UMCOR Bosnia and Herzegovina

"Sustaining Minority Returns in Bosnia and Herzegovina (BiH)"

Background

"Sustaining Minority Returns" was the first of two economic development programs implemented by UMCOR Bosnia and Herzegovina (BiH) with funding awarded by the United States Agency for International Development (USAID) under their Community Reintegration and Stabilization Program. During implementation of the program, UMCOR BiH distributed 999 grants and loans to the value of US$ 1,900,000.00.

The United States Agency for International Development (USAID) is responsible for the administration and management of the official U.S. bilateral foreign assistance program. USAID has a total annual budget of approximately US$ 6 billion and has programs in over 75 countries in Europe, Asia, the Near East, Latin America and Africa. USAID's principal goals are to promote broad-based economic growth, protect human health, encourage sound environmental management and provide emergency humanitarian assistance to countries in transition. The Agency works in partnership with host governments, other U.S. government agencies, other international donors, U.S. and local businesses and non-governmental organizations (NGOs).

Since 1998, USAID in BiH has been committed to implementing programs in the following areas namely, restoring private sector productive capacity to restart production quickly and create immediate self-sustaining employment; establishing a policy and institutional framework conducive to the emergence of a market economy by supporting rapid privatisation, critical macro-economic reforms, sound fiscal policies and a viable banking system; repairing war-damaged infrastructure to facilitate refugee return and reactivate the local economy; and strengthening democratic institutions.

The "Sustaining Minority Returns" program was implemented from 01 October 2001 to 31 Dec 2003. It was administered through UMCOR's field offices and divided into five main areas as follows:

Income generation grants and subsidized loans»
Micro-credit loans implemented through microfinance institutions (MFIs)»
Institutional capacity building»
Legal aid services»
Facilitation of linkages between producers in minority return communities and internal and external markets»

About the Program

What are income generation grants and subsidized loans?

Income generation grants and subsidized loans are financial inputs offered to members of minority returnee communities to enable them to make a sustained return to their pre-war homes. Individuals and families, who would otherwise fail to qualify for a loan from a conventional source, are able to acquire the financial means to set up small businesses, purchase equipment, machinery and tools, buy livestock or seed and generally create the means of supporting themselves and their families in their return. The grants and loans are awarded according to certain criteria which the applicant must meet. Repayment differs according to the situation of the beneficiary so that some loans are repaid in in kind or in services and some are partially repaid in cash with minimal interest.

Why is it necessary to offer this kind of program to the citizens of BiH?

The Krunic family lived as IDPs in Montenegro until their return to Klepci in Capljina Municipality.

Click here for their story

In many parts of BiH, ethnic cleansing left a terrible legacy and created virtually mono-ethnic societies. Hundreds of thousands of people of all ethnicities were forced to flee to other regions of BiH or to other countries as a result of the conflict. Since 1996, an estimated 900,000 people have returned to their homes, either from displacement within BiH or from abroad. According to United Nations statistics released in April 2002, approximately 400,000 people remain displaced. The numbers of returnees increased dramatically between 2000-2002, which shows the continuing need for programs such as this.

Members of ethnic minorities who return to their pre-war homes often find themselves in an impossible economic situation. They face the dual obstacles of having been recently displaced, with all the consequent costs and dislocation, while often being exposed to discrimination as minority returnees to areas in which the memories of ethnic conflict are still fresh. For the returning as well as the domicile population, the general difficulties of the transition from a communist, centrally planned economy to a market economy are exacerbating the situation. There is widespread unemployment with jobs vanishing as a consequence of the war, following the collapse of traditionally state-owned industries and due to the general scarcity of new employment opportunities.

How does this type of program help people to return to their pre-war homes?

People returning may need assistance with the provision of shelter; their houses may be partially or totally destroyed and in need of rebuilding. UMCOR has been instrumental in the reconstruction of over 17,000 homes (click here for more information on UMCOR's Relief Program in BiH). However, shelter reconstruction is only one part of a sustained return. By providing the financial means to start some kind of business, this program ensures that people can provide for themselves by earning a regular income, providing for their families and generally improving their standard of living.

What are the criteria for a successful application for an UMCOR-BiH income generation grant or subsidized loan?

Potential beneficiaries submit a business plan to UMCOR, either directly or through partner organizations. The essential criteria are:

Bogdan Nikolic made a wrought iron gate for the local mosque as his community contribution.

