The Effects of a Calamity on Income and Wellbeing of Poor Microfinance Borrowers: The Case of the 2004 Tsunami Shock

Abstract

We investigate the effects of the 2004 Tsunami on a sample of microfinance borrowers. Our findings show that the severe loss of income of damaged borrowers only partially explains the dip in wellbeing. This is because the latter is also related to economic losses not measured by current income (that is, loss in wealth or in permanent income) and by psychological or emotional effects. Finally, we find that the role of risk on the Tsunami impact is partially captured by the interaction of the damage dummy with borrowers’ productive activity.