Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 14790

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF BENIN

RURAL SAVINGS AND LOAN REHABILITATION PROJECT(CREDIT 2086-BE)

JUNE 29, 1995

Agriculture and Environment DivisionWest Central Africa DepartmentAfrica Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = CFA Franc (CFAF)US$ = CFAF 530

WEIGHTS AND MEASURES

Metric System

GOVERNMENT FISCAL YEAR PROJECT FISCAL YEAR

January 1 - December 31 October 1 - September 30

ABBREVIATIONS AND ACRONYMS

BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest(Central Bank of West African States)

CFD Caisse Fran,aise de Developement(French Development Agency, ex CCCE)

CLCAM Caisse Locale de Credit Agricole Mutuel(Local Savings and Loans Cooperative Society)

CRCAM Caisse regionale de Credit Agricole Mutuel(Regional Savings and Loans Cooperative Society)

CNCA Caisse Nationale de Credit Agricole(National Agriculture Credit Bank)

CPU Central Project UnitURCLCAM Union Regionale de Credit Agricole Mutuel

(Regional Savings and Loans Cooperative Society)EEC European Economic CommunityFAC Fonds d'Aide et de Cooperation (French Bilateral Aid Agency)FECECAM Fe&dration de Caisses d'Epargne et de Credit Agricole Mutuel

(Federal Union of Savings and Loan Cooperatives)FED Fonds Europ&en de Developpement

European Development FundFRG Federal Republic of GermanyIDA Intemational Development AssociationIFAD International Fund for Agricultural DevelopmentSDC Swiss Development Cooperation

FOR OFFICIAL USE ONLY

Table of ContentsPage

Preface

Evaluation Summary ................................................... i

Part I: Project Implementation Assessment

A. Project Objectives ........................................ 1B. Achievement of Objectives ......................................... 2C. Major Factors Affecting the Project ......................................... 3D. Project Sustainablity ......................................... 5E. Bank performance ........................................ 6F. Borrower Performance ........................................ 6G. Assessment of Outcome ......................................... 7H. Future Operation ........................................ 7I. Key Lessons Learned ........................................ 7

Part II: Statistical Annexes

Table 1: Summary of Assessments .9Table 2: Related Bank Loans/Credits .11Table 3: Project Timetable .12Table 4: Credit Disbursements: Cumulative Estimated and Actual .12Table 5: Key Indicators for Project Implementation .13Table 6: Key Indicators for Project Operation .14Table 7: Studies Included in Project .14Table 8A: Project Costs ........................................ 15Table 8B: Project Financing ........................................ 16Table 9: Economic Costs and Benefits ........................................ 16Table 10: Status of Legal Covenants ........................................ 17Table 11: Compliance with Operational Manual Statements .................................... 18Table 12: Bank Resources: Staff Inputs ........................................ 19Table 13: Bank Resources: Missions ........................................ 20

ADDendixes:

A: Borrower's Evaluation SummaryB: Borrower's Comments on Bank's Draft ICR

dThis ocument has a restricted distribution and may be used by recipients only in the perfonnance of theirofficial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF BENIN

RURAL SAVINGS AND LOAN REHABILITATION PROJECT(LOAN 2086-BE)

Preface

This is the Implementation Completion Report (ICR) for the Rural Savings and LoanRehabilitation Project in Benin, for which Credit 2086-BEN in the amount of SDR 2.0 million wasapproved on June 1,1990 and made effective on November 27, 1990.

The Credit is scheduled to close on December 31. 1995, but was almost fully disbursed in June1995. Cofinancing for the project was provided by the Caisse Centrale de Developpement Economique(CCCE, now the Caisse Francaisse de Development, CFD), the Fonds d'Aide et de Coop6ration(FAC), the European Development Fund (FED), the Federal Republic of Gemiany and Switzerland.

The ICR was prepared by a consultant and reviewed by L. Mosele, A. Brizzi, T. Turtiainen, S.Singh all of AF4AE; and Mr. Bertrand de Chazal, AF4DR. It is based on material in the project fileand a field mission report.

The Borrower contributed to the preparation of the ICR by assisting the consultant during thefield mission. In addition, it prepared its own completion report. This report is available upon requestin the project files, and a summaiy prepared by Bank staff is attached as Appendix A.

The borrower's comments on a draft ICR are included as Appendix B. The co-financiers didnot provide any comments.

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF BENIN

RURAL SAVINGS AND LOAN REHABILITATION PROJECT(Credit No. 2086-BEN)

EVALUATION SUMMARY

Introduction

1. The project addresses the needs and constraints of the fornal rural financial sector of Beninwhich became essentially insolvent in the late 1980s as a result of a very high percentage of non-performing loans and the bankrupcy of the National Agricultural Credit Bank (CNCA). Morespecifically, it deals with the urgent requirements of the cooperative savings and loan societies. It isconsistent with the government's strategy to rehabilitate the national banking and financial sector andwas the first Bank project in the sector.

Project Objectives

2. The project objectives were to promote a self-sustaining rural financial intermediation systemby strengthening the local and regional branches of the rural savings and loan cooperatives (CLCAMsand CRCAMs). Specific objectives were to: (i) undertake an institutional rehabilitation program; (ii)institute a financial rehabilitation program; and (iii) define and implement a credit developmentprogram.

