Income Generating Project for Marginal Farmers and Landless (1994) - IOE
Income Generating Project for Marginal Farmers and Landless (1994)
Mid-term Evaluation
Physical and Financial Performance: Although the Loan Agreement was signed in January 1988, delays resulted in IFAD credit being utilized only in Year 3 (June 1990): hence and project performance is evaluated only from that date.
Out of the 32,750 beneficiary groups to be formed under the project, 15,130 groups had been formed by July 1993, which is in line with cumulative targets for the three years of the project. This, however, still leaves more than 50% of the target to be met within the remaining two years of the project. Performance in the field of training has been excellent, with a 518 achievement of training targets of beneficiaries, groups and project staff up to this time.
As of June 1993, an amount of USD 9.731 million has been spent, leaving 67% of the total budget still to be spent, and 70% of the IFAD loan still to be disbursed. Likewise, 74% of the credit funds remain unutilized.
Thus, despite good physical progress, credit and financial expenditure have been low, due to three major reasons: first, the delayed start of the project; second, the consciously low financial targets set for the early years of the project; and thirdly, the effects of the double devaluation that has taken place (of 28% of the Indonesian Rupiah against the US dollar, and of 12% of the US dollar against the SDR), which has resulted in an increase (since appraisal) of 43% of the Rupiah value of the remaining SDR funds.
In view of the above circumstances, it is recommended that the project be extended by two years, to finish in 1997 and not 1995.
Credit Performance: The project has disbursed IDR 10.062 million as credit to SFGs up to end July 1993, exceeding the credit target up to this date. Credit has been provided to 9513 groups through the branch network of the Bank Rakyat Indonesia (BRI), the executing bank, in the six provinces of the project's operation, with an average loan of IDR 106 000 per beneficiary.
Institutional Performance: The project is executed by the Agency for Agricultural Education, Training and Extension (AAETE) in the Ministry of Agriculture, which works at field level through a wide network of field extension workers (FEWs). The latter are not under the administrative control of the project and are supposed to spend no more than 30% of their time on project work. Despite the ill-defined lines of command, the system has been flexible enough to work fairly well in practice, its disadvantages being far outweighed by the advantages of using an already existing system with low costs of coverage.
Some changes have, however, been recently announced, which give cause for concern. These envisage the transfer of the staff of the Agricultural Information Centres (AIC), who are responsible for project implementation at the provincial level, to the Agency for Agricultural Research and Development (AARD), which would effectively deprive the project of its staff at provincial level. If these these changes materialize, the mission would urge that needed instructions be issued by the Ministry of Agriculture to ensure that the services of the trained AIC staff at the provincial level continue to be made available to the project.
Training: The project has implemented a very successful training programme. The SAR provided for the training of only 19,000 groups (out of a total of 32,750 groups) in the preparation of their group business plans (GBPs) for their first loans only. The mission recommends that such training be provided to all groups, in respect of their first three loans. The following additions/improvements are also recommended (among many others) in the training programme:
(i) different training packages and materials be prepared and documented for the various target groups;
(ii) more refresher courses be undertaken on a regular basis both for the groups and the FEWs; (iii) the quality and approach of training be re-oriented to become less one-way, and more participatory;
(iv) evaluation of training methods and courses be undertaken on a regular basis;
(v) problem-solving workshops at the provincial level should be re-introduced, since these provide a needed forum for exchange of experience and problem-solving among field workers/ supervisors;
(vi) the participatory field workshop should be re-introduced, involving participation of the beneficiaries and officials in the village setting for participatory problem solving; (vii) and more training should be addressed to strengthening the associations.
Micro-Enterprise Development: This is possibly the area of greatest difficulty for the beneficiaries, many of whom are stagnating in low income activities. It is, therefore, recommended that:
(i) in order to identify appropriate business opportunities, the data collected from the present group business participatory evaluations (undertaken with groups in particular areas) should be processed and circulated;
(ii) training in micro-enterprise development be provided to FEWs and the groups, using the services of qualified NGOs for this purpose;
(iii) group business evaluation workshops at the village level (as started by the project) should be systematically conducted at the village and area levels with the findings disseminated to the groups in the area; and
(iv) in regard to marketing, the project's idea of organizing district marketing exchanges (bringing together the field staff, SFGs and local businessmen in order to identify suitable marketing opportunities in each area) should be expanded; special efforts should be made to open up marketing channels to isolated villages, and to encourage village specialisation in particular labour-intensive enterprises.
Technical Assistance: TA inputs have been well utilized by the project and well integrated into its planning and implementation structure. There is a need for a Senior Planning Adviser to plan the pilot-testing in the four new provinces (recommended by this mission) as well as for for the larger project envisaged under a possible second IFAD loan.
