Document of The World Bank Report No: ICR0000473 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-34350 IDA-3435A JPN-53137) ON A CREDIT IN THE AMOUNT OF SDR 6.2 MILLION (US$ 8.0 MILLION EQUIVALENT) TO THE REPUBLIC OF HONDURAS FOR AN ACCESS TO LAND PILOT PROJECT (PACTA) June 21, 2007 Sustainable Development Sector Management Unit Central America Country Management Unit Latin America and Caribbean Region Office CURRENCY EQUIVALENTS (Exchange Rate Effective May 1, 2007) Currency Unit = Honduran Lempira Lps. 1.00 = US$ 0.05 US$ 1.00 = Lps. 19.00 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy COPRAUL Cooperativa Regional de Agricultures Unidos Ltda (Regional Cooperative of United Farmers Ltda) FAO Food and Agricultural Organization of the United Nations GOH Government of Honduras INA Instituto Nacional Agrario (National Agrarian Institute) I-PRSP Interim Poverty Reduction Strategy Program LMDSA Agricultural Sector Modernization Law of 1992 LRA Agrarian Reform Law of 1975 MTR Mid Term Review PAD Project Appraisal Document PAAR Rural Land Administration Project PACTA Programa de Acceso a la Tierra (Access to Land Pilot Project) PATH Programa de Administración de Tierras de Honduras (Honduras Land Administration Program) PFI Private Financial Institution PHRD Japan Policy and Human Resource Development PILARH Proyectos e Iniciativas Locales para el Auto desarrollo Regional de Honduras (Projects and Local Initiatives for Self Regional Development of Honduras) PMES Participatory Monitoring and Evaluation System SAG Secretaría de Agricultura y Ganadería (Secretariat of Agriculture and Livestock) UTL Local Technical Unit Vice President: Pamela Cox Country Director: Jane Armitage Sector Manager: Ethel Sennhauser Project Team Leader: Francisco J. Pichón ICR Team Leader: Dino Francescutti HONDURAS Access to Land Pilot Project (PACTA) CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 8 3. Assessment of Outcomes.......................................................................................... 15 4. Assessment of Risk to Development Outcome......................................................... 20 5. Assessment of Bank and Borrower Performance ..................................................... 21 6. Lessons Learned ....................................................................................................... 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 27 Annex 1. Project Costs and Financing.......................................................................... 29 Annex 2. Result Framework Analysis.......................................................................... 30 Annex 3. Outputs by Component ................................................................................. 35 Annex 4. Economic and Financial Analysis................................................................. 35 Annex 5. Bank Lending and Implementation Support/Supervision Processes ............ 44 Annex 6. Summary of Borrower's ICR and Comments on Draft ICR ......................... 46 Annex 7. Comments of Cofinanciers and Other Partners/Stakeholders..................... 503 Annex 8. List of Supporting Documents ..................................................................... 55 MAP A. Basic Information Access to Land Pilot Country: Honduras Project Name: (PACTA) IDA-34350,IDA- Project ID: P073035 L/C/TF Number(s): 3435A,JPN-53137 ICR Date: 06/19/2007 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: HONDURAS Original Total XDR 6.2M Disbursed Amount: XDR 6.2M Commitment: Environmental Category: B Implementing Agencies: National Agrarian Institute Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 03/01/1999 Effectiveness: 08/02/2001 08/02/2001 Appraisal: 05/09/2000 Restructuring(s): Approval: 11/28/2000 Mid-term Review: 08/30/2003 08/08/2003 Closing: 12/31/2004 12/30/2006 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Potential Problem Project No Quality at Entry None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 15 15 General agriculture, fishing and forestry sector 85 85 Theme Code (Primary/Secondary) Land administration and management Primary Primary Other rural development Primary Primary E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox David de Ferranti Country Director: Jane Armitage D-M Dowsett-Coirolo Sector Manager: Ethel Sennhauser John Redwood Project Team Leader: Francisco J. Pichon Augusta Molnar ICR Team Leader: Francisco J. Pichon ICR Primary Author: Dino Francescutti F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The PDO is to support the acquisition of land and the formation of sustainable farm enterprises by self-organized landless and land-poor peasant families. As a pilot program, the Land Access Pilot Project (PACTA) tests a public-private partnership strategy with interested private sector lending institutions for land purchase and the use of public sector funds, through the project, supporting complementary investments, and technical assistance to improve the productivity of the newly acquired properties. If successful, the Government would consider scaling up the pilot to a national fund mechanism for land purchase in several years. The concentration of the best lands among a small percentage of landholders (less than 4 per cent of farms have more than 50 per cent of total land) in Honduras makes it extremely difficult for family scale producers to participate effectively in the land market. Private land is available to the smallest producers, since they do not have the needed collateral and cannot bid on the larger size productive plots that more often enter the market. PACTA is therefore designed to provide an economy of scale to small rural producers who wish to purchase land for productive activities. Such transfers would be likely to result in more intensive land uses. While individuals can also be beneficiaries, the majority of the participants are expected to be groups of producers who collectively identify land for sale, develop a business plan for that land, and assume collective responsibility for investment and repayment until the loan is paid off, and they can exercise their individual rights over their own parcels. Key performance indicators: (i) Volume of lending leveraged from private financial institutions for land purchase - Financial institutions develop appropriate methodology to deliver credit products for land purchase by target population; and devote at least US$2.5 million to this purpose. - At least seventy-five percent of families identifies as eligible by the Local Technical Units receive private financing for land purchase. (ii) Quality of the loan portfolio - At least eighty-five percent of groups participating in the project are able to pay off land purchase loans and maintain viable enterprises (participant families negotiated land purchase, established legal structure, entered into credit contracts, and expanded new enterprises). (iii) Increase in income of participating families - At least 15 per cent increase on family income through land productivity and output in acquired lands. (iv) Validation of a decentralized model for land access - Pilot evaluation leads to endorsement of expansion of program and PACTA is established as a national program operating in conformity with the tested implementation model. (v) Local social accountability and constituency building around the program - The functions attributed to the Consejo Directivo de PACTA have been absorbed by the Redes Regionales de Apoyo (the Regional Support Networks) to provide the constituency that would support the transformation of PACTA from a pilot project to a national program. The Regional Support Networks provide an articulation of operative local and national alliances, strengthen the project's policies and procedures, enrich its norms and operational manual, and provide a social accountability for the use of funds. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Financial institutions develop appropriate methodology to deliver credit products Indicator 1 : for land purchase by target population; and devote at least US $2.5 million to this purpose during pilot phase Limited private financial Value intermediation for land quantitative or acquisition and n/a $2.50 million $2.88 million Qualitative) productive investments in rural areas Date achieved 11/28/2000 08/02/2001 01/20/2006 12/31/2006 Comments (incl. % Project costing at appraisal defined the amount of $6.84 million as a target achievement) contribution by the PFIs, but no specific indicator was defined. Indicator 2 : At least 75% of families identified as eligible by the Local Technical Units receive private financing for land purchase during pilot phase 87% of families Value identified as quantitative or n/a At least 75% n/a eligible by the Qualitative) UTLs received private financing for land purchase. Date achieved 11/28/2000 08/02/2001 12/31/2006 Comments (incl. % achievement) Indicator 3 : At least 85% of groups participating in the project are able to pay off land purchase loans and maintain viable enterprises during pilot phase 97.3% of Value participating groups quantitative or n/a n/a At least 85% are able to pay off Qualitative) land purchase loans and maintain viable enterprises. Date achieved 11/28/2000 01/20/2006 12/31/2006 Comments (incl. % This indicator was introduced in the amendment to the Implementation Letter. achievement) Indicator 4 : At least 15% increase on family income through land productivity and output in acquired lands during pilot phase Value Average Farmer income quantitative or Average family income family income doubled from US Qualitative) US$ 600. in 4 years at $ 600 to US $ 1,300 least US$ 690. per year. Date achieved 11/28/2000 01/20/2006 12/31/2006 Comments (incl. % There was no numeric value in the original target value for this indicator. achievement) Pilot evaluation leads to endorsement of expansion of program and PACTA is Indicator 5 : established as a national program operating in conformity with the tested implementation model PACTA is On January 1, 2007 established as PACTA began a a national transition for program institutionalizing Value Decentralized operating in and expansion of quantitative or No model exists models for land conformity the program to Qualitative) access tested. with the tested other land access implementatio modalities. The n model and transition was under different supported with types of land public funds and no regimes. Bank financing. Date achieved 11/28/2000 08/02/2001 01/20/2006 12/31/2006 Comments (incl. % Target value was revised to emphasize the scale-out of the pilot and include other achievement) types of land regimes. The functions attributed to the Consejo Directivo have been absorbed by the Indicator 6 : Redes Regionales de Apoyo to support the transformation of PACTA from a pilot to a national program Regional Support Networks provide an articulation of operative local Six local networks and national were established in Value Redes Regionales alliances, the departments of quantitative or informally articulated, but n/a strengthen the Ocotepeque, Qualitative) with little mobilization of resources project's Intibuca, El policies, Paraiso, Yoro and procedures, Colon. norms and operational manual, and provide accountability. Date achieved 11/28/2000 01/20/2006 12/31/2006 Comments This indicator was introduced in the amendment to the Implementation Letter. (incl. % achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Number of sub-project proposals prepared and loans approved by private lenders during pilot phase 81 group sub- Value projects and 100 (quantitative 0 n/a 60 sub-project individual sub- or Qualitative) proposals. projects approved by private lenders during pilot phase. Date achieved 11/28/2000 01/20/2006 12/31/2006 Comments (incl. % There was no numeric value in the original target value for this indicator. achievement) Indicator 2 : Number and area of properties acquired for establishment of farm enterprises during pilot phase Value 2,398 hectares of (quantitative n/a n/a 2,115 hectares.land acquired for or Qualitative) farm enterprises during pilot phase. Date achieved 11/28/2000 01/20/2006 12/31/2006 Comments (incl. % There was no numeric value in the original target value for this indicator. achievement) Indicator 3 : Numbers of families who participate in the enterprises during pilot phase 1,226 families entered the program Value (991 of whom (quantitative n/a 1,600 840 purchased land) and or Qualitative) established enterprises that are repaying the loan. Date achieved 11/28/2000 08/02/2001 01/20/2006 12/31/2006 Comments (incl. % Real costs and ratio of investment to debt burden were higher than originally achievement) planned. Indicator 4 : Loan repayment performance by beneficiaries Value 97.3% of enterprise (quantitative No repayment culture. n/a At least 85%. are able to pay off or Qualitative) land purchase loans. Date achieved 11/28/2000 01/20/2006 12/31/2006 Comments (incl. % There was no numeric value in the original target value for this indicator. achievement) G. Ratings of Project Performance in ISRs Actual No. Date ISR Archived DO IP Disbursements (USD millions) 1 06/15/2001 Satisfactory Satisfactory 0.00 2 12/21/2001 Satisfactory Satisfactory 1.07 3 05/13/2002 Satisfactory Satisfactory 1.07 4 06/04/2002 Satisfactory Satisfactory 1.07 5 12/03/2002 Satisfactory Satisfactory 1.07 6 05/15/2003 Satisfactory Satisfactory 1.91 7 06/05/2003 Satisfactory Satisfactory 1.91 8 06/20/2003 Unsatisfactory Unsatisfactory 1.91 9 06/27/2003 Unsatisfactory Unsatisfactory 1.91 10 10/10/2003 Satisfactory Unsatisfactory 2.62 11 04/12/2004 Satisfactory Satisfactory 3.27 12 12/14/2004 Satisfactory Satisfactory 4.30 13 04/30/2005 Satisfactory Satisfactory 4.80 14 12/22/2005 Satisfactory Satisfactory 5.87 15 06/23/2006 Satisfactory Satisfactory 6.91 16 12/19/2006 Satisfactory Satisfactory 8.89 H. Restructuring (if any) ISR Ratings at Amount Restructuring Board Restructuring Disbursed at Reason for Restructuring & Date(s) Approved Restructuring PDO Change Key Changes Made DO IP in USD millions I. Disbursement Profile 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country/sector background: In Honduras at the time of appraisal there was no policy in effect that was intended to broaden access to rural land. By the late 1980s, land redistribution based on the Agrarian Reform Law of 1975 (LRA) had come to an effective end. The Agricultural Sector Modernization Law of 1992 (LMDSA) called for creating a land fund and a separate land fund law was passed in 1993. However, the law was never implemented. Since the early 1980s, rural land titling in Honduras has enabled small and medium scale farmers to legalize the land in their possession, acquired or inherited sometime in the past through the informal land market. However, neither the INA titling program nor associated reforms of the registry and cadastre have been of direct, tangible benefit to landless rural families. Such families, excluding full-time agricultural laborers, accounted for about 50 per cent of the total rural population at the time of appraisal. This is the rural population most likely to live in poverty or extreme poverty. Hence the need for PACTA was evident in a context where the long term trend in land distribution was (and remains) one of increasing fragmentation of small parcels at the bottom; and increasing concentration at the upper end. Around 80 per cent of farms have around 15 per cent of agricultural land; and less than 2 per cent of farms control some 40 per cent of the total. Most farms of less than 5 hectares are rented or borrowed on short-term basis; and plots of less than 1 hectare constituted the most rapidly growing segment during the last inter-census period 1974-1993. Access to credit for small producers was extremely limited as even micro-finance operations did not expand significantly in the rural sector until after Hurricane Mitch (1998). In 2001, the year PACTA was inaugurated, only about 3.5 per cent of all rural producers in Honduras had access to formal credit. As recently as 2005, official data shows that the agricultural sector received only 4.4 per cent of total private sector credit, the share having fallen precipitously since 2000. The social context at appraisal was partly related to the end of the agrarian reform: campesino organizations that had fought for the agrarian reform and played an essential role in its implementation over many years had become increasingly marginalized from the political process. While these groups came to be focused on resolving land conflicts affecting production cooperatives and strengthening their existing base, the target population of PACTA had no effective social organization. In the post-conflict situations in Guatemala, El Salvador and Nicaragua substantial initiatives related to land access were negotiated and implemented. In Honduras, however, there was no such political impetus. In this context, a new approach was clearly needed that would be financially sustainable, self-organized (in the sense of not recreating relations of dependency on government), 1 clearly aimed at providing opportunities to the poor, and able to thrive in the market- based economy. Rationale for Bank Assistance: IDA had supported land administration reform and land surveys under the Rural Land Administration Project (PAAR, Credit 2940-HO), and thus had accumulated a good deal of experience in country on land tenure issues.1 Moreover, there was a great deal of World Bank sponsored research and analysis on the efficiency of family farms; the importance of increasing access to land as means of attacking rural poverty; and the importance of participatory approaches to rural development. Creating access to land and credit markets was a stated aim of the I-PRSP, and Government considered the support of the World Bank important to implement it. Given that INA had been focused for many years on titling and conflict resolution related to rural land issues, pilot project implementation required an appropriate means to focus operations on enterprise development without being distracted by other concerns. Government fully recognized this and entered into an agreement with FAO-Honduras to administer the project. In addition, it was understood that financial institutions would have been less likely to commit their own resources in an environment subject to pressures related to land conflict that INA faces on a regular basis. By delegating project administration to FAO, INA was able to develop a pilot experience insulated from land conflict and broader political pressures related to land access. The project loan became effective in August, 2001. The first six bank loans for land purchase under PACTA were approved in the first quarter of 2002. 1.2 Original Project Development Objectives (PDO) and Key Indicators The objective of Land Access Pilot Project (PACTA) was to support the acquisition of land and the formation of sustainable farm enterprises by self-organized landless and land-poor peasant families. The pilot would test a public/private partnership strategy, with the private sector lending for land purchase and public sector funds being used for complementary investments and technical assistance to improve the productivity of the newly acquired properties. If successful, the Government would consider scaling up the pilot to a national program. Performance Indicators (Impacts): 1. About 1600 farm families participate in local land markets and establish sustainable farm enterprises; 2. Private financial institutions increase lending for land purchase by groups of small farmers; 1The follow up operation to the land administration pilot, PATH (Credit 3858-HO), has focused mainly on the urban cadastre along with legal and institutional reform designed to integrate cadastre and registry information systems. 