Income and employment support (Special Supplement 3)

5.1 Introduction

The provision of cash as an emergency response has the potential to impact on all elements of the livelihoods framework by providing the means to protect or recover assets, support livelihood strategies and meet basic needs, or to support institutions (for example, credit systems). Furthermore, it gives people choice and thereby respects the dignity of the affected populations. The provision of cash as part of an emergency response is becoming increasingly common practice for many NGOs. The need for cash transfers as part of long term social safety nets is also increasingly recognised by donors, the UN and NGOs.

Most of the major NGOs are now supporting and implementing cash transfer interventions in emergencies, e.g. Oxfam, SC-UK, ACF, Concern WW, CARE, CRS, MCI, and also the IFRC, British Red Cross and local Red Cross (RC) societies. UN agencies dealing with emergency cash programmes include UNDP (in Aceh) and, more recently, WFP in Sri Lanka. Cash programmes have been implemented in a wide variety of emergency contexts, such as floods, drought, chronic food insecurity and conflict, and amongst refugee, IDP and host populations. Interest in cash programmes accelerated with the tsunami response, as it was quickly realised that sufficient food was available locally and markets were functioning or could quickly recover. An unprecedented public response to the tsunami meant that most agencies had sufficient funds to try out something new. As a result, there is now an increasing body of knowledge and experience in cash programming.

This chapter reviews the most common forms of income and employment support in emergencies, which are cash grants, cash for work (CFW), and in some cases, micro-finance initiatives. Food for work (FFW) is another form of employment support, already discussed in the earlier chapter on food aid. Many of the principles of CFW programming, however, also apply to FFW programmes. Vouchers, either in the form of cash, commodities or services, can be considered both as income support or as market support and are covered in Chapter 6 on access to markets, and again under production support (chapter 7), where seed vouchers are the most common voucher intervention. Cash transfers as part of social welfare schemes are touched upon briefly, as there is increasing recognition of the need for longer term assistance to meet basic needs in countries facing long term livelihoods crises. The final section has case studies on cash grants and cash for work in Sri Lanka, income generation for refugees in Guinea, and micro-finance in Argentina.

Income generation is not covered separately, as in many cases, the use of the cash from grants or CFW is used to generate income, for example by investment in livelihoods or business assets. As such, cash grants to re-establish small scale business or to invest in livelihood assets are not very different from the income generation case study in section 5.7.2. In more stable contexts, income generation projects also allow people to diversify their income through small scale, self-employment business schemes. Projects may include support of people in management, supervision and implementation of their businesses.

Finally, there are less common forms of income support which should also be considered in determining appropriate interventions, e.g. fee waivers (for example, for schools and health services), insurance schemes and tax breaks, but these are not covered here.

5.2 The rationale for cash interventions

Emergency affected populations often lose their sources of income, savings or assets. In some emergencies, items needed for immediate survival or livelihood recovery are available on the local market so that it makes sense to give people money to meet their needs. Furthermore, the provision of cash rather than commodities means that people can spend it on what they need most, according to their own priorities.

All cash programmes broadly aim to increase the purchasing power of disaster-affected people so that they are able to meet their minimum food and non-food needs, or to assist in the recovery of people's livelihoods. Specific objectives depend on the context, but may include debt relief, the purchase of livelihood assets, purchase of assets or services to re-establish small businesses, and increasing access to basic services such as health care. Cash transfer programmes may also have broader objectives to stimulate or help in economic recovery.

Cash transfers can stimulate markets in a number of ways, for example, by increasing demand and by relieving debts. In many countries, people take credit from local shops, but in disasters may not be able to pay off debts because of loss of assets and income. Traders, in turn, will not be able to obtain supplies. In such circumstances, the provision of cash grants to affected households, together with credit for shopkeepers, can stimulate the movement of essential supplies into affected areas (Brass, personal communication; SC-UK, 2005, November; Lautze et al, 2002, May).