The project objectives adequately reflected the needs and constraints of the Benin financialsector in the context of rural credit and the urgent requirements of the savings and loan cooperatives.In this context, the project pertinently addressed the critical question of the legal status of thesecooperatives; the deregulation of interest rates on their credit operations, the determination of prudentloan to deposit ratios; the guarantees and collaterals required for the loans; the setting of individualcredit ceiling and the reconstitution of the equity and savings of the CLCAMs and CRCAMs membersdepleted as a result of previous mismanagement and the bankruptcy of the National Agricultural CreditBank (CNCA). The project as designed was consistent with the government's strategy to rehabilitatethe national banking and financial sector and its program of action worked out with the assistance ofthe Central Bank of West African States (BCEAO), the BF and the World Bank. Related majorcovenants include (i) CRCAMs and CLCAMs establish a Federal Union of Savings and LoanCooperatives (ii) carrying out of a financial and management audit of CRCAMs and CLCAMs; (ii)setting up of a recapitalization account and CFAF 600 million paid in; (iv) CRCAMs and CLCAMs tohave full autonomy on determination of interest rates and selection and dismissal of staff anddetermination of their salaries; and (v) political and administrative authorities not to interfere with thefinancial and credit operations of the CRCAMs and CLCAMs. Lending policies to be followed by thecooperative network have been spelled out in detail. The main features included:

(i) credit shall be either short-or medium-term and shall finance investment projects;

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(ii) elected officials of the local CLCAM/CRCAM should be deeply involved in the reviewand approval of credit applications;

(iii) credit can be either to individuals or to groups. Credit to individuals shall have a ceilingof CFAF 200,000;

(iv) credit shall be secured by lien on assets or a repayment guarantee from solvent persons;

(v) credit beneficiary shall be a member of good standing and have an amount of savingsequivalent of at least 10 percent of the amount of credit applied;

(vi) interest rate shall range between 12 and 24 percent; and

(vii) the credit/deposit ratio shall not exceed 40 percent for a CLCAM and 50 percent for aCRCAM.

Covenants and lending policies were essentially met and were crucial to projet success.

Implementation Experience and Results

3. The project achieved its major objectives. Sector Policy: the redefinition of the legal statutesgoverning the operations of rural savings and loan cooperatives was completed and interest rateceilings were removed and the cooperatives exempted from rules governing interest rates on depositsand credits. This made it possible for the cooperative network to charge positive real interest rates.Institutional Rehabilitation: institutional development objectives have been substantially achieved:restructuring of the 64 CLCAMs has been completed with the closing down of many of them and theoperational merging of others; the six CRCAMs have been restructured and no longer provide loansbut only support services to the CLCAMs within their jurisdiction; the legal status of the savings andloan cooperative system has been changed; a Federal Union of Savings and Loan Cooperatives(FECECAM) has been established to replace the central project unit and at the level of each region; theCLCAMs created a union of local cooperatives (URCLCAM); an improved budgeting, accounting andfinancial information system is being put in place; and substantial training activities have taken place.

4. Financial Rehabilitation: all the major financial rehabilitation objectives have been achieved:members' equity and savings depleted by accumulated losses have been reconstituted and the frozendeposits at the defunct National Agricultural Credit Bank (CNCA) compensated; administrative,accounting and financial control procedures have been put in place and are continually being improved;interest rates have been deregulated; personnel audits have been conducted and organizationrestructuring has been pursued; and finally, all new credit requests are effectively reviewed andapproved by the boards of directors of the individual cooperative societies without interference frompolitical or administrative structures. Loan recovery rates have substantially improved and mostcooperatives now show a loan recovery rate of more than 97 percent. Savings and Credit

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Development Program: the savings and credit development program has been successful. Totalmembership increased from 20,800 in September 1989 to almost 41,000 in September 1992 and morethan 80,000 in December 1994, clearly attesting to the return of the rural population's confidence inthe network. Total deposits increased from CFAF 2.4 billion in September 1989 to CFAF 6.6 billion inDecember 1994 while total loans increased from FCFA 205 million to FCFA 3.2 billion during theperiod. The CLCAM network could lend up to 40 percent of its total deposits and same enjoyed avery favorable financial situation which allowed for convenient returns on excess liquidity invested withcommercial banks (10 percent) and on loans (24 percent). This situation has, however, changed sincethe CFAF devaluation in January 1994 which caused a considerable fall on returns on invested excessliquidity (4-5 percent) and on loans (18 percent). The lower returns have reduced the capability of thenetwork to cover all its administrative and operational costs. Increasing the amnount of deposits andloans and reducing administrative and operational costs would have to be part of an action program toaddress this problem.

5. Sustainability. Interest rates need to remain deregulated to allow the network to continue tohave positive gross financial margins on its loan operations. The cooperative system should be allowedto continue with its current procedures and the government should maintain its non-interference policy.This would ensure that loans are made for viable operations and that repayments collection isenforced. Given the current commitment of the government, these conditions are likely to be met.Financial viability cannot be achieved in the short-to-medium tern because of the current structure ofthe network, which leads to relatively high administrative and other overhead costs. More generally,experience elsewhere with similar undertakings suggests that the important functions of training andinstitutional building that are required for sustainability cannot be satisfactorily carried out over aproject implementation period of five years. The potential for deposit and loan demand growth is goodbecause of the still low level of penetration of the network in the rural areas. Also, ownership andcommitment by the members of the cooperative societies have been achieved and this remains one ofthe major achievements of the project. The overall assessment is that project activities andachievements can be maintained and developed although some subsidies for capacity building wouldneed to be provided for several years to strengthen the network through training and technical supportespecially for the key functions of financial and accounting management.

6. Actual project costs and their financing have been basically in line with appraisal estimates.Estimated costs were US$12.8 equivalent compared to current estimates of US$12.3 with most of thedifference coming from exchange rate fluctuations. The financing arrangements have been substantiallyas envisaged at appraisal. The implementation timetable has been basically respected except for someinitial delays for some components such as training and the replenishment of members' equity anddeposits.

7. The project outcome has been highly satisfactory. The performance of the Bank has beensatisfactory through all the stages of the project cycle. The performance of the Borrower has also beensatisfactory. The single most important factor for success has been the decision to reconstitute themembers' equity. This reestablished members' confidence in the rural savings cooperatives and led totheir strong support by the local population. The restructuring of the network to decentralize decision-

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making to the local level also had a similar impact. The insistence of the lenders that the govemmentdoes not interfere with the rural savings network management, allowed the project to proceed withsusbstantial management autonomy; and technical assistance made a positive contribution to projectimplementation. The government promulgated the required new laws on the legal statutes governingthe administration and operations of rural savings and loan cooperatives; it cancelled claims on thecooperatives network as a result of the liquidation of the CNCA and deregulated interest rates. TheCentral Project Unit (CPU) carried out its responsibilities in a satisfactory manner. FECECAM and itssecretariat, both created in 1993 to succeed the CPU, continued to consolidate on the achievements ofthe CPU.

