THE “PROMISING PRACTICES” CASE STUDY SERIES:

PROGRAMS, PRODUCTS AND SERVICES SPECIFICALLY DESIGNED TO REACH VERY POOR

PEOPLE

American Refugee Committee International, Three-Step Income Generation

Program

I. Context

A. Socioeconomic overview
In 1970, the world population of refugees was recorded at 2.3 million. Since 1995, the
number of refugees world-wide has increased almost yearly, bringing the figure to over
35 million in 2003.i This trend points to a disturbing change in the nature of conflict,
where combat is no longer centered on combatants, but affects and often even targets
the civilian population. Fleeing this violence are huge populations of refugees and
internally displaced, moving across nations. ii Since 1989, the Mano River region in West
Africa has been a site of continuous population movement due to brutal conflict, most
often directed at the civilian population.

Over the last ten years, conflict in the Mano River Basin has led to the flight and
displacement of over 1 million Liberians and Sierra Leoneans. These predominantly
female refugees and IDPs are spread over Liberia, Guinea, and Sierra Leone in an ever
changing mosaic of UN sponsored refugee camps, transit centers, IDP camps and self-
created encampments in local towns and villages.

B. Purpose of intervention
ARC designed the Three-Step IG Program in response to refugees expressed need
within the camps for alterative livelihood options, allowing them to supplement the basic
Refugee Flows in the
camp services without sacrificing their safety or dignity.
Mano River Basin
ARC’s IG programs targeted vulnerable, but economically active refugees with a
combination of grants, loans, and business development support. By focusing on capital
and training for micro-business development, ARC aimed to provide them with the tools
to become more economically self-reliant and to improve their living conditions.
C. Description of target group/clients/members
ARC’s Income Generation Programs are designed to run in refugee camps, internally
displaced camps, recently returned (returnee) populations, and recent post-conflict
environments.

Different aspects of the Three Step program have different target group sizes and
beneficiary categories. Generally, all grants and loans are based on solidarity group
membership with group size ranging from 3-7 and certain groups of 10 or more. The
focus is often on women (usually between 70%-80%), but groups tend to be gender
mixed.
II. Description of Methodology
A. Summary of design concepts
ARC has been implementing income generation programs with refugees and IDPs in
Liberia, Guinea and Sierra Leone since 1996. The program has evolved over time in
response to lessons learned and to the movements of its target populations.
The ARC Income Generation (IG) Program’s Three-Step Process is designed to help
refugee clients grow their businesses throughout their time in the camps and then link
them to traditional microfinance when they repatriate. It achieves this by moving clients
up three steps of services; starting with grants, advancing to small loans and finishing
with larger loans. Each step reduces vulnerability and prepares clients for the next
stage. Although the steps are designed to build on each other, the approach is also
flexible, allowing the staff and program coordinator to decide which products to offer
each client group and when. There are cases where grants are a necessary starting
point, based on the newness or extreme vulnerability of the population. In other
situations, it may be appropriate to start directly with loans, or in some situations, a
combination of the two.

The move to traditional microfinance occurs when refugees leave the camps and return
to their home countries. IG clients who successfully repay their loans in the refugee
camps receive a certificate; this certificate can be shown at microfinance offices in the
country of return (often ARC run) to gain preferential access to credit. This transferable
credit history system helps the refugees re-integrate into their home countries. At the
same time, it helps ARC to build strong programs. In the country of refuge, there is a
strong incentive for refugees to repay loans on time; while in the country of return, the
post-conflict microfinance program is provided with a client screening mechanism.

B. Process/steps in implementations:
The product descriptions for the Three-Step Program provided below are based on ARC
Guinea and Sierra Leone IG programs from 2003-2005. The three steps are given in
ascending order, showing how clients would “climb-up” from one step to the next.

