Completion evaluation

The Core Learning Partnership and the users of the evaluation¹

The Office of Evaluation of the International Fund for Agricultural Development (IFAD) carried out a completion evaluation of the Rural Microenterprise Development programme (PADEMER). An evaluation mission visited the country from 21 August to 8 September 2006, closing its activities in the field with a meeting held in Bogotá where preliminary conclusions were presented to the stakeholders.

The evaluation process of IFAD's projects is based on learning of all stakeholders. Therefore it requests the identification and participation of all actors through the "core learning partnership" (CLP). This partnerships includes: the Colombian Government, represented by the Minister of Finance, the Ministry of Agriculture and Rural development, and the National Planning department: the Andean development Corporation (CAF); the Fund for Agricultural Financing (FINAGRO); the Inter–American Institute for Cooperation on Agriculture (IICA) and the International Fund for Agricultural development (IFAD).

The workshop celebrated on 26 January 2007 in Bogotá offered the opportunity to discuss the evaluation results with the members of the CLP. The Comments received have been integrated to this document.

Main conclusion of the evaluation

PADEMER has been a successful Project in general terms. The project is rated as very relevant in relation to the socio–economic context, the country strategy y IFAD's priorities. In addition it was an effective project in the achievement of its objectives, very efficient compared to similar projects y clear progress was achieved en various impact domains.

The approach to business development as a strategy for poverty reduction was successful, and the operational strategy – giving microentrepreneurs a leading role in their own business development processes – was innovative in Colombia.

As a result of limited results achieved in the period between 1997 and 2000, IFAD and the borrower agreed to reorient the Project and in August 2000 a loan amendment was approved aimed at: (i) introduce modifications that would facilitate implementation of the financial services component; and (ii) reorient project execution in order to benefit micro entrepreneurs directly.

The larger degree of participation in the second stage promoted microentrepreneurs empowerment, improved the effectiveness of services –which responded to demand– and increased investment efficiency because no unnecessary activities were financed nor high administrative costs were paid. Decentralization allowed the involvement of departmental governments, which promoted promising microenterprise initiatives fro their regions, supported RME in the formulation of Business development Plans (BDPs) and cofinanced some projects.

PADEMER cofinanced 199 projects to support the development of ARMEs, which in turn cofinanced business development plans and the provision of technological assistance fro 308 ARMEs. The number of microentrepreneurs assisted in all phases totaled 20 167. Projects were carried out in 22 departments, covering most of the country.

PADEMER was highly relevant as its objectives and its strategy for rural poverty reduction through support for rural microenterprise were effective in meeting the needs of the target population, helping to overcome the agricultural crisis that Colombia experienced in the 1990s. The project has also proved helpful for the government to build rural development policies and is also supporting efforts aimed at eliminating illicit crops. PADEMER has been identified as a "flagship project" by MARD.

The project is considered successful because it has achieved its proposed objectives with regard to strengthening of RMEs, development of rural microcredit, stimulation of the market of service providers and generation of policy guidelines 

PADEMER was a highly efficient project in terms of use of resources, including both unit costs of implementation and overhead. The cost of support per family was US$936 and the operation cost was 16 cents per dollar of products and services delivered to microentrepreneur, very efficient in absolute terms and in comparison with other projects in the region, where it is generally about double that amount.

The project generated significant impact in several domains, particularly human assets, social capital, market access and the empowerment of women. Nevertheless, it only partially achieved its expected impact on family incomes.

The 20 167 families of microentrepreneurs who received technological services saw their current earnings rise by 23 per cent. The number of jobs created by the RMEs totaled 43 014, well above the target of 25 000 for the project.

Improvements were noted in the ability of microentrepreneurs to manage their businesses. The transfer of decision–making responsibility for the selection and contracting of services and for the management and administration of public resources definitely helped to empower the microentrepreneurs vis–à–vis their customers, their suppliers and the Government.

The project helped to build capacity among community organizations, notably through the organizational strengthening of 159 ARMEs (comprising 3 949 RMEs), which established effective and transparent managerial bodies and participatory monitoring committees. The management of many ARMEs received an infusion of new energy through the incorporation of young people into managerial positions.

