Ethiopia. Rural Financial Intermediation Programme. Project Completion Report Digest

Transcription

1 Project Completion Report Digest Document Date: 2-Apr 201 Project No East and Southern Africa Division Programme Management Department

2

3 Ethiopia - Country & Project Name Ethiopia - Loan No.: 72-ET Project Id Board Date 06 December 2001 Effectiveness Date 06 January 2003 Original Closing Date 30 June 2011 Final Closing Date 30 June 2011 Total Project Cost US$(M) IFAD loan US$ (M) 2.69 Cofinanciers (if any) African Development Bank (AfDB): US$37., Government: US$. million, Development Bank of Ethiopia/commercial banks (DBE/CB)s: US$20.2 million, Microfinance institutions (MFIs): US$8 000 Implementing Agency Microfinance institutions (MFIs), rural savings and credit cooperative societies (RUSACCOs), cooperative unions, National Bank of Ethiopia (NBE), Development Bank of Ethiopia (DBE), commercial banks (CBs), Association of Ethiopian Microfinance Institutions (AEMFIs), federal and regional cooperatives promotion bureaux (FCPBs and RCPBs) Principal Components The programme comprises four main components: institutional development within the microfinance and cooperative sub-sectors; improved regulation and supervision of MFIs by strengthening the institutional capacity of the NBE and the Association of Ethiopian Microfinance Institutions (AEMFI); equity and credit funds for MFIs and RUSACCOs; and programme coordination and management. Project Performance Relevance RUFIP design was in line with IFAD's and AfDB's strategies as well as with GoE's national policies concerning the delivery of an efficient and competitive rural financial system, as a priority and an important prerequisite to the sustained increase in rural incomes. The project design was very realistic and technically feasible, economically viable and socially desirable. The Programme's overall development objectives were highly relevant considering the high demand for rural financial services in areas with almost non-existent access to formal financial institutions. RUFIP also relied on a participatory design based on a participatory process involving extensive consultations with clients, practitioners, government agencies and donors. The only critical point concerns the relevance of RUFIP equity investment in MFIs, as no effective demand has been detected in this respect. Effectiveness The Programme was effective in achieving its specific objectives of: i) expanding outreach to well over 1, million rural households targeted at appraisal; ii) promoting linkages between rural financial institutions and commercial banking sector; iii) supporting the expansion of the credit cooperative sector. 20 MFIs supported by RUFIP and 9 RUSACCOs/Unions have been able to expand their client and geographical outreaches, increase their outstanding loan portfolio and savings mobilization and develop the capacities of their management, staff and clients. With regard to the institutional development of the cooperative sector, as the RUSACCOs could not meet the established criteria to access the credit, funds were only disbursed to the institutional development and capacity building sub-components. The cooperative subsector has however increased substantially with,337 RUSACCOs with a membership of 10,272 established by December 2010 compared to 13 with a membership of,86 at the beginning of the project. MFIs were able to extend credit to 2.3 million rural households operating small-scale farm, offfarm and non-farm enterprises to diversify their income opportunities. The membership of women's clients stood at 9%. RUFIP's support to the MFI subsector has also acted as a catalyst to accessing of loans from commercial banks by MFIs. From projects record (MFIs), it was evident that due to the project intervention, the number of rural enterprises or households (farm and non-farm) which obtained credit from the MFIs increased by 17%. On the other hand, MFIs have shown little interest in equity investments of RUFIP funds by Development Bank of Ethiopia (DBE), which would have been the channelling bank for RUFIP investment. As the equity funds under the Equity and Line of Credit component of the Project were not utilized, during the MTR they were re-allocated to supplement the line of credit. Efficiency Total disbursement under IFAD loan stood at 97.8% as of May The project could not be completed timely as it closed seven years instead of five after Board approval. The programme achieved its planned objectives approximately at the same costs to those estimated at appraisal. In particular, it supported the increase in efficiency by the Ethiopian MFIs by providing low cost incremental credit. As a result, it created economies of scales which allowed MFIs to expand their markets while lowering unit costs, thereby improving the overall profitability of the rural financial intermediaries. Nevertheless, there have been detected two main factors which have compromised MFIs efficiency such as: i) the failure (particularly after the credit crunch of 2008) to adjust lending rates to positive real levels; ii) the performance of the credit cooperative sub-sectors has been deemed inefficient, since the program emphasis on institutional expansion was not matched by a sustainable cost structure. 3

