Interim Evaluation

Introduction

The interim evaluation of the Development of the Puno-Cusco Corridor Project, was carried out between March and August 2006.¹ This was the sixth project implemented by the International Fund for Agricultural Development (IFAD) in the Republic of Peru. It was approved by the Executive Board in December 1997 and commenced operations in October 2000 with a projected closing date of 31 December 2006 (and a possible extension of one year). The project cost was USD 30.8 million; 61.4 percent from an IFAD loan, 15.9 per cent in Government of Peru resources and 22.7 per cent to be contributed by users. The National Social Development Cooperation Fund (FONCODES) implemented the project under IFAD's direct supervision.

Major design features

The project's overall objective was to raise the incomes of the rural poor to contribute to eradicating extreme poverty. Specific objectives were to: (a) build a demand-driven market for nonfinancial goods and services; and (b) contribute to building up the market for rural financial services. The project area includes a corridor along the main road network between the cities of Puno and Cusco and lateral feeder roads, comprising 128 districts in 14 provinces (five in the department of Puno and nine in the department of Cusco). The target group included 30 000 families, half of whom were to benefit directly from the project, accounting for some 15 per cent of all rural families.

The project included three components:

• incentives for strengthening rural markets, representing 67.6 per cent of total project cost and promoting the development of the technical assistance services market by: (i) transferring resources to users to hire technical assistance and training services; (ii) providing non-reimbursable funding for community investments in business development; and (iii) providing business development services to improve user access to business information and opportunities;
• rural financial services, for 19.5 per cent of total project cost, to strengthen local financial agencies, create a fund to make loans to users, set up a guarantee fund to reduce risks for financial institutions and promote the adoption of new technologies and services by financial operators; and
• project administration, monitoring and evaluation, at 12.9 per cent of total cost, for operating costs.

The project design was very relevant to the problems and potential of the rural poor in the project area, and to the priorities set by Peru's public authorities during formulation in the second half of the 1990s. Experience with prior IFAD projects was taken into account, analysis of the root causes of rural poverty was sound, project objectives were clearly stated, and actions and outputs planned for components were both appropriate to the problems identified and consistent among themselves. In addition, strategies that were innovative for Peru were put forward, such as: (a) using the economic corridor approach to define the project area (rather than the more traditional political and administrative entities); (b) focusing on economic relations between urban and rural areas and strengthening links between farmers and microenterprises in intermediate cities, rather than the traditional focus on farming activities in the rural environment; and (c) pursuing a strategy of developing the technical assistance services market and transferring resources to user groups to hire such assistance. Finally, the design properly identified the poorest rural groups and their problems, and underscored the importance of women in production and marketing.

On the less positive side, no specific strategies were proposed for each of the groups identified, on the assumption that all faced the same problem of limited access to technical assistance and financial services. This was resolved during implementation by means of specific strategies and actions to provide the poorest families and women with greater access to services and benefits under the project.

Major outcomes

When the evaluation mission took place, the project was in year six of its implementation. As of 31 December 2005, USD 17.3 million had been spent, including USD 10.9 million from the IFAD loan, USD 2 million in local counterpart funding and USD 4.4 million in cash contributions from users. The loan had been 55.1 per cent disbursed and, given Peru's public spending controls, just 44.1 per cent of the Government's counterpart contribution had been received.

During implementation the project underwent significant design changes, i.e.: (a) inclusion in the project area of La Convención Province (Department of Cusco); (b) reformulation of the financial services component to reflect changes in the environment, making it a programme to promote savings among rural poor women and competition between financial intermediaries to promote financial innovation; and (c) involvement by local governments in implementation, as a result of the decentralization process undertaken by the Government of Peru.

The main project actions and outputs were as follows:

• Resource transfers to rural communities and groups of smallholders or microenterprises to hire technical assistance and training services and pay for study grants. As of 31 December 2005, the project had transferred a total of 11.36 million soles (USD 3.32 million) to more than 1 600 formal or informal farmers' groups to hire technical assistance, representing 45 348 individual users from 41 028 families -triple the projection in the original design-. A total of 22 389 users participated in study tours (triple the target set), and training in various areas was provided to all organizations with business plans and profiles, as well as to other groups with no need of more intense technical assistance. A total of 813 training actions took place, with participation by 12 108 men and 9 032 women.

