Macedonia: Agricultural Financial Services Project

Transcription

1 Macedonia: Agricultural Financial Services Project Loan No. -MK Project Id. 112 Board Date 1th September 2000 Effectiveness Date 28th May 2002 Original Closing Date 31st December 2007 Final Closing Date 30th June 2008 Total Project Cost USD(M) IFAD loan USD (M) 9 Cofinanciers (if any) Swedish International Development Agency SIDA: USD 0.8 million Implementing Agency Ministry of Agriculture, Forestry and Water Economy (MAFWE) Principal Components The overall Project goal was to raise the standard of living of the rural population through increased economic activity responsive to and sustainable in the emerging market context. The principal objectives were to: i) establish the institutional and financial basis for sustainable agricultural financial services which are commercially viable, but nevertheless affordable by the target group and appropriate to their development needs; ii) upgrade the target group s economic conditions and technical and managerial skills through focused training and capacity building programmes; and iii) develop skills and experience for provision of agricultural financial services within the formal financial sector. Project investments were organised under three components, namely (i) Agricultural Financial Services; (ii) Technical Support for Agricultural Production; and (iii) Project Management and Coordination. Project Performance Design Implementation Relevance Effectiveness The design of the project was very well done. The project incorporated lessons from other IFAD projects and envisaged a wide portfolio of support for the target group. It also adopted very participatory processes for designing the supply chain interventions to meet participants aspirations. This led to more effective communication between producers and processors. Generally speaking, the success of the project is a testimony to the adequacy of its design. In spite of initial delays in project start up due to reasons linked to national unrest, project implementation was smooth. The PCU's performance was excellent- this is reflected in the timeliness and quality of reporting including periodic monitoring and impact assessment reports and in the fully competent accounting for and administration of Project finances. The financial management of available loan and grant proceeds progressed smoothly, including the unqualified independent audit reports that were received each year. The M&E system was very good. Disbursement levels are very high (99%). The design was consistent with the country's rural development policy and correctly identified future trends in the development of Macedonia s rural economy. It created an appropriate framework for helping different sub-categories of the target group to benefit from Project investments, either directly or indirectly. Importantly in the context of the continuing transition to a market economy and EU (European union) convergence, the establishment of service delivery mechanisms through commercially viable developments in the private sector was an essential pre-requisite to secure the sustainability of Project successes. Inevitably over a - year period, numerous adjustments were necessary to improve AFSP operations in the light of continuing implementation experience. Nevertheless, the overall project purpose and design philosophy remained relevant and was appropriately adhered to. The stated objectives of AFSP have largely been met, and in some respects outcomes have also exceeded expectations. The project has successfully established a commercially viable and relevant financial service for rural clients. At the time of AFSP start-up, the availability of rural and agricultural financial services was limited in Macedonia. The capital injection into the rural economy induced under AFSP of some EUR 1. million represents a substantial contribution to rural development. As of December 2007, ACDF (Agricultural Credit Discount Fund) had given out 27 loans (out of the targeted 3000). The repayment rate from the PFIs (Participating Financial Institutions) was 100% and the repayment rate of borrowers stood at 9%. ACDF also provided extensive training to PFI staff. Economic conditions among the target group and their technical and managerial capacities were improved through the capacity building programmes organised by the AIC (Agricultural Investment Centre). Over 1300 borrowers have received advice from AIC. AIC data suggest that out of the 2 7 borrowers, approximately % participated in the training courses organised by the AIC, among whom 70% 33

2 were supported in preparing loan applications. The overall effectiveness of training and the educational material made available through the AIC has been high. The third objective, to develop skills and experience for the provision of agricultural financial services within the formal financial sector, was also achieved. Over 20 credit officers received training organised by the ACDF, and the level of appreciation expressed was high. Efficiency Neither the annual report nor the PCR calculate an economic rate of return (ERR). The PCR does however look at the cost-benefit ratio of a number of activities: support to individual value chains, the number of advised loans, and the outcome of ACDF's operational support. In all three cases the economic benefit deriving from the activities is much higher than the initial investment. Partner Performance IFAD Cooperating