2 3. Beneficiary incomes increased through improved land productivity and output in project sites; and 4. Decentralized model for land access tested. Performance Indicators (Outputs): 1. Number of sub-project proposals prepared and loans approved by private lenders; 2. Number and area of properties acquired and farm enterprises established; 3. Number of families who participate in the enterprises; and 4. Loan repayment performance by beneficiaries. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification PACTA went through an early mid-term evaluation (MTR) that was held between May and September of 2003. The MTR took stock of the project achievements and discussed lessons learned and constraints faced during the first two years of implementation. Several studies were carried out as a basis for overcoming implementation constrains and introducing modifications to the project procedures and its Operations Manual. The MTR revisited the original Logical Framework and discussed goals and criteria to evaluate progress, results, and impacts of the pilot phase of PACTA in targeted areas. It proposed an extended implementation timeframe to December 2006 with a more realistic vision of desired results and project impact, including indicators of benefit and sustainability of processes not fully dealt with in the original PAD. The borrower and the Bank concluded the MTR with an agreed action plan and schedule to complete the project within the extended implementation timeframe. A post-MTR supervision mission held six-months later evaluated the impact on project performance of the changes introduced at the MTR and concluded that the project objectives continued to be achievable. The mission observed improved project performance both in the field and in the rate of disbursements as a result of the satisfactory implementation of modifications agreed to in MTR. Based on this assessment, the Performance Indicators in the Implementation Letter were amended accordingly. The revised Key Performance Indicators are the following: (i) Volume of lending leverage from private financial institutions for land purchase · Financial institutions develop appropriate methodology to deliver credit products for land purchase by target population; and devote at least US$2.5 million to this purpose. · At least seventy-five percent of families identified as eligible by the Local Technical Units receive private financing for land purchase. (ii) Quality of the loan portfolio 3 · At least eighty-five percent of groups participating in the project are able to pay off land purchase loans and maintain viable enterprises (participating families negotiated land purchase, established legal structure, entered into credit contracts, and expended new enterprises). (iii) Increases in income of participating families · Farmer income increased by at least fifteen-percent through land productivity and output in acquired lands. (iv)Validation of a decentralized model for land access · Pilot evaluation leads to endorsement of expansion of program and PACTA is established as a national program operating in conformity with the tested implementation model. (v) Local social accountability and constituency building around the program · The functions attributed to the Consejo Directivo de PACTA have been absorbed by the Redes Regionales de Apoyo (the Regional Support Networks) to provide the constituency that would support the transformation of PACTA from a pilot project to a national program. The Regional Support Networks provide an articulation of operative local and national alliances, strengthen the project's policies and procedures, enrich its norms and operational manual, and provide a social accountability for the use of funds. The main reasons for revising these indicators included: (i) The relationship between private banks and PACTA was disrupted in 2003 when a series of bankruptcies and mergers affected the sector; and Congress enacted the "Ley de Solidaridad con el Productor Agropecuario" which involved debt forgiveness that mainly resulted in benefits for large scale producers and undermined both banks' willingness to lend and borrowers' willingness to repay. Although by the end of 2006 there would be 17 financial institutions with at least some level of commitment to PACTA, the disruption experienced in 2003 was very badly timed for a project that sought to establish a "cultura de pago" (repayment culture). (ii) The real costs of providing high quality support (technical and organizational) were underestimated during project preparation; as was the capacity of service providers to support the consolidation of viable enterprises ­ as opposed to provide technical advice about increasing production volumes. In fact, some contracts had to be terminated because of poor quality services. This meant that the project needed to assume a greater role in quality control to assure good support for enterprises. 4 (iii) The level of investment needed to generate a rate of return sufficient to cover debt burdens was higher than farm models suggested. One factor not adequately anticipated was the very high level of transaction costs which in some cases reached 20 per cent or more of land value. Agricultural sector and financial markets, especially in connection with the target population of the project, are poorly integrated in Honduras thus making sustainable enterprise formation in rural areas more of a challenge. The first years of the pilot project thus involved a steep learning curve and necessitated both corrective and opportunistic adjustments. The response of the project team to disruptions that affected the commitment of large national banks was to develop a closer alliance with regionally-based credit cooperatives. Credit cooperatives subsequently proved to be more stable partners mainly because their market opportunities are limited to given geographic areas (as opposed to the national and international markets of the large banks) and their institutional mandate is to benefit their locally-based membership. By the end of the pilot phase, they had provided about 65 per cent of the total loan amount obtained by PACTA enterprises. Local service providers experienced an important learning process in developing a more integrated approach to the enterprise as opposed to a traditional focus on production techniques. However, the inexperience of service providers in just this sense proved to be a bottleneck especially in the early stages of program implementation. In addition, several of the service providers (Local Technical Units or UTL) identified during project preparation underwent significant changes of personnel and focus which limited their participation. Different partners had to be identified and brought up to speed about procedures, incentives, and expectations which inhibited implementation in the first year. All of these factors led to paring back the numerical goals of the project following the MTR. In light of weaknesses at a local level assessed at the MTR, the DCA was amended to allow the project coordination unit to further decentralize its supervision and quality control function with respect to credit applications, the feasibility of the business plan to support loan repayment and to develop the farmer enterprise; and the quality of other services (legal, organizational support, marketing) offered to enterprises. A PHRD Grant for Capacity Building during Implementation (US$431,000) was instrumental to carry out the added functions. Decentralization of the coordination unit proved effective in that once a base of successful operations was established in each region, the alliances between local actors became stronger and this in turn enabled local actors to take a more active role in implementation. Inter-institutional and inter-sectoral alliances were consolidated in the form of Local Support Networks that included municipal authorities, private sector enterprises, producer cooperatives, PACTA enterprises themselves, and other actors concerned with local development. These networks of local actors and government structures became the main pillars for social accountability and future institutionalization of the program. 1.4 Main Beneficiaries 5 The program was broadly aimed at the rural population with no access to land or precarious access to small parcels for subsistence production. Of the 1,226 families that took part in the program, 991 were part of this group ­ day laborers, sharecroppers, or other kinds of subsistence producer. The rest were poor families with access to municipal forestland (two sub-projects) or communal land (one sub-project). These sub- projects were implemented at the end of the pilot phase. As was noted in the MTR, for PACTA to expand and become more inclusive of other sub-groups among the rural poor, it needs to support enterprise development where families may have secure access to land ­ such as in the case of long-term use contracts over public land ­ but lack access to credit, technical assistance and commercial markets. Such a change would enable PACTA to develop a stronger, territorially based model of rural development; and to develop the partnership with financial institutions with loans that need not be as large as those required for land purchase. In addition, the sub-projects supported by PACTA in forest communities and afro-Honduran communities are promising for the diversification of economic activities in areas like tourism, crafts, fishing, sustainable timber harvest and wood processing, and environmental services. Both locally-based service providers and local financial institutions benefited from their participation in the program: their market opportunities expanded and they learned much better how to identify viable business opportunities. The process of leveraging private sector financing with public investment for rural enterprise development has been an extraordinary learning experience. After starting out with a single bank PACTA managed to sign working agreements with 17 financial institutions. The combined offer to provide credit became greater than the project could have expected to utilize in its pilot phase. As these lenders gained more confidence in PACTA and loans started to be repaid in a timely way, they gradually improved credit terms and increased their overall commitment. 1.5 Original Components 1. Technical and Legal Assistance to Rural Producers, included consultant services from local technical units (UTLs) and activities needed to identify and develop a viable business plan in concert with an eligible group or individual. The business plans were used to solicit credit from private financial institutions. The component also provided technical support for enterprises that were approved for financing. 2. Land Purchase loans included the financing provided to groups of loan candidates by participating private sector financial institutions with their own funds. In the pilot phase of PACTA, loans were used entirely to finance land purchases. 3. Complementary Subproject Grants included investment in newly formed enterprises by means of subproject grants for fixed and working capital investments in accord with the business plan prepared for both private lenders and the PACTA Operational Manual. Only those groups approved for a land purchase loan and who acquired title to the land (component 2) were eligible for complementary subproject grants. 6 4. Project Administration included the management of the PACTA pilot by a coordination unit team of consultants, recruited and supervised by the Food and Agricultural Organization of the United Nations (FAO). The team had resources for additional consultant services for special evaluation and feasibility studies, monitoring and evaluation, and supervision. The coordination unit had six functions: (a) financial management and reporting; ( b) other administrative and legal business of PACTA, such as entering into agreements with the local UTLs and establishing formal working agreements with the financial institutions; (c) support for the local UTLs, including coordination of training and information exchange among the UTLs and financial institutions and normalizing of forms, contracts, and reports; (d) coordination of standard monitoring and evaluation of progress in relation to the quantitative indicators of the Project; and (e) quality control, both monitoring and evaluation with local participation, and review of compliance with rules of eligibility and "best practices" established in the pilot. In addition, the project design included a system of participatory monitoring and evaluation (PME) to facilitate a systematic approach to learning lessons and incorporating them into the pilot phase and preparing for its possible expansion. All actors - participating families, financial institutions, UTLs and the Coordinating Unit - were included in the system to i) better comprehend the impact of the program; ii) analyze the adequacy of the rules and procedures; and iii) assure that the lessons learned would be incorporated as the project was being implemented. In project implementation, PME was approached as one of the main components and thoroughly integrated with everyday operations. This accounts for a good deal of what may appear as larger than expected administrative costs in Annex 1. Other tasks absorbed by Project Administration included several consultancies related to expansion and diversification of PACTA, as well as the decentralization of the project coordinating unit on a regional level. PACTA was supported by FAO through a technical cooperation project (TCP/HON/2901) that was focused on: participatory monitoring and evaluation; training for service providers; and the design and implementation of procedures to assure coordination among the different institutions and organizations with important roles in project implementation. 1.6 Revised Components Apart from changes on performance indicators, the components remained the same as originally designed. 1.7 Other significant changes While several important adjustments were made to the original scheme, there was absolutely no shift in priorities, change in the PDO or project restructuring. The focus of the pilot remained squarely on enterprise formation with land acquisition via land purchase loans integrated into that process. The main change in the design involved the decentralization of the project coordinating unit to the respective regions. A regional level coordinator was hired in each region to support local actors in the process of 7 identifying viable business opportunities. The need for this change was identified in the MTR: neither local service providers nor the financial institutions themselves had the expected level of expertise in enterprise development. The service providers were mostly formed in a framework of government sponsored extension services where the main focus was increasing productivity; and the financial institutions were mostly accustomed to measuring loan risk in terms of the proportional value of the collateral ­ in this case the value of land. The decentralization of the coordinating unit was supported by a PHRD Capacity Building Grant that was obtained to implement the changes proposed by the MTR. In addition, the grant supported several studies related to the future development of PACTA in forest and indigenous communities; financial sector capacity to expand credit; and institutional arrangements. Due to underestimates of real costs made during preparation and the steep learning curve that both service providers and credit institutions had to climb, the eventual scope of operations was somewhat less than expected. Nevertheless, 1,226 families did enter the program (991 of whom purchased land) ­ more than the expected goal of 840 but less than the original goal of 1,600 estimated in the year 2000 before any experience with the model had been gained. Aside from the unexpected weakness in the capacity of banks to evaluate business plans, the offer of credit and the number of participating financial institutions (17) eventually exceeded expectations, especially the level of participation from regionally-based credit cooperatives. Nevertheless, the underlying problem in expanding credit for land purchase remains as identified during preparation: the assets of financial institutions are almost entirely composed of short-term deposits and this imposes a barrier to the volume of long-term loans that can be provided for land purchase. Hence, even those financial institutions that are willing to cooperate in expanding the project will encounter built-in limits. For the program to greatly expand on the experience to date in facilitating land purchase, provisions for long-term financing for land purchase will have to be established. