Municipal development bank

Audit report covers the period 5/80-2/83 and is based on document review, discussions with USAID/H, BANMA, and city officials, and site visits. With 2.5 months left in the project, only 32% of funds have been expended and only 25 of 144 planned SP"s financed. Delays have been caused by turnover of city officials due to elections in 1980 and 1981, weaknesses in BANMA management, cities" lack of funds to prepare SP feasibility studies, suspension of funds by A.I.D., and the impractical design of some project components. Further, major project objectives have not been achieved. With fewer poorer cities than expected qualifying for SP financing, most assistance has gone to larger cities. No labor-intensive SP"s were begun because BANMA claimed poorer cities could not manage them. Administrative reform SP"s have had little impact on cities" ability to raise revenue, primarily because of the high post-election turnover of city employees. (Recently, the number of SP"s was reduced to 79 and the project extended to 8/14/84). BANMA, despite significant efforts to improve its operations, remains, and will continue for some time to remain, financially nonviable. A high delinquency rate - due to cities" failure to deposit income from SP"s in special accounts, poor management of SP"s and their failure to yield expected income, inadequate BANMA collection procedures, BANMA issuance of new subloans to cities with a poor repayment record, and construction and design deficiencies in SP-funded facilities - is decapitalizing BANMA. In other areas, BANMA conducted only 8 of 21 planned training courses for city personnel and failed to: maintain competitive salaries needed to retain qualified professionals; gear interest rates to clients" repayment capabilities; institute an adequate management information system; provide USAID/H information on BANMA and GOH contributions to SP financing; and develop an annual schedule of SP evaluations. Nine recommendations are made.