Institution Government NGO/Other -- Cofinancier(s) Combined Partner Performance IFAD was supportive throughout in seeking to ensure effective project implementation and respond to changing circumstances and requirements over the project period. International consultants provided substantial levels of implementation support and the CPM offered continual guidance. IFAD showed flexibility in accepting changes in programming details in response to evolving conditions in Macedonia, the recommendations of implementation units and successive technical and supervisory support missions. UNOPS' performance was relatively good. UNOPS undertook five Supervision Missions, in some cases involving a relevant, specialised consultant(s). It gave sustained attention to detail and established and maintained an effective flow of IFAD funds. It also highlighted aspects of implementation requiring adjustment/improvement and identified responsibilities for making necessary changes. Continuous dialogue was maintained on loan administration matters. The only problems were that the missions should have been more frequent, and the time lag between fielding Supervision Missions and reporting on their outcome was typically 3- months rendering much of the reports contents somewhat academic by the time of publication. The establishment by MAFWE of a semi-autonomous PCU facilitated Project implementation. Changes in leadership in the Ministry did affect implementation from time to time, with the Project Coordinator having to withstand undue political interference in project affairs on several occasions. Nevertheless, MAFWE was generally supportive of the project and its goal, which remained consistent with emerging policy for agricultural and rural development Through its office in Skopje, SIDA maintained relatively close involvement with the Project and has remained supportive of the ACDF. However from mid-200, an internal policy change caused SIDA to withdraw its consideration of support to AIC at the time of completion of a detailed financing proposal by AIC thus creating a major hiatus in implementation of the agricultural component. The performance of the partners was very good. The PCR mentions that overall coordination was complicated as a result of the PCU and AIC being affiliated with MAFWE while the ACDF unit was correctly located within the purview of the Ministry of Finance. In spite of this, their interaction and efforts at ensuring the smooth implementation of the project was good. Rural Poverty Impact Physical Assets The project has reasonably increased smallholder access to livestock (from. per household to 7 after the project's intervention). The PCR also tells that incomes have increased substantially, although it is not known what assets families have bought with the income. The PCR mentions that there is a clear trend of loans enabling smaller, often asset-poor family businesses to graduate to progressively higher asset and income groups. The PCR also states that some 1% of all 2 7 borrowers used loans to invest in upgrading technologies and/or replace equipment and machinery, often as a means to improve hygiene in the handling and processing of agricultural produce and food safety and to meet international produce marketing standards. Financial Assets Data from the project clearly shows that farmers have increased their family business income considerably: from an average family business income of EUR 1 before taking a loan, the figure rose to EUR 8 00 two years after taking the loan; the increase being close to the annual average income level in Macedonia in Also, the data shows that one year after taking a loan, borrowing by processors and rural traders increased the value of production/trade by an average of 0% and the value of sales by 3%. Again over the one-year period, the number of full time job equivalents rose from 2-3 (a 2% increase). More importantly perhaps, poor rural producers now have greater access to financial services thanks to the project given that ACDF operations have been instrumental 3

3 in generating an improved outreach of agricultural financial services, which now cover all rural areas of Macedonia. As an illustration, from 2003 to 2007, the number of PFI (participating financial institutions) branches approving agricultural loans increased from 9 to 3, while the number of locally based credit officers increased from 18 to 98. Food Security At the time of appraisal, food insecurity and poor nutrition were not identified as critical development issues in Macedonia, although poorer people may be especially vulnerable to external economic shocks or any major disruptions to the process of economic transition. The increases in income and in production of vegetables are signs of greater access to and availability of food, although a nutritional survey would be needed to ensure adequate access to a suitable quantity and quality of food. Environment The project aimed to ensure that businesses would not generate adverse environmental effects or contravene environmental legislation by making sure that loan applications include borrowers statements on relevant environmental concerns. In an increasing number of cases, loans are linked with businesses seeking to achieve certified organic product status not least as a means to -- access Government subsidies for organic farming. This trend is associated with positive environmental implications, but the data is not hard enough to rate it one way or the