Upper East Region Land Conservation and Smallhoder Rehabilitation Project (LACOSREP) (1998)

September 1998

Interim evaluation

Ghana has a total area of about 240 000 km2, of which the Upper East Region (UER) covers about 8 800 (3.7 % ) in the Northeast corner. The total population with annual growth rate of 3%, has been estimated at 17.5 million in 1996, of which an estimated 1.1 million or 1.15 million in 1998 live in UER. The rate of population growth is about 3% per annum. Population density averages 63/km2, with considerable regional variations. The UER's mean population density is 125 people/km2 and in rural areas is about 100 people/km2. UER is predominantly rural (87%). The country can be divided into three main ecological zones, going from south to north on the basis of soils, climate and vegetation. These are the rainforest, the transitional and the savannah zone, which includes UER. Despite the predominantly gentle slopes, about 70% of the country is subject to moderate or severe erosion, UER being, one of the most erosion prone regions. In the Upper East, rainfall over the past 40 years has averaged 1 044 mm, suitable for a single wet season crop. The very short wet period is marked by confusing fluctuations in arrival time, duration and intensity of rainfall. This, together with the poor water retention capacity of the soils, cause large inter-year variations in the production potential. Administratively, the region is divided into six districts which correspond roughly with the main tribal groupings. The area is served by a network of access roads, the condition of which has been classified as fair to good.

Project design and objectives

The project area is characterised by a high and expanding rural population; by the unreliability of its rainfall and susceptibility to drought; and by the inexorable rate of degradation of its environment. The farming systems used were still largely based on the traditional shifting cultivation approach of using long season crops combined with the bush-fallow system to maintain soil fertility. However, over time fallow periods are constrained by population pressure on the land. Only by developing a location specific programme of carefully designed and supervised trials would the problems of environmental degradation be adequately addressed. There is a need for providing irrigation of high value crops as well as for livestock. During the 1950's and 1960's many dams have outlived their 20-25 years design life, leading to their deterioration aggravated by lack of maintenance. Hence, the rationale for dam rehabilitation and dugouts construction.

Target group

The target group for the project is defined as those sections of the rural population who are most at risk from malnutrition, ill health and general low quality of life. Rural people are drawn into ‘at risk' category due to a combination of factors including lack of resources and access to adequate basic services and facilities. Absolute poverty was defined as "that income below which a nutritionally adequate diet plus essential non-food requirements is non affordable." For Ghana, on a whole, it was estimated that in 1986 67% of smallholders, defined as those farming less than 4 acres (1.6 ha), were living in poverty i.e. below the Basic Need Income (BNI). Given the lower productivity of UER upland farms, a more representative figure for UER would be 6 acres (2.4 ha). Hence, virtually the whole of the smallholder population of the project would fall within the target group on these general criteria. However, within a generally impoverished rural society, there are those families, including women-headed households, who faced substantially greater hardships than their neighbours. Accordingly, the determinants of access to land and of notional farm income have been used to establish a framework within which specific identification of the more disadvantaged families may be made and project resources be channelled to them.

On the basis therefore, of a holding of 2 ha or less and of the inadequacy of alternative employment, it is estimated that some 70 000 farm families or some 66% of the rural population are severely disadvantaged and would constitute the target group. Project initiatives would directly benefit about 40 000 families or about 60% of the target group through the proposed crop and livestock development and the promotion of income generating activities (IGAs).

An estimated 11 000 households or 20% of the rural population, in UER are headed by women. In reality, the number of women who cultivate is probably higher than official estimates due to seasonal emigration of mates, operation of separate accounting households within polygamous marriages and non-residential marriages. Although women do not have rights to own land, they are invariably allocated plots. In all households, women provide labour for their husbands' fields and cultivate their own land in both the compound and bush farms. For women-headed households, the major constraint is lack of labour for the range of heavier farm tasks.

Objectives and components

Objectives: The principal objectives of the project were to: (a) increase food production and household incomes of poor rural families; (b) establish mechanisms for environmental protection and improvement;

(c) strengthen formal and informal beneficiaries organisations; and (d) improve the economic status of women beneficiaries through the provision of credit and support for IGAs.

Components. To achieve these objectives the project included the following components: a) Water Resource Development (31% of total cost) - ensuring water supplied to about 350 ha of existing and 205 ha of newly irrigated lands through the rehabilitation of existing small dams or reservoirs and the formation and strengthening of WUAs; b) Land Conservation and Catchment Area Protection (9% of total cost) - focusing on protection and stabilisation of the catchment areas of dams through contour bunding, planting grass on bunds and on livestock exclusion zones, planting trees, hedges and fodder crops and the development of a comprehensive environmental protection policy for the area; c) Group Formation and Development (7% of total cost) - promotion and training of small homogenous producer groups as vehicles for the delivery of project goods and services to the target group; d) Rural Credit (28% of total cost) - finance of crop production and agriculture-related small-scale enterprises, mainly targeted to women heads of households and women's groups; and e) Institutional Strengthening (16% of total cost) - directed towards various MOFA regional departments of agricultural services and other GOG agencies.

Expected effects and assumptions

Project interventions were expected to result into:

increased agricultural production in the UER from wet season cultivation through generation and adoption of appropriate technical packages (improved seeds, early maturing varieties, fertilisers etc);

increased production of high value crops (onions, tomatoes and peppers) from dry season farming due to dam rehabilitation and expansion in command areas;

improvement of livestock production through provision of drinking water (dugouts), expanding grazing areas, and selecting optimum genetical mix;

enhanced equity for rural women, particularly in allocation of additional farm land accruing from the rehabilitation of dams;

improved capacity for income generation activities through provision of rural credit to women members of credit groups;

integration of the project management and activities into the regional and district structures and in the process support the decentralisation policy; and

enhancing sustainability of project benefits, for example with Water Users Associations (WUAs) taking a leading role in catchment area protection and credit groups in repayment of loans.

The main assumptions for such expectations are:

technical packages are readily available both for wet and dry season crops and that the capacity to deliver these messages to the farmers is at hand;

the physical supply of agricultural inputs is not constrained, and that the input/output price ratio will continue to be favourable for the producer to adopt and apply the recommended technical packages;

IDA will remain committed to the dam rehabilitation programme and WUAs will be established and fully participate in catchment area protection, provide labour to the construction works and install cost recovery mechanisms for post rehabilitation maintenance of the sites;

an effective credit delivery mechanism will be established, such administrative structure will be highly disciplined. Credit groups will be formed, properly animated and developed and members promptly repay their loans; in addition an operational revolving credit fund will be established from group savings and loan repayments; and

the project management and activities will be fully integrated into the regional (and district) government structures.


On projection completion, both the government and IFAD indicated willingness to continue their co-operation for the development of a highly depressed, impoverished and food insecure region. Consequently, an Interim Evaluation Mission (IEM) was sent in February-March 1998 to evaluate the effectiveness of project interventions, identify implementation constraints and from thereon, formulate clear sets of recommendation and lessons learnt to assist in defining the scope of the next phase. The mission divided into four teams on management, credit, farming systems and community development. These teams conducted extensive interviews with regional and district authorities, project personnel, beneficiaries, officers and members of WUAs and credit groups, as well as the officials of the participating banks (PBs). Appropriate sets of questions were designed for the interviews. In as much as possible, the sample of interviewees was drawn at random.

Implementation context

Poverty in Upper East. The characteristics of UER, such as high rural population and the reliance of the vast majority of the people on agriculture, especially food crop production for its subsistence, correspond with the attributes of poverty in Ghana. In terms of both incidence and depth of poverty, the region is among the poorest of the country. Indeed, there are indications that while poverty was, on average, decreasing in other areas in the 70's and 80's, in the Upper East, it was increasing.

The first years of the project implementation were severely affected by the stabilisation and structural adjustment policies, especially pressures to reduce fiscal deficit. Before 1996, a major problem for the project implementation was the inadequate and untimely release of the government's counterpart funds. The fact that the government did not pay its co-financing share of the project operating costs, severely disrupted and delayed the project activities, particularly in the critical area of dam rehabilitation.

The economic policies of the country have not solved the problem of inflation. High inflation rates have been especially harmful for the project credit component, since inflation rate is reflected in the cost of borrowing. The high interest rates have depressed poor farmers demand for credit and combined with low farm gate prices have affected negatively the loan recovery.

Ghana is divided into ten administrative regions. From the late 1980s GOG began implementing a decentralisation policy for government structures, entrusting development activities to the regions which are further sub-divided into 110 districts. The UER is comprised of six districts. Each district has a District Assembly (DA) now taking decisions on a wide range of issues and planning and managing their own budgets and staff. Towards the end of project implementation in July 1997, decision was taken to further decentralise the Ministry of Food Agriculture (MOFA) to the district level.

Project achievements

Most of the dams had been rehabilitated although minor works and/or corrections were needed at some sites. IDA expects all works to be completed prior to the 1998 rainy season. Because of some changes in the dam sites to be rehabilitated, total command area (CA) was reduced from 555 ha to about 525 ha. IDA's latest estimations indicate that the reservoirs as designed and constructed will command an irrigable area of about 463 ha. This figure ignores the considerable amount of irrigation occurring, at many sites, outside the "official" CA. However, the IEM applied the SAR's gross water requirement to actual storage capacity data to relate available water to CA as determined by IDA. The actual total storage for the water reservoirs was theoretically enough, using this methodology, for over 640 ha of irrigated vegetables, well over the designed 463 ha.

It is apparent that labour-intensive rehabilitation costs about 71% of rehabilitation carried out by contractors. The real difference may be less as supervision costs using contractors may be less. On the other hand, during periods of rapid currency devaluations, the real cost of machinery and imported consumable items will increase at a higher rate than labour, thus giving labour-intensive methods a further advantage.

The design of the catchment area protection was unreasonably optimistic in expecting communities to leave catchment areas of 200 ha uncultivated and to expect the levels of co-operation visualised. The prescribed protected area was reduced to a more manageable 20 ha and eventually to 10ha. Nineteen damsite nurseries have been established and about 631 000 seedlings of various kinds of trees have been produced for planting in the catchment areas. About 147 000 seedlings have been distributed for protection of 235 ha at 39 damsites. The rest were given to farmers to plant around their homesteads.

Prior to the rehabilitation of Manga Research Station (MRS) there were few relevant recommendations available to MOFA staff for dissemination to UER farmers. As a consequence of subsequent work by researchers working out of MRS and the efforts of CSD many varieties/recommendations, have been released or produced. To the end of 1997 some 34 trials involving varieties, soil fertility and crop husbandry practices have been carried out. Nineteen of these have been published. Each "trial" is usually repeated at many farmer-owned sites over several seasons. For instance, 113 farmers reportedly had been selected in readiness for the 1996 wet season trials.

The Research Extension Linkage Committee (RELC) was used by UER since 1996. Under RELC methodology, a "grass-roots" approach has been adopted with AEAs discussing and prioritising problems with farmers and other stakeholders at each Agricultural Extension Agents (AEA's) sub-operation area initially. The deliberations at district level are further vetted by SMSs. A zonal workshop encompassing UER and Upper West Region (UWR), with RELC as governing body, is held to review previous outputs assess priorities and resources available and finalise programmes.

Due to strong local demand and the experiences of IFAD-supported SRDP, Sahelian sheep were distributed to upgrade local stock. 190 Sahelian rams had been purchased to the end of 1997 (PY 6) out of the project set target of 500 the IEM's overall assessment is that the much higher price obtained for crossbred Sahelian sheep compared to local sheep at the same age, together with the popularity of the crossbred indicates that there is a valid case for promoting the crossbred.

Since project inception the following activities have been implemented by the Crop Service Department (CSD): a) control of four significant pest outbreaks covering nearly 600 ha, in a range of crops including sorghum, millet, maize, rice and onion; b) supervision of and assistance to 109 contractor seed growers and dealers in production techniques and marketing; that about 330t of certified seed were produced and marketed; c) training of FLSs in integrated pest management in the major staple crops; d) about 600 groups with 9 000 members were trained, in insecticides safe use and handling; and e) routine pest and disease monitoring in the UER.

All 400 Community Livestock Workers (CLWs) have been trained and 160 have been provided with bicycles and basic veterinary kits. The CLWs dispense drugs, on a cash basis, provide some primary health care and act as a link between the group and district services. Most of the CLWs attention is given to his group and therefore direct services go to a small proportion of the community.

The project assisted in the rehabilitation (completed in 1996) of the Animal Traction Station at Doba (Kassina-Nankana district). In addition to catchment area protection, AESD has been involved in the following activities: a) instruction of 240 farmers in soil bunding and terrace bank construction using stones; b) 115 groups, consisting of 753 beneficiaries, have been trained in animal traction technology; and c) design and construction of onion storage facilities.

In terms of rural credit, the Agricultural Development Bank (ADB) disbursed about ¢ 2 billion which accounted for 60% of the total loan issued by all PBs. ADB provided credit to 784 groups covering 5 districts in the region which accounted for 68% of groups financed through institutional sources. In total 8 150 beneficiaries benefited from ADB financing. In contrast, rural banks participated in the project for the last two years. BESSFA covered 89 groups and provided ¢0.219 billion whereas NAARA covered 62 groups in both Builsa and Kassena-Nankana Districts. In total about 2 200 members benefited through RBs lending.

The activitywise credit flow 38% of total credit was disbursed for agriculture (both irrigated and rainfed). Among non-agricultural purposes, marketing was provided with as much as 40%, followed by IGA at 22%. Medium term credit which includes mainly bullock and donkey carts, equipment etc. absorbed an insignificant share. This emerging pattern indicates that beneficiaries preferred short-term credit for quicker repayment of loan rather than medium and longer term loans.

The low level of recovery (82%) contributed to the lower level of banks participation. The recovery performance of GCB was relatively better (92%) than ADB (81%). The reason for the better performance by GCB was its cluster approach of limited service area which facilitated better appraisal and follow-up. The limited outreach of ADB constrained its capability to monitor loans and improve recovery performance.

As against the target of 119 groups fixed in the annual budget prepared by PCU, the PCP could provide credit to 105 groups (88%). About 1570 target groups benefited under the programme about 77 % of the groups were exclusively women groups and 13% of them were mixed groups leaving the remaining 10% for men. Out of the total 15047 beneficiaries 68% were women. The volume of credit extended under PCP was ¢220 million during the project period which accounted for 6.5 percent of total disbursement.

The estimated average net family income per household of sample beneficiary during the pre linkage period based on primary data collected from the sample groups was ¢176 580 which was more than doubled during the post linkage period. In the post linkage period the net household income grew multifold in a positively correlated manner with group performance level. Thus, it was 261%, 195% and 116% for good, average and poor performers.

The total number of credit groups formed is 1264 and the number of WUAs formed at rehabilitated damsites is 27. There were 1 470 groups formed in agriculture and 400 in livestock. These constitute 518 of the livestock group target, 61% of the WUAs target, and 47% of the credit group target. No target in the design had been set for agricultural groups; instead the design specified that 3 000 farmers representatives would be formed. The number of contact farmers or representatives trained reached 334, or only 11% of the target.

Out of 44 damsites, 27 have some semblance of an association. Of these, only 17 have proper umbrella organisations in place and only 8 have their own bank accounts. The total number of members of these associations at various stages of development is 6 719, or 62% of the target. This membership figure is down from 8 990, which exceeded the target in 1997. In part the decline in membership can be explained by drought and the seasonal membership turnover at some damsites.

Women's historically lower involvement in gardening, explained by, for example, their limited access to land and their time and labour constraints, is reflected also in the current status of women's membership and positions in WUAs. In February 1998 there were about 2 566 women members (38 %) against 4151 men under the gardeners groups of WUAs. Women among fishermen and livestock owners are rare: 40 (6%) out of 618 fishermen and 125 (16 %) out of 769 livestock owners. At the entire WUA level 2 731 women make up 34 % against the total membership of 8104. In 1998 women gardeners membership outnumbered men only at 8 sites. As Table 5.4 illustrated, there are considerable variation in women's membership between the districts. At highest in Bongo 46 % of the WUA members are women, while women make up only 19 % of the all WUA members in Builsa.

All 270 Village Group Animators (VGAs) and 220 CLWs grassroots staff of DCD link groups with technical services. CLWs have been trained in animal health care. Out of a 400 total CLWs, 220 were trained in leadership and 200 in animal health; only 160 have received health kits. In the 1996 Mid-Term Survey, out of 91 VGAs, 86% were remunerated by in kind and 14% by cash from their groups. Only 71 of the VGAs and CLWs have received bicycles.

3. Effects assessment and sustainability

On the assumption that most of the WUA members are beneficiaries, the number of gardener WUA members rose from 3 592 in the 1993/94 irrigation season to 8 990 in 1996/97 and dropped to 6 717 in 1997/98. The total number of WUA members in 1997/98, including livestock owners and fishermen was 8 156 in 1997/98.

In four of the earliest rehabilitated sites the number of farmers increased from 2 144 (in 1993/94, prior to rehabilitation) to 3 755 in the first year after rehabilitation - a rise of 75%. The number of females with access to irrigation doubted to 1 863. However, by 1996/97 the number of farmers had decreased to below the 1993/94 level, partly as a consequence of water shortages at some sites. The overall number of irrigators was 3 380, of whom about 44% were women. Net returns of USD 109 and USD 53 for plots of 0.05 ha of tomato and onion, respectively were computed. These returns are very substantial dry season period given the persuasive poverty in the UER.

At full production, project interventions would result in an incremental output of 1 839 t valued at

USD 476 300. The actual incremental production is difficult to assess because data on the pre-rehabilitation situation, if available, is often inconsistent and probably based on a single year's production. In relation to SAR estimates, output in PY 6 appears to be well short of expectations. The estimated figure of 367.6 t for incremental output in 1996/97 does not cover all the reservoirs.

The food-for-work programme distributed a total of 63 100 rations equivalent to 1.5 million person-days of work. Undoubtedly the cash paid and WFP rations represent a welcomed and much needed injection of funds and food into the communities.

Through MRS efforts suitable extra early varieties of maize have been identified and promoted for wet season farming. Significant amounts of maize are now cultivated in the UER as a result of project interventions. Three early varieties of millet, harvested at 70 to 75 days as against the normal 100 to 150 days, were released. The project estimates that up to 80% of millet currently grown are made up of these varieties. The release of two new varieties of soybean, a relatively new crop for UER, has increased its area.

The project has contributed significantly to sustainability by imparting training at all levels, and promoting participating institutions such as WUA, women credit groups, VGAs, CLWs, etc. Such efforts would be further augmented with the help of NGOs.

Most rehabilitated reservoirs now have WUAs. The strength of the WUAs varies widely. The project's considerable efforts in formalising them as legal entities accountable to their membership and the District Assemblies, represent a very positive step towards sustaining project interventions.


Insufficient farmer participation in on-farm development of the rehabilitated damsites jeopardises damsite impact and sustainability. During IEM visits to some damsites, tertiary canals were not well developed, land extensions showed little evidence of bunding from last year, and some dug wells are being used instead of canals in the command area. General reasons given for lack of on-farm development were: a) inadequate rainfall and low water levels; b) land disputes between owners and users; c) high costs to farmer of on-farm development; d) poor quality rehabilitation of the embankment; and e) silting caused by animal grazing in the catchment area.

Strengthening local capacity of WUAs to sustain the damsite

None of the established WUAs are registered as a cooperative legal entity nor are the laws in place to allow WUAs to own the damsites or even manage them. Not only policies still need to be developed for farmers management but WUAs need to be trained in how to demonstrate the capacity and competence to undertake such responsibility for public resource.

With NGO involvement, farmers have become more aware of the importance of tree planting for command area protection. Their impact is still on a pilot scale with only 5 NGOs participating in a few sites.

Sustainability of credit depends on profitability of the investments and debt recoveries. The project interventions were instrumental in creating opportunities for increased dry season farming, which has adequate returns to investments. It also supported technical package that would increase productivity in wet season farming of a range of arable crops. In addition, considerable efforts were exerted to improve livestock productivity and create opportunities to IGAs. These interventions were undertaken within a social and financial intermediation effort to enhance group animation and improve their institutional and financial capacity and commitment to repayment of loans. So far the levels of repayment attained are not adequate to ensure sustainability.

There are two opinions regarding the prospects for sustainability of the project activities in terms of managerial capacity. The integration of the project into the exiting management structure of the MOFA in UER and gradually into the district should create capacity, build experience and improve sustainability.

The decentralisation of MOFA functions enhances the autonomy of the district. It will not only bring the decision making closer to the beneficiaries, but will also increase their participation, which is conducive to sustainability. This is supported by government directive that 20% of resources at district level would be earmarked for agriculture; in addition, 5% would be for poverty reduction.

Main issues and recommendations

The rehabilitation of remaining existing dams and construction of new small-scale irrigation dams should be further explored and special attention should be given to catchment area protection in the next phase.

With regard to dam construction, beneficiary communities should be involved at the conceptualisation and design stages as well as in construction through provision of labour. The proportion of manual labour to be used should be determined by the scope of the work and the labour availability at each site individually.

Provided reasonable guarantees of funds for wages and/or food-for-work are forthcoming and an adequately motivated agency with enough resources available is responsible for construction, their labour-intensive methods should be used where feasible.

A general recommendation is that IFAD should use existing institutes, which are, on the whole, well established, but whose field programmes especially in remote areas, would need considerable support, over and above the normal GOG fundings.

Emphasis should be given to the financial testing of crop packages and/or individual elements of packages. The MRSs agricultural economist should be given as much support as necessary to analyse the economics of various crops grown under irrigation and marketing intelligence particularly as irrigation production increases.

Given that the regional staff of the various MOFA will be the contact points between MOFA, as an umbrella organisation, and agricultural activities at the district and field levels, regional staff should be appropriately trained and provided with adequate operating means to provide the necessary linkages.

Formal credit institutions should continue to play an active role in the process of loan delivery to the target groups. More specifically: a) PBs should participate in selection of groups, animation and identifications of activities; b) PBs should follow-up and closely monitor, especially defaulting groups; c) Prompt payment must be encouraged through re-invigorating of the rebate scheme and increasing reward to 5%. In addition another 2 to 5% should be given to VGAs for helping groups to achieve full repayment; and d) Credit guarantee schemes need to be oriented towards smallholders by creating a reserve, for bad debts.

The mission observed that there is a need for establishing more effective financial and social, intermediation, in particular: a) The positive role played by NGOs in group formation and training should be supported by the project; and b) WUA are possible to reorganise and train as credit groups.

Following steps should be taken to strengthen the credit groups: a) The literacy programme must be directly integrated with the project activities; and b) Animation of groups particularly women groups must be further strengthened through providing adequate remuneration to VGAs. Record maintenance must be given greater emphasis.

Future project management and coordination should be integrated into the regional and district structures based on the successful experiences of LACOSREP. To ensure effectiveness of the external coordination mechanisms, the PCC should be maintained. It should be reconstructed to reflect decentralisation. IFAD should support in the next phase the institutions at the district level

To ensure financial control, project funds will be channelled through the District Director of Agriculture (DDAs) who will be held accountable for expenditures and financial returns. The financial controls should rest with the project financial management of the PCU as before.

It is necessary that in future the Monitoring and Evaluation Section (MES) should concentrate on assisting the implementing agencies to gather the needed information, without having the direct responsibility for the provision of data for physical monitoring. In this way, the MES would have sufficient time to perform its function of processing the data from IAs and keeping the PCU well informed.

To ensure that landuse plans are developed with the WUAs and that the interrelationships between catchment area protection, wet and dry season cropping and maintenance are clear to users, all stakeholders in the community need to be involved including chiefs, landowners, clan elders, and wet and dry season farmers and livestock owners when needs assessments are carried out.

More collaborative work needs to be done with NGOs. The need for technical input from NGOs for reaching women and the poor and for mobilising beneficiaries for community development activities could not be overemphasised. Three critical areas are needed: micro-finance training, catchment area protection, farmer management of irrigable land areas with succession of wet and dry season farming.

The issue of equitable and transparent land allocation needs even more serious addressing in the future. The guiding principle of land allocation should be transparency: a clear set of land allocation criteria and regular record keeping of actual land allocation, holders of plots and payment of fees. The WUAs themselves should remain responsible for the land allocation and be in a position to justify their decisions.

For enhancing women's participation in the future development, the project executors must pass the information on the dam rehabilitation and its implications to women directly and from the beginning. Special animation should be developed to involve the women, meaning they should be mobilised and given the necessary training to take decisions and not just take part in the labour.

As a means to empowering women in the irrigation management, provisions guaranteeing women's minimum representation in the WUAs should be included in the WUAs, or alternatively, in the DAs bye-laws.



Smallholders' Agricultural Development Project in the ParacentralRegion (1998)

El Salvador  
September 1998

Interim evaluation

Project design and objectives

Target group

In the appraisal document (1990), the target group was estimated at 21 000 farmers having holdings of less than four hectares; 77% of these farmers owned their property. By focusing on this group, the project sought to benefit some 8 000 smallholders directly (38% of the target group), irrespective of their land tenure arrangements. The annual income per family was estimated at USD 560. Some 7 000 farmers were to receive credit services, and approximately 2 000 women would benefit directly from technical assistance and loans for agricultural production, microenterprises and home improvements.

The post-evaluation mission, which visited the country in April 1993, brought back updated and better quality data on the project area and, as a result, the expected number of direct beneficiaries was reduced from 8 000 to 7 000. Based on the findings of the February 1994 baseline study and experience gained in the region, the number was subsequently reduced to 6 000 direct beneficiaries, i.e., 16% of the 38 000 farmers having less than four hectares who were covered in the baseline study. Of these farmers, only 34% owned the land they worked, while 60% were tenants.

Objectives and components

The project's objectives are to improve the quality of life, income levels and nutritional status of small farmers in the project area, with special attention being paid to women. The project also seeks to contribute to social stability in the area by creating long-term employment options, promoting agricultural diversification towards more productive patterns, and providing solutions to the critical situation of natural-resource conservation.

