In recent years, there have been several studies of micro-finance in post-conflict situations. However, very little attention has been paid to micro-finance (or micro-credit) in refugee camps. This article describes a micro-enterprise programme in refugee camps in Guinea, implemented by the American Refugee Committee (ARC). It is based on an evaluation of the programme carried out in April 2004, which focused on two camps, Laine and Kola, located in Guineas Nzérèkoré region. As part of the evaluation, a survey was conducted among 120 beneficiaries of the programme, and among a control group of 80 non-beneficiaries. Laine camp was established in September 2002 for new arrivals from Liberia; it houses some 32,000 registered refugees. The older Kola camp is home to 6,500 registered Liberian refugees. Both are well-established, are situated close to local markets and enjoy a wide range of social and educational services. ARC also implements a similar micro-enterprise programme for Liberian refugees in the Kissidougou region. Due to time constraints, however, the evaluation focused only on the Nzérèkoré region.
The ARC programme
The ARC started its micro-enterprise development programmes for Sierra Leonean and Liberian refugees in Guinea in 1997. The programme began with a focus on Sierra Leonean refugees in the Gueckedou and Kissidougou region, then changed to Liberians in the Kissidougou and Nzérèkoré region once the Sierra Leoneans had returned to Sierra Leone. Since the programme started, over 20,000 refugees have received grants, loans and business training services. The programme has evolved over time, adopting and adapting good practice in micro-finance, and incorporating lessons learned from earlier pilot work. Through its unique Refuge to Return (R2R) element, ARC tries to link beneficiaries with micro-finance programmes in their own countries after their return home.
The three-step model
ARCs programme uses a three-step model:
- First, start-up grants are provided for recently arrived refugees who have lost their assets and need to develop a livelihood in a new economic environment. These people are typically very poor and support a number of dependants. Only women were eligible for start-up grants since they were the most vulnerable, especially the large percentage of female-headed households. Grants are equivalent to $25, and are intended to enable beneficiaries to start up micro-businesses quickly. This first, start-up, phase can be omitted if economic conditions allow. This was the case in Kola camp, where refugees had already been in Guinea for some years.
- In the second stage, clients who have successfully completed the grant phase, and less vulnerable entrepreneurs who were able to begin businesses through other means, are eligible for ARCs micro-credit services. Although women are still targeted with these services (they comprise 80% of recipients), male household heads also benefit. Clients receive an initial interest-free basic loan, equivalent to $50, to be repaid over six months.
- In the third stage, once these basic loans are repaid, a minimal-interest-bearing advanced loan (of $75) is available to enable clients to grow and develop their existing micro-businesses.
Throughout the process, clients businesses are supervised closely to ensure proper controls, prevent exploitation and provide monitoring services. This supervision requires 50% more staff members than are found in a typical micro-credit programme, implemented in a stable country context.
ARC discovered early on that transparency was essential. During the evaluation, local staff who had been working in the programme from the start explained that it had encountered many problems in its early years, mainly related to a lack of control of staff in direct contact with loan clients, and a lack of transparency in the procedures by which beneficiaries were selected. This allowed for fraudulent and exploitative behaviour by staff, with negative effects on the repayment behaviour of clients.
In response to these problems, ARC introduced strict control mechanisms and measures to ensure proper transparency:
- Criteria for eligibility for the programme were well-defined and control mechanisms put in place to ensure that these criteria were observed. Criteria, selection procedures and selection results were clearly communicated to beneficiaries.
- Tasks were strictly divided, so that agents responsible for selecting, monitoring and advising clients did not have contact with loan funds except in exceptional cases. A proper administrative system allowed for effective control of all money-handling.
- A new monitoring and evaluation (M&E) department was created. Beyond their normal duties, M&E officers were tasked with supervising the work of the other agents.