• Training for technical assistance providers. As of 31 December 2005, a total of 1 676 technical service providers (close to 50 per cent of those hired) had taken part in training offered by the project in various subject areas.
• Creation or strengthening of marketing venues. Strengthening was provided to 14 existing fairs and 20 new venues were created (stockyards, agricultural and craft fairs).
• Support for participation in trade promotion events for 1 356 users.
• Support for registration of trademarks and certifications with advisory assistance free of charge, obtaining the maíz blanco gigante [Giant White Corn] denomination of origin, registration of 21 trademarks (with an additional 60 in process) and organic certification and health registration for eight organizations.
• Organization of a telephone-based market information service, with 12 851 queries answered satisfactorily or very satisfactorily according to 86 per cent of respondents in a quality survey.
• Promotion and user support for obtaining national identity cards, which benefited 13 274 people (424 young people and 13 300 adults, 5 985 of them women and 7 315 men).
• Formalization of 406 user organizations through advisory assistance and subsidization of a portion of processing costs (significantly more than the 300 proposed in the logical framework).
• Business development investments. As of 31 December 2005, 52 of these investments were approved, 16 completed and 36 under way. Business development investments focused on the construction of cart tracks, infrastructure for livestock fairs and markets, bridges and tourism. They took place under agreements with municipal governments, which contributed counterpart funds. Considering all 52 of these, total investment was 9.4 million soles (USD 2.85 million), of which counterpart contributions accounted for 22.3 per cent. More than 84 000 families benefited, close to double the target.
•  Promoting savings among rural women. This took the form of incentives for opening and maintaining personal accounts at formal financial institutions in the region (Caja Rural de Ahorro y Crédito Los Andes in Puno and Credinka in Cusco). As of 31 December 2005, 3 477 accounts had been opened by the same number of women in 185 savings groups. This component is projected to reach 7 000 accounts by the project's end. Incentives totalled 476 000 soles (USD 144 000) and leveraged savers' own resources in the amount of 1 329 192 soles (USD 403 000).

Project performance

The project was deemed highly relevant because:

(a) the strategy and support mechanisms to develop the technical assistance services market were consistent with Peru's public policy;

(b) adjustments were made in view of the decentralization policies adopted during the implementation period, to work actively with local governments;

(c) access to technical assistance -one of the major obstacles to increasing incomes- improved significantly;

(d) it demonstrated the key role of savings in families' survival strategies;

(e) it showed that lack of access to credit was not a hindrance to the viability of technical changes promoted;

(f) it used learning methods (based on the principles of "learning by doing" and the transfer of knowledge and experience between farmers) that were highly effective and appropriate to the circumstances, problems and potential of the target population; and

(g) it successfully added value to the users' cultural assets and identified market potential for products with cultural content.

From the point of view of achieving its objectives, the project performed well. The number of users reached was much greater than planned (more than 48 000, belonging to 44 000 families, almost triple the 15 000 families projected in design). Actions and impact were well targeted to the poor, and the number of women users exceeded the target, as did their participation in executive roles within user groups. The objective of contributing to the development of a technical assistance services market was achieved, the users' ability to pay improved (translating into significant levels of cash counterpart funds) and new capacity was developed to select, hire, supervise and evaluate technical service providers among the more than 4 000 users (more than 41 000 families) who took part in business plans and profiles. The supply of technical assistance was strengthened by the addition of 1 000 new non-professional service providers (trained farmers), the experience of working directly with the organizations of 3 400 service providers and participation by 50 per cent of them in training imparted under the project.

In addition, the project achieved its objective of improving the marketing of user products. Many users gained access to new markets and outlets, improved their business information management and, as a result, were able to charge higher prices. The objectives of the financial services component were achieved in part. The savings programme well exceeded the target, whereas the development of innovative goods and services fell short.

The project was deemed to be efficient in the use of resources, as evidenced by relatively low operating costs, a high proportion of resources spent on users, much lower unit costs for technical assistance and training than projected in the design, and reasonable costs per savings account.