The project has eight components: (i) Credit services, for approximately 7 000 farmers, including an estimated 1 500 women. Project funds will go towards covering the costs of agricultural and forestry production, development of small agro-industries, construction and operation of 12 rural marketing centres, minor housing and service improvements, and support for works and services for rural communities by way of non-reimbursable social assistance. (ii) Extension, consisting of two subcomponents: (a) technology validation, to diversify production, improve the food supply and generate surpluses, while conserving natural resources; and (b) rural extension, to strengthen and provide resources to the extension services of the Ministry of Agriculture so that they in turn can train beneficiaries in technologies that will allow them to increase the yields of basic grain crops and incorporate new ones, such as vegetables and fruit, while ensuring natural-resource conservation. (iii) Support for Women's Participation, to ensure their active involvement in development and the improvement of their living conditions. (iv) Training, for project staff and farmers identified as leaders. (v) Marketing, including support for the formalization of the Rural Centres for Agricultural Marketing and Inputs (CERCAIs) and training for partners in various marketing aspects. (vi) Technical Assistance, to provide specific support for project activities. (vii) Project Executing Unit, which would be set up and assigned the necessary premises, equipment and personnel. (viii) Monitoring and Evaluation, to lend support to the Ministry of Agriculture and the Project Executing Unit.

Although the components remained the same throughout the life of the project, in some cases the institutions responsible for their execution changed (as a result of reforms in El Salvador's public sector) or their orientation and content were changed.

Expected effects and assumptions

PRODAP, like other projects formulated at the time, is based on the three elements of credit, validation/transfer and marketing. The basic assumption is that the available technology exists but must be validated for small farmers in the project area and distributed through a specific extension system that is limited to the target population. Since the project includes a credit component, beneficiaries would face no financial constraints to adopting these more advanced technologies. The project's marketing component should improve margins, and thus revenues, for beneficiary farmers.

With regard to improving the production levels, productivity and operating margins of these farm units, it is assumed that the farmers use little or no improved seed, agrochemicals or fertilisers, that they do not have collection facilities for basic grains and that they do not have access to formal credit from the Agricultural Development Bank (Banco de Fomento Agrícola, BFA).

Regarding the training and women's participation components, the assumption is that these components have an impact on all the others and will improve the efficiency and effectiveness of the project in meeting its targets and achieving its goals.

Other general assumptions implicit in the design are that the data available at the time of project formulation reflected the actual situation in the departments of San Vicente and Cabañas; that the national institutions would retain their same structure and functions; and that the project would focus on agricultural development without making allowances for the high population density in the project area (population density was 171 and 184 residents per square kilometre in Cabañas and San Vicente respectively - Appraisal Mission report 0228-ES, paragraph 107, June 1990), the average size of rural families and the scarce land available to each family for agricultural use.

The project's expected effects were as follows: (i) approximately 7 000 beneficiaries (including 1 500 women) would gain access to formal credit, and they would adopt technologies recommended by the project for planting new crops with high market value as part of the diversified production generated by the technology transferred; (ii) traditional crops would have higher productivities; (iii) farmers would introduce new agricultural systems that have known beneficial effects on the improvement and conservation of soil and water resources and forest species; (iv) production-oriented and service microenterprises would be set up and operated by project beneficiaries; (v) marketing processes would be based on small centres and would be more efficient; (vi) support services would be strengthened for generating, validating and transferring technology, credit, training and marketing; (vii) women would be more involved in project activities and would enjoy equal opportunities as beneficiaries; and (viii) suitable arrangements would be established and consolidated for project execution and inter-institutional coordination.

These assumptions and effects were revised to reflect changes in the local setting subsequent to appraisal (June 1990), loan signature (March 1992), loan effectiveness (November 1992) and project start-up (December 1992 to March 1993). Based on an analysis of the project's status and local developments (i.e., the signing of the Peace Accords and the launching of institutional reform), a post-evaluation mission (April 1993) recommended a series of adjustments that were to be made to the project and the annexes to the loan agreement.

The findings of the February 1994 baseline study diverged significantly from the values registered at appraisal for the principal variables and indicators, which had provided the justification for the project actions as designed. This meant that some of the basic assumptions would need to be rethought entirely.

The baseline study also showed considerable divergence from the values used at appraisal with respect to agricultural output, the use of improved seeds, fertilisers and insecticides, livestock production, and plant and equipment. In addition, the study furnished information on the target group's access to credit and extension services and a breakdown of their income by source; it also pointed up some significant differences between the two reports with regard to per capita income (expressed in current dollars).

The body of the report shows the values that were used at appraisal and those that were used in the baseline study.


Implementation context

Social and economic developments in El Salvador have had differing effects on project execution and its results.

General circumstances resulted in a series of changes within the Project Executing Unit, stemming mainly from institutional reforms that were introduced during the implementation period. As a consequence, the unit took over direct responsibility for some components that had not been assigned to it originally.

These important changes in the project's organization and operating arrangements arose as internal responses to real or perceived changes in the setting in which PRODAP was being carried out, and to the effects of weather on the productive activities promoted by PRODAP.

Project achievements

General achievements

The action taken by the various departments in carrying out the project's components, coupled with the work of the Project Executing Unit's technical staff, has allowed PRODAP to amass a substantial pool of achievements, which can be expressed numerically as a function of the project's targets.

The project provided technical and financial assistance to over 5 000 beneficiaries, thus meeting 85% of its target of 6 000 beneficiaries. Of the total USD 8 million allocated for credit services, USD 5.3 million (equivalent to 66% of the target) was placed. Lastly, the five years of actual project implementation that have elapsed thus far represent 83% of the six years called for in the appraisal document.

One particularly noteworthy achievement is in the area of community works. The USD 150 000 provided under the project to finance 100 community works on a non-reimbursable basis was able to mobilize from beneficiaries and other sources an average of USD 2.33 for each non-reimbursable dollar, thanks to the management provided by the individual organizations and committees.

Ways of enhancing the project's achievements

During its final phase, PRODAP should reassess its targets for efficiency and effectiveness, since it might be wiser to consolidate the project's current achievements than to try to increase its coverage.

The process of selecting strategies before activities are launched is an area that needs to be strengthened. Ideas need to be exchanged prior to analysing and harmonizing the targets set in each component's annual plan of work; this is a necessary step that cannot be skipped if the current achievements are to be built upon. Furthermore, recommending that this activity be included at the end of the project implementation period is a way of testing innovations that might make for better execution in future projects; in this connection, PRODAP should serve to verify methods that will yield higher levels of efficiency and effectiveness.

The project should focus on boosting the loan-recovery rate and preventing any increase in the default ratio.

Effects, assessment and sustainability

Effects and assessment of the project's objectives

The PRODAP project was launched in the midst of the 1992 Peace Accords against a backdrop of turbulence and political instability that clearly affected initial actions and decisions under the project. From the viewpoint of the national authorities, the project provided a quick and efficient government response for the rural population that had been affected by armed conflict in the departments of Cabañas and San Vicente.

However, the project's impact was limited by external developments that could not be foreseen or anticipated by the project. The agriculture sector saw sharp declines in real prices for products that could be sold on domestic markets; this lowered farmers' income levels and the sector's profitability. Family remittances had fueled exchange-rate appreciation since 1991 (with the rate dropping 7.5% a year between 1990 and 1995), and they were a determining factor in the decrease in domestic real prices, especially farmers' prices, during the period 1990-97. In real terms, the 1995 prices for maize and beans respectively were 34% and 20% lower than the base year of 1990. At the same time, imported inputs (e.g., fertilisers and agrochemicals) became relatively more expensive. This situation still exists today.

The Interim Evaluation Mission produced no quantitative evidence to describe the situation of project beneficiaries and the project area in general in a non-project scenario. It did reveal, however, that residents of the two departments felt they would be worse off without this project. The beneficiaries interviewed all acknowledged that PRODAP was the first development project carried out in the two departments and that the services were suited for both.

The project clearly contributed to the objective of social stability in the two departments, thanks to the equal access enjoyed by men and women to the project's services. PRODAP also provided and put in motion a series of unexpected support services and activities for the target population (e.g , credit, extension, support for women, training and marketing).

As a result of these activities, living conditions improved noticeably for a number of project beneficiaries, i.e., the leading producers (both men and women).

Support for livestock production (dairy cows, hens and, more recently, goats) helped to improve the diet of many beneficiaries and their families. Project support for family gardens may also have contributed in this regard.

Actions in support of women not only attained substantial coverage levels but also were instrumental in families' acceptance of the gender approach. The general atmosphere was one that fostered equitable relations between men and women, especially at the family level.

A major impact was also felt in the level of community organization for the management and execution of community works (e.g., health clinics, schools, roads, pedestrian overpasses). This was achieved by using the grant funds provided under the project to mobilize non-project resources from the community as well as from public and private-sector sources. For the 95 community works that were completed, the project's grant funds represented only 30% of the total cost of USD 470 000.

PRODAP has had a relatively low impact in terms of boosting basic-grain yields. This is owed to the fact that farmers were already using improved technologies for these crops and to the fact that actual yields were higher than those assumed at appraisal.

As for the diversification of production, basic grains (maize, sorghum and beans) continue to account for most of the cultivated surface in the project area, although several new crops have been introduced. After the farmers become familiar with the production and marketing of these crops, the operations could be upscaled and would have a major positive impact throughout the year on the level and distribution of income derived from the sale of agricultural products.

Although the target group is familiar with techniques for soil conservation and fertility management and many of them have adopted environmentally sound practices, the areas involved are too small to have any appreciable impact. As these practices are implemented in more areas, the impact will be greater. To consolidate these actions and their widespread application, PRODAP should focus on these activities up through closing with a view towards their sustainability.

One of the major impacts in terms of soil management has been the adoption of the "no burning policy"; this is a mandatory condition (beneficiaries must sign an "environmental commitment" whereby they agree not to burn stubble fields as long as they have PRODAP beneficiary status) in order to qualify for the PRODAP project. Residents acknowledge that, as a result of the project, beneficiaries and non-beneficiaries alike have stopped burning stubble fields and soil quality has benefited.

There has been no identifiable impact in terms of natural-resource management or solutions to the problems of low fertility (caused by the lack of biological regeneration) and water management in the face of the soil's dwindling moisture-retention capacity.

Impact perceived by the beneficiaries

Generally speaking, the beneficiaries rank the services and benefits generated by the project as "good" to "very good". They feel that living conditions have improved as a result of the project, thanks to its support in building self-esteem, community organizational capacity, interpersonal relations in the family and, in general, making them more knowledgeable so that they can solve problems on their own.

As concerns improvement of income levels, views varied. A small number of farmers felt that their income had increased; others reported an increase in their wealth (capitalization) but not their cash income; many, however, believed they were in about the same position or even worse off than five years ago.

The beneficiaries valued the equal access given to credit for both men and women and were satisfied with the service quality. The high default ratio was ascribed to drought, low market prices, high costs for inputs and, in some cases, poor administration of funds by the users.

The credit that was used for purchasing cattle was felt to have generated many benefits (i.e., milk for the family and community, inputs for sale). Some farmers, though, had fallen into debt and were encountering difficulties because their animals had been stolen or died or because they had very limited land and pasture available. Furthermore, livestock prices have fallen nearly 50% since the time the animals were purchased.

The beneficiaries viewed equal-opportunity access for men and women to project services as a good thing. They also acknowledge the important impact of the true change in attitudes that took place, not only between men and women but also at the level of family relations, in the form of a new, equitable distribution of tasks and responsibilities.

Another important impact was that produced by the project's comprehensive family assistance and PRODAP's desire to serve as a facilitator for access to educational services (e.g., adult literacy), health care (e.g., gynaecological examinations, eye examinations, distribution of glasses), and other services.

The construction of community works was also highly valued, because it mobilized both the will and resources of the project and the community (as well as third parties) to either upgrade or build new community works of interest to the majority of the population. The main impact was to demonstrate that, through community organization, results could be obtained more quickly and easily.

Another major impact the beneficiaries signalled was that the extension services allowed them to introduce techniques that reduced cash outlays while protecting the environment (e.g., pest management, semi-organic pesticides, organic fertilisers). Beneficiaries saw that, in some cases, the diversification promoted by the credit and technical assistance components indeed generated benefits (i.e., by offsetting low grain prices, reducing risks and bringing in quick revenue).

Few benefits were perceived in the area of marketing services, aside from the efforts to organize groups for purchasing inputs and, more recently (December 1997), the creation of farmers' markets.

Beneficiaries also recognized that their skills had improved as a result of the training provided under the project. The 25 farmers who took part in the workshop attended between nine and 17 training events, and in most cases they ended up applying or using virtually everything they had learned.

Impact perceived by PRODAP's technical and management staff

In the view of the project's technical and management staff, PRODAP was able to produce an impact thanks to the actions that allowed them to serve rural residents in the catchment area of the 12 extension agencies located in the departments of Cabañas and San Vicente.

Through these actions, they lent support for: (i) access to credit for more than 5 000 beneficiaries (including 700 women); (ii) organization for the management and mobilization of resources from various sources (e.g., PRODAP, communities, municipal governments, governmental agencies) to improve or construct works in the community interest; (iii) access to project services for both men and women; (iv) a high level of adoption of technologies (botanical and organic pesticides, preventive veterinary care, soil conservation, agroforestry); (v) the diversification of production; (vi) training in production and social issues; (vii) heightened awareness of gender issues, including a change of attitudes in many families; and (viii) organization to ensure access to health, educational and other services.

Impact perceived by the local authorities and other public-sector agencies

Local authorities

According to statements made by the local authorities and representatives of public-sector agencies working in the area, the project had a major impact mostly through the training it offered and its involvement with community organizations, which generated trust in the project. The promotion and training activities for women, emphasizing the important role women play in the field, and the strengthening of smallholders through credit services were considered especially relevant project achievements.

One of the initiatives undertaken to consolidate the project's activities has been the training of "lead farmers" (innovators), who will continue to receive technical assistance after the project closes. These leaders need to be well trained and funds should be made available to ensure that they will continue to receive technical support. With regard to the credit services, it has been proposed that local credit organizations be set up. Farmers and the members of the organizations that have been asked to participate in forming these new specialized credit agencies have expressed reservations, however, citing the risk associated with taking on additional responsibilities in handling funds. Another aspect that was said to need improvement is PRODAP's coordination with local organizations, in order to provide more support and expand the scope of the project.

Public-sector agencies in the project area

PRODAP has generated replicable work methods that could be useful to other institutions. As an example, the Adult Literacy and Basic Education Programme (sponsored jointly by the Government of El Salvador, Spain, and the Organization of American States) reduced adult illiteracy by five to ten percent in some cantons in Cabañas.

PRODAP's cooperation with programmes of other government agencies was acknowledged in such projects as the "healthy schools" and "healthy markets" initiatives, midwife training, gender training for health promoters, the construction of sanitation works, and health education for women (cytology examinations).

PRODAP made an especially positive contribution to the development of community organizations. Not only did it motivate communities to increase public participation through the small projects that it financed, but it also obliged other agencies to better train their staff to work with these organizations and to respond more efficiently to community demand.

Sustainability and how to ensure it

The three scenarios described below outline different avenues for consolidating the project's activities and ensuring a reasonable level of sustainability of the project's impact during the post-loan period. Their feasibility will hinge on the decisions made as to the action to be taken by the Project Executing Unit, the Ministry of Agriculture, and IFAD/BCIE.

Since the scenarios cover different time horizons, a few words should first be said about some features that will have a bearing on the outcomes.

The strategy decided on at appraisal was that of working with beneficiaries on an individual basis. As the project draws to a close, however, this is producing complications. Although the context changed considerably during the implementation period, no allowance had been made for PRODAP to reassess the situation midway through the project (i.e., a mid-term evaluation). It was thus not able to rechannel its action towards strengthening community groups or associations, which would have helped to ensure the sustainability of the project's impact and accomplishments.

Furthermore (and this happens commonly during project formulation), no plans had been made for the final stage and closing. During this stage, project staff are more concerned about finding new work than thinking about and planning ways to carry out the activities called for in the annual plan of work. There is also the added complication that usually (and here PRODAP is no exception to the rule) the number of beneficiaries to be added during the last year is higher, in order to make sure that the initial targets are met by the time the project closes.

The situation generally encountered in this phase (as confirmed by PRODAP) is that staff are faced with the dilemma of either seeking new work before the project closes (which means the project staff slowly dwindles) or increasing their workload in order to add new beneficiaries in line with the project's targets and consolidate the project's current achievements so as to ensure a higher level of sustainability. Most people choose the first option, since the second offers no immediate payoff and, once the project closes, staff are let go whether or not the work has been satisfactorily completed.

Depending on how many people leave the project because they have already found a new job, adjustments have to be made (sometimes extensively) in the planned level of service for beneficiaries. Tasks are reassigned to those remaining, who must now serve more people than had originally been planned for them.

PRODAP's Project Executing Unit, which has approximately 110 employees, will have to downsize gradually, not only to lessen the impact of closing in personnel terms but also to reduce staff costs – that might seem excessive – during the final phase of the project, i.e., the point at which it should seek a transition to a more sustainable model.

To mitigate the impact of these events on the project's sustainability, every effort needs to be made to ensure that actions during the final phase are of high quality and are selected carefully with an eye to the level of sustainability intended for each component, while keeping in mind the gradual reduction that will take place in the Project Executing Unit.

Scenario: project activities end on 31 December 1998 and project closes on 31 March 1999

Under this scenario, PRODAP would close with a reasonable level of execution of the proceeds from IFAD Loan 267-ES and would have used all of the funds from the BCIE loan. The degree of target attainment would be good to very good. However, in terms of agricultural development and sustainability of the project's impact, PRODAP would not have time to consolidate its actions, and an ex post evaluation would only find scarce traces of impacts that could be attributed to this project.

The following paragraphs outline the mission's assessment of the sustainability of the project's impact under this scenario.

Sustainable impacts and how to ensure continued sustainability

Extension activities should focus on: (i) adjusting local production models and consolidating the rural training centres so they can continue to disseminate technology in the communities; and (ii) ensuring that technical assistance targets mainly those farmers at medium to high risk of defaulting on their loans, and then those who, although they have defaulted, have shown interest in paying and, with technical support, could increase their ability to generate the necessary revenue to pay off their debt.

The credit activities should seek to strengthen the trust fund to ensure its sustainability. Accordingly, priority should be given to recovering loans and reducing the currently high delinquency rate. The BFA has shown no evidence of intent or actions to initiate loan-recovery procedures, and the trust agreement does not empower PRODAP to demand that the BFA take action in this direction.

The default ratio is on the rise, which means that all A and B beneficiaries have probably been reached and that the project should avoid granting new loans to the higher risk (C and D) beneficiaries. Under these circumstances, the first decision should be to clean up the portfolio rather than worry about increasing the number of new customers, who, as mentioned above, are in a higher risk category.

PRODAP has proposed setting up a process to create or strengthen organizations that could serve as credit intermediaries to channel and monitor credit services after 1999. This proposal should be evaluated carefully. It would probably be viable only if these intermediaries have proven experience in administering rural credit through local organizations.

To enhance the trust fund's sustainability – given the possibility that debts owed to the BFA may be written off (and even if this risk did not exist) – , other financial intermediaries present in the area should be signed on as quickly as possible to participate in administration of the fund, e.g., non-governmental organizations (NGOs), cooperatives, etc.

In order to ensure the sustainability of the identified impacts of the gender approach that was implemented through the activities of the department of support for women's participation and the important – albeit less publicized – advances in the consolidation of organized groups (e.g., community development associations), efforts should focus on existing groups and specifically on those in a position to complete works prior to November 1998 using PRODAP community development funds as seed money.

The 1998 Budget Act channelled significant flows of funds through the country's municipal governments. PRODAP, mainly by way of the Department of Support for Women's Participation, has had very good relations with this level of government in carrying out community works. These projects tapped existing organizations to consolidate, select and prioritize the works, as well as to manage and mobilize the rest of the necessary funding, which came for the most part from the municipal governments.

To consolidate the impact of the project's gender and organization achievements and with a longer-term view towards sustainability, activities should be focused on two lines of action: one to assist the municipal governments in identifying communities that can efficiently use the funds channelled under the Budget Act; and the other to prioritize collaboration and support for communities that meet the above conditions in order to assist them in strengthening their organization, in identifying priorities for mobilizing funds to complement those provided by the municipal governments and other sources, and in procedures for purchasing, cost control and supervision of works during the implementation period.

With respect to the training activities, the high level of skills and practices adopted by project beneficiaries allows for optimism in terms of sustainability. Training still needs to be provided to the Extension Department's technical staff in: (i) financial and economic analysis of farm units, so they may have better tools for choosing models to consolidate the rural training centres, and (ii) managing and analysing credit approval and recovery plans. The evaluations provided by the trainees will be used to identify the technical staff members who will be placed in charge of consolidating the training centres and those who will oversee credit services, particularly recovery. This involves a change in policy in that technical assistance will be offered to farmers who are delinquent owing to low production or prices, but show a clear desire to pay.

Project impacts that will be difficult to sustain

The project's training activities are not seen as sustainable once the project closes. During the remaining period, options should be sought and analysed to make the Guacotecti Training Centre and the Centre for Less Common Species self-sustaining (for instance, by offering training for non-farm employment, such as carpentry, bricklaying, painting, etc.).

Under this scenario, farmer-training activities, the community development associations and other forms of organization are also seen as unsustainable after the end of the implementation period.

The activities of the marketing and microenterprise component are not considered to be sustainable if the project were to be closed at the end of 1998. The periods for the gestation and consolidation of the processes launched under the component (e.g., the farmers' market) greatly exceed the remaining time.

Additional action that is required

Budgetary funds need to be allotted and ensured for staff who will be working on the closing of the project between 1 January and 31 March 1999.

The trust agreement with the BFA needs to be amended to allow the bank to act as a second-tier agency and thus channel resources to financial intermediaries. This might also enhance the bank's role in approving loans, since its own demand would be met to the extent that it would have to assume greater responsibility for approving and recovering credit. The amendments to the agreement should establish the arrangements and resources for hiring such intermediaries. Careful study should be given to the feasibility of hiring other financial intermediaries present in the project area. In this case, BFA's administration of the trust fund would be as first-tier bank (working directly with farmers) as well as a second-tier institution, if it is found to be feasible to work with financial intermediaries.

The following services need to be selected and hired: (i) strategic planning advisory services for PRODAP's specialists, and (ii) training in analysis of the financial and technical feasibility of production models in credit and non-credit scenarios.

Scenario: remaining funds are used by 31 December 1999 and project closes on 31 March 2000

Under this scenario, PRODAP would execute nearly 518 of the proceeds from IFAD loan 267-ES; the BCIE loan proceeds would be executed in full, as would the rest of the funds from the Government. The level of target attainment would be much higher and, in terms of agricultural development and sustainability of the project's impact, the restructured PRODAP with its new strategy orientation would be in a position to modify and consolidate its action in order to reach a level of impact sustainability that an ex post evaluation would clearly attribute to this project.

The mission's assessment of the major changes that need to be made in order to ensure the sustainability of impact under this scenario is outlined below.

Sustainable impacts and how to ensure continued sustainability

Over the longer term, extension activities should be separate from credit activities.

As in the first scenario, extension activities should focus on adjusting the production models and consolidating the rural training centres so they can continue disseminating technology to communities and also reinitiate the process of identifying "lead farmers"; the latter activity would be performed in line with the strategic options chosen and with the technical and financial feasibility analyses that are to be conducted for the various models that will be replicated in the project area. The technical teams that will assist the training centres and the farmers should be limited to three people per team (each specialist would be responsible for 10 rural training centres and 30 farmers); this will help to ensure good service and uniformity in the application of criteria. The teams will receive input from demand analyses (broken down by category, variety, quality and price) conducted by the marketing department and from a financial, volume and quality analysis of production conducted by the planning and monitoring department.

Technical assistance (as in the first scenario) should target mainly those farmers who are at medium to high risk of defaulting, and then those who are already delinquent – and are therefore no longer receiving services – but have shown an interest in paying and, with technical support, could increase their ability to generate the necessary revenue to pay off their debt.

A new credit unit, staffed with specially trained personnel, would be in charge of analysing and approving credit plans drawn up by the extension workers for new beneficiaries as well as additional credit requests from current beneficiaries. As in the first scenario, the objective of the credit activities should be to strengthen the trust fund in such a way as to ensure its sustainability, which means minimizing the default risk of new operations.

The credit unit should assist extension workers in recovering loans so as to pare back the mounting level of defaults, which is jeopardizing the fund's sustainability. This would represent a major shift in PRODAP's approach to delinquency and its impact on sustainability.

The credit unit should receive specialized technical assistance for negotiating with and for monitoring and evaluating the performance of financial intermediaries.

Under this scenario, other organizations (e.g., NGOs, cooperatives, etc.) could play a significant role alongside the BFA in channelling credit to users. The credit unit should therefore coordinate support actions for both the organizations and the beneficiaries.

Launching a system to funnel credit through various channels could boost the trust's sustainability. By involving other organizations that are able to channel credit in the communities, the project would be building a specialized local organizational base that could eventually co-administer the trust with the Ministry of Agriculture.

In order to consolidate over the long term the sustainability of the project's impact in the gender area and its support for organizations, the Department of Support for Women's Participation should focus mainly on increasing support for community organization with an eye to fostering families' acceptance and "ownership" of the gender approach.

Support needs to be provided on two levels: community organizations need to receive support for receiving funds from the municipal government and other sources, while the municipal governments and other sources need to receive support for channelling funds towards selected community works that respond to identified demand. This liaison and management support will strengthen the organizations and help to make them truly self-managing in the future.

As in the previous scenario, the direct actions provided under the training component are not expected to be sustainable once the project closes. However, the training already provided has generated installed capacity among the beneficiary population, who have acknowledged the component's impact and are putting a good deal of the training received into practice.

Under this scenario, however, training activities should respond to the new requirements of the Project Executing Unit's staff. In 1999, training should be provided to: (1) Extension Department specialists, in: (a) financial and economic analysis of farm units, so they may have better tools for choosing models to consolidate the rural training centres; (b) working with "lead farmers"; and (c) technical support for farmers at high risk of default or who are already in default; (2) the credit unit's staff, in managing and analysing credit approval and recovery plans; (3) the marketing department's staff, in analysis of margins by category, variety and quality of selected products; and (4) the staff of the planning and monitoring department, in monitoring the work of the rural training centres and the "lead farmers" with an eye to giving feedback to the system.