Monitoring and Evaluation: A good monitoring system has been built up by the project, based on a computerized management information system, which is both purposive and functional. The system is working well, making a very useful input into project management and implementation.
It is recommended that greater attention be paid to ongoing evaluation, with an accent on systems that are cost-effective and feasible, with the following components: (i) a repeat of the earlier M2/M3 surveys, which would provide a "before and after" picture of progress/impact; (ii) a system of participatory evaluation, using the group interview technique (involving a regular annual interview of a sample of groups) for providing information on problems of project implementation and of impact; (iii) a series of case studies for a better understanding of emerging issues.
Project Management: Project management has been good. At the provincial level, however, since the provincial co-ordinators do not work full-time for the project, it is recommended that Assistant-Project Managers (PELMA) be appointed on a full-time basis in every province. (It is to be noted that the Loan Agreement provided for full-time staff at the provincial and district levels).
Since the areas presently covered by some provincial offices are too large, it is recommended that the provincial project management units be broken up in the larger provinces of East, Central and West Java, into units of four to five districts, each in charge of a full-time Assistant Project Manager (PELMA), answerable to the Provincial Coordinator. It is also recommended that an Assistant Project Manager for women's activities be appointed in each Provincial Office.
Project Supervision: Project supervision has been good, but it should undertake a closer monitoring of overall financial and credit availabilities (in local currency terms) under the project.
The Flow of Funds: A Special Account has been set up for the disbursement of the IFAD loan. In view of continuing difficulties in the flow of funds, it is recommended that:
(i) the project should apply for reimbursements on a more frequent and regular basis; and
(ii) the initial deposit left in the account should be increased from the current level of US $ 800,000, to US $ 1.3 million.
In regard to credit, the BRI has ceased making its regular contribution towards the 20% of credit funds for the beneficiaries (which it is expected to provide under the SAR). It is, therefore, necessary to insist that when the credit funds from IFAD are completely utilised, the due credit contribution from BRI should be withdrawn from BI and utilised for continuing credit to the beneficiaries.
Although the establishment of a Credit Revolving Fund was specified in the Loan Agreement, unfortunately, this was not specified in the Subsidiary Loan Agreement between the GOI and BRI, and a separate account has not been established for this purpose. Since the BRI feels that it would be difficult to establish such a separate account at this late stage, the mission would recommend that the BRI be called upon to provide a quarterly statement, showing the balance of revolving credit available (including interest due there on) available for further lending to the beneficiaries. It is further recommended that a Letter of Intent be obtained from the BRI to GOI to this effect, in supplementation of the Subsidiary Loan Agreement.
Compliance with Loan Agreement and Assurances: The provisions of the Loan Agreement have been adequately complied with, but with the following partial exceptions:
(i) failure (except in some cases) to provide full-time staff at the provincial and district level; and
(ii) failure to establish a separate account for the Credit Revolving Fund. The mission has made appropriate recommendations in these respects. It is also satisfied that the project accounts are properly/regularly audited.
The beneficiaries and their groups
The Beneficiaries: Up to July 1993, 175,707 households had been identified as being below the poverty line (which is defined as those with an income equivalent of less than the value of 320 kg of rice). The mission is satisfied that the beneficiary selection process (done through two surveys) is adequately rigorous for targeting the poor.
The Groups: The project forms small, homogeneous groups of about 8-16 members. Most groups have been formed by the FEWs (91% of all groups), while a few groups have been formed by voluntary FEWS (not strictly under the project), and much less by NGOs (0.32% of all groups). In regard to group composition, 47% of the groups are all-male, 18% mixed and 35% all-female, as against the project target of 20% of female groups.
Although the project has achieved its targets for group formation for its third year of operation, there are some disturbing signs. First, there are 2010 groups in the credit pipeline, having prepared their GBPs but still awaiting credit, with sometimes very long delays. Secondly, there is the bigger problem of the "dormant" groups, who even 1-3 years after formation, have not shown any indication of life. It is a serious problem when around 23% of the project groups are moribund. The mission would, therefore, recommend that local trouble-shooting consultants be appointed, to investigate these groups, identify their problems, and arrange for the needed inputs to get them going; where this is not possible, they should be dropped from the project list.
