Civil war, which has become the most common form of armed
conflict, can cause the loss of valuable household assets such as livestock,
productive infrastructure and property holdings. Quite apart from the emotional
and psychological damage, the disruption to education and the loss of family
members during armed conflict reduces household productive capacity. Civil
society is also damaged, physical infrastructure may be destroyed and previously
limited access to financial services further reduced. Thus, the impact of
conflict on households can be severe and pervasive. The need to reduce
susceptibility to livelihood crises is increasingly recognised among NGOs. There
is potential for microfinance to contribute to reducing vulnerability, but our
expectation of the achievements of this type of service must not be too high.
The situation after armed conflict is unpredictable and usually not conducive to
microfinance. Institutions may be required to operate in an environment
characterised by continuing violent conflict, limited investment opportunities,
high inflation, the enfeebled remnants of a banking system and high
unemployment. Political insecurity and the lack of rule of law, high population
mobility and damaged social capital also affect microfinance operations. Thus, a
wide variety of interrelated factors influence the performance of any
microfinance initiatives in such a context (these factors are well documented by
Nagarajan (1998) and Doyle (1998)). However,
it is believed that characteristics beneficial for microfinance (e.g. high
population density, the operation of traders or remaining social capital) can
compensate for negative characteristics (e.g. high inflation, insecurity or the
destruction of the formal banking sector).
In general, the NGO experience of microfinance to date illustrates the
conflicting demands faced by relief organisations attempting to offer
microfinance services in the harsh, conflict environments in which they choose
to work. The method of direct delivery that has been favoured by relief
organisations for so long has caused confusion among clients as to the
seriousness of the organisation, and ultimately has resulted in high default
rates. Subsequently cheap credit has come to be seen by the clients as a right,
rather than temporary emergency assistance. The usual process of largely
unplanned transformation from informal NGO project to formal MFI has proved to
be inefficient because of repeated disruption to services. Product innovation
and marketing has remained a low priority and by offering unsuitable products,
it has been difficult for many organisations to attract clients.
The Springfield
Centre research
project funded by the Department for International Development (DFID), aims
to further investigate the issues surrounding microfinance during and after
conflict. The research consists of two phases. The first phase began in January
2001 and aims to answer two key questions through qualitative field research in
Mozambique, Rwanda, Angola and Cambodia:
- What conditions are necessary for
microfinance projects in post conflict economies?
- What kind of microfinance products are
most attractive to the poor after conflict?
A synthesis report will be available at the end of 2001 and the
second phase will take place in Rwanda, where a microfinance project will be
established to make available the products suggested in phase 1, using an
innovative model and mechanism. A continuous process of action and critical
reflection will contribute to increased understanding of the Rwanda project. At
the end of the second phase, two documents will be produced: "A Tool Box
for Post-Conflict Microfinance" and "Principles of Better Practice for
Post-Conflict Microfinance".
In the past, the benefits of microfinance in war-torn countries may have been
overstated. It is now time to thoroughly re-examine the potential and
constraints to providing micro-financial services in war-torn countries. This
project aims to objectively re-evaluate the assumptions that have been made
regarding models, mechanisms and products in the context of armed conflict.
Bibiliography
Microfinance in Post-Conflict
Countries: The case study of Uganda
Beijuka, J. (1999) , ILO
The evolution of microfinance in a
successful post-conflict transition: The case study of Mozambique
De Vletter, F. (1999), ILO
Case studies in microfinance:
non-governmental organisations (NGOs) in Microfinance: Past, present and future
- An essay (Dichter, T. (1999)
Microfinance in the wake of conflict:
Challenges and opportunities,
Doyle, K. (1998) The SEEP Network
Foundation for Development Cooperation
(1999) Microfinance in East Timor: Relief, reconstruction and development
Promoting local economic development in
a war-affected country: The ILO experience in Cambodia
Hakemulder, R. (c1998)
Developing micro-finance institutions
in conflict-affected countries: Emerging issues, first lessons learnt and
challenges ahead (Nagarajan, G.(1997), ILO
Innovative approaches to rural lending:
Finaciera Calpia in El Salvador
Navajas, S. and Gonzalez-Vega, C. (2000), Rural Finance Programme, Ohio State
University,
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