Evaluation of the Development Finance Corporation project (SOFIHDES)

External evaluation covers the period 1983-8/88 SOFIHDES is a well-run institution which became profitable in only its second year of operation, but recently it has been criticized for its conservative lending policies. SOFIHDES' clientele in many cases is the same as that of commercial banks, and, while it does have a more liberal collateral policy, its credit manual excludes lending to a number of industries (including agriculture, mining, construction, restaurants and hotels, transport/storage, and communications concerns). In addition, SOFIHDES maintains a number of policies (e.g., borrowing businesses be 51% Haitian owned, refusal to make loans to board members) which restrict the number of loans it is able to make. As a result, most loans have been restricted to export (assembly) industries, import substitution industries, and agro-industries in and around Port-au-Prince; little attention has been paid to rural areas. All this calls into question SOFIHDES' success as a development bank. Clearly, it is in a position to increase its lending activities. A number of recommendations are made toward this end. SOFIHDES should continue to pay scrupulous attention to project appraisal, as well as maintaining current efforts to provide TA and training to support financed ventures. More aggressive searches should be mounted for suitable projects in rural areas, however, and SOFIHDES should consider relaxing certain restrictions (e.g., by financing non-Haitian owned enterprises, and in sectors that have up to now been neglected, such as commercial agriculture) and revising certain policies (e.g., by extending credit to board members, increasing its debt-equity ratio from 5: 1 to 8: 1, and lowering the floor for individual loans to $30,000). SOFIHDES should also (1) postpone the issuance of new capital shares until the funds so obtained can be put to productive use; (2) capitalize $300,000 of the retained earnings; (3) declare a dividend for the founders' shares of 6%; (4) explore the possibility of taking on a merchant banking function; and (5) more sharply focus existing public relations campaigns. It is recommended that USAID/H concur in the above changes, release the $2.8 million in loan funds earmarked for SOFIHDES without requiring SOFIHDES to immediately increase its share capital, continue funding the agribusiness TA advisor, and consider additional TA to help identify and prepare projects for SOFIHDES consideration.