Document of The World Bank FOR OFFICIAL USE ONLY Report No: 23844 IMPLEMENTATION COMPLETION REPORT (IDA-25970) ONA CREDIT IN THE AMOUNT OF SDR 1.5 MILLION (US$2.2 MILLION EQUIVALENT) TO THE REPUBLIC OF COTE D'IVOIRE FOR A RURAL SAVINGS REHABILITATION AND PROMOTION PROJECT 03/14/2002 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective) Currency Unit = CEAA CFAF = USS 0.00135 US5 - CFAF 740 FISCAL YEAR 2002 ABBREVIATIONS AND ACRONYMS AFD : Agence Fanqaise de Developpement (French Agency for Development) AFISEF : Acces des Femmes Ivoirienues aux Services Financiers BCEAO Banque Centrale des Etats de IPAfrique de l'Ouest (Cenral Bank for West African States) BNDA Banque Nationale de Developpemnent Agricole (National Bank for Agriculturn Development) CIDA Canadian Agenicy for International Development CICM Centre International du Credit Mutuel (French Center for Mutual Credit) CMU Central Managenment Unit COOPEC : Cooperatives d' Epargne et de Credit (Savings and Loans Cooperatives) FAC : Fonds d'Aide et de Cooperation FENACOOPEC Fed&rafion Nationale des Cooperatives d'Epargne et de Credit (National Federation of Savings and Loans Cooperatives) PARMEC: : Programme d'Appui a la Reglementation des Mutuelles d'Epargne et de Credit RSIJU: Regional Support Unit SDMI Sub-Directorate for Mutualist Institutions SIGFIP Systeme Integgr&e de Gestion des Finances Publiques WAEMU Western African Econiomic and Monetary Union Vice President: Callisto Madavo Country Manager/Director: Mamadou Dia Sector Manager/Director: Joseph Baah-Dwoomoh Task Team Leader/Task Manager: Nicaise Ehoue FOR OFFICIAL USE ONLY COTE D'IVOIRE RURAL SAVINGS CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievenent of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 6 6. Sustainability 7 7. Bank and Borrower Performance 9 8. Lessons Learned I 1 9. Partner Comments 12 10. Additional Information 17 Annex 1. Key Performance IndicatorslLog Frame Matrix 18 Annex 2. Project Costs and Financing 19 Annex 3. Economic Costs and Benefits 21 Annex 4. Bank Inputs 22 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6. Ratings of Bank and Borrower Performance 25 Annex 7. List of Supporting Documents 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Project AD: P0012 10 |Project Name: RURAL SAVINGS Team Leader: Nicaise Ehoue TL VUnit: AFTR2 ICR Type: Core ICR Report Date: March 22, 2002 1. Project Data Name: RURAL SAVINGS L/C/TF Number.: IDA-25970 Country/Department: COTE D'IVOIRE Region: Aftica Regional Office Sector/subsector: AY - Other Agriculture KEY DATES Original Revised/Actual PC'D: 04/03/1992 Effective: 12il4/1997 Appraisal: 01/28/1993 MTR: 10/31/1997 11/14/1997 Approval: 04/05/1994 Closing: 06/30/2000 06/30/2001 Borrovwerilmplententitg ,4genc?: GOVERNMENTIRURAL FIN.COOPS. Other Partners: French Agency for Development (AFD); Canadian Agency for Intemational Development (CIDA) STAFF Current At Appraisal Vice President: Callisto Madavo C'ountty Manager: Mamadou Dia Sector Manager: Joseph Baah-Dwomoh Ted N'kodo Team Leader at ICR: Nicaise Ehoue Madani M. Tall ICR Primarv Afuthor: Nicaise Ehoue 2. Principal Performance Ratings (HS=Highly Satisfactory. S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Lik¢ly, UN=Unlikely, HUN=Highly Unlikely, HU=IIighly Unsatisfactory, Il=lfigh, SU=Substantial, M=Modest, N=Ncgligible) Outcome: U Sustainability: UN Institutional Developmentt Impactt: M Bank Performnance: S Borrower Performance: U QAG (if available) ICR Quality at Entry: S Project at Risk at Any Tinie: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The main objective of the Rural Savings and Loans Rehabilitation and Promotion Project was to revitalize the COOPEC Network by rehabilitating the existing local COOPECs and assisting in the creation of new ones where justified. To this end, the project was to capitalize on results achieved during the pilot operation by: (a) completing the rehabilitation process; (b) providing technical assistance and training to the COOPEC membership in accounting and basic financial management; and (c) funding awareness campaigns designed to fully internalize the main principles of the "mutualist" movement and ensure a strong sense of ownership from the members. In order to ensure long term sustainability and financial independence of the movement, project efforts were to focus on rural savings mobilization and financial management/discipline. Due to remarkable results achieved during the pilot phase, the project objective was deemed relevant: and filly achievable. At appraisal, the following key indicatoTs were determined for the expansion of the network and its operations agreed upon by the Govemment, the network movement and the donors: (a) Outreach. The number of local COOPECs was to reach 142 from 70, with a specific emphasis on creation of rual COOPECs; membership was also to increase to 113,000 from 27,000. (b) Savings and loans. Savings were to increase fiom CFAF I billion to about 6 billion at project completion. Outstanding loans portfolio was to increase from 150 million to CFAF 3 billion in the same period resulting from an increase of a loans to savings ratio due from 15% to 50%. (c) Financial autonomy. To achieve financial autonomy, operating costs were to be kept as low as possible and even to decrease from CFAF 731 million to CFAF 550 million with a loan recovery rate to be maintained at 97.5%. 3.2 Revised Objective: The objective of the project was not revised during project implementation. A retrofitting exercise undertaken at Mid-term Review in 1997 confirmed that the project objective was still relevant and being achieved. However, due to the unexpected fast-growing trend of the network, the monitoiable indicators were reset accordingly as indicated below: (a) Outreach. Total local COOPECs number was reset to 124 with membership to 155,000; (b) Savings and loans. Savings were to reach CFAF 14 billion i.e. more than double the objective set during appraisal; loans recovery ratio was to be maintained at 97.5% and outstanding loans were to reach about CFAF 6 billion; and (c) Financial autonomy. Operating costs were to be maintained at the same level as set during plroject appraisal so that FENACOOPEC could keep up with financial discipline. Additional expectations were also set for the network, although they were not formalized as objectives: (a) the network was to promote and improve women access to savings and loan services; and (b) the network was also encouraged to finance small and medium entrepreneurs. - 2 - 3.3 Original Components: The project components and their costs were set as follows: (a) rehabilitation and Development of Local COOPECs, USS1.7 million (for detailed audit and financial restructuring of the 70 existing COOPECs, improvement of their accounting system, and the training of members and managers); (b) support to Regional Service Units, US$6.1 million (to provide timely supervision and support to rural COOPECs in their immediate geographic areas, to provide training to members, to ensure that all prudential ratios are met, to monitor the loan portfolio's good standing, and to make sure that important efforts at loan recovery are made); and (c) support to the Central Management Unit, US$ 6.4 million (to support the CMU, provide the network with policy and operational guidelines, manage COOPECs'excess liquidity, supervise their activities and RSUs' activities, and finance the necessary technical assistance to the CMU and its investnents and operating costs). Because of the complexity of the network's institutional architecture, capacity-building support was to be the key element to achieve project objectives. This was due to be appropriately addressed through a strong training program. Addressing the financial management issues was also adequate to build confidence within the network. 