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> 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.

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