SMALL ENTERPRISE LOANS THROUGH THE BANCO INDUSTRIAL DEL PERU : AN EVALUATION OF THE FONDO DE DESARROLLO RURAL WITH CASE STUDIES FROM JUNIN AND CUZCO

THE USAID-FUNDED PROGRAM ESTABLISHED A RURAL DEVELOPMENT FUND (FDR) WITHIN THE INDUSTRIAL BANK OF PERU (BIP) FOR SUB-LENDING TO NEW AND EXISTING SMALL ENTERPRISES IN THE HIGHLAND REGIONS OF PERU. THE REPORT ALSO SERVES AS THE SOCIAL SOUNDNESS ANALYSIS FOR ADDITIONAL FUNDING TO THE FDR, CONTEMPLATED UNDER RURAL ENTERPRISES IT. (REPORT IS LOCATED IN THE 3/14/79 PROJECT PAPER FOR RURAL ENTERPRISES II, ANNEX IX.) AUTHOR BELIEVES THAT THE FDR PROGRAM IS BENEFICIAL: IT SUPPORTS THE ECONOMIC VIABILITY OF SMALL BUSINESSES AND CRAFT WORKSHOPS, AND STIMULATES ECONOMIC ACTIVITY IN THE HIGHLAND REGIONS OF PERU. MANY OF THE LOANS, HOWEVER, FAIL TO CREATE NEW JOBS. AT LEAST 50% OF THE SMALL BUSINESSES FAIL TO EXPAND DUE TO THE BURDENS OF POST-REVOLUTIONARY BUSINESS REGULATIONS. GOP TAX STRUCTURE INHIBITS GROWTH OF A SMALL INDUSTRY MUCH PAST 5 WORKERS. EXCESSIVE PAPERWORK AND DOCUMENTATION REQUIREMENTS AS WELL AS CONSERVATIVE BANKING PRACTICES SEVERLY LIMIT THE PARTICIPATION OF THE VERY SMALL, RURAL BORROWER. CONSEQUENTLY, THE VAST MAJORITY OF DIRECT BENEFICIARIES ARE NOT RURAL ENTERPRISES BUT ARE ENTERPRISES LOCATED IN PROVINCIAL TOWNS AND CITIES. ADDITIONAL CONSTRAINTS INCLUDE SHORTAGES OF MACHINERY AND RAW MATERIALS AND DIFFICULTY IN MARKETING PRODUCTS. EVALUATOR RECOMMENDS THAT DOCUMENTATION BE SIMPLIFIED WHENEVER POSSIBLE, ESPECIALLY FOR SMALL LOANS. FOR EXAMPLE, THE BORROWER SHOULD BE ABLE TO BUY FROM SUPPLIERS DIRECTLY AND SUBMIT A BILL OF SALE TO BIP AFTER PURCHASE. A BOOKLET SHOULD BE PREPARED WHICH LISTS ALL POTENTIAL NECESSARY DOCUMENTS FOR A LOAN; THIS WOULD APPRISE PROSPECTIVE BORROWERS OF THE AMOUNT OF PAPERWORK INVOLVED AND HELP THEM HANDLE THE PAPERWORK THEMSELVES. BIP PROMOTION ACTIVITIES SHOULD BE EXPANDED BY PROVIDING BIP WITH ADDITIONAL VEHICLES AND MORE PERSONNEL. EXISTING TECHNICAL ASSISTANCE EXPERTISE OF THE MINISTRY OF INDUSTRY AND TOURISM SHOULD BE UTILIZED. USAID SHOULD ALLOW BORROWERS TO PURCHASE PERUVIAN-MADE MOTOR VEHICLES. REPORT CONTAINS A BIBLIOGRAPHY WITH 9 ENTRIES.