Project assistance completion report : small industry development project (517-0150)

The project established a revolving credit fund administered by the Fondo de Inversiones para el Desarrollo Economico (FIDE) to provide loans to small borrowers through private financial intermediaries (PFI's). However, the PFI's were not interested in extending loans directly to small entrepreneurs because the transaction costs of handling such loans were too high. Furthermore, the loan approval process took several months whereas the project design had envisioned a 24-hour turn-around time once applications had been submitted by the Central Bank. In periods of high inflation, these delays meant that by the time loans were disbursed, they frequently no longer covered programmed purchases and borrowers were forced to look for other sources of funds. The project also failed to meet its objectives in providing TA and training. Grant funds were used to support technical assistance centers (TAC's) which were in turn assisted by a central assistance facility (CAF) located in FIDE. It was intended that the TAC's would be self-sustaining by the fourth project year, but this was not achieved because the CAF did not provide adequate TA to TAC personnel and charges for TA were not sufficient to cover salaries and operating costs. In addition, entrepreneurs frequently did not need TA and went directly to the PFI's for their loans. Despite its problems, the project resulted in significant benefits for entrepreneurs who had received credit. The real income of loan recipients increased over 100%, and many of the beneficiaries used the increased income to satisfy their basic human needs. Two major lessons were learned. (1) Graduating individual entrepreneurs to the formal banking system may not be a viable goal. Instead, credit organizations specifically designed to deal with these clients could be graduated to formal sources of credit. (2) The most successful credit programs for small entrepreneurs in the Dominican Republic are those operated by NGO's. Turn-around time for these loans is two weeks at the maximum.