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Microfinance Role in Conflict and Post Natural Disaster Areas

Michaël KNAUTE

CEO OXUS Development Network


Who we are


3 case studies

Assumptions : many cases of successful MFIs in crisis-affected areas & microfinance recognized as a key economic recovery/development tool But key success factors/lessons learned Presentation : 3 case studies about impact of political crisis/shocks in various contexts ; natural disasters covered by Kashf Foundation 3 countries :

Kyrgyzstan, 2010 : mature but affected by a sudden crisis Afghanistan, 2004-2010 : chronic conflict/crisis DRC, 2006-2010 : post-conflict


Case study 1 : Kyrgyzstan (1/3)

A strong, commercial and fast-growing microfinance industry…

Positive economic trend and investment climate, strong actors, high involvement from commercial investors, strong regulatory environment, mature market

… affected by a sudden political/ethnic crisis in 2010 Coup and new government in April 2010 “Pogrom” in June 2010 targeting mostly Uzbek micro-entrepreneurs in Southern Kyrgyzstan



As of 9/1/2010 Osh oblast Jalalabad oblast Total

Active borrowers 67,537 49,519 117,056

Affected borrowers 5,989 (8,9%) 1,224 (2,5%) 7,213 (6,2%)

Written-off loans 487 (0,7%) 256 (0,5%) 743 (0,6%)

Amount written-off 193 kUSD 74 kUSD 267 kUSD

Restructured loans 5,119 (7,6%) 380 (0,8%) 5,499 (4,7%)

Amount restructured 5,252 kUSD 321 kUSD 5,583 kUSD

Total loan portfolio 170 750 kUSD

Amount restructured/ total loan portfolio

3,27%

Impact of the crisis on MFIs portfolio, source : AMFI, September 2010



Lessons learned Resilience of MFIs and clients to political crisis Importance of having strong actors (size, procedures, advocacy ) Dialogue and collaboration/coordination between donors, NGOs and MFIs Dialogue between MFIs and affected clients (monitoring, image, restructuring, grants, …) Partnerships and creativity (e.g. co-projects Kompanion/Mercy Corps, ACTED/OXUS, …) to support the most-affected


Case study 2 : Afghanistan (1/3)

A war-torn country for the past 30 years … No state, no regulatory framework, very high insecurity and instability, no banking/microfinance sector until 2003

… but microfinance sector launched from scratch in 2004, mainly funded by a WB-led apex institution

Creation of MISFA in 2003 High-pressure for growth : from 0 in 2003 to 100 mUSD industry in 2008



Source: Mix Market



Lessons learned Importance of professionalization of MFIs and risk-management before focusing on growth Difficult to recruit top-managers Necessary involvement of publics donors and DFIs to support birth/strengthening of the sector/delayed profitability Get deep field knowledge (cultural, political risks) and focus on safer areas Still possible to develop an ambitious/commercial microfinance industry in such a context Growth opportunities offered by high demand/low offer


Case study 3 : DRC (1/3)

A post-conflict country … No state, no regulatory framework, high insecurity and instability, no banking/microfinance sector until 2005 Gradual stabilization and post-conflict situation since 2006

… but no major microfinance initiative/strategy launched in the meantime

Total MFIs portfolio in 2010 : 60 mUSD ; 2 big MFIs only Lack of ambition of donors/NGOs, still very much in an emergency approach Or weak decisions: let’s build local capacities and that’s it



ACTED project in Kivu (from 2006 to 2008) OLB : 200,000 USD in 18 months Targeting marginalized communities NGO approach : financial + non-financial services



Lessons learned Some similar to Afghanistan (resilience, deep knowledge, risk-management and portfolio quality, capacity building, etc …) Public donors/government still uncomfortable with microfinance in post-conflict strategies Gap may be more important with marginalized/rural communities (lack of market, logistical issues, capacity building) Smaller loans, shorter terms, bigger groups, high credit files rejection Reputation is not reality Needs to welcome international actors who can bring professionalization to the sector and leverage donor funding


Conclusion

Summary lessons learned : Big variety of crisis/situations MFIs can prosper during chronic conflicts or resist to sudden crisis Importance of adapting to the context (slow growth hence delayed profitability, field knowledge, capacity building, products) Gap between mainstream clients and marginalized communities may be higher than other contexts Importance of partnerships/dialogue with donors/DFIs/NGOs for strategy definition/funding/quick response Importance of having strong/established MFIs to withstand shock and bring professional approach


Thank you !

Contact : Michaël KNAUTE

CEO OXUS Development [email protected]

www.oxusnetwork.org+ 33 6 74 61 36 42

[email protected] microfinance role in conflict and post natural disaster areas michaël knaute ceo...

Documents

case study

southern kyrgyzstan

mix market slide

postconflict slide

mfis dialogue

areas microfinance

mfis portfolio

affected clients