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The pilot and innovative character of the original proposal needs to be considered in assessing quality at entry. The strategic relevance of the pilot project was clear in that the issues of land access, credit, and access to services in rural areas were brought together in a new way that may be seen as a precursor of the current emphasis on rural competitiveness. The changes after the MTR did not mean restructuring the project nor redefining its priorities. The changes were focused on adjusting the incentive structure in light of experience. The lack of prior experience with the proposed public-private partnership made specifics related to costs, scale and timeline more difficult than usual to anticipate. Still the basic proposal proved to be valid: to establish a transparent scheme of incentives that would in turn facilitate land acquisition in the framework of enterprise 8 development (as opposed to land acquisition for its own sake) and a broader set of public- private alliances. In project preparation, the potential for politicizing project operations, given the deeply polarizing history of land issues in the country, was clearly identified and measures were taken to prevent that from happening with the full support of government. In addition, given the relatively unexplored territory that the project would enter, project design included a strong emphasis on the learning process and established a system of participatory monitoring and evaluation to facilitate adaptation and transparency. In the midst of many unknowns, it was clearly necessary to support a social and learning process and to make sure that all actors had a voice in project development. Clearly, the latter is essential to any project that seeks to build pro-poor alliances. Four decisions at the outset were key: integrate the issue of land access in the context of enterprise formation; develop a co-financing arrangement with private financial institutions; decentralize operations by way of partnerships with local organizations; and establish the means to support effective participation and social learning as the driving force of the whole project. Building the project on the first three points made participatory monitoring and evaluation (PME) even more important than it ordinarily is. If it were to prove viable, this approach, based on a configuration of independent actors private long-term lending to buy land, would constitute an important innovation in rural development practice. The project preparation team was well aware of the opportunity to break new ground but also of the challenge involved in making it work. Hence the emphasis given to PME was based on the understanding that much needed to be learned in the process and there would inevitably be significant adjustments especially in the early going. The lack of prior experience with the proposed public-private partnership at the center of the project design made it difficult to make accurate estimates about costs of services, scale and timeline for implementation. In addition, the capacity of service providers and financial institutions to identify viable business plans and adequately support rural enterprise development was overestimated. In a larger program, indeed in the context of any decentralized rural economic development process, the limited capacity of local actors in this regard would have to be confronted in a more deliberate way than was possible in the context of a relatively small scale pilot project. Project preparation included dialogue with personnel and consultation with participants in a number of locally-based programs (the main ones were referenced in the PAD). Most of these programs had received only small scale support from NGOs and other donors, but had nevertheless demonstrated promising results, if only on a correspondingly small scale. The closest kindred project was one based in Copán: among other activities, it facilitated land purchase for 10 small groups using credit provided by Banco de Occidente (also based in Copán), and provided a closely monitored program of technical assistance and other support, including legal and organizational advice. Though very small scale, every one of the 10 groups in Proyectos e Iniciativas Locales para el Auto desarrollo Regional de Honduras (PILARH) proved successful, intact and self-sustaining 9 after nearly a decade of development. PILARH had also implemented an exemplary micro-credit program. It was impossible to model PACTA after this effort because PILARH directly managed all aspects of the process ­ technical assistance, legal support, and marketing ­ and even assumed title to land while debts were repaid. Instead of trying to duplicate such a program, the strategy was to identify PILARH and other locally-based programs as likely partners and develop PACTA in the framework of existing local initiatives, not to try to substitute or displace initiatives that had already demonstrated success. In fact, PACTA would be implemented on the basis of alliances on a local level but not directly through the partners identified during preparation and not in exactly the way at first anticipated. Between the time they were identified during preparation and the time PACTA was established, all of these organizations would undergo substantial changes in strategy, change of leadership, loss of funding or some combination of all three. During implementation, different locally-based partners would step into different roles. Instead of relying on one organization in each region it made sense to work with several or many partners, each of which could fulfill a limited role in accord with its real capacity. This strategy has taken shape in the form of Local Support Networks (Redes Locales de Apoyo) formed in each region where PACTA operates. The design of the program was also influenced by reflecting on problems characteristic of the agrarian reform in Honduras which included paternalistic role of government, lack of scope for independent initiative, large-scale collective projects, and inattention to legal security. The newly established "market-assisted land reform" projects being implemented in Guatemala and Brazil were also a point of reference. The operational design and institutional framework of Land Fund in Guatemala were inappropriate for Honduras: It was structured under the control of government and lacked adequate mechanisms for oversight. The Land Fund in Guatemala was also used in many cases to resolve agrarian conflict, contrary to the priority placed on viable business plans in PACTA. In Brazil, Cédula da Terra was closer to the approach taken up by PACTA but three differences are important to underline: the role of private financial institutions, the commitment to participatory evaluation, and the emphasis on constituting alliances on a territorial level. Overall, however, the more important influences on project preparation and design came from dialogue with locally-based, participatory programs in different parts of the country. The design of the program was kept simple to allow for the widest possible scope for local initiative. However, this very aspect, combined with the lack of prior experience in co-financing operations with private financial institutions, made accurate projections about costs and rate of implementation difficult. Another factor that limited expansion of the program was the impact of government's decision to write-off agricultural sector debt ­ including for large scale producers. In addition, while a decentralized approach was very much a conscious commitment, this commitment made the program susceptible to weaknesses and instability among the partners originally identified to support implementation. When these weaknesses were made evident, the response of the program was to expand the scope of alliances with more diverse partners on a local level. 10 This proved absolutely key to the success of PACTA after the MTR. Reverting to a more hierarchical approach was not considered a viable alternative and would in any case have been contradictory with the underlying goal of building local capacity both on an enterprise level and in connection with regional level alliances. With respect to government's commitment, the program was launched with the support and strong leadership from the implementing agency, INA. However, during most of program implementation (2002--05) this leadership was weak and the role of FAO as administrator was important in giving the program the opportunity to succeed. Under the present government (2006--09), the leadership of INA has identified PACTA as a strategically important poverty reduction program. This commitment was demonstrated when government made a significant budgetary allocation to keep PACTA operational when the pilot phase terminated at the end of 2006. Stakeholder involvement has been exceptionally good as evidenced by the commitment of credit cooperatives and services providers; as well as the participation of other locally- based actors like municipal authorities, producer cooperatives, and NGOs. In each region where PACTA has conducted operations, a Local Support Network has been constituted that helps coordinate local actors and brings new initiatives to the table. 2.2 Implementation Following the MTR, the main changes applied to program operations were: · upward adjustments in allocations for technical assistance based on an analysis of real costs and the need to obtain high quality services to support enterprise development; · upward adjustment in the ceiling of grant financing per family; · decentralization of the project coordinating unit to provide ongoing support on a regional level and assume a more direct role in quality control; · emphasis on the alliance with regionally-based credit cooperatives. The payments made to service providers were adjusted in light of an analysis of real costs incurred in providing technical assistance which were affected, among other things, by the increased cost of fuel. However, even taking into account such variations, the implementation of PACTA highlighted the need to strengthen service providers to be able to support rural enterprise development. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization PACTA invested in a system of participatory monitoring and evaluation (PME) that enabled all participants to provide feedback on a regular basis. The responsiveness of the project team to this feedback helped in turn to solidify the alliances crucial to program success. In other words, the incentive to participate was strengthened as participants' feedback was taken into account in the process of improving procedures, quality control, adjusting incentives, and considering new initiatives. In sum, PME fulfilled the role 11 expected of it by identifying problems and adjustments to be made; gathering baseline data and measuring progress of the enterprises (based on income and other indicators); and helping to solidify participants' commitment to the program. One of the limits of PME in PACTA was related to monitoring the financial feasibility of the enterprises. While the ability to make timely loan payments was followed closely, the need to establish better mechanisms to monitor enterprise financial feasibility became evident in the course of gathering data for the financial and economic analysis contained in this report (section 3.3 and Annex 4). In some cases, the data used to calculate financial and economic indicators were not readily available and service providers were mobilized to gather it. The information obtained was limited to the main productive activities identified in the business plan; and reflects the results of one to three productive cycles. However, PACTA promotes an approach to the enterprise that includes all gainful economic activity carried out by all members of the family. In some cases, these parallel activities are what enable families to break even (or generate positive returns), especially in the early start-up phase of operations. Numerous enterprises are in fact involved in gradual processes of diversification that are not fully reflected in the financial projections based on past and recent results. This is especially true of enterprises in the sample that had only completed one year of operations. Since the grant portion of the investment is generally disbursed over a period of three years the start-up process in both family and group enterprises is usually far from complete after one or two years. Improvements in the monitoring of each enterprise, including investment and reinvestment, diversification of the product mix, marketing arrangements that may have substantial impact on income, and other indicators, can only be made by service providers who are in regular contact with their clients. That is to say, until the enterprises themselves acquire greater capacity for conducting basic economic analysis of their operations. 2.4 Safeguard and Fiduciary Compliance Safeguards Compliance (Satisfactory): The Project environment category was "B". An Environmental Management Plan (EMP) was prepared based on the results of an Environmental Analysis (EA). The farm and productive activities that were eligible for financing were subject to an environmental analysis. The project promoted production models that were economically viable and which contributed to the rational use and conservation of natural resources to guarantee sustainability in the long term. Project's beneficiaries included members of the Lenca ethnic group, who are mainly found in the Departments of Intibuca, La Paz, and Lempira. The participatory and demand-driven nature of the Project provided the necessary means to guarantee that beneficiaries, including members of the Lenca group, were consulted throughout Project implementation. During Project implementation, there were no reports of adverse social impacts to members of this indigenous group. In fact, the demonstrated viability of the model has important implications for forest and indigenous policy in Honduras which is increasingly focused on community-based natural resource management but which has so far lacked a practical means to foster the development of viable enterprises rooted in managing common-pool resources. 12 Procurement Compliance (Satisfactory): Procurement was carried out satisfactory throughout Project implementation. The PIU was staffed with a team of experienced procurement specialists. Procurement post reviews were carried out on an annual basis. Audit and Financial Management Compliance (Satisfactory): Financial Management functions were carried out by the PIU. Overall, Financial Management was considered satisfactory throughout Project implementation. The PIU was staffed with a team of experienced FM specialists. Annual audits were submitted on time and no major issues were reported. The project maintained proper internal controls (including segregation of fiduciary responsibilities) and oversight throughout implementation, and management of project funds (including management of the special account and secondary accounts for the three implementing units, maintenance of supporting documentation for project expenditures, and production interim financial reports) was good. The only exception to the otherwise satisfactory rating was the late submission of quarterly FMRs to the Bank. The credit was fully disbursed, but that as of the end of the grace period the government still had an outstanding balance of $51,204.28 in the credit's Special Account (SA) that represents funds that were not utilized and should be returned to the Bank. Because these funds were not returned to the Bank within the grace period, they are now considered lapsed loans which, until refunded, do not permit advances to the Designated Accounts of new projects in the country. 2.5 Post-completion Operation/Next Phase The present government evidenced its commitment to the program by allocating 16 million lempiras a year for the next three years out of the national budget to support continuation of PACTA beyond the pilot project completion date. The program will thus be able to guarantee follow-up on all investments made in rural enterprises during the pilot phase; keep the current project team intact so as not to sacrifice the institutional learning that has been attained over the past 5 years; and maintain the partnerships developed with financial institutions and service providers. This commitment reflects the expectation that government hopes to expand operations on a national level in the subsequent phase and not merely to wind down existing operations. The same indicators used in the pilot phase will be applicable to the proposed Rural Competitiveness Project (PCR) with appropriate adjustments for the expected larger scale and diversification of the program. However, the degree to which the PCR will focus on facilitating land acquisition has not been determined. It is certain that it will not constitute the only operational priority and will be achieved in the context of a broader approach, just as had been proposed for PACTA itself in the latter phase of the pilot project. In any case, the system of PME discussed above will remain in place and be strengthened to facilitate more complete financial monitoring on the level of individual enterprises; more systematic attention to gender issues; and adaptation to enterprises based on natural resource management. For example, to the extent that the program supports enterprise formation in the area of community-based natural resource management, environmental 13 monitoring will become an essential focus of PME and be supported in alliance with government regulatory agencies. The institutional arrangements for continuing PACTA in the long term have not been determined. Given that the program centers on alliances built around the success of private, independent enterprises, these arrangements will have to be carefully considered. In the meantime, Government has opted to renew its contract with FAO though this is clearly an interim arrangement intended to bridge the pilot phase and the new PCR. It is expected that in the next phase, the program would develop a more inclusive process by promoting the formation of enterprises not only among the landless population but with rural communities that have use rights over public forestland, indigenous communities with communal title and segments of the agrarian reform sector that could reorganize around viable business plans. With such a mix of cases, the average cost per family--including the credit burden paid by enterprise members--would be significantly less than if the program were to focus exclusively on enterprises that buy land. Also, it is important to note that in scaling-up operations with PACTA methodology, the major constraint is the capacity of PFIs to finance medium-to-long operations. The design of the PCR, currently in preparation, reflects the basic lessons learned during the PACTA pilot phase. In particular, the new project would continue (i) the use of independently vetted business plans and (ii) co-financing of business plan implementation with loans from private financial institutions as means to assign project grant funds. In the PCR, this process would include the broader mix of opportunities in the benefit of both landless families and families with secure land tenure but who do not have access to either services or other kinds of assets to establish a viable, self-organized development process. The PCR also proposes (iii) to continue operation of the Loan Guarantee Fund (FONGAC) established through PACTA. While FONGAC would provide an additional margin of security for financial institutions, they would most definitely share in the risk of investment in rural enterprises. The concept of shared risks is part of the reciprocity between public and private actors that was built into PACTA: both financial institutions (especially credit and savings cooperatives focused on regional development), and other service providers benefit from the broader market created for their services by the project. However, their success is tied to the success of the enterprises themselves. Project financial incentives are provided to enable potentially viable enterprises to get started. In addition, at least two other essential lessons learned in PACTA and are being taken up in the PCR: (iv) participatory evaluation and (v) local support networks as the platform for defining program priorities. Local support networks constitute an important part of the social capital developed through the project and a means to consolidate strategic alliances, not only between those enterprises and organizations that participate directly in the scheme of incentives established by PACTA but also among other institutions ­ especially local governments ­ to coordinate efforts. An important example here would be coordination with projects developed by the municipalities in the framework of Municipal Development Strategic Plans (PEDM) and the Poverty Reduction Strategy 14 (ERP). Among other things, such projects could help create the public infrastructure on a local level needed to make rural enterprises viable. The process of participatory monitoring and evaluation is also being given due emphasis in the PCR: in PACTA this process was developed as an ongoing, basic component of the program to facilitate the social and institutional learning process, adaptation to local conditions, and transparency or `social auditing' of the project as a whole. