Republic of Paraguay: Peasant Development Fund Credit Project - IOE
Republic of Paraguay: Peasant Development Fund Credit Project
Completion evaluation
the core learning partnership and evaluation users
The Office of Evaluation (OE) of the International Fund for Agricultural Development (IFAD) carried out a completion evaluation of the Peasant Development Fund Credit Project – Eastern Region of Paraguay. An evaluation mission visited the country in March 2004. On 30 March 2004, the mission held a workshop to present preliminary conclusions to all stakeholders and prepared an aide-mémoire setting forth preliminary findings and reflecting the comments made by workshop participants.
The IFAD project evaluation process is based on a shared learning approach for all stakeholders. A core learning partnership (CLP) is set up and participates in the process. The principal users of this evaluation are the Government of Paraguay, represented in the project by the Ministry of Agriculture and by two implementing agencies, the Fondo de Desarrollo Campesino (Peasant Development Fund - PDF) and the Technical Assistance Unit (TASU); the key partners involved in the project, including IFAD, the United Nations Office for Project Services (UNOPS) and the Paraguay office of the United Nations Development Programme (UNDP); the intermediary financial institutions (IFIs); and the consulting firm that took part in the evaluation component, Centro Paraguayo de Estudios Sociales (Paraguayan Centre for Social Studies – CPES). Representatives of these institutions took part in the final CLP meeting, at which an Agreement at Completion Point was discussed and approved, setting forth the evaluation's major findings and recommendations.
This Agreement at Completion Point embodies the results of the entire process and outlines the recommendations and steps to implement them, as discussed, improved and approved in conjunction with the CLP members.
Major conclusions
The project commenced in January 1996. Implementation was severely affected by serious political instability in the country and the resulting lack of continuity in sector authorities and policies.1 Financial effects were felt as well when, beginning in 1998, the Paraguayan Government ceased to provide local counterpart funding committed for project implementation. Finally, arrears on the Paraguayan Government's debt to IFAD led to a suspension in disbursement of the loan proceeds from 2003 to early 2004. In this context, the specific objectives and the physical and financial targets specified in project design could not be achieved. The project's impact on beneficiary family income was negligible overall, both in scope and intensity. 2
Within the public banking structure serving farmers in Paraguay, PDF represents a relatively successful attempt to provide rural populations, and the poorest in particular, with access to credit. Operating with a minimum of efficiency and avoiding decapitalization has meant combating a deeply rooted culture of clientelism and default. That culture was prevalent among first-tier public financial institutions, which have offered excessively liberal terms and conditions, and was strengthened by the political decision to forgive unpaid loans. Throughout project implementation, PDF made efforts to modernize and improve operating efficiency, relying on the capital transfer and operational support offered by the project. This strengthening, however, did not carry through to its regulations, procedures, efficiency and transparency of operations, or to a diversification or innovation in its services.
The support provided by the project for producer promotion and organization, and for training and assistance to associations acting as financial intermediaries, made a positive contribution to social capital formation, particularly during the final years of implementation. However, given the problems noted and the short time elapsed since activities began, it was not possible to consolidate the organizations. Similarly, despite the efforts made, the neediest groups were not empowered to any significant degree.
The unit responsible for implementing the technical assistance component, TASU, endeavoured to perform its duties and propagate a sense of empowerment among the project beneficiaries. A series of adverse factors – the two-year delay in commencing operations, problems with stability and continuity of technical assistance owing to administrative processes governing the flow and use of the loan proceeds and the problem with arrears and suspension of local counterpart funding3 - prevented the services from attaining the expected level of effectiveness 4 and sustainability. In addition, the subcomponent to assist producers in processing title to their land was not implemented.
Gender assistance for the project was not designated in a timely fashion or with the requisite continuity. This activity commenced in 2001 in response to the recommendations of the mid-term evaluation performed by the CPES. The delayed implementation of this component placed serious constraints on its effectiveness, and prevented it from attaining the scope called for in the project design. The component's contribution can be defined as "seed capital". No agricultural loans were made to women or to solidary groups.