Step One: Start-Up Grants

 Target group and justification: Start-up grants are provided for 'new arrivals':
recently arrived refugees who have lost their assets and need to develop a
livelihood in a new economic environment. They are often very poor and
supporting a number of dependents. These grants, equivalent to US$25, are
disbursed in two steps and intended to enable beneficiaries to quickly start-up
micro-businesses. In order to ensure investment, the grants are “contingent”,
i.e. the second step of the grant is only disbursed if the first step is shown to
have been invested and any profits re-invested.
 Duration: 4 months
III. The successful groups may enlarge with additional members and apply for an
interest bearing Basic Loan

Step Two: Basic Loan

 Target group and justification: Clients, who have successfully completed the
grant phase, as well as less vulnerable entrepreneurs able to begin businesses
through other means, become eligible for ARC's micro-credit services. The first
product is a minimal-interest-bearing Basic Loan, equivalent to US$50 and
 repayable over six months. The loan is disbursed to a solidarity group and
accompanied by small business training and support.
 Duration: 6 Months
IV. After successful repayment of the Basic Loan, clients are awarded certificates
with their group’s credit rating and become eligible to apply for an interest bearing
Advanced Loan
Step Three: Advanced Loan
 Target group and justification: After successful repayment of their basic loans, a
minimal-interest-bearing Advanced Loan (of US$75) is available to client groups
to further grow and develop their existing micro-businesses
 Duration: 4-6 months
 After successful repayment, client’s certificates are marked to indicate Advanced
Loan completion with the associated credit rating. This allows them to participate
in the Refuge to Return program (R2R) and smoothes access to credit via
traditional micro-finance when they return to their home countries.

Refuge to Return:
The Refuge to Return program responds to the needs of mobile populations in the Mano
River Basin.  While these groups are able to adapt quickly into the local environment,
their access to credit is hindered by information gaps. For example, refugees who gain
skills or build a strong reputation in their country of refuge are unable to transfer their
credit history to their country of return, negating many of their efforts. The same holds
true of entrepreneurs who travel to a new country; due to a lack of information, their
credit history in the past cannot be utilized.

R2R allows refugees who successfully repay their loans in the refugee camps in Guinea
or Liberia to receive a certificate; this certificate can be shown at ARC Microfinance
offices in the country of return to gain preferential access to credit. From 2001-2002
ARC’s MFI in Sierra Leone, Finance Salone, served over 900 entrepreneurs who were
former ARC IG clients in Liberia and Guinea. Currently, ARC’s Liberian MFI, Liberty
Finance, is preparing to serve former IG clients repatriating from refugee camps in
Sierra Leone and Guinea.

A. Method of measuring results:

In the micro-credit based IG programs, ARC uses management information systems
(MIS) based on microfinance portfolio tracking. The MIS allows the program to identify
and address repayment problems quickly in a rapidly changing environment. It also
allows the senior staff to assess the portfolio’s performance with verifiable data, helping
with longer-term disbursement planning.

ARC’s IG programs also assess impact with an “Integrated Impact Survey” system.
Mobile populations and short program horizons in the refugee environment often do not
allow for more traditional impact studies to be carried out. In response, ARC has
integrated the impact measurements systems into the on-going results tracking process.

Random client samples are taken from approved solidarity groups before participation in
the program. The sample clients are systematically interviewed as they complete each
step and after their final loan before repatriation. Quantifiable rates of change can then
be established for individual participants as they move from step to step, showing how
participation has affected their lives. General survey areas are: personal and family
information, livelihood options, business knowledge, business growth and credit use,
and empowerment.

IG programs are designed to work for clients and beneficiaries who have some of the
world’s highest levels of vulnerability and poverty. These environments create
possibilities for abuse of both clients and systems.

ARC enforces strict control mechanisms and measures to ensure proper transparency:
 IG program staff levels are high to assure proper support to severely vulnerable
clients as well help to prevent abuses and misuse of power.
 Criteria for eligibility for the program are well defined and control mechanisms
are in place to ensure that senior staff routinely assures the observance of these
criteria. Also, staff emphasizes clear communication of the criteria, selection
procedures, and selection results to the clients in order to ensure the system’s
transparency.
 A strict division of tasks is enforced to ensure that the agents responsible for
selection, monitoring and daily advice to clients did not touch money, or only in
exceptional cases. A proper administrative system allowed for effective control of
all money-handling.
 There is a strong and well staffed monitoring and evaluation section. Beyond
their normal duties for tracking program performance, an important task of the
M&E officers is to control and verify the work of the field based agents.
V. Results

The 2001- 2004 ARC IG Program Three Step Process has shown positive results:
Clients assisted in Income Generation Programs
Grants 5,000+
Loans 10,000+
Female Clients ≤80%

