Zero Interest Microfinance


Civilian vs. Military Views on Post-Conflict Microfinance in Iraq

By Long Le

In order for Iraqi citizens to weather an on-going crisis, the need for microfinance in Iraq is more urgently now than ever, according to The Consultative Group to Assist the Poor (CGAP).

By many accounts, the battle against the so-called Islamic State in mid-2014 has suppressed the emergence of microfinance sector in Iraq, of which has provided credible financing for nearly 100,000 low-income Iraqi entrepreneurs. During Saddam Hussein’s rule, there were no microfinance institutions in Iraq, and that the country’s culture of credit loans as practiced by savvy merchants were undermined by Saddam’s attempt to establish a statist economy. In the post-Saddam era, the US-led coalition had expended more than $50 million to establish and maintain microfinance institutions in Iraq.  Thus, since 2003, there has been 12 credit-focused microfinance institutions operating across Iraq’s 18 provinces, and in which repayment rate has been as high as 98 percent.

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Source: A World Bank-CGAP Report on “The legal and regulatory framework for microfinance in Iraq” (2016).

However, as Iraqi authorities continue to battle ISIS, at least four microfinance institutions operating in IS-controlled territory have stopped their lending operations – eliminating more than 20,000 active clients and resulting in 42,000 lost job opportunities. According to a 2014 survey, only 11 percent of Iraq’s adult population has an account at a formal institution, and an overwhelming majority borrowed informally (70 percent) compared to only 4 percent who borrowed formally. Therefore, CGAP has advocated that, in the midst of a recurring conflict and fragility, the resume growth of microfinance institutions should be a priority – helping people manage economic setbacks and support their economic resilience. To ramp up support to Iraq’s microfinance sector, CGAP has recommended technical assistance in credit lending methodology to gain access to clients in conflict zones. In addition, the sector’s regulatory and legal framework needs to become much more conducive to long-term growth and sustainability.

The Military as Providers of Iraq’s Microfinance

Interestingly, what’s being overlooked is that Iraq’s emerging microfinance industry has directly been shaped by the military goals of Government of Iraq and US-led coalition.

That is, while there is no consensus among civilian and international organizations that microfinance is a conflict resolution tool, the US-led coalition and Government of Iraq have accepted that economic development via microfinance is often a crucial aspect in completing the military mission. In contrast to the conventional microfinance industry, Government of Iraq and US-led coalition were willing to establish microfinance institutions in non-secure environment. According to some reports, because US military ground commanders in Iraq and Afghanistan each received about five thousand dollars a month to address economic inclusion, more are using microfinance to optimize fund dispersal to strengthen communities in conflict areas.

Importantly, however, the willingness to accept risk in non-secure locations is not about explicitly reducing poverty. Rather microfinance intervention is about creating quality employment for young men (and even former combatants) in order to reduce support for the insurgency. For example, through the Provincial Reconstruction Teams, the US-led coalition utilized microfinance to help the Iraqi authorities (right after shooting stops) in establishing vocational training programs across Iraq for the unskilled population with focus on the young male population.

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Source: “Microfinance during conflict: Iraq, 2003–2007” by Frank Gunter (2009).

The above explains, why despite not having degree of political stability and sufficient economic activity along with a stable client population from 2003-2007, microfinance institutions in Iraq emerged and with them a degree of local and regional security. In addition, the Government of Iraq has been able to facilitate the new microfinance sector in adapting Sharia compliant loans in several provinces. This included working with religious leaders to issue fatwas — asserting USAID-supported microfinance institutions were religiously acceptable. Therefore not surprisingly, the many successes of Iraq’s microfinance sector aided by the military’s grants do not mirror conventional results of civilian or NGO-based microfinance.

For instance, less than 18 percent of the loans in Iraq were made to female clients of which were significantly lower than in other countries in the region (about 65 percent); the average loan size in Iraq was about $1,350 of which was substantially larger than other countries in the region (about $360); close to 80 percent of Iraqi microfinance loans are individual loans rather solidary groups that are more prevalent in the region; and, despite higher cost structures than other developing countries, the nominal interest rate of 16 percent of which is half the global average of 35 percent.