In the longer term, which is the time horizon of this scenario, the Guacotecti Training Centre and the Centre for Less Common Species will have self-management capacity or ensured sustainability thanks to funding from other organizations or projects.

Project impacts that will be difficult to sustain

The training activities – mainly those provided by PRODAP for farmers, community development associations and other forms of organization – are not considered to be sustainable after the project ends. However, with an additional two years for carrying them out, the currently intense levels should be gradually reduced and the activities considered most necessary should be assigned priority.

The achievements resulting from the marketing and microenterprise component are not considered to be sustainable, even with a longer execution period. The training provided and the lessons learned from the experience with the beneficiaries cannot be easily generalized and have very low group and individual sustainability.

Additional action that is required

If the Government chooses this option as a way of substantially improving the sustainability of the project's impacts, it must negotiate with IFAD on how to extend PRODAP's implementation period until March 2000, in order to be able to use the non-reimbursable funds, matching funds, returns on temporary investments and the revenue from sales and services of the Centre for Less Common Species.

If IFAD maintains 31 December 1999 as the mandatory project closing date without the development objectives and a reasonable degree of sustainability having been achieved, the Government will have to allocate the necessary budgetary funds to allow for organized closing of the project during the period from 1 January 1999 to 31 March 2000.

In both of these scenarios, the trust agreement with the BFA would have to be amended and fund-administration agreements would need to be drawn up with other financial intermediaries present in the project area.

The consulting and training called for in this scenario would be in addition to those indicated in the previous scenario.

The Project Executing Unit would also need to undergo various changes (e.g., creation of a credit unit, reassigning of functions to the Extension Department, etc.), with a gradual reduction in the overall number of its staff, depending on the transition strategy adopted.

(c) Scenario: A new IFAD project in the year 2000, to which PRODAP would

Contribute lessons from its experience

Two projects are currently under way in El Salvador with IFAD financing (PRODAP and the Rehabilitation and Development for War-Torn Areas in the Department of Chalatenango [PROCHALATE]). A new one, the Rural Development Project for the North-Eastern Region (PRODERNOR), is about to begin. Considering the geographic distribution of these projects (i.e., the departments of Chalatenango, Cabañas, San Vicente, Morazán and La Unión), there is a large area in the eastern region in which new development projects could be initiated; the area has high poverty levels and was one of those hardest hit during the war. It would be more important, though, to consolidate and apply experiences from the three aforementioned projects.

This scenario assumes that a new IFAD-financed project will be designed for the eastern region and will begin in mid-2000.

Sustainable impacts

Under this scenario, PRODAP would have closed with clear signs of the sustainability of the project's impact and it would have generated rich experience in strategies and methods for activities and actions. Two PRODAP outcomes in particular would be instrumental in maintaining development momentum in the region.

First, the managerial, administrative and technical staff from each of the various components/departments/units would have gained valuable experience in implementing projects aimed at mitigating the conditions of rural poverty and would have developed abilities and changed attitudes. These are the lessons that could be learned from this process and that constitute PRODAP's impact on the group of persons who, at different levels of responsibility, have pursued the project's actions to achieve the proposed objectives.

These actions would be sustainable only to the extent that these people continue working with development projects. Otherwise, substantial amounts of money would have been spent on training them in the various aspects of development processes, only to have them return to tasks not related to rural development upon completion of the PRODAP project.

Second, the region would have a group of strengthened and, in some cases, self-sustaining farmer organizations, as well as a support system consisting of local development organizations working to provide services to PRODAP users (NGOs, municipal governments, government offices). These organizations would be able to take over much of the planning and execution of rural development in the region, working together with the Government and the Ministry of Agriculture.

Under the scenario of a new project in 2000, PRODAP would be in a better position to carry out such a project and to channel the experience gained, thus creating good prospects for compliance with project deadlines, physical and financial targets, and development objectives.

Lessons learned and recommendations

Since evaluation is a learning experience, the following comments draw on the lessons learned and could be useful in the formulation and implementation of other projects to mitigate rural poverty in El Salvador and elsewhere.


When designing projects, it is virtually impossible to predict changes that could occur in the context during the negotiation and execution periods. Accordingly, designs need to be flexible and should include contractually predetermined progress evaluations that can be used as a basis for adjusting targets, objectives and the budget by component and cost category.

Project design should rely heavily on local specialists; and, to the extent possible, those who are involved in formulating the project should also be the ones to implement it. Here it is worth recalling the limitations that have kept projects from making any substantial changes to historical situations (e.g , smallholder marketing and intermediation systems) during the projects' time horizon.

PRODAP has shown that large project executing units can achieve good results and be well administered. However, if by the time the project closes and is transferred, appropriate arrangements have not been made to ensure the sustainability of its impact, closing can be traumatic and attention can be shifted away from sustainability as the main objective.

When designing projects, it is necessary to keep the closing and transfer phase in mind, and to indicate probable arrangements, conditions and terms of reference for the governmental and non-governmental organizations that are likely to be involved. This should be a key aspect of the mid-term evaluation.

In the future, the design stage should include an analysis of the cost differential between executing units that contract mainly with NGOs and those that are made up of officials from government agencies whose contracts include incentives for public-sector technical staff who work in project execution. Such incentives include performance contracts whereby the employee commits to specific, quantified targets in order to keep his or her job; or leasing of vehicles and equipment (e.g., computers) with an option to buy, which is advantageous for the employee and represents significant savings for the executing unit.

The success of rural development projects hinges more on the attributes of the executive director, coordinators and specialists than on the quality of the project document. Accordingly, when selecting these project officers, emphasis should be placed more on their managerial abilities than on their academic merit. This practice, which was developed by the private sector, is especially applicable to the selection process for executive directors and senior project officer positions.

Another important lesson is that a properly functioning executing unit can attract additional funds that can be channelled through project activities, thus providing greater satisfaction of the target population's needs, including actions not considered in the original design (e.g., community works).

PRODAP, like other projects, suffered from rivalry between the so-called "production-oriented" components and the others. Such situations arise from the perception that some components mainly target group problems, while the "production-oriented" components aim at solving individual problems. In the overall analysis, however, a community should not feel better because some of its members have improved their agricultural output or acquired more land, but rather because a road has been rebuilt, a school reconditioned or a community hall built.

Projects that aim to mitigate poverty should be evaluated while they are under way. This evaluation should examine, first, the objectives that are being pursued and, second, compliance with financial and execution targets. Both quantitative and qualitative targets should be analysed, although the latter are frequently pushed into the background.

Projects intended to mitigate rural poverty conditions cannot limit their actions to the rural sphere. Since migratory flows towards the city and even abroad – and these are quite substantial in El Salvador's case – are irreversible, projects must provide training in non-rural occupations so that migrants have better employment and income prospects.

Migration is virtually a necessity of life in El Salvador, and it seems to be closely linked to age. Since land is scarce, if it is divided among all a farmer's children, none of them on their own has enough space to raise a family, so migration is the solution for them. By boosting production and productivity or by changing land-use patterns (except in the case of illegal crops), rural development projects cannot match the income levels earned by migrants. As a result, a broader approach to rural development is called for, one in which training is provided for farm and non-farm activities with an eye to making the migrant labour force more competitive. This would also be a way of acknowledging that the land holds a high strategic value in terms of providing a place to live and food security, i.e., a place to raise a family and educate one's children.

The extent to which new technologies are adopted is directly linked to the cash cost involved and the time at which the cost must be covered (beginning or end of the cycle). Smallholders calculate in terms of how much they have to pay out in cash and how much they receive in cash. Food security is the first priority, with the generation of surpluses ranking second. In a scenario where the supply of land is fixed, the opportunity cost of labour is nearly zero, money is scarce and formal credit is unavailable, technologies are only adopted if they do not demand much cash and the outcomes are very stable.

The lesson to be learned here lies in the need to conduct a more thorough analysis of the processes of transfer and adoption in order to design extension systems that are more efficient and more effective. Costs must be affordable for the rural poor, so that they can be progressively assumed by smallholders and thus ensure the sustainability of the system after the disbursement period has ended.


For the Government/Ministry of Agriculture

Potential trust administrators should be identified, and the possibility of assisting the BFA with fund administration should be examined.

The advantages and disadvantages of different actions to improve portfolio recovery should be analysed, selecting the most suited ones and asking the BFA to implement them.

Specific support should be provided under the Ministry of Agriculture's Project Coordination Office (PCO), where an evaluation unit was set up for PRODAP and PROCHALATE. The monitoring work done under PRODAP should be taken into account to redesign actions and targets. Monitoring reports could be shared with the PCO, which could supervise evaluations and/or case studies. The PCO has the necessary experience to collaborate actively in defining strategies, methodologies for the formulation and monitoring of annual plans of work, methodologies for case studies and others considered necessary for strengthening progress assessments.

Implementation of PRODAP has generated rich experience in strategies and working methodologies for development actions and activities. The managerial, administrative and technical staff working in the various components, departments and units have gained valuable experience in the execution of projects that focus on mitigating rural poverty conditions, and they have developed skills and changed attitudes. It is recommended that the possibility be considered of assigning these same people to other development projects. Otherwise, substantial amounts of money would have been spent on training them in the various aspects of development processes, only to have them return to tasks not related to rural development upon completion of the PRODAP project.

Since the characteristics of poverty vary across the project area, as do the facilities for carrying out the various components, it is necessary to identify and assign priority to specific communities in order to target effective actions that the public will quickly acknowledge and associate with results. Financial resources are and will continue to be limited, so if they are spread out over the entire area, the impact will be diluted.

For PRODAP's project execution unit (Actions subsequent to the interim evaluation mission)

The unit needs to be downsized without affecting the quality of services; operating costs need to be pared back substantially.

During its final phase, PRODAP should reassess its targets for efficiency and effectiveness, since it might be wiser to consolidate the project's current achievements than to try to increase its coverage.

The process of selecting strategies before activities are launched is an area that needs to be strengthened. Ideas need to be exchanged prior to analysing and harmonizing the targets set in each component's annual plan of work; this is a necessary step that cannot be skipped if the current achievements are to be built upon. Furthermore, recommending that this activity be included at the end of the project implementation period is a way of testing innovations that might make for better execution in future projects; in this connection, PRODAP should serve to verify methods that will yield higher levels of efficiency and effectiveness.

For the final phase, the Project Executing Unit should hire strategic planning advisory services to define overall project strategies as well as specific strategies for each component. These services should continue until PRODAP closes out, with two-week review and updating sessions every quarter.

In the coming months, the project should establish closer ties with the NGOs working in San Vicente and Cabañas. It should acknowledge and work with these organizations, and explore their interest in participating in the next phase of the project and ways in which they can take part in project execution (e.g., under contract with PRODAP or independently) and contribute to decision-making (transparent arrangements need to be defined to ensure real participation of beneficiaries, NGOs, government agencies, and local governments, either through an informal network of organizations or through a more structured procedure, such as a regional development foundation).

A credit analyst should be hired to deepen the various aspects of this component and recommend actions to decrease – or at least prevent any growth in – current levels of delinquency.

One of the most important lessons is that credit must be handled by specialists. Extension workers are able to plan land use and identify credit needs, but they do not want to be "loan collectors".

Land-use plans and the technical and financial feasibility analyses justifying the credit should be simplified as much as possible. It is much more important to conduct a detailed analysis of the cash flow than of total costs (including monetary and non-monetary costs), since this provides input for adjusting credit amounts and disbursement schedules. The scarcest resource for smallholders is cash, so analysis should focus on cash flows. As a rule, family labour should not be financed, since this money is normally used for consumption, it significantly raises the amount of the credit and it is very difficult to repay in the event of drought or price shocks; however, it should be financed when it is necessary to contract labour outside the family.

Functions within the Project Execution Unit should be reassigned – in line with the new strategies selected – to the extension, training, marketing and microenterprise departments, and a credit unit should be set up.

Technical assistance should also be provided to beneficiaries who are in default, provided that their delinquency is the result of problems that lie beyond their control and that they would be in a position to honour their debts if production were boosted.

The benefits of empowering communities to become active, effective requesters of government investment funds are many but they are not enough, in and of themselves, for the communities to become the conscious "owners" of a community development project. With PRODAP's assistance, a number of communities have formulated their own proposals for improving community conditions.

This is mainly a result of the fact that communities essentially have very limited production potential. Even so, the project design, which focused on individual efforts to work the land and gave too much importance to marketing, limited families' creativity: aside from externalizing the search for solutions, it reduced the scope of the problem to obtaining credit for boosting production and being concerned with prevailing price levels at the time of sale.

PRODAP lacked a component to organize the project's beneficiaries for purposes of receiving specific project actions. Although this was not practical at the beginning due to conditions imposed by the project's formulation (as discussed above), in the course of project execution and in light of the evolving context, a department should have been set up within the Project Executing Unit to oversee organization of the project's beneficiaries and coordination of the various project activities within each geographic region. The overarching objective of the department would be to ensure "ownership" by the target population and thus guarantee sustainability during the post-loan period.


To ensure a reasonable level of sustainability for PRODAP's impacts, it is recommended that the project not close until the beginning of the year 2000, provided the Project Executing Unit undertakes to implement the remedial actions described herein. Otherwise, the proposed date will arrive without there being any better chances of sustainability of the project's impact than there are at present.

When formulating new projects, designs should not only be flexible but they should also include a contractual obligation to conduct a mid-term evaluation. This will provide feedback on adjustments that need to be made in project components and activities as well as in the allocation of resources by category.

The design should clearly show whether the project is a rural or agricultural development project or a credit project. Judging from PRODAP's objectives, it would appear that this is a rural development project; looking at the amount earmarked for credit purposes and considering the emphasis of the project's actions and the focus of the supervision activities, it seems to be a credit project.

The Interim Evaluation Mission found that the credit component was clearly oversized in the original design and that the situation was not addressed subsequent to the baseline study and its findings. This excess supply of credit led to forced demand, i.e., extension workers granted credit with low probability of recovery, as shown by the mounting levels of delinquency and the current high-risk situation.

Project designs should set the last year of a project aside for consolidating the project's achievements. It is not wise to take on new beneficiaries at this time, since the quantity and quality of actions are affected strongly by the closing phase. As part of the actions to consolidate and ensure the sustainability of a project's impact, the closing and transfer stage should be planned for and described in the formulation document.

PRODAP used considerable resources in its marketing efforts, although these had little impact on the project's overall results. The emphasis should not be on creating new marketing channels but rather on improving and/or expanding channels that were already in place before the project. Farmers normally do not stay with new channels for long, mainly because of their lack of confidence in the sustainability of the new, "imposed" channel, the risk of losing their connection with traditional marketers if the project fails, and the lack of arrangements for cash advances during the crop cycle.

An effort should be made to avoid excessive optimism or creating expectations with regard to marketing. The risks and costs of any proposed replacement process need to be gauged, avoiding simplistic analyses that might show that the organizations created under the project could easily replace intermediaries that are specialized in marketing; it should not be forgotten that the projects are temporary while the intermediaries have been and will continue to be around for a much longer time.

Nor should it be forgotten that a project's objective is not to make farmers into marketers or merchants, but rather into better farmers, with lower unit costs and better quality product thanks to a market vision (adjusting supply to demand) that makes them more competitive as a result of better quality. Thus far, achievements in terms of organizing a feasible marketing system for marketable surpluses have been very rare, very limited in nature and not sustainable.

Marketing actions need to take an entirely different, innovative approach, so as to break the chain of discouraging experiences in terms of achievements, effects and impacts.

Projects should include training for intermediaries, since these organizations generally operate on the basis of practical knowledge that they have accumulated over the years.


LANGUAGES: English, Spanish

Northern Zone Agricultural Credit Development Project

Costa Rica  
March 1998


Completion evaluation

Project area

The Northern Zone Agricultural Credit Development Project initially covered the cantons of Upala and Guatuso in the province of Alajuela in Costa Rica's Huetar Norte region. The project area was expanded in 1994 to include the canton of Los Chiles and again in 1997 to include two districts (Cutris and Pocosol) in San Carlos canton. The total area covered was 5 204 square kilometres, equivalent to 10% of Costa Rica's national territory.

Project design and objectives

Target group

The original project design estimated the number of direct beneficiaries at over 2 500 families having annual incomes below USD 2 400 (the number rose to approximately 3 000 families with the subsequent expansion of the project area); 1 700 of these families (2 000 subsequent to the project expansion) would receive credit under the project, including 400 women. To be eligible for credit under the project, producers – in addition to the stated family income ceiling – had to meet the following conditions: (a) possess not more than 15 hectares of land of which not more than 10 hectares was tillable; (b) family income must be derived mainly from farming activities; and (c) they had to use essentially family-based labour. These conditions applied both to independent farmers as well as to tenants on land settlements of the Instituto de Desarrollo Agrario (IDA), the government agency in charge of land-reform policy. As concerns women beneficiaries, the project would lend support to 200 women heads of household who were individual landowners and to another 200 who were not landowners but were willing to work in groups.

Objectives and components

The project's core objective was to raise beneficiaries' income by improving their agricultural production. The project would help beneficiaries to increase the area planted with basic grains and to diversify their production by introducing non-traditional crops (especially pineapple, palmito, citrus fruit, and plantain). The project also aimed to increase the yields of basic grains by introducing changes in the target population's production technology, i.e., progressive use of inputs (basically, new seed varieties and fertilisers), while maintaining most of the existing practices.

To achieve these objectives, the project provided a total of USD 10.3 million, in the form of an IFAD loan (DEG 3.5 million, equivalent to USD 4.5 million, or 43.7% of the total amount), a loan from the Central American Bank for Economic Integration (USD 3 million, or 29.1%), a Dutch Cooperation grant (USD 1 million, or 9.7%) and the counterpart contribution of the Government of Costa Rica (USD 1.8 million, or 17.5%). The project called for the following main actions: (a) a credit programme for USD 8.2 million (81.4% of the funding) to finance investments and working capital; (b) an agricultural extension component for USD 704 000 (7.0% of the funding) to cover the hiring of technical staff, purchase of vehicles and outfitting of the executing agency's offices; (c) a marketing component for USD 516 000 (5.1%) to build facilities for the collection and storage of grain, upgrade the executing agency's offices and hire technical staff; (d) a training component for USD 49 000 (0.5%) to train the project's beneficiaries and technical staff; (e) a women's participation component for USD 131 000 (1.3%) to support women and women's groups; (f) project administration, at a cost of USD 358 000 (3.5%); and (g) monitoring and evaluation, at a cost of USD 115 000 (1.2%).

The local executing agency was the Ministry of Economic Policy and Planning (MIDEPLAN), which was to set up a project coordination unit. The unit would enter into agreements with other public-sector agencies for the administration of project credit, extension services and marketing support, and it would be responsible for supervising progress under these components as well as executing the training and women's participation components. The credit activities would be managed by Banco Nacional de Costa Rica (BNCR), extension services would be provided by the Ministry of Agriculture, and the marketing support component would be carried out by the National Production Council.

Expected effects and assumptions

The project design made a series of assumptions about causal relationships that had a deciding influence on the project's proposed activities. These included the following:

(i) There is a direct relationship between agricultural production and beneficiaries' income levels. As a consequence, the project sought essentially to increase the area planted to crops that had been identified as income-generating and to introduce changes in production technologies with a view to boosting per-hectare yields.

(ii) Non-traditional crops (pineapple, palmito, citrus fruit and plantain) and, to a lesser extent, basic grains were identified as the activities that held the greatest income-generating potential, while livestock-raising was viewed as less attractive. Accordingly, the project strategy focused on introducing non-traditional crops while increasing the yield of and the area under basic grains.

(iii) Limited access to credit and extension services was identified as the main obstacle keeping small-scale producers from introducing new crops, expanding their planted areas and adopting new technologies. Since most of the potential beneficiaries lacked collateral, it was very difficult for them to borrow from the formal banking system. Furthermore, the presence of public-sector extension services in the project area was very weak, as was small producers' capacity to pay for the very limited private-sector technical assistance. Consequently, agricultural credit and extension would be the main tools for promoting the production-oriented changes proposed by the project.

(iv) The design assumed that technologies were already available for such non-traditional crops as citrus fruit, pineapple and plantain, and that the extension agents were familiar with these technologies. Accordingly, no financing was included for agricultural research activities or for training extension agents in working with these crops.

(v) The design also assumed that public-sector agencies were the ones best suited for executing the project's components and that strengthening these agencies was an important objective in and of itself for improving services for the rural poor. This explains why government agencies were selected to carry out the main project components (credit and extension).


Implementation context

The project was launched in October 1992, with the Central American Bank for Economic Integration (BCIE) as the cooperating institution. Implementation was scheduled to last four years, with a five-year disbursement period. Subsequently, BCIE approved a three-year extension up through June 1997, and IFAD approved three extensions (as of June 1995). The project closed on 31 December 1997.

The project's implementation period was characterized by a favourable economic environment. In the early 1980s, inflation in Costa Rica had climbed to 81% (1982) and gross domestic product (GDP) had fallen 10% (1981-82). The introduction of stabilization and structural-adjustment measures brought about a drop in inflation and recovery of GDP growth, except in 1996 when GDP declined again by 0.8%. Between 1992 and 1996, inflation shrank on average by 17% per annum, while GDP was growing an average of 4.4% per annum and stood at USD 9 015 million by year-end 1997. With an estimated population of 3.48 million in 1997, the country's GDP per capita was USD 2 590. Foreign trade flows also posted excellent performances: in 1997, exports and imports both doubled their 1991 levels, reaching USD 3 280 million and USD 4 008 million respectively. Non-traditional products were the export sector that fared the best, rising from 52.8% of the total in 1991 to 68.2% in 1997.

The implementation period also saw the introduction of structural-adjustment programmes. In the mid-1980s, the Government of Costa Rica began adopting a series of adjustment policies and reforms, with support from stand-by arrangements with the International Monetary Fund in 1987 and 1989, two World Bank structural-adjustment programmes in 1985 and 1989, and bilateral donations, especially from the United States Agency for International Development. These actions consisted mainly of financial reform, paring back public spending, deregulation of foreign trade and export promotion.

These measures were accompanied by a sharp pullback by the public sector in the marketing of basic grains, an activity in which it had participated actively since the late 1940s by way of the National Production Council (CNP). As part of the country's policy of food self-sufficiency, the CNP set minimum prices for producers and maximum prices for consumers, purchasing output from producers and importing or exporting grains in accordance with national production levels. Beginning with the 1994-95 harvest, the CNP pulled out of grain marketing for good and transferred its extensive network of collection and storage centres to producer organizations. At the same time, the Government began discouraging these crops by deregulating their prices, dismantling non-tariff barriers on imports and reducing tariffs. In January 1995, the Government secured approval of the Consumer Protection Act (Law 7,472), whereby the public sector ceased setting prices and profit margins by product area, with the exception of rice, milk and butter.

Implementation of this project coincided with the adoption of a new government policy to pare back public spending. As a result, government agencies had to reduce their allocation requests in the national budget and adjust their own budgets strictly to the amounts allocated. During the period, the Government also periodically downscaled the budget allocations for several agencies by means of legislation and executive decrees.

The project implementation period also witnessed some dramatic changes in Central America's geopolitical context. In late 1990, elections in Nicaragua brought the Sandinista regime to a close, thus defusing tension along Costa Rica's border with that country (which is part of the project area). As an outgrowth of the harsh economic conditions that prevailed in Nicaragua during the 1990s, citizens of that country were emigrating en masse to the project area. This exacerbated the already tense social situation resulting from overloaded public services, such as health and education, and pushed even more people over the line into poverty.

Weather conditions, too, were especially poor during the implementation period, and this had a major impact on agricultural activity in the project area. During the 1996-97 bean harvest, heavy rains caused significant losses, since farmers were unable to harvest roughly 75% of the planted area. In 1997 and 1998, the El Niño phenomenon produced an usual drought in the project area, lengthening the dry season from its normal three months to a full seven months.

On balance, these changes had a negative impact on the implementation context. Although the economic environment was favourable, climatic vagaries had adverse repercussions for planting decisions and crop yields, thus undermining any possibility of attaining the planting and yield targets set forth in the project design. The structural-adjustment programmes also had negative fallout for the project, for instance:

The National Production Council's decision to withdraw from the marketing of basic grains, coupled with price deregulations and the dismantling of tariff and non-tariff barriers for basic grains, dampened farmers' expectations of the prices they might receive for their harvests, which led in turn to a decrease in the areas planted to basic grains.

The deregulation of basic-grain marketing triggered major changes in the role of the government agencies directly linked to project execution. The CNP, as the agency charged with execution of the marketing component, was the one most affected by the new government policies, since it had to chart a new course for itself and find a new mission both at the national level and in the execution of the project's marketing component. The resulting learning curve had a negative impact on the execution of that component.

The policy of paring back public spending meant that the various ministries now had to work within specific spending limits. Such budgetary constraints, coupled with the complex procedures that government agencies in Costa Rica must comply with in order to hire staff and make purchases, resulted in frequent delays in these two activities for the project's executing agencies.

Project achievements

Changes in Agricultural Production in the Huetar Norte Region

Unlike the situation in the 1980s and early 1990s, the area planted each year to basic grains in the Huetar Norte region varied considerably over the implementation period, with a downward trend observed in the last three crop years (1995-96 to 1997-98). In the period 1995-98, an average of 17 700 ha were planted with beans and 3 780 ha with maize each year, representing a drop of 11% and 42.7% respectively over the period 1989-92. Rice was the only crop that steadily expanded its area, averaging 11 200 ha per year in 1995-98, equivalent to over triple the average area in 1989-92. During the last year of project execution (the 1997-98 crop year), crop levels were particularly low compared with those at the beginning of the project, standing at 16 840 ha for beans and 2 757 ha for maize, which represented a drop of 16.6% and 11.3% respectively over the annual average area in 1989-92 and a drop of 27% and 52.6% in relation to 1991-92. This decrease notwithstanding, the levels are still high in the case of beans when compared with the area planted to this crop in the late 1980s.

As less area was being planted to basic grains, the project area saw a significant increase in the area planted to root and tuber crops: ginger and new cocoyam, in particular, tripled their areas, increasing from 400 to 1 390 ha and from 200 to 687 ha respectively. Some of the non-traditional crops that were virtually non-existent in the project area during the early stages of implementation also expanded considerably. Palmito was the crop that showed the greatest growth, totaling some 1 800 ha in 1997. Other crops increased as well, although nowhere near as much as palmito: pineapple and chili peppers covered a total of 100 ha and 80 ha respectively.

