Audit of USAID/El Salvador small producer development

Report covers 2/80-3/87 (6 months after project completion) and is based on document review, site visits, and interviews with USAID/ES, Government of El Salvador (GOES), and, with the help of two local auditors, 115 of the program"s 10,499 loan recipients. Despite the problems noted below, the project was successful in channeling needed credit to beneficiaries. The number of credit agencies operating under the FEDECCREDITO umbrella increased from 42 to 61, and 22,699 loans valued at $36.1 million were approved under three separate funds. These loans produced heartening results, and the local credit agency personnel, as members of the communities served, showed a high degree of dedication to their work and to the needs of the rural and marginal urban poor. On the debit side, the program"s credit approval and management system was inefficient. FEDECCREDITO did not: (1) address systemic and correctable management weaknesses; (2) fully establish an adequate information system to provide it and its member agencies with monitoring and planning information; or (3) streamline operations by delegating more responsibility to its member agencies. Thus, the important objective of improving FEDECCREDITO"s capability to manage credit programs through rural credit agencies was not met. A number of evaluations had recommended training and TA to achieve these objectives, but USAID/ES was unable to persuade FEDECCREDITO to implement all of the recommendations. As a result, loan proposals and beneficiaries were not adequately screened, beneficiaries were not suitably trained, there was little follow-up on loan use, delinquencies were high, and local agencies did not learn sound credit practices. FEDECCREDITO also failed to comply with requirements to maintain separate records for each of three funds and so lacked timely, reliable information on A.I.D.- and GOES-provided funds (USAID/ES has now provided FEDECCREDITO with equipment for a computerized accounting system, which should be operational by mid-1988). Finally, FEDECCREDITO"s failure to delegate operational responsibility and management authority to affiliates resulted in duplicated operations and delayed loans, and hampered the project objective of strengthening affiliated agencies as well as FEDECCREDITO itself. Since USAID/ES has been unable to negotiate with FEDECCREDITO the policy changes essential for a follow-on project, it is recommended that the remaining $3.6 million in A.I.D. funds be deobligated. USAID/ES generally agreed with the audit findings, but differed on the possibility of extending the project. (Author abstract, modified)