rural training project (loan 1066-ban[sf])

7/31/2019 Rural Training Project (Loan 1066-BAN[SF])

1/39

ASIAN DEVELOPMENT BANK PPA: BAN 22121

PROJECT PERFORMANCE AUDIT REPORT

ON THE

RURAL TRAINING PROJECT(Loan 1066-BAN[SF])

IN THE

PEOPLES REPUBLIC OF BANGLADESH

November 2001


2/39

CURRENCY EQUIVALENTS

Currency Unit Taka (Tk)

At Appraisal At Project Completion At Operations Evaluation(August 1990) (June 1998) (January 2001)

Tk1.00 = $0.0275 $0.0206 $0.0185$1.00 = Tk36.41 Tk48.50 Tk54.01

ABBREVIATIONS

ADB Asian Development BankDYD Department of Youth Development

GA

group animatorMFI microfinance instituteMYS Ministry of Youth and SportsNGO nongovernment organizationO&M operation and maintenanceOEM Operations Evaluation MissionPCR project completion reportPIU project implementation unitPPAR project performance audit reportRULSTECC rural livelihood self-employment, technology, education, and

communication center

SDR

special drawing rightsTA technical assistanceTRDEP Thana Resource Development and Employment ProjectZRTC zonal resource training center

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June.(ii) In this report, $ refers to US dollars.

Operations Evaluation Department, PE-580


3/39

CONTENTSPage

BASIC DATA iiEXECUTIVE SUMMARY iiiMAP v

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Purpose and Outputs 1D. Cost, Financing, and Executing Arrangements 2E. Completion and Self-Evaluation 2F. Operations Evaluation 2

II. PLANNING AND IMPLEMENTATION PERFORMANCE 3

A. Formulation and Design 3

B. Achievement of Outputs 3C. Cost and Scheduling 3D. Procurement and Construction 4E. Organization and Management 4

III. ACHIEVEMENT OF PROJECT PURPOSE 6

A. Operational Performance 6B. Sustainability 10

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 11

A. Socioeconomic Impact 11B. Environmental Impact 12C. Impact on Institutions and Policy 12

V. OVERALL ASSESSMENT 13

A. Relevance 13B. Efficacy 13C. Efficiency 13D. Sustainability 13E. Institutional Development and Other Impacts 14F. Overall Project Rating 14

G. Assessment of ADB and Borrower Performance 14

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 14

A. Key Issues for the Future 14B. Lessons Identified 16C. Follow-Up Actions 17

APPENDIXES 18


4/39

BASIC DATARural Training Project (Loan 1066-BAN[SF])

INSTITUTION BUILDINGTA No. TA Name Type Person-Months Amount

($)

Approval

Date1439 Staff Development and

Training MaterialsADTA 28 776,000 13 Dec 1990

1440 Research and Development ADTA 36 879,000 13 Dec 1990

KEY PROJECT DATA ($ million)As per ADB

Loan Documents ActualTotal Project Cost 19.35 16.94

Foreign Exchange Cost 0.87 0.72Local Currency Cost 18.48 16.22

ADB Loan Amount/Utilization 16.25 10.43

KEY DATES Expected ActualAppraisal 23 Jul9 Aug 1990Loan Negotiations 56 Nov 1990Board Approval 13 Dec 1990Loan Agreement 25 Jul 1991Loan Effectiveness 23 Oct 1991 28 Oct 1991First Disbursement 20 Jan 1992Project Completion 31 Dec 1995 31 Dec 1997Loan Closing 30 Jun 1996 22 Jun 1998Months (effectiveness to completion) 50 74

BORROWER Government of the Peoples Republic of Bangladesh

EXECUTING AGENCY Ministry of Youth and Sports

MISSION DATAType of Mission No. of Missions No. of Person-DaysFact-Finding 1 65Appraisal 1 128Project Administration

Inception 1 12Review 7 93

Project Completion 1 18Operations Evaluation1 1 44

ADB = Asian Development Bank, ADTA = advisory technical assistance, TA = technical assistance.1

The Operations Evaluation Mission comprised Ellen Qiaolun Ye (Mission Leader and Evaluation Specialist),Richard Meyer (International Consultant/Microfinance Specialist), and Mohammed Eusuf Ali (LocalConsultant/Rural Survey Specialist).


5/39


6/39

iv

Second, the expensive training facilities provided by the Project have been largelyunused, due to overestimation of investment needs and underestimation of the difficulties thatthe Government would have in financing the operation and maintenance (O&M) of thesefacilities. Although the Government's assurance of providing sufficient funding for O&M wasobtained through loan covenants, poor O&M of project facilities has still occurred due tobudgetary constraints. In fact, it may not be realistic to assume that the Government will have

the ability to continuously increase its budgetary allocation to take care of the O&M of allagency-funded projects after their completion when the number of such projects is rising everyyear. When a developing member country government is continuously experiencing budgetaryconstraints, it may be necessary for each investment project to incorporate in its design long-term O&M of project facilities. Intensive consultations should be conducted at the design stagewith stakeholders to ensure a reliable funding source for O&M after project completion.Otherwise, reduction in the investment scale should be considered to ensure that it will notexceed the governments capacity for the O&M of completed project facilities.

Third, the future of the credit operations started under the Project is questionable.Although the credit component operated very well in the past, it may not be appropriate for agovernment agency to engage in direct credit delivery and compete with the private sector.

Since there are still underserved areas in remote villages and an underserved populationamong the very poor, the alternative of serving these should be considered. For this purpose,major changes in credit operations would be required, including the conversion of the projectimplementation unit into an autonomous agency with the authority to use interest earnings tocover its operating costs.

The Project has provided several valuable lessons: (i) a government agency, due toinherent constraints such as lack of authority to use interest earnings for operations, may not bethe best mechanism for microfinance services; (ii) since the poor need permanent access to suchservices, microcredit should be provided by long-term institutions rather than short-term programs;(iii) standard loan products simplify credit operations but do not well match the needs of the verypoor, whose irregular and uncertain income requires flexible repayment schedules that are

appropriate to their cash flow (without such flexibility, group liability in loan repayment and a focuson loan recovery tend to exclude the very poor); (iv) innovative solutions are needed to designflexible savings and loans products that tailor financial services to the needs of the very poor; ADBshould support the search for, and development of, such solutions; (v) microcredit alone isinsufficient to reduce poverty among the very poor; flexible savings services and supplementaryassistance are needed, including basic training on literacy and numerate skills, as well asextension services; (vi) the design of training programs for the poor needs to consider theirabsorptive capacity (for the uneducated and inexperienced poor, learning by following goodexamples in their neighborhood may be more effective than classroom lectures); (vii) thetraining allowance should be abolished to reduce training costs and remove distorted incentives;(viii) when a government is affected by persistent budgetary constraints, its assurance onproviding O&M funds is insufficient; more effective measures should be included in project

design to ensure a reliable funding source for O&M; this should become a standard requirementfor project approval.