• The applicant must have been registered at the address before 1992
   

• The applicant must have an ID in the municipality in which the application is made
   

• The applicant is not able to and has not received credit from a bank or other micro-credit organization (MCO)
   

• The monthly income may not be higher than 250.00 KM per family member, up to a monthly total of 500.00 KM (from both formal and informal sources). There are approximately 2 Konvertibilna Marka (KM) to 1 Euro
   

• No member of the family is illegally occupying a property in BiH
   

• The applicant has presented only correct and truthful information to UMCOR

Grants are only issued to people with a monthly income of less than 150.00 KM and with no pre-war family members living abroad. In addition, potential beneficiaries may not have received more than 300.00 KM per family member in support from other non-government organizations (NGOs). There are other important indicators which demonstrate the vulnerability of the recipient, such as the number of dependant family members and whether they live in the same household, the number of children, any physically or mentally handicapped or elderly family members and the level, source and reliability of income. Grants are repaid in the form of a community contribution or in other words, an in-kind donation of assistance to the community which reflects its needs.

If applicants do not qualify for a grant for whatever reason, they are offered a subsidized or 'soft' loan with a 50 - 70% monetary repayment and a nominal interest rate of 6.5% per month. These are guaranteed either through private insurance firms or through 'solidarity groups', namely groups of beneficiaries who are liable for each other. The loans enable the beneficiaries to start building up a credit history thus making them eligible for micro-credit and commercial loans at a later date.

Who benefits? What are the short- and long-term benefits? What are the benefits to the community as a whole?

The primary beneficiaries are minority returnees who are eligible for and receive USAID-funded UMCOR BiH loans and grants. These people may have lived in displacement for more than a decade, either in other parts of BiH or in third countries such as Serbia and Montenegro or Croatia, and for many of them conventional sources of finance are unaffordable. Members of the majority population in areas of minority return can also receive loans and grants if they meet the requirements.

Emira Cuskic's house was rebuilt by UMCOR BiH and she received a grant which enabled her to purchase three greenhouses.

Click here for her story

It is more difficult for women in BiH to gain employment than men. UMCOR BiH aims to give women the maximum opportunity to take advantage of all sustainability assistance efforts and implements programs directly targeted at women, through advertising, women's groups and contacts from previous loan programs. UMCOR, through it's experience, has found that, whilst many programs focus on women, women's empowerment does not always follow a successful application for a subsidized loan or a grant. Too often, women are used by men as a front to enable them to successfully apply for loans. The input and profit is then taken by the man, leaving the woman to shoulder the responsibility for repaying and working. UMCOR ensures that women to whom a grant or loan is given are the prime users of the input and are the sole controller of the money and any subsequent profits.

In the short term, grants and subsidized loans target those who are most vulnerable and give them the means to make a sustained return to their home communities. The terms of repayment are flexible and are adapted to the recipient's circumstances so as not to place them under unnecessary financial pressure or fear of foreclosure should they fail to pay back promptly.

There are also many secondary beneficiaries of this program since sustained returns encourage more minority families to go back to their homes. The provision of loans and grants encourages the foundation of small businesses, business associations and enterprises thereby recreating infrastructure, new markets and increased prosperity. These forms of finance also contribute to rebuilding communities and bringing back confidence as neighbors assist each other through in-kind repayments. This brings back dialogue to towns and villages once split by suspicion and mutual distrust.

Long-term community stability is only attainable when the poorest and the vulnerable, both politically and socially, are given the chance to improve their situation and their standard of living. The UMCOR BiH / USAID program creates stability as well as being a vibrant and effective method of raising people from poverty to sustainability.

Why do income generation grants and subsidized loans often provide a better solution for poor minority returnees in BiH than micro-credit organizations?

Benjamin returned with his family to Trnopolje after being displaced.

Click here for their story

The conflict in BiH caused many hundreds of thousands of people to become displaced and virtually destroyed the country's infrastructure. Combined with the realities of post-war reconstruction and post-communist rationalisation, large numbers of people have lost their jobs and so standards of living have fallen considerably. This means that many UMCOR beneficiaries simply fail to meet the basic requirements of micro-credit organizations (MCOs) because they have no collateral to guarantee the loan and little or no regular income, which means they are unable to fulfil the repayment requirements. MCOs are a vital aspect of modern society in BiH and they provide an excellent service. Many are, however, quasi-commercial enterprises with the need to make a profit. This renders them less responsive to the needs of the vulnerable poor in modern BiH as loans to this segment of the population are considered bad debts or high-risk undertakings. Many MCOs also avoid very rural areas as they consider the costs of identifying clients too high, moreover the disadvantaged are seen as too great a risk. UMCOR believes in and advocates for the most disadvantaged in society and demonstrates that commitment by providing grant and subsidized credit opportunities. Following successful repayment and a subsequent increase in generated wealth, beneficiaries usually reach a level of income generation where they can successfully apply for a commercial loan from an MCO or bank.

