Interim evaluation
The Project is executed by the Women
Development Division (WDD) of MLD and is implemented through a corps
of Women Development Officers and Workers (WWs). Credit is channelled
by Nepal Rastra Central Bank (NRB) through three participating banks:
Agricultural Development Bank (ADBN), Rastriya Banijya Bank (RBB)
and Nepal Bank (NBL).
Project design and objectives
The PCRW programme was conceived as a pilot project in mid-1982, and
launched in 24 districts. The Project, as designed, covers 37 of the 75
districts in Nepal, 24 of which are co-financed by UNICEF on a parallel
basis. The Project extends to all ecological zones and all five administrative
regions. Six of the 13 districts funded entirely by IFAD are located in
the Far Western Region of Nepal.
Target group
The target group comprises some 16 000 rural women below the poverty
line. Per capita income was estimated for half of all rural households
at below NRs 1 970 (USD 91 in 1988), which is the poverty threshold.
Targeted categories comprise inter alia: landless households, female-headed
households and disadvantaged women belonging to weak ethnic and/or social
groups and small farmer households.
Objectives and components
The Project would: (i) increase incomes of poor rural women, thereby
enhancing their status in society; and (ii) improve the welfare of their
families.
The Project has five components: (i) community development programme
(CD); (ii) credit for income-generating activities; (iii) support to WDD
to establish a more efficient organisational structure, especially regional
offices to provide technical inputs and marketing support to field staff;
(iv) training of WDOs in group formation and curriculum development;
and (v) support for the M&E Unit within WDD.
Expected effects
and assumptions
At full development, targeted rural women would earn significantly higher
incomes from livestock, crop production, non-farm enterprises, and irrigation.
The number of people benefitting from community development activities
would be even higher. In addition, the Project would seek to: (i) institutionalize
linkages between national institutions, district administrative units
and the community; (ii) improve linkages between rural women, extension
staff and banks; (iii) improve self-reliance and self-esteem of rural
women; and (iv) generate social benefits such as better health and nutrition.
Three important assumptions underlying design were: first, the overall
situation of poor rural women is best advanced through a gender-directed
project, with female extension officers providing services to rural women;
second, the empowerment of rural women is best achieved if linked to ultimate
credit provision for an economic activity; and third, the provision of
WDD services in social mobilisation can become a bridge towards reaching
sustainable provision of financial services by regular commercial banks.
Evaluation
Itinerary
The IE Mission visited Nepal between November 20 and December 14, 1994.
A smaller team of the original mission reassembled in Kathmandu on 10
January 1995 for ten days to complete the field phase of the evaluation.
The Mission has analyzed a large set of data that relates to processes
used by the Project and impact. It was preceded by a rapid diagnostic
socio-economic survey (IES), funded by IFAD OE, conducted in Ghorka and
Kapilvastu districts in May 1994 (Vol. II). This survey covered 81 project
beneficiaries, who were members of 24 PCRW groups in 6 communities;
and 11 WDD staff. The actual mission administered prepared questionnaires
to the Project beneficiaries, bank branch office staff, and WDD district
level staff. The mission split into two teams, which together visited
eight sites and interviewed 35 groups. Eight bank branch offices were
visited: three from the Nepal Bank Limited, three from the Rastriya Banijya
Bank (RBB), and one each from the Agricultural Development Bank of Nepal
(ADBN) and the Grameen Bank in Biratnager.
The IE has drawn upon also two useful impact studies conducted in 1994/95.
The first, funded by OPS, purposely selected beneficiaries in the Far
Western Development Region, in Dhading and Kavre districts. The second
study, undertaken by the Benefit Monitoring Evaluation (BME) Unit of WDD
reached OE in August 1995. It covered some 220 beneficiaries in 15 districts,
not those visited by the IE mission.
Implementation context
Overall, the Project has been reasonably well implemented in spite of
initial delays, a period of much political and institutional change: it
stands out well in comparison with the other priority sub-sector lending
programmes in Nepal. The WDD under the MLD within its limited sphere of
control has many reasons to be proud of achievements. Admittedly, the
WDD has been able to exercise very limited influence through the Nepal
Rastra Bank on the implementation policies, procedures and incentive structures
of the three participating commercial banks; moreover, mere reliance on
the Project coordination mechanisms could hardly secure the necessary
extension support from structurally weak line agencies.
Project achievements
Organisation & Management
The Project's executing agency at inception was the Women's Development
Section (WDS), established in 1980 within the Planning, Integrated and
Women in Development Division of the Ministry of Panchayat and Local Government
(MPLG). The WDS of the MPLG was upgraded in 1990 to the status of the
Women's Development Division (WDD) of the MPLG; the name of the latter
subsequently changed to Ministry of Local Development (MLD).
Community Development
The rationale for well designed community development activities is strong.
Barriers of poorer rural women are formidable, reflected in low literacy,
community gender bias, caste, ethnic divisions and difficult physical
terrain. It stands to reason that community development in relative terms
should represent a significant proportion of total spending. Recent data
for five districts showed that whilst administrative overhead represented
46% of total cost at the district level, community development accounted
for not less than 38%; the remainder was split fairly evenly between credit
and non-credit related training. True, community development becomes more
sustainable if firmly linked to NGOs and local groupings. But, it is neither
realistic, nor desirable in the medium term to expect community development
to be handled exclusively by local NGOs. The capacity is not yet present
for contracting out on a large scale community development services.