3.4 Revised Components: The components were not revised during project implementation. 3.5 QualitY at En tiy: No quality-at-Entry Review (QAE) was perfonned on the project. However, the Government took a precautionary step to avoid its involvement in the sector and promote the emergence of private sector to take full responsibility of project implementation. Thus, the Government and donors agreed to entrust the overall project management to Canadian and French technical assistance, funded respectively by the Canadian Intemational Development Agency (CIDA) and the French Agency for Development (AFD) to ensure quality. To prepare the network for financial self-sufficiency, the Government tested a new approach by passing on IDA financing as a loan to the network so it would not rely only on subsidy. Additional precautionary steps were taken to discourage the network to receive lines of credit which, if ill-managed, could have additional detrimental effects on the overall portfolio. Despite the fact that the proposed institutional configuration of an APEX structure was deemed complex and was a possible source of delay in decision-making process, the Government, FENACOOPEC and donors agreed to test it during project implementation and improve on it as time went on. 4. Achievement of Objective and Outputs 4.1 Outcome/achievementof objective: The output targets set at appraisal were quickly outpaced during the initial phase of implementation, hence, new ambitious ones were projected at Mid-Term Review (MTR). These were also rapidly exceeded as shown by monitorable indicators: (a) Outreach. Project outreach was impressive. W1Vhile, the number of local COOPECs reached 110 nationwide, less than the projected figure of 142 at appraisal and 124 at MTR (due - 3 - to prudent management to avoid uncontrolled growth), this situation did not adversely affect membership which grew exponentially from 27,000 to more than 300,000 at project completion; (h) Savings and Loans. Savings grew accordingly in the same period, from CFAF I billion to about CFAF 27 billion, i.e.five times the targeted figure set at appraisal (CFAF 5.7 billion) and twice the figure set at MTR. Outstanding loans followed the same pattern by increasing to 14 CFAF billion from CFAF 150 million; (c) Financial autonomy. Because outstanding loans portfolio increased dramatically as a result of increasing savings and that loan recovery rate was maintained at 96% on average during four years, there was no doubt that financial autonomy could have been quickly achieved even with increasing operating costs. In fact, the financial autonomy rates (funding of total expenses by internally generated resources) were 55% in 1997, 75% in 1998 and 82% in 1999 when more than 40 local banks were profitable and the network's profit amounted to CFAF 645 million. Other impacts. For the first time in C6te d'Ivoire, more than 300,000 people from rural and urban areas have had access to financial services, thanks to the project's actions. The project has also coniributed, to some extent, to institutional capacity building based on training programs for the network's members, Board and project unit staff in accounting, management information system, financial control. Under a specific CIDA-funded operation (AFISEF), the project promoted also a greater participation of women (about 10,000) in income-generating activities. Overall, women constitute currently one fourth of the network's total membership. However, there were also negative impacts resulting from the difficulties: (a) in managing exponential growth which generated high operating costs; and (b) in stopping aggressive lending practices in light of increasing of savings that the management was eager to transform into loans with the hope that this would help the network achieve rapid sustainability. The inability to deal with these difficulties resulted in high rates of loans delinquencies. The deficit of the 2000 fiscal year amounted to 1.4 billion CFAF. 4.2 Outputs bY components: Rehabilitation of Local Cooperative Loans and Savings Component produced mixed results. On the one hand, important progress has been made in setting up an effective institutional architecture of the network. Thus, each local COOPEC was able to establish its own democratically elected Board of Directors, its credit and surveillance committee with its general assembly which met on a regular basis. Efforts were also made, particularly in the last two years, to improve the financial status of COOPECs with several actions including a new accounting system based on the PARMEC law which regulates the decentralized financial institutions in the West African Economic and Monetary Union (WAEMU). More than 35 local COOPECs, accounting for the bulk of operations, have been computerized; financial management has also continuously been strengthened by an increased frequency of internal controls and systematic reconciliation between the local COOPECs, the regional services and the central management unit. On the other hand, inadequate inflow of funds to the network resulting from insufficient knowledge of donor's procedures did not permit the network to get access to all the available -4 - donor resources in order to implement a strong training program and awareness campaigns. As a result, the involvement of the different institutional bodies of the network in decision making were inefficient. Moreover, aggressive lending practices in a sluggish economic environment during the last two years of project implementation led to huge delinquencies which could threaten the network's existence if drastic actions are not quickly taken to restructure the network. Support to Regional Services Units (RSU). The performance of this component was unsatisfactory. The regional units relied heavily on the central unit in their day-to-day work. Control, inspection and training, their core activities were insufficiently implemented because the RSU were understaffed and lacked capacity in accounting/financial management. This was partly the reason for some embezzlements that occurred at local COOPECs. The situation slightly improved over the last two years of project implementation with the recruitment of new and well trained inspectors and credit officers posted at regional offices with clear