As part of the "Sustaining Minority Returns" Program UMCOR also provided micro-credit loans implemented through microfinance institutions (MCOs). Who are these loans aimed at?

These loans are aimed at the active poor and their small private enterprises, with the long-term goal of reviving the economy and promoting growth. Small enterprises create new jobs and provide sustainable sources of income for families and communities. The banking system in BiH is underdeveloped, a legacy of war and communism, so that while there is good coverage in urban areas, rural areas have been largely neglected.

UMCOR BiH works through existing local MCOs to provide loans to returnees, displaced people and residents in minority return areas. It is important that these MCOs cover rural areas where there is little chance of acquiring finance. By increasing the availability and accessibility of credit within the targeted minority return areas, this program assists in the development of viable local businesses. By working with MCOs UMCOR has also been able to reach the active poor in additional to the very vulnerable in society.

What is capacity building? Why is it necessary in BiH?

Capacity building is developing an organization's core skills and capabilities, including leadership, management, finance, fundraising, programming and evaluation, thereby assisting the organization in building up its effectiveness and sustainability. Capacity building helps an individual or group to identify and address issues and gain the insights, knowledge and experience needed to solve problems and implement change. The process is facilitated through the provision of technical support activities, including coaching, training, technical assistance and resource networking.

Capacity building is necessary in BiH to transmit knowledge and experience to local NGOs which will enable them to become sustainable in their own right and continue development work long after international organizations have left BiH.

In real terms, UMCOR BiH selects potential partner organizations according to the implementation capacity and capability of the organization. Should the applicant fulfil the criteria, UMCOR BiH implements capacity building programs including building and training formal systems such as ethics, accountability, transparency and good practice and 'on-the-job' training. This is followed by a period of UMCOR supervised implementation of smaller projects, after which the organization becomes an UMCOR partner and may submit a proposal which, if accepted, is implemented with minimal supervision.

What services did UMCOR provide under legal aid?

Legal advice was provided on a wide range of issues such as housing and return rights, pensions, health and social insurance rights as well as business start up and development. UMCOR BiH worked with existing providers, such as the American Refugee Committee and the Serb Democratic Forum, and provided them sub grants enabling them to render legal services in court (as opposed to only advice), to offer business legal advice and advocacy services and to act as an information point on subjects as diverse as credit and human rights.

What does facilitation of linkages between producers in minority return communities and internal and external markets mean in real terms?

As the BiH economy continues to recover, there are many opportunities for creating new trade activities. These will be the basis for the future BiH economy and may involve re-establishing old trade relationships with former Yugoslav countries or building new relationships with partners from Eastern Europe, the European Union, the Middle East or even further afield.

UMCOR BiH is involved in activities which promote market linkages with national and international markets, such as setting up stands at trade fairs, product tasting events, publication of brochures, leaflets and other advertising materials, payment of certification and import / export licences, small grants to trade associations and travel to potential trade partners. UMCOR BiH works with the residents of minority return areas to identify local skills, business ideas and comparative advantages, attempting to raise awareness of trade prospects in these communities.

One program implemented in Doboj municipality in the North of BiH demonstrates how UMCOR BiH encourages new trade activities and exploits existing linkages. In the villages of Sevarlije and Pridjel Gornji, minority Bosnian Croat and Bosniak returnees were provided with income generating activities in the form of dairy cows funded under USDA and USAID programs. These milk producers were acting as disorganized individuals until UMCOR BiH facilitated the establishment of the 'Association of Milk Producers in Ševarlije' and assisted the association to negotiate and sign an agreement with 'SMS' dairy from the nearby village of Rudanka. The owner of the dairy is a Bosnian Serb. The dairy acts as guarantor for the repayment of UMCOR BiH loans in the area and buys all the milk produced by the association members.

In order to improve milk collection and increase capacity, the association and the dairy established two milk collection stations equipped with lacto-freezers to enable better storage of the milk and 100 milk cans for better collection. The milk collection stations are located in the premises of two minority returnees who do not have alternative sources of income and are therefore particularly vulnerable. The association is responsible for the maintenance of the equipment and based on performance, UMCOR donated the assets to the association after a grace period of one year.

Project update - October 2003

It is predicted that the annual influx of cash into the community will be more than three times the value of the initial investment with an estimated 4,000 litres of milk per cow being produced each year. This type of industry encourages local people to expand their milk producing activities while at the same time, replacing imported milk products with local ones. The existence of a viable market opportunity leads to further economic development in the area and creates prosperity which, in turn, encourages and sustains the return of younger members of the population.

"Sustaining Minority Returns in Bosnia and Herzegovina" was the first program of this nature, funded by USAID and implemented by UMCOR BiH. Click here for details of the current program "Building Reintegrated and Prosperous Communities in BiH".

Updated November 2004