Impact on rural poverty

Project performance can be considered successful in terms of having achieved the projected impact - in some cases surpassing design targets- in other cases achieving unforeseen impact. The project had a significant impact on rural poverty in several respects, contributing to achieving IFAD's strategic objectives for the period 2002-2006 and the Millennium Development Goals. Highlights are outlined below:

• Production and productivity of farm and off-farm activities. The project promoted the widespread adoption of new production techniques among the 45 000 users who received technical assistance and training. This enabled them to become more productive and improve product quality, particularly in livestock raised for meat and milk, guinea pig production and crafts. They diversified production and converted to commercial production patterns from traditional family consumption. Features shared by all these changes were the introduction of simple techniques, and low investment levels and operating costs, since the users themselves produced most inputs. This favoured dissemination to a considerable number of farmers not served by the project, although generally without attaining the same productivity and quality standards.
• Incomes and tangible assets. The more than 41 000 families who received technical assistance and training in business plans and profiles raised their incomes by more than 20 per cent. Part of the surplus was invested in tangible assets, mainly in production-related assets (livestock, machinery, looms, building construction) and, to a lesser extent, to upgrade housing. A sample of business plans and profiles showed an increase in tangible assets of 17 per cent machinery, 20 per cent livestock, 30 per cent product inventories and 4 per cent other assets.
• Food security. Higher and more stable incomes, together with increased and more varied production through implementation of business plans and profiles, made more food in greater variety available to users. Greater savings availability and security among the women who participated in the savings incentives programme also contributed to this result. 
• Environment. The project favoured the mitigation of adverse environmental impact for several productive activities through improvements in production technology. Highlights include better waste management by small-scale tanning operations, the use of natural rather than artificial dyes in textiles, and certified organic coffee and cacao production.
• Human capital. The project had an important impact on human capital, mainly among the 45 000 participants in business plans and profiles, who acquired new knowledge and skills in managing resources, managing technical assistance, production techniques and marketing. The project also had a considerable impact on the 3 477 women who acquired new knowledge and skills in managing savings accounts and the world of finance in general. The project had a significant impact on the self-esteem of all project beneficiaries through the value assigned to their own culture, empowerment in managing resources and technical assistance, availability of savings and the ability to deal with formal financial institutions (for women). The latter had an effect on gender relations within the home.
• Social capital and empowerment. The main impact on human capital consisted of strengthening community and group organization and cohesion through the competitive process, resource management and women's savings groups. Some of these groups were organized around existing organizations and generated strong local support networks for dealing with emergencies and obtaining information.
• Financial assets. The women's savings programme had a positive effect on financial assets, particularly among the close to 3 500 women (and their families) who opened savings accounts with project incentives. They saw increases in their savings rate, in their information on, and knowledge of, the financial system (rules and regulations governing financial institutions), and in access to other services provided by the formal financial system. They had more cash available for investment and consumption as a result of the higher incomes generated by their business plans and profiles, most of which were successful.
• Market access. Through technical assistance and community investments, the project helped lower marketing costs, attract new buyers and vendors to fairs and other local commercial venues and achieve new clients on major markets, nationally (e.g. Lima) and abroad.

Project actions and impact were well targeted to the poor population. Also, the number of women beneficiaries exceeded the targets set.

Prospects for sustainability were assessed as very good overall. The changes in production have a high probability of sustainability because the project worked on areas with increasing demand, good prices and profitability, and the users improved their capacity to address new problems. The technical solutions promoted by the project are also highly likely to be sustainable because they were appropriate to economic and social realities, favouring continuity following project completion. Also, the project effected substantive permanent change in the technical services market, giving the rural poor greater access to technical assistance. In terms of ownership, prospects that project achievements will be sustainable are high because local governments and users changed their attitudes to matters such as the management of technical assistance and savings behaviour.

Performance by partners

The most important areas of coordination and concerted action among the institutions participating in the project were the steering committee and the local resource allocation committees, as well as informal interactions. The partnership created around the project functioned adequately, ensuring good participation, coordination and exchange of information on project progress among the institutions concerned. This made a positive contribution to management, problem solving and discussion of innovative aspects and their prospects for replication.

IFAD played an active role in project design and execution, which was evaluated as very successful. Of particular note were the concern to include innovations from prior projects in Peru in the design phase and the satisfactory performance of direct supervision. IFAD's performance was strongly influenced by the presence in Lima since 1995 of an office and operations manager for Peru. This made for a much closer collaboration with the project and more direct relations with the Government, implementing agencies and other international cooperation agencies working in Peru. IFAD's active part in implementation was reflected in direct supervision and representation on the project's steering committee.

Performance by the Government of Peru and its institutions was assessed as partially successful. The institution for which the project was conceived, the Development Financing Corporation (COFIDE) declined to participate. The project was proposed to several ministries until it was taken up by the National Social Development Cooperation Fund (FONCODES) within the Ministry of the Office of the President. At the time the project was entrusted to it, FONCODES was fully devoted to infrastructure, making it necessary to adapt the project to its structure and the new institutional environment. This took a considerable amount of time.