terms of reference. It is expected that, their efforts will pay off in the future. Support to the Central Management Unit (CMU). Performance achieved was mixed. FENACOOPEC, the apex organization, envisaged at appraisal was established and was fully operational after MTR. A National Committee for network surveillance was also set up to ensure financial discipline. To achieve a rapid financial sustainability, the general assembly of FENACOOPEC approved an annual contribution fee (CFAF 1200) to network development. However, the Board of Directors relied too heavily on the CMU for decision making. The latter took advantage of the Board's weakness to make, very often, inadequate decisions. This led to frequent tensions between the CMU Board and the Board of Directors. Surprisingly, in the euphoria of booming savings, FENACOOPEC Board and the CMU agreed to loosen conditions to loan accessibility. As a result, excessive overdue loans were registered in the last two years of project implementation. FENACOOPEC also faced major problems due to: (i) a high turn over of managers (four managers of CMU recniited in six years of project implementation); (ii) a concentration of power at the CMU level at the expense of local COOPECs; and (iii) some inappropriate governance practices. 4.3 Net Present Value/Economic rate of return: The project was designed to be an instrument for institution building which, at the operational level, would address the problems of absence of formal or semi-formal rural finance institutions. The project's impact on beneficiaries' financial revenues could not be evaluated, and no economic analysis was undertaken at appraisal. Consequently, no economic analysis was attempted at project completion. 4.4 Financial rate of return: No overall financial rate of return was calculated at appraisal nor for the ICR. 4.5 lnstitutionbal development impact: Despite its fragile state and a difficult quest for achieving financial self-sufficiency, several institutional development impacts can be noted. FENACOOPEC is now a common feature in the microfinance environment and provides financial services to a large number of Ivorians who are members of microfinance institutions. FENACOOPEC has benefited from the project by - 5- developing its organization to plan, monitor and lead the savings and loans cooperatives in Cote d'lvoire. It has also greatly contributed to build the African microfinance alliance which is housed at its headquarters in Abidjan. In addition, the project has contributed to build local capacity in decentralized financial services. As a result, FENACOOPEC is now fully managed by national staff. With mDre than 300,000 members, 1 10 local COOPECs, CFAF 27 billion of savings and CFAF 14 billion of outstanding loans, FENACOOPEC is the most expanded network in Cote d'Ivoire and will be the leading decentralized financial institution in the West African Economic and Monetaiy Union. 5. Major Factors Affecting Implementation and Outcome .5.1 Factors outside the control oJ government or implementing agenlcy: Following factors tenmporarily impeded project implementation: (a) lhe collapse of world price of commodities severely impaired farners'abilities to repay loans in the rural areas. (b) ihe lingering political and social instability which exacerbated economic downturn and led to the suspension of disbursements of Cate d'Ivoire. .5.2 Factors generally sudject to government conitrol: Due to earlier Government failure interference in managing former COOPECs, the new project manageiLnent was totally entrusted to a unit consisting of staff with experience in private sector development and to international partners. However, because of its responsibility to oversee the financial sector as a whole, and to ensure the enforcement of the PARMEC Law (which regulates decentralized financial institution in the WAEMU zone), the Ministry of Economy and Finance and BCE_AO (the Central Bank) was to be regularly informed of project progress. In light of this, a Goveriment official presided over the project's steering committee without influencing the decision. making process. However, the Govermment and the Central Bank failed to regularly control, supervise and enforce the PARMEC law. This failure meant that decisions contrary to procedures under the PARMEC law, were made by the CMU and FENACOOPEC putting the network in jeopardy. 5.3 Factors generally subject to implementing agency control: Several factors impeded the project implementation agency, namely: (a) a high turn over of project managers and financial managers from the CMU was detrimental to decision-making. During six years, four project unit managers were recruited. This situation was aggravated by disputes between the Canadian and the French technical assistance as to who should manage the project unit; -6 - (b) Inability of the CMU to convince the Board of Directors and the General Assembly to enforce internal rules. Although there were ample opportunities to detect warning signs of future problems, including the aide-memoire by IDA and donor supervision missions, FENACOOPEC management had difficulties to persuade its Board of Directors and its Annual General Assembly to take the necessary steps to halt the increasing trend of overdue loans, or to close down the COOPECs whose capital bases have eroded; (c) Because, performance was highly satisfactory in the early years of project implementation, FENACOOPEC prepared a more accelerated expansion plan, not taking into account the full implications of the resulting costs and requirements on human capacity. The need to develop competence of manpower through training and experience was not fully taken into account. While a comprehensive training plan was prepared at the early stage of project implementation, it was not totally implemented; and (d) The CMU was quickly overwhelmed by rapid growth and had difficulty to envision the network long term development. 5.4 Costs andfinancing: The project cost was estimated at US$15.8 million at appraisal with US$0.8 million to be financed by beneficiaries. The remained was shared among IDA (US$2.2 million), the French Development Agency-AFD (US$6.5 million), the French Fund for Aid and Cooperation-FAC (US$2 million), the Canadian Agency for International Development-CIDA (US$3.5 million) and the Government of Cote d'Ivoire (US$0.8 million). At completion, the total project cost was estimated at US$12.85 million. IDA disbursement rate stood at 68% resulting partly from the fact that the country was under suspension six months before project closing and thereafter. AFD's disbursement rate was estimated at 67%. Only CIDA achieved a disbursement rate of about 99%. 