Abstract
This study looks at the role micro‐enterprise lending have played in the household reconstruction process during 1996–2002 in Bosnia and Herzegovina (BiH). Bosnian households were severely affected by the conflict that resulted in destruction of household financial, physical, human and social assets leading to significant increase in household vulnerability to risks. This vulnerability is at the core of the research framework. We analyze critical household needs in BiH post‐conflict environment in order to understand how people coped with them and to what extent these efforts impacted their vulnerability. This paper claims that micro‐enterprise credit in BiH stimulated household reconstruction as it provided an efficient and long lasting coping mechanism for households after the war. For most clients micro‐enterprise credit helped at least to sustain their household self‐employment activities. Income generated from micro‐enterprises was perceived during the research as the most efficient coping mechanism among households affected by conflict so as to fill some of their most important needs over the reconstruction period. It is unquestionable that the success of a sustainable microfinance sector development has been due to the implementation of a structured and standardized minimalist approach. However, on the basis of the results presented in this paper, it appears that microfinance and related services could play a more substantial reconstruction role in post‐conflict areas. A thorough analysis of household needs informs that in BiH there was a significant need for other credit and business development services. Therefore, this paper claims that there is a need for a more integrated approach including various financial and non financial services in post‐conflict settings. As each conflict destruction and consequent reconstruction is very specific, the elements of this package will slightly differ across settings given the critical, priority needs to be satisfied. The integrated approach challenges the goal of reaching high profits in the short‐term while providing grounds to advocate for reasonable social returns over the entire reconstruction period. If a policy framework that balances financial and social returns in a longer period of time is in place the integrated approach does not preclude a development of a strong sustainable microfinance sector in the longer term. Copyright © 2004 John Wiley & Sons, Ltd.