Module 5: Livelihood Restoration

Microfinance and Disaster Management

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Objectives

To understand:

• what livelihood activities are• how to assess local needs and design appropriate livelihood

promotion activities• appropriate client selection• ‘for’ and ‘against’ arguments of livelihood promotion programs

for microfinance providers• issues related to monitoring and evaluation of livelihood

promotion programs

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Topics

1. Introduction2. Should a MFI implement livelihood promotion activities after a

disaster? 3. Context assessment4. Client selection5. Program selection and design6. Monitoring and evaluation7. Summary

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1. Introduction

Key concepts:

• Livelihood

• Sustainable livelihood

• Livelihood promotion activities – short- and long-term

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Livelihood Definitions

A livelihood comprises:

• capabilities,• assets (including material and social resources), and• activities

required for a means of living.

A livelihood is sustainable when it can cope with and recover from stresses and shocks, and maintain or enhance its assets and capabilities whilst not undermining the natural resource base.

U. of Sussex, used by DFID and World bank

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Livelihood Promotion Activities

Livelihood promotion activities aim to help beneficiaries become economically self-reliant over the long term.

Brainstorm: what examples of livelihood promotion can you think of?

Does your organisation engage in livelihood promotion?

Is ‘microfinance’ a livelihood promotion activity?

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Livelihood Promotion Activities - Examples

• Credit, savings

• Cash-for-work

• Cash grants

Financial Non-financial

• Skills training• Employment

services• Marketing services• Business

development services

• In-kind grants

Class exercise: Sort these examples into ‘short-term’and ‘long-term’ activities

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Short- and Long-term LivelihoodPromotion Activities

• Cash-for-work

• Cash grants• In-kind

grants

Short-term Long-term

• Skills training• Employment

services• Marketing services• Business

development services

• Credit, savings

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2.Should an MFI Implement LivelihoodPromotion Activities after a Disaster?

The question refers to activities beyond traditional ‘core’ microfinance.

1. Long-term activitiesDo you normally offer ‘microfinance-plus’? If ‘no’:

• Is there demand for the ‘plus’ services? (see Topic 3 - Assessment)

• Do other organisations provide these services already?• Does your organisation have the skill / knowledge / capacity to

deliver?

2. Short-term activities• There are challenging design issues relating to cash-for-work,

cash grants and in-kind grants (see Topic 5 – Program selection and design)

• There are a few success stories, but many more failures!

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‘For’ and ‘Against’ Implementing Livelihood Promotion Activities after a Disaster

Brainstorm: what are some FOR and AGAINST arguments for a MFI implementing ‘non-core’ livelihood promotion activities after a disaster? Consider both ‘short-term’ and ‘long-term’ activities, as discussed.

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3. Context Assessment

• A comprehensive assessment of the context is needed BEFORE designing livelihood promotion activities.

• The assessment team should have expertise in economic development.

• The MFI needs to understand its own strengths and weaknesses, which determine what it can and cannot do.

• When undertaking assessments, it is important to take into consideration:

clients suppliers environment

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Example: A ‘Microfinance’ Assessment

Who Issues

Clients Economically active poorExperienced business people

Household income/expensesTypes of businessesCapacity to repay

Suppliers MoneylendersOther MFIsBanksCooperatives, self-help groups

Who are their clients?What regions do they cover?What are their products?

Environment

GovernmentCentral bankStatistical offices

Regulations on savings mobilisation?

Minimum reserve requirements?Registration requirements?

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Context Assessment Exercise

Group activity:

1. Divide into groups

2. Each group select a different livelihood promotion activity (skills training, in-kind grants, cash grants, employment services, etc.)

3. Each group discuss how it would conduct an assessment for the livelihood promotion activity. Fill in the table on the handout.

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Example: A ‘Skills Training’ Assessment

Who Issues

Clients Unemployed, working age, physically capable population

What skills exist in the community?What fields and skills have potential for additional employment?

Suppliers Training institutesUniversitiesPrivate businesses, individuals

Trade associations

What training is offered?Cost for participation?Prerequisites for participation?Credentials of instructors?

Environment

Laws and regulationsStandards

Is government licensing necessary?Who monitors / regulates standards?

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Example: An ‘In-kind grants’ Assessment

Who Issues

Clients Individuals who are capable of making the most of goods distributed

Skills needed to work with product?Capacity of clients to purchase product ---(e.g. to borrow and repay)?