6. Sustainability 6.1 Rationalefor sustainabilitv rating: Sustainability of the network has always been the key issue constantly raised during the project's design and implementation. However, the network is currently confronted with difficulties resulting from aggressive lending practices which have generated high rate of loan delinquencies which may delay its financial autonomy. In fact, overdue rate dramatically soared from 4% in 1997 to 10% in 1998 and to more than 37% at project completion, resulting in a deficit of CFAF 1.4 billion in fiscal year 2000. Although more than 50% of overdue loans have been secured by membership's savings, the current situation is a concern, particularly at a time of sluggish economic environment compounded with political instability. A recent calculation showed a Subsidy Dependency Index (SDI) for the fiscal year 2000 (71.4%). This meant that if FENACOOPEC had adopted an interest rate of 31.2%, the network could have operated without subsidies. This rate cannot be used in CMte d'Ivoire because the usury law considers an interest rate above 27% as usury interest rate in the WAEMU zone. It is clear that the network will continue to be dependent on subsidies for some time. However, the fact that no donor agency - 7 - committed. itself to provide further assistance to the network, will certainly exacerbate its financial problems. For the above reasons, we have rated the sustainability as unlikely. While the entire network can probably not be sustained as is, we believe that a good part of the local COOPECs will be sustainable. In fact the potential for network sustainability exists as proven by fimancial autonomy indicators achieved during the first four years of project implementation (55% in 1997, 75% in 1998 and 82% in 1999). Moreover, outreach is still untapped despite FENACOOPEC's annual growth rale of 34%, given the number of Ivoirians who do not have access to fonnal financial services. E]ven since project completion, the financial performance appears to be improving. Tlle sustainability of FENACOOPEC essentially lies on its strategy to position itself vis-a-vis its local and urban COOPECs. It is possible that FENACOOPEC will let some time lapse before it creates new local COOPECs and maintains its current size to make the network more manageable. However, the network could run the risk of generating overcrowded and unmanageable urban COOPECs with inadequate services. Urban and semi-urban COOPECs have dramatically increased to represent 85% of membership and 87% of total savings and loans. However, experience shows that managing urban COOPECs is difficult due to their lack of social pressure. This is why the current management is determined to "professionalize" them by recruiting experienced credit officers in those COOPECS and reinforce their capacity in microfinance. However, the sustainability of FENACOOPEC greatly depends on how well it can recover its overdue loans and return to active and secure lending at a level that provides enough income to cover expenses. In its effort to rehabilitate the network, the management should make quick decisions to disaffiliate the inefficient local COOPECs from the network . It is essential that donors continue to support this effort. Because of its high development potential, the Bank has strongly recommended that the network undertake an institutional and financial audit in the context of a sound restructuring which could attract donors for further assistance. The Bank is also encouraging the Ivorian Government to design a national strategy for decentralized financial institutionis as an effective instrument to combat poverty particularly in rural areas. 6.2 Transition arrangement to regular operations: Despite thcir fragile status, local COOPECs are still providing regular financial services to their members. During a recent Fund/Bank mission, the issue of FENACOOPEC's overdue loans were raised. Ihe network promised to take stringent measures for its rehabilitation. The terms of reference for a restructuring study has recently been sent to the donors for comments. In the meantime, recovery rate of loans for fiscal year 2001 is expected to reach 94%, which is a substantial improvement that could bring down the overall overdue loan rate from 37% to 22%. - 8 - 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank's performance in project identification is rated satisfactory. The Bank's staff was convinced that the Government was committed to carrying on with its enabling policies in the sector and to allowing the network to develop as a private organization. The project was clearly an important part of the Government's strategy to revitalize the rural financial sector, after the collapse of the Agricultural Development Bank (BNDA). However, the preparation and appraisal team did not foresee the tremendous potential and needs for financial services in the country, as well as the need for greater sulpervision of the financial processes. This explains why projections were quickly outpaced. More specifically, project implementation indicators might have better prepared the network to meet future requirements, for instance, by reserving more funds for training, or by recognizing the need for internal surplus formation to cover the network's expansion. 7.2 Supervision: Supervision of the project is rated marginally satisfactory. The Bank carried out annually one to two supervision missions jointly with the co-financiers. Not only did this favor a real skill mix in the composition of the supervision teams, but also provided an opporttunity to share experiences. In addition, the bilateral agencies sent in regularly, missions to look into areas of specific interests. Day-to-day problems were quickly resolved due to the location of the Team Leaders in the field. The supervision teams were however not able to influence inappropriate decisions to rapidly expand the loan portfolio or to get the Ministry of Economy and Finance to enforce the PARMEC law. 7.3 Overall Bankpetfornmance: Overall Bank performance is rated satisfactory although assistance in resolving loan delinquency problems has failed to produce concrete outcomes because the private status of the network made it difficult for the Bank to intervene. Borrowver 7.4 Pr eparation: The borrower's performance in project preparation was satisfactory. The borrower began its preparation process by building up on a successful pilot project implemented 18 months earlier. The project was designed based on an effective participatory process involving all stakeholders and four major donors: the Canadian International Development Agency (CIDA), the French Agency for Development (AFD), and the French Cooperation (FAC) of the Ministry of Cooperation and the Bank. It was also the first agricultural project ever negotiated in Cote d'Ivoire due to the commitment and the determination of the Government to make it a fast track project. -9- 7.5 Go.ernntent inmplementation pe.i']rmance: Although the Government met the financial and legal covenants requirements, its implementation performance was rated unsatisfactory for the following reasons: (a) The: Sub-Directorate of the Mutualist Institutions (SDMI) in charge of supervising FENACOOPEC did not perform adequately due to insufficient trained human resources and equipment. Moreover, the Government did not take the appropriate steps to improve the ill-functioning legal and judicial system which made difficult and even impossible to take legal action against delinquent borrowers; (b) Due to the political instability faced by the country during the last two years, the President of the Project's Steering Committee was removed and not replaced until the end of the project despite the fact that the Government's attention was repeatedly drawn to the situation. Consequently, the Steerinig Comnittee stopped meeting during this crucial moment. When the rate of overdue loans started rising in 1998, SDMI did not respond accordingly despite the threat of suspension issued by the Bank. (c) To foster resource allocation in C6te d'Ivoire, at the recommendation of the International Monetary Fund (IMF), the Government put in place a new financial management system (SIGFIP). However, the system, deemed too cumbersome, slowed down the pace of disbursement and reduced resource inflow to the project. 