In cash interventions, recipients get goods and services directly from local traders and service providers, which stimulates the local economy, and reduces the need for much of the logistics input required for commodity distributions. Cash distributions are also much more cost-efficient when compared to food aid. For example, a study in Ethiopia found that cash transfers were 6-7% cheaper than local food purchase, and between 39 and 46% cheaper than imported relief food (Adams and Kebete, 2005, June). The advantages of cash interventions are given in box 9.

Evaluations of cash interventions show that the most common uses of cash by the recipient population is to meet basic needs, such as food, cooking utensils, clothes, to pay off debts, purchase livelihood assets, or for education and health care (see box 10). The use of the cash is also determined by the method of making the payments, whether other forms of assistance are provided, the total sum beneficiaries receive, and the timing of the payments. Oxfam evaluations show that when cash is distributed on its own, the majority is spent on food (e.g. Creti, 2005, February; Jones, 2004; Khogali and Takhar, 2001). However, this may change if cash is provided after the harvest, as ACF's experience in Somalia showed. Post-distribution monitoring showed that during the hunger gap, 60% of cash was used to buy food, and only 3% used for livestock purchase while after the harvest, 31% was used to buy food, and 47% to buy livestock (Mutambikwa, 2006, January). Cash distributed at harvest time in Ethiopia allowed people to renegotiate contractual arrangements for crop sharing for the next season. For 16% of households it also meant that they did not need to rent out land (Adams and Kebete, 2005, June).

If cash is provided as a complement to food aid, then it is more likely to be spent on livelihood recovery, such as restocking, setting up small businesses and the payment of school fees. However, this also depends on context and the type of food rations provided. For example, both Oxfam and ACF evaluations of CFW programmes in Aceh, found that even though cash beneficiaries received a WFP food ration and other food items from NGOs, the major use of cash was for food (ACF, 2005, July). Larger expenses were community contributions, clothing and gold (savings) (Brocklebank, 2005). Small regular payments are more likely to be used to buy food, whereas larger lump sums are more likely to be spent on productive assets and re-establishment of economic activities (Frize, 2002, Adams and Kebete, 2005, June).

Source: Creti and Jaspars, Eds (2006).

 

Source: Creti and Jaspars, Eds (2006).

Despite the clear advantages of cash programming in many contexts, commodity distribution is still the most common emergency response. Fear of insecurity, diversion and corruption appears to be one of the main deterrents to cash programming. Security is an issue that needs to be taken seriously in any programme, but there is no evidence that cash distributions create greater risks than in-kind distributions. In many emergencies, food aid or other commodities also carry considerable risks, and the risks associated with cash programming must be carefully balanced against the risks associated with other ways of providing assistance. CFW has, in some situations, proved to be safer than food distributions. For example, an Oxfam programme in Haiti found that it was impossible to do food distributions because trucks were attacked and looted, but CFW was possible when the disbursement of cash was carried out through local shops (Creti, 2005, February). Similarly, in Uganda, Oxfam found that CFW was less subject to diversion than food aid (Khogali and Takhar, 2001).

Another common fear is that cash will be spent on nonessential commodities. There are few cases where it has been reported that cash has been spent on non-essential items, for example, Oxfam found that some of the cash was used to purchase cigarettes in Aceh. In such circumstances, stopping the cash distribution is unlikely to stop people from buying cigarettes. Replacing cash with commodity distributions will release income that would otherwise be spent on these commodities, which can still be spent on cigarettes. There are many other fears around cash programmes, for example that women may not have control over the cash, or that cash distribution on a large scale will cause inflation, but these have generally not been borne out by practice. Since cash interventions are relatively new for most humanitarian agencies and certain risks cannot be anticipated, some agencies are implementing on a small scale first and then rolling out programmes where successful.

5.3 Appropriateness of cash interventions

Many agencies, academics and donors recognise that cash as an emergency intervention is appropriate when foods (or other goods) are available and markets are functioning and accessible. In addition to these two criteria, a third criteria is that cash can be delivered safely and effectively.