At the same time, however, the Government of Iraq and US-led coalition’s emphasis on utilizing microfinance to counter and manage insurgency might not be conducive for transitioning the new microfinance institutions to become part of the country’s financial industry. That is, prior to the ISIS conflict, there have been concerns that with funds from oil exports, the Government of Iraq could further erode the credit culture through its large-scale low interest loans or zero interest grants. Moreover, while the emergence of Islamic microfinance has been robust, Sharia-compliant products often mimic and/or are more costly than conventional microfinance loans.

In turn, international NGOs and domestic microfinance institutions are struggling to reconcile their programs, developing professional and financially stable organizations where none have reached sustainability.

Assessing Iraq’s Post-conflict Settings and its Microfinance Intervention Approach

A recent research found mixed results in terms of the success or (the lack thereof) of specific microfinance institutions in post-conflict environments. In part, the success is linked by the types of interventions utilized in particular environmental factors of each conflict situation — characterized by social, political, religious and economic issues. Thus, in order to draw lessons from specific cases, there is a need to examine the success of microfinance by environment type and/or correlate the relations between environmental types and the success of microfinance interventions.

In the case of Iraq, we can explore and assess the external environment conditions such as intensity of conflict, reopening of markets, displacement and social capital. For each condition, we can categorize whether the factor is economic, political, and/or religious. In addition, we can assess whether the characteristics of the post-conflict situation will remain correlated with the nature of the conflict and its intensity. And importantly, whether microfinance could decrease the intensity of the conflict through lending group mechanisms; for example, providing incentives for in-groups/out-groups people to work together.

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Source: “The Role of Microfinance Institutions in Post-Conflict Settings” by Mitch Casselman et al. (2014)

Using hindsight, we can see that Iraq’s post-conflict environment can be characterized by cycles of warfare, a growing refugee crisis, crippling sectarianism, and the violent spread of extremist movement. Despite these on-going political instabilities, Government of Iraq and the US-led coalition have been able to resume basic economic activities and have provided a degree of local and regional security amidst hardline Islamist fighters’ movement. By some accounts, US-led coalition and the Government of Iraq have utilized microfinance intervention to provide relief in order to counter and manage insurgency, rather than to promote development. Because of uncertainty due to recurring conflicts, the tasks and policies to clearly define the concept and role of microfinance in Iraq appear to be lacking.

Moreover, the traditional social mechanisms used for mutual obligations, contracts, and transactions are increasingly that of Islamic finance principles, of which were not explicitly at the fore during Saddam’s rule. This implies that conventional or mainstream microfinance will have a limited role because interest-bearing loans are considered haram, particularly in Sunni or Shia dominated provinces. Yet, even with Sharia-compliant microfinance loans, some clients have noticed that the mark up of murabaha can be higher than the interest rates charged by non-Islamic microfinance institutions. Presently, Sharia scholars in Iraq do not have the same rulings on what is acceptable with regards to Islamic finance products, and the credibility of particular microfinance institutions can be underpinned — but also can be undermined — by religious sheikhs. In general, if Islamic microfinance institutions can play a stronger role in economic development and social capital, it will likely be incremental and depended on the decision-making of the Government of Iraq and the country’s Sharia scholars.

The above assessments suggest that, in today’s conflict settings of the battle against ISIS, there is probably not enough stability and security to transfer financial responsibilities of the microfinance sector to indigenous NGOs and/or international NGOs. It also appears that the environment needed for such a transition is depended on the Government of Iraq to not only weather from the noted crises, but also to strengthen good governance that can also reduce Iraq’s fragmentation. Overall, given the military voice of the Government of Iraq and US-led coalition, defeating the insurgency is a priority — above that of reducing poverty and social capital.

Notwithstanding, the question that still needs to be explored and examined is whether the current microfinance intervention — as utilized by the Government of Iraq and US-led coalition – can bring advancement for both the military and microfinance communities? Or whether the time to develop an environment for sustainable microfinance institutions (as a means to an end for a better life for the Iraqi people) will run out?