FONCODES had well defined responsibilities in the loan contract as the project's implementing institution. Its performance was evaluated as successful. Its flexibility in setting up a central implementing unit to carry out the project was noted; this lent autonomy to the use of resources and removed interference in appointing personnel and other important aspects of implementation.

The Ministry of Economy and Finance played a role principally in providing counterpart funding in a timely manner and participating in management through a representative on the steering committee. Counterpart contributions each year fell short of design projections, as a result of policies to control public spending. This translated into loan and counterpart funding disbursements at lower than projected levels (55 per cent and 44 per cent, respectively). However, this did not jeopardize the project. Resources budgeted each year were adequate given implementation capacity and were transferred as provided for in annual budgets committed by the project (except in 2004). Participation in the steering committee was active.

The project coordination unit (PCU) performed very well, thanks to continuity and experience in the coordinator position, sound (and competitive) selection of technical personnel (from the project area, having solid training and experience and mastery of the Quechua and Aymara languages) and the location of the PCU and local offices in intermediate cities in the project area (rather than Lima). That operating costs were quite low in relation to total cost was attributable to having a small PCU with just 21 people, and to a concern with keeping unit costs down.

Local governments. The local governments contributed additional resources for project actions and took part in decision-making. Funds were contributed for business development investments (25.3 per cent of the cost of work done was contributed) and to implement business plans and profiles (supplies for investments were contributed). Participation in decision-making took place through representation on local resource allocation committees, which ruled on business plan competitions, communities and savings groups. The performance by local governments as implementation partners can be considered successful, although their interest in participating and adopting innovations varied.

Overall project evaluation and conclusions

The overall evaluation of the project is satisfactory. Project design and implementation were very relevant to IFAD's strategy in the country, and applied innovations and lessons learned from IFAD's earlier projects. Objectives, strategies and actions were also very relevant to Peru's public policies and the problems and potential of the rural poor.

The project was partially effective in achieving its objectives, attaining most but not all of the stated objectives. The supply of financial services was not strengthened with new products appropriate to the target population. However, the remaining objectives and targets were reached and many of them exceeded by far. The project was efficient in its use of resources. Operating costs were relatively low, a high proportion of resources were spent on users, unit costs for technical assistance and training were much lower than projected in the design, and costs per savings account opened by women were reasonable. From the point of view of impact, the project's performance was successful, achieving not only the anticipated results but also others not planned for. Sustainability is considered likely, and performance was also successful in terms of innovation, replicability and scalability.

The number of users far exceeded plans (more than 48 000, belonging to 44 000 families, nearly triple the 15 000 families called for in the design). The great majority of project users were very poor families, both as self-defined and based on the official poverty line. Moreover, women's participation in business plans and profiles (36.6 per cent) exceeded the target (20 per cent), as did their participation in executive positions within user groups. Also, the new savings promotion line created by the project was very favourable towards women.

The project had a significant impact on IFAD's three strategic objectives (building capacity among the rural poor and their organizations, improving equitable access to productive natural resources and technology, and increasing access to financial services and markets), contributing directly to the Millennium Development Goal (MDG) of eradicating extreme poverty and hunger by increasing users' incomes (by an average of 20 per cent) and improving food security. The project also contributed to improving education (MDG 2) indirectly, by increasing savings. Being environment-neutral, the project also contributed to the MDG of ensuring environmental sustainability.

 Prospects for sustainability were assessed as very good overall, and higher than the average for IFAD projects (according to the 2005 annual report on the results and impact of IFAD operations), particularly with respect to efficiency, sustainability, innovation and performance by IFAD.

Project Evaluation Ratings

Major issues for the future and recommendations

Based on the project experience, a number of issues and lessons were identified in connection with strategy and implementation mechanisms. Strategic considerations include:

