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Myths about Helping Small and Medium Enterprises in Post-Conflict Countries

Post-conflict economies share striking similarities regardless of region or era. Their economies are dominated by small and medium enterprises (SMEs), usually in the informal sector. Their banking systems have collapsed or credit has retreated to large companies and well-connected players. The rule of law is in shambles.  Once a cash economy is functioning, populations are settling and some basic security re-established, SMEs are one of the most powerful drivers of rebuilding economies, creating employment and incomes, and creating optimism and forward momentum following a conflict.

A Festive Truck is Loaded with Boxes of Tea, Cooking Oil, and Other Products at the Distribution Center of an Afghan Company that is Looking to Expand
A festive truck is loaded with boxes of tea, cooking oil, and other products at the distribution center of an Afghan company that is looking to expand, with an eye on serving Afghanistan's domestic markets.

OPIC helps channel private investment to help rebuild nations that are essential to America’s foreign policy aims, such as Iraq or Afghanistan.  SME programs, implemented with key partners, have been a core post-conflict strategy for OPIC in Afghanistan, Iraq, Liberia, and the Palestinian Territories. We have learned a lot from this activity (the hard way), including that some long-held beliefs are in fact myths:

Myth 1: Money is always the main problem. Often, the perceived risk of lending to SMEs—not an absence of cash liquidity in the banks—is the biggest roadblock to reviving robust credit activity.   Often banks need technical training and risk sharing to be able to effectively lend to  local SMEs.  Recent history of too much easy aid money, or loan programs with weak repayment discipline make it hard to set up new lending programs on firm ground.

Myth 2: Post-conflict governments are eager to help. Governments still reeling from devastating wars often have few resources to help SME investors legally or financially; they may be paralyzed by a lack of legitimacy; they may be so insecure about their power that they seek to control programs that should be left to the private sector; or they may try to direct loans to favored groups or regions.   As new, young governments stretched thin, they  may simply lack the human capacity to engage.

Myth 3: Your plans should be detailed, long-term, and “big bang.” The post-conflict business climate for SMEs is frustratingly fluid; laws, infrastructure, and levels of basic safety are all unpredictable. Thus, pragmatic, small-scale, savvy improvisations beat grand sector-wide plans. Begin with the possible, e.g., simple loans for SME inventory and working capital, and move later toward the desirable, such as leasing, and lending for real estate and fixed assets once legal frameworks develop.

Myth 4: Credit for SME entrepreneurs should always top the to-do list. Not everyone is an entrepreneur and many people in a post-conflict setting, as in the rest of the world, just want a steady job. Some post-conflict nations are in such a devastated condition that it makes more sense in the early months to have grants (not loans), large-scale labor creating programs, or other more immediate means of supporting affected citizens, like demobilized soldiers.

Myth 5:“We” know it all, or “they” know it all. Local staff may know their markets and cultures, but in a post-conflict environment they also may have political or ethnic affiliations that can be problematic. Development experts may have expertise and cross-country experience but they can be expensive and transient.  The right blend of local and global talent, as well as potentially enlisting bridge-building diasporas is key.

Perhaps the most important lesson of all:  avoid the pressure to spend too much money too fast with the wrong people. As OPIC CEO Elizabeth Littlefield said at the Council on Foreign Relations, the right support can help SMEs be a real boost to recovery and opportunity creation, stability and security.

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