Market access improved substantially, thanks to joint commercialization (96 per cent of RMEs that received Phase II support are selling through their associations), better quality of products and better presentation and packaging.

The main environmental pollution processes addressed by national environmental legislation (disposal of untreated wastewater and waste and rubbish collection) had not been controlled. The project did not achieve to improve the environmental performance of the initiatives supported. 

Sustainability is considered likely. The ARMEs have strengthened their technical capacity, their social organization, and they are working in growth industries (virtually all of the microenterprises studied are profitable).

The strategy of reducing poverty by focusing on development of RMEs is innovative, both for the Government of Colombia and for IFAD². The project introduced changes and innovations of demonstrated effectiveness in approach, organization and processes, which today constitute a proven strategy for supporting rural microenterprise.

In particular, empowering microentrepreneurs to set their own priorities and identify their own needs is an innovation that offers significant strategic potential and lays the foundation for an inclusive, participatory and dynamic process of rural development. The decentralization of the process of pre–selection of projects for cofinancing through regional competitions, the participation of regional governments and of microentrepreneurs themselves in the pre–selection committees, and the introduction of a rural approach to microfinance in Colombia are also important innovations.

Key issues for the future

PADEMER yielded some extremely valuable lessons, including the following:

Strategy. Genuine empowerment of the beneficiaries as part of the strategy of business strengthening represented a major methodological innovation for the development of programmes to fight rural poverty.

Decision–making. PADEMER has shown that the poor are capable of making their own decisions. Proof of this was the microentrepreneurs' demonstrated ability to identify their own needs in their business development plans, select and contract suppliers of technological services, achieve economies of scale through their associations, and tailor their production and their businesses to market demand. The Government should gear its efforts towards providing the elements that microentrepreneurs need to manage information on markets and on their businesses improving access to commercial information lines and fostering horizontal integration.

Allocation of public resources. The allocation of public funds through regional competitive processes is another approach to be considered in the future. Not only did it enhance the effectiveness of public investment – by prioritizing the best projects – but it also improved the efficiency of the investment by ensuring that it was being channeled to relevant, timely, high–quality activities. The formation of pre–selection committees for the regional competitions, whose members included regional government authorities, successful microentrepreneurs and subject–area specialists, demonstrated the advantages of decentralizing decision–making and involving the private sector.

Integration into production chains. The strategy of linking the RMEs supported by the project to production chains has made it possible to incorporate them into more dynamic links in the various value chains, thereby ensuring the RMEs a more stable market presence and encouraging improvements in the quality of their goods and services. This strategy has spurred the development of new microenterprises linked to the chains, notably service–providers, resulting in local business development and job creation; it has also meant that RMEs have not had to rely on technologies and processes that are generally available only in urban areas.

Rural financial services. In the area of rural financial services, the project cleared up several issues about which various misconceptions existed.

Rural microentrepreneurs require credit in order to sustain commercial development processes, since they must finance their access to regional and national markets, accommodating delays in payment for products while still maintaining adequate cash flow in their businesses.

The microentrepreneurs were good clients of the financial system – the portfolio at risk greater than 30 days was 2.8 per cent – and they generated broad and diverse demand. This is attributed to the clarity of the terms of business established with the financial operators, which discouraged the culture of non–payment often found in government–run tied credit programmes.

Lending to rural microentrepreneurs was profitable for the financial operators, even though they had to extend their coverage into rural areas, which raised their overhead.

Cooperation between public and private sectors. The involvement of a variety of public and private actors operating in the regions prioritized by the project was very effective and made it possible to organize cooperation processes based on cooperative partnerships. The various stakeholders – microentrepreneurs, public institutions and service providers – were linked together in networks that broke with the traditional vertical pattern of a State that gives and a population that receives. Moreover, the possibilities for further expansion of these linkages were by no means exhausted; indeed, there is room for the inclusion of additional activities.