It remains that the penetration of the Project across rural areas has
been slower than desired. Fewer PCRW sites have been developed than targeted:
88 against the SAR target of 125, or 68%. But in the sites developed,
much progress has been made under community development, some of it unreported.
Appraisal targets were exceeded with a vast margin for child care centers
(358%), drinking water schemes (684%) and toilets (1 320%). Reported performance
was not in line with targets in the case of smokeless stoves and water
grinding mills; oddly, none of the planned 129 trails and bridges have
been built.
Credit Disbursements
The attainment of quantitative targets for disbursement is not a sufficient
condition for successful credit operation. Nevertheless, much progress
has been made towards reaching quantitative targets related to credit.
Not less than some 18 200 women had obtained a first credit line by November
1994 and this represents not less than 88% of the total SAR target. Disbursements
for services, agriculture and livestock reached 353%, 161%, and 112% of
appraisal targets, respectively. Loan disbursements for cottage industries,
in contrast, only reached 55% of targets.
Nepal Rastra Bank annual disbursements for credit almost doubled from
a mean of USD 203 000 for the period 1988/89 through 1991/92,
to USD 371 000 for 1993/94; and reached USD 303 000 for 1993/94. Delays
have occurred in forwarding and processing withdrawal applications, but
total cumulative reimbursements by mid-July 1994 were almost in line with
the appraisal target.
Training
In purely quantitative terms, training has performed reasonably well;
32 650 beneficiaries have been trained which represents 75% of the SAR
target. Staff have been exposed to 1 780 training modules which represents
65% of the SAR target. Quickly disbursing items were study tours and bank
staff training, 273% and 164% attainment of targets, respectively.
Effects assessment
and sustainability
Overall Impact of the Project
The dominant message that emerges is that the Project, in spite of a
difficult external environment has accessed the beneficiaries with planned
initial services. It has had, and is having, an important effect in two
vital areas: (i) the empowerment of poorer rural women; (ii) initial credit
uptake and asset formation. Profitability of funded enterprises has suffered
especially for small ruminants (goats), but is commonly higher for services
and micro-enterprises. Insufficient data are available to gauge the impact
of credit for crop production, but many cash or high value crops are reported
with high returns. Irrigation is an area where the control of males or
husbands dominate that of women; relatively few successful irrigation
enterprises are reported with full women participation.
Beneficiaries
Targeting of beneficiaries has been reasonably successful, but modalities
need to be improved. Of those reached, disadvantaged castes or ethnic
groups represent 21%, female headed households 16%, and landless households
(6%). The remainder, or 57%, represent the women of "regular"
low income households. Two thirds of beneficiaries are illiterate. A more
cost effective targeting is justified, not least to ensure service provision
to poorer female headed households.
The poverty is more accentuated in the Hills than in the Terai and illiteracy
is also higher in the former area. The frequency of seasonal migration
is higher in the Hills (31%) than in the Terai (12%); migration increases
with scarcer agro-economic potential, i.e. in the western development
regions. When husbands are absent, their wives become de facto heads of
households, and have to assume higher labour loads.
Empowerment of Rural Women
Rural women interviewed across rural districts stated that they have
been empowered to organise themselves, participate, and meet with other
women outside of their homes. Women: (i) are regarded as successful and
more knowledgeable by their husbands, families, neighbours and communities;
(ii) access more easily extension services and engage in problem solving;
and (iii) have greater independence in being able to earn cash through
the use and control of credit.
Asset Formation
After joining the PCRW programme, almost three fourths of beneficiaries
interviewed by the BME study report a positive trend in asset formation;
23% reported no change and 4% a deterioration in assets. The response
pattern was roughly similar for the Terai and the Hills. The households
with constant or deteriorating assets explained that this was due to livestock
mortality, natural disasters and floods.
The self evaluation of beneficiaries may lead to an upward bias in the
estimation of material benefits that do arise merely from the Project.
Nor do the recordings provide a precise relationship between benefits
and costs. Yet, the perceptions offered as to asset creation suggest a
respectable impact. A common exception is financing of goats.
Profitability of Enterprises:
Goats
Interviews with beneficiaries in Ilam and Jhapa suggest that goat raising
has yielded few rewards. Mortality rates found were as high as 30% (Annex
3). Nearly all the women interviewed reported the death of at least one
goat. In both districts, the mortality rates for goats were much higher
than for cattle. Women dealing with livestock were asked which animal
was most prone to diseases. All rated goats as the most susceptible: then
came pigs, buffaloes, and cows. All interviewed groups that had raised
goats and which took up second loans shifted out of goat rearing.
The estimated enterprise budgets for Jhapa suggest that with a mortality
of 30%, the households may break even financially with the livestock insurance
but that there is no compensation for on-farm labour inputs.
