Audit of rural housing improvement project

Audit report covers the period 5/82-6/85 and is based on site visits, document review, and interviews with project beneficiaries and personnel from USAID/H, PVO"s, and the National Housing Institute (NHI). The project has generally been successful, having already made 7,978 loans (vs. a total of 8,000 targeted). Moreover, the project has introduced some beneficiaries to direct use of the banking system and has increased the capacities of the NHI and of PVO"s to manage a housing loan program for the rural poor. Disbursement of project funds is somewhat behind, but USAID/H is addressing this problem, e.g., allowing loans for new home construction, and increasing the number of participating PVO"s. PVO compliance with the Project Agreement has been lacking in several areas, as PVO officials were either new at their jobs or inadequately trained. Many of the loans were ineligible (e.g., used for purposes other than improving houses, disbursed in cash, provided to middle-income homeowners, or used to build new houses or to improve houses not occupied by beneficiaries). Nonetheless, these loans were made within the spirit of the program and the PVO"s have indicated willingness to correct deficiencies. PVO lack of compliance in other areas included use of project funds to, e.g., make loans within their organizations for non-project activities (three PVO"s), or purchase vehicles and machinery (one PVO), or pay administrative and/or training costs (four PVO"s). Other findings include: (1) loans were made to one PVO which had not yet been recognized by the Government of Honduras (GOH) as a legal PVO; (2) two PVO"s have not enforced the 20% downpayment requirement; (3) PVO accounting books and records were not adequately maintained; and (4) NHI monitoring, while generally effective, can be improved, especially by including procedures for reporting loan delinquencies. (Low crop prices have limited some borrowers" ability to repay their loans; the delinquency rate is 14.5%.) Eight recommendations were made; action has begun on all.