Supporting Microfinance in Conflict-Affected Areas

This brief sets out guidelines for donors to support microfinance in conflict-affected areas. It states that supporting microfinance in devastated and fragile communities can be successful when donors work in concert, select qualified partners, and are patient, willing to take risks, and prepared to pay higher costs. Effective microfinance can create the foundation for a fully integrated financial sector and fuel reconstruction.

The brief discusses psycho-social and economic characteristics of conflict-affected areas, as well as their infrastructure and services. It describes the external environment, and internal donor agency capacity necessary to start microfinance operations. It states that donors should leave operational decisions to financial service providers. It recommends that they should follow the principles listed below to play an instrumental role in developing microfinance in conflict-affected areas. These principles are:

• Apply microfinance good practices such as maintaining high portfolio quality, applying market interest rates, and planning for full cost recovery;
• Ensure separation between relief services and microfinance;
• Select experienced partners;
• Avoid targeted programs;
• Take measured risks;
• Collaborate with stakeholders such as relief agencies, local leaders, and practitioners to exchange information on programs, and establish joint principles to support microfinance;
• Be responsive to the local context.