Micro-lending guaranty fund, Accion International, Inc./AITEC (Latin America ) pre project number 940-0002.44

Results of the programs in Paraguay and Mexico are evaluated in this report. The report outlines the country settings, describes the affiliates and their operations, reviews the disbursement of loans and their impacts on beneficiaries, and assesses the project"s institutional impact. Five major findings are detailed. (1) Because PRE funding was added to existing credit programs, it is difficult to determine the project"s specific impact on borrowers. On the other hand, the project has positively benefited participating banks and affiliates by affording them access to funds from private financial markets. (2) The language of the model letter of credit used in the project may create difficulties with local banks; nine Paraguayan banks rejected the letter. The situation has improved notably, however, since the letter was simplified in March, 1989. (3) It may be necessary to waive some formal banking practices and the red tape they entail in order to reach large numbers of microenterprise borrowers. (4) The sustainability of a microenterprise program requires charging fees and interest rates that are sufficient to cover the program"s real costs. This was not the case in Mexico. (5) Microenterprise lending programs should include a savings component to prevent borrowers from the consequences of unforeseen expenses. Recommendations for follow-on activities are included.