Market town capital formation

The project will improve the decentralized investment financing system developed under Projects 5110471/0511 and strengthen investment promotion/financing entities. The Ministry of Planning and Coordination (MPC) will be the lead implementing agency. The project will build on the investment financing system of the 8 Unidades Crediticio-Financieras (UCF"s) recently established under Project 5110511 within each Departmental Development Corporation (except Pando). Through TA and training, UCF"s will improve their abilities to help potential investors develop and manage bankable subprojects (SP"s) and to serve as intermediaries between these investors and intermediate credit institutions (ICI"s) seeking to expand their development lending. A permanent Government of Bolivia (GOB) revolving fund will be created for refinancing UCF-developed SP"s; the Fund will be capitalized with loan monies from this project, reflows from Project 5110511, and P.L. 480 Title III generations and will be managed for 2 years by the MPC Project Coordinating Unit (PCU) -- also created under 5110511 -- and the P.L. 480 Secretariat, during which time it will be decided whether to keep the Fund within the PCU or fold it into a new GOB refinancing body. Key features of the Fund include: selection criteria ensuring SP"s with strong potential socioeconomic impact; a required 25% equity investment in SP"s; gradual decentralization of loan approval authority from PCU to UCF"s (UCF"s currently vary in approval capability); loans at market rates for up to 5 years, with full ICI assumption of repayment risk; and eventually, a requirement that ICI"s finance part of each loan from their own deposits. A percentage of Fund monies (initially 20%) will be reserved for SP"s located in market towns. At least 5, and probably up to 10, priority market towns will be selected by UCF"s, where they will undertake market studies and promotional efforts to increase investment, the latter often in cooperation with private agricultural producer organizations (PAPO"s) and with PVO"s that represent rural investor groups. Promotional efforts may include mass media strategies and will address both local and outside investors. The project will provide 3 long-term advisors and 48 months of short-term TA to improve UCF, PCU, and ICI capabilities. Training will include seminars to coach UCF"s in promotion, as well as follow-on assessment workshops; other in-country seminars; and observation trips in Latin America. Amendment of 2/13/89 lifts the geographical restrictions on the project, thus permitting lending to SP"s located in the main urban areas of La Paz, Cochabamba, and Santa Cruz. The restriction had been cited in a 8/88 evaluation as limiting the UCF system"s ability to achieve the financial self-sufficiency. All investments in urban centers must have forward and backward linkages to rural and semi-urban areas. (PD-KAS-477)