Matching grants in rural finance
and agriculture project design – Evidence from project reviews
Anna Asfaw
(Consultant)
Presentation at the Investment Days, Rome, 16th December 2011
Outline
1. Review background and projects
2. Findings
rationale
beneficiaries
MG purpose and financing structure
link to financial sector development
3. Conclusion
Desk review of 7 IFAD and 7 World Bank projects
identified through discussions with IFAD and TCI staff
focus on MGs financing productive investments
attempt to identify and include projects which
(i) represent a typical use of MGs in a given project type
(ii) show interesting features
(iii) cover different geographical areas
(iv) at different stages in the project cycle
Review background
Challenges:
- availability of project documents
- little information in design / appraisal documents
- terminology: MG sometimes “hidden”
Projects reviewed World Bank
1) Armenia, RESCAD
2) Colombia, PPSP
3) Nigeria, CADP
4) Nigeria, FADAMA II Development Project
5) Sierra Leone, RPSDP
6) Solomon Islands, RDP
7) Vietnam, ACP
IFAD 1) Burkina Faso, PROFIL
2) Colombia, OPORTUNIDADES
3) Dominican Republic, PRORURAL
4) Ghana, REP II
5) Sri Lanka, DyZ-LISSP
6) Turkey, DBSDP
7) Uganda, DSLP
Main features reviewed
rationale
beneficiaries
MG purpose and financing structure
link to financial sector development
measures to ensure sustainability of investments
economic and financial analysis
sub-project selection and evaluation criteria
coordination and implementation arrangements
M&E system
lessons from the projects
Project review – main features
Project review – main features
Main features reviewed
rationale
To what extent do the project documents contain a specific rationale for using grants for financing productive investments (rather than loans)?
If a rationale is provided, what are the key arguments made? Are these convincing?
Have alternative financing instruments been considered?
Main features reviewed
rationale
beneficiaries
definition
individuals or groups
socio-economic status
Project review – main features
Main features reviewed
rationale
beneficiaries
MG purpose and financing structure
what is financed
share of beneficiary contribution (type)
sub-project size
grant amount
Project review – main features
Main features reviewed
rationale
beneficiaries
MG purpose and financing structure
link to financial sector development
Have possible impacts on the financial system (positive and negative, intended and unintended) been taken into consideration?
Is there any evidence on impact?
Does the design actively involve FIs?
Project review – main features
Main features reviewed
rationale
beneficiaries
MG purpose and financing structure
link to financial sector development
measures to ensure sustainability of investments
economic and financial analysis
subproject selection and evaluation criteria
coordination and implementation arrangements
M&E system
lessons from the projects
Project review – main features
Findings - rationale
some projects simply do not provide specific rationales
project documents indicate market failures, but those
do not specifically relate to the use of MGs
often mentioned “financial market failure” e.g. lack of
credit supply, high real interest rates, FIs not financing long term
investments, FIs limit their supply to short term capital for non
agricultural micro-enterprises
main justification (5): unavailability of long-term
financing in rural areas targeted by the project
Alternative financing instruments:
rarely analyzed, few projects mention credit lines,
micro-credit schemes or a rural finance component
Findings - beneficiaries
defined in general terms with more or less specific
eligibility criteria (few focus on eligible subprojects)
existing private business/enterprises (5), others focus
on FO
about half prioritize the poor, e.g.
both CDD
majority of VCD
some of rural enterprise / business development (defined by
size of enterprise or socio-economic status of owner/
members) – but not the ones with focus on tech. innovation
MG only for groups (7), only individual enterprises (2)
Findings – financing structure
Projects financing
asset acquisition (e.g. purchase of farm machinery,
improved livestock)
input support (e.g. seeds, fertilizer, animal feeds)
technical assistance and advisory services (e.g.
