Microfinance Centre

1
Role of Microfinance in the Reconstruction
Process in Bosnia and Herzegovina
Michal Matul 2nd Imp-Act global meeting May 2003,
Polokwane
Microfinance Centre for Central Eastern Europe
and the New Independent States
2
Content
Role of Microfinance in the Reconstruction
Process in Bosnia and Herzegovina

• Background
• Research objectives and framework
• Data and methodology
• Draft findings

3
A. Background

• Catastrophic conflict in Ex-Yugoslavia
• 1992-1995 200 000 persons killed1,5 million
  refugees 26 of population still displaced in
  1997
• Microfinance introduced in 1997 as a part of
  larger portfolio of activities aiming at
  reconstruction and revitalisation of war-torn
  communities
• Significant international support contributing to
  development of one of the strongest microfinance
  sectors in the region
• 45 microfinance programs in the beginning for a
  country of 3,6 million citizens
• LIP supports 17 strongest MFIs 50 261 loans 67
  million USD over 4 years
• Very successful financial performance
• Very standardized approach only enterprise
  credit delivery
• Growing global expertise in post-conflict
  microfinance but a very institutional
  perspective questions of impact not raised

4
B. Project objectives

• To understand the role of enterprise credit in
  the reconstruction process
• To set the stage for future program design that
  will be informed and tailored for post-conflict
  settings
• To develop a framework for impact assessment of
  post-conflict microfinance interventions that
  will be applicable by practitioners

5
B. Research framework
MCI CULTURE
BUSINESS LOAN
2) Impact on enterprise development
4) Unmet demand for financial services
ENTERPRISE
3) Impact of enterprise development on household
reconstruction
HOUSEHOLD
1) Impact of conflict on household (and
enterprise)
OTHER SOURCES OF INCOME
EXTERNAL FACTORS
CONFLICT
6
C. Data and Methodology

• Quantitative
• WB Impact Study data from the first round
  (IV-VII 2002)
• Enterprise focused
• N576 (Partner and BosVita)
• Clients (368) and non clients (208)
• Limitations
• No retrospective data
• Limited household data
• No good proxies for hidden characteristics

• Qualitative
• Primary research 27 focus groups and 16
  in-depth interviews
• Designed in a participatory way
• Experienced and skilled local team
• Successful logistic arrangements
• Sampling
• Client status
• Rural / urban
• Vulnerability
• Enterprise
• Discussion guides and PRA on
• Vulnerability
• Coping mechanisms (enterprise role)
• Loan use
• Retrospective MR (using rankings)

7
D. Findings impact of the conflict

• Conflict affected those forced to move from its
  living place during the conflict
• 31 of sampled respondents
• Conflict affected those still displaced
• 37 of those who were forced to move
• Those conflict affected are more vulnerable
• Vulnerability very high in BiH
• Reflected in high and growing financial pressure
  from having to pay for food, utilities, health
  and education
• Reinforced by transition from planned to market
  economy

8
D. Findings impact of business credit on
enterprise development (1)

• Who joins? (assuming that new client profile is
  the same during the reconstruction process)
• Conflict affected (38 of clients vs. 20 of
  non-clients)
• Still displaced and returnees
• Women
• Young and not registered enterprises
• Less vulnerable
• Who stays?
• 50-70 drop-out rates (only 15 of sampled
  clients have taken more than 3 loans)
• But those being conflict-affected participated
  longer and obtained bigger amounts

9
D. Findings impact of business credit on
enterprise development (2)

• What is the impact?
• No significant differences between clients and
  non clients
• The more one participates the bigger the impact
  is on business income and assets
• More significant impact among conflict affected
  households
• Confirmed by qualitative research access to
  business credit leading to facilitated launching,
  expansion, diversification and flexibility in
  adapting to fast changing market environment
• Mostly on less vulnerable having other sources of
  income, asset base, entrepreneurial spirit and
  ability to plan enterprise credit has triggered
  their businesses.

10
D. Findings role of enterprise development in
the household reconstruction (1)
Household reconstruction reducing vulnerability
(less difficulty in satisfying basic needs, lower
exposure to crises)
Business profits
5
importance
Humanitarian aid
4
Borrowing from formal sources
3
Remittances / finding job
Selling assets
State
2
Borrowing from informal sources
1
5
4
2
1
3
Access / frequency
11
D. Findings role of enterprise development in
household reconstruction (2)

• Enterprise type and size determines very strongly
  the vulnerability level
• Investment in enterprises (sign of enterprise
  development) has a positive impact on reducing
  household vulnerability
• For a majority of clients most of their business
  profit was used for household needs food,
  clothes, utilities and education, improve housing
  conditions
• In terms of applying enterprise development as a
  reconstruction tool transition from relief to
  development was done relatively more smoothly and
  efficiently in rural areas due to asset building
  grants

12
D. Findings unmet demand for microfinance
services (1)
Business loans (incl. agricultural)
Market linkages
Housing loans
demand
Business skills training
Consumer/health/ education loans
13
D. Findings unmet demand for microfinance
services (2)
Loan attributes importance