New book on post-conflict statebuilding, economic development and microfinance

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Permalink Reply by Howard Clark on October 25, 2009 at 5:28pm

I remember reading a press release from a German bank operating in Kosovo, announcing that as its contribution to peace-building it would be offering microfinance at an interest of only 23% - a rate of interest that the German government would not have permitted domestically.

Let me recommend the latest edition of New Routes from the Life and Peace Institute in Uppsala. Its theme is "Pilfering the peace: the nexus between corruption and peacebuilding", which is available online at http://www.life-peace.org/default2.asp?xid=315

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Permalink Reply by Anna Ohanyan on October 25, 2009 at 9:02pm

Hi Howard,

Thanks for the note and the reference for the Life and Peace Institute in Uppsala. I look forward to reading the material. In regards to the high interest rates, actually they are quite common in developing countries where microfinance is practiced. They are explained partly by high administrative costs, which often includes a loan officer visiting the communities.

Best,

Anna

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Permalink Reply by Howard Clark on October 26, 2009 at 4:30am

Yes, Anna, but this is an investment in the bank's expansion.

My impression - but it is only impression that I haven't investigated - is that the German bank concerned managed to establish itself as the leading bank in Kosovo, a territory which has had the per-capita most expensive "peace operation" in history. In other words, this was shrewd business on their part, and either the local administration or the international administration should try to make sure that those profits are not simply "repatriated" to Germany but rather that the bank should fulfil certain social obligations wherever it operates.

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Permalink Reply by Anna Ohanyan on October 29, 2009 at 11:40am

Greetings to all,

This is a comment to Howard's notes that microfinance is being used for commercial purposes by financial institutions active in post-war regions . Indeed, that's the case. This commecialization of microfinance is often encouraged by some international organizations, such as the World Bank, as a sign that these financial institutions can offer microfinance on a long-term basis, thereby giving an exit strategy to developmental institutions. However, immediately in the aftermath of wars, commercial as well as socially oriented applications of microfinance tend to be applied (and I agree with William that microfinance has many benefits in such settings). Social applications are more focused on targeting specific ethnic groups, refugees, returnees, demobilized soldiers, etc. These two distinct applications of microfinance in post-war regions are supported by a very different aggregation of organizations (ranging from developmental banks, commercial banks, NGOs, etc). Managing the application of microfinance in post-war regions requires an understanding of the institutions that support the sector. Who shapes the policy, why and how, are key issues to explore if microfinance is to be enhanced as a tool of peacebuilding and conflict resolution.Delete Comment

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Permalink Reply by Peter Paul on October 26, 2009 at 7:26am

Thanks Howard for this article, i will explore the book. I would not agree more on teh issue of how the interest rates sometimes to me appear to address a hiden motive, many micro finance institutions and indeed international banks get into deprived communities under the pretext of helping communities out of poverty but the interest rates they charge are obscene. They only work to perpetuate the already desperate situation these impoverished communities are in. In most cases where there is any good, some of the beneficiries are typically not the very poor of the community which also further entrenches class divisions. The rational behind microfinancing is good but more needs to be done with more transperency to alleviate the suffering of the poor poeple. Peter

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Permalink Reply by William TARPAI on October 27, 2009 at 12:07am

Having promoted micro-financing and entrepreneurship training in Bosnia for more than 4 years, especially in rural areas that had been ethnically cleansed during the war, they were clearly helpful for promoting small scale private sector development. Promoting a business climate that gives incentives to entrepreneurs, and dampens the old socialist era tax collectors graft and corruption are vital.

I was always critical of the high interest rates, especially when the micro-finance offices were financially healthy, after the financing in large measure by the international community helped set them up.

Lots of work to be done - especially promoting better understanding of globalization, and linking to diaspora funding...

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