Can ROSCAs in the U.S. Thrive in Providing Microloans to Underserved Entrepreneurs?

By Long Le

Recently, there has been a call for the City of Philadelphia to utilize Rotating Savings and Credit Association (ROSCA) programs to target at small business owners least able to access loans from banks or Community Development Financial Institutions (CDFIs).

Policy experts from Woodrow Wilson School of Public and International Affairs and economists from the Federal Reserve Bank of Philadelphia have cited the use of informal ROSCAs – often utilized by immigrant business owners to pool money for and distribute from rotating loans – of which could play a vital role for small business owners to access other sources of capital. In the case of Philadelphia, a formal structure of CDFI-sponsored ROSCAs that funds for technical assistance staff and guarantees loans might help particular small business owners to remain in their commercial corridors who are confronted with gentrification pressures. Such CDFI-sponsored ROSCA lending circles have been created in which a group of 15 low-income business owners would receive a $1,400 loan and must pay back $100 per week during a 15-week period. Therefore, participants would not only gain credit history but also develop networks and relationships with lenders.


The City of Philadelphia is working to bridge the divide between immigrant entrepreneurs and mainstream financial institutions by utilizing the Rotating Savings and Credit Association to help micro-enterprises become credit-worthy.

Although formalizing and legalizing ROSCAs in order for them to be viable in new communities, some argue that “harmonizing” the informal with the legal financial system may adversely affect the dynamic of the ROSCA and may have implication of the continual ‘discovery’ for a more ‘social’ finance.

The Tradition and Diversity of ‘Banking on Each Other’

According to Shirley Ardener, ROSCA is a collective action of core members who make regular contributions to a fund to which distributes their savings to each member in rotation without requiring formal collateral. In addition, rotation can be quickly adjusted to help a member in need and most do not charge interest. On the one hand, there is considerable institutional and pragmatic variation in ROSCAs, such as whether associations are formed only for a period of time or exist for specific expenses; whether they are organized for primarily poor women to bargain their position in the household or utilized by groups who already have some degree of financial stability and responsibility; and whether sums from the rotation are paid out by bidding or by drawing lots.

On the other hand, the remarkable geographic and historical distribution of ROSCAs around the globe could be the fact that they normally offer interest-free credit, as well as providing solidarity function whose process is usually transparent that can minimize administrative muddle and reduce risks. ROSCAs have been utilized by immigrant and ethnic groups in the United States – Trinidadian immigrants call such mechanisms a sou-sou, tanda for Mexicans, the esusu for West Africans, the tanomoshi for Japanese, the hui for Chinese, the gae for Koreans, the Hulagan for Filipinos, and the bui for Vietnamese – but they seem to operate parallel to (rather than seeking some form of “joint venture” with) the conventional credit markets; for example, transferring funds between them and borrowing from banks to pay their contribution to a ROSCA, of which resemble complementary interactions. In other words, when credit market is present but imperfect, Rosca and the formal credit market can complement each other in improving social welfare.

Notwithstanding, in recent years community economic development efforts by non-profit organizations, receiving public and private subsidies, have started to formalize and connect ROSCAs to formal financial institutions. In general, these formalized ROSCAs are designed to assist small business owners in accessing greater amounts of capital and tracking repayment to build a formal credit history. By some accounts, the benefits of formalized ROSCAs include minimizing the risk of default among group members as well as the exploitative tactics used by the group to ensure that members repay.

In fact, some pilot programs on formalized ROSCAs have reported that repayment rates are “near perfect.” In addition, formalized ROSCAs have the potential to transform the “bonding social capital” of such associations (i.e., solidarity among people with similar backgrounds) to “bridging social capital” (i.e., social trust between people from different backgrounds) across small business owners and financial lenders. That “bridging social capital” could help underserved entrepreneurs to improve their business processes and maintain broader socio-economic networks that could help with on-going investment in their businesses.

