Interim evaluation ¹

In April 1996, the International Fund for Agricultural Development (IFAD) approved a loan in the amount of approximately USD 14.7 million to the Government of the Philippines to co-finance, together with the Asian Development Bank (ADB), the Rural Micro-Enterprise Finance Project in the Philippines. The project final closing date is 31 December 2002. The Government of the Philippines is considering a second phase of the project and could apply for IFAD's participation in funding it.

An interim evaluation was carried out in July 2002 by an IFAD mission to analyse the main lessons to be drawn from the project and to formulate basic recommendations that could be used in designing the second phase. Preliminary conclusions were presented during a wrap-up meeting on August 2002 and finalised in a workshop held in Manila on 24 January 2003. The project partners discussed the main recommendations seen as fundamental in ensuring that the project's gains are consolidated and providing a sound basis for a second phase.

The general recommendations focused on:

• The expansion of outreach to the poorest areas and people through sustainable financial institutions;
• Deepening the impact of the project on rural micro-entrepreneurs and the very poor;
• Participation of project partners in microfinance policy dialogue;
• Improved reporting on project progress and impact;
• The operational improvement of co-operation between project partners; and
• Further studies and dissemination of approaches to sustainable banking with the poor.

Issue A: expansion of outreach to the poor and poorest through sustainable financial institutions

Recommendation 1: Expansion of outreach through sustainable financial institutions. In all provinces and to all low-income groups in rural areas, with an emphasis on the poorest areas and, gradually, the very poor. For this purpose, the project should support: (i) the establishment of branches and field offices offering financial services to the poor in new areas (see C1), innovations of rapid expansion such as Grameen franchising/Build Operate and Transfer (BOT), and (ii) the test and implementation of different financial technologies in addition to GBAR, such as for example Linking Banks and Self-Help Groups (SHGs). In the interest of sustainable long-term financial services to the poor, the project must respect the autonomy of participating institutions in terms of choice of clients, financial products and loan terms. Priority should be given to institutions which mobilise savings as a source of funds for poverty lending, which are designed to eventually finance their outreach to the poor from their own resources; and which are properly audited and supervised:

• Follow-up. Provide equity or "quasi-equity", investment loans, and institutional loans for institutional expansion; and
• Those responsible. PCFC, IFAD and other donor partners; selected bank MFI (for Grameen franchising/BOT).

Recommendation 2: Encouraging financially viable NGOs. Banking with the poor to establish deposit-taking formal intermediaries such as rural banks or thrift banks. The project should insist on, and monitor, a time plan of no more than three years for the creation of such formal intermediaries; it may support them with equity investments, institutional loans and technical assistance:

• Follow-up. Establishment of a consultative group for the establishment of rural or thrift banks by credit NGOs; and
• Those responsible. PCFC, Microcredit Council of the Philippines, Rural Bankers Association of the Philippines (RBAP), CARD Rural Bank.

Recommendation 3. Capacity building in implementing financial institutions. The project should support training and exposure services by participating banks to new entrants. The feasibility of a voucher system for new entrants will be examined by PCFC in co-operation with the participating institutions serving as providers of training and exposure services. The Grameen technology has proven viable and profitable; but interested rural banks and other MFIs should be permitted to test, and receive training in, different technologies of banking with the poor, such as individual lending or linking banks and SHGs. The project should support the diversification of savings, credit and insurance products, including the provision and insurance-protection of non-micro-enterprise loans. It should also support: (i) the enhancement of efficiency with the objective of increasing profitability or lowering interest rates; (ii) the enhancement of internal controls and external supervision (particularly in the case of co-operatives and NGOs). This requires the co-ordination of donors supporting various financial institutions and networks. Experienced MFIs should be the focal point for the provision of training on a commercial basis:

• Follow-up. Establishment of training, exposure and consulting services in selected participating institutions; establishment of a donor co-ordinating group; and
• Those responsible: PCFC, RBAP Academy for Banking in the Countryside (ABC), participating institutions with training services, IFAD and other donor partners.

