110815

Micro�nance and Disaster Management:How does Micro�nance help coping with �oods?

Evidence from Northern India

Kristina Czura Sarah Linders

Goethe University Frankfurt University of Heidelberg

UMM Workshop Groningen

Czura & Linders (Uni Frankfurt) Micro�nance & Disaster Management Jun �11 1 / 17

MotivationCredit as Coping Mechanism

Insurance and credit have been identi�ed as coping mechanisms forrisk to smooth consumption (Morduch (1995), Townsend (1994))

Both formal and informal credit have been identi�ed as importantmechanisms in dealing with idiosyncratic shocks (Eswaran & Kotwal(1989), Udry (1990), Udry (1994), Gertler et.al. (2002), and Skou�as(2003))

Further, access to credit has been identi�ed to reduce the use of othercoping mechanisms like child labor and reduction of educationalattainment in face of negative income shocks (e.g. Jacoby & Skou�as(1997), Beegle et.al. (2006), Guarcelllo et.al.(2009))


Motivation

There is, however, little research on how households cope with largeaggregate shocks, like natural disasters

I A few studies elicit a substitution e¤ect of other coping mechanisms forcredit constrained households (e.g. Jacoby & Skou�as (1997), Gitter &Bradford (2007)).

I Sawada (2008) �nds direct evidence for consumption smoothing afterthe Kobe earthquake for households having access to credit

I Shoji (2010) shows that households with access to credit can keep theirpre-�ood consumption level and level of nutritional intake after the1998 �ood in Bangladesh

Nevertheless, there is little evidence on the direct use of credit asinsurance against aggregate shocks in the literature

I Del Ninno et.al. (2003) and Khandker (2007) �nd that informal creditand micro credit played a major role for consumption smoothing in the1998 �ood in Bangladesh

I Czura & Klonner (2010) show that demand for funds provided byRoscas did increase as a consequence of the Indian Ocean Tsunami


Research Idea

1 Phase: Short run research question (current research project)I What adverse income shocks do households face and how do they copewith them? In particular, how do households cope with �ood?

I How do households �nance the consequences of adverse income shocksand what role can Micro�nance potentially play?

2 Phase: Long run research question (future research project)I Develop a disaster-loan-product and pilot test it in a randomized �eldexperiment setting


Research Partner - Gramyasheel Micro�nanceGramyasheel NGO is working since over 15 years in the districts ofSupaul, Madhepura and Saharsa on di¤erent projects in water andnatural resource management and is promoting various forms oflivelihood activities.Further, Gramyasheel NGO was a partner of NABARD and formedSHGs in the SHG-linkage programGramyasheel Micro�nance has been established by the NGOGramyasheel in 2009

I Group lending methodology: lending to joint liability groups (JLGs) offemale clients

I Loan products o¤ered: standard loan (increasing loan amount with loancycle), emergency loan, short term business loan

I Loan purpose: working capital needs and asset acquisition needs forstandard and short term business loan, hospitalization costs foremergency loans

As Gramyasheel MFI is operating in a �ood ravaged area they wouldlike to extend their loan portfolio by a Disaster Loan Product


Area of Operation - Flood situation


Area of Operation - Flood Situation

Kosi riverI the river moved its riverbed westward over the last 100 yearsI the river is carrying silt from Nepal, hence elevating the river bed suchthat monsoon rain cannot be absorbed properly causing �oods

Flood managementI Embankments were build to keep river Kosi in its river bed. The�oodplains were reduced, leading to higher �oods inside theembankment

I Villages still exist inside the embankmentsI Embankment creates waterlogged areas in former �oodplains so thateven outside the embankments water levels rise with higher water levelsof Kosi

Disastrous �ood caused by breach in embankment in 2008


Empirical Strategy

For empirical identi�cation in this cross-section setting we studyhouseholds from three di¤erent locations within Supaul district thatare di¤erently a¤ected by �oods

1 Urban and rural micro�nance clients who live close to, but outside theembankment borders

F not directly a¤ected by the �ooding, but indirectly a¤ected by risingground water levels in times of �ooding and through agriculturalactivities inside the embankment area

2 Households living inside the embankment

F villages inside the embankment face yearly recurring �ooding after themonsoon

3 Households in the �ood zone of the 2008 �ood

F area has not been a¤ected by �oods ever since the establishment of theembankment in the 1950s


Characteristics of Household Head


Consequences of Shock for Household


Financing Constraints after Shock


Conclusion

Households are exposed to severe negative income shocks withaverage amounts lost due to shocks comparable to average annualincome of households

Most households only relied on informal �nancing sources such asfamily, friends, neighbors and other relatives

Indication of lack of access to �nancing sources especially afteradverse income shocks

In the next steps of the analysis, we will take a closer look atdi¤erences in shocks and coping mechanisms applied across the threedistinct groups of households interviewed

There seems to be a lack of �nancing sources especially in face ofshocks and there is a huge potential for micro�nance to close this gap


110815

Technology

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