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation PACTA is directly related to the most recent CAS concluded in November, 2006 and in particular to Strategic Objective I: Accelerate equitable economic growth and employment generation. The pilot phase of PACTA demonstrated the feasibility of developing competitive enterprises in benefit of poor families in the countryside; and showed that these same small to medium scale enterprises are an effective means to generate employment. On average, each family in PACTA generated around one person/year equivalent of productive labor/employment. This is likely to increase as crop area and herd size expand and plantations develop. The high rate (97 per cent) of timely repayment in the portfolio of loans is the main indicator of success and demonstrates the competitiveness of enterprises formed in the program. The PACTA model is also relevant in connection with decentralization and improving governance on a local level. The strategy of building local and regional alliances establishes an environment within which enterprises have a greater chance of being sustainable in the long run. The enterprise depends on these alliances for access to technical services, credit, and different product markets; and for opening channels of participation in larger scale initiatives for value added activities and commercialization. In connection with the present government strategy for the sector, PACTA is relevant across several major themes identified by SAG, including: access to credit, access to land, equitable markets, and competitiveness; as well as decentralization, citizen's power, and territorial focus. If PACTA expands in the framework of the new Rural Competitiveness operation being planned with Bank's financing it could promote the formation of enterprises based on natural resource management and environmental services. 3.2 Achievement of Project Development Objectives The project may definitely be said to have achieved its development objectives, especially insofar as these centered on demonstrating the effectiveness of a public-private partnership as an alternative path to create competitive, rural enterprises in benefit of poor, landless families. Loans for land were backed by title to the property and the loan guarantee fund (FONGAC) provided an additional margin of security. However, no financial institution would have agreed to make long-term loans on this basis alone. To foreclose on rural land is costly, time consuming and damaging to the balance sheet. The alliance with private financial institutions required a substantial period of confidence building. This confidence was developed in several ways: 15 · the project team and service providers built up credibility by focusing exclusively on the quality of the business plan as the basis for decision making; · every decision by financial institutions to provide (or deny) credit was made independently; · the project team managed operations in a transparent way and was absolutely reliable in fulfilling agreed upon support for the implementation of business plans; · the project team, service providers and borrowers themselves demonstrated a real commitment to fulfill repayment terms and the repayment record such that lenders became increasingly willing to negotiate improved credit terms; and · the project offered the opportunity to develop a new market, especially for credit and savings cooperatives that are focused on regional development. Contrary to expectations, only around 55 per cent of the total loan portfolio in PACTA was backed by the loan guarantee fund and only once during the lifetime of the project was a payout made. In addition, BAHNPROVI managed the fund in a far more conservative way than was originally agreed because of negative experiences with other programs. While there is still a learning process involved to make FONGAC more effective in the future, PACTA has helped to establish an important precedent. In fact, the financial yield on the fund was equivalent to the guarantee paid out resulting in no net losses for BAHNPROVI. It is also striking that a significant number of loans were made without any backing from FONGAC which shows the confidence that was built-up in the program. If PACTA had done nothing more than demonstrate the possibility of leveraging private sector capital in combination with a poverty reduction program it would have generated valuable lessons. However, the working alliance with private financial institutions was established as part of a larger scheme of incentives fully aligned with the success of independent enterprises in the market economy. The program has demonstrated at least one way to advance on the goal of rural poverty reduction by creating competitive enterprises that benefit the poor. In general, families and farms acquired as private property obtained more than satisfactory results. These are indicative of the potential to achieve a far greater impact based on the experience and knowledge accumulated to date. In the regions where PACTA has had a larger presence, there are many new initiatives to be developed within the existing framework, including initiatives related to community-based natural resource management and other types of non-agricultural enterprises that would contribute to economic diversification and generate employment in rural areas. 3.3 Efficiency A representative sample of 34 family enterprises and 27 group enterprises was randomly selected to estimate their economic and financial indicators. The analysis was done for a 16 10-year period with data obtained from field surveys based on the enterprises' initial performance. The details of the analysis are described in Annex 4. The results show that most family enterprises and group enterprises are financially sustainable and able to repay their debt. The average Financial IRR for family enterprises is 69 per cent and for group enterprises is 34 per cent. Accounting for the direct cost of the subproject grants, the Economic IRR for family enterprises is 29 per cent and for group enterprises is 15 per cent. The economic and financial IRR estimated during appraisal fall within these scenarios. The incremental annual net income for family and group enterprises is around US$2,400/family and US$1,400/family respectively. In terms of annual employment, in one calendar year the enterprises generate on average 255 days of work per family, which is equivalent to almost an annual full time job per family. This means that the project generated the equivalent of 1,226 jobs in financial sustainable enterprises, with the potential to grow and generate more direct and indirect employment. Average technical assistance and project management costs were around US$3,170/family (30 per cent of total costs). However, these costs included complementary investments such as the testing and adjustment of pilot operational processes and capacity strengthening of local UTLs. In a follow-on phase, these costs can be reduced to an estimated US$1,270/family (15 per cent total costs) if only effective time and costs of UTLs and project management were taken into account. In terms of resource allocation, the average subproject grant to enterprises was US$4,700 per family ­ about 35 per cent higher than ceiling estimated at appraisal, but in line with changes agreed during project implementation. The average loan obtained from PFI's was US$2,780 per family. Compared to similar land-access programs, the investment cost per family plus the land debt assumed by beneficiaries is lower than: Brazil (US$10,000), Colombia (US$22,000), South Africa (US$10,000) and Mexico (US$15,000-30,000). 3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Satisfactory In 2001, only about 3.5 per cent of rural producers in Honduras had access to credit; and the share of the agricultural sector in the credit portfolio on a national level had been in a steep decline, from 19 per cent in 1990 to 4.5 per cent in 2005. In this context PACTA succeeded in cementing an alliance with a broad group of lenders and leveraging a portfolio of long-term credit for land purchase by families with essentially no tangible assets. Despite the considerable risks involved with small scale rural enterprises, the borrowers have to date performed well by any reasonable standard of success. This alliance between the public and private sectors is a potentially important model for future operations related to rural competitiveness and access to productive assets. This and other alliances created through the project are especially relevant in the framework of the recently reformulated poverty reduction strategy. While PACTA was focused on leveraging credit for land acquisition, it essentially established a business model that is 17 adaptable to facilitating access to markets and pro-poor enterprise formation in general. Government has made a commitment to assuring continuity of the program because the model could be applied, as it has been, for landless families but also for the poor who have access to land but do not have the complementary assets needed to develop self- sustaining enterprises. In the earliest phase of implementation the project faced a steep learning curve, given the lack of prior experience in the country in developing private sector alliances of the kind established by PACTA. In addition, the project had to rebuild credibility with financial institutions after Congress enacted a law condoning agricultural sector debt in 2003. Other serious obstacles included: the lack of experience of service providers specifically with enterprise development as opposed to technical support; considerable distortions in the land market related to the speculative price of land; and extremely high transaction costs related to the lack of a rural cadastre in most of the national territory. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The average income of families in PACTA enterprises increased by around 130 per cent. That is to say, net of debt servicing and other costs, incomes increased from around $630 dollars to $1,430 a year. By year 4 and 5, when the most intense period of investment in the enterprise is concluded and debt service is less of a burden, incomes are likely to go up even further. Such gains have a substantial positive effect on nutrition, school attendance and other social indicators. In addition, the program was successful in generating employment in rural areas. At the end of the pilot phase, a total of 1,226 families were productively employed. Such productive labor use is likely to increase as farms develop and consolidate. The willingness to invest is demonstrated by the excellent record of loan repayment: loan repayment builds equity and reflects families' commitment to sacrifice short term gain to capitalize the enterprise. The program made a consistent effort to support women's participation in enterprises; to promote equal property rights for women; and to encourage enterprise development models that are more inclusive of the whole family. That is to say, business models that apply more integral concepts of development by taking into account the needs of the whole family and which avoid reproducing the gender-based discrimination endemic to the rural sector as a whole. Accordingly, the program sought to shift emphasis from the concept of a traditional business owned and operated by so many individual members to an understanding of the enterprise as consisting of a number of families where women and men are equally active in decision making and defining the overall development plan. Most service providers were not prepared to build such an agenda into their everyday work. In a subsequent stage, the program would need to invest substantially more resources in support of a strategy on gender. 18 The Local Support Networks that formed around PACTA enterprises constitute a potentially important source for community economic initiatives. An example is the alliance between PACTA enterprises; a regional producer cooperative, COPRAUL; a program for marketing and processing agricultural products, PROACTA; and a local service provider that works with PACTA enterprises. In a process led by COPRAUL, these actors cooperated to develop a purchasing and warehouse operation that enabled the 250 members of COPRAUL to sell their potato crop directly to major buyers, including a chain of supermarkets. By eliminating intermediaries and selling in volume, prices received by producers more than doubled. COPRAUL has established a trademark; and has a plan to add other products to the business. There were also important trickle-down impacts such as replicating effects due to farmer-to-farmer support and/or support of strengthened UTLs to other farmers independent from the project. Finally, anecdotal evidence (based on interviews with participants) points to a positive impact in reducing migration to major cities in Honduras and to the US among families who participate in PACTA. Such an impact would be expected to the extent that participation in the program inspires a sense of confidence in the opportunities that come from acquiring land, investing in an enterprise and participating in broader alliances on a local level. People migrate from the rural areas of Honduras to the US at considerable risk to their well-being and experience the trauma of separation from their families. (b) Institutional Change/Strengthening In the pilot phase of PACTA, the public sector, and private sector local and regional institutions were strengthened in the following ways: · The public sector established an entirely new policy instrument in its rural poverty reduction strategy: a scheme of incentives that successfully mobilized private capital to benefit poor, landless families. The incentives were deployed specifically to promote the acquisition of land in the context of enterprise formation in the countryside but the approach need not be circumscribed in this way. PACTA may be understood as a business model which uses public investment to leverage credit and thus enable the poor to acquire a significant endowment of assets. In this sense, it is clearly adaptable to many different contexts. · Financial institutions were strengthened in that they were led to identify a potential market that had been increasingly underserved and unrecognized for many years. If the PACTA approach is continued, at least some financial institutions may be led to develop the market further in a way similar to the leading rural credit providers in Central America (viz., BanRural in Guatemala and Fondo de Desarrollo Local in Nicaragua). · Locally-based service providers were strengthened by the experience of working to develop viable enterprises as opposed to dispensing technical advice related to production. While PACTA showed that there is a need for a focused program to develop the market in `enterprise development services', the service providers that succeeded in the pilot phase are prepared to continue their leadership. Of 19 course, the effective demand for such services has been extremely limited since the government supported extension services were cut back. Hence the proposed Rural Competitiveness Project will have to devote resources to further building up this capacity as it invests in rural enterprises. · The local support networks constitute an important, if still incipient, form of social capital that enhances the capacity of local actors to take economic initiatives. (c) Other Unintended Outcomes and Impacts (positive or negative) The idea of a local support network was part of the project design. In some regions, however, the scope of local alliances and the potential evidenced for developing new initiatives exceeded expectations. The use of project funds in a scheme of incentives designed to promote local alliances showed that it is possible to generate sustainable benefits for a wider population than could possibly be supported through direct investment in separate enterprises. The process could be made to work even better by establishing financial incentives specifically to support community or multi-community level initiatives similar to the example of COPRAUL. Of course, a participatory process that is designed to respond to shifting market opportunities cannot be programmed `from above'. The idea is to create the incentives and enable local actors to take initiatives that are viable at specific times in specific places. 4. Assessment of Risk to Development Outcome Rating: Moderate Most enterprises established to date are embarked on self-sustaining processes of accumulation as evidenced by the performance of the loan portfolio. As the burden of debt repayment lessens over time, the enterprises should become progressively more stable. The alliances established during the pilot project phase will be sustainable as long as there is a clear commitment to implementing a rational scheme of incentives attractive to the respective participants, including service providers, private financial institutions, producer cooperatives, and others. The local networks that were shaped during the pilot phase have evidenced potential but are clearly still in a beginning stage of development. Although some have already begun to formulate and implement economic projects, consolidation of this capacity is dependent on the continued availability of investment capital and technical support. New funds from public sources could be used, as has been amply demonstrated, to leverage credit from the private sector. In addition, co- investment from non-financial private sector enterprises could also be an option in the future. In the pilot phase, all investments excepting three projects financed in the final year were linked to land acquisition. Given the distortions in the land market in Honduras, including very high transaction costs and speculative pricing, this model requires families to assume correspondingly high debt burdens and generate the income needed to pay it off 20 in the very short term. If the model were diversified to include poor families that have access to forestland, communal property and previously titled private farmland, the scope for rural enterprise development could be vastly increased at a much lower cost per family. In these cases, debt burdens could be much less and the opportunities to achieve positive returns would be much broader. A more gradual process of investment, learning and diversification would be more feasible under these loosened conditions. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Satisfactory The basic proposal made during preparation proved to be valid: to establish a transparent scheme of incentives that would leverage long-term private credit for land acquisition in the framework of enterprise development and a broader set of public-private alliances. The total amount of credit was less than originally estimated, but the feasibility of creating a public-private alliance to increase access to productive assets was demonstrated. In addition, given the relatively unexplored territory that the project would enter, project design included a strong emphasis on the learning process and established a system of participatory monitoring and evaluation to facilitate adaptation and transparency. In the midst of many unknowns, it was clearly necessary to support a social and institutional learning process and to make sure that all actors had a voice in project development. Clearly, these measures are all essential to any project that seeks to build pro-poor alliances, including the new Rural Competitiveness operation. The strategic relevance of the pilot project was clear in that the issues of land access, credit, and access to services in rural areas were brought together in a new way that may be seen as a precursor of the current emphasis on rural competitiveness. Environmental aspects in the context of the pilot project were not a major theme given the scale and nature of operations in the field. However, the pilot did initiate several sub- projects in community-based natural resource management involving indigenous communities and municipalities that would appear promising for the future. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory Bank supervision was responsive to the challenges detected in the early phases of project operation, culminating in the recommendations of the mid-term review which involved important adjustments in the scheme of incentives while conserving the basic approach. Throughout the process, an excellent working relationship with the national project team was maintained, demonstrated in part by the stability of the team from start to finish. 21 Unlike other projects in Honduras, PACTA was able to maintain its core staff throughout two different government transitions avoiding disruption in implementation of project activities. In addition, the decentralization of program operations facilitated the formation of strong, inter-institutional alliances on a local level. These alliances are not only the pillars for the future institutionalization of the program, but also created the basis for social accountability in all aspects of program operations. Presently, two members of the PACTA team, the Project Coordinator and Director of Participatory Evaluation, are coordinating preparation of the proposed Rural Competitiveness Project. To support implementation of the measures agreed to during the MTR, a PHRD Grant for Capacity Building during Implementation was obtained. The grant enabled the project team to establish capacity on a regional level and assure greater local level support in the field. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The essential justification for the rating is that Bank supervision was adept at problem solving by making constant adjustments and improvements to the operational approach based on feedback from the project's participatory monitoring and evaluation activities. The performance of the pilot project in the last two years of implementation was strong which demonstrated the effectiveness of the measures implemented earlier. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory Part of the success of the project was due to the Government having had the foresight to recognize that the program could only be successful by maintaining an exclusive, unencumbered focus on providing the incentives to create autonomous, self-organized enterprises in a dynamic partnership with private financial institutions and private service providers. In this way, PACTA was able to link pro-poor government policy with market-based success, clearly an important precedent for the planned Rural Competitiveness Project. PACTA did not make participating families into political clients of the program because this implies a lack of initiative and lack of ownership. It did seek to turn participating families into business clients of financial institutions and service providers because this implies articulation of the markets within which the enterprises could flourish. In PACTA, the project investment is a function of an independently created business plan which means that it has an inherently participatory foundation. Secondly, the program developed successfully precisely because of the learning capacity that was built into it from the start. Since the program opens a new path, it was clear that it needed to take a very systematic approach to learning from the earliest stages of implementation. Third, the program was managed with complete transparency by a very capable team; and the project implementation team had the support of consistent project supervision. Fourth, the program developed a simple, effective scheme of incentives centered on the success 22 of the enterprise; the success of each enterprise generated greater incentives for all concerned (service providers, credit providers, and others interested in local development) which in turn led to greater credibility for the program. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The former Minister-Director of INA decided to implement the project under the auspices of the FAO so that it could be clearly differentiated from processes that might involve a conflict of interest or put the project at cross-purposes with its main objective. This would clearly have been the case in mixing enterprise formation with conflict resolution and, at least potentially, land titling. The present Minister-Director of INA has taken the lead in assuring the continuity of operations beyond the pilot phase and has sought to advance upon the model in the context of pro-poor value chains and similar initiatives. While the contract with FAO has been renewed this is clearly a temporary arrangement pending the outcome of discussions underway in the preparation of the Rural Competitiveness Project. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The Borrower contributed to the overall project's success by proactively supporting: (a) a process of rural enterprise formation that articulates the national poverty-reduction strategy with a development process rooted in the market-economy; (b) a system of participatory evaluation that has evolved toward empowering local actors to take a primary role in developing the program on a local level; (c) establishing the only rural development program in Latin America that successfully leverages credit from private financial institutions' own resources for land purchase. The potential for expanding and deepening this public-private relationship is vast and can be made more inclusive by extending the program in benefit of all rural communities, including forest communities, indigenous communities and others with a viable business plan. 6. Lessons Learned The following lessons derived from the experience of PACTA have direct relevance to the design of the Rural Competitiveness Project and similar programs: Well-designed incentives can link landless families to credit and service markets and enable the poor to dramatically expand their asset base. The program demonstrated the feasibility of leveraging credit from private financial institutions to support rural enterprise development in the benefit of poor and very poor families. The scheme of incentives used to promote the formation of rural enterprises worked well in large part because both risks and benefits were shared in a transparent way by all parties, including credit providers, service providers and enterprise members. The incentives were designed and implemented in such a way that the success of the enterprise was the unifying objective. 23 The alliance constructed with private financial institutions clearly has great potential for the long-term and should become a key element in the proposed Rural Competitiveness Project. Just as was demonstrated in PACTA, future operations could use project-financed grants to leverage private credit to capitalize rural enterprises. To greatly expand this mechanism would imply creating an alliance with other programs designed to strengthen the capacity of financial institutions to better meet demand from the rural population, make good business decisions, and offer loans with appropriate terms. (Lessons can be learned not only from PACTA but from other experiences in the region, including BanRural in Guatemala.) To the extent that broadening access to land continues to be a priority, a scaled-up project will eventually have to confront the limited capacity of the financial sector to provide long-term credit. Given this constraint, future operations should support all viable business opportunities in rural areas, irrespective of the need to acquire land. Where groups already have secure access to land, co-financing needs could be met with short or medium term loans (less than 5 years) as opposed to the 7 to 12 year terms common in PACTA. Of course, the degree to which landless families are served by the proposed Rural Competitiveness Project is a critical policy decision to be made given the extremely high rate of poverty in this group. The scope of a new program to facilitate access to land could be expanded by a line of credit established in BAHNPROVI, the second-tier bank in Honduras. Otherwise, the PACTA approach to land access could be continued within the given limits of the financial sector. The approach to creating viable economic alternatives demonstrated in PACTA is equally or more suitable to groups that already possess land, including forest and indigenous communities, small landholders titled by the state, and the agrarian reform sector. By making land acquisition an integral part of the process, PACTA set the bar high in connection with the formation of rural enterprises, especially with groups that fit the project's eligibility criteria. The bar would somewhat lowered in many cases where land did not have to be purchased because the initial debt burden would likely not be as great. The success experienced to date by nearly all PACTA enterprises is based on an integrated business model that included: enterprise development services and investment capital provided by the project, credit for land, attention to market access, and a systematic learning process based on participatory monitoring and evaluation. On the level of each enterprise, PME supported enterprise members to acquire the capacities needed to be fully independent. This approach is clearly applicable to a much wider and more diverse rural population. While access to land by landless rural families was a focal point it was not the determining factor in the selection process of who and what to finance. The grant portion of the program was channeled exclusively to co-finance business plans considered credit-worthy by private lenders which was in turn taken as an indication of potential economic sustainability of the enterprise. The concept of alliances acquires substance within a given territory, with given environmental, institutional and market conditions; and where participants can interact in a direct way and build on related processes of community and municipal development. Enterprises do not develop as `islands of success' but in the context of a dense web of alliances and markets. To a large degree, PACTA consisted in the careful 24 management of financial incentives designed to promote the formation of alliances centered on the success of enterprises. These alliances, in turn, evidenced the potential to undertake larger scale initiatives on the level of a community or an association of producers. The program was flexible enough to be adapted to varying conditions and this will be a critical attribute going forward. On a territorial level, common cultural identity and rootedness in a given place can also have a substantial positive effect on the success of enterprises. Given a basic set of objectives and rules, PACTA was designed to devolve as much responsibility and decision making power as possible to locally-based actors. Of course, project personnel remained accountable for quality control and oversight. Nevertheless, they were part of a network of actors who together exercised a strong form of social auditing over program operations as opposed to a weak form of auditing based on ex-post consultations. A fundamental lesson is that by developing the program on the basis of alliances the program also achieved a high degree of transparency: no one organization or institution--including government--could make arbitrary decisions on behalf of the others; and no organization or institution could accomplish their goals without the cooperation of others. Participation works best when based on a systematic learning process. The learning process built-in to the pilot program, supported by investment in participatory monitoring and evaluation (PME), was absolutely essential to the outcome. The system of PME enabled program personnel to identify problems and propose remedies that worked to facilitate the success of PACTA after the MTR. In short, it gave PACTA the ability to adapt. Moreover, PME enabled the program to be implemented with the high degree of transparency and social accountability and thus inspire a high level of confidence and credibility, especially with private financial institutions. In this connection, the PME component of PACTA, by respecting the voice of all participants, systematizing results and devolving what was being learned, enabled enterprises to make better decisions and local support networks to take shape. Since the Rural Competitiveness Project is likely only to increase the diversity of operations (community forestry, environmental services, commercial enterprises, etc.), PME should become even more important as a process that facilitates building a common ground of experience. The organizational structure and form (or forms) of property in land and other assets should be determined by the members of each enterprise who are themselves self- selected. Self-organization and independence are essential to the sustainability of rural enterprises. The willingness to repay debts and capitalize the enterprise is clearly tied to the informed participation and decision-making power of enterprise member families. Especially when debt repayment implied near term sacrifices, the excellent record achieved by PACTA enterprises demonstrated a clear understanding of the opportunity to build a sustainable asset base and overcome the acute vulnerability that landless families experience. Hence, there is no possible justification to impose any one enterprise model. What matters is the informed participation of all families in the decisions that affect the enterprise as a whole. In PACTA, a great variety of combinations emerged, ranging from individual landholders who decided to work as a collective to groups with collective title deciding to work separately. Debts were managed both individually and collectively. 25 Access to high quality enterprise development services is a critical factor that is mostly lacking in rural areas. The quality of enterprise development services is critically important and needs to be upgraded throughout the country. Most service providers are prepared to give advice on increasing production volumes, crop management, and similar issues. They are mostly not prepared to identify business opportunities, support participatory processes, and envision the long-term viability of enterprises. In the context of the pilot phase, it was not feasible to undertake a systematic approach to strengthening service providers who will be critically important allies in the Rural Competitiveness Project and in any similar demand-driven processes in Honduras. The lesson here is that any decentralized process of rural enterprise formation will need to develop an approach to improving access to enterprise development services in rural areas. Similarly, some of the financial institutions that participated in PACTA evidenced at best a weak ability to evaluate business opportunities as opposed to simply measure the value of assets backing a given loan. The credit cooperatives and other non-traditional lenders that are most committed to rural development would benefit from a program to increase their capacity in this regard. Gender equality is both a means and an end of enterprise development. Given the objectives of PACTA, the strategy on gender equality centered on the attempt to promote a more inclusive enterprise model, one that took into account the interests of the whole family, and included property rights, decision-making, and diversification through women's economic initiatives. A basic lesson of the program is that the concept of "enterprise" needs to be understood in the social context of impoverished families. In particular, a start-up enterprise composed of poor and very poor families has to manage short-term vulnerabilities related to food security and greater than normal susceptibility to the risks inherent in agricultural production. One of the essential strategies for managing these risks is through diversification which depends in large measure on the equal participation of women in productive activities and management. The effectiveness of the program on gender equality depends largely on the ability of service providers to include women in business plans, educate families on property rights and identify opportunities for supporting women's initiatives. These and other issues related to gender equality need to be fully integrated into follow-on operations. Otherwise, the proposed Rural Competitiveness Project would run the risk of perpetuating the marginalization of women and thus, at the same time, fail to adequately manage the problems of social vulnerability in poor families' efforts to build viable enterprises. Institutional arrangements going forward should ideally be constructed on the basis of local alliances and give priority to local initiatives. The institutional structure established to promote rural enterprise formation for the long run should be compatible with a participatory approach and serve to promote confidence building between independent actors. Arrangements that allow for arbitrary selection of beneficiaries are clearly to be avoided. The role of government authorities would be to establish broad political priorities (such as defined in the poverty reduction strategy), finance a transparent scheme of incentives and define applicable rules of eligibility. Given that the program is intended to promote private, community-based initiatives for economic gain in a market economy, the most appropriate institutional structure to continue the process 26 would be a civil association of enterprises, service providers, credit providers and others, directed by representative participants from each region. Institutional arrangements should allow for different actors on a local level to become full partners in the program, including: (i) community-based groups of different kinds; (ii) producer associations; (iii) NGOs; (iv) the enterprises themselves; (v) service providers; (vi) financial institutions; and, of course, (vii) municipalities as one among many members of the local network. The institutional structure adopted for the long term should build-in arrangements designed to facilitate the strongest possible forms of social auditing and control. Social accountability has to be built-in from the ground up and incorporated into the very objectives of the program. The Rural Competitiveness Project should encourage decentralization of project operations to facilitate what PACTA has begun: the formation of strong, inter-institutional alliances on a local level that are necessary to establish effective mechanisms of social accountability. Indeed, these networks should constitute the main pillars for institutionalization of the program and would be a welcome alternative ­ or at least a counter-balance ­ to centralized management through project coordination units. It is possible to shift the ground of the land access debate from a narrow, essentially political focus to a broader focus on how to create viable livelihoods in the countryside. This is not to say that policies intended to broaden access to land are unimportant. On the contrary, the lack of such policies in Honduras severely limits the potential to create viable economic alternatives for the rural poor. The lesson learned in this regard, just as it has been learned in many other contexts, is that access to land does not by itself establish the conditions needed to create a sustainable family-based or cooperative enterprise. Still less, of course, can this be expected as a result of projects that focus exclusively on training or credit or technical assistance; or which focus on resolving agrarian conflict by transferring land to landless families. The success experienced by the vast majority of PACTA enterprises begins with an integrated business model and includes: enterprise development services, credit for land, investment capital, market access, and a systematic learning process based on participatory monitoring and evaluation. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The unedited borrower letter with comments on the ICR and a summary of the borrower's ICR are attached in Annex 6. Mr. Francisco Funes, Minister of the National Agrarian Institute (INA), was satisfied with the findings, recommendations and lessons learned as discussed in the ICR. In addition to highlighting some of the lessons learned from the pilot project, Mr. Funes indicated that the program demonstrated the feasibility of leveraging credit from private financial institutions to support rural enterprise development in benefit of poor and very poor families. He emphasized that under the new rural competitiveness program, the best 27 practices developed in the process are clearly applicable to a much wider and more diverse population, including forest and indigenous communities, landholders titled by the state, and the reform sector. Mr. Funes also stressed that by removing program operation from the institutional framework normally charged with resolving agrarian conflict or responding to the demands of political organizations for land reform, PACTA was able to advance on a model that responded to the policy of poverty reduction in a market economy by focusing on the formation of viable rural enterprises. Also, he indicated that the focus on land acquisition as a necessary condition of investment made the process far more difficult than it might otherwise have been with a more flexible approach. Still, land purchase imposed a rigorous discipline for the financial management of the new enterprises that generated invaluable lessons. Finally, Mr. Funes said that applying the lessons derived from the experience of PACTA on a larger scale and in a more inclusive way will confront limits related to the availability of private financing for rural investment, operational capacity of financial institutions in the countryside, and capacity of services providers to formulate and support viable projects. Given these constraints, the identification of viable business opportunities that are likely to be sustainable and generate employment in rural areas should include all potential cases, irrespective of the need to acquire land. (b) Cofinanciers N/A (c) Other partners and stakeholders The Regional Support Networks emphasized PACTA's achievements in reducing rural poverty and promoting the formation of sustainable enterprises. They showed support for a follow-up operation and provided several recommendations to improve the design. The main recommendation is that PACTA should strengthen the linkages between rural producers and markets. The Regional Support Networks also consider that PACTA's evaluation should have taken a greater stock of the social capital accumulated through the numerous partnerships formed as a result of the project. On the other hand, the European Union commended PACTA for establishing a model where land access was complemented by other productive investments, such as technical assistance and subproject grants. The EU-financed Land Fund Project did not provide enough attention to the complementary investment, resulting in high repayment default rates (above 25 per cent). Some of these enterprises were absorbed by PACTA. Through the project's complementary package, in just six months the default rate for these enterprises was lowered to 5 per cent. 28 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual/Latest Components Percentage of (USD millions) Estimate (USD millions) Appraisal TECHNICAL AND LEGAL ASSISTANCE TO PRODUCERS 1.17 1.03 .85 LAND PURCHASES BY PRODUCER GROUPS 6.84 3.16 .46 COMPLEMENTARY SUBPROJECTS 7.16 5.35 .75 PROJECT ADMINISTRATION 1.61 2.86 1.78 Total Baseline Cost 16.78 12.4 .74 Physical Contingencies 0.20 0.00 0.00 Price Contingencies 0.02 0.00 0.00 Total Project Costs 17.00 12.4 Project Preparation Fund 0.00 0.00 .00 Front-end fee IBRD 0.00 0.00 .00 Total Financing Required 17.00 12.4 (b) Financing Appraisal Actual/Latest Source of Funds Type of Estimate Estimate Percentage of Cofinancing (USD (USD Appraisal millions) millions) Borrower 0.61 0.71 1.02 International Development Association (IDA) 8.00 8.84 1.05 Borrowing Country's Fin. Intermediary/ies 6.84 2.87 .42 LOCAL: BENEFICIARIES 1.55 1.27 .82 29 Annex 2. Result Framework Analysis Project Development Objective The PDO is to support the acquisition of land and the formation of sustainable farm enterprises by self-organized landless and land-poor peasant families. As a pilot program, the Land Access Pilot Project (PACTA) tests a public-private partnership strategy with interested private sector lending institutions for land purchase and the use of public sector funds, through the project, supporting complementary investments, and technical assistance to improve the productivity of the newly acquired properties. If successful, the Government would consider scaling up the pilot to a national fund mechanism for land purchase in several years. The concentration of the best lands among a small percentage of landholders (less than 4 per cent of farms have more than 50 per cent of total land) in Honduras makes it extremely difficult for family scale producers to participate effectively in the land market. Private land is available to the smallest producers, since they do not have the needed collateral and cannot bid on the larger size productive plots that more often enter the market. PACTA is therefore designed to provide an economy of scale to small rural producers who wish to purchase land for productive activities. Such transfers would be likely to result in more intensive land uses. While individuals can also be beneficiaries, the majority of the participants are expected to be groups of producers who collectively identify land for sale, develop a business plan for that land, and assume collective responsibility for investment and repayment until the loan is paid off, and they can exercise their individual rights over their own parcels. The PDO remained unchanged throughout project implementation. 30 Table 2.1. Status of Outcome Indicators Project Outcome Indicators Baseline Original Target Formally Revised Value Target Value Actual Values Achieved Comments Financial institutions develop Limited private $2.50 million $2.88 million Project costing at appropriate methodology to financial appraisal defined the deliver credit products for intermediation for amount of $6.84 million land purchase by target land acquisition and as the contribution of population; and devote at productive PFIs, but no specific least US$2.5 million to this investments in rural indicator was defined. purpose. areas At least 75% of families n/a At least 75% n/a 87% of families identified identified as eligible by the as eligible by the UTLs UTLs receive private received private financing financing for land purchase. for land purchase. At least 85% of groups n/a n/a At least 85% 97.3% of participating This indicator was participating in the project are groups are able to pay introduced in the able to pay off land purchase off land purchase loans amendment to the loans and maintain viable and maintain viable Implementation Letter. enterprises (participating enterprises. families negotiated land purchase, established legal structure, entered into credit contracts, and expended new enterprises). Farmer income increased by Average family n/a Average family income Farmer income doubled There was no numeric at least 15% through land income US$ 600. in 4 years at least from US $ 600 to US value in the original productivity and output in US$ 690. $ 1,300 per year. target value for this acquired lands. indicator. Pilot evaluation leads to No model existed. Decentralized PACTA is established On January 1, 2007 Target value was endorsement of expansion of models for land as a national program PACTA began a revised to emphasize the program and PACTA is access tested. operating in conformity transition for scale-out of the pilot and established as a national with the tested institutionalizing and include other types of program operating in implementation model expansion of the program land regimes. conformity with the tested and under different to other land access implementation model. types of land regimes. modalities. The transition was supported with public funds and no Bank 31 financing. The functions attributed to Regional Support n/a Regional Support Six local networks were This indicator was the Consejo Directivo de Networks informally Networks provide an established in the introduced in the PACTA have been absorbed articulated, but articulation of operative departments of amendment to the by the Redes Regionales de without resources to local and national Ocotepeque, Intibuca, El Implementation Letter. Apoyo (the Regional Support mobilize. alliances, strengthen the Paraiso, Yoro and Colon. Networks) to provide the project's policies, constituency that would procedures, norms and support the transformation of operational manual, and PACTA from a pilot project provide accountability. to a national program. Intermediate Outcome Original Target Formally Revised Indicators Baseline Value Target Value Actual Values Achieved Comments 840 families participate in n/a 1,600 840 991 families have Real costs and ratio of local land markets and purchased land and investment to debt establish sustainable established enterprises burden were higher than enterprises that are repaying the loan. originally planned. 2,115 hectares of properties n/a n/a 2,115 hectares. 2,398 hectares of land There was no numeric acquired for establishment of acquired for farm value in the original farm enterprises during pilot enterprises during pilot target value for this phase. phase. indicator. 85 % of enterprises with loan n/a n/a At least 85%. 97.3% of enterprise are There was no numeric repayment able to pay off land value in the original purchase loans. target value for this indicator. 60 sub-project proposals n/a n/a 60 sub-project 81 group sub-projects and There was no numeric prepared and loans approved proposals. 100 individual sub- value in the original by private lenders during projects approved by target value for this pilot phase. private lenders during indicator. pilot phase. 32 Annex 3. Outputs by Component Component I. Technical and Legal Assistance to Rural Producers This component included the provision of consultant services to rural enterprises from ten UTLs and Service Providers. The list of UTLs and Service Providers is included in Table 3.1. Table 3.1. List of Local Technical Units and Service Providers UTL Geographical Area EMAPRAS Comayagua, La Paz SERTEDESO Yoro, Colón AGROCONSA Atlántida, Colón AGRACONSA Atlántida, Colón ARSAGRO Atlántida, Colón Hermandad de Honduras Ocotepeque CELTA Ocotepeque ESMA Intibucá SEIRE El Paraíso Fundación Colprocah Yoro, Colón, El Paraíso Component II. Land Purchase Loan This component included the participation of seventeen PFIs that financed US$ 2.88 million for land purchase and investments. The portfolio was disbursed by commercial banks (25 per cent), savings and loan cooperatives (60 per cent), and financial intermediaries of the Land Fund-EU (15 per cent). It is remarkable that 85 per cent of the financial resources that have been loaned out have come from the PFIs themselves and only 15 per cent from public funds administered by BANHPROVI (Land Fund-EU). As these lenders gained more confidence in PACTA, they gradually improved credit terms and increased their overall commitment. The advances of the pilot project in this regard constituted an important achievement that was meaningful in the design of PACTA's ethnic and forestry models, supporting community-based natural resource management. The distribution of the loan portfolio by land access modality is summarized in Table 3.2. Table 3.2. Distribution of Loan Portfolio (US$) Purpose Loan Amount Families Purchase of Land 2,800,504 991 Ethnic PACTA 20,789 68 Forestry PACTA 40,342 165 Second-tier PACTA 15,789 3 The quality of the loan portfolio (2.7 per cent default rate, 14 per cent capital repayment, 23 per cent interest repayment) was remarkable. This good standing of the portfolio constituted one of the main indicators of the success of the PACTA model. In the last year of implementation, PACTA focused on monitoring the quality of the loan portfolio 33 more so now than was the case earlier in the implementation of the program, as the first few payments by borrowers have been shown to be critical in demonstrating the ability and willingness to pay, thus giving financial institutions confidence to continue their affiliation with the program. Component III. Complementary Sub-project Grants This component included the provision of US$ 5.14 million in sub-project grants to finance fixed and working capital investments. The distribution of sub-project grants by land access modality is summarized in Table 3.3. Table 3.3. Distribution of Subproject Grants (US$) Purpose Grant Amount Families Purchase of Land 4,721,938 991 Ethnic PACTA 86,842 68 Forestry PACTA 283,808 165 Second-tier PACTA 50,549 3 The project financed 100 individual enterprises and 81 group enterprises located across 13 department and 42 municipalities. 34 Annex 4. Economic and Financial Analysis During appraisal, a cost-benefit analysis was conducted based on three representative farm models for upland agriculture. Based on data available, with a without project scenarios were constructed and analyzed. For final evaluation, 34 family enterprises and 27 group enterprises which received non-reimbursable funds (for productive investments) from the project and loans (for land acquisition) from Private Financial Institutions (PFI), were randomly selected (representative sample). This sample was obtained from a universe of around 100 family enterprises and 46 group enterprises (involving 580 families) which had completed execution of subproject investments, and had at least one year of operations. The selected enterprises were assessed in various aspects including their financial and economic performance. Group workshops and individual working sessions were conducted by project personnel with families involved in such enterprises. A survey to validate the representative sample was conducted among 19 family enterprises and 5 group enterprises (validation sample), and adjustments were made to the results obtained from the representative sample, in light of findings of the validation exercise. Due to the relatively small selection universe of family and group enterprises, the financial and economic results obtained from this analysis provide unbiased estimations of feasibility at the aggregate level, but not at departmental level or any other subdivision. During appraisal, economic and financial NPV and IRR were calculated for the three representative farm models. Analytical parameters essentially included a 10 per cent annual discount rate and a 10-year evaluation period. In terms of loan amortization, the parameters included a 12 per cent real annual interest rate and a 10-year repayment period. The cost-benefit analysis performed for this ICR uses the information gathered from the above-mentioned sample of enterprises, and the same analytical parameters used at appraisal. For loan amortization, real interest rate and repayment period vary according to the negotiated loan conditions for each enterprise. Economic and Financial Analysis Tables 1.1 and 2.1 provide a brief description of analyzed family and group enterprises. Tables 1.2 and 2.2 provide the summary of the results and projections for family and group enterprises respectively. Tables 1.3 and 2.3 provide the summary of results and projections by participating families in both enterprise categories. These economic and financial indicators should be seen as start-up indicators, since the results estimated for one to three years of production/operation were simply projected during a 10-year period. Crop/herd expansion plans and plantation development are not fully captured in the net benefit flows. Economic and Financial Projections Considering only project transfers for productive investments and private loans for land purchases in both family and group enterprises: the average Economic NPV would be 35 US$8,100/family and US$2,400/family respectively; the Economic IRR would be 29 and 15 per cent respectively; the average Financial NPV would be US$10,300/family and US$5,100/family respectively; and the Financial IRR would be 63 and 34 per cent. If annual gross income was 70 per cent of estimated figures in family enterprises: the Economic NPV and IRR would be US$600/family and 12 per cent; and the Financial NPV and IRR would be US$2,800/family and 28 per cent. In group enterprises under the same scenario: the Economic NPV and IRR would be US1,000/family and 12 per cent; and the Financial NPV and IRR would be US$3,800/family and 28 per cent. The economic and financial IRR estimated during appraisal fall within these scenarios. In line with the first scenario, the incremental annual net income for family and group enterprises (after direct transfers have been disbursed) was around US$2,400/family and US$1,400/family respectively. In terms of annual employment generated: family enterprises would generate on average 250 person/days/family (equivalent to almost 1.0 person/years/family); and group enterprises would generate on average 260 person/days/family (equivalent to 1.0 person/years/family). Given that technical assistance and project management costs contributed to the identification and implementation of productive enterprises, the results of the later represent to a large extent the impacts of the whole process. Therefore, if costs of other project components (around US$3.9 million) were extrapolated to the actual beneficiary population (around 1,226 families, of which 991 families purchased land): the overall economic NPV would be reduced by US$3,170/family. However, effective time and cost of technical assistance providers and project management were estimated for a representative enterprise (during the pre-credit and post-credit process/stage). Based on this process costing exercise, the overall economic NPV would be reduced by US$1,270/family ­ US$930/family of technical assistance (36 per cent higher than appraisal estimates) and US$340/family of project management. The revised average Economic NPV and IRR would be: US$6,800/family and 25 per cent for family enterprises; and US$1,100/family and 12 per cent for group enterprises. In a follow-on phase, project cost savings could be around US$1,900/family due to: (i) the capacity gained so far both by TA providers and project management; and (ii) reduced average fixed costs ­ commonly high during a pilot experience ­ as a result of a potential expansion or scaling-up of the program. Cost Efficiency and Resource Allocation In terms of resource allocation, the present analysis shows an average land area purchased of 4.3 and 3.8 Mz/family for family and group enterprises respectively ­ the average of all productive enterprises in PACTA records was 3.7 Mz/family. The average PACTA investment per family was US$3,890-4,980 ­ about 10 to 40 per cent higher than ceiling estimated at appraisal, but in line with changes agreed during the project implementation. The average figure for all productive enterprises was US$4,700/family. 