However, formalized ROSCAs by CDFIs can altered some of the before mentioned core dynamics, including loans that are no longer collateral free (now requiring asset-based collateral though guarantees for loans can be accepted) or interest free (now consisting of interest rate though at relatively lower rate). In addition, the more align interests of borrowers and lenders (because individuals play both roles) are now being shifted to the interests of the CDFIs and financial lenders. Moreover, required training and meetings as precondition of receiving financing by formal ROSCAs are usually more substantial that of the informal ROSCAs.

Here, the transaction costs can dissuade lower-income small business owners from participating in such programs and who, therefore, may prefer to transact with fringe financial institutions or the new cyber-financing networks that do not impose higher transaction costs. For CDFIs, it is also noted that it is extremely costly for them to develop and manage due diligence and financial education related to the implementation of formalized ROSCAs. This does not include the fact that formalized ROSCAs cannot guarantee repeat transactions for the small business borrowers.

Overall, due to the significant social investments needed to administer – from individuals, corporations, foundations, and governments – formalized ROSCAs cannot be easily scaled up.

Retaining the Core Dynamics of ROSCAs in Context of Microcredit Industry in the US? 

By some accounts, there have been wide array of organizations dubbed ROSCAs that move back and forth in people’s hands with signs of value that are here “economic,” there “prestige-oriented” or “solidarity” or something else. That is, ROSCA systems are in constant motion despite, or perhaps because of, efforts to fix it both informally and formally. What seems to be lacking, at least in terms of formalizing ROSCAs in the US, are efforts to retain the core dynamics of informal ROSCAs – not utilizing unknown intermediaries, not involving large numbers of borrowers and lenders, and not demanding collateral or interest rate. If there is an interest to maintain the above core dynamics, it appears that ROSCA model would need to be replicated by community-based organizations who have existing client communities already equipped with the prerequisite social or cultural attributes.

For instance, Catholic Social Services (CSS) of the Archdiocese of Philadelphia could identify existing groups of trustworthy at-risk youth, struggling families and single parents who they work with on a regular basis. In terms of staff and training for participation in its ROSCA program, CSS could partner with Catholic Relief Services who have successfully implemented ROSCA models internationally. The cost to explore whether the above ROSCA program could work effectively can be aided by the development of a pilot-tested ROSCA board game. In fact, this ROSCA board game — developed by the Institute for Money, Technology, & Financial Inclusion at University of California-Irvine for a potential ROSCA program targeted women workers in a Cambodian factory — is being digitalized. That through an app members are taught how to participate in a ROSCA program, and that the staff can have the information on how members behave in order to assess whether such program is viable.


Following the development and field-testing for accuracy, the ROSCA board game debuted at the IMTFI conference in April 2016. Since then, the game made its first appearance at a financial industry conference, the Mekong Financial Inclusion Forum at Phnom Penh in July 2016.

Relative to microfinance institutions in developing countries, the mission-driven and non-profit CDFIs in the U.S. simply cannot fill the gap in providing financial services to underserved entrepreneurs — mostly due to vast economic, social and regulatory differences. More recently, the growth of peer-to-peer lending — connecting many individuals at once, across class, race, ethnicity, nationality, space, and time – have clearly stumbled. Some of the problems include lenders that are mainly hedge funds and other sophisticated parties; that peer-to-peer is really about about business-to-people; and whether loans from companies such as Lending Club have violated U.S. usury laws which are usually capped at 15 percent (but some states like Utah and South Dakota have no caps).

Although the role of CDFIs and peer-to-peer lending could be regulated to promote economic justice or democratic banking, it would seem to require a considerable paradigm shift of U.S. policymakers and regulators. That is, in order to provide lending to higher-risk, lower-income individuals would probably require an interest rates and fees to levels of between 18% and 36% per annum for peer lending platforms to be profitable. However, a recent federal court decision appears to make it possible that such high interest loans might be illegal or considered void.