Groups and Their Associations: Altogether, 3,395 groups have joined together in a total of 643 associations, averaging 5.3 groups per association. The latter are being formed by the groups to perform three major economic functions: (i) financial intermediation; (ii) purchase and supply of inputs; and (iii) marketing. Associations could in the long run, evolve into self-managed interest and service institutions, undertaking needed functions for their groups as well as offering some services presently provided by the FEWs. The mission feels that their development should be promoted (as the next higher institutional building block for helping the poor to help themselves) by action along the following lines:
(i) their performance and functions should be properly evaluated to determine desirable and feasible directions for the future;
(ii) they should also be promoted as possible channels for the delivery of inputs/services by other agencies in respect of their respective poverty alleviation programmes; and
(iii) in the longer term, the FEWs should be assigned to the associations rather than to individual groups, thus providing them guidance, training and consultancy services through their own associations.
The performance of the credit component
Savings: A total of IDR 709 million has been saved by 9193 groups as compulsory savings (required as a precondition for credit), representing 180% of the SAR cumulative target for the first three years. In addition, 5,649 groups have saved a total of IDR 273 million in voluntary savings (which are not called for by the SAR). The average total savings (both compulsory and voluntary) amounts to IDR 12 500 per member. This shows not only that the poor are capable of saving, but also that they are able to provide an equity base of 10% for a loan of IDR 125 000 per member, which compares well with the loan amounts actually received.
Credit Delivery: The project has disbursed IDR 10 062 million as credit to 9513 SFGs (up to end July 1993), which represents a 125% achievement of its cumulative target for this period. However, as already seen, about 2010 groups have applied but have not yet received credit.
Loan approvals, which are now made in the Branch Office of the BRI at district/sub-district level, should in the long-run, be brought closer to the poor and decentralized to the Unit Desa (village unit) level. The same should apply to the payment of the last loan instalment, which now has to be paid at the Branch level.
The groups currently distribute the credit equally among all their members, thus merely acting as conduits for credit. It is recommended that the groups be made aware of the possibility (during their training) of varying the terms and maturities of lending within their own groups, and that such a progress towards financial intermediation be allowed from the third loan onwards.
The mission considers that the present loan ceilings (which have been raised) are adequate. It would, however, recommend that the ceiling for the fourth loan be raised to IDR 400 000, and that all loan sizes be revised every 2 years, in keeping with the rates of inflation.
The BRI has unfortunately eliminated loans of short maturities of 3 and 6 months (due to lack of profitability), although provided for in the SAR. Since this has caused hardship to many groups with short-term IGAs, the mission would recommend that the issue of re-introducing short-term loans, at least 6 month loans, be re-negotiated with BRI, with an attempt to overcome its difficulties.
The beneficiaries are able to pay their interest rate of 22.15% for loans, which is just below the segment for institutional lending to groups. On the other hand, the BRI is effectively having a greater margin than the 2.71% envisaged in the SAR, because the arrears rate of beneficiaries is only 1.6% as against the arrears of 15% on the first loan and 7% on subsequent loans, as calculated in the SAR. Thus, BRI's rate of profitability is more than adequate to support its project credit operations.
The SAR envisaged a continuous and instantaneous transition from the first to the second, to the third loans of the beneficiaries. As against this, there have been long and unjustifiable delays between the first, second and third loans, so much so that only 45% of those who have received and repaid their first loans have received their second or subsequent loans. This is a serious matter, for which the mission would make the following recommendations:
(i) since the greatest bottleneck lies in the preparation of a Group Business Plan (which is now a precondition for each loan), it is recommended that the GBP be dispensed with for the second and subsequent loans, and substituted by a simple cash-flow statement which, together with the repayment record of the beneficiary, should be an adequate basis for the grant of the subsequent loan/s;
(ii) the loan applications (which are now started only after the full repayment of the previous loan), should in future be submitted to BRI and approved conditionally two months before the last instalment of the previous loan falls due, with disbursement becoming automatic as soon as such last instalment is paid; and
(iii) where groups are suspended in time between their different loans for a complex of reasons, it is recommended that these difficulties be sorted out by trouble-shooting local consultants specially recruited for this purpose.
Although credit is provided against a Group Business Plan (GBP), the loans are often being used to finance other small income-generating activities, emergencies and even consumption. The project is, therefore, really financing a portfolio of activities of the poor, but with excellent results. The mission would recommend that this be explicitly recognized and that second and subsequent loans be made as portfolio lending, based on the actual cash flow and repayment performance of the beneficiaries.
Credit Recovery: The total arrears of beneficiaries (as of July 1993) was IDR 68.8 million, which represents only 0.68% of the total credit disbursed, or 1.6% of outstanding loans, which is well below that envisaged in the SAR, which was 15% (arrears) for the first loans and 9% for subsequent loans.
