Income-Generating Activities - Action Against Hunger

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Field handbook • Scientific and Technical Department even willing to pay for a safe place to save their money. When institutions offering saving services exist in the region where ACF is working, it is worthwhile developing links between them and ACF beneficiaries. ACF can negotiate on behalf of its beneficiaries with the MFI, train beneficiaries on how to open saving accounts, and give an incentive to beneficiaries to encourage them to set up regular saving mechanisms. A limiting factor for formal saving services is that in most countries, deposit mobilization is regulated by the banking law. Only institutions like banks, credit unions or postal banks are allowed to provide saving services. These institutions are often too far away, or the time and procedures needed to complete transactions are too expensive for vulnerable populations. Informal savings will continue to be the norm in most of ACF intervention areas. In that case, ACF can promote alternative saving mechanisms based on existing community organizations. Special caution has to be taken when promoting informal saving-groups. Setting up new saving mechanisms can be risky for the savers. There are many examples where people loose their savings if the group is not well established or managed. Therefore, when developing saving groups ACF recommends working with already established community organizations who have a strong acceptance from the community to ensure long-term sustainability of these savings groups. In any case, ACF should not manage directly the community-based saving mechanisms nor be responsible for the banking account where the funds are located. The community itself should own and manage the funds. Recommendation 7: ACF recommends introducing beneficiaries with MFIs offering formal saving services Alternatively, when no MFIs offering saving services are active in the region, ACF encourages setting up saving groups in partnership with previously established community organizations An advantage of saving-groups is that they can start putting together a saving fund that can be lent out to members. They then become a specific type of revolving funds: “saving-based revolving funds” where the capital of the loans comes from the accumulated savings of the members. According to microfinance specialists, this type of revolving funds that use no external capital perform better in the long term as capital accumulated through local savings feels important because it comes from one’s neighbours. Borrowers are more likely to take repayment seriously. The main issue that these groups face is that is takes time to gather a capital that is large enough for an important loan activity for the members. External support is important for saving groups to start providing loans. Support to the groups, such as organization, training, bookkeeping, networking, liquidity management, and performance monitoring is key to reach long term sustainability. As ACF is not INCOME GENERATING ACTIVITIES: A KEY CONCEPT IN SUSTAINABLE FOOD SECURTIY 109
➔ specialized in this type of support, it is recommended working with a specialised partner that will bring the necessary support to the groups. 6. Graduating the most vulnerable populations into microfinance: linking safety nets & financial services One of the recurring debates when talking about microfinance is whether microfinance is an effective tool to reach the poorest. In reality few MFIs reach the most vulnerable populations. They tend to focus on slightly better off beneficiaries. One reason is that the most vulnerable beneficiaries may prefer not to borrow to avoid the risk of over-indeptness. Another is that MFIs need to cover their costs to be sustainable and therefore avoid lending to beneficiaries that will be too affected by external shocks and therefore unable to repay their loans. A more suitable type of program for the people at the bottom of the economic ladder are safety net programs: transfer programs targeted at the poor or those vulnerable to shocks. Safety net programs usually take the form of cash transfers, food aid, or price subsidies. However, while safety programs are able to alleviate poverty, they do not develop income generating activities or build assets to move people out of poverty. Given the evolution of food security and livelihoods situation worldwide and the increasing number of protracted crisis that needs long term responses, ACF thinks that safety nets measures are a good complementary activity to current ACF activities. Specific expertise is currently being built internally. Models linking safety net programs and microfinance exist: they are called “graduation projects”. Graduation projects use the targeting and transfer elements of safety net programs, but introduce entrepreneurial activity through training, an asset grant and credit. The key to the graduation model is the careful sequencing of several development services to facilitate consumption stability and, subsequently, enterprise development. Given ACF beneficiaries characteristics, graduation programs are suitable to support beneficiaries in a more sustainable way. Pilot graduation projects could be developed by ACF to extend the benefits of safety net programs. Recommendation 8: When appropriate ACF could develop pilot projects that aim at graduating beneficiaries from safety nets into microfinance 110 INCOME GENERATING ACTIVITIES: A KEY CONCEPT IN SUSTAINABLE FOOD SECURTIY
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➔ Pages CHAPTER 4: INCOME GENERAT
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➔ questions that can give the rea
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Income-Generating Activities - Action Against Hunger

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