On balance, the recent efforts to formalize ROSCAs in the U.S. offer an important opportunity to understand the challenges and opportunities of replicating the situational logic (i.e., collective understanding in regards to reciprocity and reputational collateral) of informal ROSCAs. And such understanding can be further explored to evaluate whether the recent growth of peer-to-peer lending can “fix” ROSCAs to something more “democratic” in a fast-moving digital environment.

Microfinance for Refugees: The Untapped Potential

By Omar Kachkar

According to the latest UNHCR report issued in June 2015, the number of forcibly displaced people has reached 60 million, the highest since World War II. During the first half of 2015, UNHCR offices reported at least five million people were displaced, including about 839, 000 refugees who were forced to cross borders to other countries. By some accounts, the total number of refugees around the world far exceeds 20 million individuals, where the majority of these refugees spend many years in exile before they return home.  Moreover, it is estimated that three quarters of these refugees are considered in a protracted situation — staying in exile for at least five years. In other words, what is supposed to be a temporal accommodation turns out to be the home for many years and may be for decades. In fact, UNHCR has estimated the average stay of refugees in exile will reach to about 17 years in which full generations are borne and raised up in refugee camps.


During their stay in exile, refugees suffer all types of deprivation and poverty and are exposed to a wide range of dangers and violations of their basic rights. In particular, UNHCR notes that refugees have experienced three dimensions of poverty: 1) lack of income and assets; 2) voicelessness and powerlessness in the institutions of the state and society; and 3) the inability to cope with unexpected shocks such as sudden changes in currency values or market forces.

Microfinance Schemes and Challenges in Refugee Camps

By many accounts, microfinance is a key instrument for poverty alleviation and for socio-economic development. Here, microfinance is much more appreciated for refugees in protracted situations. A common characteristic of protracted situations is a progressive decline in international humanitarian aid, high economic insecurity for refugees, many restrictions on their movement and business and ownership rights, and almost no access to formal employment. In such situations microfinance can make a great difference in the lives of millions of refugees. Through the provisions of microcredit and start-up capital, refugees can start their own microenterprises and improve their income inside the camps or outside. According to Karen Jacobsen, by going beyond the traditional relief-based culture of hand-outs, microfinance programs can offer a more dignified way to support refugees. Additionally, microfinance represents a more sustainable way to support refugees away from the donor cycles.

In 2001, The Alchemy Project began as a research program to explore whether microcredit and other income support interventions were viable approaches for supporting the livelihoods of forcibly displaced people. In 2004, the Ugandan Women’s Effort to Save the Orphans became an Alchemy partner and began implementing a microfinance program in two IDP camps near the town of Lira, one of the worst affected regions of the northern Uganda conflict zone. The research concluded that there are three ways in which microfinance programmes can affect livelihood of refugees. This consists of the household, the individual client, and the wider camp community:

At the household level, if a microcredit program leads to increased economic security, this can in turn enable household members to pursue a wider range of livelihood options, including education, new investments, more viable repatriation options and so forth. At the individual client level, even if the client’s financial security does not increase, participating in the program can potentially increase her human and social capital by boosting self-confidence, augmenting skills through training, enhancing social standing in the community and strengthening economic networks. At the camp level, a microcredit program can potentially affect the economic context or risk environment in which everyone pursues livelihoods.

Nonetheless, providing microfinance for refugees has remained a very challenging business for many specialized microfinance institutions and humanitarian agencies alike.  In addition to the risks inherent in microfinance business in normal situations such as the lack of collateral and securities, refugees in general are considered by microfinance institutions as bad credit risks. For instance, the social pressure or social capital that is normally used by microfinance institutions as an alternative to financial collateral is useless with refugees to which individuals hardly know each other.