Livestock activities, too, grew substantially during the implementation period. In 1991, the herd in the Huetar Norte region was roughly 400 000 head, of which 60% were beef cattle and 40% were dairy or dual-purpose (beef and dairy) cattle. Although exact, up-to-date information is not available, the technical experts calculate that the herd increased from 20% to 30% in the period 1991-98, which translates into some 480 000 to 520 000 head in 1998.

Impact of the Project's Credit and Extension Activities on the Production-oriented Changes that Took Place

The project played a significant role in the changes that took place in agricultural production in the project area. Over 3 700 loans were granted, for a total of USD 7.5 million, to nearly 3 200 families of IDA-settlement tenants and independent landowners; 14% of the loans went to women. Benefits accrued to another estimated 1 130 small-scale farmers by way of loans granted to producer organizations.

In terms of volume, 65.5% of the financing went towards investments, while 34.5% went to short-term lending. This credit allowed small producers to expand their crop areas by providing financing for 7 200 ha during the implementation period. The main crops involved were basic grains: the project provided financing for the planting of 4 400 ha of basic grains (61.1% of the crop area financed) and 2 106 ha of root and tuber crops (29.2%).

The area under cultivation for which financing was provided during the project period represented 66.2% of the area called for in the project design. While basic grains attained 64.3% of the design's target, the area planted to non-traditional crops, such as pineapple, palmito and plantain, reached only 19.5% of the target level. The area planted with root and tuber crops, on the other hand, was three times the targeted level, with new cocoyam accounting for 72.1% of the area financed for these crops.

In the case of basic grains, project credit represented a relatively small share in the financing of planted areas in the Huetar Norte region as a whole. Examining the period from 1993-94 to 1996-97, project loans financed only 3.8% of the area planted to beans and 5.3% of the area planted to maize.

Project loans for root and tuber crops and non-traditional crops, on the other hand, played a significantly larger role in terms of the areas planted to these crops in the Huetar Norte region as a whole. Project credit financed approximately 40% and 16% of the area planted to new cocoyam and ginger respectively. For non-traditional crops, the project financed a significant percentage of the planted area. It should be noted that most of the lending for non-traditional crops went towards providing strategic support to organizations of small producers who were just starting production.

Project credit was also very important in the livestock sector, which accounted for 44% of the total volume lent and 64% of the investment lending. Thanks to these loans, farmers were able to purchase over 7 500 head of cattle, and to build on-farm infrastructure and plant pastureland.

Lastly, the project made it possible for many more beneficiaries than originally anticipated to receive some kind of assistance from the Ministry of Agriculture. The ministry's technical staff supervised the credit, and they formulated investment plans, filled out loan applications and provided technical assistance during the loan periods. The technical staff also performed other, non-project-related tasks, such as conducting surveys to identify beneficiaries of IMAS (Joint Institute for Social Assistance) funds, distributing seeds, estimating losses from bad weather, taking blood samples from animals during quarantine periods, and lending assistance for other credit programmes, such as the BNCR-Republic of China Smallholder Credit Programme.

Marketing component

Despite considerable delays owing to the restructuring of the component and a series of problems within the executing agency, scheduled investments were made to upgrade infrastructure for collecting basic grains, and offices were built for the executing agency in the project area.

The main action under this component was the establishment of six agro-industries. Project credit was used to finance investments, while CNP technical staff conducted feasibility studies, assisted with building the agro-industries, the selection and installation of equipment and upgrading of manufacturing processes, and helped locate marketing channels. The component included technical and managerial training for beneficiaries. The agro-industries received investments totaling USD 376 000, equivalent to 5% of all the credit provided under the project and 7.7% of the investment loans disbursed up to 30 June 1998. Upon including the credit provided for working capital, the project's agro-industries accounted for just under USD 417 000, which represented 5.5% of the project's total credit. Three of the projects (56.4% of all the credit that went to agro-industries) were dairy-processing plants for the preparation of cheeses; the other projects processed other agricultural products.

Training component

The Project Coordination Unit coordinated training activities with the National Training Board [Instituto Nacional de Aprendizaje, INA]. The 225 training courses that were offered were attended by 2 780 farmers, or four times the target proposed in the project design. These courses included those of the marketing component and those of the INA that were designed on the basis of project demand. The main topics addressed at the training events had to do with production-related issues, such as livestock breeding management, pasture management, animal health, cultivation of beans, chili peppers and palmito, as well as basic accounting and administration.

The courses offered under the training component targeted farmers, organizations and technical staff, and used services contracted for with the Research Foundation of the University of Costa Rica (FUNDEVI) and the Agricultural and Agro-industry Research Foundation (FIAA). These agencies held 19 courses for 234 small-scale producers in such areas as agricultural accounting, milk management and industrialization, and marketing techniques. Seven courses were held on accounting, computer use and management, and statistics for CNP technical and professional staff in the Huetar Norte region (average attendance: 13 per course).

In 1995, the Project Coordination Unit entered into an agreement with FUNDEVI to provide training to small-producer organizations and women's groups in the organization, formation and consolidation of groups. Also, as part of the training agreement with the INA, it was agreed that the INA's Department of Professional Training for Women would hold courses for women's groups in the project area.

Women's participation component

The project extended credit to 299 women, that is to say, to 50% more than the 200 beneficiaries targeted in the project design. A total of 511 loans were granted to women (14% of the total number of loans granted) for a total of 154.1 million colones.

The training component held courses for women's groups in response to needs identified by the extension agents, addressing such areas as self-esteem, gender and social issues, human relations, leadership and authority, and the prioritization of problems. In August 1995, training activities were also held for the project's technical staff and officers, including a workshop on gender and equal opportunity offered by the Centre for the Advancement of Women and the Family, which is attached to the Ministry of Culture, Youth and Sports. In November of that same year, a workshop was held on the generation and transfer of technology using a gender and production-systems approach.

Under the project, 30 groups (for a total of some 350 women) received technical assistance, training, marketing and credit services. This was 75% higher than the project's target for women working in groups; the number of groups served was three times that originally anticipated.

Organization, management and supervision

Generally speaking, the work of the Project Coordination Unit (PCU) was satisfactory. Staff structure and rotation were kept to a minimum, and the coordination arrangements worked quite well. That notwithstanding, project organization and management encountered a series of problems: (i) the PCU had lacked authority for demanding better performance of the coexecuting agencies; (ii) the decision to shift the PCU outside the sphere of MIDEPLAN triggered problems in that the unit lost important physical and human support that the ministry provided in the accounting, financial and procurement areas; (iii) the project's lack of budgetary autonomy meant that the PCU and the coexecuting agencies had to go through complex procedures to hire staff and purchase vehicles, which was incompatible with a flexible execution structure and resulted in frequent implementation delays, especially during the first two years; (iv) the availability of the counterpart funding was also affected by the complexity of the procedures involved; (v) the project execution period coincided with the launching of a government policy to trim public spending, which set maximum spending levels for the various ministries and triggered delays on several occasions in the hiring of technical staff and the purchase of vehicles called for under the project; and (vi) farmers had little involvement in the project's management structure.

BCIE's reorganization led to problems with its supervision of the project: the bank cut its staff significantly and transferred project supervision responsibilities to its national offices. Although it might be expected that such a shift should have had a positive impact on the quality of supervision, the project initially suffered from the drop in staff assigned to these tasks and the time it took to adapt to the new working arrangements. This led to poor supervision results and their low impact on project execution. Despite these problems, it is worth noting that the BCIE office in San José showed interest in improving the quality of supervision in other IFAD projects. These shortcomings of the cooperating institution were offset, at least partially, by the positive contribution of the RUTA offices in San José, which lent valuable support to the project, oftentimes in areas that were the responsibility of the cooperating institution.

Effects, assessment and sustainability

Production, employment and income

Most of the credit beneficiaries lacked prior experience with borrowing from the formal banking system, so the project made it possible for them to receive credit for investment and working capital at low interest rates and without requiring collateral. While the average nominal rate charged by banks for agricultural loans over the period 1992-97 varied between 25% (in 1997) and 39% (in 1995), the project loans charged interest rates of between 18% and 20% .

Also, unlike normal loans from BNCR, project beneficiaries did not have to pay any up-front processing costs for their loans (registration, valuation and fuel for the loan officer's visit to the farm), which averaged USD 35 for a loan of USD 1 950. Project beneficiaries also enjoyed greater flexibility in renegotiating repayments in the event of poor weather conditions or marketing problems.

Under normal BNCR loans, farmers must begin repaying three months after disbursement. Since many of the crops and especially livestock do not begin yielding income until well after this period, farmers need to set part of their loans aside to be able to make the first loan repayment. Under the project, this problem was solved beginning in 1994, when payment schedules were adjusted to the kind of production being financed.

The project also helped to heighten the profile of the Ministry of Agriculture (MAG) by providing extension services to farmers who did not receive them previously. As a result of the project, the MAG was able to hire an additional thirteen extension agents to complement the eight who were active at project start-up, and to purchase vehicles for these agents to make their visits. The agents were hired permanently after the project closed, so the MAG's presence in the area and its level of service to the rural poor has been one of the key long-term impacts.

The extension services financed under the project played an important role both in the use made of the credit as well as in the production methodologies. This was owed to the fact that the credit was supervised. Since it was the extension agents who filled out the loan applications for the farmers, they had a direct and decisive influence in the choice of activities to be financed.

The project's credit and extension activities allowed beneficiaries to increase the area planted with basic grains and root and tuber crops, and, to a lesser extent, non-traditional crops. Project credit also led to the use of more inputs, such as certified seed and fertilisers. Furthermore, the project helped to introduce non-traditional crops, especially palmito and chili peppers. Loans to small-producer organizations for non-traditional crops (palmito and pineapple) gave them strategic support at a time when they were beginning to encourage their members to plant these crops.

Project services were also crucial to the expansion of livestock-raising. Thanks to project loans, farmers were able to purchase over 7 500 head of cattle, build on-farm infrastructure and sow pastureland. This led to greater capitalization of their farms and higher milk production, which translated into better nutrition for their families as well as additional income, especially during peak production periods.

Many of the tenants at IDA land settlements in the project area have land, but are unable to work it because they do not have the money to buy inputs. These farmers' income stems mainly from work as day labourers. The credit and technical assistance provided under the project allowed many of them to plant crops and buy livestock. As a result, self-employment has increased, and many of these farmers are now working their own plots (although some of them continue to engage in other work as day labourers), thus reducing the need for such off-farm work and allowing them to spend more time with their families.

Unfortunately, weather conditions during the project period had a negative impact on agricultural yields, especially for basic grains. Although the data available to the executing agency of the credit component (BNCR) do not indicate which activities have the highest delinquency levels, the MAG's extension agents and BNCR's technical staff agree that these levels are found among the farmers who used project credit to plant basic grains.

Despite the high investments in livestock activities, project credits were used mainly for the purchase of new animals (92% of the investment credit for livestock activities), with few funds being used for forage and pasture improvement (1.8%), building infrastructure (fences, corrals, etc.) or improved herd management (6.4%). Animal health and reproduction-management issues, especially for farmers with dual-purpose livestock, were not addressed adequately. Extension services also failed to lend assistance to credit beneficiaries in the purchase of animals, with the result that there were frequent problems arising from the purchase of animals with health problems or of poor genetic quality.

These problems were not unrelated to a series of constraints that affected the operation of the extension services, such as: (i) delays in the start-up of scheduled activities as a result of the Government's policy to cut back public spending; (ii) inappropriate technical assistance owing to the use of a methodology based on individual assistance and the focus on tasks relating to credit management, which was a major constraint on the time availability of the extension agents; (iii) performance of non-project-related tasks by extension agents hired with project funds; (iv) limited knowledge of most extension agents concerning livestock issues; and (v) evaluation of the extension agents' work on the basis of criteria that did not reflect the results of the technical assistance and scant input from the PCU and beneficiaries for that evaluation.

The combination of technical production-related problems and climatic vagaries during the project period led to problems with repayment of the loans. At the time of the completion evaluation, 9.7% of the loan portfolio was past due; this figure does not include bad loans (i.e., loans in default for more than a year). An analysis of the past-due portfolio as of 30 June 1998 showed that an estimated USD 297 000 (equivalent to 56% of that portfolio) was not recoverable. Most loans were more than 30 days past due, and were the ones least likely to be recovered. This raises concerns about the financial sustainability of the trust after project closing. It should be noted that a delinquency rate of 15% per annum implies a loss of 83% of principal at the end of 10 years. Rates over 20% imply virtually a total loss of the amount lent.

The agro-industries financed under the marketing component yielded direct benefits to a large number of small-scale producers. Looking at only those farmers who produce raw material for industrial processing, the number of beneficiaries at the time of the evaluation (August 1998) came to 105. Agro-industries also created jobs directly and indirectly in industrial plants, transportation and marketing. Small producers who were previously isolated or lacked feasible or economical marketing options were now able to sell their output at reasonable prices and thus raise their income levels.

Dairy agro-industries were the ones that benefited most. They were able to get better prices for their milk, which redounded in benefits not only for those who sold milk to processing plants (i.e., the direct beneficiaries), but also for those who were able to sell their milk and cheese products to intermediaries at higher prices (i.e., the indirect beneficiaries). The installation of laboratories in the dairy agro-industries, along with the establishment of a differential pay scheme for different categories of milk, led to improvements in the quality of milk and cheese products. The members of one of the dairy agro-industries (APROQUEL) have begun to pool their efforts for other activities as well, e.g., purchasing inputs such as veterinary products, forage supplements and salt for livestock.

Despite these positive impacts, the agro-industries also encountered some problems: (i) almost all of them ran into serious difficulties with marketing; (ii) most of them suffered from design problems in the areas of engineering and processes; (iii) most of them had administration and management problems; (iv) the assistance provided by the technical staff of the executing agency in charge of this component was often paternalistic, and they performed many of the managerial tasks for several years; and (v) the weak organizational capacity of the producer groups was one of the greatest obstacles in virtually all these businesses.

In sum, the project's marketing component yielded positive results, although to a lesser degree than expected. One positive outcome was the shortening of the design times for agro-industry projects, which is evidence that the executing agency learned from the problems encountered during the initial stages of the project.

Although not part of the original project design, the executing agency of the marketing component also performed the function of facilitating business negotiations between small-producer organizations and industrial and commercial-sector purchasers. In this connection, the CNP played a very important role in securing benefits for the small farmers involved. Besides establishing contacts between these farmers and a large-scale buyer, the CNP enhanced the farmers' negotiating power (thus allowing them to secure better prices in the negotiations) by supplying them with future price estimates calculated on the basis of available data on planted areas and demand characteristics.


The project's training activities produced a series of positive impacts. The main topics covered in the training events for farmers had to do with production-related issues such as the reproductive management of animals, pasture management, animal health, cultivation of beans, chili peppers and palmito, as well as basic accounting and administration. Interviews with the beneficiaries indicated that the INA courses were felt to be useful and there was good acceptance of the methodology, which combined in-class theory and with a strong on-farm practical component.

In the farmers' opinion, the pesticide application methods taught in the INA courses have led to a drop in the number of cases of poisoning. The courses also helped provide many small-scale producers with a greater awareness of the environmental consequences of overuse or improper use of fertilisers and pesticides. A further outcome has been the progressive use of organic rather than chemical-based products.

The information imparted in the courses has allowed farmers to make their own decisions on inputs (especially pesticides) without having to depend so much on the recommendations of salespeople; in many cases, this has resulted in a decrease in spending in this area.

Beneficiaries have learned techniques for diagnosing animal diseases, administering drugs and assisting with births. Some are sought out by neighbours to help in this area, which has created an additional source of income for them.

Women's participation

The support provided to women's groups under the project has helped them to solve internal organizational problems, improve relations among their members and attain a higher lever of maturity and consolidation as a group. By taking part in groups, women were able to share their experiences and opinions, perform activities other than routine household and farm chores, and feel useful to their families and communities.

Women accounted for 11% of the total credit volume and 14% of the total number of loans. Although 299 women received loans under the project, not all of them were heads of household, so there may have been numerous cases in which men had control over loan proceeds that had been granted, officially, to women. Overall, women's participation was low, bearing in mind that livestock credit (which is normally for higher amounts) is requested mainly by men.

Post-loan period

Although the project design did not explicitly address sustainability during the post-loan period, the PCU – with advisory assistance from RUTA – prepared a proposal for the post-loan period (Proposal for Extension of the Implementation Period and the Project Area). The document, which was presented in July 1996, proposed a strategy to ensure the continuity of project actions after the loan contract expired, in order to maintain the supply of services (credit, in particular) offered to the poor rural population during project implementation. The most salient feature of the proposal was the concern and effort of the PCU and RUTA to recommend specific actions for the post-loan phase that would ensure effective use of the trust and continuity of the services provided under the project during the implementation period.

The execution arrangement proposed for the post-loan period was built around the credit trust, which would serve as the basis for developing other areas and services to enhance impact and promote sustainability. The trust would be administered as a development fund and would include producer organizations in decision-making and loan intermediation. For this, a series of conditions needed to be met; at the time of this evaluation, some of them had already been met, others were in process and yet others had to be modified in light of legal constraints. Key among these conditions were the following:

The extension agents hired with project funds on a temporary basis to work in the MAG's extension services in the project area would be hired permanently by the ministry, thus ensuring continuity in the supply of such services to the rural poor. Approved in early 1998, formalization of the definitive hiring was still pending at the time of this evaluation.

Credit intermediaries were to be included in the administration of loan proceeds during the post-project phase. For this, an addendum (No. 4) containing the legal conditions that would allow for these agents to be included was drawn up by the PCU with support from RUTA. Approval of the addendum was going through a difficult period of negotiations and had not yet been agreed upon at the time of this evaluation.

The technical coordination and management of activities would remain the responsibility of the PCU, which would have the same structure as during the implementation phase, i.e., a project director, a technical coordinator, a monitoring and evaluation unit, and an administrative/accounting support unit. The PCU would have functional and operational autonomy and would be the executing agency for policy, guidelines and action strategies during the post-loan phase.

Agricultural extension would continue to be the responsibility of the Ministry of Agriculture, whose current technical team would be maintained and would perform similar functions. IDA would take on a greater role in some of the project's aspects, such as strengthening of producer organizations, support for securing legal status for producer groups and support for authorization to allow plots to be used as loan collateral. Training activities would continue, as would support for agro-industry projects, with an eye to consolidating existing businesses and strengthening new such projects administered by organized groups in the region.

A series of considerations have been outlined that need to be borne in mind as part of credit administration, e.g., criteria for setting interest rates and selection of beneficiaries. Credit would be delivered through BNCR and financial intermediaries. BNCR would gradually reduce its involvement up to the year 2008, by which time the intermediary organizations should be administering all loan proceeds. Two kinds of organizations would be eligible to be financial intermediaries: (a) organizations with successful experience in managing loan proceeds and that have objectives similar to the project's, such as FUNDECA and FUNDECOCA; and (b) new credit organizations administered by organized farmer groups.

The development fund's operating costs would be covered by two sources: government allocations, in the form of staff assignments and some of the operating costs; and the return on short-term investments of the investment fund (up to 40%).

Main issues and recommendations

Based on the aforementioned positive aspects and the problems encountered during the implementation period, the following recommendations can be formulated for the post-loan period:


In view of the significant investment made in livestock purchases during the project's execution phase, extension services in the immediate future should focus on better feeding and reproductive and health management of the herd. Investment credits for livestock should attach priority to forage and pasture improvement and the building of support infrastructure for livestock production.

Since the small-scale producers who enjoyed the highest increase in revenue were those who had planted non-traditional crops (e.g., palmito and chili peppers), while those who focused on basic grains encountered difficulties with such aspects as paying back their loans, extension services and credit should be continued and should focus on promoting non-traditional crops.

Contract negotiations that involve marketing issues between small-producer organizations and commercial and industrial concerns should include provisions for extension services.

MAG extension agents who work in the project area should receive intensive training in livestock-raising and non-traditional crops so they can meet existing demand adequately.

Bearing in mind that the project's extension methodology did not allow for adequate assistance for beneficiaries, an effort should be made to promote group-based extension in line with recent MAG efforts.

The project's design took a traditional approach to delivering agricultural technical assistance, working through government extension services. Building on the experience of other rural development projects, extension services in the project area should consider the possibility of enhancing the rural poor's ability to hire private extension services. This could be done, for instance, by subsidizing small-producer groups during a prudent period so they can hire NGOs or individual experts.


Steps should be taken to give the trust's administrators greater incentive to collect loans, and arrangements should be developed to enhance or expand the fund. For instance, the credit fee paid to BNCR or financial intermediaries could be made contingent on loan recoveries.

In the short term, it is recommended that the measures launched near the end of project implementation to reduce portfolio delinquency be continued and strengthened. The credit component should aim for maximum recovery of due and past-due loans, while cleaning up the past-due portfolio. Recoveries could still be made this year, with an eye to boosting the current revenue of the credit fund. The next step would be to reorganize the portfolio after identifying the clientele best suited to the fund.

The recovery of outstanding loans is a priority task, and an action plan should be launched immediately to work with clients on a case-by-case basis. An effort should be made to secure payment from delinquent borrowers and bring them back into the programme, while using all available legal means to secure payment from borrowers with the ability to pay but who refuse to honour their commitments. Individuals who are unwilling or unable to pay should be excluded from the programme. Special incentives should be considered for technical staff in order to speed up recoveries, e.g., giving them a modest percentage of the amount recovered.

To ensure the trust's financial sustainability, there should be strict monitoring of the cost-benefit structure and of interest-rate management, eligibility criteria and loan collections in line with this objective. The project's interest rate was not sufficient to cover the real cost of funds, and this will have an impact on its sustainability in the medium term. An interest rate needs to be calculated that is positive in real terms and able to cover both the operating costs and bad loan provisions.

The trust should not concentrate its lending on a small group of activities, as was the case during the execution period. By diversifying, it will reduce the risk posed by weather conditions or downturns in product prices.

When credit is channelled through financial intermediaries, it is worth recalling that – although there are numerous advantages (e.g., they would have their own target population, experience, an established work methodology, familiarity with the project area) – they cannot cover a very high number of beneficiaries. BNCR could continue to play a relevant role in the direct management of loans.

Since financial intermediaries are only starting to develop in the project area, considerable effort will be required to strengthen them.


Work with agro-industries should focus on consolidating the businesses that received support during the execution period, rather than setting up any new businesses. Specifically, a timetable should be drawn up for support activities; it should cover a well-defined time horizon and assign priority to a manageable number of objectives and targets, such as the opening of markets, management training and better use of installed capacity.

Any new agro-industries that are established in the medium and long term should draw on the lessons learned from this project, for instance: (a) give priority to working with established producer organizations whose members already have experience with joint work in other areas, rather than organizations that are formed for the sole purpose of starting up an agro-industry; (b) target efforts at identifying and opening markets for goods produced by these businesses, an aspect that was clearly overlooked in the agro-industries covered under the project; (c) avoid taking a paternalistic approach; and (d) create more flexible support options for agro-industries, in terms both of design and of period of operation. Bearing in mind the vast number of areas in which experience is necessary in order to serve agro-industries, consideration should be given to the possibility of hiring several government or private-sector agencies to lend assistance to these businesses, depending on the nature of the work and business involved.

Following the example of small-producer organizations in the project area, projects that promote non-traditional crops should tap the interest of industrial and commercial firms in having a steady supply of good quality product, promoting the negotiation of contracts among them. Building on the experience of the executing agency and NGOs that provided effective support to producer organizations in their negotiations, the CNP could focus its efforts on linking these organizations with potential buyers and offering them marketing advice during negotiations.


The project's collaborative ties with the INA enabled it to make an important contribution to the training provided in very diverse topics. However, the INA training scheduled for the medium term needs to be linked with more flexible training activities that dovetail better with the release of loan proceeds, especially when borrowers are working in new areas of activity (or areas that they have limited familiarity with from a traditional approach). If farmers have to wait several months for training, it could jeopardize the investment made. Accordingly, INA training needs to be complemented by more flexible training sources.

Extra training should be made available for farmers who do especially well in courses on livestock production, offering them more advanced training that will allow them to render services on a remunerated basis. This would create alternative sources of income for small-scale producers, while making necessary services available to poor farmers.

Activities and courses on organizational strengthening should be stepped up, both for technical staff and for the farmers, since the sustainability of the project's actions will hinge, to a great extent, on the strength of the producer organizations.

Lessons learned


Project design and implementation should give attention to incentives for the extension agents' work, providing adequate incentives and seeking to avoid distortions in the existing incentive structure. For instance, the practice of hiring project extension agents on annual contracts meant that, over time, they received lower salaries and fewer benefits than did the agents who were permanent employees of the Ministry of Agriculture. Projects should seek to avoid significant salary differentials between an agency's technical staff who are assigned to a project and its other technical staff. One solution might be to have the salary of extension agents include some sort of bonus based on performance reviews.

Project designs should spell out the supervision and evaluation arrangements for extension services, especially in two areas: (a) defining indicators that give preference to the outcomes of extension work, and (b) defining mechanisms for beneficiaries to have a role in the supervision and evaluation of extension agents. Designs should give the PCU a greater role in the supervision of extension services, including the power to ask coexecuting agencies to replace agents who are not performing adequately or do not fit the required profile. Beneficiaries should also be able to request the replacement of an extension agent after an initial trial period.

Project designs need to separate credit management from extension activities. Credit management took up a significant part of the extension agents' time and considerably cut into the time they had available for the specific tasks of agricultural technical assistance.

Supervision by the cooperating institution should pay special attention to specific extension-related aspects, particularly the technical features of the projects as described in the loan applications. Since these applications determine in what production activities the credit funds will be used and how the activities will be carried out, their quality is a key factor in project performance. Technical proposals need to be congruous (e.g., if animals are being purchased, is forage and pastureland available?), and output indicators need to be realistic and differentiated for each producer.

The technical staff of the extension services need to have specialization in the activities to be promoted by the project. When a project moves towards production-oriented activities that were not included in the original design, the cooperating institution should be attentive to the extension agents' new training needs and propose that specialized agents be assigned to these activities.


