New methodologies needed to address housing, debt in North and East

• CEPA study finds financial counselling has little effect on housing debt
• Quick-fix NGO projects cannot tackle political economic issues
• Researcher suggests reparations in form of debt erasure

From left: Swiss Agency for Development and Cooperation Programme Officer Nimmi Ariyaratne, Centre for Poverty Analysis Junior Research Professional Nadhiya Najab, Centre for Poverty Analysis Chairman Dr Indrajith Coomaraswamy, Neelan Tiruchelvam Trust Chairperson Ambika Satkunanathan, Centre for Poverty Analysis Senior Research Professional Dr Vagisha Gunasekara

By Shiran Illanperuma

A study by the Centre for Poverty Analysis (CEPA) has concluded that financial counselling given to war affected communities in the north and east does very little to change financial management and spending patterns of people who take on loans.

A lack of financial literacy has often been cited as a leading cause for high debt levels in the North and East provinces of the island. CEPA estimates that over 50% of housing beneficiaries are ignorant of interest rates on loans and that such rates can be subject to change. 

In light of this, the CEPA study was commissioned by the Swiss Development Cooperation (SDC) as a means to measure the effect of the financial counselling module of their housing loan schemes. The scheme provided housing loans amounting to around Rs. 550,000.

These recipients were then expected to raise the remaining capital need to build their homes. However, due to the socioeconomic condition of most recipients, the added capital could often only be contributed through labour.

For those disenfranchised by the brutal civil war between the Government and the LTTE, the chance to build a house was seen as a once-in-a-lifetime opportunity. Therefore most loan recipients spent beyond their means to build a home more suitable to their aspirations, thereby accruing greater debt.

Overall, the study found that participants managed loans and built their houses along the same lines regardless of the presence or absence of financial counselling. 

However, CEPA Senior Researcher Vagisha Gunasekara says: “Despite subjects spending beyond their means, the result was sturdier and higher quality housing - a safe investment in the long run.”

The study concludes that “well intentioned interventions can do little to address circumstances that are deeply linked to the broader structural issues of the political economy of the North.”According to stats cited by CEPA, 85% of houses have unmanageable debt. The sample studied by CEPA also suggested that over half of the households unable to repay debt were women-headed households.

Despite the overall lack of effect on housing size, the CEPA study did find that beneficiaries of the financial counselling were appreciative for the service. Access to information on how to keep labour and material costs low were said to have enabled better management of finances.

Since the brutal end of the war in 2009, the island’s north and east has been subject to increasing bank density and exposure to the consumer culture of the south in what Gunasekara describes as “capitalist penetration from the south”.

Gunasekara went on to emphasise that debt in the war affected regions cannot be simply understood as a personal issue. In light of the structural causes of poverty she argued that the State and private sector should work together to provide interest free loans as relief.

“The burden of paying these debts should not be placed on those who are essentially the victims of war and displacement. The Government should perhaps step in with a clear scheme to provide housing or wipe out debt as a form of reparations,” said Gunasekara.

The full report, entitled ‘No Silver Bullet’ by CEPA researchers Vagisha Gunasekara, Nadhiya Munas and Mohamed Munas can be accessed through CEPA’s website.

Pix by Shehan Gunasekara

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