Libya: Microfinance in Post-Conflict Scenarios

The conflict in Libya

Libya is a state in North Africa, included in the region of the Maghreb. As a result of the failed coup d’état in 2014, many Islamic and local militia control small pieces of territory and the Libyan Council is incapable of restoring a sort of control to these sub-states. Indeed, this situation has divided Libya into two parts, Tripolitania and Cyrenaica, with one controlled by the General National Congress (GNA) and the other one governed by the Libyan National Army (LNA), respectively. Both sides are sponsored by different countries, leading to the theatre of an international war without a clear solution in the immediate future.

Photo Source: Al- Jazeera, ECFR; March 2016

Post-conflict microfinance and its applications

Time passes but the biggest question that remains central for Libya and stability of the entire region is how to rebuild this country again. Indeed, the conflict has destroyed most of the hard infrastructure, such as bridges and roads, and soft infrastructure, such as the education system and business mindset. Many militias and soldiers control and pillage small pieces of territory, imposing their rules and laws.

These scenarios were sadly typical in many regions of Africa in the ’70s as a result of a collapse of state or breakout of a civil war, bringing many solid states to poverty, starvation and emigration. Many economists and private institutions used microfinance as an instrument for pursuing the development of those areas. Microfinance is founded on a solidarity group scheme or peer mentoring. In this scheme, the microloan, given by the microcredit institution, is granted to a group of borrowers, generally composed of 5 or 6 persons, that form a group to access credit. The institution will not provide the loan singularly. The loan is granted to a single borrower separately in the group during different periods. The first borrower has to pay back the loan to allow the second borrower to get access to the loan, and the second member is connected in the same way with the next member and so on. The scheme is adopted to make each person of the group follow safe credit risk behaviour and to force other members to join a group with low-risk people. The solidarity group scheme solves the problem of screening for the microcredit bank, which cannot sustain the high costs of screening and selecting lenders in developing countries.

In this article, I will investigate the most significant microfinance program in post-conflict environments of two different countries that could be a productive guideline for the future Libyan reconstruction: Angola and Liberia.

KixiCredito: The Angolan Case

In the Angola scenario, presented by Allan Cain in an academic paper written in 2007, the war provoked three issues and was extremely difficult to solve by the government. The conflict brought a huge uncontrolled migration from the countryside, where militias were mainly fighting, to the Angolan capital city of Luanda. The migration and the complicated economic situation created consolidated informal markets. The second issue concerned the housing of those refugees because most of these people moved to suburban districts of Luanda where there was a total lack of essential services and where most of the housing was built appallingly and without any ownership of the land. From an economic point of view, inflation was incredibly high and caused difficulties in reaching solid capital accumulation and limited the ability for poor people to access credit.

KixiCrédito entered in the financial markets in this context. The principal aim of this institution was to rebuild social capital and formalize informal markets. The main products offered by the microcredit institution were microloans. The microloans were released based on a social solidarity scheme of training groups, comprised of 15 to 20 people. The first microfinance program, the Sustainable Livelihoods Project, contributed to the creation of social capital through the solidarity group scheme and produced an effective way of developing enterprises and reducing urban poverty, as shown by Cain.

Urban poverty reduction has been implemented thanks to a special department of the microfinance institution, KixiCasa, focused on housing microcredit. The main goal was strictly related to the fundamental connection between business and domestic affairs in families with a small or medium enterprise. For example, entrepreneurs use money from their enterprise to pay education expenditures. KixiCasa aimed to support housing expenditures and domestic expenditures through longer loan repayments, and their clients have been widened to include non-land owners. The lenders had to provide loans only to invest in or increment existing housing or domestic expenditures. This was one of the most innovative steps of the program, as argued by Cain, because it determined a substantial regularization of the land title for existing houses in peri-urban areas, where it was still uncertain and illegal according to the law.

LEAP: The Liberian Case

In Liberia, after the war, the Association of Evangelicals of Liberia promoted a microfinance program known as the Local Enterprise Assistance Program (LEAP) in 1994. The microfinance program was analyzed and examined by USAID in the economic paper, “Microfinance Following Conflict: Introduction to Technical Briefs, 1–7.” LEAP was implemented in the capital city, Monrovia, and secondarily expanded to the rest of the country after the second civil war. The financial services of the institution took place using the village banking model for all entering clients. The village banking model uses the hierarchies of the village in order to deliver the loans. For more structured businesses, LEAP offered the solidarity group scheme.

The implementation of this program uncovered two significant difficulties, as reported by the authors of the paper, including issues in funding challenges and client mentality. The funding matter was due to an unstable scenario for a development-oriented program; indeed, the relief-oriented contribution considers development projects as something different from their relief-oriented mandate. At the same time, short-term funding was not successful in boosting the microfinance program because it did not match with the longer commitment necessary for the development of financial services.

On the other hand, the institution faced the “handout mentality” in the Liberian population. The Executive Director of LEAP’s program, Bill Massaquoi, explained that in the beginning their clients expected a one-time handout and this problem was solved only after a strong educational project that explained to the lender the higher utilities gained by continuous access to financial services.

Namaa Tamweel, the Libyan way and key lessons

In 2017, the UK Ministry of Development and International Cooperation selected ATIB as the strategic partner to establish a microfinance institution in Libya, with project implementation controlled by Expertise France. From this collaboration, Namaa Tamweel was born as the first microfinance institution and the only Islamic microfinance provider in Libya. Through this project, the partners wanted to invest in microfinance as the central mechanism in order to bolster strong entrepreneurship desires among the population because, when examining the Libyan economy, it is possible to ascertain a high unemployment rate, a significant informal sector, an increase in willingness for entrepreneurship and a challenging access to finance.

From my point of view, it is possible to find three key lessons from Angola and Liberia that Namaa Tamweel could use smartly in order to improve its action and prevent the same mistakes. The first key lesson is that, due to the extremely difficult environment, the microfinance institution will require a higher cost structure and the achievement will be slower. Generally, a civil conflict provokes not only the destruction of infrastructure but the mobilization of the population and many unemployed soldiers that substantially contribute to destabilizing the entire country. The second lesson is regarding the implementation of microfinance, which is very useful but needs to be applied in the context of the peculiarities of each situation, such as KixiCasa in Angola, and must involve every sector of banking, especially payments. The last key lesson to underline is the central importance of the education of all stakeholders of the economic environment in order for them to gain a basic understanding of this financial service and its mechanisms.

In conclusion, microfinance action is an extraordinary institution to simplify access to credit for the poorest fraction of the population after a civil war, and it could be even more helpful with the proper control and implementation.



I am an Italian student, born in Milan, and currently enrolled in Universidad Carlos III de Madrid. During my Bachelor degree, I have acquired a robust capability of learning through stimulating lectures and profitable teamwork cooperation. In those years, I have built a deep interest in economic development and macroeconomics, and I am now specializing in those subjects in my Master degree. I also lived in Australia for three months, where I gained a passion for travelling and discovering the world. In the future, I plan to gain more experience and knowledge about the Maghreb area due to the current situation.

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