The Refuge to Return (R2R) model
In response to improvements in the political situation in Sierra Leone and Liberia, and as a complement to its refugee programmes, ARC started micro-finance programmes for returnees in Liberia and Sierra Leone. The Liberia programme began in 1998, but was closed after three years due to the re-emergence of conflict and poor partner selection. The programme in Sierra Leone, which began in 2001, before peace and governance had been firmly established, showed impressive results. Former ARC staff from Guinea were hired, and branches were opened in return areas: over 30% of all clients during the programmes first two years were former ARC beneficiaries from Liberia and Guinea. By early 2004, the programme had reached 7,160 people, with an active portfolio of $430,000 and a portfolio at risk (one day or more past due) of less than 1%.
The R2R strategy aimed to fill a gap in the refugee context, whereby when organised repatriation starts, loan clients have no incentive to repay their outstanding debts. By holding out the prospect of further loans once clients have returned home, ARC provided an effective means to induce clients to repay existing loans, especially in the last programme phase before return.
The certificate system
Clients who successfully repaid their loan received a certificate awarding them a credit rating of A, B or C. An A rating was assigned to people who made all their repayments on time; a B rating was given to those who made only two to three late repayments; and a C rating was assigned to those who repaid their loan only after some time. The certificate system is linked with the R2R strategy, in that it promises preferential loan treatment for repatriated clients with a good credit rating. Since ARCs micro-finance programmes are not available in all return areas, the agency has encouraged other micro-finance organisations to acknowledge these certificates.
Loan portfolio management
ARC used standard micro-finance performance reports to track arrears and performance at risk, allowing for timely warning of repayment problems. Beyond their value in tracking the portfolio, these reports also signalled to staff that the programme was not a relief hand-out, but a serious lending operation.
The evaluation looked at the period 20032004. Between January and August 2003, 480 start-up grants were disbursed to women in Laine camp. In Laine and Kola camps, 1,200 clients benefited from basic loans in 2003. In 2004, the programme emphasis shifted to disbursing advanced loans for clients who had successfully paid back their basic loans. At the end of the first quarter of 2004, 176 clients had received an advanced loan. The majority of the clients were involved in petty trade.
At the end of the evaluation, in March 2004, the repayment figures for the loan programme were 70% in Kola camp and 90% in Laine camp. The lower performance in Kola was attributed to saturation of the market in this relatively small camp: similar micro-credit programmes were implemented by two agencies, leading to competition and subsequently poorer client selection by local staff. ARC has responded by reducing its activity in Kola camp, and focusing on collection; by the end of July, on-time repayment had increased to 94%, and continued to improve thereafter. These figures, while good for refugee camps, are slightly lower than ARCs typical performance. At its closure in 2003, ARCs micro-credit programme for Sierra Leonean refugees in Kissidougou region had attained an extraordinary repayment figure of 98%. Clients complied with their contractual obligations even though they were repatriated to Sierra Leone in the first half of 2003.
ARCs programme targeted vulnerable but economically active refugees. By providing capital and training, the agency aimed to supply them with the tools to become more self-reliant and to improve their living conditions.
The target for the percentage of stage one start-up clients who would be eligible for stage two basic loans was set at 50%. However, when the evaluation was conducted in March 2004, only 28% of the clients who received a start-up grant in 2003 had applied for a basic loan. Several factors explained this low figure. Some clients had returned to Liberia, others had started vocational training courses offered by other agencies in the camp, and so stopped their business activities, whilst others were satisfied with what they had established with the start-up grant and did not want to apply for a loan to expand their businesses. Another major reason was that some of the clients selected were not able to sustain or develop their businesses. In the Kissidougou camps, staff targeted slightly less vulnerable clients, and 52% of them moved on to basic loans.
In terms of the impact on income, the evaluation demonstrated strong results. Capital assets (used as a proxy indicator for income) significantly increased among clients who progressed from start-up grants to loans. Capital assets owned by grant clients who did not advance to loans totalled on average $16. Clients who advanced to basic loans owned $41, and those who went on to take advanced loans had on average $84. These figures indicate that clients businesses increased significantly as they progressed from start-up grants to basic loans to advanced loans.