The soil conservation and improvement and crop diversification practices disseminated by technical assistance represent a positive contribution and have reduced the possibility of adverse environmental impact. 5
Project implementation did not, as anticipated, promote monitoring and evaluation activities. The results and recommendations of the single evaluation performed were taken into account mainly in implementing the gender component. Nor was sufficient consideration given to the observations and recommendations made by the UNOPS external supervision.
Thematic evaluation
Political, Institutional and Management Issues
The project suffered the effects of political, institutional and financial instability prevailing in the country. Measures with an adverse impact on its implementation included the 1999 debt cancellation initiative of loans to farmers during the preceding productive cycle.
The coordination mechanism provided for project implementation did not function properly.
Promotion and strengthening for civil society organizations, particularly intermediary financial institutions, was limited in scope and effectiveness. Many of the incipient participating organizations were motivated solely by the expectation of obtaining financing, with no proper training of members, no internal cohesion and no basis for sustainability. An examination of the project experiences with organizing and incorporating IFIs shows that the project design overestimated the social cohesion, awareness and capacity for association of small-scale producers and farmers in Paraguay.
Strengthening the Peasant Development Fund
Although the initial idea was to make PDF politically independent during the implementation period, constant turnover among board members, abuses by board appointees to obtain personal gain or influence and the failure to implement adequate institutional control provide evidence that PDF has been highly susceptible to political changes.
During project implementation, PDF encountered difficulty in achieving the dual objectives of securing credit and reaching the rural poor. The institution is under pressure from the Central Bank of Paraguay (BCP) and the Government to operate at a profit. The Interamerican Development Bank (IDB) sector project provides 61% of its loan portfolio, covering beneficiaries with greater resources and making access to credit difficult for the target group. PDF did not, as planned, promote the establishment of a venture fund for more flexible security, or diversification and innovation in its financial services. Specialized consulting services for PDF provided for under the project have been insufficient or improperly used.
PDF has not sufficiently developed systematic mechanisms, regulations and procedures for internal control that would secure its most important assets.
The institution's current structure concentrates decision-making power in the board of directors. PDF managers and staff have little access to training or exchanges with successful programmes providing lending services to IFAD target populations in other countries. This limits the institution's ability to innovate and adapt to the needs of those populations.
Despite the efforts made by the very limited number of technicians, PDF oversight and control of lending operations by IFIs with its resources are insufficient. It was not possible to adopt the recommendation of the appraisal report to follow up on loans made by incipient IFIs to their members.
PDF did not undertake any initiatives nor develop incentives to encourage participation as IFIs on the part of consolidated organizations and the banking sector, which were hesitant to join the project. 6
Little contact exists between PDF and the beneficiaries of financial services, who have no practical knowledge of its objectives and functions.
Development of Intermediary Financial Institutions
Activities to motivate and train the managers and members of IFIs involved in the project began late owing to delayed implementation of the technical assistance component, and never achieved the expected coverage and effectiveness. 7
Members are not informed about the condition of their IFIs. Decision-making responsibility is concentrated among a few executives or managers. A lack of transparency and internal control mechanisms is typical among the IFIs.
Many IFIs that offer savings products say that members lack the resources to save, and report experiences with losses of savings deposits.
Default rates among IFIs are high, both internally and externally. Generally, they lack adequate procedures to minimize credit approval risk,8 as well as collection and recovery policies and procedures. Some IFIs that received institutional credits, mainly for purchasing and marketing products and inputs, as well as for bulking and processing facilities, obtained successful results.
Certain support and social services cannot be provided efficiently by grass-roots organizations, particularly when they are incipient or small in size. Promising action has begun in grouping such organizations in a second-tier association (Central Paraguaya de Cooperativa, CEPACOOP).