Services and Cottage Industry
Profitability of micro-enterprises, cottage industries and services is
commonly superior to that of livestock. This is significant since the
trend in comparative advantage in production is definitely in favour of
off-farm earnings because of rising land pressure. Off-farm employment
is important both in the Hills and Terai, but is of longer duration in
the Hills. Moreover, food security is increasingly associated with off-farm
employment rather than with ownership of land. For instance, all landless
members interviewed in Kapilvastu were engaged in economic activities
with relatively stable streams of income, e.g. shopkeeping and retailing
(IES).
Credit recovery according to the recent OPS report was higher for cottage
industry (47%) and services (39%) compared with that of livestock, (34%).
These aggregate data must be used with caution. But the ranking provided
of the degree of recovery is reasonably consistent with that obtained
from site level data. The latter are normally more reliable and they suggest
that the profitability of micro-enterprises, cottage industries and services
is generally superior to that of livestock. The IES, for Gorkha and Kapilvastu,
found a 518 recovery among eight interviewed members taking credit for
micro-enterprises, as compared to an average repayment rate of 65% for
the 66 surveyed beneficiaries with livestock loans.
Sustainability
Sustainability of Groups
About 40% of the Project beneficiaries sampled in Gorkha, Kapilvastu,
Jhapa and Ilam districts drop out, or become inactive. Beneficiaries usually
dropped out of the programme after the first loan cycle, which is one
to five years for services and industry; one year or less for crops; about
three years for goats; and three to five years for larger ruminants.
Groups become inactive for several reasons: (i) the group composition
was not appropriate in terms of socio-economic differentiation, caste
and ethnic parameters; (ii) beneficiaries did not agree to norms for group
operations because of internal misunderstanding; (iii) the group leader
was passive; (iv) the enterprise undertaken by women failed inter alia
because of crop failure, or livestock mortality; and (v) the loan was
not utilized for the stated purpose.
Groups created after 1990, are less active and sustainable than those
that were created previously. This finding is consistent with relatively
low uptake of repeat loans in many sites, and falling credit recovery
rates.
Uptake of Repeat Loans
About 10% of all borrowers (female members of PCRW groups) had obtained
a follow-on loan (IES). The IES in Kapilvastu and Gorkha found that, on
the average, only 10% of the group members had taken a second loan. Similar
findings were obtained by the UNDP/OPS, in the FWDR region (Bajhang and
Kanchanpur).
Interviewed groups in Mustang, Syangja, Jhapa and Ilam districts had
taken follow-on loans, often sequentially larger ones. In Mustang district
(Marpha), one out of nine groups interviewed, or 11%, had taken follow-on
loans. In Syangja (Waling and Galyang sites), two out of twelve interviewed
groups (16%) had follow-on loans. In Jhapa district, 18 out of 215 groups
were found to have taken follow-on loans; this represents 8% of the total
number groups. In Ilam, not less than 26 of 68 groups, or 38% had taken
follow-on loans, primarily for ginger and potatoes.
The OPS survey sought out the two districts of Kavre and Dhading, where
follow-on loans were particularly high; i.e. a purposive selection was
used. On average, 32% of eligible borrowers in the survey sites had taken
subsequent loans. Eligible borrowers are defined as those coming from
groups without outstanding loans. Of the multi-cycle borrowers, an average
of 88% had taken progressively larger loans.
The BME survey, on the other hand, suggests that not less than 39% of
the women had taken subsequent loans. The uptake of subsequent loans varied
widely across development regions. The BME preliminary survey data indicated
that the FWDR had the smallest percentage of women taking second and third
loans (20%).
Credit Recovery
A proper analysis of credit recovery in PCRW programme is complicated
by the varying definitions used, and by conflicting data. The repayment
rate on PCRW loans for the 37 IFAD-supported districts from the start
of the programme up to June-July 1994 was recorded at 68% (In this document,
the recovery rate is defined as the repayment amount for the given year,
as a percentage of the total due for this year, i.e. the repayment plus
the overdue remaining at the end of this year). This is an improvement
compared to the cumulative repayment performance of 62% up to June-July
1993.
The cumulative repayment rate, however, hides the deteriorating repayment
performance in 1993/94. The improvement in the cumulative repayment performance
resulted from the collection of past due loans. The overall repayment
rate during 1993/94 in the 37 IFAD-supported districts was as low as 38%.
The same estimate is obtained for end of 1994, from the data presented
in the most recent OPS Supervision Report (dated April 1995).
Issues
Overall
The low or falling repayment rate has become the foremost constraint
against successful continuation and replication of the programme. A low
repayment rate is linked to increased pressures for rapid group formation
and higher disbursement rates. But several issues are related and combine
to jeopardize the PCRW Programme.
Community Development
Properly designed self-help community development activities, in which
the target group participates, generate the preconditions for the creation
of cohesive and sustainable groupings. For this reason, three areas need
attention. First, the original vision that community development has a
merit on its own, and generates the preconditions for uptake of group
based productive credit has fallen by the wayside. The efforts to mobilise
women through community development and to prepare them for the uptake
of credit in a group context have not remained in line with expectations.
Community development efforts have not been sufficiently well targeted
in line with needs and potential. Groups increasingly have been formed
directly for the uptake of credit. Second, neither the processes that
drive community development, nor the outcomes are monitored. Third, in
the face of widespread malnutrition of children, it is odd to find that
nutritional growth monitoring is not supported and used by the Project
to guide its interventions.