Summary of Findings, Future Operations and Key Lessons Learned

8. The key lessons learned can be summarized as follows:

(a) The right mix of financial sector policies that encourage effective financialintermediation were vital to the success of the project.

(b) Obtaining the confidence of the rural population and the real transfer of decisionmaking authority to the local level are prerequisites for the establishment of a soundsavings and loan rural cooperative network.

(c) Significant resources should be allocated to institution building and training functions inorder to lay the foundation for a sustainable savings and loan network. Areas to beemphasized include management and financial control mechanisms, development ofperfornance criteria, and independent auditing of the financial operations.

(d) Savings mobilization should be made a priority as a basis for future sustainability;lending should be based on own resources and savings generated; the use of externallines of credit should be avoided as much as possible.

(e) Group lending yields the best results and is facilitated through (i) awareness campaigns,and (ii) peer pressure under repayment rule that all the group members are refused newloans if previous ones are not 100 percent repaid.

(f) The government should respect the autonomy of the cooperatives and encourage self-reliance.

(g) Interest rates should be deregulated so that real positive interest rates can be chargedfor the loans to provide sufficient margins for cost recovery..

(h) Insofar as possible, the savings generated should be kept in the rural areas and not betransferred to savings-deficit sectors that cater mainly to the needs of the urbandwellers.

9. A follow-on project, the Second Rural Savings & Loan Cooperatives Rehabilitation Project (orRural Credit I[), has become effective in December 1994. The central objective of the second phaseproject is to continue with the rehabilitation and strengthening of the network of rural savings and loancooperatives initiated under the project under review. The project aims to assist the network inestablishing an efficient institutional structure and making substantial progress toward financial viability.It is expected that full financial viability and autonomy would be reached only in the longer term (10 to15 years). Emphasis is being given to reducing overhead costs, increasing membership, and expandingdeposits and loans.

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF BENIN

RURAL SAVINGS AND LOAN REHABILITATION PROJECT(Credit No. 2086-BE)

PART L PROJECT IMPLEMENTATION ASSESSMENT

Project Objectives

1. The primaiy objective of the project was to help transform Benin's rural savings andloan cooperative system into a better managed, more efficient, and financially viable ruralsavings mobilization and credit delivery network. This was to be achieved through:

(i) an institutional rehabilitation program for: (a) restructuring the 64 existing localsavings and loan cooperatives (CLCAMs) and recasting the role of the 6 regionalcooperatives (CRCAMs); (b) redefining the legal statutes goveming rural savings andloan cooperatives in Benin; (c) helping establish a Federal Union of Savings and LoanCooperatives (FECECAM); (d) reestablishing improved budgeting, accounting andfinancial information systems; (e) designing and implementing a training program forboard directors, members and staff of the cooperative network; and (f) reducing thestaff of the cooperative network.

(ii) a financial rehabilitation programn for: (a) reconstituting members' equity and savingsdepleted by accumulated losses of the previous National Agricultural Credit Bank(CNCA); (b) putting in place adequate administrative, accounting and financial controlprocedures; and (c) supporting the efforts of the local and regional cooperativestowards financial autonomy by financing the equivalent of their first year operatinglosses.

(iii) a credit development program for: (a) mobilizing savings to meet part of the creditdemand; and (b) developing sound lending policies.

2. The project objectives adequately reflected the needs and constraints of the Benin financialsector which was in distress and, more specifically, the rural credit sector and its savings and loancooperative societies. The objectives also pertinently addressed the critical question of the legal statusof these societies and the deregulation of interest rates in their credit operations. The project asdesigned was consistent with the government's strategy to rehabilitate the national banking andfinancial sector and the program of action worked out with the assistance of the Central Bank of WestAfrican States (BCEAO), the 1MF and the World Bank for its longer term viability.

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3. Project scope and activities were manageable. The policy measures to be implemented wereessential and sector specific. No interagency coordination was required given the large measure ofautonomy granted to the network and the number of components was limited. The provisions fortechnical assistance were adequate. There were several co-financing agencies and the lack offamiliarity of the CPU with their respective procedures led to disbursement delays. Although, theproject's geographical coverage reflected the existing network of cooperative societies, the projectdesign failed to take into account the regional diversity in operating conditions.

Achievement of Objectives

4. The project's major objectives were substantially achieved. The main criteria for assessing theachievement of the objectives were clearly defined in the SAR. The attainment of specific objectives isreviewed below.

5. Sector Policy. The required policy reforms were completed. Legal statutes governing theoperations of rural savings and loan cooperatives were amended to eliminate government interference.Interest rate ceilings were removed and the cooperatives were exempted from rules governing interestrates on deposits and credits. Cooperative societies were forbidden to run complex banking operations.

6. Insitudonal Rehabilitation. Institutional development objectives have been substantiallyachieved: All 64 CLCAMs were completely restructured with the closing down of many of them andthe operational merging of others. All six CRCAMs have been restructured and no longer provideloans and their main activity now is the provision of support services such as training, accounting,budgetary and financial control and overall supervision to the local cooperatives which are now solelyresponsible for mobilizing savings and providing loans. The legal status of the savings and loancooperative system has been changed and a Federal Union of Savings and Loan Cooperatives(FECECAM) has been established. Despite delays and problems, an improved budgeting, accountingand financial information system is gradually being put in place with already visible results. An intemalaudit system is already functioning with noticeable results and extemal audit reviews are routinelyconducted by a foreign firm in partnership with a local one. The auditors issued a clean opinion on theaccounts, statements of expenditures and special accounts for financial statements covering the fiscalyears ending September 30, 1993 and September 30, 1994.

7. Staff restructuring, including redeployment and lay-offs, was implemented following apersonnel audit. An adequate training program was designed and implemented by the project. Atraining unit was established early but training activities only started one year after project effectiveness.These activities have included seminars, rural radio broadcasts, attachment to relevant organizations,study tours and formal and on-the-job training. Personnel taking part in training activities have includeddirectors of cooperative societies and members, and officials of cooperatives surveillance boards.Training costs have averaged CFAF 25 million per annum compared to the average of about CFAF 5million planned at appraisal.