Whilst basic criteria of food availability and functioning markets appear straightforward, these criteria are difficult to determine in practice. There is no agreed methodology for market assessments, and where assessments have been conducted, interpretation may differ between actors. (Market analysis is discussed further in chapter 7). Food availability may also be hard to determine precisely, as in many countries crop assessments are imprecise, while population estimates are notoriously unreliable. In Afghanistan, the WFP has combined a number of indicators to determine whether food or cash is more appropriate to meet food needs (Hofmann, 2005). These include:

• Market indicators
• Those areas where respondents to the National Risk and Vulnerability Assessment stated a preference for food over cash or a combination of both
• Areas where there is no spring/winter access to markets
• Areas where cash interventions are likely to be hampered by insecurity
• [food] gap analysis.

The ability to safely deliver cash in emergency contexts is crucial. Reviews and evaluations have found that where local banking systems exist, or there are informal money transfer mechanisms, these are by far the safest and most effective ways of delivering cash to beneficiary populations (Acacia consultants, 2005; Hofmann, 2005). The use of local banks minimises both the risk of theft during delivery, and the risk to beneficiaries as they can choose the day and amount of cash to withdraw from their account. Oxfam's programme in Uganda involved direct distribution of cash and employed a variety of mechanisms to minimise security risks, for example by varying payments days, decentralising distribution, and limiting the number of people who have information about when payment will take place (Khogali and Takhar, 2001). The issues to consider in an assessment to determine the appropriateness of cash interventions are summarised in table 4.

Table 4 Key elements of an assessment of the appropriateness of cash intervention
Element	Key issues
Needs	The impact of the shock on people's food and income sources as assets People's ability to meet their basic needs with the food and income available after the shock People's ability to recover their livelihoods with the assets and income available after the shock The impact of people's coping strategies on livelihoods and dignity Likely uses of cash Preference of the emergency-affected populations
Social relations and power within the household and community	Intra-household priorities and control over resources Intra-community differences in control over resources Likely impact of cash distributions on existing social and political divisions
Food availability	Available food, or other goods, nationally and locally, and whether this is sufficient to meet needs Normal seasonal fluctuations in food availability Government policies or other factors which may affect food availability
Markets	Whether markets in the affected area operating and accessible Availability and price of essential basic items that people need available in sufficient quantities Restrictions on the movement of goods How well the market functions, is it competitive and integrated Likelihood that traders will respond to an increase in demand Risks that cash will cause inflation in prices of key products
Security and delivery mechanisms	Whether banking systems or informal financial transfer mechanisms are functioning Risks of cash benefits being taxed or seized by elites or warring parties Comparative risks posed by in-kind alternatives to cash
Corruption	Risks of cash being diverted by local elites or project staff Comparative risks of providing in-kind alternatives Availability of accountability safeguards to minimise these risks

Adapted from Harvey (2005, February) and Creti and Jaspars, Eds (2006).

Table 5 Advantages and disadvantages of different types of cash intervention
Cash for work (CFW)	Vouchers	Cash grants
Advantages
Easier to target than vouchers or cash grants Creates community assets Easier to register labourers for CFW, than beneficiaries for cash grants	Encourage traders to bring in certain goods Can be directed towards food purchase and consumption Voucher exchange is easy to monitor Less vulnerable to inflation and devaluation Security risks can be lower than for cash for work or cash grants	Quick to distribute and circulate Minimal involvement of implementing agency at point of trade Low administration costs
Disadvantages
High administration costs Some of the poor or food insecure households may not be able to participate (e.g. elderly, ill, labour poor households, women with other household duties) Takes up to 6 weeks to organise May interfere with labour markets or other household activities or priorities	High administration costs Risk of forgery May create a parallel economy May need regular adjustment by agency to protect from inflation Can take 6 weeks or more to organise	Difficult to monitor usage Targeting and registration are difficult, because cash is of value to everyone

Source: Creti and Jaspars, Eds (2006).

