Resilience and Responsibility
9th European Dialogue Spotlights Excellence in Microfinance in Crisis Contexts
The European Microfinance Platform published earlier this month the 9th edition of the European Dialogue. Entitled Resilience and Responsibility, it focuses on the topic of the 2015 European Microfinance Award recognizing excellence in microfinance in post-disaster/post-conflict areas & fragile states. Resilience and Responsibility, which can be read online here and downloaded as a PDF here, is an opportunity to bring to a wider audience some case studies of how microfinance institutions (MFIs) can support clients, the key issues which emerged during the assessment phase, and extracts nine factors which exemplify the emerging best practice in this field.
This is a topic that is prominent in the zeitgeist. The past half-century has seen a reduction in extreme poverty and a massive increase in the global middle class, but on a shorter timescale, the last twenty years have been less hopeful in important respects. The demise of Communism was supposed to herald the End of History, and the triumph of liberal democracies co-existing in relative peace and prosperity. Instead, we find ourselves in a young century with the spread of the cancer of terrorism, civil and ethnic conflict, a growing number of fragile states, uneven development progress, massive displacement of people across borders and the threat of climate change – which cruelly affects the vulnerable and the poorest the most.
Conflict, threat and vulnerability continue to affect millions, and what these enduring challenges have created, in the words of the International Committee of the Red Cross’ Peter Maurer, is a world in which “fragility has become the new norm…beyond the traditional dichotomy of war and peace, states of fragility are multiplying, driven by economic and environmental stress, poverty and injustice coming together in an explosive mix”. Global-scale conflicts may be a thing of the past, but rapid population growth, urbanisation, climate change, displacement and intra-state conflict has meant this ‘fragility’ is a part of life for more people than ever before.
After major crises – natural or man-made – populations experience critical levels of poverty, insecurity and instability. Conflicts and disasters affect various levels of society, with impacts in the short and long term. The poorest segments, with the volatile and unpredictable incomes typical of the global poor, and the increased susceptibility to shocks that entails, are doubly affected: they are, by any reasonable meaning of the term, vulnerable. They need protection, they need help in crises, and they need resilience to be able to re-build their lives when hope appears lost.
A post-disaster or post-conflict context has many effects. It increases the risk of poverty traps over the short and long term. Poor households’ incomes decrease, productivity of economic activities decreases, investments are impaired, market opportunities are reduced, trust and social relations are weakened, and health, housing and shelter conditions are worsened. That is, poverty is not just a household-level consequence of a crisis; but the whole community and economic value chain is affected; the re-establishment of normal socio-economic conditions is undermined. A negative feedback loop of poverty traps can emerge: incomes fall and become more volatile; productivity decreases; markets worsen; infrastructure decays; movement of goods deteriorates; and social cohesion suffers.
Microfinance institutions suffer in crises too. Non-performing loans can skyrocket. Deposit-taking institutions may see a run on savings for which they are ill prepared. There is pressure to forgive debt, to write off loans, even as portfolio quality remains a key driver of funding: how to balance the need for future outside liquidity against the welfare of borrowers struggling today?
Resilience and Responsibility seeks both to outline the key challenges that institutions face in providing resilience in these contexts, the nine factors for success which emerged (Immediate Humanitarian Response; Adapting Core Financial Services; Awareness Building & Psychological Support; Innovating With Products; Planning Ahead; Making Partnerships; Taking Care of Staff; Ensuring Financial Sustainability; and Leading by Example) and to give concrete examples of how these can be done. The paper begins with a summary background of the particular challenges that MFIs face in post-crisis contexts, how those challenges vary depending on whether the crisis is acute or protracted, and the particular opportunities for MFIs to make a positive impact, increasing the resilience of clients and the institutions themselves in the face of extreme vulnerability.
The Dialogue also provides case examples from among the ten Award semi-finalists of how institutions can match these factors to a range of contexts – from sudden natural disasters, to on-going civil conflict – and includes profiles of each of the ten organisations that made it to the semi-final stage.
Resilience and Responsibility draws upon the 2015 European Microfinance Award, an annual award with a prize of €100,000 jointly organised by the Luxembourg Ministry of Foreign and European Affairs – Directorate for Development Cooperation and Humanitarian Affairs, the European Microfinance Platform (e-MFP) and the Inclusive Finance Network Luxembourg (InFiNe.lu) to support innovative thinking in the microfinance sector.
In 2015, it sought to recognise excellence by answering the question: how can MFIs working in the most difficult environments balance their financial and social responsibilities, protecting the sustainability of the institution as well as the lives and livelihoods of their clients? Each year the focus is on a different topic and in 2016 it’s Microfinance and Access to Education – for more information visit http://www.european-microfinance-award.com/.