Audit of USAID/Bosnia-Herzegovina"s Bosnian reconstruction finance facility program for the period April 1 through September 30, 1998

Audit report covers the period 4/1/98- 9/30/98. Loan volume during this 6-month period was only 56% of target, principally due to an increased emphasis on lending smaller amounts to smaller enterprises and the disruption caused by the expiration of the Development Alternatives contract. The current contractor for Business Finance, the program"s loan program, is the Barents Group. A combination of problems threatens the program. (1) The average amount recommended for approval has dropped steadily -- from $425,000 to $187,000 by the fourth quarter of 1998. (2) Delinquent loans have increased substantially since the program began, from about 18% in September 1997, to 35% a year later, to 50% by February 1999. (3) Finally, although crucial monitoring tasks have been carried out by Business Finance field associates and agent bank personnel, problems with loan monitoring continue. A Business Finance credit audit conducted in the summer of 1998 found that earlier loans received virtually no monitoring for up to a year after approval. Efforts over the last year to address this problem have been inadequate. According to program personnel, a significant cause of the inadequate monitoring is ineffective supervision and training of field associates and agent bank personnel. In contrast, the Business Finance Internal Audit Unit has performed 79 initial and repeat site visits using standard methodologies. Their knowledge and experience should be fully utilized to improve loan monitoring. The Mission responded appropriately to preliminary audit recommendations to correct these problems.