8. Financial Rehabilitation. All the major financial rehabilitation objectives have been achieved.Members' equity and savings depleted by accumulated losses have been reconstituted and

compensation obtained for the frozen deposits at the defunct CNCA. Administrative, accounting and

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financial control procedures have been put in place and need continued vigilance to make these fullyeffective. The first year's operating losses of the cooperative societies were financed by the project asplanned. The deregulation of interest rates has facilitated the financial rehabilitation program. Theestablishment of standard operating budgets including a salary structure decided by the boards of thesocieties, and defining more narrowly the operations has had similar effect. Finally, all new creditrequests are effectively reviewed and approved by the boards of directors of the individual cooperativeswithout interference from the political or administrative structures.

9. Savings and Credit Developmewnt PWgram. The savings and credit development program hasbeen very successful in mobilizing savings. Total membership went up from 20,822 in September 1989to almost 40,000 in June 1992 and more than 80,000 in December 1994 clearly attesting to the returnof the rural population's confidence in the network. Total deposits increased from CFAF 2.4 billion inSeptember 1989 to CFAF 6.6 billion in December 1994 while total loans went from FCFA 205 millionto FCFA 3.2 billion during the same period. A substantial share of total deposits are mobilized fromnon-members who use the CLCAMs as a banking facility without contributing to their capital and,therefore, are not eligible to borrow. Under the project, the network was restricted to lending up to 40percent of its total deposits. Although loans to individuals are permitted, most loans are made tofarmers' groups who provide group-guarantees. The strict application of the rule that fresh loans areonly made after all loans due for collection have been fully recovered, has been critical in restoringfinancial discipline. Peer pressure has proved to be a very effective instrument to achieve recoveryrates close to 100 percent. Loan recovery rates have improved substantially and most societies nowshow a loan recovery rate of more than 97 percent. Since there is a high proportion of non-memberdeposits, it has been agreed that under the follow up operation, Rural Credit II, that CLCAMs wouldbe allowed to lend up to 50 percent of savings deposits. There is a geographical dimension to thenetwork's performance largely related to the resource base and transportation infrastructure. TheAtacora region, which is generally resource poor and has deficient road infrastructure, has consistentlyshown lower performance than the other regions in all categories. Limited natural resources and poorroad infrastructure have influenced negatively savings generation resulting in a weaker lending base andtherefore, lower lending volumes and higher operating costs.

Major Factors Affecting Project Performance

10. Four major groups of factors have affected project implementation performance: (a) features ofthe project design; (b) factors beyond government control; (c) government-influenced factors; and (d)factors related to the implementing agency.

(a) Project Design. Probably the single most important factor that has contributed to thesubstantial achievement of project objectives was the decision to reconstitute themembers' equity and savings. Members' confidence in the rural savings network wasreestablished, and this led to their strong support. The second design factor whichcontributed to the project's success was the restructuring of the network todecentralize decision-making to the local level. This created a strong sense ofidentification with the project and established a sound sense of project ownership whichprovided strong motivation.

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(b) Factors beyond the government's control. Although technical assistance generallymade a positive contribution to project implementation correcting the initial lack ofexperience of local personnel and contributing to its training, the impact of short termconsultancies has been quite variable. Some consultants have performed in accordancewith their terms of reference and thus contributed to the development of the project.However, others have misinterpreted and ovestepped their role and mandate and,ignored the role of the local technical personnel of the project. Finally, the scheduleand cadence of consulting missions often did not fit with the development andabsorption capacity of the network resulting in a number of reports neither beingdiscussed nor utilized. This is particularly true for the 'brientation audits"

(c) Government-related factors. The government generally fulfilled its obligations. Inparticular, it promulgated new laws on the legal statutes governing the administrationand operations of rural savings and loan cooperatives, it cancelled claims on thecooperatives as a result of the liquidation of the CNCA and it deregulated interestrates. The government's decision not to interfere with the network's policies andimplementation rules had a substantial impact in the achievement of the project'sobjectives as it facilitated orderly operations in the network.

(d) Implementation agency-relatedfactors. The Central Project Unit (CPU) carried outits responsibilities in a satisfactory manner. FECECAM, that was created in 1993 tosucceed the CPU, has consolidated on the earlier achievements. CPU commissioned apersonnel audit as required and implemented staff reduction to reduce costs andredeployment for better skills match. Staff training rightly emphazised member'sownership, sound lending policies and financial discipline. The CPU made effective useof technical assistance to clean up the network's accounts and to institute a system ofinternal control and audit. There was no major work foi contractors under the projectand no irregularities or specific procurement problems have been reported.

11. Implementation delays of one year were experienced in the replenishment of members' equityand savings, and instituting improvements in budgeting, accounting and financial information systemswhich are still continuing. Major reasons for these delays include difficulties of the CPU in masteringthe disbursement procedures of the different lenders and the long-term nature and requirements ofeffecting institutional change.

Project Sustainability

12. The sustainability of the project is dependent on four main factors: (a) the policy environment;(b) financial viability; (c) potential for savings mobilization and credit demand; and (d) projectbeneficiaries' ownership and commitment.

(a) Policy Envronment. For the achievements of the project to be sustainable, interestrates on loans would have to continue to be deregulated and the current statutes of thecooperative credit system maintained. The deregulation of interest rates is importantbecause it allows the network to have positive financial margins. When interest rate

ceilings existed, the savings and loan societies had negative real interest rates andnegative financial spreads and operated at a loss. The government would need tocontinue its non-interference policy. In the absence of any other credit institution in therural areas, the rural savings and loan network could be pressured by authorities tomeet credit demands that do not correspond to its mandate. This could affect theviability of its operation.

