After the Earthquake in China

Read this Highlight in Chinese

The Earthquake’s Devastation

Highlighted area of map shows earthquake zone. Source: Xinhua News Agency

On May 12, 2008, an 8.0-magnitude earthquake hit southwestern China. The epicenter was in Wenchuan County of Sichuan Province. Given the magnitude of the quake, tremors were felt throughout Asia. So far, it has claimed 69,207 lives, injured 374,216,  displaced 1.49 million people, and affected more than 34 million people. According to the World Bank quarterly update, the quake affected crops on 224,000 hectares of farmland, wrecked 22,000 km of road and tunnels, and damaged 11.4 million houses and 21 million buildings.

Just after the quake, the most urgent priority was rescue operations and food and shelter for the survivors. In an outpouring of generosity, many individuals, businesses and organizations joined the Chinese disaster relief efforts.

“Let the dead be at peace; let the living be strong”

This banner hangs around thousands of refugee tents and temporary houses in the quake zone. Now, four months later, people are turning to rebuilding their lives. According to Mr. Yuan Yue (read interview), CEO of Horizon Research Consultancy Group, more than 80% of quake survivors would like to resume prior income-generating activities.

People rebuild their houses from the ruins in the quake zone. Source: Mr. Wu Peng, CFPA

 “Traditionally, Chinese people’s savings are mainly stored in their homes. With their houses shattered and relatives injured or dead, they lost almost all of their assets, and fell into the trap of poverty,” reports Mr. Wu Peng (read interview), Deputy Director in Monitoring & Research Development of CFPA. With about 97% of houses in the rural areas destroyed in the earthquake, rebuilding is a priority. As CFPA planned a special housing finance project for quake victims, they found the average family's repayment capacity in the rural areas of Sichuan Province to be 10,000 Yuan (US$1,500) per year. 

In this post-disaster situation, residents need normal financial services, including deposits, cash withdrawals, money transfers, and other services to facilitate daily life and business operations. Microentrepreneurs and small business owners were deeply affected by the quake. When shops collapsed, business operations were completely disrupted--they could not purchase supplies, and customers were unable to purchase goods and services. 

According to Mr. Jinchang Lai, Head of IFC Chengdu Office (read interview), the Chinese government is moving quickly to promote reconstruction and stimulate economic recovery. These efforts may assist microfinance institutions (MFIs) to begin operations in Sichuan Province. Already, microfinance is changing rapidly throughout the country given recent policy changes, new interest in launching MFIs, and more domestic and international funders willing to invest.

The Response by MFIs

Microentrepreneur Profiles

In Ninqiang County of Shaanxi Province, a farmer Mr. Wu used to make a living by growing mushrooms. However, the earthquake shattered his house, and there are no laborers to help him at the crucial time of mushroom planting. Mr. Wu faces the prospect of heavy losses this year.

In Mianzhu County near Deyang---one of the worst hit areas, where most houses were damaged, there is a village that produces “New Year Pictures”. This is a traditional Chinese folk art that has brought tourism and wealth to the village.  With no supplies and little access to the village, the artists have not been able to resume their economic activities.

MFIs in Sichuan province have been active in disaster relief. There are two government-authorized microfinance pilot programs in Sichuan Province with two Microcredit Companies (MCCs) and four Village and Township Banks (VTBs). MFIs located directly in the quake zone were forced to rescue staff and struggled to stay open despite damages. They worked quickly to protect funds and data archives. Many MFIs provided relief funding and mobilized to provide clients access to their deposits and receive remittances from friends and family.  

Beichuan Village Bank
Beichuan County experienced devastating losses, and most buildings and roads were destroyed. Beichuan Village Bank was especially affected, suffering the death of personnel and clients, its building shattered, and operations completely disrupted. Over 3 million Yuan (US $440,000) in outstanding loans have been written off. Mr. Jinchang Lai of IFC met the MFI’s manager, who was injured in the earthquake, and he is determined to rebuild the institution and continue serving clients.

Microcred Nanchong 
Launched in December 2007, Microcred Nanchong is an MCC funded by the Microcred Group, IFC, AIG, and Kfw. To date, they have disbursed 14.5 million Yuan (US$2.1 million) in loans to 630 clients. Many Microcred Nanchong clients reported damaged property, business disruptions, and financial strain from the earthquake.  In response, Microcred Nanchong visited clients to enquire about their safety and reconstruction needs, waived late fees for quake-affected clients, and rescheduled loans for the most severely impacted clients. Read interview with Mr. Min Chen from Microcred Nanchong

Chengdu Small Enterprise Guarantee Credit Company (CGC) 
Established in 2001 with a focus on small and medium enterprise (SME) finance, CGC has provided 6.2 billion Yuan (US$904 million) in loan guarantees to 780 SMEs and more than 1,000 individuals. CGC has provided loans to disaster-relief companies, such as factories that produce building materials for tents and temporary houses. CGC has also accelerated loan reviews and reduced monthly interest rates.

China Foundation for Poverty Alleviation (CFPA)
From 1996 to 2006, CFPA disbursed more than 150 million Yuan (US$21.9 million) microloans to 330,000 clients.  After the quake, CFPA planned the following expansion activities in the disaster zone:

• Microfinance projects with potential partners like Asian Development Banks
• Comprehensive rural program to rebuild homes, hospitals, roads, and water systems
• Counseling programs for local residents with international organizations
• Funding and assistance to special groups of quake-afflicted people, such as students whose schools were destroyed or children orphaned as a result of the earthquake. 

Quake survivors in the temporary camp (Source: Mr.Yuan Yue, HRCG)

The Role of Government and Donors

Financial regulators, policy makers, and international organizations have tried to help quake survivors reconstruct their lives.

State Council Leading Group Office of Poverty Alleviation and Development    
In July 2008, the China State Council Leading Group Office of Poverty Alleviation and Development announced a program with Grameen Trust and Danone Co. Ltd. to establish a 20 million Yuan (US$2.92 million) microfinance trust fund for people to restart business operations.  The fund will be distributed and managed by Grameen Microcredit Company in Sichuan province.

China Banking Regulatory Commission (CBRC) 
After the earthquake, CBRC accelerated the review of banks planning to open new branches in quake-stricken areas, according to Mr. Zang Jingfan, director of the CBRC Supervision Department. CBRC has already approved several new bank branches such as Pudong Development Bank in Mianyang County, Shanghai Bank in Chengdu, and Ya’an Commercial Bank (transformed from Ya’an Credit Cooperatives). CBRC will assist rural credit cooperatives (RCCs) in the quake zone by providing them grants of 10 million Yuan (US$1.46 million) to help finance reconstruction.

IFC Chengdu Office
IFC has concentrated its reconstruction support to Sichuan’s private sector and MSMEs. “We are working through the local financial institutions which have business lines serving these clients,“ said Mr. Jinchang Lai (read interview), Head of IFC Chengdu Office. Two investment projects have just been approved by the Board to provide financial assistance to disaster-affected MSMEs through two Sichuan-based financial institutions. 

Lessons from International Experience after Natural Disasters

Although it is neither possible nor advisable for a “one size fits all” approach for disaster management, experiences from other natural disasters, such as the Asian tsunami and the Pakistan earthquake, may provide guidance for MFIs, government agencies and donors working in the quake zone of China.