• Successfully introducing innovations requires a combination of factors: adoption of a long-term approach by IFAD through continuity in the strategy and its demonstration effect; intervention by a committed sponsor with access to decision-making bodies in the government; close monitoring, flexibility and adaptability in implementation
• Good results in terms of user production confirmed that limited access to technical assistance is one of the main obstacles for smallholders and microentrepreneurs to increase their incomes.
• Developing and strengthening market mechanisms for sustainable access to technical assistance by the rural poor population (or segment thereof) can be an effective strategy for reducing rural poverty.
• The project experience confirmed the savings capacity of poor families and the crucial importance of savings in their survival strategy, particularly to reduce their vulnerability to unforeseen events (health, climate changes, etc.)
• Lack of access to credit was not an obstacle to the viability of the technical changes promoted. The users relied on savings, family remittances and wage earnings to finance small investments.  
• The development of technical assistance services can be adversely affected by the presence of institutions or other projects in the project area that operate on principles contrary to the market, e.g. providing free services indefinitely, with no profitability requirement and with no user participation in contracting and supervision. It is advisable for a project of the nature of the Corridor Project to be preceded by public policy commitments relating to technical assistance services in order to avoid any contradictions.
• The savings promotion programme demonstrated the importance of a favourable context (low inflation, positive real interest rates, economic stability, banking legislation incorporating entities with different formats and diverse clientele, a microfinance system with a strong regional presence, the existence of deposit insurance). It also showed the importance of information on these favourable elements in generating confidence among savings programme participants.
• Decision-making and management processes have an important influence on impact in terms of rural poverty. The transfer of resources, control in managing technical assistance and competitive recruitment can in themselves have more of an impact on human and social capital than traditional projects components such as training and technical assistance.

With regard to implementation mechanisms:

• Applying the principles of "learning by doing" and transferring experience and knowledge among farmers was highly effective in promoting learning on production issues. This suggests the possibility of taking advantage of existing potential for innovation within the rural poor population itself, working through study tours and exchanges to disseminate advances and success stories, and working with "expert farmers" as low-cost, high quality non-professional service providers.
• Resource transfers to users to hire technical assistance proved an effective way of promoting learning on managing resources and technical assistance. This mechanism should be complemented by a real transfer of power to users, without interference by the project or others, in selecting, hiring and supervising technical service providers, and by a cash counterpart contribution requirement to promote a feeling of ownership.
• The use of public competitions with representation by local stakeholders and users can both be an instrument for transparent resource allocation and generate a positive impact on human and social capital.
• Users' technical assistance needs must be well defined to avoid generalities and lack of definition that can lead to services being provided for years with no focus on specific problems, yielding poor results and therefore costly and inefficient. The business plans or profiles used by the project, or similar instruments, together with deadlines set for implementing them and increasing counterpart percentages for new applications, provided an incentive for hiring technical assistance based on well defined needs and oriented towards achieving economic results within defined timelines.
• The project's experience with the savings promotion programme suggests that it is important for similar initiatives to combine group work with individual accounts as a way of promoting collective action and social capital, rather than focusing on the advantages of individual savings (greater savings incentive, higher self-esteem).
• The project demonstrated that identifying the potential of the users' cultural capital can generate excellent results in terms of new goods and services with a high value that take advantage of specific market niches (adventure tourism, crafts, obtaining copyright for design, registration of traditional products). At the same time, valuing cultural capital in implementing a project (e.g. by giving preference to the Quechua and Aymara languages and traditional dress in competitions or by favouring Quechua and Aymara speakers in competitions) can make a substantial contribution to social capital and self-esteem and other aspects of human capital, which in turn can contribute to a potential positive impact on other aspects of rural poverty.

Based on the evaluation findings, the mission concludes that IFAD and the Government of Peru should take advantage of this valuable experience and its promising results. The following initiatives, inter-alia, could be undertaken:

• Gain a better understanding of positive results by analysing the contributing factors, including sustainability. This could be done through studies or additional pilot experiences to test specific models or mechanisms. For instance, a detailed analysis could be done of successful organizations and technical service providers having maintained linkages after project support ended, or of local governments having applied innovations promoted by the project, thus improving their ability to serve their populations. The optimal scale of savings incentives warrants study as well. IFAD should allocate resources in support of these efforts to the extent possible.
• Discuss the usefulness and possible incorporation into public policies of the project experiences and mechanisms, including an analysis of comparative advantages and possible obstacles such as contradictions between different public programmes and projects as to whether payment is required for technical assistance services or counterpart contributions are required for services.
• Stimulate participation by all those working on rural development -public institutions, non-governmental organizations, universities, professionals- in researching project mechanisms and strategies, as well as in discussions on their usefulness. This could be achieved through broad dissemination of project results in the form of a series of publications and events.
• Promote greater sustainability of achievements in terms of access by the target population to technical services through the establishment of partnerships between farmers' organizations and technical service providers to enable their self-sustaining access to technical assistance.

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1/ The mission visited Peru from 13 to 30 March 2006; overall coordination of the evaluation was provided by Miguel Torralba, IFAD Evaluation Officer, who participated in the start and the end of the field work.