Expansion of PDF financial services among the target population
The project managed to include a large number of IFIs in its financing activities, but the figure was lower than planned each year, as was financial soundness and sustainability. The number of members from the target population was much lower than planned,9 and the IFIs did not generally promote participation by organized women and young people, or micro-enterprise lending, as considered in the project design.
The beneficiaries of PDF credit identified problems with information on eligibility criteria, administrative procedures, support in formulating and submitting credit plans, and delayed and inadequate lending.
Loans were granted exclusively to individuals, while the participation and promotion of collective entities were neglected.
Lending experience reveals the importance of identifying markets and commercializing products, including for export.
Technical assistance to organizations and members from the target population
Technical assistance, provided mainly through a project-financed manager hired by the IFIs, helped to improve IFI management but not always the transfer of knowledge to managers, much less committees and members. 10
The coverage of technical assistance for the poorest was not assigned sufficient priority. In part, this occurred because the planned inclusion of the target group in consolidated cooperatives did not in fact materialize. The inclusion of women in the target group, for reasons already noted, was excessively limited. 11 Not all beneficiaries of technical assistance had access to credit, or sufficient credit, to adopt the practices and changes suggested.
The technical assistance subcomponent for land titling included in the project design was neglected and not implemented. The magnitude of the land tenure problem in Paraguay and the lack of any determined attempt to implement this component may indicate that the project design overestimated the actual possibilities and advantages of the targets set.
No provision was made to ensure continuity in technical assistance services provided to IFIs included in the project or their members upon closing of the IFAD financing on 31 December 2004.
Mechanisms for Sspervising and evaluating project Implementation
Supervision missions by IFAD and regional or international cooperating institutions made repeated substantive and useful observations and recommendations. However, these were not sufficiently addressed, discussed or followed by the institutions involved in the project.
Of all the activities called for under the evaluation component, only a mid-term evaluation was contracted for with CPES. This generated three reports, including a specific evaluation on gender issues.
Recommendations approved by all partners
Political, institutional and management Issues
Political and institutional framework. During project design, consideration must be given to the existing and foreseeable political and technical framework, and the actual possibilities of implementing the project as designed. Both the design and implementation must take into account the identity and specificity of the regions and localities concerned.
Follow-up by IFAD, Government of Paraguay
Political and institutional continuity. A minimum of continuity in institutional and sectoral policy, and in the tenure of project technicians and authorities, must be assured. Dialogue with the Government on such issues by IFAD, the cooperating institutions and other key partners is a determining factor.
Follow-up by Government of Paraguay, IFAD, UNOPS, UNDP
Promotion and dissemination. The project must be promoted and disseminated within the Government and commitments sought from the public agencies concerned as to its implementation. In particular, the priority of actions addressed to the target population must be substantiated and supported in discussions with the authorities.
Follow-up by IFAD
Strengthening project management. Provision must be made in design and implementation so that the project will have a single implementing authority with full backing 12 and continuity.
Follow-up by IFAD, Government of Paraguay
Institutional design. Project design must be rigorous in terms of institutional arrangements and capacity, to ensure needed coordination between institutions and actions, and in terms of the viability of activities and targets and correlating targets and objectives.
Follow-up by IFAD, Government of Paraguay
Emphasis on developing institutional capital and social capital. In future projects, greater emphasis should be placed on developing institutional and social capital and on active participation by the target group beginning with project formulation, allowing for the requisite learning period.
Follow-up by IFAD
Including beneficiaries. Provisions should be made to ensure that the inclusion of beneficiaries is more in line with the target population as defined.
Follow-up by IFAD, UNOPS
Strengthening the Peasant Development Fund
Political independence of PDF. To achieve a reasonable degree of political independence, PDF should consider having its board of directors include qualified independent businessmen, well-known and respected personalities, microfinance experts with international experience and bankers. Procedures should be established so that board members cannot be removed for purely political reasons, while allowing for periodic rotation.