(b) Financial Viability. Sustainability of the current scheme will depend on the level ofadministrative expenses, loan recovery performance, structure of interest rates, andcost of financial resources. The network has widespread coverage and the localcooperatives tend to be smaDl and the average amount of the loan modest withoperating costs relatively high. However, because of their interest rate policy, theadequate spread between deposit and loan rates, and the financial revenues from excessliquidity, almost al CLCAMs are financially autonomous and do not receive anysubsidy. Under the new policy adopted by the network in April 1993, CLCAMsincurring losses would be submitted to a restructuring plan and closed after threeconsecutive years of losses. Such losses are covered through a Solidarity Fundestablished under the Federation and which is funded from CLCAMs profits. Thecosts of the regional and central services provided by the network cannot yet beinternally sustained. External donors have, therefore, played an essential role infinancing the training, technical assistance, audits and some of the recurrent costsincurred. Appraisal projections did not envision that financial sustainability would beachieved during the five years of the project. From that perspective, some subsidieswould still be required for capacity-building purposes, but could be justified only withina framework of consistent policy and institution strengthening measures. The projectshows satisfactory trends towards financial viability. According to projections madefor the follow-on Rural Credit II, the system would become financially self-sustainingin the year 2001 at the regional level and in the year 2007 for the entire network. Theprojections might, however, be modified by events. Until 1993, the network enjoyed avery favorable financial situation which allowed for convenient retums on excessliquidity invested with commercial banks (10 percent) and on loans (24 percent). Thissituation has radically changed since the CFAF devaluation at the beginning of 1994which caused a considerable fall in returns on invested excess liquidity (4-5 percent)and on loans (18 percent). This fall has reduced the capability of the network to coverall its administrative and operational costs. This deficit can be made up by increasingthe amount of deposits and loans and by reducing administrative and operational costsas the benefits of a devalued CFAF work back into the rural economy.

(c) Savings Mobilization and Credit Demand The financial autonomy indicated insubparagraph (b) above assumes that deposits would grow by 10 to 15 percent perannum and that actual lending would stabilize at 45 percent of deposits from 1995onwards. Based on current trends, this level of growth is quite likely to be achieved.

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(d) Beneficiary Ownership and Commitment. The ownership and commitment of thebeneficiaries is one of the main assets of the network and can be expected to remain soif government continues to respect its autonomy.

12. The overall assessment is that project activities and achievements can be maintained anddeveloped if some financial assistance continues to be provided in the medium-term to build up thenetwork through training and technical support especially for the key functions of financial andaccounting management. The volume of deposits and loans must also continue to grow to a level thatgenerates sufficient income to meet the costs.

Bank Performance

13. Bank performance was consistent and satisfactory throughout all the stages of the projectcycle. The macro-policy framework of the project was consistent with the strategy of the governmentin the financial sector and the reform programs worked out with multi-lateral and regional partners.Project identification and preparation were closely coordinated with potential co-lenders. The appraisalreport incorporated the findings of separate missions conducted by co-financiers. Before the start ofproject implementation, pre-project activities were initiated with funds from some of the co-lenders.This made it possible to test in advance some of the key project assumptions. Bank supervisionmissions were regular and staffed with qualified persons with the appropriate skills mix. Staff continuitywas not always maintained in supervision missions and the Borrower has expressed some concern atthis. These missions were usually coordinated with those of the co-lenders..

14. However, the Bank at appraisal did not fully appreciate the regional economic differenceswithin the country. This penalized regions such as the Atacora which are not as well-endowed or asdeveloped as others and which also face severe communications problems. The higher staff inputs andoperating costs for the particular situation of the Atacora region should have been taken account of orit could have been decided that the Atacora region did not meet the criteria for project assistance orprovisions made for more support in the form of subsidies..

Borrower Performance

15. The performance of the Borrower was highly satisfactory. Key prerequisites for the success ofthe project were the commitment of the government to reform the rural savings and loan sector and torestore the confidence of the beneficiaries. Both these prerequisites were met. All the measures thatwere planned were taken within a reasonable time. The statutes of the savings and loan sector werechanged as proposed; interest rates on credit and on deposits were deregulated; and outstanding claimson the savings network were canceled as agreed. From a financial perspective, proceeds from theCredit were promptly put at the disposal of the network and the recapitalization of the network'saccount carried out as stipulated. Institution-wise, the CPU was set up on time and staffed withcompetent local staff and technical assistance. It was subsequently replaced by the FECECAM. Therequired financial and management audit of the network was conducted and its recommendationsimplemented. Most importantly, the Borrower refrained from interfering in the operations of thesavings and loan cooperative network respecting the ownership and autonomy of the cooperatives.

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Assessment of Outcome

16. The project outcome was highly satisfactory because all the major objectives were achieved orexceeded. The key project objective of regaining the trust of the members of the cooperative societieshas been achieved beyond expectations. This was mainly achieved through the restoration of the equityand savings of the members and the decentralization of management to provide credibility toownership. The institution building objectives have also been substantially achieved with better staffskill-mix and competence at all levels, and a reliable accounting and financial monitoring system. Also,the establishment of FECECAM heralds the transfer of project operations to the beneficiaries.

Future Operation

17. A follow-up project, Rural Credit II was approved in June 1993 and became effectivein December, 1994. The central objective of the new project is to continue with the rehabilitation andstrengthening of the network of rural savings and loan cooperatives initiated under the project beingreviewed. The new project aims to assist the network in establishing an efficient institutional structureand expedite progress toward financial viability. It is expected that full financial viability and autonomywould be reached only in the longer term (10 to 15 years) and that, by the end of projectimplementation, all primary level cooperatives would not only break even financially but also contributeto finance the operating costs of network' regional and national levels. The new project will support,over five years, activities, such as: (i) the establishment of efficient service units at the regional level(URCLCAM) to provide CLCAMs with the necessary backstopping (accounting and financialmanagement); (ii) the institutionalization of FECECAM as the network's policy-making andsupervisory body; (iii) technical assistance, equipment, training and annual audits; and (iv) completingthe financial restructuring of CLCAMs and providing limited financial assistance to a few CLCAMsoperating in the poorest areas of the country but having a potential to reach a deposit base necessary tobreak-even financially.

Key Lessons Learned

18. The key lessons learned can be summarized as follows:

(a) The right mix of financial sector policies that encourage effective financialintermediation were vital to the success of the project.

