Microcredit as a recovery tool: positive effects on a sample of Sri Lankan MFI borrowers hit by the Tsunami

We evaluate the effects of the tsunami shock on several monetary and non-monetary wellbeing indicators for 305 randomly selected MFI borrowers in Southern Sri Lanka and find four main results. First, psychological wellbeing indicators vary more than material ones when scaled on their own pre-tsunami standard deviations. Second, people who had no economic damages did not report any significant psychological loss (contrary to the “solidarity effect ” found by some authors in the United States after the hurricane Katrina in 2005). Third, although the process is not complete yet, most of the material and psychological wellbeing indicators of the damaged people are recovering to their own pre-tsunami levels and converging to those of non-damaged ones after MFI refinancing. Fourth, we find a positive impact of the amount of MFI refinancing scaled by the post-tsunami income on real income growth. On the contrary, governmental subsidies, donations and grants do not display any positive effect