Final report : evaluation of program for small and microenterprises (PROPEMI)

The evaluation covers the period 8/85-11/91 and is based in large part on a survey of 244 PROPEMI loan recipients. The target of creating one new job per loan recipient has been surpassed by 35%. Earnings have also increased at a much higher rate than anticipated; 82% of those interviewed reported that their earnings had increased and 68% attributed this increase entirely to project loans. PROPEMI's minimum loan is colones 1,000 (vs. 5,000 in most of the established financial system). This fact, plus several loan eligibility requirements explains why the project has not achieved its targets in terms of capitalization, number of loans, and number of people graduated to the established financial systems. In fact, 69% of borrowers have received loans of less than colones 10,000. These small loans take as long to formulate as larger ones, especially as PROPEMI's staff often has to take physical inventories to determine the size of the business. The net percentage of "graduate" beneficiaries who received first loans from banks after initially borrowing through PROPEMI is only 2.6%. PROPEMI's training program has reached about 5,000 people. No other private sector program in El Salvador is as extensive as PROPEMI's administrative training program for SME's, which offers five core courses in accounting, costs, administration, marketing, and sales and investment projects. As to whether or not trainees retain the information given them, survey results were positive in 49% of cases regarding administration and 66% of cases regarding costs. In order for the training component to break even, an average of 4.5 courses per week would have to be given with an average enrollment of 15 individuals. Currently, one course a week is offered with an average enrollment of 10 people. PROPEMI TA basically relates to preparing credit applications, and to credit follow-up or supervision. Very few survey respondents stated that technical advice had helped increases earnings or employment. During the past 2 years, PROPEMI's income has grown faster than have its costs, about 66% of which are related to salaries and fringe benefits. The credit component is the only activity that can lead PROPEMI to true self-sustainability, but to achieve sustainability, PROPEMI must attain a portfolio of about colones 75 million. At present, PROPEMI has colones 36 million available for lending, and about 15 million of these represent its outstanding portfolio. Delinquency is 12.4%. It is estimated that PROPEMI has a credit market share similar to FIGAPE (a public sector counterpart institution). A I.D. should continue to support PROPEMI; however, it is first necessary for the directors of FUSADES and PROPEMI's Commission to reconsider PROPEMI's priorities, taking into account the conceptual and operational changes recommended in this report. Future efforts should focus on lending to small enterprises instead of micro-businesses, and training and post-credit TA should be de-emphasized. Several lessons were learned. (1) A credit demand survey (not a demographic study) designed by senior credit specialists should be carried out at the project design stage. (2) The selected credit institution should "match" the characteristics of the target group. (3) The type of human resources needed to conduct the credit program should be identified during the design stage, along with the external TA required to upgrade their skills. (4) In the case of new credit institutions, it is best not to impose too many eligibility rules on loan applicants before the institution has developed its portfolio. (5) The permanent monitoring of the impact of the project activities should be instituted at the beginning of the implementation stage.