(b) Obtaining the confidence of the rural population and the real transfer of decisionmaking authority to the local level are prerequisites for the establishment of a soundsavings and loan rural cooperative network.

(c) Significant resources should be allocated to institution building and the trainingfunctions in order to lay the foundation for a sustainable savings and loan network.Areas to be emphasized include management and financial control mechanisms,development of perfornance criteria, and independent auditing of the financialoperations.

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(d) Savings mobilization should be made a priority as a basis for future sustainability;lending should be based on own resources and savings generated; the use of externallines of credit should be avoided as much as possible.

(e) Group lending yields the best results and is facilitated through (i) awareness campaigns,and (ii) peer pressure under a repayment rule that all the group members are refusednew loans if previous ones are not fully repaid.

(f) The government should respect the autonomy of the cooperatives and encourage self-reliance.

(g) Interest rates should be deregulated so that real positive interest rates can be chargedfor the loans to provide sufficient margins for cost recovery.

(h) Insofar as possible, the savings generated should be kept in the rural areas and not betransferred to savings-deficit sectors that cater mainly to the needs of the urbandwellers.

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Part II: Statistical Annexes

Table 1: Summary of Assessments

A. Achievement of Substantial Partial Negligible Not applicableObjectives (M) ('I ) (4Macro Policies QSector Policies 0Financial Objectives 0Institutional Development 0Physical Objectives .. 1

Poverty Reduction 0Gender Issues 0Other Social Objectives 0Environmental Objectives 0Public Sector Management 0Private Sector Development 0Other (specify)

B. Project Sustainability Likely Unlikely Uncertain(i)1() (4)

HighlyC. Bank Performance satisfactory Satisfactory Deficient

(v) (4) (Identification 0

Preparation Assistance 0

Appraisal 0

Supervision 0

(Continued)

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HighlvD. Borrower Performance satisfactory Satisfactory Deficient

(4) (4) (%

Preparation E

Implementation 0

Covenant Compliance 0

Operation (if applicable)

Highly HighlyE. Assessment Outcome. satisfactory Satisfactorv Unsatisfactory unsatisfactory

(4) (4) (4) (4)0z-.

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Table 2: Related Bank Loans/Credits

Loan/credit title Purpose Year of approval Status

1. Cr. 1887-BEN Consolidate gains 1988 ClosedSecond Borgou Rural under first Borgou

ISecond Borgou Rural Prjet prprDevelopment Project Project; prepare

medium termrestructuring anddevelopment programfor rural sector;rehabilitate cottonsub-sector

2. Cr. 2285-BEN Reorganization of 1991 Ongoing

Agricultural Services agric. institutions forAg .ricutural Sercs better provision ofl Restructuring Project services

3. Cr. 2344-BEN Institution building 1992 Ongoing

Natural Resources and pilot actions tol NauralResorces promote sound

Management Project eromentalenvironmentalmanagement

4. Cr. 2601-BEN. Improve food and 1993 Ongoing

Food Security dietary habits ofdisadvantaged groups

5. Cr. 0871-BEN Environmental Not yet effective

Environment protectionManagement Project

6. Cr. 2529-BEN Continuation of 1994 OngoingSecod Rrehabilitation of rural

Second Rural Savings savings and loanand LoanCooperative networkRehabilitation Project

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Table 3: Project Timetable

Date actual/Steps in project cycle Date planned latest estimate

Identification December 1988 December 1988Preparation Dec.88-Feb.89 Dec.88-Feb.89Appraisal April 1989 April 1989Negotiations November 1989 November 1989Board presentation January 1990 January 1990Signing June 1990 June 1990Effectiveness November 1990 November 1990Project completion June 1994 December 1994Loan closing December 1995 June 1995

Table 4: IDA Credit Disbursements: Cumulative Estimated and Actual(SDR thousand)

FY91 FY92 FY93 FY94 FY95Appraisal Estimate 0.4 0.5 0.9 1.5 2.0Actual 0.1 0.7 1.4 1.9 2.0Actual as % of estimate 25 140 156 127 100Date of final disbursement June 1995

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Table 5: Key Indicators for Project Implementation (1)

I. Key Implementation Indicatorsin SARI President's Report Estimated (2) Actual

1. Deposit Growth (PY1-PY3) 10%,20%,30% -6%,26%,47%2. Member Entrance Fees (FCFA) 200 1,2003. Share Value (FCFA) 1,000 6,0204. Interest on members' deposits 6% 3%

CRCAMS/URCAMs

1. Interest on CLCAM Deposits 7% 5%2. Interest on Loans 12-24% 24%3. Interest on Term Deposits 9% 7.25%

CLCAMS:

1. Cash/Total Resources 10% 9-49o/o2. Loan/Deposit Ratio (PY1-PY3) 20%,30%,40% 30%,40%,400/%3. Operating Costs per CLCAM 2.15 5.7-44.5

(Deposits>50m,MF), CFAFMillion

4. Operating Costs per CLCAM 1.31 Not applicable(Deposits<50m,MF), CFAFMillion

5. Interest on Members' Deposits 3-5% 3%6. Interest on Loans 15-24% 16-24%7. Interest on Deposits at CRCAMS 5-7% 5-7%8. Provisions for Bad Debts 2% 0.4-19%9. Staff Number (per CLCAM) 5-11 1-5

10. CLCAM Administrative 3-15Costs/Year (CFAF Million) 11-23

1989 1992 1994No. of members 20,822 - 40,000 More than 80,000Total deposits CFAF 2.4 3.1 6.6BillionTotal loans CFAF 205 550 3,200MillionNo. of borrowers 4,000 11,000 25,000Recovery rates 96% 98%

(1) Some of the indicators are financial assumptions made in the SAR

(2) Since the project became effective only on November 9, 1990, the actual first project year has beentaken as 1990/91 instead of 1989/90 as indicated in the SAR.

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Table 6: Key Indicators for Project Operation

No specific key indicators for project operation were provided in the SAR.