7.6 ImplementingAgency: The overall performance of the implementation agency has been rated unsatisfactory despite its tremendous achievement in outreach and savings. This achievement was tarnished by the high ratio of overdue loans in the last two years. There were also shortcomings attributable to FENACOOPEC and the project management unit resulting from: (i) the unrealistic enthusiasm for expanding the network outreach; (ii) and the inability to make difficult decision quickly enough to avoid major problems, stemming from the nature of cooperative organization. The project suffered from the conflicting relationship between the two major technical assistance. 'As a result, misunderstandings were frequent between the project management team and FENACOOPEC on decision making. This situation deteriorated when the project manager, on a short notice, resigned for unknown reasons. Financial rnanagement was one of the biggest challenges that the project management team faced. Initially management attention was directed at increasing membership, savings and loans delivery given the level of performance indicators. In fact, the former management teams found AFD and Bank procedures (procurement and disbursement) too culmbersome and hence were not even asking for reimbursement of costs. As a result, the disbursement rate did really take off only two years before project completion While audits were regularly undertaken and submitted on time, recommendations were not always implemented in a timely manner. After the recruitment of a new mana;ger with a solid background in financial management (a former financial manager of an important transportation company), financial management started to improve. - 10- 7.7 Overall Bo7rrower performatice: Overall borrower performance was rated unsatisfactory albeit progress was achieved, as indicated, in the earlier phase of project implementation. However, there is plenty room for improvement if the structuring plan is quickly designed and implemented. 8. Lessons Learned A number of lessons need to be learned from the implementation of the project. The most important ones are itemized below. Many lessons are positive and can contribute to appropriate formulation of future policies for the decentralized financial institutions. Other lessons have a negative message, which, if wisely taken into account, can also be constructively utilized in future policy formulation: (a) The exponential increase of network memberships, savings and loans, has far proven the existence of huge demands for financial services in the urban and the rural areas that have yet to be met. Hence, there are ample opportunity for microfmance development if the Government provides an enabling environment and designs a clear strategy based on decentralized financial institutions as an effective instrument for its poverty reduction program. (b) Like the other Networks of the sub-region, FENACOOPEC faces a big challenge in transforming savings into secure loans and ensuring financial autonomy and sustainability. Experience shows that only good governance, appropriate supervision by monetary and economic officials, adequate legal framework and enforcement of the rules of law can help solve the problem of growth and sustainable development. Project implementation has so far demonstrated that in this area, there is work to de done in Cote d'Ivoire. But, the country has the potential to do it if helped adequately. (c) Savings and loans institutions perform inefficiently and unsustainably if they are too centralized. They generate high operating costs. This is the case in FENACOOPEC where most of the decisions were made at the apex level, hence difficult to be implemented locally. Moreover, the lack of a management system based on each local COOPECs's specificity contributed, to some extent, to the high increase of overdue loans. A case in point is the local bank in Yopougon where total membership has reached 30,000 while only 100 regularly participate at the General Assembly. In this particular case, where the social fabric is loose, professionalization of COOPECs could help. These shortcomings will be adequately tackled with the financial and institutional audit to be undertaken soon. (d) Unrealistic expectations are quickly born by early success which are difficult to manage particularly when appropriate human resource management skills are lacking. Human resource management is one of the weakest functions in most credit union networks. Moreover. power struggle between elected members and paid staff are frequent most of the time and sometimes results in power abuse. As the network grows, relations between partners become increasingly conflicting For instance, compensation of elected members also becomes a constant issue, particularly when profit is made, with no consideration for the fragility of the network. - 11 - FENACOOPEC is trying to mitigate these problems by making social interactions, a central element of its new development strategy. (e) The project implementation has revealed the need for the Government to design an overall strategy ito tackle the issues of decentralized financial institutions in CMte d'Ivoire. Since the project just started addressing financial demands of the rural populations, it is important that rural finance constitute the major component of this strategy. The Bank will encourage the Government to address specifically the issue of supervision of the network and respect for the provisions of the PARMEC law in the Government's letter of development policy in the context of the Economic Recovery Credit and during the forthcoming financial sector review. (f) EDIlow-up. FENACOOPEC development started well; however, economic conditions in the country and uncontrolled growth have led to network sustainability being threatened. Donors abandoning support for the network will not help at this crucial period. It will be therefore important to find means of support and active participation. On the Bank side, the Rural Land Management and Infrastructure Development Project (PNGTER) or the forthcoming National Capacity Building Program could be used as instruments to provide some support. The decrease of overdue loans rate to 22% from 37%, recently reported augurs prospects for 'further improvernent. 