Microfinance as a tool for financial services reconstruction in post-conflict communities : a study of post-conflict microfinance in the Democratic Republic of Congo

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Southern New Hampshire University
Since its inception in the 1970s, modern microfinance has emerged as a strategy to reduce vulnerability of the poor and promote microenterprise. This dissertation proposes that microfinance plays an additional role as a tool for reconstructing financial services in post-conflict communities. During major conflicts, the provision of financial services is usually disrupted; and financial institutions are often targets of lootings by militia or military of factions in conflicts; resulting in weak, insolvent, and non-operational financial services sectors when post-conflict reconstruction begins. The Democratic Republic of Congo (DRC)'s financial services system was greatly disrupted by years of conflicts that ended in 2003. In the post-conflict DRC, the provision of financial services has shown some improvement, and an important share of this improvement can be attributed to microfinance. The central question becomes whether microfinance is an effective tool for post-conflict reconstruction of financial services. Using financial data from the DRC and surveys; this study, first, performed a trend analysis of outreach (employment, clientele, loans, savings/deposits) and financial performance (assets, profitability, efficiency, risk) of financial institutions using a microfinance approach; and second, compared the level of outreach and financial performance by financial institutions using a microfinance approach to those using a traditional financial approach; and third, compared the reconstruction level (business development, education, assets acquisition, and standard of living) of microfinance clients to the level of non-clients of financial institutions. This study found that, in post-conflict communities, microfinance - as a mode of financial services provision is active, agile, and is a better tool than traditional financial services in terms of outreach and some aspects of financial performance, at least in the early interim phases of reconstruction. When compared to non-clients, this study found that clients of microfinance institutions experienced greater business development, acquired more assets, saved more, and enjoyed a higher standard of living. All these reconstruction variables performed significant differences. The only non-significant difference between clients and non-clients was found in the area of education. Microfinance should therefore be considered as a tool for post-conflict reconstruction of financial services and be emphasized as an intervention in the early stages of reconstruction of financial services. (Author abstract)