Repayment rates for IG micro-credit programs

Guinea ≤90%
Sierra Leone 100%

Loan Loss Rates

Guinea ≥3%
Sierra Leone 0%

Clients moving up the steps: 2003

 58% of Start-Up Grant clients receive a Basic Loan
 70% of Basic Loan clients receive an Advanced Loan
 100% of Advanced Loan clients complete repayment

In addition, an independent evaluation iii in April of 2004 found that clients’ average
capital assets increased significantly as they moved from Start-up Grants (SUG) to Basic
Loans (BL), to Advanced Loans (AL), providing evidence for the substantial economic
impact of the IG program, especially for those clients who remained in the program
throughout the three steps.
 Capital accumulation IGP-clients

Business Assets of IGP clients The average capital assets increase significantly from
Start-up Grant clients (SUG) to Basic Loan clients
(BL), to Advanced Loan clients (AL). (See: figure 1)
>200,000 FG The proportion of clients with minor assets <25.000
100% FG) decreases from 27%, to 18%, to 4%.
100,000-170,000 Those with a capital of 25.000 - 60.000 FG shrinks
FG from 30%, to 19%, to 11%,
80% Whilst the group with capital assets >60.000 FG
60,000-100,000 increases from 43%, to 63%, to 86%.
60% FG
25,000-60,000 A similar trend can be observed comparing the
average capital assets of SUG-clients who did not
40% FG move up to loans (average capital: 31.886 FG), SUG-
10,000-25,000 clients who moved to basic loans (average: 82.106
20% FG FG), and SUG-clients who moved to advanced loans
<10,000 FG (average: 167.720 FG).
0%
This increase in capital assets for clients moving from
All All All All 0 FG start-up grants, to basic loans, to advanced loans,
IGP SUG BL AL points to substantial economic impact of the IG
program for the clients.

In 2003 after individual final loan and grant interview responses were assessed, data
showed:

100% of clients who participated in the final Start-Up Grant disbursement became
eligible for the second phase of the grant

70% of Start-Up Grant clients were able to move out of communal tents and into
individual shelters sooner than their peers

98% of Sierra Leonean refugee clients completed full loan repayment successfully,
despite UNHCR assisted repatriation and IG micro-credit program close out

95% of former clients express a desire to seek micro-credit services in their home
county upon repatriation

97% of Sierra Leonean clients who completed their loan repayment will continue their
businesses either in the camps or home country

Refuge to Return (R2R)

ARC has replicated its IG program in refugee camps through-out the region, having
worked with over 20,000 clients since 1996. The R2R program has enabled ARC to track
and continue to serve IG clients as they move between countries.
• The Sierra Leone MFI Finance Salone, launched in 2000 to serve returnees, is on
track to become self -sustaining by 2007. In January 2005 it registered with the
government of Sierra Leone as a private business (Sierra Leone’s Microfinance
legislation is still under discussion) and serves over 10,000 clients with a one-day
PAR of less than .07%. 30% of its original clients were former refugee clients
from Guinea who were involved with ARC IG programs in the camps.
 • MFI and MED programs launched in Liberia in 2004-2005 have replicated the
Refuge to Return model for Liberians with Liberian MFI Liberty Finance and a
modified three-step program working in returnee areas near the Guinean border.

VI. Resources Required/Cost to the institution

ARC’s Three-Step program is designed to operate in refugee, returnee, and IDP camps,
as well as in returnee areas where conflict has recently ended. Therefore, its IG and
micro-credit programs are not designed to meet the same efficiency and sustainability
goals as traditional microfinance. In fact, in some refugee environments it is
inappropriate to create “sustainable” programs in purposefully temporary camps. The
R2R program is designed to address the sustainability of service by linking clients with
traditional MFIs on return.

However, within the relief environment, the Three Step Program’s combination of
contingent grants and interest bearing loans can provide high impact livelihood
programs to large beneficiary numbers at a much lower cost than more traditional direct
input distribution programs.

