Small and medium enterprise development support project

External evaluation covered the period FY84-6/89. With the help of Volunteers in Technical Assistance, the implementing PVO, SEFO"s performance has improved markedly. Upgraded procedures have been developed for client appraisal and selection (certain low-risk sectors are targeted), and clients are followed up via biweekly visits. Loan collection procedures have also been improved. SEFO"s credit department and loan officers, supported by a computerized loan information system, are competent, knowledgeable, effective, although the organization is still top heavy, given the size of the loan portfolio. The recovery rate on its active portfolio is now 80% compared to 46% on total outstanding losses, while costs per loan have been cut by 33%. SEFO faces three major constraints: (1) a legal and judicial system that favors borrowers over lenders; (2) a shortage of foreign exchange at the official rate, which reduces the SME"s ability to purchase imported materials or spare parts; and (3) insufficient financial resources of the Government of Liberia and SEFO shareholders to expand SEFO"s loan portfolio. To date, collections of principal and interest have not been sufficient to meet operational expenses, and SEFO remains undercapitalized and beset by considerable debt as well as by cash flow and liquidity problems. Long-term financial viability will require donor support. A key recommendation is that USAID/L consider financing an expansion of the loan portfolio for the next two years, with close monitoring to determine if additional support is warranted. The Mission has agreed to a one-year extension.