other. Human Assets Much of the project's efforts at building human capital have been aimed at project staff, PFI staff and business advisors. In this respect much has been achieved. In the case of PFIs, their staffs were trained in approaches to and techniques in agricultural and rural lending. The success of the training provided is evidenced by the increased capacity of PFIs to conduct business in rural areas. AIC provided training and capacity building in farm businesses and agricultural processing businesses. This was achieved through the combined effects of training for contracted advisors and follow-up training for successful loan applicants. Advisors and PFI credit officers received training in a wide range of relevant topics including farm business management and farm budgeting, business plan preparation, risk management and contract preparation/management. Training for potential borrowers included guidance on the preparation of loan applications and familiarisation with the financial and agricultural services available through AFSP. Soc. Cap. & Emp. The agricultural component has contributed to the consolidation of breeders and growers associations through interactions between the technical advisors and their clients, many of whom are members of specialised associations (e.g. sheep breeders, beekeepers and organic farming associations). Networking within such associations and relationships with others in their supply chain were improved. The numbers of suppliers into marketing chains increased and there is evidence of collective action occurring that had not previously been recorded. This has included synchronisation of harvesting and produces aggregation by value chain participants at farm level in order to secure a mutually beneficial marketing opportunity. In terms of empowerment, the AFSP has shown considerable success in making available financial and agricultural advisory services to women and men on a commercially viable basis, primarily among client groups that formerly had little opportunity to invest in improving their livelihoods. Ag. Productivity Survey data confirm that AFSP generated increases in agricultural production. Farmers borrowing to increase sheep flock size increased the number of lambs sold by 9% one year after taking a loan. Similarly, small-scale dairy farmers who increased their herd size increased milk production by an average of 3% and 9% one and two years after taking a loan. For vegetable growers, production increases one and two years after the loan were 32% and %. In addition to this, consistent marketing support to the priority supply chains, involving participation in trade fairs and promotional events, helped in additional sales of bottles of wine on regional wine markets, an additional lambs sold to Greek and Italian markets. Inst. & Serv. As hoped for at appraisal, AFSP implementation had a major impact at an institutional level as well as on the availability and quality of services to the target population. Seven PFIs were supported through the refinancing scheme to engage in lending to agricultural and other rural businesses. Their experience played a major role in encouraging an expansion of branch networks and adjusting lending terms in order to capture increasing segments of the rural market. The AFSP has supported and trained eight private business/agricultural consulting companies that are commercially viable. In the short period since their registration as legal entities, the companies have already increased their client base, diversified the range of services offered and in some cases employed additional staff to cope with 3

4 their expanding operations, entered into contractual arrangements with other development projects and public agencies and further developed their network of contacts in agro-industry and financial institutions. Markets International marketing benefits were achieved in specific value chains as a result of promotional events and actions supported under the Project. Through the participatory processes of the supply chain approach, the farmers involved developed a clearer understanding of market demands and the need to produce quality product at lower transaction costs if they are to compete, especially in regional and international markets. More farmers are now requesting the services of the agricultural consulting companies: consultancies, for example, on how to acquire the necessary certification/registration status that will enable them to make adjustments in their business, consolidate their market access and attract new domestic, regional and other international markets. Project Impact The project has had a substantial impact on the target population: it has increased financial support for agriculture on a sustainable basis, it has upgraded the technical and managerial skills of the target group, and built the capacity of technical and financial service providers to address the needs of clients within the agricultural sector. Overarching Factors Innovation Replicability and Scaling-up Innovation, Replicability and Scaling-up Sustainability and Ownership Targeting The Project design was highly innovative, not least in the context of the Macedonia s transitional economy. 3 are worth mentioning: 1) the establishment of the ACDF as a mechanism for wholesale lending to private banks and savings houses (PFIs). The introduction of advisory services was also a novelty introduced during implementation. 