7/39


8/39

I. BACKGROUND

A. Rationale

1. The Project1 was designed to help address the widespread rural poverty in Bangladesh,which was and continues to be a major concern of the Government. At the time of appraisal, the

primary causes of poverty were identified by the Asian Development Bank (ADB) as low growthof agriculture, rapid growth of population, and a high level of unemployment. The Government'sFourth Five-Year Plan for the period 1991-1995, therefore, aimed to accelerate economicgrowth and generate employment, thus reducing poverty. Inspired by the success of theGrameen (village) Bank, which emerged as an innovation in poverty reduction throughmicrofinance services for the poor, the Ministry of Youth and Sports (MYS) initiated a Thana(subdistrict) Resource Development and Employment Project (TRDEP). With a particular focuson the unemployed youth in rural areas, TRDEP was pilot tested in two subdistricts in 1987, andexpanded to another five subdistricts in 1989.2 The Project was the third phase of TRDEP, withthe same design and an expanded coverage of 32 subdistricts (Map, page v),3 including the 7subdistricts served under the first two TRDEP phases. At the time of appraisal, ADBsoperational strategy in Bangladesh consisted of supporting economic recovery and accelerating

economic growth, with the highest priority given to agriculture, which was seen as having thegreatest potential for economic growth and poverty reduction. While promoting faster economicgrowth as a basic approach to poverty reduction, ADB also recognized the need for directinterventions to help the unemployed poor. The Project was ADBs first intervention inBangladesh that focused on poverty reduction through microcredit and beneficiary training(report and recommendation of the President, para. 13).4

B. Formulation

2. In 1989, ADB approved a project preparatory technical assistance (TA).5 Following itscompletion, ADB fielded a fact-finding mission in May 1990 and an appraisal mission in July-August 1990. At the end of the appraisal, a Round Table Conference on Poverty Reduction was

held with senior officials from relevant government agencies and representatives from banks,academic institutes, nongovernment organizations (NGOs), and funding agencies. TheConference examined the project design and concluded that it was complex but innovative andpromising; the approach was appropriate as demonstrated by TRDEP in seven subdistricts.ADBs Board approved the Project on 13 December 1990.

C. Purpose and Outputs

3. The Projects primary objectives were to (i) provide effective livelihood skills training andmicrocredit to the landless rural poor, (ii) improve the socioeconomic status of the beneficiariesthrough self-employment and participation in community development, and (iii) strengthen MYScapacity in providing training and supervising microcredit programs. The Project had three

components: (i) beneficiary training, (ii) provision of microcredit, and (iii) institution building for MYSby providing training facilities, equipment, vehicles, and additional staff. Two TAs were attached to

1Loan 1066-BAN(SF): Rural Training Project, for $16.25 million, approved on 13 December 1990.

2Since TRDEP adopted a family-based group approach, its actual beneficiaries included also other age groups;youth (15-35 years old) accounted for about half of all beneficiaries.

3Out of the 492 subdistricts in the country at that time.

4The Project's name (Rural Training) was somewhat misleading as it did not fully reflect its focus on povertyreduction or its feature of microcredit provision.

5TA 1159-BAN: Rural Training Project, for $230,000, approved on 29 May 1989.


9/39

2

the Project: TA 1439-BAN: Staff Development and Training Materials6 and TA 1440-BAN:Research and Development.7

D. Cost, Financing, and Executing Arrangements

4. At appraisal, the Projects cost was estimated at $19.35 million (Appendix 1), to be

financed by an ADB loan of SDR11.357 million ($16.25 million equivalent) from ADB's SpecialFunds resources, and the remainder by the Government. The cost of TA 1439 was estimated at$811,000, with $776,000 financed by an ADB grant and the remainder by the Government. Thecost of TA 1440 was estimated at $914,000, with $879,000 financed by an ADB grant and theremainder by the Government. The Executing Agency was MYS, with its Department of YouthDevelopment (DYD) as the implementing agency.

E. Completion and Self-Evaluation

5. The Project was completed in December 1997, and a project completion report (PCR)prepared by ADB's Bangladesh Resident Mission was circulated to the Board in November1999. The PCR rated the Project generally successful based on its assessment that most of the

targets were largely met; the number of beneficiaries receiving microcredit substantially exceededthe appraisal target, with a recovery rate of subloans close to 100 percent.

6. Problems mentioned in the PCR included (i) significant delays in project implementation atall stages; (ii) nonfulfillment of enterprise training and nondisbursement of enterprise loans;(iii) noncompliance with some loan covenants; and (iv) inadequate operation and maintenance(O&M) for training facilities. Concern was expressed in the PCR about the underutilization of theexpensive training equipment and the lack of funds for its O&M. The PCR rated TA 1439successful because of the fulfillment of most targets while TA 1440 was rated partly successful.Although the latter produced a set of high quality reports, the Government did not adopt itsrecommendations. The Operations Evaluation Mission (OEM) found that the PCR focused heavilyon the achievements of the Projects physical targets without sufficient discussion of the

weaknesses of project design, such as the quality and relevance of the livelihood and skillstraining, and the inherent problems of using a government agency in credit delivery.

F. Operations Evaluation

7. This project performance audit report (PPAR) assesses the design and implementationof the Project as well as its outputs and impacts, and draws on lessons learned that cancontribute to future improvement. The PPAR presents the findings of the OEM that visitedBangladesh and conducted fieldwork in project areas in January-February 2001. 8 In addition,the OEM conducted a household survey in the project areas in March-April 2001, includingfocus group discussions and interviews with project beneficiaries (para. 38). The OEMs initialfindings were presented in a wrap-up meeting chaired by the Secretary of MYS and attended by

relevant government agencies; comments received were incorporated in the PPAR. The PPARdraws its conclusions and recommendations from three sources: (i) a desk review of projectfiles, (ii) the discussions with relevant governmental officials, NGOs, funding agencies, andproject staff; and (iii) the focus group discussions and household interviews with project

6For $776,000, approved on 13 December 1990.

7For $879,000, approved on 13 December 1990.

8The OEM visited 14 villages in 8 of the 32 project subdistricts, and held discussions with project staff at the fieldlevel as well as beneficiaries and nonbeneficiaries in the project areas. The OEM also inspected facilities in alltraining centers, and held meetings with MYS as well as other relevant government agencies, NGOs, and fundingagencies.