 

Source: Ali et al (2005, March)

Different types of cash programmes will be appropriate in particular situations. CFW is by far the most common cash intervention. The main reasons for this appear to be that agencies are able to retain some degree of control over the programme. Cash grants, on the other hand, require a change in the mind-set of aid workers, as control and responsibility for identifying and meeting needs must be transferred to the beneficiary communities. CFW is appropriate where work needs to be carried out, e.g. rehabilitate houses, or public structures, or where works can assist in halting environmental degradation. Furthermore, although registration is notoriously difficult for any form of relief assistance, registering people for work makes is a lot easier. The main disadvantage of CFW is that it takes a long time to organise if the worst affected or poorest sections of the population are to be effectively targeted. The use of vouchers is usually recommended where there is a need for specific items (such as seeds) and/or to encourage traders to bring in food from surrounding areas. Table 5 sets out some of the advantages and disadvantages of the different types of cash transfers. The challenge for future cash programmes will be first, to agree on the criteria for implementing different types of cash interventions, and second, to implement cash programmes on the basis of rational criteria rather than allow influence of unfounded fears or assumptions.

5.4 Cash grants

Cash grants have been provided for a variety of purposes (see table 6), but the main forms are grants to meet basic needs or to purchase livelihood assets. The UNHCR have been implementing cash grants for returnees for many years while the Swiss Agency for Development and Cooperation (SDC) have implemented cash grants in at least 13 countries over the past five years. Many of these grants have been to families hosting refugees or displaced populations (Harvey, 2005, February). The cash relief programme in Somaliland, implemented by Horn Relief and Norwegian People's Aid, is one of the few well documented examples of cash grants in emergencies and is summarised in box 11.

Following the tsunami, several agencies started experimenting with cash grants. In many ways, the early CFW interventions by Mercy Corps and Oxfam in Aceh, Indonesia were a form of cash grants. They targeted entire communities with the main objectives of providing people with an income quickly, to stimulate the economy, and to clear roads and villages for rapid return home. Both Oxfam and Mercycorps later gave grants to re-establish livelihoods. The main aim of cash grants for livelihood recovery was to enable households to purchase the assets needed to re-start their income-earning activities (see Sri Lanka case study 5.6.2). In Indonesia, the cash grant aimed to cover the cost of shelter, workshops, tools, equipment, and raw materials for small businesses. As new business opportunities arose, Mercy Corps also started a financial access programme which provided loan guarantees to financial institutions to provide loans to small enterprises (Mercy Corps, 2006, January). Such programmes are considered in more detail in section 5.7.

WFP is piloting cash grants in Sri Lanka. The cash provided has the same value as the food ration, and the key question asked in this pilot intervention is whether households that receive cash are more able to improve their food security than if provided with food aid, because of the choice that cash gives to the beneficiaries. A rigorous monitoring and evaluation system has been developed to compare the respective impact of cash and food aid interventions.

Cash grants are increasingly considered as an option in emergency response. For example, the British Red Cross distributed cash grants in Niger in 2005, and a number of agencies are piloting direct cash transfers in Southern Africa in 2005 and 2006.

5.5 Cash for work

This provides cash in return for work on a public or community employment scheme The aim is that the entire community benefits from the work carried out and activities can include improving the public health environment, the rehabilitation of public buildings or roads, different forms of agricultural rehabilitation (e.g. storage houses for crops, or wells to provide domestic water or water for livestock and fields), and natural resource conservation activities, such as soil and water conservation techniques or terracing. One of the key criteria for implementing CFW programmes is that the activity is an essential part of the emergency operations and is needed in order to restore livelihoods. However, CFW is often implemented because of the greater degree of control that CFW gives the implementing agency compared to cash grants.

The objectives of CFW are:

• to provide the emergency affected population with a source of income
• to create or rehabilitate a community asset
• to carry out essential work as part of emergency response (e.g. clearing roads, remove debris)
• to stimulate the economy or contribute to economic recovery.

