A borrower in Iraq. We obscure the identities of many of our borrowers in conflict zones for their protection.

Few people question the morality of micro-lending. But when it comes to making loans to borrowers in conflict zones, my first question is, "Is it moral?" More on this later. First, I think it's important for people to understand the realities of conflict zones. 

What is war? Aside from violence and destruction (which has a lengthy history of thought and regulation), war is defined by Clausewitz as “just an extension of politics by other means.” He also asserts that, in order for a country to be successful in a war, a trinity of political leadership, the military, and the civilian population must be in harmony.

Today, this doesn't apply to most wars. The majority are being fought as insurgencies, a portion of a country’s population fighting their sovereign authority in an armed rebellion. In this model, the insurgents and the insurgents' political leadership are a singular, hostile force, while the government authority struggles to retain its authority through political leadership and the military (a notable exception being military dictatorships). The civilian population in insurgencies are the center of gravity and, in the end, this civilian population will decide who wins the conflict.

Counter-insurgency strategists tell us that the most effective way to fight this type of war is to focus on gaining and retaining the support of the non-insurgent civilian population. This has to happen in order for the government to cut off resources and degrade the combat capabilities of its enemies.

So what does this have to do with microfinance?

Microfinance helps build local economies, decrease unemployment, and improve living standards. These are all critical elements in civilians feeling satisfied and pacified, making them less likely to join an insurgency. This is another reason that many social enterprises and development funds deploy microfinance programs in conflict zones. Counter-insurgency campaigns do very similar things to give local economies the breathing room to grow and create stability.

This is where the question of morality comes in. When investors inject capital into communities through microfinance before security is established, there can be some very negative consequences. While its true that increased economic activity can draw people away from conflicts, it can also create more risk for the civilian population. Often, people with strong livelihoods become targets for insurgents to extort revenue or seek retribution. In extreme cases, economic activity can lead to "spectacular attacks" like market bombings.

This happens because insurgent organizations have no legitimate revenue stream to fund their organizations. In Afghanistan, for example, the Taliban funds their operations with overseas donations, narco-trafficking, and extortion.

Recently, Michael Looft, Kiva's Regional Director for Europe and the Middle East, visited Iraq and asked field partner Relief International what they thought about this. They replied that in areas where microfinance institutions operate in Iraq, there are frequent disruptions of daily work due to destruction and closurers. These incidents impact businesses' income, which can affect borrowers' ability to repay. The gist is that their clients are running businesses in a dangerous time, and their success could also make them a target.

If this is the case, is it moral to conduct microfinance in conflict zones? I believe the answer lies in Lesson 16 of Colin Powell's rules of leadership: "The commander in the field is always right, and the rear echelon is wrong, unless proved otherwise."

In terms of microfinance, I translate this to mean that the borrower is always right unless proven otherwise. The borrower has the best understanding of their security and should make the decision that is best for them. So yes, it is moral to fund loans in conflict zones, as long as the borrower has agency over the terms of the loans. And of course basic safety precautions should be taken when possible. For example, Kiva takes steps to concel borrowers' identities when posting loans.

The reality is that no situation is ever 100% safe, but entrepreneurs have better information than lenders most of the time. On top of that, the possibility that microfinance may shorten a conflict is morally justifiable to me. 

Kiva borrowers in Iraq with their identities protected.

Next Thursday, June 20th, this blog series will be continued by Jeffery Nelson with his post "Swords to Plowshares: Is Micro-finance the proper tool for post-conflict zones?"

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