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
Refugee Flows in within the camps for alterative livelihood options, allowing them to
supplement the basic camp services without sacrificing their safety or
the Mano River
Basin 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.
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
• 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
• 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.

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:
• 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.
III. 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 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

B u s in e s s A s s e ts o f IG P c lie n ts The average capital assets increase significantly from

Start-up Grant clients (SUG) to Basic Loan clients
> 200,000 F G (BL), to Advanced Loan clients (AL). (See: figure 1)
The proportion of clients with minor assets <25.000
100% FG) decreases from 27%, to 18%, to 4%.
1 0 0 , 0 0 0 -1 7 0 , 0 0 0
Those with a capital of 25.000 - 60.000 FG shrinks
80% FG
from 30%, to 19%, to 11%,
6 0 ,0 0 0 -1 0 0 , 0 0 0
Whilst the group with capital assets >60.000 FG
60% FG increases from 43%, to 63%, to 86%.
2 5 ,0 0 0 -6 0 , 0 0 0
40% FG A similar trend can be observed comparing the
1 0 ,0 0 0 -2 5 , 0 0 0 average capital assets of SUG-clients who did not
20% FG move up to loans (average capital: 31.886 FG), SUG-
< 1 0 ,0 0 0 F G clients who moved to basic loans (average: 82.106
0% FG), and SUG-clients who moved to advanced loans
A ll A ll A ll A ll 0 FG (average: 167.720 FG).
IG P S U G B L A L
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.

IV. 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.

V. 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.

VI. 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