Oxfam has developed a set of principles for the implementation of cash programmes, many of which are also found in the Sphere guidance notes for the income and employment minimum standard (see table 7).

Table 6 Different types of cash grants
Type of grant	Description and application
Grants to meet basic needs	Grants to meet basic food and non-food needs. Can be one off, but are usually provided regularly, e.g. monthly basis. Applied in Somaliland by Horn Relief, USAID in Mozambique, Iranian Red Crescent in Iran, SDC in Mongolia, ICRC in West Bank, Palestinian Territories.
Grants to host families	Grants to reduce economic burden of hosting IDPs. Applied by SDC. Countries have included Indonesia, Serbia, and Ingushetia.
Grants to rebuild housing	Grants for materials to rebuild houses, together with technical assistance. Applied by SDC in Kosovo. Beneficiaries had to host displaced people in return.
Grants to replace livelihood assets	Cash to purchase essential livelihood assets or to purchase the materials necessary to re-establish business. Applied by Oxfam and Mercy Corps in response to the tsunami.
Community grants	Grants for communities to design and manage their re-emergence from disaster. Applied by Mercy Corps in Indonesia.
Grants for returnees	SDC in Bosnia and Kosovo. UNHCR to cover transport costs for returnees to Afghanistan.

Source: Harvey (2005, February)

Table 7 Principles of CFW programming
Principle	Explanation
The food-insecure or the poorest people should be targeted.	The beneficiaries of the programme should be those who have lost a large proportion of their food or income sources as a result of the disaster.
The most physically vulnerable people should be included.	Arrangements are made for those unable to work, for example they could be given cash grants or vouchers instead of CFW.
The community should 'own' the programme.	The community identifies projects activities. This involves a process of community mobilisation and awareness about the nature and process of CFW programming.
Work should be labourintensive.	Programmes should employ as much unskilled labour as possible, to maximise impact on a largest possible number of affected households.
A gender balance should be ensured.	Projects should promote female participation. A variety of activities should be implemented, a majority of which will be suitable for both men and women. Childcare arrangements may be needed.
Equal pay should be the rule.	Women and men will be paid equally for agreed of working units.
Essential livelihood activities should not be undermined.	Cash for work activities should not interfere with or replace traditional livelihoods and coping strategies, or divert household resources from other productive activities already in place.

Adapted from Creti and Jaspars, Eds (2006).

A number of other principles apply when planning the implementation of CFW programmes. The Sphere indicators for the income and employment standard provide good planning principles as well as benchmarks against which to monitor the achievement of the minimum standard. These include:

"Project decisions about timing, work activities, type of remuneration and the technical feasibility of implementation are based on a demonstrated understanding of local human resource capacities, a market and economic analysis, and an analysis of the demand and supply for relevant skills and training needs."

"Responses providing job or income opportunities are technically feasible and all necessary inputs are available on time.."

"The level of remuneration is appropriate, and payment for waged labour is prompt, regular and timely. In situations of acute food insecurity, payments may be made in advance."

"Procedures are in place to provide a safe, secure working environment."

 

Source: Acacia Consultants (2005, July).

CFW payment has sometimes been made on the basis of a unit of work completed, or as a daily wage. The different factors that have been taken into consideration in the past include:

• The daily living expenses of the target group.
• The cost of immediate food and non-food needs and the cost of replacing livelihood assets.
• The cost of transport to and from the work site.
• The value of food aid provided in similar FFW programmes.
• Government minimum wages.
• Information about wage ranges for skilled and unskilled labour.

Past projects have made various arrangements for those unable to work on projects (but who are also amongst the most food insecure or poorest sections of the population) and to encourage the participation of women. For example, Oxfam often provides cash grants to those unable to work as part of CFW programmes. In others, special projects can be designed for those who are unable to participate in the main work activities, which may include the elderly, or women with small children. In Kenya, destitute elderly women participated in a project that produced housing materials since the work was light and could be done seated. In addition, tasks such as supervision, minding children, providing water, counting, and clerking were given to people who could not perform heavy labour (Lumsden and Naylor, 2002). In Afghanistan, women unable to leave home for cultural or religious reasons participated in group textile production and kitchen gardening (Jones, 2004).

