Microfinance and Social Impact in Post-Conflict Environments

This paper focuses on the experience of women village banking clients in Guatemala, nearly ten years after peace accords ended 36 years of civil war. The paper:

• Analyzes literature on issues specific to microfinance, including microfinance and social development goals, village banking and post-conflict microfinance;
• Presents studies and interviews with microfinance practitioners regarding microfinance and social impact;
• Explores the social impact microfinance may have in post-conflict situations;
• Presents the author's research from Guatemala on the effect of group lending, particularly village banking on social capital construction.

The paper identifies the following factors that affect the potential success of microfinance at meeting social goals:

• External factors:
  • Gender relations;
  • Racial, ethnic or caste relations;
  • Macroeconomic and political context.
• Internal microfinance institution (MFI) - specific factors:
  • Social mission;
  • Program design;
  • Success at economic impact;
  • Staff competencies and incentives.

The paper lists the following positive effects of post-conflict microfinance:

• Social capital construction;
• Rekindling of social interaction;
• Women's empowerment;
• Smoothing refugees re-entry into communities;
• Reconciling ethnic groups.

The author lists the challenges that post-conflict microfinance may face, and concludes that:

• Microfinance group lending can meet social goals;
• Guatemala's post-conflict microfinance industry has seen social capital construction and other social effects.

Finally, the paper provides:

• Recommendations for microfinance practitioners, and donors;
• A list of areas for further study.