Small and micro enterprise development project no. 262-0212 [i.e. 263-0212], Egypt : midterm evaluation

The evaluation covers the period 9/88-1/92. Both foundations are now in solid financial positions. The Alexandria Businessmen's Association (ABA) has developed into a strong microenterprise lending institution after 2 years of lending. It has a solid capital base and has reached operational self-sufficiency. Portfolio quality is excellent, and the organization has experienced no loan losses. ABA's credit delivery system is efficient, with over 6,000 loans disbursed. Preliminary results indicate that ABA borrowers have experienced increases of 10% in permanent employment, 35% in temporary employment, and 86% in production. The ABA's progress is partly due to a dedicated Board of Directors, which includes many prominent business people, and a competent Director. The final 9 months of TA will enable ABA to finish computerizing its accounting and financial functions, assume the financial management responsibilities required of a large credit organization, and establish at least two branch offices. Although start-up of the Cairo foundation, called Egyptian Small Enterprise Development Foundation (ESED), was delayed, a new Executive Director hired in 4/91 has accelerated progress. After only 1 year of lending, ESED has achieved nearly 50% operational self-sufficiency. The portfolio has suffered from some delinquency problems, partly because of poor legal follow-up to loans made during the initial months. Legal follow-up has improved recently, as has the effectiveness of extension officers at preventing delinquency. The portfolio quality appears to be improving, and a planned staff incentive system should increase the productivity and efficiency of the lending process. The foundations' success is partly due to several features of the project design. (1) The collateral fund is held in dollars, which protects against devaluation. (2) Portfolio funds are obtained from local banks to whom the foundations pay commercial interest rates. This has instilled financial discipline and given the foundations an incentive for charging realistic interest rates. (3) As USAID/E covers the operating costs of the foundations, their interest revenues are deposited in their accounts with the local banks, thereby reducing interest payments and contributing to self-capitalization. Although a two-to-one leverage of the collateral fund by the end of the project was anticipated in the design, this appears unlikely; uncertainty within the financial sector makes the possibility of future leverage impossible to predict. Lessons learned include the following. (1) While manufacturing may have the greatest potential for direct employment generation, the foundations should also consider lending to commerce and services as a means of increasing borrower concentration and decreasing portfolio risk through diversification. (2) As new foundations are initiated, the possibility of coordinating ongoing TA through an association or network should be investigated, as should the feasibility of working through private foundations instead of banks. (3) The percentage of women borrowers could be increased through lending for services, trade activities, and nonformal enterprises.