Table 7: Studies included in Project

Purpose as defined Status Impact of studyStudy at appraisal/redefined

1. Management audit of Done Resulted in restructuring ofCRCAMs and CLCAMs, network, staff dismissal andfinancial audit of their accounts design of appropriateand staff performance evaluation management and financial

I___ ___ ____ ___ ____ ___ I_____ ______ _control system s

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Table 8A: Project Costs

Component Appraisal Estimate (US$M) Actual (USSM)

Local Foreign Total TotalItemn Costs Costs

2. Training 0.1 0.0 1.1 0.2

3. Audits and Studies 0.2 0.2 0.4 0.5

4. Operating Costs: 0.8 1.2 2.0 2.2

Cooperatives

5. Financial Rehabiliation 6.4 0.0 6.4 6.4

6. Credit 0.6 0.0 0.6 0.6

Total Base Costs 9.1 2.2 11.3 12.3

Physical Contingencies 1.2 0.2 1.4

Price Contingencies 1.3 0.2 1.5

TOTAL 10.4 2.4 12.8 12.3

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Table 8B: Project Financing

Appraisal Estimate (US$M) Actual (US$M)

Local Foreign Total TotalSource Costs Costs

IDA 1.9 0.6 2.5 2.7

CCCE (CFD) 2.7 0.7 3.4 3.4

FAC 0.4 0.3 0.7 0.7

FED 0.9 0.1 1.0 0.8

F.R. Germany 0.5 0.0 0.5 0.4

Switzerland 0.9 0.3 1.2 0.8

Government and 3.1 0.4 3.5 3.5

Beneficiaries

TOTAL 10.4 2.4 12.8 12.3

Table 9: Economic Costs and Benefits

Not applicable

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Table 10: Status of Legal Covenants

Agreement Section Covenant Present Original Revised Description of Commentstype status fulfillment fulfillment covenant

date date

Credit 2086 2.02(b) 3 C N.A. N.A Opening of Special Account

3.01(a) 5 C N.A. N.A. Commitment to Project andproper management

3.01(b) 3 C. N.A. N.A. On-passing of Credit proceeds

3.02 3 C N.A. N.A. Procurement guidelines

3.03(a) 5 C N.A. N.A. Establishment of Central ProjectUnit (CPU)

3.03(b) 5 CD 12/93 7/94 Establishment of Federal Unionof Savings and Loan Cooperatives

3.03 (c) 5 C 12/93 7/93 Conversion of CPU into technicalsupport unit of Federal Union

3.04 5 C N.A. N.A. Reorganize network in accordanceof conclusions of management andstaff audit

3.05(a) 5 C 12190 12/90 Submission of personnelperformance evaluation

3.05(b) 5 C 2/91 2/91 Implementation ofrecommendation of 3.05(a)

3.06(a) 3 C N.A. N.A. Opening and management ofRecapitalization Account

3.07 5 C N.A. N.A. Management autonomy ofnetwork

4.01 1 C N.A. N.A. Accounts, SOE and Auditrequirements

Schedule 4 5 C N.A. N.A. Lending policies

Covenant typa:

i. = Accounsaudits 8. = Indigenous people2. = Financial perfonnrancerevenue generation from 9. = Monitoring, review, and reporting

beneficiaries 10. = Project imnplementation not covered by categories 1-93. Plow and utilization of project fuxds 11. = Sectoral or cross-sectoral budgetary or odher resource4. = Countrpait funding allocation5. = Maagement a ofthe projet or executing agency 12. = Sectoral or cross-sectoral policy/ regulatoryritutional6. = Environment covenant action7. = Involuntary resettlement 13. = Other

8. Present Status:

C = covenant complied withCD = complied with afIer delayCP = complied with partiallyNC= not comnplied with

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Table 11: Compliance with Operational Manual Statements

No lack of complance was observed.

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Table 12: Bank Resources: Staff Inputs

State of Project Cycle Staff Weeks

Through Appraisal 9.7Appraisal-Board 14.4Supervision 32.5Completion 3.9TOTAL 60.6

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Table 13: Bank Resources: Missions

Perfomante Rating

Number Specialized hnplemen- Develop-Stage of MontW of Days in Staff Skills tation mant Types of

Project Cycle Year Penons Field Rem-aned Status Objectives Problatw

Through Appraisal 12/88- 2 3 weeks Economist, N.A NA. N.A04/89 Finacial

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~~~~~~~Analyst_ _ _ _ _ _ _

Appraisal though June 2 6 days Economist, N.A. N.A. N.A.Board Approval 1989 Financial

_ _ _ _ _ _ _ _ _ _ _ _ _ ~~~Analyst _ _ _

Board Approval N.A. N.A. N.A.through Effectiveness

Supervision 1 May 90 3 2 (1) E; AE; FA N.A. N.A. N.A.

Supervision 2 Nov 90 1 2 E N.A. N.A. N.A.

Supervision3 May91 1 8 FA 2 1 F

Supervision4 Nov91 1 6 FA 1 F,M

Supervision March93 2 6 FA 2 1 F,M

Supervision 6 June93 2 6 FA 2 1 F,M

Supervision 7 Feb 94 I 4 FA I 1 F

Completion Jan95 1 15 FA None

--------------------------------------------------- __--_____--------

(1): E=economist; AE=agro-economist; FA=financial analystImplementation status: 2=moderate problems; l-no significant problems.* Types of problems: F=funds availability; M=-project management

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APPENDIX A

StUMMARY OF THE IMPLEMENTATION COMPLETION REPORT PREPARED BYFECECAM'

. INTRODUCTION

This summary has been prepared by Bank staff based on the French document provided byFECECAM. It particularly deals with: (i) impact of the project; (ii) major factors affecting the project;(iii) project sustainability; (iv) Bank performance; (v) Borrower performance; (vi) Suppliersperformance; and (vii) key lessons learned.

2. IMPACT OF THE PROJECT

The CLCAM/CRCAM network has become a major institution to promote rural developmentand poverty alleviation because of its presence in rural areas, where it serves mainly the rural poor,including women, who have no access to the commercial banks mainly based in major urban centers.Moreover, it promotes group solidarity, participation, sense of ownership, and progressive realizationthat the improvement of the economic and social situation can only come from self-help.

