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PITFALLS: What goes wrong with projects for OVC Menahem Prywes Micro-credit Skills training Leakage of benefits Excessive benefits I. Micro-credit Many projects for OVC ignore more than 30 years of experience of the microfinance movement

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PITFALLS: What goes wrong with projects for OVC

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Pitfalls what goes wrong with projects for ovc l.jpg

PITFALLS: What goes wrong with projects for OVC

Menahem Prywes

Micro-credit

Skills training

Leakage of benefits

Excessive benefits


I micro credit l.jpg

I. Micro-credit

Many projects for OVC ignore more than 30 years of experience of the microfinance movement


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Many foster families & OVC cannot benefit from micro-credit

They can’t benefit because they lack:

  • A profitable micro-project;

  • Any other source of stable income; &

  • Experience with building of savings.

    In this case, extension of micro-credit and effort to repay will just push then further into debt and poverty!


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Groups that serve OVC should not provide micro-credit

  • Microfinance is about building permanent local financial institutions able to mobilize & recycle domestic savings, extend credit, and provide a range of services.

  • Social service and charity-oriented organizations should not provide micro-credit because they will not be able to manage the credits and maintain the value of the micro-credit fund.


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Don’t limit interest rates.

Most projects for OVC and families that foster OVC keep interest rates low because the borrowers are poor.

  • Yet, it costs more to make many micro credits than a few large credits.

  • Unless micro-lenders can charge rates that are well above bank credit rates, they cannot cover their costs.

  • The result is usually shrinkage and eventual closure of the micro-credit fund.


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Micro-finance Gateway comment on repayment rates:

  • “Credit requires a 98% ‘hit’ rate to be successful. This means that 98% of recent vocational school graduates or returning refugees would need to be successful in establishing a micro enterprise for repayment rates to be high enough to allow for a program's overall sustainability. This is simply unrealistic.

  • “Running a program with substantial default rates undermines the very notion of credit and destroys credit discipline among those who could repay promptly but who look foolish given that many do not.”


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Conclusions for OVC & foster families

  • Micro-credit targeted to foster families and OVC is a poor idea.

  • Any micro-credits should be targeted to foster families with good proposals for micro-projects and a history of savings.

  • Therefore, most support to OVC & foster families for micro-projects should be in grant.


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II. Skills training

Most projects for OVC support skills training without evidence that it leads to sustained employment.


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Tracking, evaluation, and learning.

  • Most programs for adolescent OVC include skills training to ease the transition off of charitable support and into employment and financial self-sufficiency.

  • Most skills training activities for OVC do not track their graduates to see whether they are employed in their area of training a year following graduation.

  • The result is a lack of learning and self-correction.


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Types of training that are most likely to fail

  • Training in providing services for which there is no international market: hairdresser, seamstress, running kiosks (because the market is limited, supply is large, and incomes marginal).

  • Training in government-run vocational education schools (see Johanson & Adams book)

  • Training without employer commitment, student choice of vocation, or student contribution.


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Types of training more likely to succeed

  • Training in production of goods & services for which there is an international market.

  • Training when there is an advance employer commitment to hire

  • Apprenticeship in informal skills.

  • Training within enterprises (of employees).


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Also consider

  • Catch-up education in literacy & numeracy;

  • Life-skills training

  • Entrepreneurship training


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III. Leakage of benefits

Households often redistribute benefits of programs for OVC away from OVC.


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Household redistribute support

  • Typically, heads of households redistribute support for OVC, such as food, cash, school books & uniforms, & income from micro-projects.

  • This allows the household to meet urgent needs of other members, and means that the household as a whole benefits.

  • The extent of redistribution and choice of beneficiary may depend on the distribution of power within the household.

  • For example, redistribution may be to male head of household or to senior wife and her children.


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To limit redistribution of support

  • Support delivery of specific services to OVC, for example by paying their school or health fees.

  • Make assistance to families as a whole conditional on OVC school attendance, etc.


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IV. Excessive benefits

Moreover, excessive benefits can harm OVC.


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Some programs lift OVC consumption above the level of their peers.

  • Some orphanages & group homes run by western NGOs keep high standards compared to what the child can expect later in life.

  • Provision of housing to OVC-headed households of a quality superior to that of the surrounding community.

  • Secondary school scholarships (esp. 2nd cycle) where secondary enrolment rates are low.


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Some consequences are:

  • Jealousy and hostility towards OVC among siblings and other non-beneficiaries, and even violence.

  • Disruption of the child’s links with their families and communities.

  • Adjustment by the child to an unrealistically high and unsustainable living standard.


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It’s not always possible to limit assistance to OVC to the community standard because

  • Their peers are malnourished or don’t receive basic health or education services; and because

  • Aiding peers (all siblings, or the entire village) is not affordable within the available budget.


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Unconditional cash transfers promote child labor.

  • The transfers defray the costs, in consumption, of ‘fostering’ a child to obtain their labor.

  • One result is the Cinderella syndrome: girls ‘fostered’ to do domestic labor.


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Lessons

  • Willingness to pay to foster suggests that the household is fostering out of a sense of obligation to extended family.

  • So, transfers should be limited so that fostering does not become profitable for the foster family.

  • Moreover, transfers should be conditional on school attendance by the foster child.


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More lessons

  • OVC consumption should not exceed the community standard, except where the standard falls below an acceptable minimum.

  • Projects should provide some assistance that benefits the family as a whole, such as livestock, seeds & tools for gardening, a revenue generating project, or conditional cash transfers


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V. Final thoughts on what to do

  • Keep the design simple, stick to low-cost basics.

  • Avoid complex and expensive interventions such as micro-credit & most skills training.

  • Implement through local administration, CBOs, & faith-based.

  • Avoid unconditional cash and food transfers

  • Set up a supervision using local leaders to protect children & resolve disputes.


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