Project performance assessment

Executive summary

Background. With a population of 3.6 million, Moldova remains a predominantly agriculture-based country. In supporting the country’s post-independence economic transition, IFAD provided relevant and timely interventions in identified weak points of the rural economy: lack of finance for rural enterprises; low value-added agriculture and processing; limited market channels; under-maintained rural infrastructure, etc. Since 1999, IFAD has approved five loans to Moldova for a total of US$68.9 million and an overall cost of US$116.3 million.
The Rural Business Development Programme (RBDP) was the third IFAD-funded intervention in Moldova, following the Agricultural Revitalization Project and the Rural Financial Services and Marketing Programme. The objectives of RBDP were to produce sustainable income growth for poor people in rural areas and small towns by stimulating the growth of farming and rural business. The programme was implemented in 2006-2010, a period when the country’s economy was growing rapidly. Managed by the Consolidated Programme Implementation Unit responsible for implementing all IFAD-financed projects in the country, RBDP activities were completed approximately one year ahead of schedule.

Project performance. In line with increased attention to value chain development, the rationale of RBDP interventions was based on the assumption that supporting rural enterprises along selected commodity chains would stimulate economic growth and eventually benefit rural poor. In this vein, RBDP focused on addressing bottlenecks in rural enterprise development as pathways to rural poverty reduction.
With a total cost of US$32 million, including an IFAD loan of US$13 million, this ambitious programme introduced a spectrum of pro-business interventions, which included building a mechanism for providing medium- and long-term loans to rural enterprises, supporting enterprises along selected value chains, and financing business-oriented small infrastructure. RBDP also supported a network of business consulting experts to develop expertise in assisting rural enterprise development.
Implementation results showed that RBDP increased the access of rural entrepreneurs to finance, facilitated business growth of enterprises along selected commodity chains and built small-scale infrastructure for rural businesses. This in turn stimulated local investments in businesses, generated employment, increased purchases of local produce, and largely raised awareness among both the Government and farmers regarding the need to produce for market demands. Apart from achievements in rural business growth, the small-scale infrastructure was greatly appreciated by local enterprises and business associations alike, as RBDP filled a low-key but imperative gap in a vast array of under-maintained rural infrastructure at a time when there was no public budget but the demands of rural people were pressing. By and large, the programme achieved its main objectives.

Sustainability. On the other hand, even though IFAD interventions have proved that rural lending can be safe and profitable, commercial banks were still reluctant to use their own funds for long-term rural lending. The experience of RBDP should draw the attention of IFAD, the Government and the National Bank to the importance of creating pro-business and pro-poor financial policies and regulations to encourage private investments in agriculture and the rural areas.

Innovation and scaling up. Within the post-Soviet context, the programme was innovative in a broad sense as it promoted or introduced pro-business approaches, including a value chain-based targeting approach, private investment, collateral development, and business-oriented small infrastructure, all of which gave preference to highly profitable and labour-intensive enterprises for business growth. Although there was no systematic scaling up of RBDP activities, there is potential for policy analysis and for the scaling up of rural finance and small-scale infrastructure interventions.

Gender equality. The programme design did not pay sufficient attention to supporting women’s rights in terms of equal pay and developing small and medium businesses. Women accounted for 26 per cent of all RBDP borrowers for enterprise development, which shows that women’s rights to equal participation in business development were not fully addressed. Besides, women’s lower wage status was not considered in employment creation activities.
The most important lesson learned from RBDP had to do with challenges in ensuring the poverty reduction effect of investments in larger enterprises in value chain development. The justification for targeting larger enterprises rests on the linkage effect between rural business growth and benefits to rural poor. The programme could have set clear baselines and goals for reducing rural poverty, and monitored the changes in poor households. RBDP did not explicitly target poor households in economic activities. Moreover, the poverty impact of the programme was not monitored, which undermined its achievements in terms of rural poverty reduction.

Recommendations

Connect the rural poor to enterprise development through relevant economic activities. This issue should be accorded priority in future project design and country strategy formulation. The assumption that investing in leading enterprises will benefit the rural poor should be transformed into operational strategies, with relevant economic activities for the smallholders and rural labourers, thereby enabling these disadvantaged groups to move up economically with the development of rural enterprises.

Adjust monitoring and evaluation system to measure the rural poverty effects of enterprise development. In enterprise development and value chain development interventions, the expected poverty reduction impact on poor households should be closely assessed by the monitoring and evaluation system. In particular, the impact on poor households should be a key consideration in assessing the performance of the project.

Support favourable rural financial regulations and markets. On the one hand, in partnership with like-minded agencies (e.g. World Bank), IFAD could leverage project experience in undertaking policy analysis and policy dialogue, with the aim to bring about systemic changes in rural finance market. On the other hand, IFAD should continue supporting microfinance institutions as an important supplementary channel for providing microcredit to smallholders.

Enhance export and marketing services. To address difficulties in meeting the quality requirements of the European Union and other international markets, future operations will need to increase investments and technical assistance in upgrading quality standards, facilitating access to European Union markets and connecting with international value chains.

Remittance use in rural investment. Although, in the IFAD 2007-2012 country strategy, the use of remittances for investment was identified as an opportunity for innovation, RBDP took no initiatives in this regard. Given that IFAD has been focusing on rural finance services, remittances hold great potential as a source of complementary private funding for rural enterprises. In this regard, using remittances for investment could be included on a pilot basis in future projects.