VII. Challenges and Pitfalls/Lessons Learned

ARC’s IG programs have developed and documented a set of responses to the camp-
based environment that have proven successful over various implementations.
Adapt Traditional Best Practices:
1. Conduct a comprehensive initial needs assessment: As with MFIs, it is
critical to know the existing systems and unmet needs in the refugee population
before the IG program is designed and implemented. This step is particularly
important for determining the vulnerability levels of the refugees and
determining whether is it is appropriate to launch activities with loans or grants.
Also, as there is usually a short time horizon for efforts in the relief context,
programs must get it right from the beginning.
2. Keep high expectations for repayment: In ARCs IG programs, both staff
and clients were trained early in “client and institutional discipline”. Full
repayment was the expectation and was emphasized as critical to the program
continuing in the camps. Camp-based credit agents and clients were instructed
that the IG programs were different than all other relief efforts in the camps.
Clients and staff were taught to “think like a bank, not like a relief program”,
while still working to maintain the flexibility required in a refugee setting.
3. Take the time to do proper data gathering and analysis: The use of
management information systems (MIS) based on microfinance portfolio tracking
allows close monitoring of refugee’s repayment trends. Lending programs
working in unstable and rapidly changing environments need to access
information as quickly and accurately as possible so they can identify possible
problems and develop responses.
4. Focus on Monitoring and Evaluation and Transparency: While important
in microfinance, proper monitoring, evaluation and transparency systems are
critical in camp situations. In the impact assessment done in 2004, ARC found
that the client’s trust and willingness to repay was based largely in their respect
 for the institution and its credit agents.iv M&E was a priority, both in the
traditional areas of assuring program goals and objectives were being met, and
additionally in controlling staff behavior in the field. Within the camp context it
was important to assure the highly vulnerable client population was not being
abused. M&E officers maintained a direct relationship with clients in the field,
assuring their proper treatment, keeping the lines of communication open and
offering additional support.
Responding to the Relief Environment:
1. Resist the relief mentality: Even though the initial response in a crisis may be
to help as many individuals as possible, it is critical to provide loans only to
viable entrepreneurs. The IG program will only be as effective as its client
selection. ARC learned to liaise with other agencies and refer applicants who
were not appropriate for IG programs to other programs, services, and agencies.
2. Set IG specific client selection criteria: In relief situations, there is often
pressure to let donors or other INGOs define the IG client base (e.g. serving only
survivors of violence, the elderly or unaccompanied women). Make sure that
refugees who can get the most out of a micro-enterprise development program
are the ones who are served. Other NGOs should be encouraged to “spread the
word” about IG programs and policies, but direct referrals should be avoided. v
3. Staffing: Within the refugee context, a large percentage of clients tend to be
extremely vulnerable females. The camps are also outside normal community
and family structures, which can increase the chances for abuse and harassment.
Accordingly, having a gender-balanced and gender-sensitive field staff and
robust M&E systems is critical to helping protect IG clients from sexual
exploitation.
4. Create additional repayment incentives: When working with mobile and
displaced populations, traditional incentives such as group and community
pressure, collateral, and institutional relationships are not as effective. Although
the support of solidarity lending is important, IG programs should explore other
options for repayment incentives specific to the refugee community, such as
ARC’s R2R program.
The Three-Step model provides a successful example of combining grants and loans in
the same program to build the capacity of vulnerable refugee entrepreneurs. By
beginning with grants and transitioning clients to loans that mimic best practice
microfinance institutions, ARC has been able to help vulnerable clients to start and
expand businesses, and prepare them to access credit from best practice microfinance
institutions.

VIII. Contact information/ sources of information

Sarah Ward Tim Nourse

LINKS MED Program Manager MED Technical Advisor
ARC International ARC International
Sierra Leone Guinea
sjward_2001@yaooh.com timnourse@aol.com
i
US Committee for Refugees, World Refugee Survey 2003.
ii
Donald Horowitz has found that for every violent death, 100 people flee. See his The Deadly Ethnic Riot (Berkeley:
University of California Press, 2001), pp. 10-11.
iii
Ton de Klerk, Evaluation of the Income Generation Program of American Refugee Committee for Liberian Refugees in the
Forest Region of Guinea. June 2004
iv
Ton de Klerk, Evaluation of the Income Generation Program of American Refugee Committee for Liberian Refugees in the
Forest Region of Guinea. June 2004
v
Targeting specific groups for credit has been shown to reduce the viability of the portfolio. See examples in MBP Technical
Briefs on Post-Conflict Microfinance, Development Alternatives Inc, www.imp.org