Audit of USAID/Philippines" rural financial services project

Audit covers the period 9/85-9/88. The project has generally achieved its purpose of helping to develop a self-sustaining rural finance system. During the project period, the Central Bank implemented several policy changes which enhanced the rural financial system, such as allowing retail banks to charge borrowers market-oriented interest rates on loans and eliminating subsidies on loans to borrowing banks. However, the project"s $17.4 million credit component was loaned by the Central Bank to 25 financial institutions which were already financially sound, and no plans existed to include weaker rural banks in the project. The project could have been more effective if it included a wider range of financial institutions. Other aspects of the project are also on track. TA is proving useful information, according to Agricultural Loan Fund Unit management. As of 9/88, over 800 bank officials had been trained, with 600 more to be trained during 1989; the training target of 1,000 should therefore be met. Trainees come from the Central Bank, participating financial institutions, and non-banking institutions. Examination of training curricula revealed the training to be project-related. Recommendations are to: (1) relend the A.I.D. principal which has been repaid to the Agricultural Loan Fund; (2) develop specifications to select banks not participating in the project"s credit component, including banks with arrearage ratios higher than those banks originally receiving loan funds; (3) have the Central Bank periodically report to the Mission on the status of these two recommendations for one year after the PACD. USAID/P agreed with the audit.