Follow-up by Government of Paraguay (Ministries of Agriculture and Finance, BCP)
Restructuring of PDF. PDF should be consistent with its mission to provide services first and foremost to vulnerable poor campesino populations, without either incurring losses for the institution or imposing a financial burden or failure on IFIs. It should favour access to credit by women and by young rural entrepreneurs of both sexes, and identify innovative solutions in credit adoption and management and other financial services for producers and the rural poor generally.
Follow-up by PDF Board of Directors and Executive Management
Decentralizing PDF management. PDF governance should be decentralized from the board of directors to executive management and managers.
Follow-up by Government of Paraguay (Ministries of Agriculture and Finance), PDF Board of Directors
Exchanges of experience in microfinance. PDF should share in successful experiences by other countries with microfinance for rural areas, and examine the possibility of replicating them in Paraguay with the necessary modifications (community banks, guarantee funds, etc.).
Follow-up by PDF Board of Directors and Executive Management
Supervising lending by IFIs. In addition to systematic supervision by IFIs of loans granted to members, PDF should monitor and audit, on a random or selective basis, PDF-financed operations in the field, including methodological, policy and procedural aspects.
Follow-up by PDF Board of Directors and Executive Management
Strengthening the PDF loan portfolio. In strengthening its portfolio of loans, PDF should: (i) ensure that IFIs receive management training before disbursing loans; (ii) ensure that loans are delivered in a timely manner to coincide with the business cycle of end users; (iii) enhance supervision after disbursement; and (iv) implement procedures for active recovery of arrears.
Follow-up by PDF Executive Management
Selection of IFIs. The inclusion of consolidated IFIs should be encouraged when they are able to share PDF objectives and programmes, including the private and official banking sectors. At the same time, emphasis should be placed on stimulating inclusion of the target population in consolidated cooperatives.
Follow-up by PDF Board of Directors, Ministry of Agriculture/TASU
Training for IFIs. Adequate training and ongoing support should be provided for weaker or incipient IFIs 13 Technical assistance should precede and accompany the lending process.
Follow-up by PDF, Ministry of Agriculture, INCOOP
Regulations governing credit operations by project IFIs. Based on cumulative experience, PDF should draw up regulations to govern credit channelled through IFIs, differentiated by type and conditions of beneficiary IFIs. Greater coordination should also exist between IFIs and PDF to ensure information exchange, which could have taken place through a wider technical team.
Follow-up by PDF
Dissemination of PDF lending services. Once its lending products have been restructured, PDF should undertake a large-scale information and promotional campaign.
Follow-up by PDF Executive Management
Developing intermediary financial institutions
Management and administrative training for IFIs. Training programmes for IFI managers and members should be stepped up, in management of cooperative organizations and credit management, and in administrative and accounting issues. Access to credit should be provided only after technical assistance in administration and management.
Follow-up by Ministry of Agriculture/TASU, INCOOP, IFIs
Information and training for IFI members. Greater emphasis should be placed on information, motivation and training for members, both in organization and in administrative, financial and technical issues.
Follow-up by Ministry of Agriculture/TASU, INCOOP, IFIs
Promoting savings among members. From the outset, the IFIs should contribute to developing a savings mentality among their members and provide related financial services. Member contributions to capitalization of their cooperatives should also be encouraged. This may be more effective and forge a stronger commitment with the institution than savings deposits.
Follow-up by IFIs
Socioeconomic targeting of services. IFIs included in IFAD-financed projects should make an effective commitment to addressing their financial services to the project's target population. The organizations' counterpart should be considered as well.
Follow-up by IFIs
Complementarity of investments. Financing IFIs to provide complementary services for production may be an option to strengthen the organization and obtain better economic results for producers.
Follow-up by PDF, Ministry of Agriculture/TASU, IFIs
Including grass-roots organizations. In projects designed to address complex situations, the participation of already consolidated IFIs should be encouraged, but incipient IFIs can be teamed up with other, more developed ones, or several IFIs can be grouped together in a second-tier organization.
