Final evaluation : rehabilitation of productive enterprises project, 617-0104, USAID/Kampala

The project was implemented by the Bank of Uganda and various intermediate credit institutions (ICIs). Due to the civil war in Uganda, the project did not get underway until 5/86, at which time several bad or questionable decisions were made because the Mission was under great pressure to get the project going; for example, it was decided to substantially reduce TA on the assumption that the targeted beneficiaries, commercial farmers, would not need much help. Particularly damaging was the failure to select an institutional contractor to coordinate the project. As a result of these decisions, the ICIs never received dedicated TA and they were denied a chance to participate in project design, while the Mission was often unable to deliver the specialized TA that was needed. Each of the three participating ICIs (the Uganda Commercial Bank, the Uganda Development Bank, and the Bank of Baroda) operated under its own credit norms, and the operating manual that was to be developed by the institutional contractor of course never materialized. In all, 256 loans were approved, 226 under the commodity import facility and 30 in local currency. The repayment rate, including principal and interest, accrued at the rate payable by the ICI to the Bank of Uganda, was only 22% (at the rate charged farmers, repayment would be lower). The interest rate charged to farmers contributed to the low repayment rate. While these rates were negative compared to inflation, production did not increase as much as predicted because farmers were not used to mechanized farming and did not receive TA. Also, many of the animals imported under the project died (almost 50%). There were also more usual problems such as low crop prices and drought. In addition, loan supervision and collection were poor to spotty. The project did had some positive impacts, however. Poultry and agribusiness enterprises appeared to have fared pretty well and did not experience the multitude of problems encountered by dairy and crop farmers. Women constitute 80% of the agricultural labor force, so increased production of maize and other crops did affect demand for their labor and this has implications for increased incomes. Farmers and ICIs have both gained experience with medium-term credit. Lessons learned include the following. (1) In the case of complex projects, especially when institution building is a key objective, Mission management should be supplemented by a comprehensive and long-term management mechanism, e.g., an institutional contractor. (2) All possible recourses that lending institutions can use to increase repayment rates should be examined and incorporated into the project design. (3) Meaningful capacity building can only occur when the parties involved share the same perspective on the goals to be achieved, the priorities among these goals, and the means by which they will be achieved. (4) Depending on how a project is designed and managed, the goal of increasing the capacity of commercial banks to administer intermediate term credit using donor funds may not necessarily contribute to (and may decrease) their capacity to effectively function in their primary role, which is financial intermediation. (5) Donor intervention can actually weaken the already difficult situation between financial intermediation and agricultural development if it causes commercial banks to substitute donor support for locally mobilized savings. (6) Credit driven solutions that fail to adequately consider problems in marketing, infrastructure, extension services, research, the macroeconomic environment, and agricultural policy may exacerbate farmers" problems rather than provide sustainable long-term solutions.