Rural Finance in Conflict Environments

In recent years much has been published on the subject of microfinance in post-conflict countries. However, very few experiences have been documented with regard to microfinance operations in on-going conflicts. This short paper describes how the Small Farmer Cooperatives Limited (SFCLs) of Nepal have reacted to the conflict in the country. There may be a number of lessons to be learned for other microfinance organisations in conflicts around the world.

The microfinance sector of Nepal is very rural-focused and quite diversified. The state has a large share in rural microfinance (Rural Development Banks), while there are a number of private Microfinance Banks and the cooperative movement. The Maoist rebels have caused severe problems for the banks, private MFIs and many SFCLs. Only Community-based Savings and Credit Cooperatives, informal savings and credit groups and women-managed SFCLs have not been attacked by the rebels. Thus it is clear that the the rebels are choosing to tolerate MFIs which they perceive to be not-for-profit, people-owned, non-exploitative and not affiliated with the government. Although SFCLs are member-owned, they originate from a former government development programme and thus, many have been attacked.

It is interesting that the conflict has had a “cleansing” effect on the microfinance sector of Nepal. Commercial banks, government MFIs and weak cooperatives have been driven out or further weakened, while non-government MFIs and SFCLs with active members, capable leaders and sound practices have been left alone or have recovered quickly from an attack. If members really feel that the MFI or cooperative is theirs they will stand up to the conflict parties or re-build their organisation after an attack.

This message has led to the GTZ-implemented project Rural Finance Nepal (RUFIN) introducing conflict transformation training for SFCLs. The training has one core message: SFCLs can protect themselves from the conflict and even help to solve it by ensuring their cooperatives work properly and according to their mandate (helping the poor), clearing up all internal conflicts, empowering women to take part in decision making and trying to include disadvantaged groups, such as ethnic minorities and low castes, better.

In the future, GTZ-RUFIN will focus on building capacities of SFCLs and their federations and raising conflict sensitivity amongst their leaders and members. Building capacity for good financial and operational performance is nothing new to microfinance practitioners. It entails training and advice on issues such as e.g. loan appraisal, product development, accounting, internal controls, business planning etc. In the case of SFCLs cooperative-specific capacities are also needed: members must learn to actively control their leaders through the annual general assembly; leaders must learn that they are accountable to their members; cooperative managers must learn how to run their operations like businesses. Business planning training for SFCL managers will also cover aspects of corporate social responsibility, stressing the importance of addressing conflict root causes through women empowerment and social inclusion.

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