The Military as a Provider of Microgrants in Conflict Areas

> Posted by Danielle Piskadlo and Jeffrey Riecke, Senior Program Specialist and Communications Associate, CFI

In Iraq and Afghanistan, about 23 and 35 percent of people live below the poverty line. Both countries have microfinance industries, though they’re small and financial inclusion rates are low. In the effort to combat these low levels of inclusion, an unlikely financial service player, the U.S. military, is using the principles of microfinance to optimize fund dispersal by local ground commanders in order to strengthen communities in conflict areas.

Charkh, Afghanistan

We recently become aware of this military effort when contacted by a group of West Point cadets interested in learning more about microfinance. In the conversation we learned that U.S. military ground commanders in Iraq and Afghanistan each receive about five thousand dollars a month to allocate as they see fit toward development projects in the local communities where they are posted. The money can go towards public roads, schools, medical clinics – projects contributing to community rebuilding and reconstruction. These allotments from ground commanders are part of the Commander’s Emergency Response Program (CERP) developed in 2008. Currently, ground commanders don’t have specific guidance on how they should allocate these funds so they often rely on suggestions from village elders, who the cadets recognized are sometimes biased and self-interested in the projects they recommend.

The cadets are therefore working to develop a portfolio optimization template – based on the principles of microfinance – to guide ground commanders on how to allocate their CERP funds as microgrants to help raise the standard of living within local communities. The project objective is to enable ground commanders to allocate their funds as loans to small-businesses, entrepreneurs, and individuals, facilitating income growth, economic development, and community strengthening. The template is modeled after microfinance practices because of similarities in distribution methods found between microcredit loans and the financial aid provided by ground commanders through CERP funds.

The cadets identified economic development and stability as important goals for the military that in impoverished regions help to reduce the number of people attracted to extremist behavior. Ideally, utilizing this financial support in the form of microgrants to start and grow businesses would help mitigate the extremism that often results in regions of conflict, violence, poverty, and instability. Using CERP funds to provide microgrants is a grassroots way of helping to kick-start economic development in areas where the microfinance sector is otherwise nascent.

To design the tool, the team is utilizing historical microfinance loan data on dimensions including return on investment, loan size, and intended versus actual loan use, and reaching out to members of the microfinance community.

According to the MIX, Iraq’s lending portfolio is about US$ 143 million across 66,566 borrowers. Afghanistan’s US $136 million across 251,846 borrowers. For comparison, the nearby Azerbaijan microfinance industry has US$ 3.2 billion in loans and 792,666 borrowers. Iraq and Afghanistan have populations of roughly 33 million and 30 million, while Azerbaijan is about 9 million. Financial inclusion in Iraq is at about 11 percent, and in Afghanistan 9 percent.

There is a need for available capital in many conflict countries where U.S. military ground commanders have capital and microfinance providers are scarce. Whether the military is in a position to act effectively as grantors is a question that remains to be seen. Regardless, if ground commanders continue dispersing funds within impoverished and unstable communities where MFIs are not present, and employ the principles of microfinance in doing so, that seems to be an advance for both the military and microfinance communities.

Image credit: isafmedia

Have you read?

Mobile Money in Afghanistan: An Uphill Battle

Mobile Money’s Newest Output

Fighting for Inclusion in an Expectant Brazil