Three Years Later: Financial Services Spur Recovery Following Nepal’s Gorkha Earthquake
Study finds that access to formal savings and loans played a critical role in coping with disaster
By Jill Scantlan & Rebecca Radix, Mercy Corps, April 2018
Jill Scantlan is Mercy Corps’ Resilience Monitoring, Evaluation, Research, and Learning (MERL) Advisor for South and East Asia. Rebecca Radix is a communications professional with expertise in writing, visual storytelling and design, and is currently the Communications Intern with Mercy Corps Nepal.
Saraswoti Timilsina. Photo credit: Ezra Millstein, Mercy Corps
The monsoon rains fell without stop, pelting the crude and waterlogged temporary shelter where the people of Dhungkharka huddled. Two weeks prior, on the morning of 25 April 2015, a 7.8 magnitude earthquake rocked this community and many of its neighbors. Throughout Nepal, it killed over 9,000 people, destroyed or badly damaged more than 800,000 homes, and displaced some 2.8 million people. Three years later, 29-year-old business owner, mother and Dhungkharka resident Saraswoti Timilsina can still vividly recall the panic that gripped her -- “It felt like we wouldn't live,” she says.
In the days following the earthquake, Saraswoti and her husband began the agonizing task of assessing the damages sustained by their home and small business. Wading through shards of broken glass and spilled and spoiled food, they salvaged what they could from the shop (primarily instant noodles and biscuits), but were forced to throw out the rest. As the shop was her family’s only source of income at the time, Saraswoti was acutely aware of the need to recover their investment in the shop and ensure its return to operation.
In an effort to understand what mattered most for recovery, Mercy Corps Nepal followed the same households in 26 earthquake-affected communities ten weeks, one year, and two years after the 2015 disaster.
The study revealed that access to financial services like savings and formal lending played a critical role in helping households cope immediately after the disaster, and assisted with their longer-term recovery. Access to formal credit in the form of small loans from member-run and operated Savings and Credit Cooperative Organizations (SACCOs) played the largest role in households’ livelihood recovery in both the short-term (ten weeks post-disaster) and long-term (two years post-disaster). Additionally, households that were able to grow their savings or borrow from formal sources were more likely one and two years later to have recovered their livelihoods, purchased productive assets, and reduced their reliance on negative food coping strategies such as decreasing portion sizes or purchasing food on credit.
The study revealed that access to financial services like savings and formal lending played a critical role in helping households cope immediately after the disaster, and assisted with their longer-term recovery.
As a coping strategy, access to financial services can provide shock-affected households with secure sources of cash for purchasing food and restoring or branching out into new income sources, which in turn keep markets going. These same services help keep children in school and preserve productive assets. Financial services can also help households adapt for the future, as savings and credit can foster diversification of income streams, investments in improved shelter, and more effective livelihood strategies.
Importantly, informal credit did not have the same effect. According to the study, informal credit made households worse off ten weeks and two years later, forcing them to increase their reliance on negative food coping strategies, reducing the diversity of foods they were able to consume, and decreasing their chance of recovering their livelihoods. Informal loans have extremely high interest rates - 36% to 60% - which often lock households into a cycle of debt and repayment, and decrease their ability to get ahead.
For Saraswoti and her family, access to a 50,000 NPR (approximately USD 475) loan from a local Mercy Corps-supported SACCO, augmented by family savings, allowed for the purchase of a plot of land that is now home to active potato and chicken farming ventures. Saraswoti also opted to participate in a Mercy Corps financial literacy training offered in her community. Encouraged by the course to “go more professional” with her snack shop, she rented a bigger space for the business with plenty of room for the enterprise to grow.
Potato and chicken farming, in combination with the upgraded space for their shop, mean the household has not only recovered their initial livelihood, but has also diversified income streams and increased savings - factors that will strengthen their ability to prepare for, respond to, and recover from future shocks and stresses.
Saraswoti says of her family’s recovery progress, “We invest when we need it, and save the rest. We are sending our two kids to private school. We can pay medical expenses. We separate how much we need for expenses and how much we save, and then if we have emergencies we can take a loan against our own savings. But we don't keep a lot of money at home, we normally keep it in the SACCO. I have savings in five or six institutions!”.
As revealed by the study findings, timely emergency aid and informal savings helped households mitigate the worst effects of the earthquake in its immediate aftermath, but did not help with long-term recovery trajectories. What mattered most for longer-term recovery was sustained increases in access to and use of formal savings, formal credit, household disaster risk reduction awareness, and bonding social capital over time.
These results show us that development actors and governments should be ready to pivot quickly from recovery to relief by introducing a holistic and integrated package of resilience interventions during the initial response phase of acute disasters.
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