Insufficient Screening of Group Membersand Financial Enterprises
Programme Management has not provided sufficient instruction, and permitted
WWs sufficient time, for creating sustainable groups. Such groups should
be self-driven by transparent performance based rewards and promises for
a follow-on loans. The BME survey found a high degree of central direction
from the WDD/WDOs. Members' freedom to choose group members and type of
credit funded enterprises was severely restricted.
The joint liability concept remains the core principle for the PCRW credit
group formation. But the present command system does not allow beneficiaries
sufficient time to screen each other as "potential credit risks".
The best practice for such screening begins with community related training
and self help activities and proceeds through regular meetings and savings
contributions. Normally, a group becomes cohesive when the individuals
with the lowest risk of default recognize their mutual interest in cooperating.
Conversely, through a selection or exclusion process, individuals recognized
as those with the highest risks are forced to group together. But with
rapid coerced group establishment, members have little or no time neither
for selecting their peers, nor for skills development and final selection
of enterprises to be funded by credit. Consequently, the joint liability
concept has not reduced in line with expectation risks of credit default.
Losing Experienced Cadres
Several explanations can be found for the present type of command systems
or central direction. Such direction reflects an overly centralised administrative
structure but also inexperienced staff. The Project has been losing precisely
the cadres of the pioneer WDOs that started-up the programme and have
relevant field experiences. This age bar issue, that staff in excess of
35 years cannot be maintained or hired, remains an unresolved issue. As
an interim measure, such experienced cadres could be assisted to create
independent NGOs, which then could be contracted by PCRW to deliver required
services.
Human Resource Development
The training function is not up to par, neither for overall curriculum
development, nor for staff in-service training, and training of beneficiaries.
A relevant overall conceptual framework for human resource development
is not available, nor have field staff been exposed to state of the art
technologies for participatory need assessments and rapid diagnostic techniques.
Beneficiaries commonly do not receive training prior to credit uptake,
and quality of subsequent training is not in line with expectations. For
instance, land less women engaged in off farm enterprises in Kapilvastu
and Gorkha reported that they were not particularly interested in the
present training programmes because of irrelevant course content and ill-timed
sessions.
Insufficient Incentives of Bank Branches
The WDD central command system discourages participation and has been
compounded by similar tendencies within the participating commercial banks
that emanate from their head offices. The bank branch office staff are
not well informed; they are not aware of the relatively high profit margins
of successively higher lending to the PCRW groups: the smooth progression
towards uptake of repeat loans is blocked. The branch offices are not
well supported to provide follow-on loans to the PCRW target group in
line with actual profit margins on PCRW lending, risk and performance
in credit recovery.
Limited Profits on PCRW Lending
The possibility of PCRW progressing towards sustainability through an
increasing volume of repeat loans is impaired because of these systemic
disincentives. With a limited volume of small subsidized loans, transaction
costs have remained high and profit margins low. The PCRW needs to intensify
its efforts to mobilize and enrol small borrowers to reach the banks'
thresholds for critical mass, at which they become attractive business
prospects. But action is also required that addresses the structural issues
in the rural banking of government owned banks.
Limited Profitability in Rural Banking
Programmes of the PCRW type that embody social intermediation costs,
that remain external to the commercial bank rural branch offices, become
more costly to internalize, the lower is the profitability of these branches.
Three of the four bank branches studied displayed negative profit margins
on their regular lending (Chapter VI, Table 6.5). In fact, the higher
are the trans-action costs on the regular lending, and/or the larger are
the losses on this lending, the greater are the subsidies required for
social inter-mediation.
Future Direction
On the positive side, the inherent rational for the PCRW programme remains.
First, there is ample evidence for that the process of empowering poor
rural women can become very successful, if linked to ultimate credit provision
for an economic activity. Second, the original Project rationale for targeting
support and credit by gender, or solely to rural women, remains a valid
proposition for the foreseeable future, because: (i) the prevailing high
illiteracy among poor women in Nepal; (ii) high malnutrition rates of
children; (iii) remaining pervasive cultural barriers that reduce women's
control over resources within the households and impede their active participation
in economic activities; and (iv) the presence of a motivated cadre of
women extension staff within the WDD. Many interviewed women in Syangja
and Mustang confirmed their preference for continued gender targeting
of credit services.
But three critical issues cloud the future of the Programme: if unresolved,
IFAD funding of the current credit delivery system should not continue.
First, will the credit recovery rate be raised, finally be properly defined
and monitored; moreover, will a policy be formulated to deal with the
past stock of long overdue loans? Second, can the provision of WDD services
in social mobilisation become a bridge towards reaching a critical mass
of repeat loans to former PCRW clients that can be sustained by the regular
lending of commercial banks? Third, can the profitability of regular commercial
banking in rural areas be sufficiently improved to reduce the thresholds,
which raise the costs of required social intermediation for the PCRW?
If the answers to these three questions are negative, then service and
credit provision to poor rural women in Nepal must find other and different
institutional vehicles. A future PCRW programme should then look quite
different.