Project designs should take care not to overestimate credit requirements. Since speeding up the disbursement rate of an oversized portfolio is generally associated with the funding of quick-investment activities (e.g., the purchase of livestock) and a relaxing of the eligibility conditions for beneficiaries, the most likely result is an increase in loan delinquency and significant losses for the fund. Project supervision should pay special attention to pressure that might be applied at different stages of execution to speed up the disbursement rate.

Agreements with administrators of the credit component need to be flexible so that they can be adjusted or renegotiated as the project progresses. They should include incentives to increase the trust administrator's interest in recovering loans and expanding the fund. For instance, credit fees should be tied to portfolio recoveries.

Projects should seek ways of replacing the collateral requirement, without resorting to alternatives that are overly costly for the credit being granted. The practice of using cross-guarantors may entail a hidden cost for borrowers, since the guarantor is vouching not only for the borrower's loan but for someone else's as well. This arrangement is not particularly suitable, especially if the amounts involved are considerable and the farmer's ability to pay is limited.

The delinquency rate should reflect the lending portfolio's bad-debt risk. Accordingly, if a loan is deemed unrecoverable, provision should be made not just for the specific payment due but for the entire balance of the loan. Basing delinquency rates solely on the outstanding balance of loan payments due underestimates the rate and hides the true magnitude of the past-due portion of a portfolio.


Under certain conditions, agreements with agro-industries and commercial firms can be an important instrument that enables small-producer organizations to find new markets while giving them access to new technologies. The key to the success of these agreements lies in increasing the negotiation capacity of small producers by making information on markets available to them; this helps to offset the information asymmetry that typically favours the companies. Projects could therefore fulfil an important role by supporting public and private agencies (e.g., NGOs) that lend legal and marketing advice in negotiations between small producer organizations and buyer companies.

Projects that focus on verticalization of production as their core strategy for improving the marketing of agricultural production should be aware that they impose new and complex tasks on beneficiary farmers, such as the sale of an industrialized product and the hiring of staff for the plant and equipment repairs; these are areas in which they normally lack any kind of knowledge.

Starting up an agro-industry is a complex, collective undertaking, and requires a small-producer organization with at least a minimum level of stability and experience. Rural development projects that foster this type of initiative should ideally work with established organizations that meet these conditions, rather than promote the formation of a new organization to operate an agro-industry.

Rural development projects that promote the creation of agro-industries need to be aware also of the complexity of these activities for the executing agency. Indeed, agro-industry projects include aspects of engineering, industrial processes, marketing and administrative management, each of which has specific features depending on the type of product (e.g., dairy products or cardamom). It is difficult, therefore, for a single institution to perform all the necessary tasks for successfully carrying out agro-industry projects. It is better to work with more flexible alternatives, such as hiring various agencies according to the nature of the task and business involved.


For IFAD to design policies on the administration of trusts and projects during the post-loan stage, it needs to have knowledge about experiences that have yielded positive results in this area. While it may be difficult to identify such experiences at present, there are some relevant projects in Central America that are nearing completion. IFAD should continue to conduct ex post evaluations of this and other projects, paying special attention to analysing post-loan experience.



LANGUAGES: English, Spanish

Orissa Tribal Development Project

March 1998

Completion Evaluation


The IFAD Completion Evaluation (CE) mission of the Orissa Tribal Development Project (OTDP) visited India from 9 to 21 November 1998.

The objectives of the evaluation were to review the overall implementation performance of the project, assess the socio-economic and environmental impact of the project, and draw out a series of lessons learned to assist IFAD in designing and implementing future projects and programmes in India and elsewhere.

In terms of evaluation methodology, some background work was conducted prior to the mission. Firstly, a project profile was prepared by reviewing OTDP supervision reports and related documents available in-house, highlighting major decisions taken during implementation and the outstanding issues which the CE mission would follow-up on. Secondly, a rapid rural appraisal (RRA) was commissioned by the Office of Evaluation and Studies (OE) in the month of October 1998 to collect primary data on project activities, the beneficiaries and a control group. Finally, in terms of data collection, the evaluation team was provided much secondary data by the counterparts, and qualitative information was gathered directly by the mission during its field visits conducted in the project area.

With regard to field work, the mission initially spent a few days in Delhi meeting several officials of the Government of India (GOI), World Food Programme (WFP) and United Nations Development Programme (UNDP), before proceeding to Orissa. In Bhubaneswar, the mission held discussions with concerned Government of Orissa (GOO) officials, as well as with other institutions related to the project. The mission then travelled to the project area, where extensive discussions were held with the tribal communities (beneficiaries and non-beneficiaries) and project authorities. A wrap-up meeting was held in Bhubaneswar on 21 November, chaired by the Secretary of the Harijan and Tribal Welfare Department (now renamed as the Scheduled Tribe and Scheduled Caste Development Department), where the CE mission presented its initial findings and conclusions.

Project design and objectives

The OTDP was approved by IFAD's Executive Board in December 1987. The loan became effective in May 1988 and closed in December 1997, following a 21-month extension. The total project cost was USD 24.4 million, out of which IFAD's loan at a highly concessional rate was equal to USD 12.2 million. The project was co-financed by the WFP in the form of a grant of USD 1.4 million, and the balance was made up of domestic contributions. IFAD's co-operating institution for the project was the United Nations Office for Project Services (UNOPS), and the executing agency was the Harijan and Tribal Welfare Department of the GOO. At project closure, 84% of IFAD's loan was disbursed, although by 8 June 1998 all remaining funds had also been disbursed.

Target group

The beneficiaries consisted of some 12 500 tribal families and another 4 000 local non-tribal households.

Objectives and components

The objective of the project was to achieve a sustainable economic uplift of the tribal population with a spread of benefits that would reach the weaker and most disadvantaged section of the community. The project was to achieve its objectives through an integrated programme of investments in agriculture production and natural resource development (for which 42% percent of the loan was reserved), human resource development (6.5%), rural infrastructure (10%), land survey and settlement (5.5%), and implementation management support (8 %). In addition to these components accounting for 72% of IFAD's loan (base costs), a physical contingency of 2% and price contingency of 26% were included.


Project implementation performance

The OTDP played a useful role for tribal advancement in Kashipur. Good achievements were made in the infrastructure development component, and appraisal targets were even exceeded in some cases, e.g., 130 kms of rural roads were upgraded/constructed (as against the 120 kms envisaged), which now provide a vital lifeline for transport and communications in an area where access to remote villages/tribal areas previously was very treacherous. In addition to rural roads, the project saw the construction of ten bridges, five community centres and three health centres. However, the evaluation mission noted that on the infrastructure side, the post-project upkeep of the investment and its longer-term sustainability will be difficult. This is exacerbated partly due to the lack of a true participatory spirit in infrastructure development activities, and thus, the lack of ownership by the tribals, and partly due to the weak commitment on the part of the GOO in the maintenance of the structures. Another interesting aspect related to infrastructure development was the wage employment generated during the project - the tribals were provided both with food-for-work and a token salary in return for their labour in developing project-related infrastructure. However, once infrastructure activities were completed, employment opportunities were absent, thus leaving the tribals without the cash-in-hand they had received through OTDP. Having got used to cash-in-hand, the tribals have been forced to revert again to moneylenders, which has only aggravated their indebtedness problem.

Another area where the project was relatively successful was in land surveying and settlement activities. In fact, the project played an instrumental role in land surveying and distribution to tribal families. During the implementation period, in 236 villages a record of rights for dongar (hills) land was issued to 6 837 tribal beneficiaries (in the names of both husband and wife) covering a total area of 17 175 acres. This has added significantly to the social and economic securities of the tribals. However, the aspect that still requires further clarification is the conservation and management of common property resources, which are a significant source of livelihood for the tribals.

The project also made some achievements through the agriculture and natural resources development component. The activities undertaken had a reasonable impact not only in increasing the resource productivity of the area, but also in transforming the eco-system of the area and living conditions of the people. The project introduced the replacement of traditional and low-yield varieties of seeds by high-yielding hybrid varieties, and constructed 221 water harvesting structures for irrigation. Similarly, other achievements under this component include 3 111 hectares of land brought under vegetative cultivation, 5 595 hectares of land under green manuring, and the construction of 5 320 gully control structures. However, some areas which did not fair well include the construction of diversion dams, and vegetative bunding, which has been done only on 50% of the land targeted. Further, a major problem with this component was the lack of marketing possibilities for agroforestry products and weak technical backup for irrigation activities. Here, the sustainability of activities are also under threat. For instance, the various inputs (seeds, agricultural implements, etc.) provided free or at a highly subsidised cost during implementation are no longer available to the tribals, and no mechanism was instituted to ensure the timely and regular supply of inputs once the project ended.

The human resources development (HRD) component performed below expectations. Activities envisaged here were crucial for community capacity building, social mobilisation and to provide the required motivational foundation for the successful implementation, impact and sustainability of the project. To carry out the tasks under the HRD component, the project appointed an NGO, Agragamee, which had a good reputation at the grassroots level. In the initial period, the work of Agragamee steered the project on the right track by holding training sessions to build awareness and motivate people, as well as educating the tribals in some important environmental and social concerns. However, in the course of implementation, the relationship between Agragamee and the project management unit (PMU) became strained, which led ultimately to the withdrawal of the NGO from the project. This created a void in a critical area and the PMU tried in vain to implement some HRD activities. On this issue, the evaluation mission's opinion is that, in addition to other reasons, what led to the NGO's pullout was a "power-struggle" that had developed within the project between the NGO and the PMU. The former believed that the PMU was not taking into account sufficiently the tribals' views and priorities in implementing project activities (i.e., a participatory approach was lacking), whereas the PMU saw the NGO as a spokesperson for the tribals not interested genuinely in their welfare, but was more concerned in promoting its own political agenda. The PMU further felt that Agragamee was training the tribals in a spirit not conducive to meeting project objectives. The withdrawal of a grassroots NGO from the project seriously curtailed the project's performance and has put its sustainability in jeopardy.

Another area which caused impediments to implementation was project management. First and foremost was the frequent change in project managers. The OTDP had in all twelve project managers in an implementation period spanning nine years, which obviously prevented a minimum degree of continuity. Although two project managers performed very well, this was insufficient to build relationships with all concerned, and to gain the confidence of the target group. Secondly, project management followed a top-down and centralised approach, which did not put people at the forefront, thereby creating a serious shortcoming of the programme. Co-ordination amongst the various project partners (line departments, NGO, PMU, beneficiaries) caused added difficulties, and the M&E function was inadequate due to weak personnel capacity in this area, which contributed to a lack of reliable data on the various components. These problems caused inappropriate management decisions to be taken. Finally, OTDP auditing was weak and several concerns raised in audit reports were only addressed partially.

Project disbursement and supervision

During the initial years of implementation the pace of disbursement was very slow as compared to appraisal projections. This was due mainly to two reasons: (i) a constant devaluation of the SDR-Rupee exchange rate, which more than doubled during implementation as compared to the time of loan negotiations; and (ii) cumulative expenditures, in Rupee terms, were low due to delays in the civil works components, particularly the rural roads construction/rehabilitation. At the time of the project's original closing date (31 March 1996), 51 percent of IFAD's loan had been disbursed. However, upon the recommendation of UNOPS and the request of GOI, IFAD extended the project till end-1997 to enable full disbursement of its loan and an appropriate completion of the works. By project closing date, 81 percent of IFAD's loan had been disbursed, and by loan closing date (8 June 1998), all IFAD funds has been expended.

UNOPS as the cooperating institution was responsible for: (i) supervising the project; and (ii) administering the loan. UNOPS mounted supervision missions twice a year, each year during implementation. In addition, a detailed Mid-term Review (MTR) was also organized in 1993. In terms of man-days spent for supervision, each mission spent an average of 8.3 days on the job, including field visits to the project. The quality of loan-related data, project output, and financial data presented in the supervision reports are adequate. The reports have also been quick to describe immediate issues that required rapid IFAD follow-up. The MTR of 1993 was also important as it identified areas where progress was lagging, and provided a series of recommendations to improve project implementation and impact, including the need for extending the project's duration, adjusting project design and targets, and the need for loan funds reallocation to meet the project's expenditures and increase disbursements. On the loan administration side, UNOPS has performed well. Requests for disbursements presented by GOI were examined in conformity with the Loan Agreement. Further, UNOPS adhered to international guidelines for procurement agreeable to the Fund.

However, there are some areas which would have required greater UNOPS follow-up. For instance, despite the fact that nearly all aide-memoires of supervision missions repeatedly expressed the need for improving the reporting, auditing and M&E functions of the project, such problems were not adequately taken-up in the supervision reports which followed, nor was IFAD's attention sufficiently drawn to these matters. Finally, reviewing the composition of all supervision missions, barring the MTR, most of the times a financial analyst was the only expert along with the concerned UNOPS staff to participate in the job. The project would have benefited from the occasional participation in supervisions of selected technical experts, such as in agriculture, irrigation, training, M&E and project management.

Monitoring and evaluation

Overall, the project failed to implement an effective M&E system. This was due to a series of reasons, including (i) inadequate budgetary allocations for M&E; (ii) lengthy vacancies of key positions within the M&E unit; (iii) delays in provision of technical assistance for supporting M&E; (iv) the benchmark survey was not conducted; (v) monitoring formats and indicators were devoid of quality aspects, and the reporting mechanisms did not enable efficient and timely reporting; (vi) limited beneficiary participation in collecting and verifying data and results; and (vii) inadequate expertise and training of staff and beneficiaries in M&E concepts and processes.

Analysis, impact and sustainability

There are three specific design issues, which, in the opinion of the evaluation mission caused implementation difficulties. These include: (i) formulation from above: the OTDP project was conceived and imposed from above. State government officials prepared the plans for tribal development, in which some central government officials also took part. IFAD on its side provided a broad format for project development, but the process of formulation did not bring in innovative approaches and measures. The Fund appeared more concerned with satisfying the technical requirements to ensure the approval of the loan by its own governing body. Hence, the OTDP was designed in such a way that it did not break away from the path of tribal development already in operation in the proceeding three decades in India; (ii) implementation by bureaucracy: if the project was formulated from above reflecting the official thinking on tribal development, its implementation was largely done through the bureaucracy except for a brief two-year period when Agragamee was assigned the responsibility for HRD; and (iii) a techno-economic approach: the approach to tribal development embedded in the project had lacunae. It was essentially a techno-economic intervention. Its principal concerns were raising agricultural productivity and building rural infrastructure, especially roads. The component of land survey and settlement was a derivative element from the overall techno-economic perspective. The three other components of the project namely, HRD, and the development of commerce and applied research were not seen as springboards of development. They were allocated small proportions of the budget and were tagged to the two supposedly more important items namely, agriculture development and rural infrastructure.

From an agricultural point of view, the allocation of parcels of lands and the provision of land titles has reduced shifting cultivation practices in the areas targeted, having a positive impact on the agricultural and natural resource base of the block. However, as far as the fundamental aspect of land rights and security is concerned, the completion evaluation feels this still is an issue despite the good work done by the OTDP in land surveying and settlement. Further, with regard to land rights in tribal areas, there is an additional feature of prime concern which the project did not address satisfactorily, that is the practice of community ownership over forestlands.

The OTDP did recognise the village rights over dongar (hill) lands, but accelerated the process of privatisation on a household basis. In fact, much of the community owned land was individualised, and land titles were recorded jointly in the names of both spouses, which has enhanced the role and status of women and provided them with better social and economic security. While this step was welcomed, the package of privatisation of property upset the existing social security for the tribals. Now smallholders in distress could lease their land to moneylenders and others or be mobilised by the development process for eviction, settling for cash compensation for their piece of land. In fact, this has happened in several areas in Orissa as a result of the development of alumina projects funded by multi-nationals.

Hence, the community as a whole ceased to protect their dongar lands now that it has been split into pieces of privately owned land. Further, following the central legislation introduced in 1996, the Gram Sabha (Village Assemblies) in tribal areas have been entrusted to protect the community rights over land and forest. The OTDP preceded the Panchayati Raj enactment, and unfortunately this power is not being exercised by the Panchayats in many tribal areas. In Kashipur itself, the GOO has notified the transfer of tribal land to the alumina project companies without consulting the local Panchayats.

The participation of tribals in the HRD programmes was low. The guidelines suggested for the involvement of a reputed NGO to implement the HRD programme, including educational and skill development programmes, as well as training to build awareness on issues such as environmental concerns, social conditions, trading practices, and legal and land rights. However, participation suffered, especially following the withdrawal of Agragamee from the project, and the target groups were no longer active partners in the OTDP. Their concerns and priorities were not reflected adequately in the annual work programme and budget of the project. One of the reasons attributed to the lack of participation is that the HRD wing of the PMU did not have the capacity, nor desire to build a true spirit of partnership with the targeted population.

The quality of training imparted under the project was questionable. The contents of the training programmes did not cover many important areas, such as environment concerns, social reforms, exploitation in trading, money lending and women's rights. The extreme importance of integrating education and health programmes in the context of agriculture and rural development activities was also not addressed by the OTDP.

The OTDP recognised the need to build strong people's institutions in the villages which could (after project closure) take over management of the infrastructure and assets created during implementation. It was also acknowledged that the overall people's participation would be a crucial ingredient for the success and sustainability of project initiatives and activities. The project thus promoted: (i) Water User's Society (WUS) to foster participatory irrigation management and maintenance of the irrigation assets with the collection of water user charges from the members; (ii) Village Committees for different project activities, with the objective of playing an active role in programming, planning and implementation of the activities; (iii) Women's Committees and Self Help Groups; and (iv) non-formal Education Centres.

However, for such type of grassroots capacity and institutional building, the withdrawal of Agragamee marked a turning point, and although the HRD wing of the PMU opened up 278 non-formal education centres, set up 42 grain banks and has provided training to 250 teachers and 76 Village Committee leaders, the local population was not able to build and develop capacities for sustainability. For instance, with respect to WUSs, the members were not willing or convinced regarding the payment of user charges for maintenance of the irrigation assets. Only three women's SHGs were formed, and the members are not sufficiently motivated to contribute regularly to the groups, and instead were mostly interested in wage earning from project-related activities. Finally, as for the non-formal education centres, most emphasis was paid on adult education with little provision for primary education and involvement of women. In general, these institutions were formed under government instructions, with absence of any motivational and participatory management strategies. It was unfortunate to observe that in the absence of such motivation, almost all WHSs and other civil works are also in need of attention.

OTDP introduced changes in the cropping pattern and land use as a result of inputs and technology provided under the agricultural and natural resource development component. With the introduction of new technology, there had been a perceptible change in cropping patterns and better utilisation of land. Farmers have started cultivating cash crops like sugar cane, potato, onion and garlic, which have resulted in better returns to the farmers and more nutritional value to the village consumers. The cultivation has been extended to almost the entire year, while earlier, the land remained idle for several months of the year. Important contributions to the agricultural programme were made specifically through the provision of irrigation and the seed flushing programme.

The issue of sustainability is of major importance, and the upkeep of most project-initiated activities is of concern. For instance, with regard to the physical infrastructure developed under the project, the WHSs, irrigation systems and rural roads were found to be deteriorating at the time of the evaluation mission. This is because the operation and maintenance of the infrastructure, by and large, was expected to be done in a participatory manner and gradually these would be handed over to the tribal communities. However, the planned mechanisms could not be implemented because the project did not build the requisite grounds and atmosphere for participation of the people in project activities. Hence, there is an apparent absence of ownership by the tribal population in these structures, and also due to limited resources and weak commitment on the part of the GOO, the maintenance and sustainability of project investments are in jeopardy. Likewise, the future of the input supply activity is also under strain. In this respect, during implementation seeds of improved variety, agricultural implements and other inputs were provided free or at a highly subsidised cost. These are no longer available to the tribals, and no mechanism was instituted to ensure the timely and regular supply of inputs once the project ended. The same applies to the soil conservation and agro-forestry sub-components, as the tribals were provided through the OTDP planting material and other equipment for these activities, which are no longer available. Finally, the sustainability of the OTDP is also threatened due to the limited capacity of the PMU staff, following the closure of the project and a lack of counterpart funds and commitment on part of GOO to oversee the continuation of the project and to build on the initial investments and efforts.

Wage-employment impacted the lives of the tribals since it provided a means to supplement their income during implementation. In terms of proportion, OTDP figures illustrate that of the total additional employment created, seventy-five percent of the employment was provided to male labourers. What was distressing is that a high proportion (twenty-five percent of the total sample in the project area) of households engaged their children in such activities. Female labourers were mainly employed on their own land and in the collection of non-wood forest produce, whereas males tended to work as casual wage-employment outside. The evaluation mission is not in a position to make a quantitative analysis of whether employment activities created additional family income, although while discussing many beneficiaries reported that incomes increased, partly due to wage supplements, but also due to food supplements provided through the WFP grant, which released amounts of family income previously allocated for the purchase of food. As a result, tribals were able to divert income for acquisition of assets for improving efficiency in work, mobility, entertainment or comfort, besides meeting satisfactorily their consumption expenditure. Another interesting feature OTDP figures reveal is that during the project period, due to wage employment creation, the contribution of farming to total income decreased by ten percent or so, whereas that of agriculture and non-agricultural wages increased by fifteen percent or so. In sum, the project created opportunities for employment, but these ceased after project closure. At that time, the tribals were left without the remuneration they had received through OTDP. Having got used to cash-in-hand, the tribals have been forced to revert to moneylenders, which has once again aggravated their indebtedness problem.

Lessons learned

Human resources development

The project did not recognise the prime importance and contribution of the HRD component to the entire project process. This component, which represented the "software side" of development activities such as building participation, training and education, was a crucial input for the ultimate success and impact of the project. Unfortunately, project designers only allocated around six percent of total project costs to this component. Right from design the project had over-bearing faith in technology, and attached great importance to establishing the hardware (physical infrastructure, agriculture development, land allocation, etc.) for the development process. What the OTDP experience has highlighted is the need to "prepare" the development process by concrete efforts firstly in social development and social mobilisation, prior to launching the full blown productive investment activities. In this way the target group would be sensitised to the project and be in a position to benefit from, and contribute more meaningfully to, project activities.

Knowledge of the Rural People

The OTDP points to the crucial importance to the development process of the knowledge of the tribal people, be it with regard to agricultural practices, land and water management, agro and food-processing, medicinal matters, environmental issues or about prevailing culture and ethos. Their know-how has been developed and refined over centuries, which has been transmitted through generations of people. Their knowledge and experiences need to be tapped systematically and blended accordingly with modern practices suitable to the context and environment in which the tribal people live and operate. In such a way, development activities and interventions at large will be more ‘implementable' and acceptable. Moreover, in this way the chances of impact and sustainability are also higher and there will be ownership in the activities promoted, given that they build upon the tribal peoples know-how and preferences.

Monitoring and evaluation

M&E is a crucial tool for management and implementation purposes, and emphasis should be laid right from inception. For this purpose, a special budget line should be specified in project cost tables, one each for evaluation and monitoring, instead of lumping it under overall project management costs and training and technical assistance should be inbuilt upfront to push start the M&E system. Selection of indicators for the monitoring system should be done at latest by project start-up in a consultative process, involving the various stakeholders including the beneficiaries. These should be simple and easily quantifiable to enable data collection at periodic intervals during implementation. If necessary, the indicators should be adjusted according to the evolving priorities of the project, thus highlighting the dynamic nature of monitoring systems. These systems should not be viewed as data gathering instruments per se, but as tools that play a more important role in informing project management of the status of implementation and exposing the various issues that need adjustments. Evaluation could be outsourced to the private sector, research centres or universities to enable an impartial self-evaluation process. Finally, the contribution of beneficiaries should be sought in the M&E process.

Participatory approach to design and implementation

The degree of beneficiary participation at all stages in OTDP was limited and this was a contributing factor to the mixed results obtained by the project. Tribal people were seldom involved in developing the annual programme of work and budget, and the project lacked consultation with the targeted population. This created an atmosphere of discontent and lack of confidence towards the implementing authorities. Community and people's participation is of utmost importance, not only during implementation for the prioritisation of activities to undertake, but should commence right from the design stages to assess the perceptions and requirements of the tribal people. As this process will involve the beneficiaries thoroughly, they are more likely to take responsibility and ownership for their own development process, and thus be committed to the activities being implemented. Further, in order to ensure that project executing authorities and other stakeholders are fully sensitised and in agreement with fostering a participatory approach, intense efforts may be required to create awareness amongst the concerned people through systematic training in the needs and benefits of participatory development.

Project management

In those projects where special units are created for implementation, like in the OTDP, the role of the Project Manager (PM) is important. PMs are an essential element in ensuring a successful intervention, and the effectiveness of implementation is enhanced when managers and other staff appointments are based on merit and undertaken in a transparent manner. Additionally, continuity for a period of 3-5 years in project management is necessary to build relationships and co-operation among all project stakeholders. PMs should be given appropriate incentives to perform and remain committed to the job. Nevertheless, project designers should also explore alternative and innovative approaches to project management, for example, implementation could be conducted through the private sector or through other institutes or bodies which are not under the command of government structures. The involvement of carefully selected NGOs in project management may also be considered.

Role of the Co-operating institution

Project supervision should increasingly become a problem-solving exercise rather than a mere periodical inspection. It should be considered as an integral part of the project implementation process. In this regard, experience sharing with project execution personnel and local experts, as well as training through the organisation of workshops/seminars during or at the end of supervision missions should be pursued. The importance of MTR/MTE cannot be overstated as a means of making necessary adjustments to project design and implementation and addressing the requirements arising from policy changes. In multi-dimension projects like the OTDP, it is important to include specialists on supervision missions with expertise in subject matters related to the project, as and when appropriate. Co-operating Institutions should take advantage of local expertise, not only to save costs, but to ensure adequate input of domestic experience. This will facilitate the understanding of the local context, and improve communication with project beneficiaries and local officers. Finally, the need to lay emphasis on following-up on the recommendations made during previous supervision missions is of utmost importance to project success.

