Midterm evaluation : microenterprise development project, no. 519-0318 -- IQC contract no. PCE-0001-I-00-2051-00

Two components, financial and non-financial services, are in place and fully functional. The third component, institutional development, has not developed at the same pace as the other two. The financial services component has been implemented under two modalities, with different structures, staff, promotional approaches, and loan terms and conditions for borrowers. The first is the village banking model, with a divisional manager at the central office, and 4 operational managers running fully decentralized regional offices; each regional office is well staffed with promoters, mostly women, who are organized in groups of 6-12 under the direction of supervisors who report to the regional manager. The village banking program is providing credit to 27,000 borrowers (95% women) through 540 banks. The average loan size is $70 and default and delinquency rates are very low. The second modality is individual credits to microentrepreneurs requiring either a solidarity group or co-signer. The scheme of successive loans also applies, but initial loans are larger (ranging from $125 to $250). In addition, repayments, including principal, interest, and savings, are made to the project on a monthly basis. This program has an independent structure under a separate divisional manager. It operates with credit officers in the field, who are managed by regional supervisors from the other division. The non-financial services component is the project's training arm. Its 6-person training staff includes a department head (who resigned during the evaluation period), a newly appointed assistant experienced in microenterprise credit training programs, and 4 regional trainers deployed to the field. The rapid expansion of the Village Bank's division during the second year of field operation is largely due to the project's training approach. The institutional development of CAM (Centro de Apoyo a la Microempresa) lags behind the field operations, despite the emphasis given to this component by FINCA during the last 6 months. The project's central office has grown to direct, support, and supervise the field operations, and to comply with the extensive needs of financial and statistical information that this type of project demands, rather than in accordance with a rational institutional development plan. FINCA did not take a prudent approach to building up CAM. Lessons learned included the following. (1) Critical factors to the success of such projects are: clarity and consistency in project design, so that implementation plans can be adapted according to field reality without losing focus on concepts and goals; proven expertise of the advisory group in all necessary aspects of the project; defined and reachable funding sources; market understanding and the flexibility to redesign services according to demand; intensive and extensive training in the field and office. Large projects impact the target population more effectively. (2) Technologies and approaches which contribute to a large project's success include: well-defined and well-articulated lending approaches; strict market analysis and permanent follow up; and systematizing of implementation and expansion processes. Expansion periods tend to restrain operational efficiency in these projects. (3) Project sustainability can be affected/enhanced by: promotion of efficient lending as a means to social development; institutional orientation emphasis of financial intermediation rather than social promotion; implementation driven by market demand and location instead of geographic coverage; and external support delivered via TA rather than direct intervention. (4) In analyzing the microenterprise development project's replicability, it should be kept in mind that the design of village bank methodology for permanent operation is not complete, nor is the role of individual lending to microentrepreneurs. The Salvadoran environment and typical beneficiary have particular characteristics that are relevant to FINCA success which are not necessarily similar in other countries. (5) Future A.I.D. activities in village banking should give paramount attention to CAM as the major village bank operation, and to sustainability. Other institutions with integrated services can include village banking as part of their packages to motivate efficiency and competitiveness. CAM/FINCA's methodology cannot be imposed on other institutions, although recovery of full capital and opportunity costs shall be enforced. (Author abstract)