Moreover, the continuous mobility of refugees constitutes a real challenge to microfinance institutions as it increases the default risk. In particular, although refugees in protracted situations look ‘stuck’, many of them always aspire to leave either to go home or to a third country or in some case refugees are forcibly relocated.  Meanwhile, the presence of relief agencies over time creates a culture of “free services” among refugees of which also constitutes a real challenge. Not to be overlooked, many refugees normally have little entrepreneurial experience and a deficiency of connections with the community around them, of which may reflect on their business performance. Indeed, a study reveals that:

“These characteristics place refugees in risk categories that are unsuitable for traditional microfinance lending and/or make the implementation of group guarantees, client assessment and step lending principles difficult. At the same time, the uncertain future of refugees in camps or in the country of return makes a refugee-based sustainability strategy difficult to achieve. Finally, refugees are situated in a relief environment where implementing organizations’ staff members are often hesitant to fully require repayment, are unwilling to charge interest, and/or do not have the technical capacity to implement finance programs.”

Innovating Microfinance for Refugees: A Case Study of the American Refugee Committee

Despite all these challenges, a number of NGOs have been involved in microfinance projects and many of success stories can be cited. Due to the limitation of this article, the following discussion will highlight one successful experiment of providing microfinance for refugees — illustrating how innovative strategies and the will to assist can significantly improve the lives of underprivileged and unfortunate populations. This experiment was undertaken by the American Refugee Committee (ARC) in Guinea in 1997. ARC started its microfinance program — Micro-Enterprise Development Programs — to support Sierra Leonean and Liberian refugees in Guinea. The model was comprised of three targets aimed at gradually empowering the most vulnerable refugees. The first focused on mostly women, providing them with free grants of $25 so as to enable them to start up micro-businesses quickly. The next target was on the less vulnerable refugees, allowing them to access ARC’s micro-credit services of $50; for entrepreneurs who already have running business, they had to repay over six months. The last target was on clients who wanted to grow and develop their existing micro businesses with minimal-interest-bearing loan of $75.

Beneficiaries of such programs reached 4,000 refugees in 2001-2002. Interestingly, the default rate was only 3% due, in part, to a very innovative strategy employed through ARC’s Refuge to Return certificate system. This certificate was designed to enable refugees to transfer their credit history and to have the prevailed receiving loan upon their return in their countries. Accordingly, clients were receiving a grading of ‘A’, ‘B’ or ‘C’ certificates according to their credibility. During 2001-2002, over 25% of ARC microfinance clients in Sierra Leone were former ARC refugee client-returnees. Remarkably, by the end of 2003, the repayment rate for the program in the Kissidougou region reached 98%, even though refugees were repatriated to Sierra Leone in the first half of 2003.

In the assessment of its microenterprises programs, ARC found that, when beneficiaries were asked to indicate their three main sources of income, about 81% of start-up grant clients mentioned business as a main source of income and that they did not need to apply for further loans; and all of the start-up grant clients who applied for further loans mentioned business as main source of income. Furthermore, 91% of the clients, who took out basic loans without first receiving grants, indicated that business as a main source of income. On social indicators:

  • 55% of basic loan clients indicated that their social status had increased;
  • 60% of them said that they had gained pride;
  • 60% were able to buy better clothes;
  • 45% said they had more food and 24% reported a better variety of food;
  • 47% said they had become more self-reliant;
  • 33% said they were healthier;
  • and 38% no longer had to borrow money.

Given the number of refugees around the globe and the unprecedented number of protracted situations, the above microfinance initiative model would need to be scaled up as efficiently and effectively as possible. Overall, microfinance programs should be given a serious consideration by humanitarian organizations, as well as microfinance institutions to assist in improving the lives of millions of refugees. Especially, because refugees do have the potential and the skills, but who are in fact waiting for someone to help them help themselves.


The Next Frontier: Microfinance in Post-Conflict-Affected Communities?

By Long Le

After experiencing its share of crises in the past few years, the microfinance industry can be said to be at or close to an inflection point.

That is, microfinance as a bottom-up development — once considered unequivocally a good thing — has gone mainstream led by commercially-oriented providers, including former NGOs who turned into for-profit lenders. As a result, this change has brought on mainstream problems such as client over-indebtedness. For many, the mainstream forces, which now include established banks rushing into what they see as potential long-term growth business, indicate “mission drift” where “microloan-sharking” is now part of the industry.  For others, these mainstream problems are being addressed with appropriate regulation and demand-driven products, of which can signify success as new business models and communication technologies have continued to foster the microfinance industry’s growth.