2) under the cost-sharing arrangement between borrowers and the AIC, support services appropriate to borrowers expressed needs were delivered by trained technical advisors in accordance with a pre-determined schedule of payments. The concept was viewed as a contribution towards development of a pluralistic approach to advisory service delivery in the agriculture sector. 3) from 200 a series of priority commodity supply chains were identified, within each of which a cohesive series of investments was planned with the close involvement of supply chain participants. The refinancing concept at the heart of ACDF operations has been introduced in a number of other IFAD-sponsored country programmes to similarly beneficial effect. The incremental credit line provided through the IFAD Loan for AFSP attracted funds from other international donors, who have perceived the scheme as an important stimulus to enhanced commercial lending for agriculture and rural development. This perception has resulted in additional funds in excess of EUR 0 million from World Bank and European Investment Bank sources being channelled through ACDF. The cost-sharing approach that has led to the creation of the agroconsulting companies is susceptible to replication, certainly in other dynamic market economies. The SIDA-supported MAASP now incorporates elements of the cost-sharing principle into its own operations with MAFWE and the National Extension Agency. MAASP is also actively networking with the companies and establishing contractual relationships with several of them to deliver services to MAASP beneficiaries. The sustainability levels of the project are very high. Thanks to the project, PFIs gained sufficient confidence to expand agricultural and rural-based lending as a proportion of their overall portfolios and to do so through a much enlarged branch network, adjustments to collateral requirements and a diversification of loan products and purposes. In some cases (notably Tutunska Banka and Investbanka) the banks are also using their own funds for agricultural lending. The eight agroconsulting services firms established under the project are also sustainable. The firms have been formally established and legally registered. All registered agroconsulting firms have fully functional office premises and have successfully diversified the range of service products offered to clients. The only issue is linked to the maintenance of the excellent database set up by the project, necessary for the continual assessment of the performance of borrowers and associated consulting services. SIDA may follow up on that by providing the necessary funds. The project did not target the poorest, but rather, by its very nature, it targeted the economically active farmers and entrepreneurs. In spite of this, efforts were continuously made to ensure the relevance of project investments and delivery mechanisms to the needs of poorer clients and smaller-scale entrepreneurs. Indeed primary production loans represented 70% of the portfolio in number and 8% in value terms, confirming the success of the scheme in reaching poorer and smaller-scale farming businesses. It is also worth noting that the very poor, including those without agricultural assets, gained access to seasonal employment 3

5 arising from production increases. In the case of borrowers, data shows that one year after the loan, 3 borrowers (28% of the former poorest category) were no longer classified among the poorest with respect to one or more of the specified poverty criteria. The PSR rates poverty focus with a. Gender The project was not specifically designed to target the needs of the women, nor did the project give much explicit attention to gender issues. Women did however benefit from the project. Much of the increased full and part-time employment benefited women in view of their widespread engagement in post-harvest handling, packaging and processing of agricultural produce. Indeed 7% of seasonal labour employed in this area was female. Loans for investment in primary production in small family farm business totalled 2 (9%) of the total portfolio, of which 31 (13%) were taken by women. This reflects the nature of primary production businesses in Macedonia in which the head of the household is the signatory of such formal documents and is typically male. PFIs did provide equitable access to women and men, although actual levels of lending to women were in part being restricted due to their not having the necessary collateral. Overall Performance Estimated number of beneficiaries PCR Quality Scope Quality Lessons The project can be considered as successful. There were very few delays, but overall implementation ran smoothly. It managed to reach its development objectives and to ensure the sustainability of its actions and institutions. IFAD's investment has had a major catalytic effect on financial institutions and the nature and extent of smallholders and other rural businesses links with the formal financial sector, as well as on the productivity and profitability of the businesses supported by the loans. approximately (2 7 direct and indirect) The PCR follows the PSR template and contains all the relevant Annexes. It provides details without losing its clarity. The quality of the report is excellent: very well written with a good mix of quantitative and qualitative information. Very technical. The lessons learnt are very well developed and provide good pointers for future design of similar projects. 37