Paper
Microfinance and Conflict in Sri Lanka - Towards a Sustainable Socio-Economic Development in the North and East
How can microfinance help conflict-affected Sri Lanka?
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16 pages
This paper attempts to answer the question: To what extent are microfinance operations possible in conflict-affected areas, and what are the special adjustments that need to be made to project design, in order to potentially contribute to conflict transformation? The paper states that:
- Microfinance plays an important role in social and political development within conflict-affected environments;
- It helps poor people easily deposit and withdraw savings, thus helping them cope with external shocks and insecurity;
- However, microfinance in conflict includes more risks, higher operational costs, an unfavourable political environment, limited human resources and market distortions.
The paper examines the situation in Sri Lank and finds that:
- Microfinance institutions (MFIs) in the North and East of Sri Lanka face higher risks and operational costs than MFIs in other parts of the country;
- Repayment rates are worsening and there is a complete non-existence of training facilities;
- Demand for microfinance exceeds supply;
- Rising living costs, increased production for local markets, and the need to rebuild businesses lead to higher demand for loans.
The paper concludes that:
- The provision of microfinance services in post-conflict settings requires the same standards as microfinance in a non-violent setting;
- However, microfinance needs to continuously adapt to the rapidly changing requirements and demands in post-conflict and immediate-conflict environment.
The paper ends with a set of recommendations for development partners and practitioners operating in a conflict-affected environment.
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