Follow-up by PDF, Ministry of Agriculture, TASU, IFIs
Expanding PDF financial services among the target population
Characteristics of credit for poor producers. Credit adapted for poor producers should be timely, carry the least possible real cost, and be progressive, controlled, and easy to manage. It is recommended that differentiated regulations be established, as well as incentives, to stimulate and effectively facilitate the inclusion of rural women and youth. Credit for marketing and to contribute to adding value to production should also be contemplated.
Follow-up by PDF Board of Directors and Executive Management, Ministry of Agriculture/TASU, IFIs
Participation by beneficiaries. Effective, responsible participation by beneficiaries in managing their credit should be increased in degree. Financing projects should promote participation by solidary groups and facilitate access for them.
Credit applications. Applications for credit by IFI members should cover not only production requirements but also marketing plans and requirements for products and inputs.
Follow-up by PDF, IFI, Ministry of Agriculture/TASU
Importance of information on financial services. From the outset, work should be done to disseminate and promote the financial services offered by projects.
Follow-up by PDF, IFIs
Technical assistance for organizations and members from the target population
Assistance for IFIs. Technical assistance for IFIs should emphasize management training for their members and managers, even before they receive financing. Resources should be used to transfer knowledge rather than to finance technicians to take on administrative functions. The IFIs should be strengthened as organizations and as businesses.
Follow-up by Ministry of Agriculture/TASU
Scope of training. Management and organizational training for IFIs should be extended to all members and support their participation in IFI management and supervision. Members should be strengthened in their ability to manage credit and carry out productive activity. Training and constant upgrading for technicians and trainers is also key. Technicians should have training ability and know-how to motivate the campesinos with whom they are working. Technicians should be carefully selected and their work continually monitored.
Follow-up by Ministry of Agriculture/TASU, IFAD
Targeting technical assistance. Technical assistance should be targeted to the rural poor, assign priority to training and assistance for groups of women and young people, and promote micro-enterprise operations in various productive activities.
Follow-up by Ministry of Agriculture/TASU, IFIs.
Gender focus. The importance of having a focus on gender and on women's participation in projects should be underscored. It is not sufficient to make statements; projects should include operational mechanisms and tools to ensure their inclusion, and to provide for the use of concrete indicators to measure participation. The country's legal and sociocultural framework should be taken into account in designing this aspect.
Decentralizing technical assistance. Technical assistance programmes should channel action through regional agencies, providing demand-driven services that can recover part of their costs without undermining contributions from other funding sources.
Follow-up by Ministry of Agriculture/TASU, PDF, IFIs
Complementarity of technical assistance and credit. Technical assistance and credit should be integrated and complement each other. The selection of IFIs for assistance and lending should take place by common agreement of the institutions concerned.
Follow-up by PDF, Ministry of Agriculture/TASU
Training in investment plans to apply for credit. Training producers and managers in cropping plans and investment projects based on technical and economic criteria in view of marketing production contributes to loan viability.
Follow-up by Ministry of Agriculture/TASU, IFIs
Titling of land. Given the difficulty of achieving a massive result in titling land for poor farmers, and since it is not considered viable to require collateral security from such borrowers, it is important to obtain other types of security. New options such as guarantee funds, co-signing and others should be considered, without affecting the design of formulas to achieve the rapid titling of land for members.
Follow-up by IFAD, Ministry of Agriculture, PDF, Government of Paraguay
Continuity in technical assistance services. Continuity in technical assistance services to IFIs and borrowers from the project credit fund is important. The necessary provisions and mechanisms should therefore be allowed for.
Follow-up by Government of Paraguay, IFAD, UNOPS
Mechanisms for Supervising and Evaluating Project Implementation
Performance of project monitoring and evaluation activities. Entities involved in implementing the project should be rigorous in their performance of monitoring and evaluation activities, as well as in regular submission of implementing unit reports and adopting the recommendations thereof. 14 It is important that all those involved in development projects develop a true evaluation culture among themselves.
