Developing Financial Institutions in Conflict Affected Countries: Emerging Issues, First Lessons Learnt and Challenges Ahead

Focusing primarily on four conflict affected countries: Cambodia, El Salvador, Mozambique and Uganda, the paper states that creating sustainable microfinance institutions that deliver microfinance at affordable and convenient conditions helps MSEs fulfill their potential. It says that lack of sustainable access to microfinance is a key constraint faced by micro and small enterprises (MSEs) in countries emerging from armed conflict.

The paper provides an overview of the specific constraints for microfinance in countries emerging from armed conflict. It argues that conflict affects the financial sector severely at the macro (disturbance of macroeconomic and financial stability), meso (destruction of financial institutions) and micro level (demonetization and related phenomena as well as disruption of social bonds and relationships based on trust). The paper:

• Presents the experience so far;
• Identifies emerging issues;
• Elaborates the first lessons learnt on developing sustainable financial institutions;
• Puts forwards recommendations for policy makers, financial institutions and donors;
• Projects the challenges ahead, and future directions for research.