In the evaluation survey, 81% of start-up grant clients who did not advance to loans mentioned business as a main source of income when asked to indicate their three main sources of income. A quarter (26%) of respondents mentioned as a main source of income farming/gardening, 22% selling food rations, 19% daily contracts with farmers, 15% gifts from relatives, and 4% employment of a family member. In contrast, all of the start-up grant clients advancing to loans, and 91% of the clients who took out basic loans without first receiving grants, mentioned business as a main source of income. These figures indicate the importance of business activities as a source of income, even for grant clients who did not advance to the loan programme.
Engaging in business had a social impact. For example, 55% of basic loan clients noted that their social status had increased, 60% said they had gained pride, 60% were able to buy better clothes, 45% said they had more food and 24% reported a better variety of food. In addition, 47% said they had become more self-reliant, 33% said they were healthier and 38% no longer had to borrow money.
The surveys 80-strong control group comprised people doing business, but who had not received a grant or a loan. The average size of the capital assets owned by this group differed, though not significantly, in comparison with the assets owned by the clients of the grant or loan programme. There was thus no hard evidence that the growth in clients businesses was the result of access to grants or micro-credit through the scheme. However, it was assumed that the more successful of the respondents in the control group of whom 90% had never applied for a loan or a grant disposed of private financial resources. It would have been difficult, if not impossible, for the more vulnerable among the refugees to develop their businesses without the programmes assistance.
The programme evaluation indicates that:
- Even amid the severely limiting economic conditions of a refugee camp, it is possible to initiate income-generating activities that result in increases in income and assets. Beyond their economic impact, the evaluation found that the services also had a significant social impact.
- Despite the relief mentality of refugee camps, it is possible to apply best practice in micro-finance, and to realise proper repayment figures. Transparent programme procedures and management, along with proper internal controls and appropriate conduct (and motivation) of local staff, created a base for performance. This foundation was supplemented with the Refuge to Return strategy and the certificate system. Standard micro-finance performance reports tracked repayment arrears and monitored the quality of the loan portfolio.
- The use of grants to enable beneficiaries to start economic activities in the early phase of a newly established refugee camp was found to be appropriate. However, the evaluation also found that significant impact depended on selecting economically active clients, and on the progression of start-up grant clients to the loan programme.
- The high staff ratio was believed necessary to build clients capacity, instil credit discipline for future programmes and allow for proper internal control. However, together with the absence of (or minimal) interest rates, it did not allow for sustainable programme design. Nevertheless, this was deemed valid under the economic conditions that prevailed, and in relation to broader programme objectives.
Ton de Klerk is an independent consultant specialising in evaluations of income-generation programmes in post-conflict situations. He can be contacted at firstname.lastname@example.org. Tim Nourseis the Microenterprise Development Technical Advisor for the American Refugee Committee. He can be contacted at Timnourse@aol.com.
References and further reading
Ton de Klerk, Evaluation of the Income Generation Program of American Refugee Committee for Liberian Refugees in the Forest Region of Guinea, June 2004.
ILO/UNHCR, Training Manual: Introduction to Micro Finance in Conflict-Affected Communities (Geneva: ILO/UNHCR, 2002).
Geetha Nagarajan, Developing Micro-finance Institutions in Conflict-Affected Countries: Emerging Issues, First Lessons Learnt and Challenges Ahead (Geneva: ILO, 1999). Available at www.ilo.org.
Ton de Klerk, Income-generation in Post-conflict Situations: Is Micro-finance a Useful Strategy?, Humanitarian Exchange, no. 22, November 2002.
Tamsin Wilson, Micro-finance in War-affected Countries: Challenging the Myths, Humanitarian Exchange, no. 24, July 2003.
David Larson, Microfinance Following Conflict, USAID MBP, 1999.
Timothy Nourse, Refuge to Return, Operational Lessons for Serving Mobile Populations in Conflict-Affected Environments, USAID AMAP, 2004.