Evaluation : experimental approaches to rural savings (AID project no. 936-5315)

Final evaluation covers the period 9/82-3/87, and is based on document review, a site visit, and interviews with OSU, AID/W, host government, Mission, and private sector banking officials. OSU's performance in implementing the project was exceptional; their research effort was of high quality, project staff were professional, and OSU has clearly emerged as a leader in research on rural financial markets (RFM's). On the other hand, while OSU has done an adequate job of disseminating its results through publications, some question is raised as to whether more dissemination would be beneficial, especially to bankers in non-project countries. Project impact on donors and host governments is unquestionable, though its magnitude is difficult to describe or measure. Among major findings: (1) the project has demonstrated that its approaches can capture rural savings in certain countries; (2) saver-dominated institutions show lower loan delinquency, greater efficiency, and greater viability; and (3) loan targeting increases lender costs and contributes to poor loan recovery. Other findings supporting these include: (1) despite the high quality of research, only modest gains were achieved in the area of policy dialogue in Honduras, apparently due to political issues; (2) in the Dominican Republic, top administrators and central bankers were not fully converted to the project's approaches; (3) since no systematic procedure exists for selecting countries to receive RFM assistance, there is a risk of providing inappropriate policy or infrastructure support; (4) RFM's may not be limited to farmers or even to the more general rural population, but to all savers and borrowers who are considered marginal by the formal system; (5) questions of negative real interest are very difficult to deal with, even in an experimental setting (e.g., Banco Agricola in the Dominican Republic actually had a negative rate after considering the inflation factor); and (6) Banco Agricola's success in deposit mobilization may not be solely due to mobilizing rural deposits but also to attracting relatively large urban deposits. Recommendations are that A.I.D. continue to support research and development in RFM's, using the established strengths of OSU, itself, and others; that it develop a follow-on project; and that it support additional research in such areas as the similarities and differences in rural and urban financial markets, entrepreneurial financial needs, informal institutions and methods of integration into financial markets, and the role of credit unions.