But the Grameen bank approach does not necessarily offer an overall solution
to the problem of creating a viable system for providing financial services
in the rural areas. There is much to be said for a pluralistic approach
to credit delivery in rural areas. Support for Grameen banks in Nepal
should certainly continue. On the other hand, the drawbacks of the few
banks that are emerging should also be recognized: their transaction costs
may be relatively high; also their customers receive a significant subsidy,
once the loan is fully repaid. Moreover, the number of outlets is very
limited compared to the vast number of rural bank branches across Nepal.
It remains that an overhaul of the entire system of financial policies,
the rules and regulation for the present Priority Sector Lending in Nepal
need to be overhauled.
Main issues and recommendations
Programme Management
The Project Implementation Committee
This Committee should meet more often than a mere three times per year.
It should meet at least six times a year inter alia to review progress
and relate physical performance also to financial indicators such as credit
recovery by district and by type of enterprise.
Decentralisation to Regional Level
The originally planned decentralisation of project management functions,
service delivery and technical back-up should be enacted upon. The five
regional offices proposed in the SAR should be established and six SMSs
be posted initially (three each in livestock production and in micro-enterprise
support, see below). This is essential for the vital continuous training
and guidance process to district staff: for reassessing enterprise budgets,
risks, relevant technology and marketing data, and to realign services
based on feed back from beneficiaries. To this end, the Government is
advised to first draw-up the desired future regional organisation of the
WDD; the modalities for coordination with other line agencies at this
level should be established. In the interim, the SMS posts recommended
below should be assigned to district WDOs.
Staffing
A serious staff issue threatens the performance and sustainability of
the entire operation. The 35 year age limit for already hired staff to
retain a WDO position, or apply for one, has inhibited maintaining, and
hiring, senior and experienced women officers in WDO permanent positions.
There is an urgency in resolving this issue.
Selection Criteria for SitesGroups and Beneficiaries
Site Selection and Expansion
The selection criteria for bank branch offices, sites, groups and beneficiaries
should incorporate four elements: (i) poverty and need; (ii) agro-economic
potential; (iii) performance; and (iv) availability of local women groupings/NGOs.
The Project should use a more cost effective approach in poverty alleviation.
It should focus on the to medium stage adopters in a defined set of sites.
The aim should be to obtain early on a critical mass of beneficiaries
to ensure sustainable services, especially of credit. Early adoption is
encouraged through well defined enterprises in line with the preferences
of the target group. The Project then moves on to a second set of sites
and so forth. The Project should not waste limited resources on the late
adopters, trying to obtain from the outset a uniform high adoption pattern
across households and communities. The late adopters can be still enrolled
even when the Project has shifted from an intensive to an extensive phase
in the given sites. The need to monitor the mobilisation specially of
disadvantaged groups is crucial (Annex 4). On the other hand, women in
households that are not easily, or immediately, credit worthy should be
targeted for a proper complement of food aid, community development services
(and food for work).
A proper needs assessment at the site/VDC level should precede the decision
to expand the existing site, or select a new one. At time of site selection,
the potential in terms of infrastructure, institutional framework and
access is normally considered. But at present, the selection of sites
does not reflects a combined assessment based on needs, potential, and
performance. Preferential location of sites to areas where local women
groupings are already emerging would certainly enhance the prospects for
sustainability.
Screening of Beneficiaries
The present system of screening female beneficiaries for programme participation
based on a detailed numerative assessment of per capita income should
be discarded. The methodology is excessively time consuming for already
overburdened WWs; the assessments are often obsolete at the time of group
formation. Given these limitations, the WWs' personal informal assessments
understandably dominate in screening for eligible women.
Instead, eligibility should be assessed by using more easily obtained
indicators; moreover, communities themselves should be enlisted in the
screening process. In determining eligibility, four general criteria are
recommended for four categories of households:
General criteria for eligibility
a) Monthly food requirements from all production and income sources have
not always been met over the last three years;
b) House construction is not of cement; neither should beneficiaries
at the outset possess corrugated galvanized roofing material;
c) None of the resident household members over the last three years have
been employed in salaried positions for more than six months p.a.; and
d) Willingness of potential beneficiaries to contribute labour or cash
for community development activities in their immediate vicinity.
Categories:
Households with land:
less than 0.5 ha of high potential (irrigated) farm land owned and leased,
but where weights are used that relate to productivity (and the weighted
land area should not exceed 0.5 ha), i.e.:
- Irrigated low land, and upland (weight 1.0);
- Non irrigated lowland (weight 0.5);
- Non irrigated upland (weight 0.3); and
- Non cultivable (weight 0.2).
a) Landless households with resident family members with no member being
salaried, (such as government employees);
b) Female-headed households with less than 0.5 ha of land, and where
husband is absent for more than 6 months per year; and
c) Disadvantaged ethnic groups should receive fair attention in the targeting
(WWs from the same ethnic groups need to be recruited).
The Project rightly would like to enrol also wives of ex-army personnel
in its activities. Typically, many such women are willing to be leaders
of other women in their communities. These persons would normally neither
qualify, nor need credit, but their enrolment can contribute to strengthen
the Programme concept across communities.
Interviewing for Eligibility
The interviewing proceeds in three steps. First, on arrival, an up-to-date
list is made up of all households in the village (if not already available);
second, through interviewing a small group of representative village women
(6-10), the households listed are classified into three categories: (i)
those who are relatively poor, category A; (ii) those who have an average
or median farm size, number of working members, physical assets, and "income"
in the village, category B; and (iii) those who are even better endowed,
category C. These data are recorded.