9. Partner Comments (a) Borrower/implenzenting agency: The borrower's completion report, prepared by FENACOOPEC, highlights the achievement of the project, underscores the Bank performance and draws important lessons. The report has been summarized. The full report in French has been filed in the project files. 9.1 Proiect Obiective: The main objective of the project was to rehabilitate local COOPECs in the perspective of ensuring their adequate development, by taking stock of results achieved during the pilot phase, through: (a) building up an efficient institutional network based on a deep financial restructuring through rigorous loan recovery strategy and the closing of inefficient COOPECs; (b) providing technical assistance and training to local COOPECs' managers and members in accounting and financial management to streamline management of local COOPECs; and (c) setting up awareness and promotion campaigns to: (i) restore trust, insisting on the privately-led management base of the network; (ii) avoid any political initerference, help members to assiniilate the basic mutualist principles; and (iii) focus on rural savings mobilization. - 12 - 9.2 Adonted AnpDroach The approach adopted by FENACOOPEC to implement the project consisted of: (a) creating six regional units to support the local COOPECs by providing the adequate training, technical assistance and promoting the network in their respective areas; (b) providing the needed support to the central management unit in charge of designing the strategic and operational directives, managing the excess liquidity of the network, supervising and monitoring the regional units and local COOPECs; and (c) building up the capacity of national staff through technical assistance. The project was co-financed by the French Development Agency (AFD) and the Canadian Agency for International Development (CIDA). Monitoring and evaluation activities were entrusted to a National Steering Committee consisting of the Ministries of Finance and Agriculture, the Central Bank (BCEAO), Donors, and the elected Board of Directors. 9.3 Main results achieved. Implementation of the project started in an enabling economic environument marked by the realignment of the exchange rate and the privatization of the network, conducive to creativity and increasing autonomy. Marketing Achievement Although the number of local COOPECs projected at appraisal was not achieved, the network growth was considerable given the increasing trend of some monitorable indicators such as savings and membership. Thus, CFAF 27 billion were collected for CFAF 5 billion projected and membership reached 300,000 compared to 113,000 expected at project closing. These results achieved in a short time frame is a testimony that trust is being rebuilt and that a financial institution is also being built to meet huge membership's demands for financial services. However, this performance, deemed positive, calls for few observations: (a) There was not a clear orientation of the network development between the urban (more used to financial services and with high savings potential) and the rural areas (less secure after the collapse of the National Agriculture Development Bank). The creation of rural banks was more directed toward the "sous-prefectures" with higher agricultural potentials which in fact are considered as urban centers. (b) However, this marketing orientation to attract savings was not supported by a clear strategy for the urban areas where membership demands for loans were very complex and required more experienced staff for loan analysis. Thus, credit policy originally designed for the rural areas was bluntly applied in the urban areas. This situation compounded with aggressive lending practices aimed at increasing loan to deposit ratio rapidly led to an increasing rate of - 13 - delinquency. Financial Achievement From 199S to 1999, the financial achievement was built on the marketing one. Incomes generated by the network resulting from a high loan recovery rate were far sufficient to cover operating costs of the central management unit and part of the regional units. However, the financial status of the network quickly deteriorated thereafter due to the following factors: (i) the substantial provisions made by the network resulting from high rate of delinquency; (ii) the socio-economic-political environment which had a negative impact on all restructuring efforts; (iii) and the suspension of donors' disbursement which adversely affected the financial status of the network. Achievement of Project Objective The objective of rehabilitating the COOPECs was deemed satisfactory in the sense that the project contributed to the reduction of loan delinquency rate to 5% in 1995-1999 from 58% before the upward trend began for the reasons indicated above. However, it is worth noting that the project did not take enough action to restore the financial equilibrium of the network which was already in bad shape, despite the availability of resources to capitalize each local COOPEC. In general terms, no move was made to enforce the PARMEC law. Although efforts were made to train most of elected members, membership at the grass root level did not acquire the basic knowledge conducive to an effective management of their COOPECs. When training was held, sessions did not even cover the basic principles of the PARMEC law which remained unknown by most of the COOPECs' managers. The awareness campaigns did, to some extent, contribute to restore trust among potential membership. However, there was not a dynamic communication program which could have led to dissemination of the mutualist spirit and the creation of a cooperative base that the urban areas badly neecled. Problems Encountered during Project Implementation The instituitional design of the project, in several accounts, did not efficiently contribute to its implemeniation as described below: (a) while co-financing of the project was an excellent opportunity to foster skill mix, co-financiers share in project financing was not adequately fixed up at project effectiveness since donor approaches were not always the same. This was a source of confusion which delayed disbursement and led to a financial disequilibrium of the network. Moreover, because the Bank financing was a loan rather than a subsidy, it should have been devoted to long term investment instead of financing operating costs to avoid lingering deficit; - 14 - (b) the intervention of two technical assistance agencies led to a non- hannonized network development with antagonism and misunderstandings which created confusing and sometimes conflicting messages and resulted in high turn over of project staff; (c) the network was forced at times to use its own resources to finance investment, operating and technical assistance costs due to the fact that disbursement claims were rejected because they did not conform with the donors' procedures; (d) in most