Agrarian reform credit

Evaluation covered the period 6/80-12/84 (PES includes data through 6/85) and was based on document review; meetings with AID/RDO, Government of El Salvador, and private sector personnel; and sample surveys and field trips. The project has been a qualified success. Its beneficial impact on the economy in general and its contribution to the flow of credit to the reform sector in particular are beyond question. The Agricultural Development Bank"s (BFA"s) Integral Credit Line, for instance, is in operation and has distributed more than the targeted $16 million in subloans. However, due to civil war, inflation, and depressed world commodity prices choking off credit to the reform sector and to a lack of continuity in BFA leadership, accomplishments have fallen far short of expectations, especially in strengthening BFA. The massive growth in number and size of loans since 1980 has placed a continuing strain on BFA"s operational capacity, and - even though project TA has improved BFA"s financial viability and institutional capability significantly - serious problems in credit management remain. Positively, BFA has matured to where it can sustain improvement, given adequate leadership. The severe project environment makes it extremely difficult to draw lessons for other projects. Experience suggests that the agrarian reform program will need continued credit, accelerated technology improvement through better farm management for the large estates being operated as cooperatives, and the development of simple but effective production systems on small plots, along with improved credit services. The 11 evaluation recommendations - particularly, careful separation of credit and subsidy elements - essentially concern improving the efficiency of the BFA as a banking institution. Action decisions call for professional TA in financial information management and procurement, and identify as unresolved issues and items needing further study: (1) restraining BFA administrative expenditures and increasing cost-consciousness; (2) separation of BFA credit and subsidy operations (i.e., of subsidies occurring through concessionary interest rates, delinquent loans, and provision of credit to non-creditworthy clients); (3) slow BFA recycling of funds; and (4) conventional crop insurance, credit insurance, and quasi war risk insurance for conflict zones. Action has begun on addressing all but the last of these.