Role of NGOs

The selection of NGOs must be made with utmost care, taking into account the NGO's reputation and capability, but also their relationship with all the stakeholders. It is imperative to clearly define in advance the objectives, role and responsibility of the NGO and each partner in the process. To this end, it may even be advisable to identify during project design the NGO to involve, and to make them participate in the design process. In this way, it will be relatively easier to have a common understanding right from the start about what is expected of each partner. At start-up, special team building sessions could be organised to inject a spirit of co-operation and effective participation. This would also be an opportunity for all concerned to appreciate their role and boundaries, as well as to recognise those of the other stakeholders. The project management and the governments on their part should avoid adopting paternalistic and top-down attitudes, and consider the NGO as an equal partner establishing a relationship based on consultation and dialogue.

Socio-cultural and political sensitivity

Tribal development project and programme need to be designed with due attention to the socio-cultural and political context, if they are to realise their intended objectives. In addition to techno-economic considerations, attention should also be given to the caste, class and ethnic origins of the targeted people. This will equip designers with better information of the context in which to develop the intervention and introduce safeguards to ensure that the existing local power structures do not turn out to be the main beneficiaries of tribal development projects and programmes.


Without the adequate participation in the design, decision-making and implementation of the beneficiaries and their community organisations, the post-project sustainability can be of major concern. Together with the issue of participation, OTDP also revealed the centrality of education, training and empowerment of beneficiaries in meeting the objective of sustainability. This process leads to the much-needed sense of responsibility and ownership of the beneficiaries towards the project, and consequently willingness on their part to maintain project activities. The role of the government is also of importance, not only in terms of their commitment, but also by providing for appropriate institutional support and enabling policy framework. Equally important is the issue of financial sustainability. Governments need to allocate funds to sustain selected project activities after the closing date, and to this end they should introduce a budget line in their core programme budget for the purpose. However, to minimise reliance on counterpart funds for post-project activities, projects should be designed as far as possible in a way to ensure that most of the project activities could be financed without continuous allocation of public resources.

Tribal land rights

The benefits of legally secure land tenure are evident from the OTDP experience. The project illustrated how when land titles are registered in the names of both spouses, the social and economic status of women is enhanced, providing them more confidence and independence, as well as opportunities for income-generation through activities such as vegetable gardening and small livestock raising. Provision of land rights on hills has promoted sounder environmental management practices and helped restore agro-ecological balance, as shifting cultivation practices have been largely halted by those tribals receiving land titles. However, such land reform programmes need to be accompanied by opportunities for employment and marketing, access to credit, and institutional support. Further, tribal peoples rights to common property resources, in particular to water and forests, from which they derive part of their income and nutrition through the processing, consumption and sale of non-wood forest products, should be safeguarded by government authorities. Where private-sector involvement in forests is promoted for economic purposes, the implications on tribal people should be examined and appropriate mechanisms should be introduced to prevent the marginalisation of the tribals.




Small-Scale Agricultural Development Project - Ex-post Evaluation (1997)

December 1997

Ex-post Evaluation
August 1997

Executive Summary


So far the International Fund for Agricultural Development (IFAD) has financed only one project in Mauritius, the Small-Scale Agricultural Development Project (SSADP), IFAD loan 078-MT.  The total cost of this project was USD 8.71 million of which IFAD's loan amounted to USD 6.3 million.  The project became effective in May 1983 and closed in December 1991.

IFAD's Office of Evaluation and Studies (OE) and Africa II Regional Division (PF) together decided that it was timely to mount a focused Ex-Post Evaluation (EPE) mission of the SSADP in Mauritius in the first quarter of 1997.  In view of IFAD's pipeline activities in Mauritius (IFAD is in the process of preparing a Rural Diversification Project (RDP), containing a substantial credit component), it was agreed to focus the EPE of the SSADP on rural financial services and credit issues.  However, the evaluation mission not only assessed the impact and sustainability of IFAD's previous credit operations, but also reviewed the performance and current institutional capability of the Development Bank of Mauritius (DBM) and other financial institutions operating in the market, especially regarding their credit delivery, monitoring and follow-up, and recovery potentials.  The evaluation mission also drew up a set of lessons learned and made recommendations regarding IFAD's future cooperation framework in Mauritius, which the pre-appraisal mission of the RDP, scheduled in the first quarter of 1998, would take into account.


Mauritius has made remarkable advances over the past 25 years or so.  For example, over this period, real growth averaged 6% per annum, leading to a near four-fold increase in real per capita income; the labour-based expansion of output eliminated unemployment; and effective distributional policies contributed to poverty eradication. Of course, much still needs to be done.  The Government of Mauritius (GOM) is not at all complacent about its achievements, especially because the economic growth of the past has yet to reach all segments of the population. 

The past success was based on important amounts of foreign investment that was attracted primarily by the country's political and social stability; its abundant and literate labour; and preferential access to the European Union (EU) and United States (US) markets for its sugar and textile exports.  Some of these conditions have shifted as a result of domestic structural change and emerging international market trends, leading to a need to adapt the growth strategy.  On the home front, labour shortage resulting from virtual full employment since 1988 has become a constraint on the expansion of output and has brought about growing wage pressure and gradual erosion of the country's labour-based competitive advantage.  Despite the significant advances and progress made by Mauritius, and despite its high Gross Domestic Product (GDP) per capita, it is clear that poverty still persists.  In fact, in some areas such as Rodrigues poverty is quite wide-spread.  Any future IFAD assistance at the recently agreed upon intermediate lending terms (interest rate at 4%) would greatly contribute to poverty alleviation in Mauritius, and to its economic development in general.


Economic policy of Mauritius is partly influenced by several, inherent, constraints.  The economy is exclusively dependent on foreign trade, due to the limited and often poor resource base.  For example, the import to GDP ratio is about 60% compared to 20% for the average oil importing developing country.  The relatively small size of domestic markets make it difficult for Mauritius to benefit from economies of scale, either in manufacturing or marketing.  Furthermore, limited access to international capital markets and heavy reliance for foreign exchange on sugar and tourism means that the economy is especially susceptible to external financial shocks.

From the macro-economic perspective, the economy is currently suffering from structural adjustment problems with a current account deficit (5.5% of GDP), chronic fiscal deficit, which ranges from 3-5% of GDP, annual inflation is usually higher (6% compared to growth rate of 5.3% of GDP in 1995).  Furthermore, economic development and growth is heavily dependent on labour intensive technology, which needs major upgrading of technical skills and innovation to ensure increased productivity and growth.  But the country neither has the capacity to generate additional financial resources internally nor to borrow from external sources at prevailing market rates.

Although economic policy is designed primarily to further increase economic growth, the GOM is particularly sensitive to the issue of poverty alleviation.  It has, for example, already identified "Exclusion Zones", which are specific areas where it will take concrete measures to address the problem of poverty.

Marshall Plan, Trust Fund and EDF Programme:  The GOM has recently instituted a plan - known as the Marshall plan - which will target poverty alleviation activities across the country.  This plan will have approximately MRs 50 million to disburse in its first year of operation.  Similar level of funding is expected in each of the next four years.  Further, a trust fund, which is headed by the President, aims to target the Exclusion Zones. Moreover, the European Development Fund (EDF) is expected to identify and finance a programme of poverty alleviation within the next 12 months, and plans to spend approximately MRs 100 million implementing such a programme.

Poverty Study:  Under the overall coordination of the Economic Planning Unit (EPU) of the Ministry of Economic Planning, International Trade and Telecommunications (MEPITT), an extensive poverty study is currently being conducted.  This is the first time that such an exercise is being undertaken.  A private consulting firm was contracted to conduct the task of obtaining the required primary data and information.  For this purpose, a survey was implemented (using a questionnaire) and approximately 3000 households were included in the sample.  The questionnaire contained about 300 questions.  The data gathered  has been submitted to the EPU, who are now engaged in its analysis.  When the poverty study is completed, the report will provide a in-depth and up-to-date picture of the profile and extent of poverty.



The project was originally designed to assist poor farm families to develop their own farm enterprises.  Through an agricultural credit programme (70% of total costs), the project was to support small-scale cultivation and livestock production.  Sub-programmes included: (i) small-scale irrigation; (ii) litchi production; (iii) sericulture; (iv) goat breeding; (v) construction of rural health centres; (vi) a village self-help garden programme; and (vii) the strengthening of monitoring and evaluation, both in the implementing institutions and at the ministerial level.  The project was expected to bring a new source of livelihood to 630 participant farmers and about 1 400 goat keepers.  Including their families, around 12 000 persons were expected to benefit directly.

Reformulation and Results

Implementation was slow during the first three years, mainly as a result of the very rapid (and unexpected) growth and evolution of the overall macro-economic situation in Mauritius, and more specifically, due to the difficulties in the agricultural credit programme, which was constrained by a scarcity of land for development.  The lack of a clear interest rate policy led farmers to seek funds elsewhere, resulting in slack initial demand for credit from IFAD's loan.  The project was reformulated in 1986, to include a general line of credit from both the Mauritius Cooperative Central Bank (MCCB) and the DBM for agricultural and off-farm activities, and to raise the eligibility threshold for smallholder credit. After reformulation and by the end of the project, the total number of small loans extended under the general line of credit from the two implementing banks reached more than 3 500. Overall, substantial progress was made in project implementation after 1986 and by project closure all portion of IFAD's loan was disbursed.

From a developmental perspective, the SSADP achieved good results.  The project to a great extent, achieved its objectives in promoting small-scale enterprises in rural areas and it was successful in creating credit facilities for a section of the population who would not otherwise have benefited from loans at concessional rates.  The SSADP substantially contributed to establishing various health and veterinary centres, which are currently operating well.  The project also provided useful assistance for improving the goat breeding stock of the Ministry of Agriculture (MOA).  Finally, those farmers engaged in SSADP's mixed vegetables and litchi sub-projects registered increased incomes and a general improvement of their economic conditions by the end of the project, as compared to their economic state at project design.


In general, the overall long-term impact of the SSADP has been positive.  IFAD's line of credit has acted as a catalyst for promoting small lending for agricultural and non-agricultural activities in Mauritius, uncovering the demand for small loans.  In particular, the SSADP's general line of credit has helped the creation of various small and medium-size enterprises.  Many of the small undertakings have today grown into medium-size firms.  Moreover, in this area the SSADP has contributed to the generation of a culture of entrepreneurship amongst the poor and now the beneficiaries are more confident to undertake new projects and to borrow.

The SSADP has also had a positive long-term impact on the DBM.  As a result of the Bank's participation in the project, it is today a much stronger institution, and certainly a leader in development banking in Mauritius.  The SSADP instilled a sense of responsibility in the DBM to provide loans to small farmers and entrepreneurs, and to facilitate their operations in this area, the DBM have created a specialised window for operating small loans for agriculture and off-farm activities.

As far as sustainability of SSADP is concerned, some activities were identified that are truly self-sustaining.  Primarily, these are the health centres and veterinary services (funded through SSADP), which represent sustainable activities as their operations have been integrated into the overall national services.  The health centres have significantly contributed to improving health standards in rural areas.  Concerning agricultural activities, two successful SSADP sub-projects are operating well - the litchi and vegetable production schemes.  They have also proved to be very profitable activities for SSADP beneficiaries.  Average yields of vegetables increased from 2 tons/arpent in 1990 to a maximum of 8 tons/arpent in 1996.  Part of this yield increase can be attributed to the use of fertiliser, crop protection chemicals and better irrigation practices.  Litchi production has also increased due to improved extension advice and proper maintenance of trees.



Despite the significant advances and progress made by Mauritius it is clear that poverty still exists to a significant extent in the country.  Poverty in Rodrigues is rather severe.  Moreover, Mauritius does not have the capacity to generate much financial resources internally and also is not able to borrow much capital from external sources. Given the aforementioned, and that the GOM's rural development priorities and policies emphasise improving agricultural productivity of smallholders and encouraging economic diversification whilst paying due attention to natural resource conservation and rural employment generation, the EPE mission recommends that IFAD should renew its collaboration with the country, particularly in those areas that are in line both with IFAD's and GOM's overall poverty alleviation goals and strategy.

Role of the Poverty Study

The objectives of the poverty study, undertaken by GOM, are to analyse attributes which would assist in the definition of poverty and the poverty line in the Mauritian context, to identify pockets of poverty, and to study the causes of poverty and the socio-economic characteristics of the poor.  Based on a thorough review of the poverty study and taking into account other sectoral studies undertaken recently by GOM, an overall Poverty Alleviation Strategy and Programme is being formulated by the government. The data collection and tabulating exercises have been completed, but an in-depth analysis of the poverty study has yet to be finalised.  As such, the poverty study is not expected to be made public for some time.  However, the EPE mission recommends that during project design of the RDP, IFAD should make use of the poverty study (of what is available), drawing on its findings and recommendations for devising IFAD's poverty alleviation strategy and for identifying more closely the Fund's target group, areas and activities.

Specific sub-projects/sub-components

The EPE identified the need for IFAD support in several areas which appear to have the basic elements of IFAD's mandated objective of poverty alleviation. These include agriculture and rural diversification (including small irrigation and support services, particularly in the drier Northern and Western Regions of Mauritius), micro-scale income generating activities (especially for women) and artisanal fisheries.  In this context, some of the specific activities that could be supported include: small dams and irrigation; existing vegetable projects with the National Development Unit (NDU); pig breeding; livestock; marketing and extension.

Support for the recently started Women's Entrepreneur Unit (WEU) could also be considered.  The unit, which is based in the Ministry of Women, Work and Youth, is focused entirely towards poor women.  It supports many cottage-industry type of activities, including handicrafts and other micro-enterprises.  IFAD could be of much help by providing a line of  credit for these women and such activities.  At the moment credit constraints prevent the women from further enhancement and diversification of these activities.  The benefits from targeting the women through this unit seem large.


In Mauritius, the rural poor are not conveniently situated in a clearly identifiable, geographically separated area where their low income and food insecurity can be resolved by traditional agriculture activities alone.  The poor are interspersed throughout the economy, and are only partially involved in a primary activity such as fishing or agriculture, and their economic opportunities appear to lie mostly in off-farm or urban related activities.  Hence, the forthcoming pre-appraisal mission of the RDP should develop a definition of target group that would correspond to the above reality in Mauritius.  In addition to target the women and unskilled/unemployed youth, who form the bulk of the rural poor on the island of Mauritius, targeting the island of Rodrigues (where incomes are generally only about half of those in Mauritius) is crucial in any future IFAD intervention.  In Rodrigues some of the activities to support could include: agro-processing; strengthening of support services and related institutions; agriculture irrigation; and micro-enterprises.  The need to review marketing is also important before support for a particular activity is considered.  Livestock and pig-breeding are other major areas of potentially beneficial activities that IFAD could assist in.

Beneficiary Participation

In the SSADP, beneficiary involvement in project design, implementation and monitoring and evaluation was limited.  This contributed to the reduced performance of some project components.  Hence, any future IFAD project should involve much more consultation with potential beneficiaries (and implementors) right from project preparation in order to understand better their real needs, preferences and constraints.


Demand for Credit:  Any future IFAD project should emphasise the provision of credit.  From the findings of the EPE mission, it is evident that the demand for loans at concessional rates exceed supply, especially the demand for credit for small-scale activities, including the establishing of micro-enterprises and undertaking small agricultural activities, as well as for artisanal fisheries.  Youth and rural women are among those segments of the rural population who form a large part requesting small loans.

The Development Bank of Mauritius:  Based on its assessment and review of the various financial institutions operating in the country, the EPE mission recommends that the Development Bank of Mauritius be responsible for handling any future IFAD line of credit.  DBM has made significant improvements thanks also to its involvement in the SSADP and it is the institution with the largest experience in managing small credit in Mauritius.  DBM is the only bank in Mauritius lending exclusively for developmental purposes, who have also set up specialised windows for extending credit facilities to small farmers and entrepreneurs.  To complement the work of DBM, any IFAD project development team should also explore the possibility of involving NGOs with appropriate experience and other financial intermediaries in IFAD credit activities in Mauritius.  Such institutions can contribute to reducing the overall transaction costs in delivery of credit, as well as increase the overall impact of the intervention.  However, the involvement of commercial banks in IFAD activities should be examined very carefully, and although they have a wide network of retail outlets, their main mandate remains profit maximising and they have very little experience in the area of small lending, are more strict on collateral requirements and are reluctant to rescheduling repayments.

Incentives:  The EPE mission recommends that future loans be linked to appropriate incentive mechanisms.  This would ensure proper and timely usage of funds, as well as a more meaningful impact on the livelihood of the potential beneficiaries.  For example, "third-party guarantees" may be such an appropriate mechanism, in lieu of collateral.  This mechanism was successfully used by DBM in the SSADP.  Of course, alternative mechanisms should also be considered that provide effective incentives for the uptake, usage and repayment of IFAD credit.

Accessibility to Credit:  Based partly on the experience gained from SSADP and given the evolving nature of the structure of the Mauritian economy, the EPE mission recommends that lending be much more broad-based.  This is not only with respect to the nature of the specific activities supported, but also with respect to the specific characteristics of the borrowers.  The structure of the demand for credit can alter over the course of the project cycle.  It is recommended that IFAD set some broad guidelines and parameters, but then allow project management and the credit implementing agency to operate fairly freely within such a broad framework.  To make sure that the project is addressing, in an effective manner, the issue of poverty alleviation, project management should report to IFAD on a regular basis on this aspect.

Data, Reporting and Monitoring Needs:  These issues are extremely crucial and need to be given very careful and detailed consideration, especially in view of the poor reporting and monitoring performance of SSADP.  IFAD should make it clear at the project design stage in a well-defined and precise manner (i) the information required to be collected by each implementing agency, when to collect and in what format, and (ii) to whom that standardised information needs to be reported, when and how frequently.  This, of course, makes sense after the responsibilities and roles of each institution involved in the project are specified.

The recent computerisation at DBM should make the implementation of the above recommendations relatively easy in the future (in contrast to the SSADP project when all data was manually handled).  However, the issue of monitoring DBM seems problematic. The (Central) Bank of Mauritius (BOM) prefers not to get involved in monitoring DBM activities.  The mission is concerned about the issue of monitoring DBM and if the latter were involved in future IFAD projects, one possibility might be to appoint an independent auditor or to set up a project steering committee to which DBM would report to periodically.

The Monitoring and Evaluation System

The Monitoring and Evaluation system within the SSADP had little impact.  The role of an effective Monitoring and Evaluation system cannot be overemphasised for the success of the project.  Hence, significant attention should be devoted to this aspect at the  project design stage, and to the extent possible, beneficiaries should be involved in the selection of project performance indicators early on in the design of the monitoring system, as well as during data collection and analysis.  To facilitate this activity, a specific budget line, one for monitoring and one for evaluation, could be included in the appraisal document.


Middlemen tend to possess significant bargaining power, and hence the returns received by the poor from their investments tend to be reduced.  This has an adverse effect on the degree of success of IFAD projects in particular, and on poverty alleviation in general.  Alternative effective means of marketing should be explored. Moreover, the GOM might wish to consider some form of direct or indirect intervention (regulation and/or taxes) that decreases the bargaining power of the middlemen, and/or increases the bargaining power of the poor.


The goal of IFAD projects and programmes are to establish a basic framework for sustainability of activities financed through its intervention, with the ultimate aim of contributing to the increased and continued economic prosperity of the intended target group.  However, the latter can only be achieved if activities financed are truly sustainable after project closure.  To ensure sustainability, first and foremost projects need to be participatory, involving the beneficiaries both at design stage and during implementation, also to instil a sense of ownership in, and responsibility towards, the project and its activities.  Moreover, a sound framework needs to be set up, at government level, which will ensure the degree of support and attention necessary to ensure sustainability.  This also needs to be accompanied by continued commitment of those institutions that are involved in the project, and which have a role to play thereafter (e.g. development banks, extension units, community organisations, etc.).

Drawing on the experiences and evolution of the economic environment under which the SSADP operated, one important lesson learned is regarding flexibility of project design.  Since, at the time of project design a great deal of uncertainty exists about a number of relevant factors, it is plausible for projects to be designed in a flexible manner.  In fact, due to certain constraints in the design of the SSADP, a full-fledged reformulation of the project was required during implementation to streamline project activities and goals for it to remain relevant under the evolving operating environment, which involved an unexpected accelerated growth of the economy causing several macro-economic effects.  Hence, project design needs to provide project management with the appropriate degree of flexibility to enable it to respond continuously, promptly and effectively to changes which are unforeseen and outside their control.

In order to ensure consistent and wide range lending that meet the broad objectives of IFAD projects, it is more beneficial to provide credit on a "needs-basis".  Such an approach to project operations, especially in those projects where credit is the central component, will expedite implementation and increase the likelihood of positive impact on beneficiaries.  As such, credit can be provided to the eligible for activities that need not be explicitly specified ex-ante, but may nevertheless contribute to the overall objectives of the project and its rural poverty alleviation goals.  Such an approach would be consistent with the lesson on flexibility in project design.



North Western Province Agricultural Development Project - Mid-term evaluation (1997)

December 1997

Mid-term Evaluation

Project design and objectives

Target group

The target group represents medium- and low-income groups categorised as semi-commercial and subsistence farmers. This target group, estimated at about 50 000 households, represents about 90% of the rural population, and 80% of the total population of the province. The province is one of the poorest in Zambia. The Project aims at reaching directly 14 800 farm families (78 000 persons) including 13 450 living at or below the subsistence level, and 5 500 female-headed households (37% of total).

Objectives and components

The current eight-year Project would consolidate the achievements of Phase I, the first part of a programme designed to establish an appropriate technological base through research and effectively transfer this technology through an efficient extension service.

The Project sets out to raise the living standard of the rural poor, and generate self-sustaining economic growth in the project area. Components are:

Beneficiary Mobilisation, including:(i) group promotion; (ii) community development support; and (iii) the development fund;

Agricultural Development, including: (i) research; (ii) agricultural extension; (iii) nutrition extension; and (iv) on-farm and investment credit;

Small-scale rural enterprise development;

Feeder roads;

National biological control programme; and Project management.

Expected effects and assumptions

The target population will be enabled to collaborate with the Project through their own efforts, acting in groups which the Project will help to form; a two way process of media and direct communications with these groups will heighten awareness and participation; the emphasis would be on quality of service and responsiveness to beneficiary demands. Productivity and farm output would be enhanced through improved technology. Improved roads would facilitate marketing access. Village infrastructure and on-farm and off-farm enterprises would be assisted, e.g. in milling and storage. Local value added would increase and risk in production would decrease.

Benefits would accrue to the government in realising its goals of efficient resource management and upgrading of skills in the civil service. Environmental damage was not foreseen. The continued funding constraints were not foreseen.



The evaluation sets out to understand to what extent MOA programme managers, and project staff: (i) review implementation progress against the physical targets set; (ii) seek the data that show impact at the village and farm level; (iii) are trained and encouraged to explore causes to variations in performance; and (iv) also seek to address these underlying causes.

In preparation for the MTE, because of the Project's justified emphasis on alleviating food insecurity and malnutrition, IFAD (OE) designed a diagnostic survey together with Zambian nutrition specialists (FHANIS/CSO). Interviewing 144 rural women with almost 200 children, this survey set out to gauge the impact of project supported activities on the nutrition of children aged one to five years.

Implementation context

The Project is being implemented by the Ministry of Agriculture, Food and Fisheries (MAFF) under the overall responsibility of its Permanent Secretary. The Project Co-ordinator reports to MAFF as well as to the Provincial Permanent Secretary. Implementation responsibility for the individual components rests with the provincial heads of the line ministries.

Three major problems have affected the Project, all external in nature. First, drought, second the slow response of the private sector in filling the vacuum left by the demise of the marketing organisations, and third, the scarce and erratic funding of the Project from the GOZ. A drought affected the southern regions of Zambia, but also the NWP, in the 1993/94 and the 1994/95 seasons. Food production in the NWP in the former year was estimated at 30% less than normal, and in 1994/95 at 20% less (FAO/WFP).

With the demise of the Co-operative Unions and subsidised marketing, input supply to farmers remained unstable and scarce. The Government requested CUSA - a credit organisation - to be responsible also for input delivery. Seasonal credit substantially increased: in 1995 it was given to about 9 000 members. But, without a proper organisation to manage inputs and with an accelerating credit expansion, loan recovery suffered. Political influence was also used to encourage farmers in the NWP, who had received adequate rainfall, not to fulfil their obligations. With non performing financial assets, CUSA had little choice in 1996 but to reduce seasonal credit disbursements, with adverse effects for maize production and food security. In the absence of a consistent and well thought out government policy to create stable and uniform incentives in marketing, trade and credit delivery, the private sector is not encouraged to furnish essential support functions.

Finally, the most damaging constraint for overall project operations has remained the inability of the GOZ and MAFF to honour their commitments towards funding the Project. The Project, from its outset, faced difficulties in obtaining its due share from the GOZ. In 1991, the last year of Phase I, the government completely failed to contribute. In 1992, the GRZ contributed a mere third of the Project's total financial requirement; this performance was repeated in 1993. The GRZ in 1994 did not release any of its expected counterpart funds to the Project. In order not to disrupt implementation completely, the PCU disbursed 100% of project expenditures from IFAD's Special Account. Subsequently, in April 1995, the Co-operating Institution stopped disbursements from IFAD's loan towards operating costs.

The Project has been largely integrated into the Agricultural Sector Investment Programme (ASIP) as of January 1996. The ASIP, supported by the World Bank, IFAD, SIDA and other major donors, aims to improve aid co-ordination and public sector resource use, but the integration process has been delayed and difficult. The Government's own funding to the three project districts was reduced and delayed also in 1996: the ASIP funding system did not operate in line with expectations. The DAOs, in each of the three districts, received far less than the approved recurrent developmental budget for the second and third quarters of 1996 (for the first three quarters in 1996, they received, on average, 30% of their programmed ASIP contributions).

Fortunately, the direct funding from IFAD has remained outside of the ASIP pool: the MTE mission recommended in its Aide Memoire that this existing arrangement should continue until the financial system capabilities would perform in line with expectations.

Four project components remain outside of ASIP: (i) roads; (ii) credit; (iii) the Development Fund; and (iv) the support to the Provincial Planning Units (PPU) and the six District Planning Units (DPUs). The Project Co-ordination Unit (PCU) will have to ensure sustainability of the non-ASIP activities until the point in time arrives when the respective line agencies have such a capability. With present uncertainty, a strong case can be made that the PCU should continue to support important project activities to: (i) restructure credit; (ii) provide minor rural infrastructure under the Development Fund; (iii) rehabilitate feeder roads and improve maintenance capabilities at district levels; and (iv) strengthen planning and implementation capabilities of DPUs.