Its success is demonstrated by the performance indicators: membership (from around 21,000in 1989 to more than 80,000 in 1994), equity (from CFAF 103.7 million in 1989, to 289.7 million in1994), deposits (from CFAF 2.4 billion in 1989 to 6.6 in 1994), loans ( from CFAF .2 billion in 1989 to3.2 billion in 1994) and number of borrowers (from 4,000 in 1989 to 25,000 in 1994).

3. MAJOR FACTORS AFFECTING THE PROJECT

The project benefited much from the stable political situation and from the government non-interference in the activities of the network. Until 1993 the network enjoyed a very favorable financialsituation which allowed for convenient returns on excess liquidity invested with commercial banks (10percent) and on loans (24 percent). This situation has radically changed since the CFAF devaluation atthe beginning of 1994 which caused a considerable fall on returns on invested excess liquidity (4-5percent) and on loans (18 percent). This fall has reduced the capability of the network to cover all itsadministrative and operation costs.

4. PROJECT SUSTAINABILITY

The sustainability seems to be guaranteed by the excellent results obtained in building a viableinstitution and by involving the members and their representatives in the decision-making process. Infact, the project has promoted people's participation and ownership and has trained a large number of

l Summary prepared by Bank staff based on the French document provided by FECECAM,"Rapport d'achevement du projet de rehabilitation de caisses regionales et locales de credit agricole(Cr. IDA 2086-BE)", April 1995. The document is available in the project files.

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CLCAMs' elected officials on the principles and working of the system. Considerable sensitizationefforts and adequate procedures have been set in place to promote close collaboration among thedifferent actors of the network and in particular between the elected officials and the staff. Adequatemanagement, accounting, inspection and auditing procedures guarantee transparency andaccountability, therefore reinforcing the confidence of the rural population in the network.

5. BANK PERFORMANCE

The Bank has played an important role in the improvement of the network. At the moment ofpreparation and appraisal of the project, the Bank in collaboration with the other donors, contributed tothe formulation of objectives, strategy and procedures with the aim of earning the confidence of therural population and ensuring the viability of the network. The Bank has contributed to the creation ofa culture of transparency and accountability which proved to be crucial to the success of the project.The positive impact of the Bank has been obtained despite the concem caused by the frequent turnoverof Bank personnel responsible of the project.

6. BORROWER PERFORMANCE

The network greatly benefited from the support of the govemment and its non-interference inthe management of the network.

7. SUPPLIERS PERFORMANCE

The network had to work with a large number of suppliers of goods and services(mostlyconsultancies). For the supply of goods the network worked with both local and intemational suppliers.The main findings are that local suppliers of imported goods and equipment are usually costlier and thatintemational bidding is the most adequate procedure to ensure better prices for the network. Longterm consultants attached to the project made a valuable contribution to the reorganization of thenetwork and the establishment of adequate management, accounting and auditing procedures. Theimpact of short term consultancies has been quite variable. Some consultants have performed inaccordance with their terms of reference and thus contributed to the development of the project.However, others have misinterpreted and overstepped their role and mandate, ignoring the role of thetechnical personnel of the project, and have considered the project as a domain for practicing theirpersonal philosophies. Finally, the schedule and cadence of consulting missions often did not fit withthe development and absorption capacity of the network resulting in a number of reports neither beingdiscussed nor utilized. This is particularly true for the " orientation audits".

8. KEYLESSONS LEARNED

The key lessons learned can be summarized as follows:

(a) people's participation dynamism is the best indicator of the success of the project;

(b) the access to credit is the main cause of growth of the membership;

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(c) at the beginning of a development of a cooperative organization such as the network,there might be a confusion of roles between elected officials and staff The formersometimes engage in micro-management, the latter often resists the guidance and controlimposed by the elected officials. Training and sensitization are required to clarifyresponsibilities; and

(d) the promotion of savings and loan cooperatives needs to be customized to take intoaccount the particular requirements of the banking sector.

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APPENDIX B

Comments of FECECAM on the Implementation Completion Report for Cr. 2086-BEN

Prepared by the World Bank2

On the whole, the Implementation Completion Report (ICR) prepared by a Consultantrecruited by the World Bank adequately describes the project's development during its five-yearlife-span.

The report demonstrates that the results achieved by the network correspond with theBank's expectations. In terms of the volume of activity undertaken and the results achieved bythe network at the end of the project is two years ahead of projections.

The report mentions that one of the network's achievements was the continuedimprovements of its administrative, accounting and iffnancial control procedures. On a number ofoccasions, the report stresses the importance of supporting the management and financial controlmechanisms, establishing performance criteria and conducting an independent audit of thefinancial statements. We agree with the report that medium-term subsidies should be provided tostrengthen the network through training and technical support, to a point where it is able to carryout its key financial management and accounting functions autonomously.

With regard to the financial viability of the network, the report confirms the Bank'sexpectations; in essence, financial viability and autnomy can be expected in 10 to 15 years (thematurity date is set for the year 2007).

The network will make it an objective to break even before this maturity date, as thedevelopment of rural savings and loans is already ahead of schedule.

The report highlighted the weaknesses of the Atacora region whose achievements, in allperformance categories, are always less impressive than those of other regions. Even if there areimprovements, and these should be apparent by the end of the 1994-1995 fiscal year, a moresystematic support structure ought to be established for the implementation and monitoring ofmanagement methods suited to local conditions.

Finally, with regard to the sustainability of the system, the report notes that the networkcould be under pressure to respond to other credit requests which are not part of its mandate, andthis could entail negative consequences.

2 This is a translation of the original French version available in the Project file.

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We would like to emphasize the importance of the FECECAM in West Africa and inBenin where the network is critical to rural development. However, because there is a greatdemand for the network's success, it should exercise caution in carrying out its activities as it runsthe risk of being overburdened in expanding services, managing several external lines of credit andadapting to the procedures of the various donors, etc.

I

IMAGING

Report No: 14790Type: I CP