American Refugee Committee International, Three-Step Income Generation Program


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 selfcreated 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 camp services without sacrificing their safety or dignity. 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.


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 y 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. y Duration: 4 months y The successful groups may enlarge with additional members and apply for an interest bearing Basic Loan Step Two: Basic Loan y 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

y y

repayable over six months. The loan is disbursed to a solidarity group and accompanied by small business training and support. Duration: 6 Months 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 y 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 y Duration: 4-6 months y 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. C. 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: y IG program staff levels are high to assure proper support to severely vulnerable clients as well help to prevent abuses and misuse of power. y 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. y 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. y 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.



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 Sierra Leone Clients y y y

3% 0%

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 evaluationiii 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
>200,000 FG 100% 80% 60% 40% 20% 0% All All All IGP SUG BL All AL 0 FG 100,000-170,000 FG 60,000-100,000 FG 25,000-60,000 FG 10,000-25,000 FG <10,000 FG

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) The proportion of clients with minor assets <25.000 FG) decreases from 27%, to 18%, to 4%. Those with a capital of 25.000 - 60.000 FG shrinks from 30%, to 19%, to 11%, Whilst the group with capital assets >60.000 FG increases from 43%, to 63%, to 86%. A similar trend can be observed comparing the average capital assets of SUG-clients who did not move up to loans (average capital: 31.886 FG), SUGclients who moved to basic loans (average: 82.106 FG), and SUG-clients who moved to advanced loans (average: 167.720 FG). This increase in capital assets for clients moving from start-up grants, to basic loans, to advanced loans, 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.


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.


Challenges and Pitfalls/Lessons Learned

ARC s IG programs have developed and documented a set of responses to the campbased 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.


Contact information/ sources of information Tim Nourse MED Technical Advisor ARC International Guinea

Sarah Ward LINKS MED Program Manager ARC International Sierra Leone

US Committee for Refugees, World Refugee Survey 2003. Dona d Horowitz has found that for every vio ent death peop e f ee. See his The Deadly Ethnic Riot ( erke ey: University of Ca ifornia ress ) pp. . iii Ton de K erk Evaluation of the Income Generation Program of American Refugee Committee for Liberian Refugees in the Forest Region of Guinea. June
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Ton de K erk Evaluation of the Income Generation Program of American Refugee Committee for Liberian Refugees in the Forest Region of Guinea. June v Targeting specific groups for credit has been shown to reduce the viabi ity of the portfo io. See examp es in MBP Technical Briefs on Post-Conflict Microfinance, Deve opment ternatives nc, 


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