Lending in a Conflict Region: Good to Know

If you have recently made a loan to an entrepreneur in South Sudan or are considering lending to someone there you may be curious to know how the recent civil unrest might affect your loan.

There isn’t a simple answer to questions about risks of lending in the developing world but we want to make sure you have as much information as possible so you are able to lend responsibly and understand the most likely outcomes of your loan.

Lending with Deki

Most of the developing countries Deki works in are fairly peaceful, but occasionally the situation changes and that may leave you a bit worried about the entrepreneur you’ve been supporting and the funds you’ve lent. In the majority of cases, patches of civil unrest and natural disasters will have little or no impact on your entrepreneur or loan, because the event in question is in a different geographical area.  For example, if Northern Togo experiences extensive fires, this will most likely have little or no impact on Deki entrepreneurs who are primarily based in the capital Lome, in the South of the country. Likewise Tribal conflicts in Southern Malawi will most likely have no impact on our partners in the North of the country.

Civil unrest in South Sudan

In the case of South Sudan though, the conflict has been very close to the area where our partner, Hope Ofiriha, works. In this instance we have been in frequent communication with our partner to try and understand the impact the conflict is having on their clients. While their clients have largely been unaffected, this could change.

If a loan has been provided and individuals are displaced after the loan has been disbursed, there is the possibility of the loan repayment either being delayed or not repaid at all depending on the situation. We work with small and medium sized partners who have active relationships with their clients, which means we should be informed if this type of concern occurs. If this happens, Deki will make sure we inform our lenders as soon as possible. Ultimately, if a loan is not repaid, the Deki lender will not receive some or all of their loan capital back.

Conflict and currency fluctuations

War and large scale disasters can also often devalue a local currency. Since Deki lends money, and accepts repayments, in the local currency this could mean the amount of money repaid is worth less when your entrepreneur makes repayments. For example, if you lent £10 to an entrepreneur in South Sudan and the currency devalues by 10% because of conflict, you will only receive £9 back instead of the full £10. Since this is a risk the Deki lender accepts, this could mean that even though a loan is fully repaid by the entrepreneur, you will not receive your full loan amount back. The currency devaluation will cause you to lose one pound of your investment.

In our experience, most currency fluctuations even out over the course of a loan, but this is not always the case. Less stable areas are often more entrepreneurs in need of loans but there also is a higher chance of the currency devaluing and you, the Deki lender, losing some of your investment.

Why lending in conflict zone is a good thing

When making a loan, if your biggest concern is loan security, you may want to avoid lending in “riskier” countries. On the other hand, if your biggest concern is the impact your loan could have on your entrepreneur, please do consider lending in places like South Sudan. Life and business continues to happen around conflicts and natural disasters, but often resources become much scarcer. This means the loans you provide via Deki are even more precious and important.