With little left after a magnitude 9.0 earthquake shattered the Tohoku coastline of Japan, small business owners found hope in a unique recovery program.
Coordinated by Mercy Corps, a microfinancing organization and Japan’s leading banks, the program “constitutes a well-designed and appropriate response to the disaster-generated small business recovery challenge,” according to an independent review by Brussel’s-based consultant, New Frontier Services.
The 2011 disaster claimed the lives of nearly 16,000 people and quickly led to an economic downslide. Toyota, the largest carmaker in the world, shut down all of its plants. Fuji, GlaxoSmithKline, Sony, and Nestlé also eased production, sending the Japanese economy into an immediate recession.
Worst hit? Small businesses. After losing workers and equipment, this vulnerable group needed fast access to credit and expertise. But during the rush to recovery, many small business owners who were wiped out found they didn’t qualify for loans to rebuild. The Japanese government began doling out its aid to export-focused large industries. And since these large companies’ operations were in jeopardy, the Bank of Japan adjusted its policies and other lenders stepped in to help them. But, like other regions directly affected by the disaster, Tohoku’s economy was primarily small businesses--and left to their own devices.
Mercy Corps’ leaders immediately dispensed post-emergency material essentials. Providing vouchers to 6,300 people living in shelters helped them buy supplies, clothing, and food while also giving an economic boost to local shops that accepted the vouchers. But what came next was a little different: A long-term recovery plan to fill the financing gap and get these small businesses—and local economies—back up and running.
Mercy Corps then created an unlikely partnership between local microfinancer, PlaNet Finance Japan; and three local banks: Kesennuma Shinkin Bank, Miyako Shinkin Bank, and Abukuma Shinkin Bank.
"The revolutionary partnership with Shinkin Bank—the first of its kind in Japan—was key to getting funds where they were needed most," said Carol Skowron, Mercy Corps senior program officer. "As the leading bank for small businesses in the region, their local presence and prior knowledge of the business community helped us identify the right businesses to support and swiftly disburse the financial services they needed."
Instead of propping up the banks with just cash, Mercy Corps and PlaNet Finance Japan engaged local banking authorities, small business owners, and the residents themselves to revitalize communities with start-up funding for new business plans, as well as to rehire workers and purchase equipment for established businesses.
The project was designed for long-term sustainability after Mercy Corps withdrew: The end goal was for these small businesses to operate independently, like they did before the disaster.
The small businesses benefited by being able to continue operations, forecast future sales, and rehire workers. This collaboration was helpful for small business that needed an initial “push” but that couldn’t access normal lines of credit from the bigger banks or government-backed initiatives.
New Frontier Services, the independent reviewer, cited the program for quickly serving small businesses and creating new jobs. Here’s what else it found:
- Prospects for sustained impact - Instead of solely targeting existing small businesses, Mercy Corps also focused on start-up businesses and entrepreneurs to ensure long-term growth. And more than half of the participants viewed the loan program as a way to rehire workers and secure a more stable financial future.
- Trustworthy program management - Through the local banking relationships and expertise, the program was able to quickly help those who needed it. Since participants had confidence in the program, the local partners were flexible and could act swiftly during implementation.
- Valuable community contribution - If a small business rehires workers and start-up ventures begin operating, then more goods can be sold—like fish at a local market in Ofunato. Meanwhile, new businesses mean more employment opportunities, like the jobs for women at a wakame processing plant in Minamisanriku, which was made possible by a grant from Wal-Mart.
The evaluation, conducted as part of a mid-term review of the program, which is supported through the end of next year (December 2015), showed room for improvement in program monitoring.
While the implementation was effective, the need for follow-up feedback and data analysis is evident. “When the urgency lessens and the program enters a phase to consider a follow-up program, data obtained from program-wide impact assessment would become critical,” as stated by New Frontier Services. The evaluator pointed out that both of these additional components would be added operational costs and might even cut into the number of program beneficiaries, noting that “in disaster recovery, balancing emergency response and monitoring is not an easy task.”
Maybe this particular program won't be scaled-up and adopted elsewhere, but when a similar large-scale disaster hits another country, plugging the financing gap for small businesses could just be the ticket to long-term recovery.