The Groups and Associations as Financial Intermediaries: Some groups and their associations have begun acting (mainly in rapid turnover, quick profit activities) as informal financial intermediaries between savers and borrowers, transforming loan sizes and maturities, and allocating scarce resources to more profitable activities. The mission recommends that the growth and performance of groups as financial intermediaries should be promoted through proper guidance and training as presently provided by some NGOs and by Bank Indonesia's Project Linking Banks and Self-Help Groups (PHBK).
Credit Sustainability: In view of the excellent credit record of the beneficiaries, the BRI has undertaken that credit would continue to be provided to them under any or all of three alternative arrangements (listed elsewhere). The mission is satisfied that credit will be sustain-able, under the above arrangements, after the project is over.
The Income Generating Activities of the Beneficiaries/Groups: Project credit has been utilized for the following main IGA categories: livestock (and fisheries) 48%, petty trade 33%, handicrafts/micro-enterprises 15%, agricultural processing 4%, and crop agriculture 2%. The highest income increases have come from petty trade (49% increase), followed by handicrafts (43%) and the lowest from agriculture and livestock (35%).
The Rapid Rural Appraisal (RRA) showed that in 53% of the groups, the loans were used for the household's main economic activity, while in 47% of the cases, they were used for a side-line activity. In 84% of the groups, the loans were mainly used for the group common activity stated in the GBP, although within the households, part of the loan funds were found to flow into other activities. The majority of groups (83%) fully distributed the loans among their members for their individual (household) enterprises, while the remaining 17% invested them in joint (group) enterprises.
The mission would highlight the following findings which are of importance for the future:
(i) The project credit has tended to flow mainly into non-farm or non-land based activities/ (97% of all enterprises), which is mainly because the beneficiaries have little or no land. Thus, when credit is targeted to the poor, they lead it to the activities most feasible and profitable to them. Hence, when credit is really targeted to the poor, it is almost automatically targeted to non-farm (non-land-based) activities;
(ii) The poor seem to opt, in their first loans, for the activity with lowest risk, which accounts for the large numbers (46% of all beneficiaries) opting to rear/fatten livestock, the lowest paying of all enterprises. However, they graduate to more profitable and higher capital-using activities in their subsequent loans - which highlights the need for higher loans with each credit cycle;
(iii) Many beneficiaries undertake two or more activities with the loan money, and even use it for emergencies and consumption, but with excellent repayment results. The loans are thus actually used for portfolio financing, with the groups and household deciding actual usage and terms, with the objective of maximum utility and profit. Since this has contributed to IGA intensification, diversification and expansion, it should be encouraged by portfolio financing of the poor, instead of insisting on an artificial GBP;
(iv) In order to help the beneficiaries in their graduation to higher level enterprises, more guidance and training is needed for their non-farm micro-enterprises, which could be best done by qualified NGOs (since the FEWs are not in the best position to provide non-agricultural training); and
(v) The associations should be nurtured with a view to playing a future role in financing, input-supply, processing and marketing for the beneficiaries/groups, and in the long-run, possibly also providing micro-enterprise consultancy services for their groups.
The project has had strong social and community effects through the improvement of the self-confidence of the beneficiaries and their social standing in the village.
It has had production effects by increasing the volume of production (in 82% of the groups), improving the quality of production (in 65% of the groups) and in changing the relations of production, whereby in many cases, the beneficiaries have graduated from wage-employment to self-employment.
It has had employment effects by increasing the working hours of group members in 66% of the groups, with an average increase of 27 hours per week per household.
It has had income effects through an income increase of 41% to 54% (RRA data) although the project's M&E data show a higher increase. The increase in total household income stemming from loan activities was 41%, while the increase in income from the project activity alone was estimated at 54%. Further, household incomes were found to increase from 33% after the first loans, to 46% after the third loan, while income gains from the project-funded activity (alone) increased from 31% after the first loan to 72% after the third loan, which shows that the income gains are likely to increase with time. Moreover, there are further direct (cumulative) income gains from the continuous reinvestments made from the beneficiaries' returns of their quick maturing activities. There are also the indirect income gains from the inevitable multiplier effects arising from reinvestments as well as from additional consumption.
It has had institutional effects by training extension workers in working with the poor and in demonstrating that the extension agency, with its 33,000 field extension workers, can provide an effective instrument for poverty alleviation. Likewise, it has proved that the banking system can lend to the poor, without collateral, with low arrears, and with adequate profit to ensure sustainability. This could also have a profound institutional effect, at a time when the Government is actively searching for a methodology and institutional means for a poverty alleviation programme for application over the whole country.