cases, the strategic orientation of the network was not submitted to the board's approval before being adopted, which showed the predominance of the management unit over the board of directors; (e) the evolution of the legal environment with the promulgation of the PARMEC Law was not sufficiently taken into account in the strategic management of the project; and (f) While an appropriate monitoring and evaluation system was designed, it was not adequately implemented to streamline the network development particularly in the financial management area. The same pattern was observed in relation to the distribution between rural and urban local banks whose creation should have been approved by the steering committee. Specific Problems of Overdue Loans and their Recovery In the last two years of project implementation, the financial status of the network deteriorated dramatically due to gradual increase of overdue loans. Loan delinquency rate which was 5% in 1997, rose to 29% in 1999 and reached a record of 37% in 2001. The deterioration of the portfolio was the result of many factors already indicated above, among which two most important ones were: the difficult socio-political-economic environment in Cote d'Ivoire and the aggressive lending policies adopted by the network when savings dramatically rose. Following the last supervision mission which recommended that rigorous actions be taken to solve the loans default problems, FENACOOPEC established a restructuring plan to reduce the overdue rate from 37% to 10% at the end of fiscal year 2001 (December 2001). However, due to the economic environment which has not improved substantially, so far, and the difficulty to enforce. regulation in Cote d'Ivoire, little progress has been made. FENACOOPEC is very concemed now about its future. After having contributed to build an institution with more than 300,000 members, 110 local COOPECs, CFAF 27 billion of savings collected and CFAF14 billion of loans, the network's sustainability is threatened at a time when of donors' assistance has stopped and financial autonomy has not been achieved. However, FENACOOPEC is now making tremendous internal efforts to recover its overdue loans whose rate has decreased lately from 37% to 22%. In this new context, FENACOOPE, it is worth noting that the network will still need strong donors' support. - 15 - Bank Performance The netwDrk greatly appreciated the Bank intervention and judged satisfactory its performance for many reasons: (a) the presence of the Task Team Leaders in the field helped create an intensive working relationship. The Bank did not hesitate to call the attention of the Board, project management team and project staff to problems they arose. Supervision missions were regularly undertaken and brought new insights in project implementation. However, the network found the Bank's p:rocedures too cumbersome and inflexible. The network was surprised by the Bank's decision to close the project while more than 30% of the credit was not disbursed. ConCusiUDn. A better institutional set up and a strong steering committee could have helped the network avoid most of the problems encountered during project implementation. However, the network still believes that, with the vigorous actions being undertaken, it can overcome the current crisis. The network still need donor's support to achieve its objective. (/,) Cofinariciers: French Algency for International Development While technical and marketing perfornance of FENACOOPEC was remarkable in terms of outreach and savings, its poor financial outcome and its poorly developed cooperative environment is a testimony of a profound crisis. FENACCIOPEC has become an important financial institution in five years. However, the economic, and monetary authorities (Ministry of Economic and Finance) and (BCEAO) did not, seriously, pay attention to the high rate of loan delinquency which is threatening membership's savings. InI order to maintain sustainability of the network, vigorous actions should be immediately taken by the Government and the network. Canadian Agency for International Development The purpose of the Canadian intervention was to contribute to the consolidation of the network by providing technical assistance. The expected outcome of the project was the financial consolidation of the system as well as the renewed confidence of members. The Canadian Agency for Intemnational Development questioned the level of satisfaction of beneficiaries on its assistance. In fact, harmonizing the French and Canadian technical assistance's approaches were difficult and did not produced the expected outcome in managing the network. The Canadian assistance started in 1993, one year before the Caisse Francaise de Developpement (AFD) involvement in the project and one year and a half before the Bank's credit effectiveness. The Canadian assistance was also extended for 18 months after the end of their contractual engagement between C1DA and the Government. The assessment of the project outcome by CIDA is mixed. On the positive side, CIDA recognizes that objectives set by the project were achievable and that FENACOOPEC regained its national leadership in the savings and lending operations. Nevertheless, the network had to pay high price for it accelerated growth, preventing it form keeping track of the financial and governance indicators. For the Ivoirians leaders of the FENACOOPEC, fast growing network - 16- was considered an achievement but for experts, the network was running the inherent risks of a system that grew fast and did not have the managerial capacity to foster sustainability. In trying to reduce risks, CIDA joined with the Bank and the Agence Fran9aise de Developpement (AFD) in advising FENACOOPEC to review it credit policy as well as its internal auditing procedures. Unfortunately, the project management unit was reluctant to slow down the accelerated growth and took a long time before developing a new credit policy, recruiting and training credit agents and implementing credit policy. This lack of discipline led to the increase of outstanding loans that will probably be difficult to recover if no appropriate actions are taken immediately CIDA also joined AFD and the Bank fonnally and infonrmally to point out to the attention of the Govermnent and the Central Bank the risks to the network of such a high rate of loan delinquencies. However, until the closing date no concrete actions were taken. (c) Other partners (ATGOs/private sectot): 'NA. 10. Additional Information NA. - 17 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: IndlcatorflMatrix Projected In last PSR ActualULatest EstHmate A. Outreach A. Outreach A. Outreach - Expected no. of local banks: Local banks: 114 No. Local Banks 79 in 1996; 101 in 1997; 124 in 1998; 113 in 92 in 1996; 98 in 1997; 108 in 1998; 116 in 1999; and 124 in 2000 1999; 114 in 2000; 114 in 2001. A. Outreach A. Outreach A. Outreach - Expected membership: Expected rnembeship: 290,000 - membership: 27,000 in 1995; 42,000 in 1996; 65,000 in 27,000 in 1995; 77,501 in 1996; 108,000 in 1997; 124,001) in 1998; and 155,000 in 1999. 