10/39

3

beneficiaries. Copies of the draft PPAR were submitted for review to MYS and concerned ADBdepartments or divisions. Comments received from the reviewers were considered in finalizingthe PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

8. The Projects design was based on a substantial amount of sector work, including theproject preparatory TA and a set of evaluation studies on TRDEP. The former identified ruralunemployment as a key cause of poverty and proposed using microcredit for employmentgeneration. The evaluation studies, conducted by the World Bank, the Bangladesh PlanningCommission, and the Bangladesh Institute of Development Studies, noted positive results of thepilot testing of TRDEP in achieving project targets, especially loan disbursement and recovery,group formation, and improvements in beneficiaries' income and living standards. The studiesconcluded that the pilot testing demonstrated the feasibility and benefits of TRDEP, whichshould be replicated on a phased basis.

9. While the Project's focus on poverty reduction was appropriate, its design had someweaknesses. First, the beneficiary training consisted of classroom lectures without givingsufficient attention to the educational background and experience of the trainees. In conjunctionwith problems in the selection of trainees, the impact of the one-off lectures was limited,especially for the uneducated and inexperienced poor. Second, the institution building focusedon the construction of training centers and contributed to their oversupply (para. 32). As thedesign of this component did not ensure a reliable funding source for O&M, the training centerswere largely unused due to a shortage of operating funds. Third, the design of the creditcomponent bypassed many of the very poor (para. 26); the use of a government agency insteadof a microfinance institute (MFI) had certain inherent weaknesses (para. 30). Fourth, theProject's lending modalities, such as a subsidized interest rate and a maximum of three loansper beneficiary, were inconsistent with the needs of the poor, who require permanent access to

finance services rather than a subsidy.9 Lastly, the project cost was overestimated, resulting in alarge amount of loan cancellation (para. 11). The OEM noted that the Project was designed atthe early stage of microfinance development in Bangladesh with insufficient experience for boththe Government and ADB. As a learning process, some mistakes were unavoidable.

B. Achievement of Outputs

10. Appendix 2 provides a summary of the Projects major outputs achieved versusappraisal targets. Except for enterprise training, the targets for beneficiary training were met orexceeded. The number of beneficiaries who received microcredit was 164 percent above thetarget of 70,000. At 99 percent, loan recovery exceeded the target of 90 percent. Enterpriselending, accounting for 4 percent of the ADB loan, was implemented after project completion.

The training centers were largely completed, though with delays.

C. Cost and Scheduling

11. At appraisal, the project cost was estimated at $19.35 million and the loan amount wasSDR11.357 ($16.25 million equivalent). At $16.94 million, the actual project cost was 12 percentlower, and only $10.43 million of the ADB loan was disbursed. The balance of $5.82 million wascanceled at loan closing. The primary causes of the cost underrun included an overestimation of

9ADB, Finance for the Poor: Microfinance Development Strategy, May 2000.


11/39

4

beneficiary demand for training, overprojection of the revolving funds required for creditoperations, and depreciation of the local currency.10 By contrast, there were cost overruns incivil works, land acquisition, and procurement of vehicles and furniture, largely due to priceescalation and increases in the costs of imported materials in civil works.

12. The Project was to be implemented in five years from 1991 to 1995, with loan closing

scheduled on 30 June 1996. Significant delays occurred in the early stages in recruitment ofcore staff of the project implementation unit (PIU), as well as large number of field staff. Therewere also delays in the conduct of beneficiary training, procurement of vehicles and equipment,and construction of training centers. The Project was completed in December 1997, two yearsbehind schedule, and the loan closed on 22 June 1998.

13. There were several causes for the delays. The performance of the PIU was weak. Thisbeing the first ADB-financed project of MYS, PIU staff were unfamiliar with ADB procedures andrequirements. A more fundamental cause, however, was the PIU's lack of authority in decisionmaking and frequent turnover of project directors.11 A court injunction over an issue relating toland payment disrupted the construction of the Rural Livelihood Self-employment, Technology,Education and Communication Center (RULSTECC) in Dhaka. The completion of four zonal

resource training centers (ZRTCs) was also seriously delayed. This prevented timely conduct ofbeneficiary training. Except for the orientation training that was conducted during beneficiarygroup formation, most beneficiary training was implemented three to four years after the creditoperations, making little contribution to the actual credit operations or the Projects objectives.Lastly, the Government's complex procedure for funds release was another major factor.

D. Procurement and Construction

14. All goods and services under the Project were procured in accordance with ADBsGuidelines on Procurement. Due to their small quantities, procurement of training materials wassubcontracted to prequalified local contractors. The mobile training van was procured throughlocal competitive bidding. Tenders were invited several times but the bid prices were

substantially higher than the available budget thereby requiring a reallocation of loan proceedsfrom the training category. As a result of the delays, the mobile van was not delivered until June1997, about six months before project completion, making little contribution to implementation.No procurement problems were found in the implementation of the two associated TAs.

15. The Local Government Engineering Department was responsible for the construction ofthe training centers, including architectural design and construction supervision. Long delayswere encountered due to unavailability of suitable sites and the lengthy process of landacquisition, as well as the court injunction that disrupted the completion of RULSTECC (para.13). The OEM's field inspection confirmed the assessment of ADB's loan review missions thatthe quality of construction was generally satisfactory except for the ZRTC at Sylhet, whichsuffered from water damage and cracks in walls, largely due to poor construction supervision.

E. Organization and Management

16. MYS was the Executing Agency with its Secretary responsible for overall projectplanning, organization, implementation, and supervision. DYD under MYS was theimplementing agency with its Director General responsible for day-to-day projectimplementation. The PIU was established within DYD. It was headed by a Project Director and

10The local currency depreciated from Tk36.4/$ at appraisal to Tk48.5/$ at project completion.

11There were 11 changes in project director during the seven years of project implementation.


12/39

5

comprised 30 staff members, with the responsibility of coordination, supervision, and control offield operations. An area office was established in each of the 32 project subdistricts, headed byan area manager. Two branches were established in each subdistrict, headed by a branchmanager and comprising about five group animators (GAs) responsible for organizingbeneficiary groups, conducting orientation training, disbursing subloans, and collectingpayments. The beneficiaries were organized into five-member groups. About five to eight

groups were then clustered into a center (kendra) headed by a center chief. At the central level,a national steering committee was to be established to set policy guidelines and directions,together with a project advisory committee to oversee technical and managerial aspects. At thesubdistrict level, a thana advisory committee and a committee of center chiefs were to beestablished in each subdistrict to strengthen beneficiary participation and facilitate feedback. Allcommittees, with the exception of the committee of center chiefs, were established. However,they did not operate as actively as anticipated at appraisal, partly because there was not muchneed for them.

17. In spite of weak supervision by the PIU, the project staff at the field level performed verywell, including the GAs, branch managers, and area managers. All of them had universityeducation at the bachelors or masters level; some had previous work experience with other

MFIs. The field staff were hired on a temporary basis and their continued employment waslinked to their fulfillment of the targets of (i) a quota of 500 beneficiaries per GA; and (ii) a loanrecovery rate of 98 percent. They were also motivated by the expectation that, if the Projectperformed well, they would be transferred under the Government's budget after projectcompletion as permanent civil servants. The strong incentives contributed to their highperformance: most of them reported a cumulative loan recovery rate of 98-100 percent, and thecredit component substantially exceeded its appraisal target in terms of subloan borrowers.