Project achievements


The Project has been surprisingly well implemented in spite of its many external constraints and has rebounded since 1995. In spite of the setbacks, project staff have continued to perform well: this is a great tribute to the PC, the PAO, the Department of Agriculture in Solwezi, and to the project funded specialist staff.

Crop production: In spite of variable rainfall, long distances to markets from the dispersed areas of non acidic or fertile soils, and break down in credit and associated fertiliser delivery, farmers along the Solwezi-Chingola road and in parts of Kasempa (camps close to the Kasempa Boma) have continued to increase output of maize and sweet potatoes.

In research, the Mutanda Roots and Tubers research team has assisted in multiplying and disseminating improved planting materials for sweet potatoes (Chingowa) and cassava. The impact has been visible: diffusion especially of cassava varieties has picked up. Cassava is spreading eastwards from Mwinilunga and is a common crop in many areas in Solwezi district. Two important ARPT studies were undertaken in 1995/96. First, a dambo utilisation survey confirmed the importance of these areas for early maize (December-January), legumes (December-January) and dry season fodder for goats and cattle. Second, the study "Contribution and Potential of Local Farmer Organisations to Agricultural Research" found the participation of farmers' groups in adaptive research to be limited or ineffective: it set the stage for far more attention being directed into why groups fail or succeed.

In extension, the service is adjusting well to new market conditions by extending messages on the need for loan repayment, market information and gross margin calculations. The service is adapting older messages to the changing conditions of low external input supply. In the context of the T&V System of extension, the Project has registered a major break-through. The diagnostic team approach set out in the SAR has been made to bear fruit thanks to the efforts and leadership of the Zambian TA Extension Organisation Specialist. Diagnostic teams since 1994 are operational in the three districts (Kasempa, Mwinilunga and Solwezi), and they are back-stopped by farming systems researchers. Not less than six diagnostic surveys have been conducted in different camps: four reports have been published. In two of these camps, this methodology for interacting with the target group has generated revised priorities for extension support; these have begun to be implemented.

Despite disruptions in funding at the project and national level in 1995, the CDSU has organised Radio Farm Forum Groups. Messages have been disseminated in local languages.

The Development Fund has put in place relevant physical infrastructure; the Project has shifted from its initial focus on rehabilitating schools and health clinics to support construction of wells for drinking water. A system for sustained maintenance of rehabilitated drinking wells is emerging.

The feeder roads component has been quite successful in spite of funding constraints: it has concentrated on rehabilitating through force account the existing road network. It has completed 54% of the targeted 520 km. This rehabilitation has assisted and eased farmers' transportation and marketing constraints.

The National Biological Control Program (NBCP), supported since 1986 as a part of the Phase I NWP ADP, was very successful in controlling outbreaks of the Cassava Mealybug (CMB) during the 1980s. It has continued to make reasonable progress on release and recovery of the Cassava Green Mite (CGM) predator. The unit has also undertaken steps to monitor the Larger Grain Borer (LGB) spread and its non-biological control. During 1996, steps to introduce a biological predator of the LGB were taken in conjunction with IITA. The construction of the office and laboratory building for the NBCP is nearing completion and the screenhouse is operational.


The SAR was very well written: it reflected well the important recommendations in the IE undertaken in 1990 of the Phase I Project. Yet, revisiting the issues occurring during implementation, with the benefit of hindsight it is fair to state that the IE as well as the SAR should have put far more emphasis on defining in detail the necessary stepwise methodology of R&D, as well as the necessary facilitation processes.

The stepwise and iterative process needed to have been set out - of research, village level testing, and evaluation - and then development, with which to generate, through trial and error, improved production technology and institutional innovations to improve service delivery and marketing support. Second, the SAR could not ensure that during implementation the critical facilitation process would occur to properly translate the need of continued diagnosis - through interactions between researchers, farmers and extensionists - into processes, roles, responsibilities, and flexible annual programmes. The need for such processes to be defined, appropriated and ensured through facilitation and supervision is critical.

A series of workshops, continued training, and detailed assistance were not programmed, or followed through, in the area of R&D methodology, perhaps because it was not understood that this is such a critical area, that failures are common and that they become too costly in terms of missed opportunities. Within the Project, processes not clearly explained could not be understood, and what was not understood could not be well managed.

The same analysis and conclusion applies to the thwarted efforts in group mobilisation and credit. The support for village level extension groups lost its track. These groups became oriented towards credit rather than technology testing and diffusion; they became disassociated from the regular extension service. The prescribed pilot dimension in the SAR was not translated and understood. The base was never created at the block level with which to: (i) define common issues across extension groups; (ii) seek co-operative solutions to improve marketing access; and (iii) solicit technical support for organisation and training.

To wit, there is little evidence that the senior management in MAFF had a better understanding than the Project about what was at stake in this USD 20 million Project. Or, if they had such understanding, they were not in a position to act. The Project has suffered from inadequate support from the GOZ reflected in: (i) an agronomic farming system research capability at Mutanda Station operating at one third of its capacity; (ii) its requesting the credit NGO, CUSA, to become involved in input supply without a proper understanding of the implications, thus impairing its capability as a financial institution and leading to a collapse of its credit system; and (iii) not ensuring stable funding since 1992.

Effects assessment and sustainability

Significant changes have occurred to the farming and production systems in the project area since 1991. These changes reflect responses to great variations in input supply and output prices across the project area and across years. The price of maize is displaying a rising trend in central locations such as Solwezi and next to the border with Zaire (Table 6 in Annex 5), but variations across the project area expose farmers to high risk in production. This risk is accentuated by large inter year variation in supply of fertiliser and hybrid seed.

The Project is having an important positive effect in reducing overall marketing risk. Farmers often cultivate far from the main roads in areas next to rivers and wetlands, where soil fertility is better than the average. Road access to these areas is improving through rehabilitation of secondary roads. Market information is communicated to farmers by radio and the CDSU is assisted by the Project. Farmers seek to diversify enterprises to reduce their overall risk by cultivating off season crops on dambos, by wanting more livestock, and by venturing into beekeeping. The Project has had limited impact in supporting them in the former two areas. Finally, there is little evidence of successful project-led efforts to mobilise communities or groups to find solutions to reduce risk in marketing.

As expected, a marked shift has occurred from the subsistence (SS) to the semi-commercial (SC) farm household category because of the increasing area cultivated to maize. Maize is becoming the main crop in North-western province, occupying more land than any other in the three district. During the 1995/96 agricultural season 91% of the households grew maize. Most households in the sorghum and cassava farming systems have increased maize production. This increase has determined a higher income and calorie intake in the semi-commercial systems.

Nutrition extension: the nutritional impact survey designed by IFAD (OE) and CSO FHANIS in Lusaka, was carried out in June 1996. The frequency of moderately and severely stunted children remains far too high. In this context, troublesome are the findings that: (i) nutrition demonstrators and their supervisors do not possess the means with which to derive the stunting scores for observed children: what you do not observe, you will not monitor; and (ii) malnutrition is higher not lower in the locations where project funded demonstrators are active.

Chronic malnutrition - stunting - was lowest for households in maize based systems, (both in the subsistence and the semi-commercial maize farming systems), compared to the semi-commercial sorghum or semi commercial cassava farming systems. In general, the lowest levels of stunting are found in the semi-commercial systems. Indeed, the food balance in the subsistence systems remains low compared to the more advanced systems Stunting is the most serious nutritional problem. About 51% of the households had at least one child of short stature for age. Malnutrition was higher in areas where nutrition demonstrators were operating compared to areas where there were no nutrition demonstrators. An important explanation for this disconcerting finding is that stunting is difficult to recognise with the common eye and may not be understood by parents until it has become serious.

Generally, semi-commercial systems have adopted more sedentary settlement patterns reflecting adoption of more intensive farming methods (improved seeds and fertiliser) in the long run. Access to dambo land is associated with a shift to the SC systems.

The livestock sector has much potential, but efforts by the Project in promoting a much needed diversification have not been successful apart from the support for guinea fowl. Cattle are slowly being accepted into the cropping systems but credit constraints prevail and manure, draught power, and milk production are not strongly driving adoption. The incidence of tsetse flies only partly explains this slow uptake. Goat, sheep and pig populations reportedly are declining due to conflicts with crop enterprises Tethering is one option being considered to arrest the decline. Provision of veterinary services is inadequate: only 20% of the households have ever vaccinated their animals and only 10% deworm them routinely. Chicken populations have been much decimated by Newcastle disease.

The Project has supported diversification of farm enterprises through beekeeping and aquaculture since 1995. Success has been partial, take-off and sustained growth are not yet visible. Incorporation of forest products into livelihood strategies has increased and in accessible areas, income from them is quite substantial. Beekeeping for honey production represents an important off-farm activity, but the marketing niches are quite limited beyond production of local beer. Fish ponds can and should be encouraged but successful enterprises require intensive experimentation and testing efforts, combined with extension support and only then credit; neither of these three services are presently available. Fingerling nurseries remain scarce.

The roads component has had a certain impact on employment creation: by mid-1996, about 2 500 labourers have been active in road rehabilitation with an average tenure of about four months. A survey of the impact of the Feeder Road Programme conducted in 1995 found that roads have helped increase demand that has, in turn, increased farm gate prices and quantities sold.

Evidence of environmental damage is still hard to come by, but increased cutting of trees for shifting cultivation, fuel energy, pit sawing and construction might pose a danger in some semi-commercial systems. Soils might also be further depleted in settled communities if use of organic and chemical fertiliser is not increased.


Sustainability in rural development necessarily means that the suitability of technology components and service provision must be aligned with, and support priorities that derive from, the expressed preferences of the target group of farmers. It should also reflect management capabilities at village level. The farming systems research and extension methodology (FSRE) was developed in the 1980s precisely to generate crop and livestock husbandry practices in line with this orientation. Farmers' participation was found to be critical for obtaining correct responses as to their degree of motivation to engage themselves in possible interventions. But the original farming systems research methodology, an essentially empirical approach, was rarely brought to bear on economic enterprises outside of crop husbandry. Little or no support was provided, for obtaining within extension, structured feed back on farmers' adoption behaviour, and diagnosis of farming systems issues.

Sustainability also means setting up sound institutional structures, capable of ensuring technical and allocative efficiency of interventions. Once the primary systems are operational, feed back and signals ought to be received on the extent that interventions perform in line with expectations. In this framework, technical efficiency of the Project has become low, not in line with expectations. This has occurred because of the cuts in funding: they have reduced and delayed activities across components. As for equitable growth, given the number of messages actually available, services supported by the Project and delivered through the Districts are by and large provided equitably. But resource allocation under the Project still scores low in terms of contributing to an equitable growth, not least benefiting larger numbers of women. Improved varieties, credit and extension recommendations are not well tailored to the conditions of smaller farmers faced with high marketing risks.

Smaller farmers are highly efficient in their use of land and resources compared to larger farmers. Yet, food insecurity and stunting of children among resource poor farmers is not acceptable (Chapter 6). Among decision makers, the link has not been fully grasped between on the one hand, the need to create - and fund - well defined institutional capabilities with which to explore, set priorities and address farmers' - and parents' varying constraints - and, on the other hand, a broad based growth. As long as this link is not transparent, understood and internalised, the vast majority of the rural population in the NWP reaps only limited benefits of investments into rural development. At current sub-optimal capabilities and associated resource allocations, neither do the better endowed, nor do the resource poor farmers benefit in line with expectations and potential.

A cause to the problems faced by the Project may rest in the ambiguity created in the SAR as to the Project's proper nature. The Project should have been more clearly defined as a Research and Development Project to permit institutional, local or group based solutions to be developed , for instance, in input delivery and marketing, prior to extension activity proper. The goals to set up new village extension groups, and a Communications Development Support Unit (CDSU) reflected rather the notion that models or approaches for group creation - based on content relevant to farmers - had already been developed, tested and certified: therefore, implying that the constraints to growth were confined to extension, diffusion or communication. But by and large this was, and has not been, the case. This neglect of the research dimension also applies to: (i) animal feed and health: conditions of local poultry and goats were not known prior to introducing exotics species; (ii) fish farming: conditions were not known prior to declaring credit scarcity to be the main problem; and (iii) windmills: introduction without testing under local conditions.

It must be understood that research and experimentation at the farm, group and village levels and farm level is necessary prior to development and extension. Active participation by farmers, especially of the women is necessary. Similarly, such activity is necessary to generate sustainable institutional solutions to the current failures in input supply and marketing (seed, fertiliser, honey, credit).

Main issues and recommendations

The MTE has generated a large number of recommendations set out in Chapter VIII. Seven areas are of direct and immediate concern for the remainder of the project period:

In the field of research there is a need to strengthen personnel (agronomist) and to redefine and modify research at Mutanda Research Station. This means foremost adopting the on-farm research and development methodology for designing and implementing pilot activities, prior to scaling-up and introducing associated training of staff;

Define priorities for a set of village level pilot activities and adaptation;

Design a pilot component for rural financial services, and eventually redesign CUSA;

Define priorities for ASIP and non ASIP funded components and activities. In this field, four major issues that need to be resolved for the ADP and the Province are: (i) uncertainty as to procedures together with continued delays in MAFF disbursements to districts for ASIP components; (ii) inadequate staff capabilities in the district FMUs; (iii) uncertainty as to the sustainability of funding for activities not included under ASIP; and (iv) positions and tenure of ADP funded staff under the new system;

Improve the M&E function;

Strengthen the capacity of the National Biological Control Unit; and

Strengthen the capacity of provincial and district planning units.

Lessons learned

A) Lessons Learned on Project Design

a) Research and development projects: four essential lessons

i) Importance of recognising "research and development needs"

It is fundamental, before designing any project, to identify those recommendations and institutional innovations that are available, i.e. already sufficiently tested, tried out and adapted to the point where they are suited for extension purposes, or have begun to be adopted. This means discerning also those that need further development and adaptation to the conditions of the target area and target group, and those that should be discarded.

Too often, projects are designed with limited data and knowledge as to the degree of variation in farmers' productivity, entitlements, constraints and risk. What is not observed, or analysed, is not explained. The economic justification and analysis of benefits versus costs is further constrained by the emphasis on obtaining a quantifiable, sufficiently high economic rate of return. This need accentuates the bias towards overestimating the extent of the actual knowledge and the usefulness of available or so called proven technology.

This means that projects too often are justified as extension projects, when they should have been designed, in full or in part, as research and development projects. The case for farming systems research and on-farm and village level testing that should drive the generation of improved production technology is then either not understood in-country, or it is underplayed.

A primary precondition for more appropriate project design is that more attention is placed on the diagnosis of research and development needs; it is essential that this process be conducted partly in representative locations together with the target group itself. By such diagnosis, farmers' actual preferences and community level constraints can be better revealed and understood. Design of extension activities can be avoided that will later prove ill-adapted and not effective.

ii) Knowledge generation and diffusion

A research and development project has to be developed in terms of the methods of approach and not in terms of detailed activities and outcomes. First, results should be seen in terms of gaining knowledge and know-how, and not of material achievements. Second, the necessary stepwise methodology of R&D as well as the necessary facilitation processes need to be set out and explained in great detail through iterative processes and applied training. The stepwise and iterative process - of research, village level testing, and evaluation - needs to be set out - followed by development, with which to generate, through trial and error, improved production technology and institutional innovations to improve service delivery and marketing support. Third, the design must ensure that during implementation the critical facilitation process will occur to translate the need of continued diagnosis - through interactions between researchers, farmers and extensionists - into processes, roles, responsibilities, and annual programmes. The need for such processes to be defined, appropriated and ensured through facilitation and supervision is critical. Fourth, against the overall project strategy, measurable objectives need to be specified to assist the local staff and the relevant institutions to acquire the necessary skills in this research and development. Fifth, a series of indicators need to be designed against which acquisition of skills can be monitored.. Sixth, a series of workshops, continued training, and detailed assistance need to be programmed and followed through in the area of R&D methodology. Otherwise, within the project, and at the Centre, what is not clearly explained, can not be understood, and then, of course, cannot be well managed.

In short: (i) methodology and processes that relate to R&D and pursuit of institutional innovations must be defined, explained, and understood at the outset; (ii) the required capabilities for these processes must be precisely defined; (iii) this activity must be undertaken through a series of workshops at the stage of design; and (iv) continued training must continue over the project life time. Finally, research and development takes time: this dimension needs to be taken into account in order to secure continuity in the approach beyond project end.

iii) An R&D approach for rural financial services

Extending provision of financial services into rural areas is vital to encourage intensification and diversification of farm enterprises. Alternative innovative models need to be tested so as to increase access to credit for the rural population. This is the case, especially when credit supply is not well adapted to demand, transaction costs of borrowers are prohibitively high, wilful defaulting occurs, and institutional solutions in the country are not found which are established, backed by sufficient experience, recognised and replicable.

iv) Innovative solutions are required for technical assistance

Innovative or alternative solutions need to be found for long-term technical assistance. A compromise is required between the need of reduced costs, as against securing continuing longer term benefits from the knowledge generation process. Long-term partnership arrangements with institutions specialising in research and development, with regular support missions, training courses and attendance at workshops, is one solution. Such "twinning" arrangements should be explored with both bilateral and multilateral donors.

b) Lessons Learnt for Project Design in General

Aside from the lessons learnt concerning the need for making precise distinctions as to the actual knowledge available, and about proven technology, and the need to adopt a research and development methodology and clear-cut procedures at the design stage, the Project has five lessons to impart for project design in general.

An understanding of initial socio-economic conditions

The Project's acquaintance with the socio-economic conditions of the target group at the start was limited. The greater is this initial insufficiency, the higher is the probability that changes to the project concept will be needed in the course of execution. Moreover, the harder it will be to modify and adapt a project during its implementation. This is why it is essential, at the design stage, to analyse the target group's socio-economic as well as physical environment, and to conduct highly specific surveys to test the feasibility of the menu of interventions in terms of its constraints, preferences to contribute labour, and approval..

Institution building and capabilities

The creation of capabilities should be part of an explicit sector strategy with which to raise productivity in the systems for the delivery of services to the rural population. But the creation of capabilities for generating better performance within and across projects is rarely sufficiently emphasised at time of design. At the stage of design, an explicit strategy for training, for creating capabilities, a management structure, and financial resources for training must be formulated. Training should focus on: (i) the processes required for generating knowledge from diagnosis, experiments, testing and monitoring; (ii) disseminating the knowledge generated from the R&D among local staff and institutional partners; and (iii) evaluation.

Extension activities

Conventional, ministry driven transfer of technology has failed to promote rural development in particular in those regions defined as agro-ecologically diverse, resource poor and risk prone. It is recognised that farmer-led approaches better integrate research and extension functions drawing upon knowledge and research capacities of local communities and combining them with those in formal research and development organisations. Local capacity for experimentation must be supported so as to permit technology to be adapted and further disseminated.

Present diffusion models need review. The possibility of using farmers as part time lower level extension workers (after necessary training) needs more emphasis. The use of village level extension workers offers promise in terms of a cheaper, more effective channel to encourage farmers' experimentation, relevant feedback, and dissemination of extension messages in the remote villages. Such farmer-extension agents would not be directly paid by Government, but could be assisted in kind through free inputs, training, etc., and villagers could compensate them for foregone earnings (labour lost).

Funding mechanisms

A lesson learnt is that new or "improved" sector funding mechanisms such as the World Bank and donor assisted ASIPs should never be started up unless adequate preparation has taken place. First, system capabilities need to have been generated both at the Centre as well as in the field, not least monitoring mechanisms for rapid feedback and corrections. Otherwise, the launching of these efforts reduces motivation and morale of field staff and becomes counterproductive or worse, meaningless.


The concern for nutrition was written into the Agreement establishing IFAD: "the need to increase food production and to improve the nutritional level of the poorest populations.....". This nutrition dimension needs to be revisited: the weakest, most vulnerable segment of the population is the children under five, and especially those 24 months or less. Food security is imprecisely defined and monitored. Collection and analysis of anthropometric nutrition indicators is the exception rather than the rule. An exception is Zambia where IFAD should be praised for supporting such growth monitoring. But still in this Project, the frequency of moderately and severely stunted children remains unacceptably high; moreover, diagnosis and remedies are found to be ad hoc and of uncertain effectiveness. The 1996 survey engineered by IFAD (OE) and FHANIS/CSO in Zambia suggests that the average stunting score for the three project districts is 48%. Stunting is regarded as particularly debilitating for children aged less than 24 months: the survey suggests that 40% of this age group are stunted. In surveyed areas in Mwinilunga and Solwezi, one out of four children is severely stunted

Limited resource endowments in terms of area cultivated under maize seem associated with stunting. Yet, the problem of malnutrition is complex, some of the malnutrition is due to dietary factors, some to disease and others due to a combination of inadequate diet and health problems. That malnutrition has continued to be high in the province shows the failure not only of agriculture but of other sectors including health, education, community development and the private sectors to solve the problem.

IFAD needs to ensure that effective collaborative efforts are generated with other donors such as FAO, WHO, and UNICEF; monitoring is precise and adequate and that in-country efforts are undertaken to address this issue across the various ministries, the Ministry of Agriculture, Food and Fisheries (MAFF), Ministry of Health (MOH) and the Ministry of Community Development and Social Services (MCDSS).

Lessons learnt for implementation

a) Five Lessons as to capabilities for supervision

i) The Co-operating institutions are not well equipped for reviewing and addressing issues concerning R&D processes: the latter are expected to generate new knowledge, the application of which cannot be easily foreseen and pre-programmed;

ii) The awareness, skills and knowledge in the area of R&D processes are scarce also within IFAD;

iii) For IFAD, it remains to identify a roster of consultant firms, NGOs or development research and training institutions with established track records, which may be contracted to provide continued TA cum supervision of the essential R&D processes in farming systems, in institutional innovations and social engineering, e.g. beneficiary mobilisation, credit delivery with joint liability against defined performance standards, etc.;

iv) IFAD should carefully review the qualifications of the consultants and staff used in each supervision mission, as well as the composition of missions; and

v) Regular supervision missions by the Co-operating Institution should best concentrate in the areas relating to procurement, local funding, disbursement and where the technology is already tested and known (e.g. the roads component).

b) TA Management

Ineffective or late TA recruitment has become a major issue. The present processes for TA recruitment are not performing in line with expectations. TA was recruited late during the first phase Project as well under the current one: and externally recruited TA for credit was inappropriate. A lesson doubly learnt is the need of far more and early attention to the management of the process and the interactions with the Government for selecting qualified candidates for TA posts. Different modalities need to be found for the TA recruitment to be agreed upon at the time of negotiation

c) M&E

The evaluation and support provided by IFAD and the Co-operating Institution are essential for developing the capacities of the monitoring and evaluation units. The competence of these units should be specified at the outset and be upgraded over time. The units should not be permitted to be overloaded with demands for its services. Otherwise, the unit's ability to gather and analyse information, and to develop its own capacity for reflection and adaptation will suffer.




Smallholder Development Project for Marginal Areas (1997)

December 1997

Interim evaluation

Purpose and objectives of the evaluation

The overall aim of the evaluation was to review the implementation performance of those IFAD-financed projects in Tanzania containing rural financial services/credit (RFS/C) components, and to draw up recommendations and lessons learned based on the evaluation for IFAD's future RFS/C operations in Tanzania and elsewhere. As a result, the evaluation focused on three projects/ from IFAD's overall project portfolio in Tanzania. The evaluation also took stock of the evolving structural changes in the economy of the country, which has embarked on liberalisation programmes aimed also at reducing the role of the government in economic activity, while simultaneously encouraging private sector-led development. The evaluation exercise was timely given that IFAD is in the early stages of designing a new project in Tanzania with a RFS/C element.

Country background

The islands of Zanzibar, Pemba and Mafia together with the mainland comprise the United Republic of Tanzania. The total land area of the country is 883,749 km2. The population as of mid-1996 was 30.6 million, with Dar es Salaam being the city with the largest population (around 1.4 million people). The climate is tropical on the coast, and semi-temperate inland. The country gained full independence in December 1961.

From independence till around the mid-1970s, the annual Gross Domestic Product (GDP) growth averaged 4.7%. After the mid-1970s due to a series of factors, the economy started to stagnate. However, the government persisted with its economic policies implemented since independence, based on the socialist system of government, including control and direct state intervention and investments in all sectors. By mid-1980s, the country suffered serious macroeconomic imbalances, including high inflation, persistent government budget deficits, declining per capita income and generally a very poor state of the economy. The consequences were many, most visible of them being wide-spread and acute poverty. Tanzania was obliged to seek external assistance. In 1986 it embarked on structural adjustment efforts and borrowed from the International Monetary Fund (IMF) to support economic recovery programmes, whose thrust was to implement a transition from state-control and central planning to reliance upon market forces and private initiative. Reforms included the civil service, financial sector, parastatals and the introduction of multiparty politics.

Economic performance over the reform period has been mixed. According to 1985 base figures, the average annual growth rate was 3.8% over the four years to 1995. This puts increases in real GDP marginally ahead of the population growth rate, but real income per head has been growing by less than a percentage point annually. External assistance and foreign earnings from export recovery allowed imports to recover well. But the fiscal deficit and inflationary pressure have persisted. The current account balance has remained weak. Agriculture is the principal determinant of overall growth. The sector has grown more or less in step with the rest of the economy over the past decade and its share in total value-added has remained close to 55%. Recorded manufacturing growth has been poor - in 1995 real manufacturing value added was 13% down on 1990. Mining more than tripled its contribution between 1990 and 1995, averaging 27% annual growth in real terms. Tourism is making an increased contribution to GDP. However, after nearly a decade of more or less continuous structural reform, Tanzania continues to be among the most aid-dependent states in Africa and receives some USD 1 billion gross in development assistance annually, upon which economic recovery is almost totally dependent. The long-term policy goal is to ease this dependence.

