Micro…nance and Disaster Management:
How does Micro…nance help coping with ‡oods?
Evidence from Northern India
Kristina Cz...
Motivation
Credit as Coping Mechanism
Insurance and credit have been identi…ed as coping mechanisms for
risk to smooth con...
Motivation
There is, however, little research on how households cope with large
aggregate shocks, like natural disasters
I...
Research Idea
1 Phase: Short run research question (current research project)
I What adverse income shocks do households f...
Research Partner - Gramyasheel Micro…nance
Gramyasheel NGO is working since over 15 years in the districts of
Supaul, Madh...
Area of Operation - Flood situation
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 6 / 17
Area of Operation - Flood Situation
Kosi river
I the river moved its riverbed westward over the last 100 years
I the river...
Empirical Strategy
For empirical identi…cation in this cross-section setting we study
households from three di¤erent locat...
Characteristics of Household Head
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 9 / 17
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 10 / 17
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 11 / 17
Consequences of Shock for Household
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 12 / 17
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 13 / 17
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 14 / 17
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 15 / 17
Financing Constraints after Shock
Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 16 / 17
Conclusion
Households are exposed to severe negative income shocks with
average amounts lost due to shocks comparable to a...
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110815

  1. 1. 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
  2. 2. Motivation Credit as Coping Mechanism Insurance and credit have been identi…ed as coping mechanisms for risk to smooth consumption (Morduch (1995), Townsend (1994)) Both formal and informal credit have been identi…ed as important mechanisms 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 other coping mechanisms like child labor and reduction of educational attainment in face of negative income shocks (e.g. Jacoby & Skou…as (1997), Beegle et.al. (2006), Guarcelllo et.al.(2009)) Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 2 / 17
  3. 3. Motivation There is, however, little research on how households cope with large aggregate shocks, like natural disasters I A few studies elicit a substitution e¤ect of other coping mechanisms for credit constrained households (e.g. Jacoby & Skou…as (1997), Gitter & Bradford (2007)). I Sawada (2008) …nds direct evidence for consumption smoothing after the Kobe earthquake for households having access to credit I Shoji (2010) shows that households with access to credit can keep their pre-‡ood consumption level and level of nutritional intake after the 1998 ‡ood in Bangladesh Nevertheless, there is little evidence on the direct use of credit as insurance against aggregate shocks in the literature I Del Ninno et.al. (2003) and Khandker (2007) …nd that informal credit and micro credit played a major role for consumption smoothing in the 1998 ‡ood in Bangladesh I Czura & Klonner (2010) show that demand for funds provided by Roscas did increase as a consequence of the Indian Ocean Tsunami Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 3 / 17
  4. 4. Research Idea 1 Phase: Short run research question (current research project) I What adverse income shocks do households face and how do they cope with them? In particular, how do households cope with ‡ood? I How do households …nance the consequences of adverse income shocks and 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 …eld experiment setting Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 4 / 17
  5. 5. Research Partner - Gramyasheel Micro…nance Gramyasheel NGO is working since over 15 years in the districts of Supaul, Madhepura and Saharsa on di¤erent projects in water and natural resource management and is promoting various forms of livelihood activities. Further, Gramyasheel NGO was a partner of NABARD and formed SHGs in the SHG-linkage program Gramyasheel Micro…nance has been established by the NGO Gramyasheel in 2009 I Group lending methodology: lending to joint liability groups (JLGs) of female clients I Loan products o¤ered: standard loan (increasing loan amount with loan cycle), emergency loan, short term business loan I Loan purpose: working capital needs and asset acquisition needs for standard and short term business loan, hospitalization costs for emergency loans As Gramyasheel MFI is operating in a ‡ood ravaged area they would like to extend their loan portfolio by a Disaster Loan Product Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 5 / 17
  6. 6. Area of Operation - Flood situation Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 6 / 17
  7. 7. Area of Operation - Flood Situation Kosi river I the river moved its riverbed westward over the last 100 years I the river is carrying silt from Nepal, hence elevating the river bed such that monsoon rain cannot be absorbed properly causing ‡oods Flood management I Embankments were build to keep river Kosi in its river bed. The ‡oodplains were reduced, leading to higher ‡oods inside the embankment I Villages still exist inside the embankments I Embankment creates waterlogged areas in former ‡oodplains so that even outside the embankments water levels rise with higher water levels of Kosi Disastrous ‡ood caused by breach in embankment in 2008 Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 7 / 17
  8. 8. Empirical Strategy For empirical identi…cation in this cross-section setting we study households from three di¤erent locations within Supaul district that are di¤erently a¤ected by ‡oods 1 Urban and rural micro…nance clients who live close to, but outside the embankment borders F not directly a¤ected by the ‡ooding, but indirectly a¤ected by rising ground water levels in times of ‡ooding and through agricultural activities inside the embankment area 2 Households living inside the embankment F villages inside the embankment face yearly recurring ‡ooding after the monsoon 3 Households in the ‡ood zone of the 2008 ‡ood F area has not been a¤ected by ‡oods ever since the establishment of the embankment in the 1950s Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 8 / 17
  9. 9. Characteristics of Household Head Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 9 / 17
  10. 10. Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 10 / 17
  11. 11. Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 11 / 17
  12. 12. Consequences of Shock for Household Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 12 / 17
  13. 13. Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 13 / 17
  14. 14. Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 14 / 17
  15. 15. Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 15 / 17
  16. 16. Financing Constraints after Shock Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 16 / 17
  17. 17. Conclusion Households are exposed to severe negative income shocks with average amounts lost due to shocks comparable to average annual income of households Most households only relied on informal …nancing sources such as family, friends, neighbors and other relatives Indication of lack of access to …nancing sources especially after adverse income shocks In the next steps of the analysis, we will take a closer look at di¤erences in shocks and coping mechanisms applied across the three distinct groups of households interviewed There seems to be a lack of …nancing sources especially in face of shocks and there is a huge potential for micro…nance to close this gap Czura & Linders (Uni Frankfurt) Micro…nance & Disaster Management Jun ‘11 17 / 17
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