Microloans Change Lives in Devastated Nias

The ADB program extends finance directly to poor families to help them get back on their feet

Just 3 months after the Indian Ocean tsunami, a powerful earthquake pounded the Indonesian island of Nias. More than 1,000 people perished and tens of thousands were left homeless.

Everything Nur Arfah Tanjay and her family owned was reduced to rubble that day. They lived in temporary community barracks for half a year before moving into her mother's reconstructed home. With no job prospects and the local economy in tatters, Ms. Tanjay wondered how she could provide for her family.

"We were very concerned," she says. "We weren't sure how we would get by."

Ms. Tanjay is not alone. About 80,000 familyowned firms operating outside the formal economy-and 140,000 jobs-were estimated to have been lost due to the disaster. In response to the widespread devastation, ADB launched the Earthquake and Tsunami Emergency Support Project.

As part of this assistance, a $15 million micro and small enterprise development program extended finance directly to poor families in Nias and Aceh. This helped Ms. Tanjay and thousands of other women get back on their feet.

"Today I earn 50% more than I did before the earthquake," Ms. Tanjay says

Selling Sweet Cakes

Her main source of income comes from selling loto sagu, or sweet palm cakes, a local delicacy.

Each morning she slowly mixes grated coconut, ripe bananas, raw sugar, fresh cacao, salt and sweet palm flour, spooning a few dollops of the sweet concoction into green banana leaves that she bakes over a pyre of burning coconut husks.

Her teenage son Arfan Zalukhu circles the neighborhood every afternoon after school with a large platter of loto sagu, which he sells door-to-door.

While the family lives humbly, today they earn enough money to pay for food and Arfan's school fees. Ms. Tanjay is even able to tuck away a little money each month, and aspires to buy a house of her own in a few years.

The ADB-supported microcredit program is modeled after Mohammed Yunus's Grameen Bank. Groups of six women borrow small amounts of money to be repaid within months. The loans progressively increase in size each time the borrowers successfully pay the previous loan in full, allowing group members to expand their businesses.

"With the extra money I can buy all of the supplies I need to produce larger amounts of cakes. I can sell more cakes, and since I can buy in bulk the cost is less," Ms. Tanjay says.

With a thriving business and access to larger loans, Ms. Tanjay is branching out, using borrowed funds to purchase chickens, ducks, and goats. Her son even raises rabbits, which they sell to neighbors as pets.

"One of the best features of this program has been supporting women in assuming a central role in financially supporting their families," says Pieter Smidt, head of ADB's Extended Mission in Sumatra. "It's wonderful to see their businesses growing."

The microcredit program in Nias, which is just south of Aceh, off Sumatra's west coast, was implemented by Bank Sumatra Utara. ADB supported training for bank staff members, who disburse and collect funds from microfinance groups.

"The provincial bank had never been in this type of operation before," says Mr. Smidt. "There were previously no such microcredit services in Nias."

"Now that the provincial bank has seen that this model can work effectively, they're thinking about expanding the program to every district in North Sumatra," he adds.

Bringing Communities Closer

In addition to bringing her community greater prosperity, Ms. Tanjay says the program has helped bring neighbors closer. A practicing Muslim, she notes that her microcredit group has both Christian and Muslim members.

"In Nias we don't care about these kinds of differences," she says. "We all get along well. I just hope this program will keep going so we can all have a better life in the future."