Second, after these three sub-lists are available, the households in
groups A and B are screened if they comply with criteria (i) a) - c) above.
Third, at the same time the households are classified by the criteria
listed in category (ii) a) through d), above.
Interviewing for Selection
Prior to mobilisation, at the time of presentation of the programme concept,
eligible households are screened about their willingness to abide by the
"ground rules". Selection finally is contingent upon willingness
to contribute labour or cash for community development activities (criteria
i) d), above).
Link between Community Development and Credit
a) Revision of Operational Guidelines
The original, basic conceptual framework for the Project remains valid,
but present practices are no longer aligned with this concept. The recent
dominance of credit delivery within PCRW is not in line with the original
concept. The present situation where credit too often has become the direct
entry point for contact with rural women, without first creating awareness
of gender roles and social mobilisation, should be discontinued.
The Operational Guidelines for project support should be revised to clearly
reflect the sequencing implied in the original design. It would be useful
for the PCRW programme to adopt a transparent process approach to development
that meets the requirements of predominantly illiterate rural women. Such
a sequence of activities begins with creating first, "awareness";
second, "empowerment" to shift attitudes away from those of
"helplessness" to "engagement", and to build group
cohesion and mutual support mechanisms; third, expression of preferences"
for type of community activity; fourth, skills in group building and for
participation in community development activities; fifth, job and or enterprise-specific
skills preceding credit uptake; and sixth, awareness of requirements for
skills in credit management.
b) Formulation of Indicators
The entry and exit points for each intervention directed at mobilizing
groups of rural women need to be defined for the purpose of process monitoring.
Indicators of achievement or performance need to be fixed at each exit
point. The initial point of entry should always be an assessment of the
needs of the disadvantaged women in each locality: they should be solicited
to identify problems, those that affect them at the community level, and
those that are household specific. The former can be pursued in terms
of finding joint or co-operative solutions inter alia through community
level activities to reduce excess labour loads and marketing constraints.
The latter, reflecting inter alia low productivity and/or high
cost of informal credit and forms of socio-economic bondage, can then
be more easily solved. In the latter area, for household specific activities,
the required skill uptake and job training need to be defined.
c) Issue-oriented Workshops
A series of issue-oriented workshops should be held for WDO trainers
and central staff. These workshops should be used to redraft the operational
guidelines (also for credit delivery), establish the entry and exit points
for each sequence of intervention, identify the respective indicators
of performance, a core MIS, and the training methodology (see below).
Credit
a) Tripartite Review
A tripartite review is recommended to be undertaken with participation
by the NRB, the commercial banks and the PCRW/MLD of the cost and incentive
structure of the rural banking branch offices of the commercial banks.
(Such a study should build upon the recently completed AsDB Financial
Sector Study). Such a review will have to consider the relationship between
high cost rural banking operations of commercial banks and the feasible
level of PCRW costs for social intermediation. Necessary outcomes, or
recommendations, of such a study are that:
i) An action plan is defined with which to set performance standards
for the commercial banks and for groups participating under the Project;
ii) Present lending interest rates to final borrowers are shifted upwards
from present negative rates in real terms to positive rates that generate
a sufficient margin for participating branch offices; and the present
interest rebate system to final borrowers should be revised, and integrated
into the comprehensive system proposed below (viii);
iii) Commercial bank decision rules are revised: the incentives for lending
under the PCRW programme must be passed on from commercial bank head offices
to the participating branches so that the latter become profit centers;
iv) Incentives are given to branch offices and their staff as rewards
for performance in outreach and cost recovery;
v) Similar rules apply for commercial banks and for the Grameen banks
that also lend to the Priority Sector customers; the nominal lending rate
of the Grameen banks is set at 20% but a 50% rebate is given once the
credit is recovered;
vi) Credit recovery is properly defined and measured (repayment in each
period as a percentage of repaid and overdue at the end of the same period);
the stock of old overdue loans is dealt with; and minimum standards for
credit recovery under the Project need to be set (see below and Annex
1);
vii) The NRB, the participating banks and WDD take steps to ensure accurate
and timely delivery of credit recovery data; and
viii) Performance standards and rewards are set for groups according
to a ladder concept: AA "fully credit worthy" groups inter
alia not less than 95% recovery and exemplary savings performance;
AB "credit worthy" groups inter alia not less than 85%
recovery; and AC "other not credit worthy" groups (see Annex
1 to Volume I): an interest rebate is given groups and members that consistently
meet the AA standards.
b) Comparison of PCRW transaction costs with commercial bank branch
office profit requirements
The NRB together with the NBL, RBB and the Project should establish standard
criteria for the required critical mass of second and follow-on loans
that is required for a bank branch office to break even under the PCRW
lending.
The question remains as to the scope of the commercial banks to assume
the transaction costs associated with follow-on loans for the PCRW clientele?
Indicative financial statements and balance sheets for bank branch offices
should be established to demonstrate the minimal lending volumes required
under given conditions as to cost of funds, risk and interest spread.