18. Overall, the Government demonstrated strong ownership of the Project. The OEMagrees with the PCR's assessment that the Borrower complied with most loan covenants withthree important exceptions. First, the covenant requiring sufficient budget for O&M of projectfacilities was not complied with. Second, the covenant of transferring the project staff under the

Government's budget has been under process since July 1999 but is not yet completed, duelargely to the Government's desire to downsize the public sector, and a disagreement betweenMYS and the Ministry of Establishment over the number of staff to be transferred. Third, thecovenant of converting the Project into an autonomous training and credit agency was notimplemented, largely due to (i) MYS concern about administrative difficulty in managing anautonomous agency, (ii) project staff preference to be transferred under the Government'sbudget, and (iii) a delay in decision making by the Government. The OEM also found that theGovernment did not implement the recommendations of TA 1440, leading to weak sustainabilityof the credit component.

19. The Project was designed based on the Government's initiatives. However, the use of agovernment agency to deliver credit had certain built-in weaknesses (para. 30). ADB closely

monitored project implementation, but the supervision focused on physical targets without thenecessary flexibility to modify the project design when it became clear that the livelihood skillstraining and the construction of the training centers would contribute little to credit operations orto the Project's objectives.

20. Given its nature, there were no loan-financed consultants under the Project. Theconsultants under TA 1439 completed training for project staff and produced a set of operationalmanuals and training materials as planned. The consultants under TA 1440 produced a set ofreports, including in particular a study on alternative credit delivery systems, which provided avery good analysis of the strengths and weaknesses of credit operations under the Project, and


13/39

6

proposed a set of policy recommendations. Overall, the OEM concurs with the PCR'sassessment that the performance of the TA consultants was satisfactory.

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

1. Beneficiary Training

21. This component was designed to train beneficiaries in livelihood activities. The targetsset up at appraisal included (i) orientation and livelihood skills training for 70,000 beneficiaries,(ii) special skills training for 1,500 selected young people, and (iii) enterprise training for 14,000beneficiaries with high performance and entrepreneurial potential. By project completion, a totalof 185,010 beneficiaries had received the orientation training. The livelihood skills trainingreached the target of 70,000 beneficiaries, but it was implemented with significant delays,mainly due to the late completion of the training centers. As a result, most of the livelihood skillstrainingwas conducted in the last two years of project implementation, making little contributionto credit operations. The enterprise training was not conducted because the enterprise loans

were not disbursed during the project period (para. 24). At project completion, an amount of$2.4 million in loan proceeds allocated for training was canceled, largely due to overestimationof training needs at appraisal.

22. The OEMs household survey found a significant impact of the orientation training, whichwas rated by most beneficiaries as useful or very useful. Conducted by the GAs during theperiod of group formation, the orientation training was given in seven sections in seven days,each section lasting for one to two hours, in which new members learned how to effectively useloans and make repayments. The orientation training also covered certain social andenvironmental topics as well as basic literacy and numeracy skills development. In conjunctionwith the diligent efforts of the GAs in collecting repayments, the orientation training contributedto the high level of loan recovery under the Project.

23. Most of the livelihood skills training under the Project was based on classroom lectures.The OEMs discussions with beneficiaries revealed mixed impacts of such training: good forthose with an educational background or relevant experience, and less effective for thosewithout such a background. The selection of trainees by GAs or center chiefs furthercompounded this problem, as some beneficiaries were not interested in the training but had toparticipate as they were selected to attend the training on behalf of their groups. Some traineesinterviewed by the OEM remembered only the amount of the training allowance received but notthe subjects of the training courses.12 The lack of follow-up assistance after the one-offclassroom lectures further limited impact. The OEMs discussions with field staff andbeneficiaries found that, for the uneducated poor, model demonstration of recommendedlivelihood activities and technologies, study tours to visit model households and small

businesses, group discussions on problems commonly encountered, and technical advice on afrequent and long-term basis might have been more cost effective than classroom lectures.Focus group discussions with beneficiaries also found that the provision of training allowancesprovided distorted incentives in the selection of trainees.

12The training allowance was Tk70 per day for three days.


14/39

7

2. Microcredit Operations

24. This component was designed to provide microcredit to beneficiaries for investment inlivelihood facilities. Each beneficiary was entitled to three loans of Tk3,000, Tk4,000, andTk5,000. At project completion, a total of 185,010 beneficiaries received the first loan, 122,350received the second loan, and 69,218 received the third loan (Appendix 3). The envisaged

enterprise loans were not disbursed during the project period, as MYS did not believe that thebeneficiaries had the ability to manage the large (Tk20,000) loans. After project completion,however, MYS continued the credit operations and provided 2,436 enterprise loans to selectedbeneficiaries.

25. The most impressive performance of the credit operations was a near-perfect(99 percent) cumulative recovery rate of subloans, exceeding the appraisal target of90 percent.13 Many factors contributed to this good performance. First, the design of the creditoperations followed the Grameen Bank model with strict requirements on weekly repayments,with the initial set of project staff trained by the Grameen Bank and some staff hired from majorMFIs. Second, the Project employed temporary staff, whose continued employment dependedon their performance in collecting loan repayments as well as the overall performance of the

Project. The high quality of the field staff and their strong incentive and commitment contributedto the good performance of the credit operations in spite of weak supervision by the PIU. Third,the project staff were also motivated by pressure from NGO competition, as the major MFIs inBangladesh all reported high recovery rates. Fourth, the Project selected borrowers who hadexisting microenterprises and regular income; their good repayment capacity contributed to thehigh recovery rates.

26. A weakness of the credit component was its targeting. The Project intended to target the"poorest of the poor" (report and recommendation of the President, para. 50) and requiredsocial surveys to select the beneficiaries. In implementation, however, no social survey wasconducted, and most beneficiary groups were established in villages with relatively favorableconditions, such as proximity to the subdistrict towns or better access to transport and markets,

and therefore better investment opportunities. The OEMs household survey found that most ofthe project beneficiaries were low-income families or the upper poor who had existingmicroenterprises and stable incomes; the very poor were largely bypassed by the Project.14

27. There were many reasons why the very poor were bypassed by the Project. The firstcause was "product exclusion". The loan products under the Project were highly standardized,with the same loan amount, disbursement and repayment schedules, and interest rates. Whilestandardization simplified the credit operations, the lack of flexibility in repayment schedulesexcluded the very poor who did not have a regular job or a stable income. Borrowers wererequired to repay the loans weekly after a two-week grace period. In reality, many investmentscould not generate a regular and stable income within such a short gestation period unless theyrelated to existing microenterprises.

