**IDA and Microenterprise Development:**

**Integration That Works**

**Introduction**

Microenterprise development organizations were early pioneers in the IDA
field because they share the goal of IDA providers: establishing
financial self-sufficiency through asset-development. Only in recent
years, however, have microenterprise programs begun to explore
intentional integration of IDAs into their service model. Previously,
the most common relationship was to treat the other program as an
add-on---a less ambitious task.

Integrating IDA and microenterprise development programs, however, can
increase the effectiveness and efficiency of both approaches to poverty
reduction. Integration can occur at many points and with many different
products, but is most commonly implemented to:

-   Improve chances of success for the accountholder/entrepreneur who
    may access a larger capital pool.

-   Increase the effectiveness of both the IDA and microenterprise
    programs.

-   Reduce costs for one or both initiatives.

Only when benefits are likely for participants *and* program operations
should program managers seriously consider integration, however.
Following are strategies that several AFI Projects have undertaken to
integrate their IDA and microenterprise activities early on. The
Southern Good Faith Fund
\[http://www.southerngoodfaithfund.org/about/index.html\] focuses on
meshing staff and services while maintaining clear responsibilities for
each staff. The New Hampshire Community Loan Fund
\[http://www.nhclf.org/\] emphasizes pre-enrollment performance and use
of peers to intensify participant learning.

**Southern Good Faith Fund**

The Southern Good Faith Fund runs one of the nation's longest-standing
microenterprise development organizations. In 1999, they added an
AFI-funded IDA program, Asset Builders, and now coordinate all
entrepreneurial education and technical assistance activity through the
Arkansas Business Development Center.

Their impetus for integrating programs was to insure realistic
expectations. "People were starting in the IDA program with unrealistic
expectations: 'I'm going to make \$100,000 in the first year and not
work as hard as I am now'," says Ramona McKinney, Director of Asset
Builders. With the integrated approach, participants know what to expect
and how much work it would take to be successful.

"We believe implementation of the microenterprise training for IDA
savers and the in-depth look at the business plans have resulted in
better developed businesses that will last," she says.

Their new strategies included:

-   **Structured referral procedures among the two programs**. The
    Business Development Center and Asset Builders agreed to send
    clients to each other: to the business center if they need immediate
    business training and to Asset Builders if they were ready to begin
    saving for their business, according to the individual's needs. 

-   **Coordinated counseling**. Staff from both agencies share
    information on clients to ensure a holistic approach to financial
    counseling associated with IDA savings and business technical
    assistance.  

-   **An expanded training menu**. Ongoing training was developed to
    cover more than core entrepreneurial skills. Specialized sequences
    include six weeks for the home-based business training and eight
    weeks for child care business training, as well as 12 weeks for
    FastTrac[^1] training. Topical workshops cover concepts participants
    have the most difficulty grasping, such as, pricing; creating
    financial statements (including income statements, cash flow and
    balance sheets); meeting lenders (from the borrower's perspective);
    budgeting; and day-to-day small business management. 

> IDA participants are required to take both a general economic literacy
> course (five sessions) and one of the entrepreneurial skills classes.

-   **A business action plan**. Together, the programs came up with a
    more organized approach for clients to use in planning for removal
    or mitigation of any barriers to the development of a business. The
    plan includes a process for clients to clarify their goals, a
    checklist of actions necessary to reach the goals, an assessment of
    the client's current situation, and a plan for achieving goals,
    including training and obtaining capital for the business.

-   **Credit counseling partner**. To increase the focus on improving
    credit, the programs distribute applications to clients and schedule
    appointments for meeting with the credit counseling partner.

-   **Loan incentives**. The underwriting process for business
    development center loans of \$500 to \$5,000 from a new fund takes
    IDA savings patterns into consideration.

-   **New policies and procedures**. Two of the most effective new
    policies have been to incorporate the business plan approval into
    the process for IDA withdrawals and to allow flexible, multiple IDA
    withdrawals. Previously, business plans were not presented until the
    time of the withdrawal request. Now they may be discussed as they
    develop: revisions are not uncommon.

Southern Good Faith Fund has implemented most of these planned
strategies. They see success in several areas. IDA savers are choosing
the training combination that best suits their needs from a better
tailored and self-directed training menu, follow up workshops, and the
process for developing a business action plan. Additionally, Asset
Builders and Arkansas Business Development Center staff members meet
weekly to formally approve or deny business plans for IDA withdrawals
based on in-depth reviews and discussions of the plan among the staff.

*[Lessons Learned]{.underline}*

Despite the successes, Southern Good Faith Fund suggests some cautionary
lessons about the integration of microenterprise development and IDAs:

1)  In some instances it may make more sense to keep products or
    services program-specific. Do not integrate programs when it creates
    a more cumbersome or complicated product or the process does not
    create a benefit for the client or organization.

