EVALUATION REPORT, AID LOAN NO. 527-W-057, RURAL ENTERPRISES DEVELOPMENT.

THE RURAL ENTERPRISE DEVELOPMENT FUND, ADMINISTERED BY THE BANCO INDUSTRIAL DEL PERU, IS INTENDED TO PROVIDE CREDIT AND TECHNICAL ASSISTANCE TO RURAL ENTERPRISES WHICH DO NOT HAVE NORMAL ACCESS TO CREDIT ON REASONABLE TERMS AND CONDITIONS. THE 3-WEEK EVALUATION INCLUDED INTERVIEWS WITH BANK OFFICIALS IN LIMA AND 2 OF THE 4 REGIONAL BRANCH OFFICES OF THE BANK. THE BANK HAS EMPLOYED 3 "PROMOTORES" TO HEAD THE FUND'S OPERATIONS IN THE REGIONAL BRANCHES. DURING THE FIRST 6 MONTHS OF THE FUND'S EXISTENCE, ONLY 7 SUB-LOANS REPRESENTING LESS THAN 1% OF THE ENTIRE FUND HAVE BEEN APPROVED. THE AUTHORS RECOMMEND THAT THE BANK GENERAL MANAGER COMMUNICATE TO BRANCH PERSONNEL, NOT ONLY THE PRIORITY OF "MOVING THE FUND" AT THE BRANCH LEVEL, BUT ALSO THE SPIRIT OF THE PROGRAM AS WELL. BRANCH PERSONNEL DO NOT HAVE A CLEAR UNDERSTANDING OF THE FUND'S PURPOSE. SUB-LOANS ARE BEING MADE TO PARTIES ELIGIBLE FOR COMMERCIAL BANK FINANCING. ONE BRANCH MANAGER STATED THAT HIS UNDERSTANDING OF THE FUND WAS MERELY THAT IT "OFFERED LOWER INTEREST RATES", AND ADDED THAT THE BRANCH OFFICE WOULD CONTINUE TO REQUIRE 100% GUARANTEES FOR ALL SUB-LOANS. AT PRESENT, THE ADMINISTRATIVE SYSTEM UNDER WHICH THE FUND OPERATES IS NOT ADEQUATE. THERE IS CONSIDERABLE CONFUSION AS TO WHERE ADMINISTRATIVE AND SUPERVISORY AUTHORITY LIE. THE EVALUATORS ALSO POINT OUT THAT THE TECHNICAL CAPACITY AT THE BRANCH LEVEL IS CURRENTLY TOO LIMITED TO CARRY OUT ALL OF THE FUNCTIONS NECESSARY FOR FUND SUCCESS (I.E., PROJECT IDENTIFICATION, PREPARATION OF FEASIBILITY STUDIES, AND POST-DISBURSEMENT FOLLOW-UP). EVEN WITH ALL BRANCH PERSONNEL ASSISTING THE PROMOTORES, THE BRANCHES WILL NOT BE ABLE TO HANDLE THE EXPECTED VOLUME OF LOAN APPLICATIONS AND THE TECHNICAL STUDIES NECESSARY TO PROCESS THEM.EVALUATORS RECOMMEND THAT THE BANK ESTABLISH PROCEDURES FOR UTILIZING TECHNICAL ASSISTANCE FUNDS TO SUPPLEMENT CAPACITY AT THE BRANCH OFFICES.