13The OEMs household survey found that about 24 percent of the surveyed borrowers were late in payment on atleast one of their loan installments (each loan had 50 installments). When this occurred, extra time was given to thedefaulters without extra charges, but no one in a same borrower group had access to new loans until the defaultersrepaid their loans. Eventually, the defaulters repaid their loans through various mechanisms, including borrowingfrom other group members, relatives, friends, NGOs, and money lenders.

14In the project areas, the low-income families and the upper poor were those with regular jobs or existingmicroenterprises and therefore stable incomes, albeit a per capita income of one dollar equivalent per day or less.The very poor were casual laborers without a regular job or stable incomes. They were not necessarily the "poorestof the poor" who were living on welfare.


15/39

8

28. The second cause was "staff exclusion". As continued employment of the GAs waslinked to their performance in collecting loan repayments, they had an incentive to exclude thevery poor, whose lack of a regular income might affect their repayment performance. The thirdcause was "group exclusion". The beneficiaries were organized into five-member groups, whichwere obligated to ensure loan repayment of all group members: no one could receive the nextloan until all members in the same group had repaid their previous loans. While the group

liability contributed to the high performance of loan recovery, it also generated incentives for thegroups to exclude the very poor who did not have a weekly income. The fourth cause was "self-exclusion". Some of the very poor were too risk averse to borrow for fear of not having the skillsand complementary resources necessary for effective use of loans. They also feared losing theirfew assets if they failed to repay. Moreover, the Project did not offer savings services except formandatory savings. While such a savings scheme disciplined borrowers in building up savings,it was not the most useful saving product as, under the scheme, borrowers had no access totheir savings even in an emergency if they had not repaid all their loans. Experience of otherMFIs shows that the poor need flexible savings services more than loans, for they need liquidsavings during emergencies.

29. The use of a government agency to directly deliver credit services was questioned in

ADB during project processing. It was argued that credit decisions should be made by banksrather than government officials who were not trained in credit risk analysis. Duringimplementation, MYS was responsible not only for selecting and training beneficiaries, but alsofor approving loans and collecting repayments. The participating banks served merely aschannels of funds. In spite of the lack of training on banking services, the project staff preformedwell in credit delivery with high rates of loan recovery, mainly due to the highly standardizedloan product that simplified credit decisions, and the appropriate incentive systems for field staff.

30. In spite of the high recovery rates, the use of a government agency in credit delivery hadcertain inherent weaknesses. First, as a government agency, MYS had no authority to use theinterest earnings from credit operations to cover its operating costs. This resulted in a largeaccumulation of funds lying idle in the bank accounts of MYS on the one hand, and the inability

of MYS to recruit new staff and procure needed equipment on the other.15 The complete relianceof MYS on government budgetary allocations was a major cause of the sharp deterioration inproject performance after completion when hit by a severe budgetary cut (para. 35). Second,since the credit funds were provided without charges to MYS, and the budget from theGovernment covered all operating costs, MYS was able to offer an effective interest rate thatwas significantly below the rates offered by other MFIs in Bangladesh. 16 Such subsidizedinterest rate does not cover the full cost of credit operations, and has a potential impact ofundermining the operation of other MFIs that serve the same clients in the same area.17 Lastly,as a government agency, MYS did not have the authority and flexibility to design savings andloans products based on market demand; this has become a major constraint to creditoperations as competition from MFIs has intensified.

3. Institution Building

31. This component was designed to strengthen MYS capacity for providing training andsupervising microcredit programs. Its expected outputs included (i) construction of trainingcenters, including RULSTECC and four ZRTCs; (ii) provision of training equipment, facilities,

15The PIU reported Tk411 million ($7.6 million) of accumulated funds in its bank accounts as of 31 December 2000.

16The quoted or stated annual interest rate for loans under the Project was 16 percent on outstanding balance (i.e.,on a declining basis) whereas the quoted interest rates charged by major MFIs in Bangladesh were 20-25 percent.

17However, there were no major complaints against this Project during the OEMs discussions with major MFIs,probably due to its relatively small size as compared with the large operations of the major MFIs in the country.


16/39

9

and vehicles; and (iii) support for PIU and field staff operations. The construction of the trainingcenters was seriously delayed. Three of the four ZRTCs were completed in the last two years ofimplementation, and the fourth after project completion. RULSTECC completed only one of itsthree buildings because the court injunction prevented construction of the other two buildings(para. 13). The procurement of training equipment and vehicles was also delayed, with themobile training van delivered only about six months before project completion. Major causes of

the delays included the late recruitment of project staff at the initial stage, protractedgovernment procedures governing funds release and procurement, the PIU's lack of motivationand delegated authority, the frequent change of project directors, and the PIUs poorsupervision of fieldwork.

32. Overall, this component contributed little to the Project's objectives due to the latecompletion of the training centers and their limited use after project completion. The OEMvisited all training centers and found that only one ZRTC was used by an ongoing governmentproject, another ZRTC used only two of its rooms, and the other two ZRTCs were not used.RULSTECC had just completed one of its three buildings, which had not yet started operatingby the time of the OEM's visit. The OEM observed that the equipment and furniture forRULSTECC was kept in storage, and learned that the mobile training van had been used for

only 32 days since its delivery due to a lack of funds to purchase fuel. The major constraintsincluded (i) a shortage of budget to run the training programs, which were rather expensive(Tk1,000 or about $20 per beneficiary); (ii) a high cost of transport as the centers were locatedfar from most project areas; and (iii) oversupply of training centers in the country.18 Thesefactors reflected insufficient understanding of the training needs in project design (para. 56). Inretrospect, a least-cost approach should have been adopted, such as model demonstrationcombined with extension services (para. 23).

4. Associated Technical Assistance

a. TA 1439-BAN: Staff Development and Training Materials

33. This TA aimed at (i) updating the capacity of MYS in providing training and projectmanagement, and (ii) developing training materials. Implemented from March 1993 to March1995, this TA provided (i) training for project staff including orientation training for all field staffas well as training for trainers from RULSTECC; (ii) overseas fellowship and study tours;(iii) development of various manuals, including a credit manual and branch operational manuals;and (iv) other training materials. In addition to the originally envisaged outputs, a social surveywas conducted in the project areas, which provided useful information about the projectbeneficiaries. The OEM's discussions with project staff found that this TA was very useful; thetraining of field staff and the development of operational manuals directly contributed to thesmooth implementation of the Project, especially the credit component. Participants in theoverseas training programs appreciated the opportunity to expose themselves to microfinanceexperience in other countries, such as the Philippines. The OEM found that the Government

used most of the outputs produced under the TA. Its positive impact on project staff and creditoperations will likely be sustained. Overall, this TA is rated successful.

b. TA 1440-BAN: Research and Development

34. This TA was designed to (i) strengthen the capacity of MYS in conducting research andevaluation, (ii) assist in research and evaluation of TRDEP, and (iii) establish a managementinformation system. While the objectives of the TA were relevant to the Project, especially the

18The OEM was told that the Government had over 300 training centers nationwide.