Suppliers Local producersLocal importers

Price and quality of locally produced items

Demand for and supply of locally produced items

Environment

e.g. For livestock grants - regulatory agency (Ministry of Agriculture)

e.g. Health codes such as vaccinations, quarantines

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4. Client Selection

The client selection profile for livelihood promotion activities is essentially the same as for microfinance client selection.

Role play

Client A

Client B

Downtown

60kmClient C

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Microfinance Client ‘Inclusion’ Profile

Experience has shown that the best microfinance clients are the entrepreneurial poor who, for example:

• run small businesses that operate in active markets

• borrow from informal sources for enterprise purposes

• operate in large populations and high population density

• live in a reasonably stable social environment

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Microfinance Client ‘Exclusion’ Profile

• Microfinance is not a ‘safety net’ program, so it is normal to have some people excluded after determining their profile.

• Some poor people are not included because, e.g.: they are not entrepreneurial poor, that is, they do not

operate microenterprises they live in remote areas with small population and

population density there is minimal cash economy they live in an unstable social environment.

• The non-poor are not usually targeted, as they have access to mainstream financial services (e.g. provided by formal banks).

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Livelihood Client ‘Inclusion’ Profile

• The client selection profile for many livelihood promotion activities is essentially the same as for microfinance client selection.

• The primary target for enterprise-oriented livelihood promotion activities is the entrepreneurial poor.

Exceptions include ‘skills training’ and ‘employment services’ that are well targeted to people who are not entrepreneurial.

• Since microfinance and many other livelihood promotion activities target the same client profile, these services go hand-in-hand and can be mutually supporting.

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5. Program Selection and Design

Read the case study scenarios on the handout, and make some notes regarding good vs bad practices.

Brainstorm: Consider each of the livelihood promotion activities listed on the following slide, and discuss whether you think the intervention will have a positive, negative or no impact on your microfinance activities, and why.

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Impact of Livelihood Interventionon MF Program (1)

Intervention Impact on MF Program

Cash-for-work

Cash grants

In-kind grants

Skills training

Marketing services

Business consulting services

Employment services

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Intervention Impact on MF Program

Cash-for-work Often negative … depends on design

Cash grants Often negative … depends on design

In-kind grants Often negative … depends on design

Skills training Positive … may delay sustainability

Marketing services Positive … may delay sustainability

Business consulting services

Positive … may delay sustainability

Employment services Neutral … not the same clients

Impact of Livelihood Interventionon MF Program (2)

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Grants and Loans in Livelihood Restoration• The client selection profile for many livelihood promotion

activities is essentially the same as for microfinance client selection.

• Despite concerns from the microfinance community, grants are often provided to microentrepreneurs following a natural disaster.

• The challenge for relief agencies and microfinance providers is to design these interventions so that:

they contribute positively to restoration of livelihoods, without creating dependency, and without undermining efforts to provide market-based financial services on a sustainable basis over the long term.

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• Grants are not suitable for all disaster situations.• Do not mix loans and grants in a single contract. Wherever

possible, provide grants through a relief partner and loans through an MFI.

• Be transparent with the criteria for selection of grant beneficiaries.

• Provide grants for only a very short time.• Grants should be one-off, and there should be a ‘graduation’

process to market-based mechanisms such as micro-credit.• Require beneficiary participation for asset replacements.

See FDC Brief 3, ‘Grants and loans for livelihood restoration following a natural disaster’

Guidelines for Grants and Loans

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• Different livelihood promotion activities have different timeframes.

• Some are long-term; some are short-term and temporary.

• Short-term activities can usually be implemented more quickly.

• However, experience has shown that organisations that plan their overall strategy, both short-term and long-term together, can develop a more coherent response to a disaster and have greater positive impact.

When to Commence Livelihood Promotion Activities

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6. Monitoring and Evaluation

• ‘Client satisfaction = impact’ is a common presumption among livelihood practitioners.

• However, for free or subsidised activities, client satisfaction is not enough.

• At the design phase, you need to include monitoring indicators that are specific, measurable, achievable, relevant and timely.

Brainstorm: what indicators has your organisation used to measure the efficiency, sustainability and impact of your MF operations?

What are some indicators that might be used to measure the impact of other livelihood promotion activities?

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7. Summary

• A livelihood promotion activity aims to promote economic self-reliance.

• There are both financial/non-financial, & short-/long-term interventions.

• Mixing grants with loans is dangerous. With the large number of relief organisations, clients become confused and the result is often a negative impact on repayment discipline.

• It is important in disaster contexts for organisations doing microfinance to differentiate themselves from other relief activities.

• Organisations should design their livelihood programs in unison to ensure programs complement each other.

• Do not forget to monitor and measure impact and progress – the number of participants is not enough!