Countries where sections of the population suffer chronic poverty and food insecurity, and where CFW has become a common intervention include Ethiopia, Kenya, Somalia, and Afghanistan. Common factors for each of these countries include:

• high levels of unemployment or destitutions amongst sections of the population
• high levels of indebtedness
• environmental degradation
• poor infrastructure
• repeated disasters.

CFW programmes in situations of chronic food insecurity, in particular where these are large rural dispersed populations, face numerous challenges (see box 12). Some of these relate to the nature of CFW projects; i.e. that they have high administration costs, and take time to plan, and may need particular technical skills to supervise projects. The most significant challenge, however, is the need for longer term programmes to meet basic needs in such situations. Most emergency cash programmes are short term, but the needs continue beyond the period of a typical emergency intervention. This is discussed in the next section.

5.6 Cash transfers as part of social welfare and social protection

With the increasing recognition of chronic livelihoods crises with high levels of poverty and chronic food insecurity in much of the Horn, East and Southern Africa, there is a growing acceptance of the need for cash transfers as part of long term social welfare programmes. The rising prevalence and impact of HIV/AIDS, particularly in Southern and East Africa, has highlighted the need for longterm welfare programmes. Many donors (e.g. the World Bank and DfID) now recognise the need for multiyear commitments for the predictably food insecure. The Commission for Africa has proposed that African governments should develop social protection strategies to support communities with orphans and vulnerable children and recommended that donors should commit to long term, predictable funding of these strategies (DfID, 2005, October).

Social welfare can be defined as assistance to meet basic needs for those who cannot meet such needs in normal times, whereas social protection includes a range of measures to protect people from shocks and to build up assets as well as meet basic needs (SC-UK, HIA/IDS, 2005). The term social safety net is also commonly used and includes measures to mitigate the impact of shocks.

There is relatively little experience of cash transfers as part of social welfare schemes in Africa. Some positive examples do exist, however, in Southern African countries. For example, Botswana and Lesotho have introduced non-contributory social pensions for adults who have lost their children due to HIV/AIDs and who are caring for their orphaned grandchildren. GTZ has successfully supported a pilot cash transfer in Zambia initiated in 2003 by the Zambian Ministry of Community Development and Social Services (GTZ, 2005, July). This was targeted at households with few able bodied adult members, mainly as a result of HIV/AIDS, and had a positive impact on food security, and children's nutrition, health and education. Also in Southern Africa, many NGOs are implementing home based care programmes (HBC) which is a community based approach to providing health care and other support to people living with HIV/AIDS, some of which include cash transfers. However, HBC implemented by NGOs are unlikely to reach the scale required for social welfare systems. The International Labour Organisation (ILO) calculated the cost of providing social welfare to the poorest 10% of households for seven African countries¹³, and found that in none of the examples would the cost would rise above 3.1% of estimated government expenditure, or between 3-5% of development assistance¹⁴ (DfID, 2005, October).

Ethiopia and Afghanistan are examples where extensive donor support is provided to establish social protection programmes. Ethiopia is in the process of establishing an ambitious Productive Safety Net Programme (PSNP), planned for five years, with initial estimated beneficiaries of 5 million. It consists of an extensive public works programme for the chronically food insecure, and grants for those unable to work. The public works component builds on previous FFW and Employment Generation Schemes. The programme has experienced setbacks due to the administrative requirements of disbursing the cash, managing a balance between cash and food aid as payment (in particular when food prices are rising), and debates around policy. In Afghanistan, the National Emergency Employment Programme (NEEP), is a social safety net based on CFW, and is funded by the World Bank and ILO (Hofmann, 2005, June). Both the Ethiopia and Afghanistan national programmes rely heavily on the support of NGOs to implement the programmes.