Overall PCRW and bank transaction costs should be lower for handling
second, or follow-on loans after successful repayment of the initial one;
moreover, with higher lending rates for successive loans at higher loan
amounts, profit margins improve. Attaining, early on, a critical mass
can assure sustainability of the credit window: financial sustainability
of credit institutions should be aimed for at least after five to ten
years; institutional and financial viability of rural credit institutions
over time necessarily is more important than continued uniform parcelling
out of credit and slow build-up of credit volumes.
c) Credit Ladder for Selecting Successive Enterprises
Cautious lending in relatively small amounts serves as a protection against
over-financing that leads to "credit trap." A ladder should
be used: after successful repayment of the first loan, borrowers progressively
become eligible for further loans at increasingly larger amounts. Emphasis
should also be given to portfolio diversion so as to reduce co-variance
of risks. This practice is found but is not common.
d) Loan Recovery
i) Control mechanisms
Adequate control mechanisms for programme management need to be created
as a matter of urgency; the NRB and the PCRW need to devise an up-to-date
monitoring system.
More personnel are required; at least two persons should be deployed
on a full time at the NRB in the monitoring of PCRW related credit and
recovery.
e) Flexibility in Repayment Schedules
There is a need of more flexibility in realigning repayment schedules
with cash earning possibilities. Once more flexibility has been introduced,
it makes sense to review the provisions for enforcing better the repayment
obligations.
f) Information about Contractual Obligations
Group members' knowledge about their repayment obligations need to be
improved. Once, a group loan is approved, the bank should have prepared
a loan disbursement schedule for each borrower. Many members complained
that they were not aware of their repayment obligations.
g) Improved Bookkeeping and Transparency
Bookkeeping should be improved at the level of the branch office, group
and site. A separate ledger should be kept at each bank branch office,
and for each group. Each group member should have a pass book for the
recording loan transactions, repayment and savings. This will increase
transparency and reduce risk of fraud. For illiterate groups, the use
of visual methods of recording should be explored.
h) Pilot Projects
i) Exploring loans for purchase of land by women
The feasibility should be explored on a pilot basis to provide credit
to rural women for the purchase of land; to begin with, amortization schedules
should be drawn-up as a test case of feasibility, given the land market
(and prices) in three representative sites in two districts; one in the
Terai and one in the Hills.
ii) Individual loans under hire purchase agreements
The service sector is becoming increasingly interesting; tailoring is
an attractive sector; for women who have successfully completed two loan
cycles, the possibility should be explored of establishing hire purchase
arrangements with regional agents for say "Singer" sewing machines.
Sustainable Savings Behaviour
a) Savings Behaviour
Three to six districts should be chosen as pilots for intensive support
of savings mobilisation and the mobilisation of inter-group savings. Expansion
of savings is vital, it is a crucial determinant for the emergence first
of sustainable groups, and second of a rural financial system supplementing
those of the regular commercial banks. But the capacity of WDD staff,
and the skills in local communities, are still weak to support savings
mobilisation for the purpose of pooling funds and allocating them into
productive pursuits.
b) Revolving Funds
The revolving funds (RFs) have not taken off and the objectives and the
context of these funds should be reviewed. The WDD set up RFs in nine
districts; they were set up on an experimental basis to make funds available
to satisfy credit needs of members not normally met by the bank. At a
minimum, bookkeeping with separate ledgers needs to be introduced.
Extension Support
a) Livestock
i) Preconditions for targeting livestock credit across locations
The targeting of credit for livestock across locations needs to firmly
reflect a set of minimum preconditions in view of the high prevalence
of animal diseases, low productivity, high mortality, and low repayment.
Important preconditions inter alia are: (i) training especially
in diagnosis of small ruminant diseases, prior to the credit, as a precondition;
(ii) availability and affordability of veterinary drugs, and of vaccinations;
(iii) planting of fodder trees and/or crops, and/or confirmation of adequate
grazing area outside of the village; and (iv) livestock insurance certificate.
i) Posting of three additional SMS in livestock development at the
regional level
Firm technology support must be built into design to raise profitability
of selected enterprises. Three SMSs in livestock and fodder management
should be posted in three of the regions to fill the gaps between line
agencies/WDOs and WWs and beneficiaries. They should stay in close touch
with research institutes and other animal husbandry programmes. Until
an effective regional structure has been established, in the interim,
these SMSs should be located at a suitable WDO district office. They should
train WWs as well as local women who could reestablish the concept of
para-veterinary workers. (The latter after completed training should be
given a basic veterinary kit.)
b) Cottage Industry and the Service Sectors: Entry Points
i) Site surveys
The WDOs should assist women to identify entry points for the cottage
and service sectors. Site surveys are vital to explore interactions with
NGOs, access to markets and other preconditions. The WWs should be trained
in developing profiles of low cost cottage industry.
ii) Hiring of SMS in entrepreneurship development
Three SMS should be hired to promote entrepreneurship development for
off-farm enterprises. They should be posted at the regional level, in
the interim at existing WDO offices, whilst an effective decentralised
regional structure can be established. They would function inter alia
as trainers for the district WDOs/WWs.
c) Producer Groups
The concept of the "credit group" should be transformed into
the that of a "producer group", or the new group should be linked
with an existing cooperative group. The potential of groups is not sufficiently
exhausted. The scope for group development is enhanced when individual
efforts are combined; e.g. purchases of inputs in bulk; one billy goat
to serve several groups, joint marketing activity, etc.