1997; 164,486 in 1998; and 237,000 in 1999; 290,849 in 2000; 304,000 in 2001. B. Savings mobilization B. Savings mobilization B. Savings mobilization Expected volume of savings (CFAF million); Expected volume of savings (CFAF million); - Volume of savings (cfaf million): 4,717 in 1,070 in 1995; 1,780 in 1996; 2,885 in 1997; 30,000 96; 7,809 in 1977; 14,240 in 98; 24,546 in 9,882 in 1998; and 14,278 in 1999. 1999; 25,308 in 2000; 27,100 in 2001 C.Expected loan recovery rate to exceed C.Expected loan recovery rate to exceed C.loan recovery rate:98% in 1995; 94% in 97.5% at all times. 80%. 1996; 95.4% in 1997; 95.8% in 1998; 89.12%; 70.99% in 2000; 64% in 2001 D.Expected loan to Deposit Ratio D.Expected loan to Deposit Ratio D.Expected loan to Deposit Ratio Targets: 15% in 1995; 25% in 1996; 40% in 50% Targets: 15% in 1995; 27.14% in 1996; 1997; 40% in 1998 and 50% thereafter. 31.49% in 1997; 55.58% in 1998 and 68.50% in 99; 48.78% in 2000; 48% in 2001 Output Indircators: Indicator/Ulatrix Projected in last PSR ActuaUlLatest Estimate Local Banks 114 110 Regional support unit 6 6 Central Unit 1 1 End of project - 18 - Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million A. Rehabilitation of Local COOPECs 1.70 1.20 70.5 B. Support to Regional Service Units 6.10 5.25 69.7 C. Support to Central Management Unit 6.40 6.10 85.9 Total Baseline Cost 14.20 12.55 Physical Contingencies 0.30 0.10 33 Price Contingencies 1.20 0.20 16 Total Project Costs 15.70 12.85 Interest dunng construction Front-end fee Total Financing Required 15.70 12.85 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method Expenditure Category ICB NCB Other N.B.F. Total Cost 1. Works 0.00 0.16 0.00 0.33 0.49 (0.00) (0.16) (0.00) (0.00) (0.16) 2. Goods 0.40 0.20 0.20 2.00 2.80 (0.40) (0.20) (0.20) (0.00) (0.80) 3. Services 0.00 0.00 0.84 6.88 7.72 (0.00) (0.00) (0.84) (0.00) (0.84) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.40 4.04 4.44 (0.00) (0.00) (0.40) (0.00) (0.40) 6. Miscellaneous 0.00 0.00 0.00 0.30 0.30 (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.40 0.36 1.44 13.55 15.75 (0.40) (0.36) (1.44) (0.00) (2.20) Note: Figure in parentheses are the respective amounts financed by IDA credit N.I.F: not IDA-financed. - 19- Project Costs by Procurement Arrangements (ActuallLatest Estimate) (US$ million equivalent) Exediue aegr Procurement Method Expendliture Category ICB NCB Other N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.16) (0.00) (0.00) (0.16) 3. Services 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.40) (0.00) (0.40) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.10) (0.00) (0.10) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.00 0.00 0.00 0.00 0.00 (0.00) (0.16) (0.50) (0.00) (0.66) "Figures in parenthesis are the amotnts to be financed by the Bank Loan. All costs include contingencies. Inclutdes civil wvorks and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office. training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Project Finaricing by Component (in US$ million equivalent) Percentage of Appraisal Compornent 1 Appraisal Eslimate Actual/Latest Estimate WDA Govt. CoF. ID.A Go% t. CoF. IDA Govt. CoF. Rch. of Local COOPECs 0.50 0.20 1.00 0.30 0.10 0.80 60.0 50.0 80.0 Support to Reg. Units 0.80 0.30 5.00 0.50 0.20 4.55 62.5 66.7 91.0 Support to Central Unit 0.90 0.30 5.50 0.70 0.25 5.15 77.8 83.3 93.6 - 20 - Annex 3. Economic Costs and Benefits The project was designed to help building capacity of FENACOOPEC. The project impact in revenue-generating activities of the final beneficiaries could not be evaluated, and no economic analysis was prepared at appraisal. Correspondingly, no economic analysis was attempted at project completion. Similarly, no overall financial rate of return was calculated at appraisal or for the ICR. - 21 - Annex 4. Bank Inputs (a) Missions: Stage of Proecil CNcle No of Pei>ons aind SpeciallI Perfotniance Raiiig (e.g. 2 Econonnusis. I FNIS. etc bIiplemenuinon De%elopment Nionh iYear Count Specialty Progre,s Objectme Identification/Preparation 06/05/92 6 AE, FA, E, FS, RCS, MS S S 12/09/92 AE, FA, E, FS, RCS, MS S S Appraisal/Negotiation 02/22/93 6 AE, E, FA. FS, RCS, MS HS S Supervision 11/17/95 3 RCS, AE, FS, TTA S S 05/24/96 3 RCS, AE, FS, TTA S S 01/31/97 3 RCS, AE, FS, TTA (and S S representatives of french and canadian cooperations) Mid-Term Review 6 RCS, AE, FS, FMS, CS, FA, PS, S S 11/17/97 DA, TTA, TM (and representatives of french and canadiani cooperations 09/20/98 2 AE, RCS, TTA S S 05/26/99 AE; RCS, PS. DA,PA,FMS (and S S represeantative of french and canadiati 11/29/99 6 AE. RCS, PS. DA, PA, fMS, S S TTA (and representatives of french and canadian development) 01/27/01 2 AE, TTA S S 06/10/01 8 AE, RCS, PS, PA,DA.FMS, AE, S S PSDS, TTA (and representatives of french and canadian cooperation ICR 07/2002 S AE, AE, RCS, PSDS, TTA S S AE= Agricultural Economist; CS= Cooperative Specialist; DA= Disbursement Assistant; FA= Financial Analyst; FS=:Financial Specialist; FMS = Financial Management Analyst; E= Economist; MS= Microfinance Specialist; PA= Procurement Assistant; PS= Procurement Specialist; PSDS= Private Sector Development Specialist; Rural Crediit Specialist; TM=Technical Manager; TTA= Task Team Assistant - 22 - (b) Staff: -Stag of Project Cycle Actual/Latesl Esiimale No. Staff weeks USS ('000) IdentificationiPreparation 80,000 Appraisal/Negotiation 120,000 Supervision 360,000 ICR 35,000 Total 595,000 -23 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (Il=ligh, SU=Substantial. M=Modest, N=Negligible, NA=Not Applicable) Rating • Macro po.icies O H OSUOM * N O NA F Sector Policies 0 H 0 SU O M 0 N 0 NA N Phiysical 0 H O SU O M O N * NA F2 Financial O H OSUOM O N O NA 0 Institutional Developnient 0 H O SU 0 M 0 N 0 NA M Environmental 0 H 0 SU 0 M 0 N 0 NA Social 23 Poverty Reduction 0 H O SUO M 0 N 0 NA G (render O H * SU O M O N O NA M Other (Please specifyJ) 0 H O SU O M 0 N 0 NA Resettlment P Private sector development 0 H * SU O M 0 N 0 NA I Puiblic sec tor managenient 0 H 0 SU 0 M 0 N 0 NA 2 Other (Piease specifi') 0 H 0 SU *@ M 0 N 0 NA Informal sector - 24 - Annex 6. Ratings of Bank and Borrower Performance (HS='Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bankperforn7ance Rating B Lending OHS OS OU OHU * Superv'ision OHS *S OU OHU F Overall OJHS OS O u O HU 6.2 Borowverpemforniance Rating F Preparation OHS S O u O HU ER Government implementation perfin-mance 0 HS O s 0 U 0 HU F Implenientation agencyperforniance 0 HS O S 0 U 0 HU E Overall OHS OS * U O HU - 25 - Annex 7. List of Supporting Documents 1. Development Credit Agreement 1994 2. Staff Appraisal Report 1993 3. Mid-Term Review Report 1997 4. ICR Mfissicn Report, December 2001 5. Borrower's Project Completion Report 2001 -26- MALI TNR ,¢J, <+ <. -si? 56 S-g_ - B UBURKINA FASO 2 ( Msrigon > <_ Of awlr \ (I T > -I 6Do 6 un0a; D G~~~~~~~~~~6266 U ONN I NOE AO(O 0 > FFV R66666L0 3 -, -., vOOy.j K- SH -d62 I662or\=\ / I , GUINEA __6ˇ R '.~ _ i _ 4 - ogr > NDATIOI N RURA SAV