The project has had an impact on women with 35% of all groups being women's groups (as against the SAR target of 20% of all groups), while 40% of all beneficiaries are women. In view of the great success of women's groups in petty trading in Lombok, the mission would recommend that 60% of all future groups be formed as women's groups, especially in areas where women are active in the field of petty trading. The project presently has a provision, which prevents more than one person in a household from receiving a project loan. This is working against women, and it is recommended that it be rescinded.
The project has no known negative environmental impact.
In order to obtain a fuller and more sensitive picture of project impacts, it is recommended that both primary and secondary effects should be studied in a long-range perspective, (using also indirect measures such as improvement in housing, food, IGA diversification, etc.) through longitudinal studies of small panels of beneficiaries and groups over time.
The Extension of the Project: Given the fact that the project started almost three years late and that 70% of the project funds are still unspent, it is recommended that the project be extended by two years, till 1997.
Strategies for Expanding Project Coverage: Since hardly 10%-15% of the poor have so far been covered within the project's existing areas of operation, while only 21% of the FEWs in those areas have so far been inducted into project activities, it is recommended that as a strategy for future expansion, the project should concentrate on broadening and deepening group formation in its existing areas of operation, where apart from the larger absolute numbers of the poor, the existence of trained staff and needed institutional infrastructure would conduce to cost-effectiveness and other institutional and social advantages. For the same reasons, it is recommended that, wherever possible, entire poor villages (especially large villages) be chosen for expansion. It is also recommended that Lombok, (where the project has had its greatest success), be chosen as a show-case for the project and that a substantial proportion of families below the poverty line be taken up for coverage - so as to make a powerful impact on the Government and all other poverty alleviation programmes.
Expansion to New Provinces: In view of the intended expansion to large areas of the country under a possible second IFAD loan, it would be desirable to pilot-test the project approach and methodology under the different socio-economic, socio-cultural and infrastructural conditions in the outer islands. Hence, the mission would recommend a limited expansion of project activities for such pilot-testing to selected areas in the four (new) provinces of West Sumatra, Lampung, South Sulawesi and South Kalimantan.
Some Considerations in the Selection of New Areas: The mission highlights some difficulties in working with the type of credit provided by this project in areas where the main occupation of the poor is rainfed subsistence farming, and where non-farm opportunities may be hard to find (because the objective conditions for their existence may not exist). It, therefore, urges adequate investigations before expansion to such areas.
Considerations of Replicability and Sustainability: Since the project works through the existing agricultural extension system (with needed local management structure and extension staff already in place), replication is possible with speed and at relatively low cost. Likewise, the existence of BRI's branch network over large parts of the country, as well as credit being repaid at near market rates of interest and with low arrears, enables easy and cost-effective replication. The project's low unit cost of only $ 12 per beneficiary per year (with sustainability expected at the end of the project period), also conduces to financial replicability. Meanwhile, the continuing work of the project on developing the P4K methodology has made it a prime candidate for replication.
The project achievements are expected to be institutionally sustainable, because the institutional structures which support the groups (namely the agricultural extension system and the BRI's banking network) are likely to continue in the same areas. Moreover, the groups themselves (the basic institutional building blocks of the project), are likely to be more self-sustaining, since they will be supported by their own associations.
In regard to credit sustainability, the excellent repayment record of the groups has more or less ensured that BRI credit will continue to flow to them even after the project, especially through the mechanism of the credit revolving fund. The BRI has also given adequate assurances in this regard.
While the economic sustainability of the beneficiaries' enterprises is not in doubt, there is a question mark over their ability to graduate to higher levels of productivity. This represents the greatest challenge to the project.
In regard to financial sustainability, the cost per beneficiary is estimated at only $ 1 per month or $ 12 per year (not including credit costs) for 5-7 years. After this period, their linkage to the banking system at market rates of interest, is expected to make them financially sustainable.
The project in fact yields many lessons bearing directly on the feasibility of a successful poverty alleviation programme, with replicability and sustainability. It has demonstrated: first, that it is possible to organize the poor in groups for self-help activities; secondly, that such activities can be financed through credit (with nearly 518 repayment) at near-market interest rates, without the need for expensive handouts; thirdly, that existing institutional structures (such as the agricultural extension network) could be used as a low-cost and effective means of organizing and training the poor; fourthly that the existing rural banking system can continue to meet their credit needs on a sustainable basis; and lastly, that all the above factors can make a programme of poverty alleviation based on the project's methodology, relatively cost-effective, replicable and sustainable.
Conclusion: For all the above reasons, the mission commends the approach, methodology and achievements of the project and recommends to IFAD that a second loan be provided for the expansion of the project to other parts of the country.