capacity building, market research)
negative list (7): excl. fields or cost categories
Subproject size (investment volume) and grant amount
determined by max. size, a range (min. and max. size),
different categories (for type of investment or
beneficiaries)
subproject sizes differ significantly
Findings – subproject size and grant volumes
Table 1: Subproject size and grant volumes (in 1.000 US$)
subproject size max. grant
ACP 100-500 200; 300 (g)
BDSDP 35; 250 17,5 (i), 125 (i,g)
PRORURAL not specified 100-150 (g)
RDP 10-250 2-50 (i)
RPSDP 5; 40; 100 4,3; 30; 50 (i,g)
RESCAD 60 8-20 (g)
CADP 42 8,5 (g)
LISPP not clear average 0,5 (i)
REP II 0,5; 1; 3 0,15; 0,3; 0,9 (i,g)
PPSP not specified 2,6; 7,6 (i)
PROFIL not specified 1,9; 9 (g)
FADAMA II not specified 5; 25 (g)
OPORTUNIDADES not specified 14; 17; 24 (i)
DSLP not specified 4,5 -50 (g) Note: (i) individual, (g) group Source: based on project review;
Example 1: ACP
-- for new partnership
-- for Up-scaling
- inv. & working capital
- negative list
- company lump sum
of 20.000 US$
Example 2: REP II
-- for equipment
-- stage of business
1) start-up stage
2) survival stage
3) high performing &
growth stage
Findings – beneficiary contribution
Type of contribution
cash, saving (preferred)
in-kind contribution through local inputs, building and
land rental, labor and staff time (3, but not CDD)
loan possible (5), (2 projects 60% loan must)
Share of contribution
projects do not explain how the grant share and the
share of the beneficiary contribution are determined
experience of earlier phases or other projects
Findings – beneficiary contribution
Source: based on project review
Figure 1: Share of beneficiary contribution (in %)
0
20
40
60
80
CADP
REP II
ACPPPS
P
OPORTU
NIDADES
RDP
DBSDP
FADAM
A II
PRORURAL
DzZ-L
ISPP
RESCAD
DSLP
PROFIL
Asset Input Technical Assistance
Findings – link to financial sector development
beneficiaries' contribution must be deposited in a
formal financial institution
involvement of financial service provider at different
levels: from being part of the selection committee of
subprojects up to management of MG funds
(6) projects have a direct link to FSD
out of those (2) provide MGs via FI: REP II and RDP
out of the ones without link (1) mentions representatives of
the banking sector taking part in final evaluation and
approval
IFAD provides for almost all projects a working paper
on the financial system, but an assessment of the
impact of the MG on the financial system not found
Findings – link to financial sector development
Impact on financial system
positive ‘crowding-in’ of private equity and commercial
finance (ACP; FADAMA: groups that acquire assets will
generate increased income flows, and if given parallel
training in savings and credit management, their association
can either start saving with microfinance institutions as a
step toward future loans or establish their own savings and
credit associations)
negative impact of ‘crowding-out’ financial institutions
(RPSDP, Sierra Leone - is not the case for the post conflict
situation of Sierra Leone) and grant resources might
undermine the credit culture in rural areas (RESCAD,
Armenia – grants limited in scope and geared to specific
innovative activities)
Other findings
Measures to ensure sustainability of investments
no specific measures
- improved access to formal financial services
- higher profitable investment opportunities
- new business partnerships
- demonstration of technological innovations
Economic and financial analysis
ex-ante for some representative investments, (2)
without analysis (demand-driven)
RESCAD: independent evaluation for each subproject
Other findings
Subproject selection and evaluation criteria
competitive structure (6)
evaluation criteria (e.g. positive externalities,
economic, socio-economic and environmental)
Coordination and implementation arrangements
first review at local level, final approval by semi-
autonomous committee (representatives of all
interested actors) at intermediate level (district,
regional), implementation under PCU
financial service provider in charge (final approval after
confirmation by project)
Other findings
M&E System
MGs well captured when project is mainly about MGs
no comprehensive evaluation of MG performance
(mostly econ. and financial analysis for investments)
Lessons from the projects
lessons learnt, however sometimes very specific to
project type and fields of investment
Conclusion
Information provided in design documents of MG
schemes varies largely, and it suggests that MG schemes
are not properly designed at that stage. That needs to
change.
Alternative financing instrument, rationale and
justification, but also the implementation arrangements
need more attention.
Plenty of lessons to be learned, but still: empirical
evidence is lacking, too few projects have conducted an
evaluation and some more research needs to be done on
the impact of MGs.
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