Assisting small business in Francophone Africa : the Entente Fund African Enterprises program

Reported here are the findings of the first impact evaluation since A.I.D. began funding the project in 1973. A.I.D."s objectives are to provide, through the Fund, monies and technical assistance to six development banks in order to assist African-owned companies and to encourage development and commercial bank lending to these companies. However, although 572 subloans have been made to date to develop a variety of economic sectors, these objectives have not been achieved. Subloans have been too few (many to large firms) to significantly affect national economies; four of the six banks show excessive subloan delinquency rates; and failure to implement the technical assistance plan has limited the positive achievements of borrowers. Further, the development banks as a whole, as well as the promotion centers and national guaranty funds, have not been effective in assisting small businesses. The banks" ability to extend small credits has not improved and they provide subborrowers little or no technical assistance. Reasons for the program"s failure are inadequate management and insufficient resources on the part of the involved institutions, the volatile economic and financial climate in which the program has had to operate, the lack by the Entente Fund - a nonfinancial institution - of the approach and discipline needed to manage a high-risk credit program, frequent changeovers in U.S. advisors, and inadequate A.I.D. supervision. The project has taught that: (1) subloan criteria should be well-defined, with emphasis on higher quality subloans yielding real economic returns, including increased employment; (2) implementing institutions should be carefully assessed and A.I.D staff need credit expertise to monitor them; (3) borrowers should make reasonable financial contributions; (4) implementing institutions and borrowers need meaningful technical assistance; and (5) changes in the financial and economic climate markedly affect the success of a small business loan program. Specific issues are discussed further in nine appendices.