|
|
|
|
 |
|
UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 9 / February 2005 |
|
The Emerging Role of Microfinance in the Post-Disaster Context:
Some Lessons from Bosnia By Milan Vemic,[1] SME an MFI expert, Fingram Reversing the increasing vulnerability and destitution of the post-disaster context population requires development strategies and not just emergency and relief programs. The role of microfinance targeting poor and vulnerable population groups and working to stimulate local economies is particularly relevant in regions affected by the South Asian Tsunami Disaster. Prior to this tragedy, t he crisis in former Yugoslavia of the 1990s gave new rise to the discussion of the role of microfinance in the post-conflict context. And while the focus in the Balkans was on unfriendly regulatory environments and MFI[2] sustainability, the discussion has also provided useful insight into the possible development role of microfinance that might have value for comparative approaches and study of microfinance. The Bosnian Experience with Microfinance Bosnia Herzegovina, with a population of 3.5 million is a useful example of best practice for post conflict microfinance support to development. This country, home to microfinance investment since 1996, with more than 40 registered MFIs in 2004, today has one of the most competitive microfinance sectors in Central and Eastern Europe (C&EE) and the Newly Independent States (NIS). Of the region's top 20 MFIs by number of clients, 25% are in Bosnia and Herzegovina. Bosnian MFIs have also achieved some of the highest levels of MFI profitability. This Balkan post-conflict country has adopted relevant microfinance regulations and has allowed a number of independent microfinance institutions (for example Prizma, Mikrofin, EKI-World Vision, Mi-Bospo, Partner, and Sunrise). In Bosnia, the banking supervision agency promptly accepted that credit-only institutions, in fact, represent no risk to the financial sector. The authorities decided not to supervise NGOs and MFIs at all, as they view their task as overseeing the restructuring of the banking sector. So, the Bosnian laws (for the BIH Federation and Republika Srpska entities) prepared were relatively simple: they allowed NGO-credit-only institutions to register, had very simple reporting requirements and there were no prudential supervisions put in place. Today, Bosnian MFIs assist potential and existing entrepreneurs and/or poor women and their families to address basic post-conflict needs, such as adequate shelter and sustainable livelihoods, which often leads to entrepreneurship. Addressing local economic development needs in the post conflict context, Prizma, for example, seeks to develop new financial services for poor and low-income women, innovating where there is a clear developmental need, client demand, and market opportunity. With seed capital from the United Nations and the US Government, Prizma began offering business development training and small loans to poor and low-income ethnic minority, returnee, displaced, domicile, and refugee women from a small office in the northern town of Bihac, Bosnia-Herzegovina in 1997. Today Prizma has 12,000 active clients. Prizma has two clear objectives as an emerging microfinance institution: strong social impact and long-term sustainability. Serving low-income women in post conflict context has indeed been a challenging task, but in 2001, Prizma was the first microfinance organization in C&EE and the NIS to receive an external rating. Following the achievement of financial sustainability in 2001, which is an achievement in itself, in 2002 Prizma received a follow up rating, in which it was awarded G4*++, among the highest granted thus far. Microfinance as a Strategy in Disaster Situations While microfinance is typically viewed as an economic development tool, it can also serve as a relief and survival strategy in emergency and disaster situations and in the transition from relief to development aid, as the example of Prizma shows. At the household level, microfinance can serve as a vulnerability reduction strategy by promoting access to assets and increased production. Microfinance is a better long-term option than continued humanitarian assistance because it stimulates development at the local level, creates employment, increases incomes and expands economic opportunity. In the relief and reconstruction context, microfinance reduces vulnerability by providing access to capital, thus protecting clients against future risk by diversifying income sources and replacing capital that might be lost in a disaster. MFIs can also provide savings services. As women seem to benefit from access to MFI loans to a greater extent than men do, microfinance programs that target female clients are likely to have the greatest impact on household well being. Efforts to target female clients might result in a relatively more urban and affluent clientele, while more vulnerable rural groups, such as female headed households, might decline within the client population. Recommendations for the Post-Tsunami Scenario A fter the tragedy of the South Asian Tsunami Disaster (1) expansion of lending services to rural female clients is a means of maximizing program impact, and (2) if the organizational mandate includes enhancing well-being among the disadvantaged, additional criteria that facilitate selection of the most vulnerable households must be applied in the selection of clients to maximize rural program impact and ensure that services are accessible to those who are most in need. If microfinance programs operating in South Asia and similar post-disaster contexts with vulnerable populations are successful at increasing asset levels, building economic resistance at the household level, reinforcing local coping strategies, increasing economic opportunities, and enhancing individual wellbeing, the livelihoods of poor populations can gradually be restored. Such strategies oriented towards the most vulnerable post-disaster groups are not the only solution for future disasters. H owever, it is an opportunity to increase local coping capacity and resistance, thus minimizing the negative impacts of these tragic events. Setting a country’s MFI role in post-conflict and/or post-disaster context at a level initially consistent with humanitarian and then development needs, with macroeconomic balance and avoidance of restrictions is a demanding task for any country. Making a once-for-all change may be insufficient to meet the economic and business objectives of a particular country in a constantly changing environment. Ultimately this depends on which reforms are wanted the state of development of the microfinance subsector, the visions of potential and existing microfinance leaders. Authorities in transition economies should maintain a considerable degree of flexibility in managing the MFI regulatory environment and exercise other instruments of supporting microfinance development as well. Whether this flexibility should be carried out to the degree of independently functioning MFIs depends on the situation of the particular country. At the same time post-conflict and post-disaster environment is a challenge for potential MFIs. An MFI planning to operate in such areas really needs to make strategic decisions that may compromise their short-term sustainability. And while in the short run it would make sense to reduce objectives by using microfinance to alleviate poverty, as conditions improve a more viable market for a sustainable MFI might become possible. This shall indeed require offering services that are preferred by entrepreneurs, streamlining operations to reduce costs, motivating clients to repay loans, to access repeat and larger loans, and charging full-cost interest rates and fees. Selected References
Selected Contact Institutions
Footnotes [1] Milan Vemic, m.sci., SME an MFI expert, Serbia. Contact e-mail fingram@eunet.yu [2] The Microfinance Gateway ( www.microfinancegateway.org ) defines MFIs as organizations that offer financial services to the very poor. Gradually the term MFI has come to refer to a wide range of organizations dedicated to providing these services: NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions and parts of state-owned banks.
|