THE United Nations named 2005 the Year of Microcredit. In much of Asia, it was the Year of Disaster Relief. It began just after the devastating tsunami that killed hundreds of thousands and wrecked millions of livelihoods from Indonesia to Somalia. Then, after the annual monsoon floods, an enormous earthquake in Kashmir in October inflicted on Pakistan a catastrophe of even greater logistical difficulty. In both cases, huge sums poured into the relief effort. The fast-growing and fashionable industry of microcredit—the provision of tiny amounts of finance to people of little means—might seem an obvious vehicle for transmitting it to the poor. Only up to a point.

In fact, the very idea of using microcredit for relief work seems almost heretical to some purists, for whom the whole point of microfinance is that it is not charity, but a self-sustaining means of helping people start or expand a small business. If micro-lenders start dabbling in disaster relief, they send confusing signals about their real business.

Yet Syed Hashemi, of the Consultative Group to Assist the Poor, a microfinance consultancy, told a conference in Delhi last week that many donors and aid agencies assumed microcredit was “the answer” to the problems left by the tsunami in the places it shattered, such as Aceh, on the Indonesian island of Sumatra. He says that lenders, who may themselves be badly hit by a disaster, are best advised to limit their involvement in relief work. Similarly, governments and donors should avoid muddling aid and credit by offering cheap loans. If people have lost everything, they probably need to be given money, not lent it. “To disguise this through a subsidised loan undermines the whole operation.” After grants, a phase of cash-for-work (on reconstruction, say) is often needed before microcredit comes into play.

Not many microfinance institutions offer the services that people need most after a catastrophe: insurance, and access to their savings and to remittances from their families and friends. However, there is also a demand for income-generating assets—fishing-nets, tools, bicycles, stocks for a small shop, and so on—and hence for microcredit to finance them.

In the remote parts of Pakistan worst hit by the earthquake, where 300,000 people have been affected, there are fewer than 10,000 “active” microfinance loans. Yet in tsunami-hit Sri Lanka, where there was a large existing microcredit network, it has played a big if controversial role. The government and foreign donors have been lending at a concessional rate of just 3% a year to banks and microfinance institutions, which have been lending on at 6%.

Alessandro Pio, in Sri Lanka for the Asian Development Bank, which has helped finance this, concedes it is not a perfect solution. It is, though, a good way of reaching the fishermen, stall-holders and others who need small business loans. For a lender wanting to help, there is little choice but to match the existing subsidies. But it is hard for subsidised lenders to revert to lending on commercial terms; and because the banks and microfinance institutions are taking all the credit risk, most of the money flows to known customers.

Even what look like post-disaster success stories are ambiguous. Vijayalakshmi Das, of Friends of Women's World Banking, an outfit based in the Indian state of Gujarat, describes how, after a terrible earthquake there in 2001, it lent about 10m rupees ($210,000) to farmers. The loans, of about 100,000 rupees, 20 times the Friends' normal credits, financed water-pumps, seeds and tools and were all paid back within a year. But the group's mandate is to help women and poor households. Lending to farmers was a job that banks should have done.

Friends could help because it was quick and flexible, and active in the area. This should be the great strength of microfinance institutions. One lesson of the year of disaster relief is about the limits to what microfinance can achieve. But a more important one is the need for more of it.