17/39

10

credit operations, its scope was overly ambitious vis--vis the available time and resources. Asa result, many of the research activities envisaged at appraisal were not implemented (Appendix2). Nevertheless, the TA produced a set of useful outputs. In particular, one of its reports,Alternative Credit Delivery Systems, provided a very good analysis of the experience of TRDEPand proposed a set of policy recommendations. However, none of the recommendations wasimplemented, as MYS did not have the necessary authority, and decision making in the

Government was very slow, reflecting insufficient government ownership of the TA. Themanagement information system was established, including a standard format for datareporting. However, the data analysis in the PIU was poor due to weak management andinsufficient budget to hire the required technicians. The OEM's field inspection found that thePIU did not have timely information to effectively monitor the credit operations, such as theinformation of on-time (instead of cumulative) recovery of the subloans.19 The OEM also foundthat the TAs research reports had few readers in the Government in spite of their good quality.Overall, the TA is rated partly successful.

B. Sustainability

35. The project performance has been deteriorating since completion, raising serious doubts

about sustainability. When the loan was closed in June 1998, the Government provided funds toextend the Project for one year. Since July 1999, the Project has been under the process ofbeing transferred to the Governments budget and is being financed by a temporary fund (blockallocation) from the Government, which covers staff salaries but nothing else. Meanwhile, about20 percent of the project staff have been transferred to a new credit program funded by theGovernment, which aims to replicate the Project in another 50 subdistricts. With fewer projectstaff, an absence of budget allocations for travel and training, and no funds to replace thebroken bicycles, the field staff reduced the frequency of their visits to borrowers, especiallythose not located in nearby villages. Consequently, the performance has sharply deteriorated interms of quantity (fewer new borrowers and new loans), quality (declining repayment rates), andefficiency (fewer beneficiaries per field staff).20

36. The OEM's fields visits and the household survey found that no livelihood skills traininghad been conducted since July 1999 due to the absence of a training budget, althoughorientation training for new borrowers continued as it was conducted by the GAs withoutadditional cost. Most training centers had been idle since July 1999 as their budget covered onlystaff salaries and nothing else. The mobile training van was idle with flat tires. MYS explained tothe OEM that these problems were temporary and should be resolved once the transfer ofproject staff was complete. Even if that happens, the deteriorated credit operations during thistransition period may not be easily recovered.

37. The fundamental causes of the above problems originated from the project design,which did not provide sufficient arrangements to ensure the long-term operations of the projectcomponents. The approach of using a government agency to deliver credit services, the

maximum of three loans per beneficiary, and the provision of subsidized interest rates wereinconsistent with the beneficiaries' need for permanent access to financial services. The OEMshousehold survey found that most beneficiaries considered the three loans to be insufficient tomake them financially independent. Experience from MFIs in Bangladesh also shows that

19The on-time recovery rate reflects the current performance of loan recovery within the reporting period and iscritical for credit management. The cumulative recovery rate is the ratio of the accumulated loan repayments overthe accumulated loan disbursement starting from the Projects commencement, and can be used for the evaluationof the overall performance of the credit component.

20The PIU reported that the number of new borrowers fell from 54,000 in 1997 to 51,000 in 1998, 31,000 in 1999,and 22,000 in 2000. The OEMs discussions with field staff revealed a sharp deterioration in loan recovery.


18/39

11

beneficiaries need permanent access to financial services and it is better to use a long-termfinance institution (MFI or NGO) than a short-term government program for credit services.While the project design included a loan covenant to convert the PIU into an autonomousagency, its implementation was undermined by another loan covenant that aimed to transfer allproject staff under the Government's budget (para. 18). The lack of authority of MYS to useinterest earnings to cover operating costs resulted in the PIU's dependence on government

budget allocations and an inability to sustain credit operations when facing budgetary cuts.Finally, except for a standard government assurance on the provision of an O&M budget, theproject design did not include effective measures to ensure a reliable funding source for O&Mafter project completion.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

38. A summary of the OEMs household survey results is given in Appendix 4, including aprofile of the surveyed beneficiaries as well as changes in their income and living standardsbefore and after the Project.21 The survey data show that about a third of the project

beneficiaries had no schooling, and another third had only elementary education (Appendix 4,Table A4.1). About 47 percent of the beneficiaries had their own microenterprises, another13 percent were engaged in agriculture, 21 percent were housewives with small businesses,and only 2 percent were casual laborers (Appendix 4, Table A4.1). These results are consistentwith the OEMs observation that the Project mainly selected the upper poor with regular jobsand bypassed the very poor such as casual laborers. The survey results also show that beforethe Project, about 81 percent of the beneficiaries had an annual income of less than Tk25,000(or $463), including 53 percent poor with an annual income of less than Tk18,000 (or $333)(Appendix 4, Table A4.2). About 70 percent of the beneficiaries had less than 0.5 acre of land,including 20 percent who were landless (Appendix 4, Table A4.3).

39. The survey results demonstrate a significant impact of the Project on the borrowers.

About 57 percent of the surveyed beneficiaries reported increased turnover of their businesses,and 37 percent, increased household income (Appendix 4, Table A4.4). The survey also foundreduced rural poverty in the project areas as the percentage of beneficiaries with an annualincome of less than Tk18,000 ($333) was reduced from 53 percent before the Project to46 percent after the Project, implying that about 7 percent of the poor were lifted above thepoverty line (Appendix 4, Table A4.2).22

40. The Projects most impressive impact was on housing conditions. The survey resultsshow that the percentage of households with tin-roofed houses increased from 24 percentbefore the Project to 44 percent after the Project, and that with thatched houses decreased from28 percent to 10 percent (Appendix 4, Table A4.5). The OEM also observed that manybeneficiaries used increased income to improve their houses; their first priority was to replace

the straw roof with a tin roof.

41. Employment also increased in the project areas. About 47 percent of borrowers reportedincreased employment of 20-50 percent; another 46 percent of borrowers reported 51-100 percent increases in employment (Appendix 4, Table A4.6).

21The survey covered 606 households randomly selected from 18 beneficiary centers located in 6 branches of3 subdistricts in the project areas.

22By comparison, about 21 percent of the borrowers of the Grameen Bank managed to lift their families out ofpoverty within about four years of participation (ADB, Finance for the Poor: Microfinance Development Strategy,May 2000).