36 In this analysis, the average loan obtained from PFI's was US$2,390/family on family enterprises and US$3,150/family on group enterprises ­ the average figure for all supported enterprises was US$2,780/family. Contrary to expectations during preparation and appraisal, private loans were obtained only for land purchases. Productive investments and working capital were mainly covered with PACTA non-reimbursable transfers. Initially, these costs were expected to be partially covered by private financing. Compared to similar land-access programs, the investment cost per family plus the land debt assumed by beneficiaries is lower than: Brazil (US$10,000), Colombia (US$22,000), South Africa (US$10,000) and Mexico (US$15,000-30,000). 37 Table 1.1 Family Enterprises - Description Main Activity Department Description Vegetables Intibucá Farming system involves 2.7 mz. Main crops include lettuce and carrots. Potatoes, Swine Intibucá Farming system involves 3.4 mz. Main crop is potatoes. Swine production of 9 pigs/year. Potatoes Intibucá Farming system involves 4.3 mz. Main crop is potatoes. Strawberry, Potatoes Intibucá Farming system involves 3.7 mz. Main crops include strawberries and potatoes. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 1.6 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 2.6 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 7.6 mz. Main crop is potatoes. Potatoes, Swine Intibucá Farming system involves 3.4 mz. Main crop is potatoes. Swine production of 9 pigs/year. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 3.4 mz. Main crop is potatoes. Cattle Intibucá Feetlot and pasture of 6 young bull (or steers). Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 3.6 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 3.5 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Sweet Corn Intibucá Farming system involves 2.5 mz. Main crop is sweet corn. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 5.3 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 4.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 3.9 mz. Main crop is potatoes. Potatoes Intibucá Farming system involves 3.4 mz. Main crop is potatoes. Potatoes, Swine Intibucá Farming system involves 3.4 mz. Main crop is potatoes. Swine production of 9 pigs/year. Potatoes Intibucá Farming system involves 5.0 mz. Main crop is potatoes. Cattle Intibucá Feetlot and pasture of 6 young bull (or steers). Coffee Ocotepeque Farming system involves 1.5 mz. Main crop is coffee. Coffee Ocotepeque Farming system involves 2.0 mz. Main crop is coffee. Coffee Ocotepeque Farming system involves 2.0 mz. Main crop is coffee. Coffee, Potatoes Ocotepeque Farming system involves 2 mz for coffee and 0.5 mz for annual crops, mainly potatoes. Coffee Ocotepeque Farming system involves 2.0 mz. Main crop is coffee. 38 Table 1.2 Financial and Economic Summary - Results and Proyections for Family Enterprises Main Activity Department Families Farm Investments Annual Results - After Transfer Disbursements and Loan Grace Period Financial Economic Area PACTA Land Loan Total Income Input Costs Labour Net Credit Labour NPV over IRR over NPV over IRR over Transfer Investment Costs Income payments Used (p/d) 10 Years 10 Years 10 Years 10 Years (Mz) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (p/days) (US$) (US$) (US$) (US$) Vegetables Intibucá 1 2.7 4,147 2,105 6,253 1,708 740 227 741 719 92 2,349 27% 33 10% Potatoes, Swine Intibucá 1 3.4 3,685 2,239 5,923 5,864 2,227 490 3,147 603 199 13,729 79% 11,671 38% Potatoes Intibucá 1 4.3 3,133 1,944 5,076 3,311 1,972 353 985 538 143 3,604 37% 1,854 16% Strawberry, Potatoes Intibucá 1 3.8 3,917 2,040 5,958 6,999 2,833 696 3,471 581 282 15,379 90% 13,191 41% Potatoes Intibucá 1 5.0 3,400 1,904 5,305 8,828 2,862 438 5,528 557 177 25,249 128% 23,349 63% Potatoes Intibucá 1 1.5 2,973 694 3,667 4,377 2,235 460 1,683 197 186 7,622 114% 5,961 34% Potatoes Intibucá 1 5.0 3,400 1,904 5,305 5,885 2,765 488 2,633 557 197 11,468 78% 9,569 36% Potatoes Intibucá 1 2.6 2,631 828 3,459 5,297 2,383 546 2,368 236 221 10,810 126% 9,340 46% Potatoes Intibucá 1 7.7 4,042 2,283 6,325 5,242 2,287 460 2,495 650 186 10,599 66% 8,341 30% Potatoes, Swine Intibucá 1 3.4 3,685 2,239 5,923 2,480 1,097 263 1,120 603 107 4,078 36% 2,020 16% Potatoes Intibucá 1 5.0 3,400 1,904 5,305 5,334 2,266 424 2,644 557 172 11,520 78% 9,620 36% Potatoes Intibucá 1 3.3 2,953 1,904 4,858 5,242 2,379 500 2,363 542 202 10,182 72% 8,532 35% Cattle Intibucá 1 5.0 5,584 5,547 11,131 2,049 1,271 378 400 1,579 153 (1,193) 6% (4,312) 3% Potatoes Intibucá 1 5.0 4,658 2,513 7,171 5,297 2,297 2,245 755 715 184 2,190 24% (412) 9% Potatoes Intibucá 1 3.6 3,207 1,651 4,858 4,138 1,862 416 1,860 470 169 7,931 67% 6,140 29% Potatoes Intibucá 1 3.5 3,797 2,203 5,999 4,837 2,249 452 2,136 627 183 8,934 60% 6,814 27% Potatoes Intibucá 1 5.8 5,332 4,310 9,641 4,966 1,752 384 2,829 1,194 156 11,058 45% 8,080 23% Potatoes Intibucá 1 5.9 3,400 1,904 5,305 7,945 3,977 687 3,281 557 278 14,552 90% 12,652 43% Sweet Corn Intibucá 1 2.1 5,828 4,516 10,344 6,306 385 319 5,601 1,251 129 24,137 72% 20,882 38% Potatoes Intibucá 1 5.0 3,913 3,245 7,157 7,945 3,977 687 3,281 948 278 13,803 62% 11,617 34% Potatoes Intibucá 1 5.0 3,400 1,904 5,305 6,989 2,750 569 3,671 557 230 16,407 97% 14,507 47% Potatoes Intibucá 1 5.3 4,956 3,086 8,042 6,253 3,097 600 2,556 855 243 10,440 54% 7,672 25% Potatoes Intibucá 1 4.1 3,437 1,893 5,330 4,635 1,888 349 2,397 524 141 10,352 73% 8,433 33% Potatoes Intibucá 1 5.0 3,400 1,904 5,305 5,628 1,986 424 3,218 557 172 14,251 89% 12,351 42% Potatoes Intibucá 1 3.9 4,251 2,186 6,436 6,952 3,111 1,575 2,266 622 638 9,565 63% 7,190 27% Potatoes Intibucá 1 3.4 4,915 2,685 7,600 4,635 1,888 349 2,397 639 141 9,910 57% 7,164 25% Potatoes, Swine Intibucá 1 3.4 3,685 2,239 5,923 5,864 2,227 490 3,147 603 199 13,729 79% 11,671 38% Potatoes Intibucá 1 6.5 5,696 4,396 10,093 3,862 2,262 300 1,301 1,047 121 3,734 23% 552 11% Cattle Intibucá 1 4.3 4,726 3,132 7,859 2,049 1,271 378 400 892 153 156 11% (2,484) 4% Coffee Ocotepeque 1 4.5 1,899 1,151 3,050 4,204 955 1,104 2,145 354 447 9,567 95% 8,506 47% Coffee Ocotepeque 1 3.0 3,230 1,861 5,091 4,204 1,006 1,025 2,173 530 415 9,302 69% 7,498 32% Coffee Ocotepeque 1 6.7 4,257 2,453 6,711 2,102 447 436 1,219 698 177 4,432 36% 2,054 15% Coffee, Potatoes Ocotepeque 1 4.0 3,798 2,301 6,099 7,554 3,043 2,036 2,475 708 824 10,494 65% 8,373 30% Coffee Ocotepeque 1 2.7 3,513 2,129 5,642 9,459 2,378 2,601 4,479 606 1,053 20,130 103% 18,167 52% Aggregate 34 145 132,251 81,198 213,448 178,442 72,124 23,153 83,166 22,870 8,649 350,472 63% 276,597 29% 39 Table 1.3 Financial and Economic Summary - Results and Average Proyections for Participating Families Main Activity Department Farm Investments Annual Results - After Transfer Disbursements and Loan Grace Period Financial Economic Area PACTA Land Loan Total Income Input Costs Labour Net Credit Labour NPV over IRR over NPV over IRR over Transfer Investment Costs Income payments Used (p/d) 10 Years 10 Years 10 Years 10 Years (Mz) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (p/days) (US$) (%) (US$) (%) Vegetables Intibucá 2.7 4,147 2,105 6,253 1,708 740 227 741 719 92 2,349 27% 33 10% Potatoes, Swine Intibucá 3.4 3,685 2,239 5,923 5,864 2,227 490 3,147 603 199 13,729 79% 11,671 38% Potatoes Intibucá 4.3 3,133 1,944 5,076 3,311 1,972 353 985 538 143 3,604 37% 1,854 16% Strawberry, Potatoes Intibucá 3.8 3,917 2,040 5,958 6,999 2,833 696 3,471 581 282 15,379 90% 13,191 41% Potatoes Intibucá 5.0 3,400 1,904 5,305 8,828 2,862 438 5,528 557 177 25,249 128% 23,349 63% Potatoes Intibucá 1.5 2,973 694 3,667 4,377 2,235 460 1,683 197 186 7,622 114% 5,961 34% Potatoes Intibucá 5.0 3,400 1,904 5,305 5,885 2,765 488 2,633 557 197 11,468 78% 9,569 36% Potatoes Intibucá 2.6 2,631 828 3,459 5,297 2,383 546 2,368 236 221 10,810 126% 9,340 46% Potatoes Intibucá 7.7 4,042 2,283 6,325 5,242 2,287 460 2,495 650 186 10,599 66% 8,341 30% Potatoes, Swine Intibucá 3.4 3,685 2,239 5,923 2,480 1,097 263 1,120 603 107 4,078 36% 2,020 16% Potatoes Intibucá 5.0 3,400 1,904 5,305 5,334 2,266 424 2,644 557 172 11,520 78% 9,620 36% Potatoes Intibucá 3.3 2,953 1,904 4,858 5,242 2,379 500 2,363 542 202 10,182 72% 8,532 35% Cattle Intibucá 5.0 5,584 5,547 11,131 2,049 1,271 378 400 1,579 153 (1,193) 6% (4,312) 3% Potatoes Intibucá 5.0 4,658 2,513 7,171 5,297 2,297 2,245 755 715 184 2,190 24% (412) 9% Potatoes Intibucá 3.6 3,207 1,651 4,858 4,138 1,862 416 1,860 470 169 7,931 67% 6,140 29% Potatoes Intibucá 3.5 3,797 2,203 5,999 4,837 2,249 452 2,136 627 183 8,934 60% 6,814 27% Potatoes Intibucá 5.8 5,332 4,310 9,641 4,966 1,752 384 2,829 1,194 156 11,058 45% 8,080 23% Potatoes Intibucá 5.9 3,400 1,904 5,305 7,945 3,977 687 3,281 557 278 14,552 90% 12,652 43% Sweet Corn Intibucá 2.1 5,828 4,516 10,344 6,306 385 319 5,601 1,251 129 24,137 72% 20,882 38% Potatoes Intibucá 5.0 3,913 3,245 7,157 7,945 3,977 687 3,281 948 278 13,803 62% 11,617 34% Potatoes Intibucá 5.0 3,400 1,904 5,305 6,989 2,750 569 3,671 557 230 16,407 97% 14,507 47% Potatoes Intibucá 5.3 4,956 3,086 8,042 6,253 3,097 600 2,556 855 243 10,440 54% 7,672 25% Potatoes Intibucá 4.1 3,437 1,893 5,330 4,635 1,888 349 2,397 524 141 10,352 73% 8,433 33% Potatoes Intibucá 5.0 3,400 1,904 5,305 5,628 1,986 424 3,218 557 172 14,251 89% 12,351 42% Potatoes Intibucá 3.9 4,251 2,186 6,436 6,952 3,111 1,575 2,266 622 638 9,565 63% 7,190 27% Potatoes Intibucá 3.4 4,915 2,685 7,600 4,635 1,888 349 2,397 639 141 9,910 57% 7,164 25% Potatoes, Swine Intibucá 3.4 3,685 2,239 5,923 5,864 2,227 490 3,147 603 199 13,729 79% 11,671 38% Potatoes Intibucá 6.5 5,696 4,396 10,093 3,862 2,262 300 1,301 1,047 121 3,734 23% 552 11% Cattle Intibucá 4.3 4,726 3,132 7,859 2,049 1,271 378 400 892 153 156 11% (2,484) 4% Coffee Ocotepeque 4.5 1,899 1,151 3,050 4,204 955 1,104 2,145 354 447 9,567 95% 8,506 47% Coffee Ocotepeque 3.0 3,230 1,861 5,091 4,204 1,006 1,025 2,173 530 415 9,302 69% 7,498 32% Coffee Ocotepeque 6.7 4,257 2,453 6,711 2,102 447 436 1,219 698 177 4,432 36% 2,054 15% Coffee, Potatoes Ocotepeque 4.0 3,798 2,301 6,099 7,554 3,043 2,036 2,475 708 824 10,494 65% 8,373 30% Coffee Ocotepeque 2.7 3,513 2,129 5,642 9,459 2,378 2,601 4,479 606 1,053 20,130 103% 18,167 52% Average 4.3 3,890 2,388 6,278 5,248 2,121 681 2,446 673 254 10,308 63% 8,135 29% 40 Table 2.1 Group Enterprises - Description Main Activity Department Description Corn Copán Farming system involves 8 mz. Main crop is maize. Watermelon Colón Farming system involves 2 mz. Main crop is watermelon. Coffee Yoro Farming system involves 7 mz. Main crop is coffee. Sweet Potatoes, Cattle Choluteca Farming system involves 4 mz and cattle feedlot. Main crops are sweet potatoes and sesame seed. Cashew, Cattle Choluteca Farming system involves cashew production and a cattle feedlot. There is a rural grocery store. Coffee Ocotepeque Farming system involves 12 mz. Main crop is coffee. Coffee Ocotepeque Farming system involves 26.5 mz. Main crop is coffee. Potatoes Ocotepeque Farming system involves 15 mz. Main crop is potatoes. Tobacco Ocotepeque Farming system involves 1.2 mz of coffee and 2 mz of tobacco. Coffee Ocotepeque Farming system involves 12 mz. Main crop is coffee. Coffee, Swine, Tilapia Ocotepeque Farming system involves 2 mz of coffee, swine and tilapia production. Rise, Vegetables Comayagua Farming system involves 10 mz for rise and 2.8 mz for eastern vegetables. Oranges, Cattle, Watermelon Colón Farming system involves 32 mz for orange trees, 20 mz for cattle grazing and 1 mz for watermelon. Drinking Water, Groceries Colón Business activities include provision of drinking water and a grocery store. Banana, Coffee, Cattle Copán Farming system involves 2 mz for bananas, 2 mz for coffee and dairy cattle (3 caws). Sweet Corn, Coffee Ocotepeque Farming system involves 2 mz for sweet corn and 0.5 mz for a coffee nursery. Potatoes, Onion Ocotepeque Farming system involves 12 mz for potatoes and 6 mz for onion. Coffee Ocotepeque Farming system involves 20 mz. Main crop is coffee. Coffee, Potatoes Ocotepeque Farming system involves 2 mz for coffee and 6 mz for potatoes. Coffee, Tobacco, Beans Ocotepeque Farming system involves 6 mz for coffee, 1 mz for tobacco and 2 mz for beans. Vegetables, Swine El Paraíso Farming system involves 1 mz for chilli, 2 mz for tomatoes and a swine feedlot (30 heads/year). Corn, Beans, Swine, Tilapa Copán Farming system involves 47 mz for corn, 4 mz for beans, 4 mz for soy beans, swine and tilapia. Potatoes Ocotepeque Farming system involves 3 mz. Main crop is potatoes. Oranges, African Palm, Cattle Colón Farming system involves 16 mz for oranges, 12 mz for african palm and cattle feedlot. Vegetables, Corn, Cattle, Swine El Paraíso Farming system involves 1 mz for tomato, 1 mz for chilli, 4 mz for corn, and cattle and swine feedlots. Vegetables, Corn, Cattle El Paraíso Farming system involves 1 mz for tomato, 1 mz for chilli, 4 mz for corn and a cattle feedlot. Vegetables, Corn, Cattle, Swine El Paraíso Farming system involves 1 mz for tomato, 1 mz for chilli, 4 mz for corn, and cattle and swine feedlots. 41 Table 2.2 Financial and Economic Summary - Results and Proyections for Group Enterprises Main Activity Department Families Farm Investments Annual Results - After Transfer Disbursements and Loan Grace Period Financial Economic Area PACTA Land Loan Total Income Input Costs Labour Net Credit Labour NPV over IRR over NPV over IRR over Transfer Investment Costs Income payments Used (p/d) 10 Years 10 Years 10 Years 10 Years (Mz) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (p/days) (US$) (US$) (US$) (US$) Corn Copán 9 16.0 5,889 7,212 13,101 3,678 567 1,051 2,060 2,274 526 5,778 23% 2,488 13% Watermelon Colón 24 86.5 131,423 92,648 224,071 6,306 3,217 845 2,244 18,065 353 (41,073) 2% (114,486) 1% Coffee Yoro 18 33.0 41,374 21,090 62,464 7,273 893 1,902 4,477 6,650 953 9,529 17% (13,583) 6% Sweet Potatoes, Cattle Choluteca 24 103.0 160,100 96,845 256,944 34,521 29,605 3,590 1,326 18,588 1,798 (47,785) 1% (137,216) 0% Cashew, Cattle Choluteca 15 79.0 93,442 50,882 144,324 157,893 142,822 5,150 9,921 10,904 2,579 18,797 16% (33,399) 6% Coffee Ocotepeque 13 44.0 67,869 37,789 105,658 80,925 10,372 16,095 54,458 8,995 6,717 238,084 80% 200,173 37% Coffee Ocotepeque 8 26.0 47,805 35,989 83,794 104,046 19,977 29,230 54,839 9,968 14,638 240,905 83% 214,201 45% Potatoes Ocotepeque 14 47.0 87,057 56,150 143,207 204,940 97,856 18,445 88,639 12,914 7,697 390,513 85% 341,883 43% Tobacco Ocotepeque 5 15.3 18,126 10,695 28,821 11,797 1,420 3,410 6,966 2,700 1,708 27,182 45% 17,057 19% Coffee Ocotepeque 10 100.2 61,917 38,668 100,585 73,568 9,564 16,572 47,432 8,893 6,916 204,153 71% 169,567 34% Coffee, Swine, Tilapia Ocotepeque 6 45.0 33,236 19,380 52,616 11,251 8,256 1,802 1,194 5,042 903 (5,145) 5% (23,710) 2% Rise, Vegetables Comayagua 10 28.7 55,698 32,787 88,485 17,973 9,052 3,636 5,284 6,768 1,138 6,837 13% (24,276) 5% Oranges, Cattle, Watermelon Colón 16 60.0 97,087 84,682 181,769 16,012 4,092 5,628 6,293 24,101 2,818 (17,353) 6% (71,586) 3% Drinking Water, Groceries Colón 10 87.0 14,675 9,299 23,974 20,531 13,873 1,902 4,756 3,174 953 17,442 37% 9,245 16% Banana, Coffee, Cattle Copán 10 11.4 18,403 10,510 28,912 5,150 1,861 561 2,728 2,831 468 7,112 21% (3,168) 8% Sweet Corn, Coffee Ocotepeque 2 4.0 6,307 4,147 10,453 6,148 1,764 331 4,054 1,079 166 16,977 61% 13,454 29% Potatoes, Onion Ocotepeque 10 64.3 62,493 43,924 106,418 104,992 60,353 16,587 28,051 10,102 6,922 108,974 44% 74,066 21% Coffee Ocotepeque 7 22.6 34,193 18,979 53,172 65,581 11,322 20,607 33,651 5,113 8,600 149,560 92% 130,460 44% Coffee, Potatoes Ocotepeque 4 6.7 23,563 13,303 36,866 57,803 30,156 6,731 20,916 3,584 2,809 92,117 85% 78,955 40% Coffee, Tobacco, Beans Ocotepeque 5 13.0 22,129 11,254 33,383 14,514 3,942 4,440 6,132 2,841 2,224 22,899 39% 10,537 15% Vegetables, Swine El Paraíso 10 20.0 62,304 35,508 97,812 7,943 2,955 1,274 3,714 8,166 532 (2,157) 9% (36,960) 3% Corn, Beans, Swine, Tilapa Copán 12 54.0 69,352 42,127 111,480 15,817 3,868 2,619 9,330 11,349 937 20,875 18% (17,865) 7% Potatoes Ocotepeque 10 40.0 26,316 14,316 40,632 3,363 2,504 139 720 3,857 70 (4,570) 4% (19,270) 2% Oranges, African Palm, Cattle Colón 16 51.8 97,882 71,729 169,611 27,835 13,370 8,653 5,812 19,867 4,333 (12,406) 7% (67,082) 3% Vegetables, Corn, Cattle, Swine El Paraíso 15 72.5 32,194 15,781 47,975 57,056 33,886 4,167 19,003 3,630 2,087 81,629 70% 63,646 30% Vegetables, Corn, Cattle El Paraíso 16 31.4 99,842 60,063 159,905 32,160 16,093 2,465 13,602 13,814 1,234 31,190 18% (24,582) 7% Vegetables, Corn, Cattle, Swine El Paraíso 16 40.5 100,053 57,925 157,978 57,056 33,886 4,167 19,003 13,322 2,087 58,088 25% 2,198 10% Aggregate 315 1,203 1,570,729 993,681 2,564,410 1,206,134 567,528 182,001 456,604 238,591 82,165 1,618,151 34% 740,747 15% 42 Table 2.3 Financial and Economic Summary - Results and Proyections for Participating Families Main Activity Department Farm Investments Annual Results - After Transfer Disbursements and Loan Grace Period Financial Economic Area PACTA Land Loan Total Income Input Costs Labour Net Credit Labour NPV over IRR over NPV over IRR over Transfer Investment Costs Income payments Used (p/d) 10 Years 10 Years 10 Years 10 Years (Mz) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (US$) (p/days) (US$) (US$) (US$) (US$) Corn Copán 1.8 654 801 1,456 409 63 117 229 253 58 642 23% 276 13% Watermelon Colón 3.6 5,476 3,860 9,336 263 134 35 93 753 15 (1,711) 2% (4,770) 1% Coffee Yoro 1.8 2,299 1,172 3,470 404 50 106 249 369 53 529 17% (755) 6% Sweet Potatoes, Cattle Choluteca 4.3 6,671 4,035 10,706 1,438 1,234 150 55 774 75 (1,991) 1% (5,717) 0% Cashew, Cattle Choluteca 5.3 6,229 3,392 9,622 10,526 9,521 343 661 727 172 1,253 16% (2,227) 6% Coffee Ocotepeque 3.4 5,221 2,907 8,128 6,225 798 1,238 4,189 692 517 18,314 80% 15,398 37% Coffee Ocotepeque 3.3 5,976 4,499 10,474 13,006 2,497 3,654 6,855 1,246 1,830 30,113 83% 26,775 45% Potatoes Ocotepeque 3.4 6,218 4,011 10,229 14,639 6,990 1,317 6,331 922 550 27,894 85% 24,420 43% Tobacco Ocotepeque 3.1 3,625 2,139 5,764 2,359 284 682 1,393 540 342 5,436 45% 3,411 19% Coffee Ocotepeque 10.0 6,192 3,867 10,059 7,357 956 1,657 4,743 889 692 20,415 71% 16,957 34% Coffee, Swine, Tilapia Ocotepeque 7.5 5,539 3,230 8,769 1,875 1,376 300 199 840 150 (857) 5% (3,952) 2% Rise, Vegetables Comayagua 2.9 5,570 3,279 8,849 1,797 905 364 528 677 114 684 13% (2,428) 5% Oranges, Cattle, Watermelon Colón 3.8 6,068 5,293 11,361 1,001 256 352 393 1,506 176 (1,085) 6% (4,474) 3% Drinking Water, Groceries Colón 8.7 1,467 930 2,397 2,053 1,387 190 476 317 95 1,744 37% 925 16% Banana, Coffee, Cattle Copán 1.1 1,840 1,051 2,891 515 186 56 273 283 47 711 21% (317) 8% Sweet Corn, Coffee Ocotepeque 2.0 3,153 2,073 5,227 3,074 882 166 2,027 539 83 8,488 61% 6,727 29% Potatoes, Onion Ocotepeque 6.4 6,249 4,392 10,642 10,499 6,035 1,659 2,805 1,010 692 10,897 44% 7,407 21% Coffee Ocotepeque 3.2 4,885 2,711 7,596 9,369 1,617 2,944 4,807 730 1,229 21,366 92% 18,637 44% Coffee, Potatoes Ocotepeque 1.7 5,891 3,326 9,216 14,451 7,539 1,683 5,229 896 702 23,029 85% 19,739 40% Coffee, Tobacco, Beans Ocotepeque 2.6 4,426 2,251 6,677 2,903 788 888 1,226 568 445 4,580 39% 2,107 15% Vegetables, Swine El Paraíso 2.0 6,230 3,551 9,781 794 296 127 371 817 53 (216) 9% (3,696) 3% Corn, Beans, Swine, Tilapa Copán 4.5 5,779 3,511 9,290 1,318 322 218 778 946 78 1,740 18% (1,489) 7% Potatoes Ocotepeque 4.0 2,632 1,432 4,063 336 250 14 72 386 7 (457) 4% (1,927) 2% Oranges, African Palm, Cattle Colón 3.2 6,118 4,483 10,601 1,740 836 541 363 1,242 271 (775) 7% (4,193) 3% Vegetables, Corn, Cattle, Swine El Paraíso 4.8 2,146 1,052 3,198 3,804 2,259 278 1,267 242 139 5,442 70% 4,243 30% Vegetables, Corn, Cattle El Paraíso 2.0 6,240 3,754 9,994 2,010 1,006 154 850 863 77 1,949 18% (1,536) 7% Vegetables, Corn, Cattle, Swine El Paraíso 2.5 6,253 3,620 9,874 3,566 2,118 260 1,188 833 130 3,630 25% 137 10% Average 3.8 4,986 3,155 8,141 3,829 1,802 578 1,450 757 261 5,137 34% 2,352 15% 43 Annex 5. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Augusta Molnar Former Natural Resource Spec. LCSES Former TTL James W. Smyle Former Sr. Natural Resource Spec. LCSES Forestry Jeff Muller Natural Resource Economist - Environmental Economics Michael Goldberg Financial and Micro Credit LCRFP Financial Reynaldo Pastor Sr. Counsel LEGOP Communications Tom Korczowski Land Administration Spec., Consultant LCSES Rural Development Robin Mearns Social Geographer EASRD Geography Teresa Roncal Procurement Analyst LCSES Procurement Juan Martínez Social and Indigenous Spec. LCSES Social Luz Zeron Financial Management Spec. - FM Enzo Laurentiis Sr. Procurement Spec. LCSES Procurement Supervision/ICR Francisco Pichón Sr. Natural Resource Spec. LCSAR TTL Teresa M. Roncal Operations Analyst LCSAR Operations Fernando Galeana Junior Professional Associate LCSAR Rural Development Hiska Noemi Reyes Consultant PRMGE Rural Development Diana P. Rebolledo Language Program Assistant LCSAR Administrative Carlos Eduardo Gallegos K. E T Consultant LCSSD Operations Dante Ariel Mossi Reyes Country Operations Officer LCCHN Operations Karla Chaman Communications Officer EXTCD Communications Patrizia Cocca Consultant EXTCD Communications Luis Tineo Sr Procurement Spec. LCSPT Procurement Diomedes Berroa Sr Procurement Spec. LCSPT Procurement Rajeev K. Swami Sr Financial Management Spec. LCSFM FM Enrique Roman Financial Management Spec. LCSFM FM Members of Task Team (non-World Bank staff) Names Title Location Responsibility/ Specialty Thomas J. Korczowski Land Spec. Consult. Richard Anson Institutional Development Spec. Consult. Fernando Soto Rural Finance Spec. FAO Adriana Herrera Land and Gender Spec. FAO 44 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No. of staff weeks USD Thousands (including travel and consultant costs) Lending Total: 0.00 Supervision/ICR FY02 15 54.98 FY03 14 70.66 FY04 6 65.58 FY05 12 90.51 FY06 18 128.79 FY07 13 51.23 Total: 78 461.75 45 Annex 6. Summary of Borrower's ICR and Comments on Draft ICR The Honduras Access to Land Pilot Project (PACTA) developed a model that allowed poor rural households gain access to land and complementary investments through market mechanisms. By providing technical assistance and subproject grants, PACTA gave rural households an opportunity to establish sustainable productive enterprises in their newly acquired land. Next, the main results and conclusions of the project are described. Results and Conclusions PACTA obtained outstanding results, especially considering the controversial nature of issues such as land access and the involvement of PFIs in the long-term financing of rural enterprises. These are the main results obtained in PACTA: Lending from Private Financial Institutions and Creation of Rural Enterprises The project was able to partner with 17 PFIs and 8 UTLs and Service Providers. This partnership resulted in the financing of 100 family enterprises and 81 group enterprises. PACTA was the only project in Latin America in which PFIs use their own resources to provide credit for land purchase in rural areas. A total of 1,226 families participated in the project, of which 991 families purchased a total of 3,425 manzanas (mz) of private land (approximately 3.46 mz per family). Total credits for land purchase amounted to US$ 2.8 million, and the average credit was US$ 2,825. Total transfers for seed capital amounted to US$ 4.7 million, and the average transfer per family was US$ 4,764. The project was able to open up the markets for financial services, land, and technical assistance to poor rural families. The enterprises, UTLs, and PFIs, along with second-tier organizations, municipal governments, and NGOs, participated in the Regional Support Networks. The regional networks stimulated the formation of social capital in the communities where PACTA operated. In the future, these networks will be essential for the development and evolution of PACTA. Selection of families The selection process of participating families was one of the most demanding tasks in the Project. The main factors determining the eligibility of families were: (i) access to adequate technical services; (ii) availability of funds in the PFI to provide long-term financing; (iii) access to markets; and (iv) other conditions necessary for the success of the proposed enterprise. The main objective of the process was to select families that had an intrinsic capacity and willingness to establish sustainable enterprises and repay their debt. Around 84 per cent of families considered to be eligible were able to receive credits to purchase land. The main reason why many rural enterprises are unable to meet the criteria of financial sustainability is the lack of articulation with other actors in the rural landscape. In this sense, one of PACTA's most valuable contributions was the efficacy with which it created these articulations across relevant local actors. At the end of the 46 project, 25 families had already paid off their total debt and many others had already paid more than the original repayment schedule. The careful selection of participating families and rural enterprises was the key factor behind this high repayment record. Financial sustainability of the enterprises and credit repayment The financial sustainability of enterprises can be judged by the increase in family income, generation of employment, and repayment of debt. Despite the burden of the debt repayment and the initial stage of the enterprises, the average income per family doubled due to the generation of permanent employment. In the case of families that had already been with PACTA for four year, the income increased by 136 per cent: from a baseline of US$ 597 to US$ 1,405. It is expected that family income will increase as the rural enterprises diversify and interest payments get reduced. In terms of employment, approximately each family participating in PACTA generates full time employment for three individuals outside of the household. It is estimated that the project generated around 3,000 employments. The repayment rate was also extraordinary. Ninety-seven percent of enterprises had complied with their repayment schedules. Considering that the enterprises will become more profitable after the initial stage, it is likely that they will be able to repay the total debt. In conclusion, the project was an effective policy instrument for the development of rural enterprises and poverty reduction, given that its target population is that less favored by public investments. The generation of income and employment were directed toward solving the problem of rural poverty. In the short term, the project became a medium to promote governance, food security, and reactivation of the rural economy. In the long- term, the results of the project will translate into a significant improvement in the living conditions of the participating families. The financial sustainability of the enterprises is further guarantee by the strong strategic alliances among public and private actors at the local level. Incentive framework Strategic alliances were established by a scheme of financial incentives that included the following: (i) payment for services to the UTLs to ensure the technical assistance to the rural enterprises; and (ii) subproject grants provided directly to the enterprises for the implementation of their business plans. The UTLs provided marketing, production, financial, and administrative technical assistance to the enterprises within their geographical area. In some cases, the rural enterprises also worked with specialized service providers. The UTLs received payment based on their operational costs, and a bonus based on the success of the enterprises they managed. The enterprises had the option of replacing the UTL in case the services rendered were not satisfactory. The main incentive in the project was the subproject grant. These funds were assigned to help the enterprise carry out its business plan with the assistance of the UTL. The transference was only given to those enterprises that received a loan from a PFI. The financial scheme allowed the implementation of the project with an entrepreneurial approach. In addition 47 to the financial incentives, the project provided other incentives such as capacity building and participation in the regional support networks. Articulation between private and public entities The PFIs did not receive subsidies or other direct incentives from the Project. Their participation and engagement with the project were the result of: (i) the low perception of risk they had as a result of the subproject grants, which generated favorable conditions for loan repayment in the early stages of the enterprise; and (ii) the autonomy each institution had in the assessment of loan conditions, absent from any type of political pressure. In the future, the timely repayment of the loans will be the main factor to guarantee the good articulation between private and public entities. Carryout the Project through a Participatory Approach The Unidad de Gestion (UG) was in charge of coordinating efforts with the enterprises, UTLs, and PFIs. The UG worked at a central level in Tegucigalpa to ensure transparency in the use of resources and a decentralized level in the three regions to ensure quality control. Project implementation was carried out through the framework of a Participatory Monitoring and Evaluation System (PMES). The PMES facilitated the learning process in the pilot experience. The objective of the PMES was to ensure that all stakeholders had a voice in the execution of the project, including the rural enterprises and local organizations. This participatory approach motivated the consolidation of the Regional Support Network and significantly contributed to the articulation among the different actors. Main Lessons Learned The main lessons learned throughout implementation are the following: · Share and keep the common objective of developing productive enterprises to maintain the project under a market-focus approach that encourages the participation of all actors. · Achieve an adequate mix of reimbursable and non-reimbursable transfers and partnerships between private and public entities. · Maintain the incentive framework aligned toward the final objective of the project. · Share risks across actors. · Keep good rules of the game and apply them strictly and professionally to generate trust and increase the participation of the actors. Borrower's Performance FAO's performance, as executor of the project on behalf of the Borrower, is considered satisfactory for the following reasons: (i) its participation helped create an institutional image of transparency in the use of public funds; (ii) it was an efficient manager of resources and gave prompt attention and response to the needs of the enterprises; (iii) it 48 incorporated the lessons generated by other FAO-executed projects in the country; (iv) it ensured the continuity of the core team throughout implementation; and (v) it avoided political maneuvering, helping maintain the market approach. During the first four years of implementation, FAO's role was crucial for the success of the project because INA's participation was limited to partial monitoring of project activities. The role of INA changed during the last year of implementation, taking a more active role and contributing significantly to finding the fiscal resources to finance PACTA in its post- completion phase. World Bank's Performance During project preparation, Bank's performance was satisfactory. The Bank provided the necessary assistance to ensure that the project had an innovative approach, focusing on building trust between rural producers and PFIs. During project supervision, Bank's performance was highly satisfactory. Missions were carried out at least twice a year, giving an opportunity for key decision-making. The Bank team constantly provided sound technical advice, which contributed to the formation of human capital in the country and the improvement of innovative methodologies. Post-Completion Operation The Government of Honduras (GOH) will continue the implementation of PACTA in partnership with FAO. The GOH assigned US$ 3.2 million to execute the project in the next three years (2007-2009) with the objective of expanding the coverage and continuing the assistance to the enterprises established in the pilot phase. The development objective of the new project is to foster the formation of sustainable rural enterprises by poor families in rural areas by facilitating access to land and productive assets to achieve a sustainable capital accumulation process, generating lessons for the design of integral rural development policies. In the project document for this new phase, the GOH established that the scale-out of PACTA is an alternative that contributes to: (i) the making of a complementary model of land access; (ii) overcome the current shortage of public funds to finance rural development by leveraging resources from the private sector; (iii) diminish the migration of young people from rural areas to other parts of the country and abroad by allowing them to purchase land and establish enterprises; (iv) provide the agricultural products that will be demanded in CAFTA-DR; (v) take advantage of the productive potential of agro- forestry cooperatives, indigenous communities, and beneficiaries of the reformed sector; (vi) overcome the inefficiency in the provision of services in government projects; and (vii) the generation of incomes and employment. 49 50 51 52 Annex 7. Comments of Cofinanciers and Other Partners/Stakeholders Comments from the Regional Support Networks The Regional Support Networks were conformed by the participating rural enterprises, UTLs, PFIs, municipalities, and members of other rural development programs and projects. These were their main comments: · The lessons learned in PACTA are the road for poverty alleviation in rural areas, as they foster the establishment of sustainable productive enterprises. PACTA made it possible for the PFIs to believe again in the rural sector and specifically in financing small producers. This is a substantive achievement that the Government should scale-out into a national program. · It is essential that PACTA's follow-up operation strengthens the links between rural enterprises and markets, because market access is the main challenge. During the past few years, many programs and projects have developed links between producers and markets. PACTA should systematize these experiences to incorporate the lessons learned into the design of the next phase. Specifically, second-tier initiatives have generated favorable results in consolidating production and market access. · As the regional support networks are an effective instrument to promote local management and sustainability of this process, they should be consolidated and fully incorporated into PACTA's structure. These networks were useful to establish partnerships and alliances that were outside PACTA's implementation structure, such as the case of a municipality that improved the road leading to the enterprises so they could be closer to markets. · PACTA's original design did not consider the high transaction cost of approving a loan in rural areas, which stand at about 11 per cent of the total loan amount. · PACTA's follow-up operation should consider assisting farmers that already own land but lack the resources to make productive. This group of producers represents an important segment of Honduras's rural population. · PACTA's evaluation should consider the amount of social capital accumulated by the numerous links established between the enterprises, UTLs, PFIs, and other actors participating in the process. The social capital is closely linked to the human capital that was developed through the project. · The country should consider the creation of a fund for land purchase. This should be a very specific instrument that should take into account the conditions in the rural sector, including the co-financing that is needed to establish the productive enterprises. The impact of this type of project is large in rural areas due to its stabilization effect on rural populations and promotion of governance. · It is important to revise the framework regulating the UTLs and strengthen the provision of technical services, given that this is such a central component determining the success of the enterprises. 53 · PACTA's communication strategy provided the medium for all actors to be informed about the project's achievements and consolidate partnership among them. Comments from the Land Fund ­ European Union · The European Union commended PACTA for establishing a model where land access was complemented by other productive investments, such as technical assistance and subproject grants. The EU-financed Land Fund Project did not provide enough attention to the complementary investment, resulting in high repayment default rates (above 25 per cent). Some of these enterprises were absorbed by PACTA. Through the project's complementary package, in just six months the default rate for these enterprises was lowered to 5 per cent. 54 Annex 8. List of Supporting Documents Articles/Case Studies Aleman, Raul. 2005. Increase in productivity and profitability: strawberry production using renewable energy and appropriate technology. Murillo, Angel. 2006. Generation and increase in income in the framework of the Land Access Project (PACTA). Productive Enterprise San Isidro. Murillo, Angel. 2006. Generation and increase in income in the framework of the Land Access Project (PACTA). Experiences in the establishment of family-owned productive enterprises in Western Honduras. Baez, Linda, Hector Tablas, Raul Aleman, and Wilmer Sanchez. 2006 The linkages between financial and non-financial services in rural areas. Korczowki, Tom, and UG. 2006. Lessons learned in the Land Access Pilot Project. Paul, Compton, Hector Tablas, and Raul Aleman. 2006. Land Access Project (PACTA). Results and Perspectivas. Korczowki, Tom, and UG. 2006. Findings, impacts, and lessons in PACTA. Tablas, Hector, and Raul Aleman. 2005. Capacity building in the establishment of new enterprises. The privatization of agricultural extension services in PACTA. Video: Building opportunities in rural areas. Gutiérrez consultores, 2006. Operational Documents PACTA Financial Manual. UG de PACTA, 2005-2006. PACTA Participatory Monitoring and Evaluation Manual UG de PACTA, 2004-2006. . PACTA Operational Manual. UG de PACTA, 2005-2006. Gender Strategy. Equipo UG de PACTA. 55