How does microfinance play a role after a crisis?

Like everyone else, I've been glued to the television this past week where images of the devastation and horror in Haiti flash constantly. Even just this morning a powerful aftershock rumbled the capital of Port-au-Prince, a 6.1 magnitude, which thankfully wreaked little additional damage (what was left to damage?). Aid continues to pour in, though it seems as if the Mississippi River were being squeezed into a narrow rivulet, given the extensive damage to the country's infrastructure and ability to absorb assistance. This horrendous situation has gotten me thinking about the role of financial services and microfinance in a post-crisis environment, both in Haiti and beyond.

For a number of reasons, microfinance in Haiti had a presence prior to the earthquake and providers included FINCA International, Fonkoze and ACCION. According to Mix Market there were about 150,000 borrowers in Haiti and over 190,000 depositors (for a population around 10 million). How will these microfinance institutions function now? From my (very limited) experience, I wonder about a number of potential dynamics.

Existing NGOs and microfinance institutions on the ground will likely be a channel for both subsidized and non-subsidized capital in the coming weeks and months. After the tsunami in Sri Lanka in 2004, the existing non-governmental and governmental infrastructure were leveraged for short-term relief. This will likely create new programs and projects for the institutions, as well as a complete reorientation of country-goals for the short-run. I imagine a large percentage of the capital given to the organizations at first will be subsidized, meaning that they expect it to be given out as grants or cash-transfers with no expectation of repayment.

How will the microfinance institutions juggle and juxtapose their existing credit programs with these new grant-programs? When is it appropriate to persist in recovering loans? Additionally, a flock of other organizations, some microfinance-oriented and others not, are arriving in Haiti right now. Many of these will give directly to the people, with no expectation of repayment, for both productive and non-productive purposes. How long these newcomers will stay and how intensely they will improve the local economy is hard to answer. However, research by seasoned development practitioners shows that in the well-intentioned maelstorm of post-crisis recovery, assistance sometimes props up activities that distort the local economy and are un-viable in the long-run. Practitioners face the ethically charged question of when asset-transfer/subsidized aid should be transitioned into un-subsidized financial services. Of course, immediate assistance should not be post-poned because of these concerns, I simply raise them as they have circulated among the development community. And, because the microfinance sector in Haiti will be faced with these issues immediately. A few years ago I participated in a working group organized by the SEEP Network to create Minimum Standards for Economic Recovery after a Crisis. A group of 35 practitioners from 25 development organizations, including donors/practitioners/banks, worked through many of these thorny questions and created standards and practical guidelines based on decades of practice in post-conflict and post-disaster relief. A common thread running through the standards is a call for coordination, transparency and communication between the myriad of actors involved.

Finally, the issues raised questions for me in the Indian context, where crises both man-made and natural, are all-too-common. What really confuses me is how to define a crisis; for example flooding occurs every year in pockets of the sub-continent and always causes fatalities (Orissa was recently the victim of floods). Or what about in parts of the Northeast that have been chronically rife with security issues, or districts that are recovering from communal riots? What kinds of financial services are appropriate in these areas and who should coordinate the efforts?