Still, there are others who have long argued of the false choice between commercially oriented and socially oriented microfinance, or sometimes referred to as the debate between the institutionalist approach and welfarist approach. In short, this view sees the former as necessary for continued expansion of microfinance and whose incentives to innovate could facilitate financial inclusion and integration into the formal provision of financial services. Meanwhile, the latter — taking advantage of subsidies – is vital because it remains the model to reach and provide better access to financial services to the poorest customers.


In the post-microfinance crises, what is becoming clear is that, while commercially oriented microfinance institutions are addressing competition and client-driven risks of an evolving industry, socially oriented microfinance institutions, in general, are living up to their missions.

In particular, socially oriented microfinance institutions – expected to bring about socio-economic impacts large enough to justify and ensure the continued subsidized support – are addressing the challenges of providing sound practices on ethical finance, co-creation of value with clients, and social performance management. In particular, faith-based microfinance organizations are exploring for a more pristine environment for profit and loss sharing and for borrowers to become private providers in microfinance services. Moreover, such social missions need not result in notable efficiency loses, or that socially efficient can be correlated with being financially efficient.



Post-conflict microfinance could be the next frontier

While many diverse microfinance institutions can generate economic benefits in stable environment, it has been recently documented that in post-conflict situations microfinance can be an effective tool for relief and survival strategy. In fact, socially oriented microfinance institutions, especially faith-based ones, have been shown to have the capability to act as a catalyst for reconciliation and trust building in conflict-affected communities. That is, providing financial services through group lending not only minimize people’s vulnerability to poverty and insecurity, but also build social capital that could transcend ethnic and other differences and/or contribute to inter-ethnic cooperation between members.

Although critics often exaggerated the negative role of subsidies, subsidized funds have allowed Christian and Islamic microfinance institutions to be proponents of encouraging peace-building, reconciliation and conflict resolution through social capital enhancement in the post-conflict recovery in Iraq, Nigeria, Eastern Europe, and Southeast Asia.



To be sure, while some microfinance interventions succeeded at building trust and community among their clients, others have not done well or have focused exclusively on their financial viability in post-conflict environments. Even for successful microfinance institutions that have intervened and have been able to restore some levels of trust and peace for particular populations, there is no consensus on whether microfinance institutions should engage in post-conflict-affected communities. There is even less consensus on where microfinance institutions should intervene, when they should intervene, and how they should intervene.

Notwithstanding, fragile states and post-crisis situations are expected to increase in frequency, and perhaps also in ferocity.

Fortunately, the external and internal factors that affect post-conflict microfinance — its social and financial performance – are considered to be similar across different contexts. For example, a case study of microfinance’s social impacts in post-conflict Guatemala found parallels with other microfinance programs in Kosovo, Sierra Leone, Rwanda, Uganda, Bosnia and Herzegovina, El Salvador, and Southeast Asia. Noteworthy is that post-conflict microfinance institutions will probably have to restore social capital just to ensure repayment; will need to invest in community-building or build relations with trusted actors in order to gain the trust of the community; will need to promote particular type of lending such as rotating savings and credit groups to increase trust and social capital; and will need to construct member-owned types of local financial institutions to build basic blocks of civil society.


Last but not least is that, in post-conflict-affected communities, faith is a salient feature of identity where violence and discrimination against religious groups by governments and rival faiths are a growing reality. While there have been efforts for Orthodox, Muslim, Jewish and Christian microfinance institutions to work together, there are few partnerships in spite of the culturally plural circumstances in which humanitarian crises arise today. Moreover, interfaith partnership requires high levels of individual skill and organizational commitment to generate inter-organizational knowledge, as well as identifying specific theological mandate for inter-religious collaboration.

Overall, if there’s a new frontier for microfinance, it might well be the ability of socially oriented microfinance institutions to develop and become a catalyst in changing or restoring people’s attitudes towards each other and creating a base of reconciliation and coexistence in post-conflict-affected environments.