19/39

12

42. Food consumption improved significantly. Before the Project, about 15 percent of thesurveyed households could not afford three meals a day for their adult members; thepercentage was reduced to only 2 percent after the Project. The number of meals for old familymembers and for children also increased, as did the consumption of meat and fish (Appendix 4,Table A4.7).23 Furthermore, vulnerability to food shortages was mitigated. Before the Project,about 46 percent of the surveyed borrowers had three or more months when they had

difficulties in buying enough food for their families. This figure was reduced to 16 percent afterthe Project (Appendix 4, Table A4.7). The beneficiaries were able to reduce their monthlyexpenditure on food and increase that on clothing (Appendix 4, Tables A4.8 and A4.9). Thepercentage of the beneficiaries with more than two changes of clothing increased from37 percent before the Project to 80 percent (Appendix 4, Table A4.10). It is interesting to notethat women benefited more than men in terms of more clothing. Other changes observed in thehousehold survey were increased cattle and poultry (Appendix 4, Tables A4.11 and A4.12), andgreater numbers of shops and other assets such as furniture, radios, televisions, and bicycles(Appendix 4, Table A4.13).

43. The above improvements cannot be attributed solely to the Project. Due to insufficientinformation, the OEM was unable to construct with and without project scenarios and

therefore adopted the alternative approach of comparing before and after project cases.While such methodology cannot separate the Projects impact from that of other developments,the results suggest that the Project, together with other efforts of the Government, NGOs, otherfunding agencies, and the beneficiaries themselves, significantly contributed to the improvedliving standards of borrowers.

44. The household survey showed that 37.5 percent of all borrowers were women, which issimilar to the PIU's data that women accounted for 38.3 percent of total borrowers (Appendix 3).In contrast to the major MFIs in Bangladesh that target women, the Project had only about7 percent women-only groups (Appendix 3). Interviews with female beneficiaries revealed theProjects significant impact on them, such as increased employment through microenterprises,enhanced household income, and increased power in family decisions. These observations

were consistent with other studies on microfinance projects, which found that microfinanceservices had a larger impact on women than on men as women tended to use the increasedincome for family welfare including improved nutrition and education for children.

B. Environmental Impact

45. The Project had no adverse environmental impact as the small loans were used forsmall income generation activities, which did not cause environmental issues. In fact, theProject contributed positively to the environment. The orientation training for new borrowershelped raise awareness of environmental issues. Beneficiaries were also organized by GAs toplant trees; the household survey found a significant increase in such tree planting (Appendix 4,Table A4.14).

C. Impact on Institutions and Policy

46. The Project's impact on government policy was mixed. On the one hand, the goodperformance of the credit operations, especially the high loan recovery rate, encouraged theGovernment to expand the Project to another 50 subdistricts under a new credit programfinanced by the Government. However, there was little improvement in the design of the new

23The standard practice in rural Bangladesh was four meals a day, including two major meals (lunch and dinner) andtwo snacks (breakfast and a snack in the afternoon).


20/39

13

credit program. In particular, the lessons identified by TA 1440 and its recommendations, suchas the need for flexible loan products and repayment schedules, for delegating authority tobranch offices, and for authority to use interest earnings, were not incorporated.

47. The Project had a positive impact on MYS, especially on field staff, who gainedexperience in organizing beneficiary groups, conducting orientation training, delivering

microcredit, and collecting repayments. Most of the project staff have stayed with MYS.However, the Project's impact on the institutional structure and management systems in MYSwas limited. While the information systems were established at the field level, they were lesseffective in the PIU (para. 34). The Project established an institutional network with borrowers in32 subdistricts, which can be used by other government programs in the future. The Project alsobuilt up a client base for NGOs and MFIs, as the borrowers, after three loans and with goodrepayment records, have accumulated experience in handling loans. NGOs and MFIs can takethem as ready clients.

V. OVERALL ASSESSMENT

A. Relevance

48. By focusing on poverty reduction in rural areas, the Project was highly relevant to thedevelopment strategies of ADB and the Government. The credit component was particularlyrelevant as many rural poor people had no access to formal financial services at that time andthe emerging MFIs lacked funding for rapid expansion. The components of beneficiary trainingand institution building were less relevant as the classroom lecture-oriented training did notmatch well the needs of the uneducated poor, and the demand for such training wasoverestimated. On balance, the Project is rated relevant.

B. Efficacy

49. The credit component substantially exceeded its targets of beneficiary outreach and loan

recovery, and contributed to the achievement of the Projects objectives. The major targets ofbeneficiary training and institution building were largely met, albeit with serious delays. Overall,the Project is rated highly efficacious.

C. Efficiency

50. There were significant delays at all stages of project implementation, resulting in latedelivery of the livelihood skills training and late completion of the training centers. The creditcomponent achieved a high ratio of borrowers per field staff, but accumulated a large amount ofinterest earnings lying idle in the bank accounts of MYS. Furthermore, the training centers andtraining facilities were largely unused, representing a waste of public resources. The project costwas overestimated at appraisal; this led to a large amount of loan cancellation. Overall, the

Project is rated less efficient.

D. Sustainability

51. The livelihood skills training for beneficiaries has ceased since project completion due toa lack of funding for training. The operation of the credit component has continued, but itsquantity, quality, and efficiency have deteriorated sharply since July 1999 due to a reducednumber of project staff, a severe shortage of operating funds, and the lack of authority of MYSto use the interest earnings. Overall, the Project's sustainability is rated less likely.


21/39

14

E. Institutional Development and Other Impacts

52. The Project influenced government policy. Encouraged by the high recovery rates of thecredit operations, the Government decided to replicate the credit operations in 50 subdistrictsusing its own funding. The Project also enhanced the capacity of MYS staff in credit operations,although its impact on MYS management systems was limited. The Project had positive impacts

on its beneficiaries, such as increased employment, enhanced household income, reducedpoverty, and improved living standards. Overall, the Project's institutional and socioeconomicimpact is significant.

F. Overall Project Rating

53. The design of the Project was based on a substantial amount of sector work as well asthe Government's initiatives in TRDEP. The focus on poverty reduction and employmentgeneration was appropriate. The Project reached a large number of beneficiaries, most of whomwere low-income families or the poor, although not the very poor. The credit componentrecorded a cumulative rate of loan recovery of 99 percent. Due to the inherent weaknesses ofusing a government agency to deliver credit services, especially its complete reliance on

budgetary allocation, the sustainability of the Project is weak. The Project had a significantimpact on its beneficiaries, such as increased household income and improved living standards.Overall, the Project is rated successful.

G. Assessment of ADB and Borrower Performance

54. The Project was designed based on the Government's initiatives as well as on thedevelopment strategies of ADB and the Government. The design had certain weaknesses,which are understandable in a learning process. ADB closely monitored project implementation.However, the supervision focused on physical targets instead of efficiency and developmentimpact. The Government demonstrated strong ownership of the Project; most field staff showedhigh commitment and contributed to the good performance of loan recovery. With three

exceptions (para. 18), the Government complied with the loan covenants. Overall, theperformance of ADB and the Government is rated satisfactory.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

1. Effectiveness of Beneficiary Training

55. The livelihood skills training for beneficiaries under the Project was ineffective for theuneducated and inexperienced poor. Several factors contributed to this. The selection oftrainees by project staff or center chiefs and the provision of training allowances distorted the

selection. The training courses were classroom lectures, which were not easily understood bythe uneducated poor. The "one-off" lecturing, without follow-up assistance, had only limitedimpact. Other alternatives should have been considered, including model demonstrations atvillage level, followed by extension services.