Recommendations

Market orientation. PADEMER succeeded in changing the mentality among the RMEs, which moved away from a "productivist" orientation and adopted business practices that would enable them to compete in markets. This should be borne in mind particularly by regional governments that are supporting RMEs in their respective regions.

Information mechanisms. Enhance the availability of business and market information to support both RMEs and providers of technological services, using for that purpose the various systems that have been implemented by the Ministry of Agriculture and Rural Development. The challenge is to adapt these systems and make them more accessible and user–friendly, bearing in mind the knowledge level of the microentrepreneurs.

Horizontal linkage. Make a greater effort to create horizontal linkages among the microentrepreneur beneficiaries of PADEMER with a view to achieving better synergy among peers and adding to the reservoir of business knowledge that they have all developed. The organization of meetings, thematic workshops and study visits might be an efficient means to that end. It might also be worthwhile to consider creating a rural enterprise observatory, with the support of IICA, given its experience in implementing other observatories.

Public policies. IFAD and the GOC should discuss the usefulness and possible incorporation into public policies of the project experiences and mechanisms including The allocation of public funds through regional competitive processes.

Early warning. Develop a more effective online system for monitoring the progress of RMEs, in terms of both commercial and financial variables, in order to identify promptly (early warning) any problems that they are facing and thus lower the "mortality rate" among rural microenterprises.

Social action. The strategy of organizational strengthening requires the inclusion and the initiation by the project of useful social activities that will give members of the organization an increased sense of ownership. Some of the organizations visited by the mission have made a major effort in this regard. The equation organization = business is generally very vulnerable, given the potential for failure in marketing processes, unless the organization is also carrying out other activities.

Decentralization. Continue deepening and decentralizing activities by increasing the involvement of public and private entities in the regions in activities that are currently being supervised directly by the NTCU.

Diversify the supply of financial services. Strengthen financial operators in order to enable them to diversify the supply of services and begin offering working capital and marketing loans, collective loans, savings accounts, insurance and fund transfers. Implement a programme for the development or transfer of methodologies to diversify financial products, employing a multi–product approach based on detailed analysis of demand in each region.

Expand the coverage area of financial operators. Increase the coverage of agencies of financial operators in remote rural areas that are currently not being served by: (i) promoting partnerships among financial operators and consolidated ARMEs that operate self–managed credit funds. These associations have experience in the administration of loan funds and they can partner with financial operators in pre–selecting loan applications, linking collections of loan payments to deliveries of products and consolidating payments in bank accounts of the financial operator; and (ii) promoting partnerships through non–bank representative offices. The cost of establishing such an office is infinitely lower than that of opening up an agency. PADEMER or MARD, or another institution or project, could implement a system of incentives for the expansion of rural financial systems through the establishment of representative offices and partnerships with associations of producers.

Stimulate the participation of savings and loan cooperatives in rural microcredit, since these institutions have a strong regional identity and enjoy a great deal of trust among the public. They are service–oriented and they have shown themselves to be very effective in assisting microentrepreneurs, provided they have access to product methodologies and improved technologies for the management and processing of information. They require specialized technical assistance programmes and support for horizontal and vertical integration processes ("horizontal" refers to partnerships or associations of cooperatives in a region, area or department; "vertical" refers to integration with second– or third–tier institutions that provide them with services and the possibility for managing liquidity). Another advantage of cooperatives is that they can offer virtually all the services provided by banks, except for checking accounts, but their costs are significantly lower.

Specific recommendations for FINAGRO:

• Improve FINAGRO's current capabilities for the management of financial operators through the implementation of a training programme. FINAGRO might create a technical assistance unit specializing in microfinance product methodologies for the rural sector.
• Create a database of credit users in order to measure the impact of the component and include this information in the PADEMER monitoring and evaluation system.
• Implement a monitoring system based on indicators of financial, administrative and managerial performance and of impact. Widely available computer systems could be used for that purpose (CGAP, WOCCU, among others), enabling rapid interpretation and early detection of risks.
• Consider whether FINAGRO's access requirements (bank guarantees and insurance policies) might be putting small operators at a disadvantage with respect to larger NGOs.

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