LOAN COMPLETION REPORT OF LOAN NO. 527-L-053 FOR SMALL BUSINESS - EARTHQUAKE ZONE, PERU

This loan completion report covers the period from the signing of the loan agreement (7/25/72) to final disbursement (12/31/75) and was based on visits to sub-borrowers and survey data. The loan was used to establish a fund (CRECE fund) in the Central Reserve Bank of Peru. Sub-loans were granted for investment in the reconstruction of 106 small businesses and the development of 96 new enterprises. Approximately 30 sub-loans were made to entrepreneurs (mostly individuals) involved in the production of goods or provision of services directly related to construction. The project also resulted in at least doubling employment in CRECE-funded enterprises and in introducing sub-borrowers to the modern credit system. Two patterns were noticed concerning repayment performance. First, the overall record is significantly better in the sierra than on the coast. Second, repayment performances of service enterprises were generally superior to those of industry. In aggregate terms, delinquency rates appear high compared to traditional commercial lending experience, but the record is quite respectable considering the nature of the project. Although project objectives were accomplished, success has been costly, both in direct per capita costs of credit and indirect administrative costs. Unfortunately, it appears as if the institutional impact will not be a lasting one, which may be the cause of the current severe liquidity shortage in Peru or could reflect the lack of adequate commercial incentive inherent in this project. Finally, the technical and administrative performance of the new implementing agency, the regional office for the Development of the Earthquake Zone (ORDEZA), was less than optimal, owing to its conflicting and overburdening dual role in technical design and in credit approvals, and to the lack of personnel, policy, and organizational stability. The CRECE fund will be used in the future to support cooperative enterprises.