The Cooperating Institution
Positive is that OPS has become actively involved in supporting "the
change processes" within the Project. Moreover, its assistance is
required in supporting:
a) The restructuring proposed of the financial intermediation system;
in particular, it should take the responsibility for assisting in the
process of finally creating an accurate and timely reporting on credit
recovery and arrears;
b) the defining of criteria with which investment proposals are screened
prior to credit approval;
c) the process recommended for shifting from one site to the next based
on defined graduation criteria; and
d) development in the poorest districts, found in the Far Western Region,
by visiting
Lessons learned
Destructive Pressures for Accelerated Credit Provision
In the normal course of events, it is to be expected that over time pressures
build-up for an accelerated provision of credit. Credit delivery, on the
demand side, is driven by low or subsidized interest rates compared to
alternative rates in formal and informal markets. These pressures on the
demand side, met at site levels, are often compounded by those from the
centre and from donors to accelerate disbursement rates. Excessive credit
expansion is facilitated when accurate and verifiable information on level
and trends in credit recovery rates is not available.
All too easily, the provisions in the design of rural development projects
that contain credit components can be compromised. Careful preparation
and build-up of group cohesion initially through community self-help and
group savings then fall by the way-side. Groups which are hastily created
soon fall apart after the granting of the initial credit: the joint liability
provisions that should mitigate and reduce credit risk do not mature.
Credit recovery drops. Project sustainability is threatened.
In contrast, active participation in community development may release
women from labour constraints; training, group meetings and regular savings
help them to select first peers with known risks of credit default, and
second, the credit funded enterprises that they prefer. A necessary outcome
for donors to accept is that with this process, overall project disbursement
rates initially are lower, but that prospects for long-term impact and
sustainability are greatly enhanced.
Impaired Decision Making to Improve Resource Allocation during
Implementation
a) Investment and financing models are almost always obsolete
Investment models for major enterprises at the project sites are constructed
at appraisal for purposes of determining the economic rate of return of
the Project, but they are updated rarely if ever. Adapting the investment
models to specific technological, marketing and socio-economic conditions
in the project sites would have been most useful. Training in simple financial
analysis should have been provided. The extension officers (WWs), the
bank field officers, as well as the beneficiaries themselves would then
have obtained a more realistic picture of cash flows, returns and constraints
associated with micro-projects being proposed for financing.
The same lesson was derived for the IFAD Completion Evaluation of the
Nepal SFDP II. Investment and financing models for typical enterprises
in each site need to be drawn-up and updated at least once a year.
b) Monitoring of credit recovery
The SAR of the PCRW, similar to the one for SFDP II, neither foresaw
the strong push for accelerating credit disbursement, nor did it set up
control or monitoring mechanisms. At time of design, repayment rates need
to be properly defined, performance criteria established, and effective
reporting systems be set up. Decision rules can be defined a priori with
which to take corrective action when standards are not met. But when these
efforts are not undertaken at time of design, subsequent efforts to improve
upon the situation remain ineffective: ultimately, the sustainability
of the supported credit line is threatened. Far more attention and direction
must be given to the importance of accuracy and timeliness in the financial
reporting systems: detailed modalities, resources and funding need to
be set out in the design documents.
Creation of Technology Support Structures
Another lesson learned from this and other projects is the need to ensure
that a proper decentralized structure for technology support and diffusion
is established. Such a structure comprises specialist extension officers
(subject matter specialists, SMS) located in reasonable proximity to extension
workers and the target population. The SMSs operate as trainers of trainers,
advise in diagnosis of constraints, financial analysis of profitability,
enterprise selection and ensure link-up with applied research and veterinary
institutes. In the absence of ensured provision of such decentralised
technology support, profitability and sustainability of economic activities
and enterprises funded under the Project remains at risk. The possibility
of funding on-farm trials and experimentation supervised by such SMS should
be explored. Operational mechanisms for technology support, together with
funding for this purpose should be ensured at time of design.
Emphasis on Institution Building
Adequate financial services to the rural poor can be provided only when
institutions become financially viable over the medium term. In the short
run, costs of necessary mobilisation and training of staff and beneficiaries,
and of outreach efforts, are high relative to loan volumes. In the medium
term, under given preconditions, a delivery system for outreach of financial
services can be created: when a critical mass of borrowers is reached,
the credit line can become "financially viable". In practice,
such graduation is rare. This situation arises, in part, because criteria
have not been established for minimum benefits that translate into a critical
mass of borrowers and loan volume, to be attained through a targeted outreach
approach; and, in part, because necessary initial costs in extending a
delivery system are not distinguished from the terms, or subsidies of
the financial product (e.g. subsidized interest rates on lending that
may be even negative in real terms). Moreover, if the "mother"
institution and its branches" are not breaking-even on its normal
operations, the entire effort in reaching financial viability may still
be compromised.
The lesson learned for donors is that the building of financial systems
is worthwhile, but the process is difficult and long. It is advisable
to treat the building of financial systems for the poor as projects in
their own right; at a minimum, distinct institution building components
need to be formulated as part of future projects.
