Can microfinance heal wounds of war?

by Malika Anand and Samer Badawi
Washington, D.C. - Microfinance is about more than money. Financial services - including credit, savings and insurance - can empower the “unbanked”, helping them generate and sustain income. But these services can also spur solidarity and help war-torn communities rebuild and even reconcile.

Take Bosnia. Natasa Goronja, an expert in post-conflict microfinance (she earned her stripes as a credit officer in Sarajevo), says that although inter-religious interaction could not be forced or engineered after the war, Muslims and Christians came together as a natural consequence of economic life. Often, that interaction happened, literally, “across the counter” at a microfinance institution.

“I was often the first Christian a Muslim client had seen since the person who killed their brother,” recalls Goronja. “Clients would tell me that I was the first Christian they could trust.”

That kind of trust is a hallmark of the microfinance movement. It began with the idea that poor people, who typically lack the kind of collateral required for a bank loan, are just as “credit-worthy” as wealthier bank clients. In fact, some three decades after Grameen Bank’s Muhammad Yunus disbursed his first micro-loan, experts acknowledge that loan repayment rates among microfinance clients approach 100 percent worldwide, eclipsing those of commercial bank clients.

“People repay their loans because they value them,” says Elizabeth Littlefield, who heads the Consultative Group to Assist the Poor, the microfinance industry’s leading research and advocacy group. This is even more the case in post-conflict environments like Afghanistan, where CGAP set up a microfinance funding facility soon after the 2001 war. In little over a year, the number of microfinance clients reached the hundreds of thousands -- this in a country that lacked even the beginnings of a formal financial system.

In Afghanistan as in Bosnia, microfinance was in high demand because communities were eager to rebuild and needed loans to buy materials and finance construction projects. But by supporting that entrepreneurial spirit, microfinance providers also helped to recreate a sense of community from the rubble.

Indeed, many microfinance clients manage their debt as a collective, forming groups in which members come together for discussion, support and companionship. These meetings encourage not only repayment but also reconciliation among members. After all, for group loans to function, members need to trust each other and communicate. In societies devastated by distrust and destruction, microfinance can point the way back to a civil society.

Microfinance is not charity. And microfinance clients are not victims; they are individuals who are every bit as capable, dignified and productive as those who have not suffered the vagaries of war, natural disaster or endemic poverty. In all cases, microfinance offers survivors a chance to take back ownership and agency in their lives.

Microfinance has the added advantage of mobility. It does not require a large infrastructure or complex systems. Many microfinance branches around the world function with 3-5 staff members where credit officers visit clients in their homes and organise groups by village or block. Before commercial banks or even the government reach devastated areas, small, nimble NGOs can begin to offer microfinance services.

To offer microfinance services in post conflict areas, a few essential pieces must be in place. Program areas must offer a reasonable degree of security and safety for clients to carry out their activities. Furthermore, since maintaining timely loan recovery is difficult with mobile populations, clients must have a degree of geographic stability. Lastly, there must be a functioning cash-based economy. Microfinance can allow clients to take advantage of economic opportunities but it does not create them. For microfinance to function, people need access to productive resources, to be able to trade, and to carry and use money.

With security, stability and currency in place, microfinance providers have brought financial services to resettled villages and urban centres from Bosnia and Afghanistan to Liberia and Iraq. Although money cannot heal all wounds, microfinance can help restore hope, even for communities ravaged by war.


* Malika Anand and Samer Badawi work at CGAP, a global resource centre for microfinance. Learn more at This article is distributed by the Common Ground News Service (CGNews) and can be accessed at

Source: Common Ground News Service (CGNews), 12 December 2006,
Copyright permission has been granted for republication.
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Other articles in this series

Western aid should think again by Robert Myers
Islamist NGOs an integral part of Muslim societies by Azza Karam
Muslims “get” globalisation, but does it get them? by Mehmood Kazmi
Islamic banking – opportunity or threat? by Rodney Wilson