Issue B: support to rural micro-entrepreneurs

Recommendation 1: Empowerment and capacity building in groups and centres. The project may help organising leadership and personal development training by private service providers for Grameen centre staff. It should support group member training in household livelihood, risk management and microenterprise skills. The project should promote linkages of MFIs and centres with microenterprise support organisations; enhance the transfer of skills between borrowers through encouraging mentoring and time for experience sharing during centre meeting and improving the level of interaction during centre training:

• Follow-up. Establishment of a capacity building program for GBA centre staff.; and
• Those responsible. PCFC with a suitable agency to be identified.

Recommendation 2: Services for scaling up of mature micro-enterprises. The project should provide further assistance through business training and mentoring services to
micro-enterprises. It should promote partnerships with NGOs, government and private agencies as well as market linkages. Services (to be provided on a cost-recovery basis) should include improved business planning for borrowers with comparatively larger enterprises:

• Follow-up. Identification and training of agents/organisations with experience in counselling of micro-enterprises. Exploring the opportunity of including the costs in a financial package offered by MFIs to promising micro-enterprises; and
• Those responsible: IFAD, other donors, potential business development services providers.

Recommendation 3: Appropriate financial services. To be studied by the RBAP Research Centre, discussed at annual workshops of participating financial institutions, negotiated between each financial institution and centres. This includes: (i) a greater focus on the mobilisation of voluntary savings and the strengthening of the self-financing capacity of the group members; (ii) flexible loan amounts according to borrower needs; (iii) facilitating the graduation to larger individual loans with appropriate guidelines; (iv) options for retaining group membership as savers during non-borrowing periods; (v) provision of mid-term credit and leasing services to growing micro-enterprises:

• Follow-up. Establishing a research program and conducting annual workshops; and
• Those responsible. PCFC with Rural Bankers Research and Development Foundation.

Issue C. microfinance policy reform

Recommendation 1: Participating in microfinance policy dialogue. The project should see to it that PCFC and selected representatives of implementing financial institutions and grassroots organizations participate actively in the dialogue on microfinance policy and its effective implementation. This includes: (i) opting for effective regulation and supervision for all MFIs, including credit NGOs and cooperatives; (ii) initiating a dialogue on the feasibility of delegated supervision; (iii) interacting with Bangko Sentral ng Pilipinas (BSP) on the liberalization of its branching-out policies and speedy processing as a prerequisite for the increase in sustainable outreach of the poor; (iv) reviewing critically the feasibility of a microcredit rating system for GBA loans; and (v) providing additional technical assistance to PCFC and regulatory authorities to strengthen their capacity for active participation in the dialogue on microfinance policy, regulation and supervision:

• Follow-up. Taking steps to institutionalize the participation in microfinance policy dialogue; and
• Those responsible. PCFC, National Credit Council – Department of Finance, Land Bank of the Philippines, selected representatives of participating institutions, donors to facilitate dialogue (may also provide small grants).

11. Recommendation 2: Commitment to reform covenant sections. This entails ensuring the commitment of DoF, NCC and BSP to the reform covenant sections (formulated in phase 1), including the phasing out of directed credit programs and interest rate subsidies; and submitting a detailed privatisation plan for PCFC, weighing the advantages and expected gains of private vs. public ownership:

• Follow-up. Establishing a system of monitoring compliance with covenant sections; and specifying actions to be taken in case of non-compliance; and
• Those responsible. IFAD other donor partners, Department of Finance, National Credit Council, BSP.

Issue D. improved reporting on project progress and impact

Recommendation 1: Avoid onerous, inaccurate and distorting reporting systems. In their reporting to the executing agency, MFIs should adhere to BSP standards and simple unified reporting requirements as defined by the National Credit Council (NCC). MFIs should report actual rather than cumulative figures. Data on the financial health of MFIs and on the profitability on GBA as a financial product should be monitored. The executing agency should provide donors with a classification of partners of MFIs according to their financial soundness and portfolio risk:

• Follow-up. Simplification of reporting system, according to BSP standards; and
• Those responsible. PCFC (in consultation with BSP and RBAP), IFAD and other donors, MFIs.

