Microfinance Role in Conflict and Post Natural Disaster Areas Michaël KNAUTE CEO OXUS Development Network

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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, : chronic conflict/crisis  DRC, : 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

Case study 1 : Kyrgyzstan (2/3) As of 9/1/2010Osh oblastJalalabad oblastTotal Active borrowers67,53749,519117,056 Affected borrowers5,989 (8,9%)1,224 (2,5%)7,213 (6,2%) Written-off loans487 (0,7%)256 (0,5%)743 (0,6%) Amount written-off193 kUSD74 kUSD267 kUSD Restructured loans5,119 (7,6%)380 (0,8%)5,499 (4,7%) Amount restructured5,252 kUSD321 kUSD5,583 kUSD Total loan portfolio kUSD Amount restructured/ total loan portfolio 3,27% Impact of the crisis on MFIs portfolio, source : AMFI, September 2010

Case study 1 : Kyrgyzstan (3/3)  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

Case study 2 : Afghanistan (2/3) Source: Mix Market

Case study 2 : Afghanistan (3/3)  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

Case study 3 : DRC (2/3)  ACTED project in Kivu (from 2006 to 2008)  OLB : 200,000 USD in 18 months  Targeting marginalized communities  NGO approach : financial + non-financial services

Case study 3 : DRC (3/3)  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 Network