4 Country & Project Name Ethiopia - Project Performance Partner Performance IFAD IFAD was commended for its design process, as well as staff continuity and flexible approach during implementation. Moreover, its continuous positive follow-up on project performance has been highly appreciated. IFAD contributed immensely in all aspects of the PCR preparation. Cooperating Institution The AfDB provided adequate supervision. 1 supervision missions were carried out by the Bank. Relevant skill mix included microfinance experts, accountants, procurement, and disbursement officers. The Bank also provided adequate quality management oversight. Government The GOE was highly committed to RUFIP. The Government and its agencies contributed to the successful design and implementation of RUFIP, supporting the Program with an increasingly robust micro-finance policy as well as by allowing implementing agencies to work autonomously and without interference. The Program coordination and management unit (PCMU) achieved almost all the tasks expected of it. It complied with project covenants, fiduciary requirements as well as with the AfDB and IFAD financial management requirements. However, there were avoidable rotations of PCMU staff which impaired the quality and effectiveness of programme implementation under RUFIP. The PCMU was also responsible for some delays in submitting quarterly and annual audit reports. Finally, project fund utilization was not according to plan, resulting in unutilized funds in the special accounts after project closing date. NGO/Other The Association of Ethiopian Microfinance Institutions (AEMFI) has played a pivotal role as a RUFIP partner and is deeply involved in supporting the microfinance subsector. Cofinancier(s) The African Development Bank (AfDB) was the main cofinancier of the program. Its significant financial contribution made it possible to expand outreach through the country. Combined Partner The co-financing agreement operated effectively. The AfDB, IFAD and GoE together carried out joint Performance supervision missions twice yearly, the mid-term as well as the PCR. Rural Poverty Impact Household income and Production credit of US$73.23 million was extended to rural households operating small-scale farm, offfarm and non-farm enterprises to diversify their income opportunities. Through a better access to net assets microfinance, beneficiaries including farmers, traders and artisans have all witnessed increase in their household incomes, particularly in the diversification of enterprise, and the build-up of their assets base. Poor rural households who were otherwise constrained in acquiring investment capital, benefitted by having access to savings services and the opportunity to invest in on-farm, off-farm and non-farm income generating activities. The livelihoods of participating beneficiaries have also improved as evidenced by the increased rate of acquisition of household assets including investments in real property. The MFIs have had also noticeable impact in creating employment opportunities in their communities. Food security Although it is not possible to detect the exact magnitude of Programme's impact on this domain, it can be stated that as a result of the higher credit provision to the farmers, the resulting higher crop and livestock productivity have led to better food security. Agricultural productivity There are no specific available data in the PCR concerning this impact domain. The PCR only states that thanks to the enhanced access to credit, rural farmers, particularly women, have become more able to purchase and use improved farm inputs and tools to enhance crop and livestock productivity. Food security and Agricultural Productivity Natural resources and The Program has not supported any physical developments, hence is environmental impact is considered environment as neutral to positive as the AFDB PCR mission found no evidence of any negative environmental impact n.a. caused by RUFIP. Accordingly, no rating can be assigned in this respect. Human, social capital and The MFIs have trained more than 1,000 centre and group leaders using their own funds and trained MFI empowerment clients including 0,000 women. 67,000 RUSACCOs membership was mobilized and organized. This is an important achievement in client sensitization which has inculcated a strong sense of credit-discipline and raised financial and operational sustainability of the MFIs. Institution and Policies RUFIP has played a key role in sensitizing Government about microfinance themes. It has contributed to the development of a savings culture amongst poor rural households, in addition to the change in the mindset of policy makers and promoters of rural financial cooperatives. RUFIP has thus brought about a paradigm shift in the financial cooperative movement in Ethiopia. RUFIP has equally confirmed that RUSACCOs could also be organized in areas without access to MFIs. Moreover, RUFIP supported the preparation of a favourable environment for commercial banks loans to MFIs. Thanks to RUFIP support, 6 there has been an improvement in the management, rules and regulations guiding the delivery of rural credits (for farm and non-farm activities) by MFIs and Cooperatives (RUSACCOs and Unions). Similarly, RUFIP provided support to the Microfinance Supervision Division (MSD) of the National Bank of Ethiopia (NBE) which now carries out regular supervision mission to MFIs. The supervision manual prepared by the NBE has greatly improved regulations, governance and management of the MFIs. The improved supervision and regulatory framework has enhanced compliance to the prudential and regulatory norms