The financial sector and institutional setting

For most of the period since independence the Tanzanian financial sector was mainly government-owned with pervasive government interference in the financial system. Credit was directed on the basis of government priorities without regard to credit-worthiness, and banks were convenient agents of fiscal policy. The system allowed a single institution to have virtual monopoly in its functional area: the state owned National Bank of Commerce (NBC) monopolised commercial banking in Tanzania. Government restrictions on entry as well as sectoral and functional specialisation reduced competitive pressure. As a result competition has largely been absent. The financial system was also characterised by weak banking supervision. Each institution was governed by its own stature and the Bank of Tanzania's (BOT) supervisory role had been limited. Finally, the environment in which the formal financial institutions operated was also regulated by the state. Credit was allocated administratively by the BOT which established legal ceiling in bank lending and deposits in addition to regulating interest rules. In the prevailing environment, the financial sector's performance was very poor. Savings mobilisation was neglected. Loans to parastatals increased, and no pressure was applied on borrowers to repay their loans. The Government of Tanzania's (GOT) policies resulted in over-staffed and inefficient banks. These loan policies led in 1988 to 70% of NBC's loan portfolio to be in arrears and 95% of this was accounted for by parastatals. The Cooperative Rural Development Bank's (CRDB) rural sector loan portfolio was no better, with 66% of its loan portfolio in arrears as of end 1988. With a non-performing loan portfolio and unable to attract deposits, the formal financial sector was bankrupt, and dependent on financing from the GOT.

GOT reformed the financial sector in 1991 and established the Banking and Financial Institutions Act. Banks were restructured and many of them privatised. Interest rates were also liberalised, and financial operations were to be conducted on a more commercial basis. Along with banking de-regulation, the Cooperative's Act of 1991 was passed which authorised the re-structuring of the Cooperative movement and permitted the establishment of the Savings and Credit Cooperatives (SACCOs). Non-Governmental Organisations (NGOs) also started micro-credit operations in Tanzania. Currently, NGO's are financing approximately 18,000 micro-entrepreneurs. The two largest programmes are run by Pride Africa, with 9,000 members and Juhudiya Akina Mama Scheme managed by MEDA, with 4,000 members.

The legal and regulatory framework

The Banking and Financial Institutions Act of 1991 vested powers on licensing, supervision and regulation of banks and financial institution on the BOT. These powers are further consolidated under the 1995 BOT Act. Hence, BOT are responsible for regulation and supervision of formal financial institutions, including community and cooperative banks. However, supervision and regulation of SACCOs is the responsibility of the Registrar for Cooperatives, who operates through the Regional and District Cooperative Departments. These Departments have very low capacity to undertake such tasks, part of the problem being that they are very much under-funded, and lack equipment and transport to implement their functions satisfactorily. This has resulted in poor supervision, including weak accounting and monitoring standards.

Project implementation


Based on the objectives of the evaluation, only the implementation performance of the RFS/C components and related issues was reviewed. The credit components in all three projects under consideration were difficult to implement. This is due to a series of inter-related shortcomings: (a) inadequate government policies, including a history of directed credit; (b) lack of appropriate management and capability of the banks involved in credit operations, reflected in low professional competence and skills, inappropriate accounting and financial procedures and limited monitoring/supervisory capability; (c) overall mismanagement, high transaction costs, large non-performing loan portfolios, which contributed to liquidity problems; (d) nearly non-existent links with grassroots level, thus making credit uptake by IFAD's target group extremely difficult; and (e) slow ongoing restructuring of the concerned financial institutions and operating environment. With the overall banking system functioning below par, only a small fraction of credit funds have been utilised (for the three projects jointly, only 6 percent of envisaged credit funds have been disbursed). The three main lending institutions in Tanzania have a poor track record in general, especially in rural credit operations: (i) the CRDB was restructured in 1996 and it is now operating as a commercial bank. Following its restructuring, the bank has not been active in rural lending, although there seems to be an interest on its part to participate in micro/rural credit, mainly as a profit-making bank; (ii) the NBC has been restructured leading to the creation of a National Microfinance Bank (NMB); and (iii) the Peoples Bank in Zanzibar (PBZ) is undergoing reform in order to make its operations more responsive to the needs of micro-borrowers. However, the emergence of national banks and commercial banks in the microfinance sector is constrained by a lack of expertise in microfinance, banking regulations with respect to collateral requirements, a legal system and credit culture that do not support repayment, and the concern with profitability of a retail operation which relies on small amounts, and in many cases, low volume.

To boost its credit operations, IFAD, in close consultation and cooperation with the government, embarked on alternative arrangements for providing credit to members of IFAD's target group, which involved the use and promotion of grassroots level institutions. More specifically, under the Smallholder Development Project for Marginal Areas (SDPMA), a pilot activity involving the formation and training of SACCOs started in June 1996. SACCOs are a very simple form of financial institution, which fit well with the socio-economic milieu of the rural poor and the poor community as a whole. Hence, they are better placed to innovate and develop indigenous financial products relevant to the communities they serve.

With their emphasis on lending, mobilising savings and management at local level, SACCOs appear to be a very promising mechanism for delivery of financial services to the rural poor throughout the country. In view of their proximity to their clients, the operating and transaction costs of SACCOs are relatively low. Further, being organisations formed by beneficiaries themselves, the latter feel a sense of ownership in their respective SACCO and, hence, ensure that operations are conducted according to established criteria and procedures - this has resulted in more effective operations mirrored also in reduced risks in lending and repayments. Finally, SACCOs are democratic institutions where members have a voice in the policies of the SACCO, particularly regarding the setting of interest rates on savings/loans. In all, more than 100 SACCOs have since been formed in the area where the Southern Highlands Extension and Rural Financial Services Project (SHERFSP) is operating, and they appear to be performing well. Several of these SACCOs have operated under the project. In Zanzibar around 40 SACCOs have been registered, although none participated in the Smallholder Support Project in Zanzibar (SSPZ).

Smallholder development project for marginal areas (SDPMA)

Under this project, the first loans were not made till 1992, when a total of Tshs 38 million were initially provided to the CRDB for onlending. However, only Tshs 9.48 million were provided as loans to 147 participants in the Bahi rice irrigation sub-project in Dodoma region. Borrowers were unsatisfied with the loan product, as CRDB provided a twelve month "bullet" loan, with principal and interest repayable as lump sum at maturity. The cash cycle of the loan did not follow the cash cycle of the crop planted. Savings mobilisation was very low and interest rates charged were commercial rates, which was unrealistic also in view of the type of activities the credit was intended to support. Loan supervision and monitoring was very weak, contributing also to low repayment rates, which were around 67.5%. Further, CRDB credit modalities changed during project implementation confusing clients and discouraging potential beneficiaries. In view of the shortcomings with its initial credit operations, in 1994-95 CRDB used a different method for lending, that is the group lending approach. For this purpose, CRDB used the cooperatives as a loan distribution tool to farmers. The cooperatives were responsible for approving each member's loan, and for this an agricultural officer would visit each site to review individual borrower's activities. Once more, CRDB offered a single loan product; a twelve-month "bullet" loan, with principal and interest payable at loan maturity. In this round of operations, a total of Tshs 8.9 million was disbursed. However, no principal repayments have been received due to several factors including: late rains and hence poor harvest; cooperatives selected for loan distribution were newly formed following the Cooperatives Act of 1991 and lacked cohesion and commitment; CRDB staff were not aware fully of the composition of members of the cooperatives; and a pervasive lack of credit culture.

Given its overall poor performance, CRDB withdrew from the project in 1996, and SACCOs were used from this point to channel SDPMA's credit for the remaining period of implementation. SACCOs provided a better opportunity for promoting rural financial services, also because transaction costs were much lower and savings mobilisation improved. In this setting, loan size and repayment terms were linked to the type of activity financed, and no downpayment was required for loan uptake.

Smallholder support project in zanzibar (SSPZ)

The credit component under this project was not implemented till February 1996, even if the project was declared effective in March 1991. This was because the Peoples Bank in Zanzibar (PBZ), the institution selected for channelling the credit, did not comply with the conditionality of IFAD's credit line, namely the provision of audited financial statements, achievement of a debt-equity ratio of 5 to 1, and a profit on loans of at least 1 percent. Around end 1995, PBZ initiated a major operational and organisational restructuring exercise to streamline its activities, a process which was still underway during the evaluation mission. Anyhow, PBZ did ultimately become operational under the SSPZ but has only made 20 loans amounting to USD 50,000. Repayment rates in mid-1997 was a mere 35 percent. The credit programme is obviously not cost-effective, also because the cost of lending was around Tsh 1.20 to every Tsh 1.0 lent. PBZ did not have sufficient capacity to handle such a credit line. Staff skills were inadequate, loans were often advanced without appraising the activity for which credit was demanded, savings mobilisation was nearly nil, loan monitoring and supervision were sub-standard, and recovery rates were exceedingly below acceptable levels. Additionally, the loan application process was lengthy, repayment terms considered harsh and loan ceilings regarded too low (only two types of loans were permitted: a short-term working capital loan up to USD 100 was to be made available to individuals and a medium-term loan of up to USD 1500 could be made to groups of USD 300 to individuals). Finally, political interference in the loan approval process also created further difficulties in implementation.

Southern highlands extension and rural financial services project (SHERFS)

At appraisal, the project envisaged a double track approach to rural financial services: (a) loans would be made through CRDB under the direction of the Ministry of Agriculture and Cooperatives (MOAC); and (b) the Ministry of Community Development, Women and Children (MCDWC) would provide institutional facilities for the formation of groups to mobilise savings.

As far as implementation is concerned no loans were made through the formal banking system. CRDB withdrew from the project and the subsequent subsidiary loan agreement signed with the NBC did not materialise, because of NBC's restructuring, which is still underway. However, in order to prevent a total failure of the credit activities, the Project Coordination Unit (PCU) undertook the CRDB function by recruiting four credit officers (COs) and one Loan Accounting Officer (LAO), and initiated its operations in October 1995, under what was known as the Pilot Credit Scheme. The COs were posted at the regional headquarters of the project area, whereas the LAO was posted at the PCU in Mbeya. Regional loan committees were established to scrutinise all loan applications. To initiate the flow of credit, an initial USD 100.000 (Tshs 61.3 million) was provided to PCU's Credit Management Unit (CMU), which received initially 1150 applications for input loans by November 1995. Disbursements were made to 194 informal farmer groups in kind, in the form of input packages for one acre (fertiliser, improved seeds and agro-chemicals) in all four regions (Mbeya, Iringa, Rukwa and Ruvuma) of the project.

Repayment rates are good and are over 90%. The loans being repaid were relent to 199 groups in 1996/97. The cost of lending was Tsh 0.65 per Tsh 1.00 loaned, although this is unfortunately now increasing. In general, clients were happy about this credit scheme, although some concern was expressed about the efficacy of in kind credit, saying that sometimes the loans arrived late, and some believed they could purchase the same inputs for lower prices.

Savings mobilisation has been low among other reasons, due to lack of sensitisation and institutional back up, although this is now improving. Average savings per group in project Year I was Tsh 13 448, while in Years II and III it was Tsh 5 353 and 34 671, respectively. Despite a setback in Year II, awareness of the advantages of savings by the beneficiaries resulted in a marked rise in savings in Year III. By June 1997, Tsh 58.3 million had been saved by smallholders. Despite the initiatives by the project in mobilising savings, some specific issues caused difficulties in this respect, including (i) closure of some bank branches in rural areas; (ii) decreasing trend of interest rates on deposits; and (iii) spirit of savings mobilisation are still low. In order also to facilitate the mobilisation of rural savings, the Savings and Credit Unit (SACU) promoted the development of SACCOs. As of 31 March 1997, the SACU covered 121 SACCOs with a total membership of 17768. The total savings amount to Tshs 150.2 million. Growth in the amount of savings mobilised has been steady, with the incremental savings of Tshs 44.6 million in FY 1996 and Tshs 13.7 million for FY 1997. However these savings have come at a high cost, with cost per shilling saved being Tshs 1.64 in FY 1996 and Tshs 3.25 in FY 1997.

Recommendations towards efficient rural financial markets and intermediation

An opportunity exists in Tanzania to further develop efficient rural financial services. There is considerable GOT ownership of the initiatives aimed at providing these services to the rural poor. The BOT has been appointed as the main focal point and the donor community has come together to prepare the basis for future multilateral and bilateral interventions. A number of studies have been commissioned which provide valuable information in relation to existing institutions and on the demand for credit. The establishment of the NMB may provide for an institution which could reach IFAD's target group. Finally, enhancing access to financial services for the rural poor entails preserving the macroeconomic environment, removing the remaining policy biases against agriculture and the rural sector, reforming the legal and regulatory framework, developing or strengthening efficient financial intermediaries, providing for capacity building measures and establishing performance indicators for evaluation.

In all three credit schemes, loan appraisal has been a major weakness. Several loans were advanced to beneficiaries starting new agricultural and business activities without them being properly, or in some cases at all, appraised. As a result, the profitability of undertaking some activities was not established in advance, which therefore did not yield expected results, thus causing concerned beneficiaries to default on repayments. It is recommended that future loans should only be approved following a thorough loan appraisal process, as this is essential for the sustainability of the credit schemes.

There has been limited donor-coordination regarding microfinance activities in Tanzania, leading to the promotion of the financial sector in a piecemeal fashion, without due regard to how projects and related activities fit into the overall strategy and framework of the financial sector. Future support needs to be programmed in close collaboration with multilateral and bilateral donors operating in the financial sectors. Cost-sharing arrangements and resource mobilisation will need to be undertaken to provide effective and coordinated development, and agencies should operate and finance those activities in areas where they possess a comparative advantage, in terms of their experience, technical capacity, strategy and mandate, etc.

Local institutions have limited experience in providing support for developing capacity within existing or new financial intermediaries. However, there are a number of regional institutions which could provide this service. Exchanges of experiences and study of best practices can contribute to the design of appropriate training programmes and curricula. It is recommended to include a capacity building component in future projects including training, and exchanges of experiences. Building up new financial intermediaries and/or supporting informal groups requires considerable capacity building measures, and involving reputed regional and sub-regional institutions for this purpose would be cost-effective.

Given the uncertain prevailing financial environment in Tanzania, it is recommended that intense efforts be made by SACCOs and other rural financial institutions to mobilise savings, which would reinforce the autonomy of the present rural financial system and increase their resources availability. In fact, this has been an area where all IFAD credit activities in Tanzania have not performed well. Savings mobilisation demonstrates group cohesiveness and their capability to work together, and must thus be undertaken as an active financial service responding directly to the various needs of savers, such as the security of funds, their confidentiality, their availability, and their role in making the savers eligible for loans.

With specific regard to the financial services under the SHERFS project, two credit programmes are being implemented in parallel, one directly through the CMU of the PCU and another through the SACU and SACCOs. This dual approach is causing increases in the overall cost of operations. Not only is the actual ratio of credit delivery to cost of delivery increasing steadily, but the effectiveness of credit is gradually being strained. Both schemes have occasionally targeted the same areas, causing undue confusion and competition. It is recommended that the two schemes be brought under one umbrella, which would not only reduce costs but improve targeting, monitoring and repayments. It may be more feasible and justified to transfer the CMU's credit operations to the SACCOs operating under the project.

IFAD's more recent experience through the SHERFS project has been quite successful, especially in terms of the operations of the SACCOs. However, it would be advisable to simplify the management of the pilot scheme and reduce its area of coverage. This recommendation is also made in view of the recent escalation in transaction costs of credit operations in the project, as mentioned above. The suggestion to use Ruvuma Region is appropriate. The Savings Mobilisation and Credit Assessment Survey being conducted by the Monitoring and Evaluation Section of the SHERFS project will provide the necessary information for the proposed reorientation.


The overall performance of the SACCOs has been encouraging despite some of their inherent weaknesses. Nevertheless, in view of the important role of SACCOs in rural financial services in the Tanzanian context, it may be worthwhile for IFAD to consider to replicate the SACCOs' experiences in the framework of future pipeline activities. To this end, if SACCOs are to improve, continue and expand their role in rural financial services, they need to be supported through the provision of appropriate capacity building assistance, including training and members' education on savings and credit. This would enable them to upgrade their current level of management, resources, skills, accounting/financial knowledge, assets and overall operating procedures, which would in turn contribute to their sustainability, and make them more effective and efficient.

SACCOs financial linkages with formal financial institutions need also to be strengthened. This will facilitate their integration in the financial systems and their growth and development, and enable them to develop into capable institutions subject to the Banking and Financial Institutions Act of 1991. The whole issue of financial linkage is an important one if SACCOs are to be effective in handling the demand for credit in the rural areas. For instance, this would enable SACCOs to borrow from formal financial institutions in order to lend to SACCO members and clients, and would have the effect to reverse flow of funds from the formal sector to rural areas. Plus, obviously financial linkages would improve SACCOs' overall fund management.

The regulatory and supervisory framework for the SACCOs revolves around the Registrar for Cooperatives and his staff (Regional Cooperative and District Cooperative Officers). The effectiveness of SACCO supervision is currently very low due to several reasons, including inadequate budgetary allocation to the Cooperatives Department and the resulting lack of transport and funds for visiting SACCOs for supervision of their accounts and auditing. Effects of poor supervision are losses incurred through theft, engagement and investment in risky non-financial activities, delayed reporting and un-audited accounts, and violation of Cooperatives Societies Act (e.g. accepting deposits from non-members). Supervision is of paramount importance and safeguarding of depositors' funds is crucial. There have been thoughts of establishing regional apex bodies for SACCOs to offer these services. However, the IEM does not think such an arrangement would be worthwhile as it will simply create a multiplicity of organs. Despite the aforementioned, the existing network is very valid and if strengthened appropriately, it could be a very effective mechanism for supervision and regulation. What is required is to reorganise and strengthen the existing Regional and District Departments of the Cooperatives to enable them to conduct services appropriately. This necessitates additional training and funds to cooperative officers, including the provision of transport and computer equipment to improve supervision and auditing. Furthermore, there is need for the Cooperatives Department to liaise more actively with the BOT with regard to supervisory aspects.

The more successful SACCOs should be allowed to transform into Community\Village Banks in order to make them more effective institutions. However, the graduation of selected SACCOs to Village Banks should be a stepwise process. More specifically, Village Banks are considered as those institutions able to make loans and receive deposits from non-members However, it is too much to expect from even the best positioned SACCOs to take on all such responsibility at once. A first stage should be the acceptance of non-member deposits while restricting lending exclusively to SACCO members. The restriction of lending to members is to enable the mechanisms of peer pressure to continue to apply, particularly to ensure loan repayment. Thus, all borrowers of the Village Banks should continue to be members until a certain threshold is reached where restriction on lending only to members acts as a constraint on the growth of the Village Banks. At that point, the restriction should be lifted, and they should then be allowed to lend also to non-members, which is the second stage.

In order to be in a position to assess the performance of SACCOs, a set of indicators need to be established which would facilitate such a task. Presently, it is not easy to evaluate the achievements of SACCOs and this task is further complicated by the fact that SACCOs, and the services offered by each SACCO, vary from one to another. Based on the aforementioned, it is recommended that broad areas be identified that may form the basis for assessing the performance of SACCOs. The following are a range of performance indicators that may be considered: outreach, quality of services, operational efficiency and portfolio quality, growth rate, profitable interest rates, Management Information Systems' quality, good practice and governance, and transparent financial reporting (please see chapter VI for further details).

It is not possible to do a thorough analysis of loans made to women due to lack of necessary data. In the SACCOs visited by the mission, the majority of clients are men, although a large number of transactions are done by women as they are responsible for operating joint accounts in their husband's name. In some SACCOs, only around 15% of the accounts are in the name of women. Basically, women's use of financial services provided by SACCOs is disproportionate in relation to their representation in the decision-making bodies and ownership of SACCOs. SACCOs should make extra effort to involve women as members so that they may directly be entitled to loans and once they have joined, they should be encouraged to get involved in SACCOs' management and operations.


Few NGOs in Tanzania are currently capable of making an effective transition from being traditional credit providers to cost-effective business oriented rural financial services institutions, due largely to their very weak overall capacity. Hence, the role of NGOs as a credit delivery instrument should be very carefully examined. NGOs can nevertheless play a useful part in promoting rural financial services, especially in view of their strategic position in the rural community: they could offer non-financial services (in support of financial services), such as training clients, business management training and advisory service, advocate on behalf of women and the informal sector, etc. Hence, it is recommended that (i) NGOs should be involved in the provision of rural financial services only if they are run as profitable financial institutions, and (ii) NGOs could effectively provide non-financial type of assistance. In both cases, donors and GOT need to extensively invest in institutional capacity building and staff skill training if such institutions are to meaningfully contribute to the promotion of the rural financial sector in Tanzania.

Lessons learned

Financial viability and long-term sustainability of credit operations

The experiences gained through the three projects illustrate that the viability of credit operations depends on a number of factors, including the existence of demand for credit, how well credit operations are managed overall and on the success in keeping transaction costs of lending to a bare minimum. Related to this is the interest rate issue, and the ability of credit intermediaries to adopt such interest rates which will be accepted by its customers, yet provide it with adequate spread to cover its administrative costs. Finally, long-term sustainability of credit operations depends also on (a) high levels of recovery rates to preserve integrity of the capital base; and (b) successful savings mobilisation to increase the amount of funds available for lending.

Institutional appraisal of financial intermediaries

During project design a comprehensive institutional appraisal in the field should be undertaken of those financial intermediaries under consideration to being involved in future projects and related activities. This is fundamental for the success of the financial services component and the project itself. The appraisal should assess the institution's track record in reaching the poor efficiently, its scale of outreach and the relative poverty of the clientele, the quality of the financial services and of the loan portfolio, governance, accounting procedures and experience, management capacity, financial performance over time, and the existence or potential for sound reporting, monitoring and information systems. In none of the projects under review was an attempt made to assess the cost and profitability to the bank of implementing the proposed credit line. It is preferable not to implement credit or financial services components until the financial intermediaries are sound.

Customer-oriented financial services

The financial requirements of the rural poor are not homogeneous and often vary according to the local conditions and circumstances. Customisation of credit packages are essential, which should be based also on the nature of activities the credit is to support. Varying socio-economic circumstances may also necessitate different financial products, including savings mobilisation, short, medium and long term loans, transfer services, and currency exchange. What is important is to have an analysis of the needs and services required by the intended target group, otherwise the efficacy and efficiency of the entire credit operations may be jeopardised, as was the overall case in Tanzania. Project design teams need to customise the loan programme to beneficiary demands, which should be clearly understood through a consultation process.

Credit culture

The success of credit programmes is higher in cultures where borrowers understand their responsibility to repay the loan, in accordance with the terms and conditions imposed at the time the loan was made. At the same time, lenders should also appreciate that they too have to take their responsibility in credit monitoring and repayment to ensure success of the schemes. Design missions should talk with lenders currently active in the region to assess the credit culture and if it is found to be poor, serious reflections should be given regarding implementing the credit component. Project design missions should also consult community leaders, existing and potential clients of financial intermediaries and analyse defaults and product performance.

Credit in kind

Credit in kind should only be considered if the various actors in the process are reliable and committed, otherwise repayment rates will suffer and credit operations will not bear desired results. For instance, under the SHERFS project, while being pleased that loans are being made available, clients are dissatisfied with the in kind component. Such credit has arrived late, in poor quality and at more costly rates than what the beneficiaries themselves could purchase. Where such mechanisms are implemented, it is essential to ensure efficiency and quality of the in kind instrument, so that the credibility of the programme is maintained, as well as the commitment of the beneficiaries to repay and to remain engaged in such schemes.

Pilot components/schemes

When designing pilot schemes after project implementation has started and in response to changes in the macroeconomic conditions or the regulatory and legal framework, it is necessary to review also the major assumptions which were present in the original project design. The size of the pilot scheme must be tailored to the changed environment and the area covered may also need reconsidering. Staffing, resources and procedures require tailoring, and a clear-cut time-bound action plan ought to be worked out to prevent the pilot scheme from becoming too costly in the end, and more importantly, to prevent it from blowing out of its intended proportion and scope. A pilot is an experimental phase, one through which procedures, mechanisms and technologies are to be tested and to gain understanding if the pilot exercise may be replicated at a larger scale, cost-effectively with success.

Developing and promoting grassroots institutions

The strategy of achieving cost-effective credit delivery mechanisms through the promotion and strengthening of grassroots-based institution, especially in the absence of a functioning financial sector, has so far yielded positive results. The use of grassroots organisations not only ensures better outreach, but also results with reduced cost of loan administration. The initiative to involve SACCOs in rural financial services has done much to promote the credit components, especially in the SHERFS project where SACCOs are being used on a wider scale. SACCOs are innovative type of grassroots institutions able to secure the participation of communities at local level, also given their simple approach to credit management and participatory dimension. As IFAD projects are principally concerned that credit reaches the more remote areas of developing countries, it is necessary for IFAD to involve and promote such innovative grassroot institutions to meet the credit needs of rural populations, who, in addition, are able to better identify themselves in such institutions.

Geographic proximity

Especially in larger countries decentralisation of rural financial services are essential if they are to reach and benefit the intended target group, who often live in remote rural areas where distances are huge and means of transportation and communication are much lagging. Decentralisation overtime not only reduces transaction costs, but leads to better credit uptake, monitoring, repayment and management. Geographic proximity not only refers to the establishing of mechanisms for decentralising financial systems such as mobile banking, but also to the need to remain and interact at the grassroots level in a way that actively involves both parties (lender and receiver) throughout the credit lending and repayment cycle.

Management information system

MISs are crucial especially for the success of financial institutions, no matter the size of the latter. MISs need not be complex, neither do they need to capture infinite types of data. What is required is to gather a minimum set of data to ensure proper and efficient credit management, which can provide accurate and timely information on operations and financial performance. Computerisation of MIS would be better, but in the absence of such possibilities what is fundamental is to at least have systematic procedures for data collection, and to ensure books are regularly updated to facilitate accounts and financial statements to be prepared. This will also facilitate and make more reliable/credible the audit function, which is indispensable always, but more so for credit institutions.

Auditing and inspection

It is of utmost importance that project-related accounts are systematically prepared and audited as stipulated in the loan agreement, and that reports are submitted to IFAD and the Cooperating Institutions in a timely manner. These activities are essential to reinforce the quality and security of operations. Internal controls through self-inspection to complement external auditing is also a necessary step in the direction towards sound and proper financial management. At all times accounts should be prepared and audited, and audit reports should be followed up expeditiously, and that external auditors be brought in when audit reports are not received on time.