Recommendation 2. Fostering more systematic and affordable impact assessment both at the level of MFIs and at the aggregate project level. Financial intermediaries and donors have an interest in assessing impact, the former to improve services and retention rates of customers, the second for accountability reasons and to improve effectiveness in poverty alleviation. (i) Skills of MFIs should be strengthened through the provision of training packages on a commercial basis by specialized NGOs and MFIs. (ii) Donors to fund in-depth studies of the project's impact on rural poverty:

• Follow-up. (i) Fostering skills of MFIs in conducting simple assessment of poor clients' satisfaction; (ii) longitudinal panel studies of small numbers of households, combining interview data with participatory self-assessment by end-clients and photographic documentation; and
• Those responsible: IFAD and other donors, PCFC, more progressive MFIs.

Issue E. improving co-operation between project partners

Recommendation 1: Co-operation between donors partners. Donor partners should: (i) agree on common working schedules, responsibilities and joint reviews and evaluations; (ii) carry out missions (including supervision ones) jointly; and (iii) produce streamlined joint documents. The Government (DOF/NCC and NEDA) should ensure co-ordination and complementarity of development assistance in rural microfinance:

• Follow-up. Formulation of an agreement on improved co-operation; and
• Those responsible. IFAD and other donor partners.

Recommendation 2: PCFC and participating financial institutions. The project could support: (i) annual workshops of implementing partners; and (ii) capacity building for PCFC and seminal participating institutions through micro-banking training (e.g., by CGAP in the Philippines; Bankakademie Frankfurt, etc.):

• Follow-up. Allocation of funds for annual workshops and professional enhancement of key persons in the project; and
• Those responsible. IFAD and other donor partners, PCFC.

Issue F. further studies and dissemination of approaches to sustainable banking with the poor

Recommendation 1: Studies. Given the dynamic and innovative approaches to banking with the poor among the project partners, the project may provide access to graduate students and professional researchers from universities for studies of mutual interest. The project may also identify topics of particular relevance to MFIs and customers and either finance them directly or seek external support, e.g.: a comparative study of sustainability and outreach to the poor among rural banks,
co-operative banks and NGOs as users of GBA as a financial product; a comparative study of different financial technologies of banking with the poor; the impact of access to credit on the ultra-poor;
self-financing through savings as an option for non-borrowing GBA group members; BDS innovations:

• Follow-up. Allocation of funds for special studies; informal agreements of co-operation with selected universities; and
• Those responsible. PCFC, IFAD and other donor partners, Rural Bankers Research and Development Foundation.

Recommendation 2: Dissemination. The project may contribute to poverty alleviation on a broad scale by supporting the dissemination of information on experience with GBA and other technologies of banking with the poor. This includes local dissemination by sharing lessons learned at the quarterly PCFC partners' meetings; national dissemination by packaging and disseminating GBA experience through the Rural Bankers Association of the Philippines; international dissemination through publications and presentations of the experience of Grameen replicators at international meetings:

• Follow-up. Allocation of funds for packaging and disseminating the experience of successful MFIs; and
• Those responsible. IFAD and other donor partners, PCFC, Rural Bankers Research and Development Foundation.

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1.This agreement reflects an understanding among partners to adopt and understand recommendations stemming from the evaluation. The agreement was formulated in consultation with the members of the Core Learning Partnership (CLP). The latter comprised representatives of the following institutions: IFAD (Asia Division and Evaluation Office), the Asian Development Bank (Agriculture, Environment & Natural Resources Division, Southeast Asia Department), UNDP-Philippines, the People's Credit and Finance Corporation, the Department of Finance (Government of the Philippines), the Land Bank of the Philippines, the National Economic and Development Authority. The CLP also comprised representatives of the following microfinance institutions: Negros Women for Tomorrow, the Centre for Agriculture and Rural Development, the Enterprise Bank, the Opportunity Microfinance Bank, the Producers Rural Banking Corporation. A complete list of participant at the final evaluation workshop (Manila, January 24 2003) is shown in Appendix 4.