2)  Different funders with varying requirements may make product or
    process integration difficult. Originally, SGFF and the BDC planned
    to integrate intake forms. The attempt to incorporate to the
    different data requirements of the IDA program and the business
    center funders resulted in an overly cumbersome form, however, so
    this strategy was abandoned.

3)  A critical first step is cross training and facilitating team
    processes. This was the case for members of the IDA program (Asset
    Builders), the loan program, and staff of the business development
    program (Arkansas Business Development Center). Training increased
    understanding of each program and staff ownership of the integrated
    program that resulted.

4)  Clients want help with business plans, financial issues, business
    management, and personal finances but only when *they* are ready.
    While these topics are included in the FastTrac, child care, and
    home-based business training, clients often are not ready to focus
    on them until later.

5)  There is a demand for loans in the \$500 to \$5,000 range. Clients
    are willing to do some extra work to get them, given the limited
    options they have for accessing capital; however, they want product
    features to be relatively simple.

    **New Hampshire Community Loan Fund**

Another AFI Project, New Hampshire Community Loan Fund (NHCLF), has
found additional innovative ways to integrate IDAs and its business
development services. NHCLF is a private, nonprofit, statewide community
development financial institution with more than 20 years of experience
with affordable housing, community facilities, and economic opportunity
initiatives. In 2003, NHCLF received funding from the Corporation for
Enterprise Development (CFED) to integrate IDA and microenterprise
activities. The strategies they developed included requiring specific
pre-enrollment benchmarks and use of peers in participant training and
support. "We want IDA savers saving for business to be serious about
what they are saving for," explains Sharon Drake, executive director,
NHCLF. Strategies included the following:

-   **Requiring a Short-Term Business Plan**. NHCLF requires a
    prospective account holder saving for business capitalization to
    show the beginnings of a "well thought out" plan or a three-month
    business plan prior to IDA program enrollment. The requirement means
    that applicants are more likely to have passed some fundamental
    decision points. This allows them, and staff, to focus more
    effectively on a realistic business goal in a realistic time frame.

-   **Peer Lending and Peer Counseling**. NHCLF business IDA applicants
    must also join a Microcredit New Hampshire group before enrolling in
    the IDA program. Microcredit New Hampshire is a peer-lending program
    that also promotes and supports ongoing education for members. The
    groups provide mutual support to their members, business training,
    guest speakers on special topics, and opportunities to access loans
    of less than \$10,000. Each loan application also goes through a
    peer review process during which the business plan, including all
    financials, is examined by the individual's group. If a group member
    has been saving in an IDA, the value of the IDA is factored into the
    financial health of the proposed or existing business.

-   **Using a "Step Up" Loan Option.** Joint IDA-microenterprise
    participants may qualify for step-up loans based on the ability to
    repay the first step and savings regularity. For example, Step 1
    might be a loan of \$500 to \$2,500; if paid back successfully, the
    participant might "step up" to a larger loan of up to \$5,000.

-   **Revised Policies and Procedures**. Like the Southern Good Faith
    Fund, NHCLF found it also needed to revise its policies and
    procedures. Examples included making the language in the staff and
    saver manuals consistent, thus eliminating previous areas of
    confusion. Now, the integrated approach to IDAs and business
    development is codified in a manner understandable to NHCLF staff,
    Microcredit New Hampshire staff, and IDA savers.

    **Other Strategies to Integrate IDAs and Microenterprise**

Following are additional ways programs have integrated aspects of IDAs
and microenterprise development.

1.  Provision of free business technical assistance for individuals who
    have completed savings in their IDAs.

2.  Access to IDA funds linked to completion of at least 10 hours of
    business counseling and a business plan following the completion of
    16 hours of economic literacy training.

3.  Qualification for a microloan based on completion of financial
    education and six months of deposits in an IDA.

4.  A loan review process that features more favorable consideration of
    the account holder's financial situation when there is stability
    demonstrated by IDA participation.

5.  Enhancement of microcredit loan terms, such as interest rates, based
    on IDA participation, such as regular saving for a minimum of six
    months in the IDA.

6.  Pre-qualification of IDA savers for a microloan up to the saved
    amount.

7.  Interest reduction on microloans for account holders based on the
    amount saved in the IDA.

8.  Joint marketing of IDA and microloan products to potential program
    participants.

All these examples illustrate ways in which the increased financial
knowledge gained by IDA participants through program training and their
savings amounts and patterns translate into an increase in
microenterprise loan fund access and into more favorable loan terms for
the participants.

[^1]: FasTrac is a course aimed at helping budding entrepreneurs to
    evaluate their business concept and develop a business plan. The
    Ewing and Marion Kaufmann Foundation supported development of the
    curriculum, now widely used around the country.