On January 11, 2007, IFC’s Private Enterprise Partnership for the Middle East and North Africa (IFC PEP-MENA), organized a roundtable, “Reconstruction Microfinance in Conflict Affected Areas,” in Beirut, Lebanon, to share relevant international experiences with Lebanese microfinance institutions and banks.
International experts and practitioners with experience in microfinance operations in conflict-affected areas and natural disaster zones participated in the forum. Over 60 representatives from local microfinance institutions, donors, and commercial banks openly debated different approaches to better serve the market, which has been heavily affected by the recent conflict. They cited operational and financial challenges facing leading microfinance institutions, including damage to clients’ businesses, displacement and death of staff and clients, as well as asset destruction. Institutions witnessed the dramatic deterioration of their portfolio quality as a direct result of the conflict, with some Portfolio at Risk numbers increasing from two percent in July 2006 to 54 percent in August 2006.
Leading Lebanese microfinance providers and industry experts provided insight into development and post-crisis recovery efforts undertaken since July 2006.
The international speakers shared useful experiences about microfinance operations in Afghanistan, Bosnia and Herzegovina, Iraq, Pakistan, and the West Bank and Gaza. Participants from the West Bank and Gaza and Bosnia and Herzegovina highlighted the need for microfinance institutions to continue to lend selectively and rebuild their portfolio quality. They also advised that write offs should be considered on individual basis and not on a blanket basis.
Participants concurred that core principles, such as maintaining good portfolio quality and planning for cost recovery, should be followed to ensure long-term sustainability for the sector, while increased collaboration among the various stakeholders could support the growth of microfinance in Lebanon. They agreed to study the market and design products to meet borrowers’ new financial needs.
The microfinance institutions also recognized the need to engage in more active business planning in response to rapidly changing and adverse circumstances. Speakers highlighted the importance of immediate cash injections into affected areas to rebuild economic activities and urged the donor community to play a critical role in the rebuilding of the Lebanese economy by improving access to finance for small businesses.
Lessons Learned
Following the discussions, participants drafted lessons learned on microfinance in post-conflict areas, including:
- Microfinance is a development and not a relief tool and principles of best practice need to be adhered to in order to ensure the sustainability of the sector
- Sharing detailed information with other practitioners on issues such as security, product terms and conditions, and client information is mutually beneficial in an unstable environment
- Microfinance institutions should continue their operations and focus primarily on portfolio recovery
- Practitioners should work with surviving or emerging structures that have gained the trust of the population, because they already have a proven track record, credibility with clients, geographic outreach, and financial sustainability
- Short-term donor funds and low interest rates risk to distort the market and are not sustainable
- New demand and client needs caused by conflict, including small, flexible, short-term loans to support income generating activities must be met
- Microfinance institutions should provide a range of financial services and adjust the product design and delivery, especially to reduce cost
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Microfinance is a relatively young and growing industry in the Middle East and North Africa, and an integral part of IFC's strategic emphasis to provide access to finance to small business development, with an aim to reduce poverty. IFC seeks to support the development of commercial microfinance in the region through both investment and advisory services.
For additional information contact:
Egidio Germanetti
Communication Analyst
Tel: 5372+314
E-mail:
EGermanetti@ifc.org 
