http://www.sewatfc.org/tsunami.htm

2) Divakarannair, Nandakumar, Ph.D. candidate, University of Victoria, B.C., Interview February 16, 2005, Canada.

3) Rebuilding Livelihood in Tsunami-Affected Areas of Tamil Nadu and Sri Lanka. Empowering Women through Traditional Skills, http://www.sewatfc.org/tsunami.htm.

4) Divakarannair, Nandakumar, Ph.D. candidate, University of Victoria, B.C., Interview February 16, 2005, Canada.

5) One of the conclusions of the United Nations rapid environmental assessment report on the environmental impact of the tsunami is that the coastlines already damaged by pollution and man’s poor land management suffered more from the Southeast Asian tsunami than those with healthy coral reefs and other natural protection.

6) Gopakumar, S. (2005): A Good Occasion for Change, Interview with Prof. John Kurien, Fisheries Economy Expert, Frontline, Vol. 22, Issue 03, Madras, India.

7) ibid

8) Mohan, T. (1997): A Welcome Noose. The Recent Radical Ruling of the Supreme Court of India on Regulating Shrimp Farms Should be Welcomed, Samudra, March, Madras, India.

9) Divakarannair, Nandakumar, Ph.D. candidate, University of Victoria, B.C., Interview February 16, 2005, Canada.

10) Mohan, T. (1997): A Welcome Noose. The Recent Radical Ruling of the Supreme Court of India on Regulating Shrimp Farms Should be Welcomed, Samudra, March, Madras, India.

11) ibid