Project assistance completion report : cooperative agreement no. 519-0318-A-00-0352-00 under the microenterprise development project with FINCA International, Inc.

The project was implemented by FINCA International. The project purpose was partially achieved. CAM was created and has been serving the poorest of the poor since 1990. After an early period of rapid and apparently solid growth, CAM suffered a major setback upon discovery of fraud in mid-1994. The loan portfolio was reduced as loans were written off, but afterward the portfolio resumed its growth. Survey results from the final evaluation indicate that village bank members are more pleased with their program than are the recipients of the generally larger loans from the microenterprise lending program. Progress has been achieved in overcoming CAM"s organizational weaknesses. CAM has reduced the size of its staff and recruited additional and better educated staff. However, the institution is still not fully sustainable. To achieve this, CAM must increase its loan portfolio while maintaining quality; increase staff productivity to industry standards; and contain costs, especially personnel costs. Further, in order to fund activity growth, CAM will have to obtain loans or capital, recognizing that obtaining loans may substantially increase its expenses if it has to borrow at market rates and pay FINCA for a guarantee. Lack of viable options could halt CAM"s growth and prevent it from attaining sustainability. FINCA International continues to provide TA to CAM through the HUB (unidentified acronym) project, a regional activity financed by the Global Bureau. CAM also needs to further improve its management techniques and financial procedures. Many of these inadequacies may be resolved with a well implemented strategic plan. With these actions CAM has good prospects of achieving sustainability in the next few years. Key lessons learned include the following: (1) Village banking can work well in El Salvador, although it is difficult to achieve financial sustainability while helping the poorest of the poor. (2) Many members of village banks did not "graduate", which contributed to their not becoming clients of the microenterprise lending program, which loans larger amounts of money. (3) It is a challenge to provide credit to poor families, a major objective of the activity, while achieving the operational economies of scale that can result from larger average loan size and while attaining a good quality loan portfolio. (4) An activity such as this should start early to provide both borrowers and staff opportunities and training for local capacity-building and leadership. (5) Lessons learned from village banking and other microenterprise lending programs worldwide should be shared. FINCA"s affiliate status with CAM is one way of achieving that. (6) Reliance on an expatriate (U.S.) project team raises project costs and increases the proportion of costs used for management and administration. But affiliation with an international organization connected with numerous similar credit or savings projects may improve the quality and amount of TA available to a local credit/savings institution. (7) It may be possible to reduce the conflict between bottom-up development of organizations like CAM and the need for control by the Board of Directors and financing agencies. Now that more is known about what works and what does not in microfinance, it may be possible for other projects to devolve more policy and administrative control to beneficiaries and others in the country who are committed to microenterprise development. (8) To avoid duplication and improve cost- effectiveness in TA, it is useful to promote coordination between Mission-financed activities and other programs, such as those sponsored by USAID"s Global Bureau. (9) Internal control and a good management information system are indispensable for any credit program. (10) The health of a portfolio is as important as its growth. (11) It is unlikely that El Salvador"s village banks will ever be independent and self-sustainable. (12) The microfinance world is in constant change, and theory has to be adapted to new results and trends. (Author abstract, modified)