Georgia: UN OCHA/UNDP - Linking Relief and Development

Income Generation Programmes in Georgia
Following the transition in Georgia away from the acute crisis of 1992-1995 to a more stable political and economic situation in most of the country, international assistance has increasingly focused on long-term programmes and sustainable development. An important element of such assistance is income generation, aimed at enhancing the self-reliance of beneficiaries, especially the most vulnerable persons. Since 1995 the Georgian government, donors and implementing agencies have placed more emphasis on supporting income generating activities. Nevertheless, agencies have reported a lack of resources for new and ongoing income generation programmes.

Economic background

Despite the fact that since the beginning of 1996 the economy has experienced substantial yearly growth rates of around 10%, this should be considered against a background of severe economic difficulties during the first half of the decade. The disruption of Georgia's traditional trade relations, the complex transition from a command economy to a market oriented system, natural disasters and ethno-territorial conflicts led to a severe decline in national production. By 1994, industrial output fell to 30% of 1990 value; government revenues collapsed to 2% of GDP; annual GDP per capita fell to US$ 410; and overall GDP decreased by 12 to 40% each year 1990-1994.

In addition, income inequality has increased sharply since independence. Registered unemployment has emerged as a new phenomenon, while benefits from the social security system have not been adapted to changes in the economy and have thus fallen below subsistence levels. This economic hardship has been exacerbated by high inflation rates throughout the period 1990 to 1995. In 1994, annual inflation was 15,606%, causing wages and benefits to lose their purchasing power. As described in UNDP's Human Development Report - Georgia 1997, this economic decline made poverty one of the most serious problems in Georgian society and has created a significant number of newly impoverished households.

According to Poverty in a Transitional Society, the sixth Discussion Paper in UNDP's series, individuals have adopted various coping strategies in response to economic marginalisation: material and non-material support from kinship systems; reduced consumption; and exhaustion of existing resources. These strategies are not sustainable in a long-term perspective, which makes it essential to enhance the development of alternative income generation approaches targeting such individuals.

Ideally, such approaches should be based on personal capacity-building. A recent, qualitative study of poverty by the World Bank indicates that the social and psychological impacts resulting from a person being unable to sustain him/herself should be considered in conjunction with the material impacts of impoverishment. At present, this emphasis on personal capacity-building is supported by many agencies implementing income generation programmes, as a means of addressing the needs of some of the most vulnerable individuals in Georgia in a sustainable manner.

In view of the current situation, OCHA and UNDP have compiled this note in order that potential programming gaps, opportunities and lessons learned can be shared with the wider aid community active in Georgia. This is the first Linking Relief & Development note.

Breakdown of income generation programmes in Georgia by category

Note: The following breakdown has been made as a preliminary guide to the different types of programmes implemented in Georgia assisting beneficiaries via income generation activities. Credit unions and large-scale programmes issuing loans upwards of US$ 10,000 are not covered in this Briefing Note. Readers interested in such programmes should contact: Agricultural Cooperative Development International (ACDI)/ Enki Foundation; World Bank/ IFAD; TACIS; European Bank for Reconstruction and Development; and Shore Bank.

Income generation programmes in Georgia initially concentrated on direct input distribution or grants. As the economic situation stabilised after 1995, and micro-business began to emerge as a significant phenomenon, programmes, in line with donor emphasis on sustainability, shifted towards more comprehensive loan-oriented strategies and small business development including technical assistance and training of beneficiaries. Nevertheless, small grants and Food for Work programmes continue to provide opportunities to the most vulnerable as a first step towards becoming more self-sufficient.

Food for work programmes: These programmes aim to relieve food insecurity for the most vulnerable, unemployed individuals in communities. The World Food Programme (WFP) began food for work programmes in May 1997, during the second phase of the project "Emergency Food Assistance for Internally Displaced Persons and Other Vulnerable People in Georgia". The intention was to substitute a large portion of the passive food distribution with projects requiring people to participate in rehabilitation activities in order to obtain assistance in the form of a daily five-person food ration for labour on rehabilitation of infrastructure. Some projects, such as the rehabilitation of tea plantations, could lead to sustainable jobs for beneficiaries. WFP anticipates that 25,000 households will be targeted in the second half of 1998 by its US$ 4.1 m food for work programme.

