Project activities completion report : commercial farming systems project (517-0214) [- Agricultural Development Foundation component]

The project's three components -- Commercial Farming Systems, Rural Financial Services, and Bridge Credit Fund -- were implemented, respectively, by the Agricultural Development Foundation (ADF), the Central Bank's Rural Financial Services Office, and Banco de Reservas (instead of FIDE, as originally planned). The project made progress under each component. (1) Under the Commercial Farming Systems component, ADF made 15 research grants, implemented 12 rapid response TA consultancies for agribusinesses and farmers, provided extensive technical training, and established an information center, which responds to production inquiries and distributes research findings. An Endowment Fund was capitalized at more than twice the peso level originally sought. (2) Though implemented during a severe banking crisis, the Rural Financial Services component strengthened BAGRICOLA, which has mobilized over RD$180 million in deposits from 150,000 rural clients, and decreased its reliance on subsidized agricultural credit, so that a large portion of its lending operations are now conducted at market rates of interest. In addition, TA and training provided to 14 rural credit unions were instrumental in increasing deposits from RD$7.6 million to RD$59.5 million for the period; over 22,000 primarily middle- and lower-income credit union members received access to financial services. (3) Under the third component, the Bridge Credit Fund was established with $10 million in A.I.D. loan and grant funds and a counterpart contribution of $2.5 million. While only 8 of 37 planned agribusinesses participated in the Fund, they extended loans to 12,713 small and medium-scale outgrowers (vs. a targeted 6,000), suggesting that credit went out in smaller units and reached further down the economic scale than expected. The following lessons were learned. (1) In the ADF component, sponsorship was an important element of success. This component enjoyed strong support in technical, business, and political circles, and as a result, gained recognition and a continuous flow of private cash donations. The component -- which was designed by its intended beneficiaries -- also teaches the value of self-interest in project design; it reflected a real demand and there was continuing interest in its activities and offerings. (2) The Rural Financial Services component demonstrated that weak financial intermediaries are a major obstacle to the flow of financial resources to rural areas. The success of BAGRICOLA and the rural credit unions demonstrates that the rural economy generates ample domestic savings, and these can be mobilized in a cost-effective manner by different types of financial intermediaries. The institutional development of financial intermediaries is best achieved through TA and training in savings mobilization; external credit, besides being unnecessary, tends to undermine the financial viability of intermediary institutions. However, prudential external supervision of financial intermediaries is critical. The component also taught that modest pilot projects in the field can have an impact on the decisions of policymakers. (3) The Bridge Credit component built on an informal financing scheme already set up by agribusinesses and farmers. The component's success demonstrates that added investment in an ongoing venture may offer a greater development return than an innovative start-up exercise.