10 Years After Asian Tsunami, Microfinance Thrives As Poverty-Reduction Tool in Indonesia

December 22, 2014 by Alex Counts

Alex Counts meets with a microfinance client in Banda Aceh in May 2007 to learn how she is recovering from the tsunami

Ten years ago this month, I was smarting from the death of my father while basking in the glow of some significant professional triumphs.  Grameen Foundation, the global humanitarian organization I had founded in 1997 with the support of Muhammad Yunus, had just secured $10 million in new financing including the two largest private donations to support microfinance up to that point.  We had recently completed a merger with Digital Partners, a technology savvy NGO, and were well positioned to provide leadership in harnessing the information revolution to benefit the world’s poor.  We were also gearing up to accelerate the growth and development of micro-financial services as a force for reducing poverty on a global level, and would benefit greatly when Yunus and the Grameen Bank that he founded would receive the Nobel Peace Prize in a surprise announcement months later.

But all these plans and trends were shaken up when the magnitude of the Asian Tsunami of December 26, 2004 became known.  My world was about to change, as that of millions of people already had on that frightful day.
Our long-time collaborator in the Middle East, the business leader and philanthropist Muhammad Jameel, called me and asked what Grameen Foundation could do to respond.  Sitting beside a fireplace in our family home on the Jersey Shore, I responded honestly that I was not sure.  He offered some financial support to help us develop a response plan.  I accepted his offer.  So began a five-year odyssey that would shape our organization, bring in new allies, and directly impact tens of thousands of people – most of whom were Tsunami survivors in Banda Aceh, Indonesia – a journey where the support of allies such as Muhammad Jameel, the American Red Cross, Habitat for Humanity and Deutsche Bank was essential.

In the months to follow, we learned that microfinance – which was growing quickly at that point in many parts of Asia – was nonexistent in many coastal areas, and in Banda Aceh in particular.  Coastal people were thought of as too transient, and as a result were neglected.  We raised funds to support one-time rehabilitation efforts by quality microfinance institutions (MFIs) in India that were working near the affected coastal areas and were willing to extend their reach.  Those communities continue to be served today.
In Banda Aceh, civil unrest  that had disrupted life for years melted away after the Tsunami, and this provided an opening for bringing in Grameen-style microfinance – which is to say, microfinance that is accessible, affordable, convenient, and designed to generate income and assets amongst clients.  We found a social service organization working in Aceh that was interested in getting involved in microfinance and provided them with training and funding for several months.
We also found a small MFI, then known as YAMIDA, that was operating in a nearby province and was interested in extending into the Tsunami recovery zone.  Our alliance with this organization, today known as KOMIDA, proved to be our most lasting contribution to the recovery of Banda Aceh.  Over the course of 2006-2009, this organization grew from serving a few dozen clients to reaching 13,000.  We provided them with loans (and later, loan guarantees) and access to a retired Grameen Bank executive who lived and worked alongside them for several years.  Today, KOMIDA operates across Indonesia, with 172,000 clients (all women) and a loan portfolio of nearly $15 million.
In May 2007, I went to meet some of the borrowers.  Even then, the landscape that greeted a visitor was still littered with apocalyptic images.  A large boat sat in the middle of a village, two miles inland.   Its generator had been rigged up to power the homes and businesses around it.  In fact, it had become a tourist attraction, of sorts.

On a windswept beach I met Mrs. Soriana, who had lost her two children in the Tsunami and had recently re-started a fish-drying business that had been dormant since the disaster. I met food vendors like Amena and Aiysha who started generating income after receiving a $110 loan from KOMIDA.  Aiysha had lost seven family members in the deluge, yet she seemed to be facing the future with confidence now that she had re-started her business.
I recall talking to a woman named Noorbayani – a skilled mat- and fishing net-weaver whose rather docile husband sat in the background as we spoke.  They had just moved into a newly built house constructed with funds provided by the German government.  For two years they had been living in a tent.
Grameen Foundation catalogued our learning and achievements during what became known as our Post-Tsunami Microfinance Initiative so that others could benefit from them.  Since then, our focus has moved to a second generation of microfinance challenges, such as developing effective micro-savings products, leveraging the potential of digital money, and loans tailored for the needs of subsistence farmers, as well as financial products, including insurance, that can allow poor people to take charge of their health care.

Fundamentally, what we learned in Banda Aceh is that in the aftermath of a disaster or a conflict (like those raging in places like Syria today), immediate relief is essential in order to keep people alive.  But rebuilding broken infrastructure such as roads, water systems and housing is also critical in the longer run.
And there is a third opportunity that is often neglected: creating or augmenting viable local social enterprises that can not only aid in the micro-level redevelopment effort, family by family, but also endure long after the disaster-related funds dry up.  In the case of our alliance with KOMIDA, we succeeded on that count and tip our hat to their ongoing successes in combating poverty and preparing the poor of Indonesia for whatever the future may bring.