Small grant projects: Despite the shift away from direct inputs and grants, a number of small scale projects are being implemented providing beneficiaries with in-kind assistance or supporting specific businesses with small grants. The Norwegian Refugee Council (NRC) has recently helped to establish a pig-breeding farm in Vejini, and is supporting the Abkhaz State Folk Ensemble in Tbilisi, through small grants. NRC is also funding a programme that enables IDPs to buy one cow each. In Sukhumi, where economic conditions rule out loan programmes more commonly associated with small business development, the Adventist Relief and Development Agency (ADRA) is beginning a programme to make small grants to micro-enterprises in the range of US$ 100 to US$ 5,000.

Micro-Credit Programmes: Micro-credit programmes, where beneficiaries receive loans in the range of US$ 75 to US$ 1,500, constitute the majority of income generation activities in Georgia. These programmes provide credits to either individuals or small groups who only need a small amount of capital or who have no means to secure a larger loan to start small-scale business projects in trade, production or the service industry. Of the 783 loans provided by Constanta to 84 groups, 74% of the beneficiaries are involved in trade and resale; 18% produce and sell home-made food; and 5% start micro-enterprises in hairdressing, cosmetics and sewing.

The selection of beneficiaries varies among micro-credit programmes, but often persons from potentially vulnerable groups, such as women IDPs, with previous experience in business activities are preferred. Additionally most programmes require that applicants attend a series of information meetings with loan officers and are able to accumulate test savings, before loans are approved. A special business training course provided by the local NGO, Charity Humanitarian Centre Apkhazeti (CHCA), must be completed by the International Rescue Committee (IRC)'s individual loan programme beneficiaries.

Another common feature of micro-credit programmes is group lending. Each member of the group, usually 5 to 15 persons, prepares an individual application. These applications are reviewed by the group and then submitted for approval to the implementing agency. If a loan is approved, members of a group must then mutually guarantee for each other. If one person fails to meet the requirements, the next payment to the group as a whole is suspended. Generally, it is the experience of organisations active in micro-credit such as Children's Aid Direct (CAD), IRC, Oxfam, Save the Children and Constanta that group lending results in high repayment rates between 95 and 100%, and the successful establishment of functional small enterprises. Other factors often noted as contributing to high repayment and successful business establishment include: linking small initial loans, gradually increasing loan sizes for each cycle, frequent, often weekly, installments and a focus mainly on women. It is anticipated that many of these strategies will be adopted by FINCA (Foundation for International Community Assistance), whose micro-credit programme is scheduled to begin with loans of US$ 100, but will eventually allow beneficiaries with good credit history and savings to borrow up to US$ 3,000. FINCA's programme falls under the Shore Bank / Caucasus Small and Medium Enterprise Finance Programme. Shore Bank, while not strictly involved in micro-credit programmes does provide financial support to local banks, which then issue loans with an interest rate below the current market rate. Loan sizes range between US$ 10,000 to US$ 500,000.

Unfortunately, despite the success of micro-credit programmes, it must be noted that many agencies active in such programmes currently face problems regarding their legal status. Under the Georgian Law on the Activities of Commercial Banks, agencies funded by a separate donor and wishing to issue credits must obtain a licence as an official financial institution from the National Bank. This is issued only if GEL 5 million has been deposited as security capital. Micro-credit agencies unable to fulfil this requirement, or operating without a licence, are considered illegal under the current law. As a consequence of the current banking law, GEL 16,072 has been confiscated from Constanta by the tax inspectorate as illegal income earned from interest on the loans from Constanta's credit programme. The credit programme aims at becoming self-sustainable after the initial phase; the interests from loans are needed to achieve this objective. A letter explaining the problem has been sent by affected agencies and donors to the Finance-Budget Committee of the Georgian Parliament responsible for the revision of the Banking Law, which is expected to be completed in September.

Small Enterprise Development: These types of project sometimes overlap with micro-credit schemes, but are more directly focused on establishing sustainable small-scale businesses, rather than individually-run trade or services enterprises. The loans involved in small enterprise development are consequently larger than in micro-credit programmes, in the range of US$ 1,500 to US$ 10,000. The blanket production initiative implemented by International Orthodox Christian Charities (IOCC) / Lazarus and the sewing project implemented by NRC, are two examples of enterprise development. The United Methodist Committee on Relief (UMCOR) and World Vision are also implementing small enterprise development programmes. World Vision's loan client portfolio profiles as: 43% retail, 36% production and 21% service. 90% of their clients have management systems of five or under.

CURRENT INCOME GENERATION PROGRAMMES IN GEORGIA

Compiled by OCHA, with UNDP, on the basis of information provided by the respective agencies