Microfinance and Social Impact in Post-Conflict Environments

Microfinance can help poor entrepreneurs to grow their businesses and lift themselves out of poverty. Its supporters also tout a range of social benefits, from social capital construction to women’s empowerment. But can microfinance rebuild community and achieve social goals in post-conflict environments where social ties have eroded? Research shows that it can, but a multitude of factors and considerations affect this outcome.

This paper’s focus point is the experience of women village banking clients in Guatemala, nearly ten years after peace accords finally ended 36 years of civil war. It begins with an analysis of literature on issues specific to microfinance, including microfinance and social development goals, village banking, and post-conflict microfinance. The second chapter presents existing studies and interviews with microfinance practitioners regarding microfinance and social impact. Chapter 3 explores the social impact microfinance might have in post-conflict situations. Chapter 4 presents research from Guatemala on the effect of group lending and particularly village banking on social capital construction.  Factors are analyzed that may affect microfinance’s success at meeting social objectives in post-conflict situations. Key points and common themes from the research are identified, and policy suggestions for microfinance practitioners and donors as well as topics for further study are recommended.