Role of Microfinance in the Household Reconstruction Process in Bosnia and Herzegovina

This paper examines the role of micro enterprise lending in the household reconstruction process during 1996-2002 in Bosnia and Herzegovina (BiH). The study aims to explore in depth the ways and circumstances under which microfinance stimulates development of micro enterprises that are owned by households affected by the conflict.

The paper observes that MFIs were very successful in reaching their sustainability goals setting good foundations for financial sector reconstruction; however, the impact of MFIs would have been larger if a wider range of services had been integrated. This was not possible since:

• Further funding and support (from donors) to MFIs was subject to the financial viability of their credit operations, becoming a disincentive to the provision of comprehensive financial services to the clients;
• Most MFIs applied strict micro enterprise lending best practices and focused solely on lending to less vulnerable groups as it facilitated the attainment of the sustainability criteria.

This paper argues that:

• If a microfinance development policy framework, balancing equally financial and social goals, were put in place, it would encourage MFI innovation and delivery of a wider range of necessary services, thus increasing its added-value to the household reconstruction process;
• The plan for financial sustainability is necessary, but if the period for reaching it is extended, social returns will be higher.

The paper concludes that microfinance and related services could play a more substantial role in household reconstruction in post-conflict areas. This is possible only with more integrated approach and a microfinance development policy framework that balances financial and social returns over a longer period of time.