On December 26, 2004, a huge earthquake and tsunami caused massive flooding, destruction, and loss of an estimated 167,540 lives in the coastal areas of Indonesia’s Aceh and North Sumatra Provinces. Approximately 80,000 micro-, small and medium enterprises were destroyed, and many more were indirectly affected by the disaster.   Prior to the tsunami, microfinance institutions (MFIs) were virtually absent in Aceh Province, which was still suffering from decades of civil war. Among those few that were providing modest levels of microfinance to micro- and small enterprises (MSEs), many were destroyed or seriously damaged by the disaster. In effect, the tsunami not only sharply increased the demand for microfinance among MSEs but also seriously reduced the supply.

In response to the massive devastation caused by the earthquake and tsunami, the U.S. Government embarked on a major Indian Ocean Tsunami Relief, Rehabilitation and Reconstruction effort in Aceh and North Sumatra.  As part of that initiative, USAID/Indonesia provided substantial technical assistance and grants—as did hundreds of other donors and non-governmental organizations.