There are insurgencies, wars, political instability, class, race, and religious conflicts all over the world. In conflict zones, business is disrupted and financial instability is the normal operating procedure. How do microfinance institutions plan for this instability in conflict zones?
What happens to business and normal living in conflict zones? Electrical power and computers are disrupted. Transportation becomes expensive and unsafe. Microfinance institutions branch offices close due to security concerns, and that leads to loans not being given or repayments collected. Unstable economies have rampant inflation, so operating costs can skyrocket. Work in these environments becomes expensive and dangerous, and business, which repays the loans microfinance institutions’ make, is similarly affected. People–borrowers, business people, and microfinance institutions staff members, can become displaced, and lose their homes and livelihoods.
Small scale economic activity continues, even in the most hostile environments. People need food and water, transportation, medical supplies and communication. But with the upswing in violence and the loss of structure and staff, fraud and weak internal oversight can impact how microfinance institutions conduct business. In conflict zones, both operational risks and credit risks are high enough that operations can be impacted. When inflation spirals out of control – a typical response to political instability and armed conflict – the need for funding basic necessities cuts into the ability of people to invest in a business or farming operation.
In Yemen after the Arab Spring uprisings in 2011, political instability was followed by armed conflict in a short period of time. An early microfinance instituions development program was cut short, as businesses and banks failed. The microfinance institutions found higher operational costs, significant safety concerns for assets and staff, disruption in loans and repayments, as businesses were burned, looted, and borrowers were killed, injured, or became displaced by the violence. With the infrastructure failing, the power and transportation systems failing, defaults occurring as inflation spiked, many of the partner organisations closed and left.
Experts in post-conflict development suggest resources should be spent in developing infrastructure, developing regulatory frameworks and political systems for oversight, and developing systems for transparency. For staff and local agencies, capacity building, training, and communication infrastructure is being developed. For microfinance institutions, determining when it is safe to return includes assessing operational and credit risk, inflation, and infrastructure. Always, in conflict and post-conflict environments, extra provision for loans that may default or be late are made.
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