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Ten years on, post-tsunami Sri Lanka charts a course for global crisis zones

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26 December 2014, New York.

“From Aid to Enterprise,” a case study released by  BRAC on the 10th anniversary of the Indian Ocean tsunami, suggests a  path from grant-based aid to sustainable interventions and for-profit  enterprise.
 

Mangalika and her husband, K.G. Sirisena, recall the wall of water  that swept over their home in coastal Sri Lanka ten years ago. “Eight  feet of water came into the house,” she says. “The only things left were  the clothes we were wearing. We were lucky to escape with our lives.”

Dec. 26 marks the 10-year anniversary of the Indian Ocean earthquake and tsunami,  one of the deadliest natural disasters in recorded history. An  estimated 230,000 people in 14 countries lost their lives in the  disaster and immediate aftermath.

To mark the anniversary and highlight the possibilities for renewal  in areas hit by wars, epidemics and natural disasters, BRAC, the  development organization based in Bangladesh, has released a case study  on its experience in Sri Lanka, “From Aid to Enterprise: BRAC’s Evolution from Relief to Sustainable Financial Services in Sri Lanka.”

Mangalika and her husband, featured in the report, were running a  home-based business servicing Singer-branded and other electronic  appliances, employing 12 part-time employees and making a profit of  roughly $750 a month. The tsunami laid waste to their business along  with countless others.

Mangalika with her family


Mangalika with her husband and three sons in front of the family's new repair center.                  

"Crises  of historic magnitude can lead to equally historic gains if women have  the tools they need to seize control of their lives and wellbeing." –  Susan Davis


Mangalika rebuilt her business with microfinance loans from BRAC,  using small loans to purchase spare parts such as motors, compressors  and fans and power. “We were determined to re-build what we had, no  matter what,” she says. “BRAC’s loans allowed us to do that.”

 

In “From Aid to Enterprise,” officials at BRAC discuss the challenges  of transitioning an initially grant-funded nonprofit development  organization into a sustainable microfinance institution, and in this  case a for-profit microfinance provider eventually sold to the private  sector in 2014.

“At BRAC, our objective is not to create a surplus for investors, or  to perpetually use donor funds,” says S.N. Kairy, group CFO of BRAC and  BRAC International. “It is to sustainably serve poor people. We prefer  to start with subsidy and donor funds, and then gradually move to  sustainability. That movement has to be driven by clients and their own  ability to borrow greater amounts in their own time.”


A path forward

“From Aid to Enterprise” suggests a path for other countries in a post-conflict or post-disaster stage.

January marks the five-year anniversary of the earthquake that  destroyed large parts of Haiti, for instance. BRAC entered Haiti shortly  after the earthquake and now runs a center that provides artificial  limbs and orthotic devices for those in need. Modeled on a similar BRAC  center in Bangladesh, the BRAC Limb and Brace Center in Haiti is on a  path toward full cost recovery.

The experience of BRAC in Sri Lanka also offers hope for recovery from the Ebola epidemic currently devastating parts of West Africa, according to Susan Davis, president and CEO of BRAC USA.

“Despite the situation we find ourselves in today with the rapidly  unfolding crisis in West Africa due to the spread of the Ebola virus,  it's worth looking at trends from recent decades to understand how  philanthropic capital can build models of sustainability,” Davis wrote in The Huffington Post recently.  “Crises of historic magnitude can lead to equally historic gains if  women have the tools they need to seize control of their lives and  wellbeing.”

BRAC operates microfinance, agriculture, girls’ empowerment and  education programs in Sierra Leone and Liberia, and is part of the Ebola  Survival Fund, a coalition of nongovernmental organizations determined  to crush Ebola.

“From Aid to Enterprise” documents the rare trajectory of BRAC’s  operations in Sri Lanka, evolving from philanthropically funded relief  operations to a commercial financial services company serving the poor.


Livelihoods lost and regained

More than 35,000 people lost their lives in Sri Lanka during the  Indian Ocean tsunami. More than 800,000 were displaced, and according to  official estimates, more than 150,000 people lost their livelihoods.  About 90% of those affected lost productive assets, including their  dwellings.

BRAC’s initial post-tsunami relief interventions in Sri Lanka were  geared towards recovery and rehabilitation efforts, including the  cleaning and disinfesting of contaminated water wells, constructing  latrines to prevent health hazards, and replacing lost and damaged  school materials. Beginning in 2006, as the need for immediate disaster  relief and rehabilitation efforts subsided, BRAC moved towards providing  micro-loans and facilitating economic development at the community  level.

BRAC took a phased approach to entering the sustainable microfinance  sector. Within a year of operations, it had reached more than 26,000  clients, making it a significant microfinance provider in Sri Lanka.  Starting in 2007, selected clients – mostly women heads of households,  widows, and those without other assistance – began receiving training on  poultry and livestock rearing, agriculture, and enterprise development.  Women were trained in basic business planning, assessing the market,  locating wholesale options, handling day-to-day bookkeeping, and  interacting with customers. A capacity development program also helped  strengthen other local organizations.


Regulatory hurdles for microfinance

A local microfinance expert quoted in “From Aid to Enterprise”  credited BRAC’s robust growth with “well established management  practices, systems, and a ready methodology largely replicated from  Bangladesh.”

By 2007, the company had evolved to a fully-fledged microfinance  operation, and a near replication of BRAC’s microcredit model in  Bangladesh BRAC scaled its operations to a portfolio of over USD 11.2  million, serving 74,000 borrowers at its peak in 2011.

After 2011, BRAC loan portfolio began to contract as a result of  capital constraints that resulting partly from Sri Lanka’s lack of  regulatory framework. There were ambiguities and restrictions on how  microfinance organizations could fund their operations. BRAC’s legal  structure effectively prohibited it from borrowing funds on a commercial  basis from international sources, and its ability to finance operations  through savings deposits was constrained by government directives,  resulting on a squeeze on access to capital.

In June 2013, BRAC partnered with Lanka Orix Leasing Group (LOLC), a  longstanding provider of leasing and insurance and other financial  products in Sri Lanka with its own existing microfinance practice (LOLC  Micro Investment Ltd), to acquire a majority stake in a regulated  financial services company, the for-profit Nanda Investment and Finance  PLC (NIFL). In 2014, in response to new changes to the Sir Lankan  central bank’s capitalization requirements, the board of BRAC  International sold its 59.33% stake in the jointly held company, BRAC  Lanka Finance PLC, to Commercial Leasing and Finance PLC, a subsidiary  of its partner, LOLC.

The sale was completed in September 2014, marking BRAC’s exit from  Sri Lanka and ending a successful transition from aid to enterprise.

“Sri Lanka is successful because we started with grant funding,” says  Kairy. “This is the best way to set up, as it allows you to really  reach the poor, and then allows a path for sustainability to emerge. If  there is no grant, then in effect, you are serving a higher income  portion of the population, perhaps the moderate poor. But to eventually  get to a place of sustainability while serving the poorest, an  organization needs some level of subsidy at the start.”

Download the full Sri Lanka case study, “From Aid to Enterprise,” here.

 

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