A considerable challenge for the new development of state welfare systems is to ensure adequate and sustained financing, administrative and management capacity. This is especially the case where physical infrastructure and logistics are poor, and where state institutions are weak. Where government capacity for administration and monitoring is weak, such systems may be vulnerable to 'leakage' and corruption.

Projects implemented by NGOs on the other hand, tend to be small scale, which excludes large numbers of vulnerable people (SC-UK/HAI/IDS, 2005). Support for social welfare programmes raises both technical and institutional issues for most agencies. Some of these are summarised in box 13.

5.7 Micro-finance

In many situations of protracted displacement or post conflict, people will start small enterprises such as petty trade or service provision to meet some of their basic needs. People need access to credit to start such activities, and for these activities to grow. However, institutions which provide credit, such as banks, are rarely available in camp situations, and where they do exist, poor people may not obtain access due to their lack of creditworthiness or collateral. In such circumstances, people may get loans from local money lenders, or resort to damaging or illegal livelihood strategies.

Microfinance in emergency settings can include emergency loans, remittance services, loan rescheduling, loans to restore capital assets or to start new economic activities. Micro-finance has also been defined more broadly as any financial service targeted at low income people (including credit, savings, money transfer, insurance and currency exchange), and including services provided by community managed groups, NGOs, commercial banks, individual moneylenders, and collectors. For example, a recent pilot project by the World Bank in Malawi provides insurance for smallholder farmers whose harvests have been affected by drought. The project designed an index based weather insurance contract that will pay out if the rains required for groundnut production are insufficient. This section focuses on loans as the most common form of micro-finance in emergencies.

The main aim of micro-finance is to give poor or disaster affected population's access to financial services that will allow them to invest in ways that support their livelihoods. Microfinance differs from the cash grants for livelihood recovery in that beneficiaries are expected to pay back loans, and there is an expectation of durability of the financial services provided. Agencies planning micro-finance need to plan for a long-term intervention rather than a short term emergency response.

In emergencies, the distinction between grants and microfinance has sometimes become blurred because the institution implementing the project does not have the capacity to establish systems to retrieve the money. Alternatively, repayment has sometimes been cancelled when it is believed that clients are unable to repay the loan. This confusion can undermine the work both of formal and experienced micro-finance institutions and of informal financial services. In addition to general livelihoods assessments, the following needs to be determined before deciding on the suitability of micro-finance services (Wilson, 2002, March);

• Existing micro-finance competition in the market place and details of their products.
• Identification of products that are in demand.
• Criteria for when and where to give hand-outs rather than micro-finance and to whom.

The most suitable candidates for microfinance services are home-based resident populations and returnees, both of who tend to have at least some assets and an incentive to stay where they are if they can earn a living (Doyle, 1998), although there is an increasing body of experience working with refugees and IDPs. Preconditions for the success of micro-finance projects include (Doyle, 1998):

• Reasonable amount of security and stability of access in the project area (though microfinance programmes have continued to operate during conflict).
• Existence of some market activity.
• Assurance that refugees or IDPs will remain in place long enough for programmes to allow them to redeem the loans (18 months is the common benchmark). In acute emergencies, or unstable contexts, in-kind assistance or grants are more appropriate.

Loans can be provided to individuals or groups, with group lending often preferred by NGOs as a form of collateral. This is not necessarily the preferred option by the recipient population, however, as was found in a review of micro-finance initiatives in Rwanda, Cambodia, Angola and Mozambique (Wilson, 2002, March). The same study found that people preferred to use local money lenders as they were more flexible than NGO schemes. Micro-finance is often accompanied by training to upgrade recipients' skills, which is frequently considered as important by beneficiaries as the loan itself (Jacobson, 2004, November). A study by Tufts University developed a number of best practice principles for micro-finance in protracted refugee populations, which are summarised in box 14.

Source: Karen Tibbo, Livelihoods advisor, Oxfam

 

Source: Jacobson (2004, November)

 

 

5.8 Case studies