Follow-up by PDF, TASU, Government of Paraguay, IFAD, UNOPS
Changes and following up on project supervision recommendations. Supervision missions by IFAD or the cooperating institution should consider in depth any proposals or needs that could imply changes to the design and planning for project components, subcomponents or activities and make recommendations to this end. They should also engage in dialogue with the implementing institutions and senior government authorities with a view to adopting necessary corrective action and following up on agreements.
Follow-up by Government of Paraguay, Ministry of Agriculture, PDF
Constant monitoring. The need for constant, ongoing monitoring is underscored, so that any errors or weaknesses can be corrected during implementation. Monitoring should take into account both changes in the country's situation and regional diversity, and should provide specific benchmarks for measuring progress.
Follow-up by TASU, Government of Paraguay, IFAD, UNOPS
Discussion of results. The systematic monitoring and evaluation of implementation are key and their results and recommendations should be discussed widely in the various official and private sectors concerned, establishing responsibilities and commitments for each institution. Evaluations should take into account a reasonable period of time to effect change. It has been suggested that results should be discussed informally before being presented at the preliminary results workshop.
Follow-up by PDF, TASU, Government of Paraguay, IFAD, UNOPS
Gender results. In evaluating the results of the gender component, it is suggested that appropriate benchmarks should be established. It was observed that impact should have been measured against the time when activities actually began, not just in comparison with design objectives.
Follow-up by TASU, Government of Paraguay, IFAD, UNOPS
Lessons learned. The lessons learned by the project should be utilized even after its closing. Considering the project's coverage of Paraguay's rural poor population (10%), perhaps its greatest contribution lies in lessons learned during implementation that can be applied in future projects to avoid similar errors.
Follow-up by TASU, Government of Paraguay, IFAD, UNOPS
IFAD presence. An active and continuous presence by IFAD and direct monitoring and control of activities are particularly important to withstand the kind of instability to which this project has been subject.
Follow-up by IFAD
1/ In less than seven years, there were two coups d'état, five presidents, 16 agriculture ministers, six PDF presidents and high turnover among the leadership of implementing agencies.
2/ Exogenous factors such as market conditions and policy decisions had more of an impact on producer incomes.
3/ The beneficiaries generally place a positive value on services provided, both in administrative support and in production and marketing.
4/ The transfer of administrative and management knowledge to IFI members was minimal, and major activities to provide technical assistance to producers, though positive, had a limited impact.
6/ The design mechanism called for most of the target population to be included through consolidated cooperatives. This did not occur in practice since the consolidated cooperatives are hesitant to include subjects with a high risk of default. Opinions stated during the workshop indicate that the failure to consider this impediment was a defect in design.
7/ In general, the IFI managers demonstrate limited management capacity and are either unpaid or paid very little for their work.
8/ Credit awarded without security or justification (particularly for investment credit) in the form of a technical and economic project that ensures results and repayment.
9/ Designation by IFIs of a specialized credit assistant to promote participation by target population groups, specifically the population at risk as called for by the project, did not occur in practice.
10/ In strengthening IFIs, most assistance was provided in the form of accounting support. In the case of new or restructured IFIs, a manager or accountant was assigned temporarily to support the process. Frequently, this assistance consisted of having advisors take over administrative and accounting functions to help "put the house in order". In practice, many of the IFIs included in the project do not meet conditions of scale to be capable of operating with administrative efficiency once the technician left, and lack the resources to hire a manager directly.
11/ Nor was there any promotion of micro-enterprises and non-agricultural rural activities as called for in the design, where the inclusion of women and young people was key.
12/ While recognizing that a certain level of policy, programming and budgetary decision-making should require approval of a higher authority (board of directors, steering committee, project coordination committee), such authority should include representatives of the governmental agencies concerned, related personalities and beneficiary organizations. For national projects or those encompassing several regions, decentralised authority should be encouraged by establishing committees and officers in charge of coordination with a regional scope.