COFISA - AID project loan agreement review pursuant to project number 515-0187

External final evaluation covers the period 9/82-7/86 and is based on document and financial reviews and interviews with COFISA staff, clients, and bankers. The project has apparently achieved its objectives of bolstering Costa Rica's private sector and foreign exchange generation capacity and of re-establishing COFISA financially. COFISA's direct impact on the Costa Rican economy will include a net inflow of roughly c2.4 billion, once the all the projects to which it has lent are at full steam, and generation of about c1.1 billion in wages, supporting some 18,000 people. COFISA has complied with project terms regarding lending limits, eligibility, and policies. (Compliance is questionable in only one or two areas, e.g, structuring of some loans to comply with a requirement that 75% of loans be for a 3-5 year term). It has booked high-risk, development-oriented loans, targeting dollars to nontraditional exporters; 75% of approvals were for developmental rather than commercial financing. This combination of development lending and short-term, commercial lending will help COFISA diversify its income and offer more comprehensive banking services. With regard to lending process, significant advances were evident from the colon portfolio to the newer dollar portfolio, especially in the areas of project and credit analysis and documentation. Collateral policies have been fairly liberal, thus contributing to real development lending where loans can be structured flexibly. Up to now, however, emphasis in the dollar portfolio has been on credit initiation; more needs to be done in credit administration to increase control over the portfolio and allow early problem recognition. Structural changes (such as placing preferred stock, establishing a risk minimization fund, modifying accounting procedures and credit analysis techniques, etc.) to improve credit operations are progressing well, but much remains to be done in terms of bank operations and planning to permit COFISA greater viability as a commercial bank once it is chartered. A lack of commercial banking experience at COFISA's senior levels aggravates this situation. COFISA's financial situation turned around remarkably over the past year as it was able to preserve significant equity during debt negotiations with external commercial banks. It is now underleveraged by a huge margin, and its major challenge is to obtain additional debt. In short, COFISA's potential as a private bank is considerable, but adjustments are needed to permit greater flexibility in commercial lending and make future success even more likely.