PITFALLS: What goes wrong with projects for OVC

Menahem Prywes

I. Micro-credit

II. Skills training

III. Leakage of benefits

IV. Excessive benefits

I. Micro-credit

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

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!

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.

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.

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.”

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.

II. Skills training

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

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.

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.

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).

Also consider

• Catch-up education in literacy & numeracy;

• Life-skills training

• Entrepreneurship training

III. Leakage of benefits

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

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.

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.

IV. Excessive benefits

Moreover, excessive benefits can harm OVC.

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.

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.

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.

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.

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.

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

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.