5 Country & Project Name Ethiopia - in the industry leading to a strong and viable rural intermediation system which is capable of sustaining the system even after the funding life of the project. Markets It is not possible to rate the Project's impact on this domain, due to lack of available information. n.a. Project Impact Overarching Factors Innovation The PCR only mentions an innovative savings product to increase savings by the MFI clients. This is a savings box with two locks that was placed at each farmers' house with the Credit Officer collecting the cash every seven days. A further innovation is the mobile banking which could potentially be introduced in the second phase of the programme. Replicability and Scalingup against poverty. To this end, IFAD and GoE have agreed on the design of a follow-up Programme (RUFIP The highly successful RUFIP has led the GoE to adopt microfinance as one of the cornerstones of its fight II) (valued at USD28 million), which aims to expand microfinance activities to new areas where financial 6 services to the poor were unavailable under RUFIP, as well as strengthen MFIs and RUSACCOs to intensify their outreach to the poor. The lessons learned from RUFIP have informed the design of RUFIP II. Innovation, Replicability and Scaling-up Sustainability and The Program has very high prospects for sustainability after the funding phase. Thanks to RUFIP, Ownership Ethiopian MFIs have achieved operational self-sufficiency ratios which are among the highest in Africa and commercial banks have begun providing loans to MFIs. The recovery rate of the MFI loans which is up to 90 percent is higher than the delinquency rate of 1 percent anticipated at appraisal and there was no evidence of mismanagement of savings caused by lack of built-in safeguards at the grassroots level. This positive result fuels the revolving process at the MFI level, thereby ensuring sustainability even after the funding period of the project. Moreover, the strong commitment shown by the GoE during RUFIP implementation gives an assurance for sustainability for microfinance industry in Ethiopia. The improved supervision and regulatory framework has enhanced compliance to the prudential and regulatory norms in the industry leading to a strong and viable rural intermediation system which is capable of sustaining the system even after the funding life of the project. The RUSACCOs and unions were designed as selfreliant and sustainable institutions. However, in order to guarantee their sustainability, there is need for a policy dialogue with the stakeholders with regard to a policy and regulatory environment which will lay ground for a sustainable RUSACCO development. Targeting The programme target group comprised rural households living below the national poverty line, defined as the level of income necessary to maintain the minimum daily requirement of calories recommended by the World Health Organization. With a yearly per capita income of less than US$110, the majority of the target group lived far below the internationally recognized absolute poverty threshold of US$1 per day. Most of these rural households had a limited asset base, including landholdings of less than 1 ha on average. They also lacked access to basic health, education and drinking water facilities. About 20% of the target group were de jure woman-headed households. Gender Special efforts were made to include women in RUFIP's interventions. By June 2010, the data on clients outreach showed that women constituted 1% of the loan total borrowers and 0% of savers. In terms of annual disbursement, the data also shows that women benefitted 3% of the total annual disbursed loans to the MFI clients. The MFI sector was more proactive in gender responsiveness than the cooperative sector. The impact Assessment made by the project in the cooperative sector indicated that women constituted 7.7% of the total membership of RUSACCOs but no disaggregated data could be available on the amount of loans extended for men and women as well as gender responsiveness of the capacity building training aspect of the project. Overall Performance Overall, RUFIP appears as a highly successful program. It has made significant contributions to the establishment of an efficient and effective rural financial system. More importantly, it has managed to develop a saving culture in the rural communities of Ethiopia Estimated number of 2, million final households beneficiaries compared to 1, million estimated at the appraisal. beneficiaries PCR Quality Scope It is not possible to provide a rating on the scope of this PCR, as it has been prepared following the provisions of the AfDB for the Project Completion Report and not the IFAD 2006 Guidelines for PCR NA preparation. Quality This PCR was jointly planned and implemented by the AfDB, IFAD and the Project Management Agency. They conducted field visits together and produced a joint report Programme Completion Report. The PCR has been prepared following the AfDB guidelines for Project Completion Report. The assessment of project's impact, which is only briefly mentioned in the PCR Annexes, would have benefitted from a more in-depth analysis. Some client meetings were held during the PCR field mission, but there was no comprehensive data provided.

6 Country & Project Name Ethiopia - Lessons Some very relevant lessons learned have been mentioned in the pertinent section of the PCR. They are very schematic, but concise and straight to the point. Candour Overall, PCR is objective and honest in its assessment. It appropriately highlighted both the Programme s strengths and weaknesses over all its implementation phase. 6