MICROCAPITAL STORY: The International Federation of Red Cross and Red Crescent Societies (IFRC) Cites Lack of Loans and Financial Services as Main Obstacles in Bringing Lasting Benefits to Tsunami Victims in Sri Lanka

According to an International Federation of Red Cross and Red Crescent Societies (IFRC) four-year tsunami progress report published in July 2008, many humanitarian assistance programs aimed at helping tsunami victims along Sri Lanka’s coastline to rebuild homes and restore livelihoods have failed to bring lasting benefits to the poorest and hardest hit areas, citing lack of access to loans and financial services as one of their main obstacles.

As a solution to this problem, the IFRC and the Sri Lanka Red Cross Society (SLRCS) have partnered up with SANASA Development Bank of Sri Lanka in a four-year pilot project providing access to SANASA’s microfinance services, targeting families at the bottom of the economic ladder. The project will begin in the southern district of Matara with a plan to provide 750 poor families with microfinance services. The project’s aim is to facilitate long-term, sustainable livelihoods.

A majority of the selected households rely on unstable sources of income such as seasonal agriculture, fishing and daily labor. According to Tissa Abeywickrama, chairman of the IFRC Movement task force, reducing barriers that prevent access to credit and financial services will reduce future risks.

Currently in Sri Lanka, the poorest families are often excluded from the financial services of village co-op banks and other MFIs because they are considered to be too high-risk. The IFRC has negotiated a broad risk reduction package with SANASA made up of subsidized financial services and social mobilizers from the SANASA Education Campus to train participant families in basic finance including savings, debt and cash flow.

The project will cover a six-month compulsory savings requirement to join SANSA, the purchase of SANASA shares and any admission fees. SANASA Development Bank loans will be offered with lower interest rates (8 percent per annum fixed for the first three years instead of average interest rates of 20 percent). The project will also provide a five-year SANASA insurance bundle covering loss or damage to household or livelihoods equipment, funeral expenses, accidental death and illness, and medical costs.

Participants must attend monthly meetings and maintain compulsory savings to access further services.  According to the IFRC, subsidizing microfinance services for the first few years will enable participant households to become stronger and enable them to access further financial services on their own.

The International Federation of Red Cross and Red Crescent Societies (IFRC) was founded in 1919 and make up the world’s largest humanitarian organization. Based out of Switzerland, the IFRC is involved in programs in more than 150 countries, assisting victims of disasters, refugees, displaced people, and the impoverished. The IFRC has budgeted US 236 million to fund global humanitarian assistance programs for 2009-2010. 

The Sri Lanka Red Cross Society (SLRCS) was begun in 1936 as a branch of the British Red Cross and became a member of the IFRC in 1952. The SLRCS currently covers all 25 of Sri Lanka’s administrative districts with a total of 26 branches. With a total membership of 100,000 including 6,500 active volunteers, SLRCS implements programs of disaster and poverty relief.

SANASA Development Bank (SDBL) was established in 1997 in Colombo, Sri Lanka, targeting low-income communities in both urban and rural areas providing loans, voluntary savings, leasing and fund transfer services. SANASA serves nearly 94 thousand active borrowers with a total loan portfolio of US 59.3 million. Their total assets at the end of 2007 were reported at US 79.3 million. SDBL’s return on assets (ROA) at the end of December 2007 was reported at 1.24 percent with a return on equity (ROE) of 12.62 percent.

By Melissa Duscha

Additional Resources:

International Federation of Red Cross and Red Crescent Societies

International Federation of Red Cross and Red Crescent Societies: Tsunami Four-Year Progress Report

MICROCAPITAL STORY: Indian Government Agency NABARD (National Bank of Rural Development) Sponsors Trip by Indian Banking Representatives to Observe Microfinance in Sri Lanka

SANASA Development Bank (SDBL)                                                                                                                 

Sri Lanka: Community Credit Reduces Risk for PoorestSri Lanka Red Cross Society (SLRCS)

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  1. […] MicroCapital.org story, January 20, 2009, “MICROCAPITAL STORY: The International Federation of Red Cross and Red Crescent Societies (IFRC) Cites Lack of Loans and Financial Services as Main Obstacles in Bringing Lasting Benefits to Tsunami Victims in Sri Lanka”, https://www.microcapital.org/microcapital-story-the-international-federation-of-red-cross-and-red-cre… […]

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