2. Underutilization of Training Facilities

56. The OEM observed significant underutilization of the expensive training facilitiesprovided by the Project, such as buildings, vehicles, equipment, and furniture. The root cause ofthe problem was a design issue: overestimating investment needs and underestimating the


22/39

15

difficulties that the Government would have in financing the operation of these facilities afterproject completion. Although the Government's assurance of providing sufficient funding forO&M was obtained through loan covenants, poor O&M of the project facilities still occurred dueto budgetary constraints.

57. In fact, it may not be realistic to assume that the Government would have the ability to

constantly increase its budgetary allocation to take care of the O&M of all agency-fundedprojects after their completion when the number of such projects is rising every year. Thisseems to be a crucial issue with no easy solutions. An analysis of government budgetaryimplications from the viewpoint of a single investment project is inappropriate as theGovernment may have many competing uses for its budgetary resources. At the same time, anoverall analysis of the Governments public investment program and public expendituremanagement is beyond the scope of an investment project. When a government is continuouslyexperiencing budgetary constraints, its assurance on providing O&M funding is insufficient.Under such circumstances, it may be necessary to incorporate in the design of each investmentproject the long-term O&M of the project facilities. Intensive consultations should be conductedwith concerned government authorities, operating agencies, and beneficiaries at the designstage to ensure a reliable funding source for O&M after project completion, including, when

appropriate, the use of loan proceeds to establish such a source. Otherwise, reduction in thescale of the investment should be considered to ensure that it will not exceed the capacity of thegovernment in financing O&M of the project facilities after completion.

3. Future Direction of Credit Operations

58. The future of the credit operations started under the Project is questionable. On the onehand, the credit component operated well in the past with high recovery rates and a positiveimpact on many beneficiaries. MYS has developed a client network and functional operatingsystem, with many capable staff and a large amount of accumulated funds. On the other hand,microcredit has increasingly become an industry in Bangladesh and attracted a large number ofNGOs to serve as MFIs. It may not be appropriate for a government agency to engage in direct

credit delivery and compete with the private sector by offering subsidized interest rates.

59. Studies of microfinance find that the majority of the very poor have so far been bypassedby microfinance projects/programs. Government agencies do not have the authority andflexibility to design innovative finance products that are tailored to the needs of the very poor.NGOs are concerned about the high administrative costs associated with the innovation neededto reach the very poor.24 Since there are still underserved areas in remote villages inBangladesh and underserved populations among the very poor, the alternative of servingdistant areas and the very poor under this Project should be considered. Reaching these peoplewill likely be expensive and public subsidies may be justified.25 MYS could enter the remoteareas not yet served by MFIs, select and train clients, grant an initial round of loans, thentransfer the clients to the MFIs that would be invited to partner with MYS. MYS may also use its

staff and resources to contract with and supervise NGOs to provide microfinance and othersupplementary services to the very poor. In either case, major reforms in the credit operations

24Many MFIs have not considered the very poor as creditworthy as they lack the ability to meet the weeklyrepayments required by most credit programs. Some people also argue that the very poor need jobs instead ofmicrofinance. Given the shortage of employment opportunities in the project areas, self-employment throughmicroenterprises financed by microfinance will continue to be an important mechanism for poverty reduction in thenear future. It is also likely that many of the very poor could be served if savings and loans products could beflexible enough to meet their needs.

25The OEM found that the very poor need a combination of microfinance and other supporting services includingbasic training on literacy, numeracy skills, and record keeping, together with continued extension services.


23/39

16

will be required, including the conversion of the PIU into an autonomous agency with theauthority to use interest earnings to cover its operating costs and the authority to design flexiblefinancial products based on market demand, and the adoption of commercial managementsystems.

B. Lessons Identified

60. The Project has provided valuable lessons, especially relating to the design andimplementation of microfinance operations. The major lessons include the following:

(i) Under certain conditions, a government agency can deliver microcredit services with highrates of loan recovery even without formal training on credit risk analysis. These conditionsinclude (a) highly standardized loan products making credit decisions simple;(b) appropriate incentives for project staff such as linking their continued employment withperformance targets; (c) sufficient budgetary support on a continued basis; and (d) nocompetition from NGOs and other MFIs.

(ii) However, a government agency is severely restricted in its capacity to manage a

complicated and market-oriented microfinance program, mainly due to its lack ofcommercial management systems. In particular, the agency may lack the authority to useinterest earnings to cover operating costs, which may lead to its dependence ongovernment funds. The risks of budgetary cuts and delays in fund release may threaten thesustainability of credit operations. The government agency may also face politicalchallenges in charging interest rates high enough to cover costs. Finally, the agency maylack the authority to design flexible savings and loans products and is therefore lesscompetitive in a market. Due to these constraints, it is preferable to use NGOs or MFIs formicrofinance services.

(iii) Since the poor need permanent access to financial services, microfinance should beprovided by a long-term institution rather than a short-term program. If a government

agency has to be engaged, measures need to be developed to convert it to an autonomousagency to enable its long-term operations on a commercial basis.

(iv) The standard loan products do not well match the needs of the very poor, especially theircash flow, which is irregular and uncertain. Group liability and the focus on loan recoverymay provide incentives for beneficiary groups and field staff to exclude the very poor whodo not have a stable income to meet the rigid requirement of weekly repayments.Innovative solutions are therefore needed to design flexible savings and loans products thattailor financial services to the needs of the very poor.

(v) ADB should support the search for and development of innovative solutions to expandmicrofinance services to the very poor. One approach is to let a government agency

enter into a partnership with MFIs; the government agency would develop a client basisand transfer it to the MFIs for long-term finance services. Another approach is to providegrants to cover the initial start-up costs of MFIs that are willing to target the very poor.

(vi) Microcredit alone is not sufficient to reduce poverty among the very poor. Flexible savingsservices are needed to accumulate the small savings of the poor and help them cope withfinancial shocks. Furthermore, supplementary assistance, such as basic training in literacyand numeracy skills as well as extension services, is needed to build up the capacity of thevery poor to gain access to, and effectively use, credit services.


24/39

17

(vii) The design of training programs for the poor should consider the absorptive capacity ofthe trainees as well as their needs. For the uneducated and inexperienced poor, learningby following good examples in their neighborhood may be more effective than classroomlectures. A training program may focus on the establishment of demonstration models ofrecommended livelihood skills and technologies; study tours to visit model householdsand small businesses to exchange experiences; and extension services on a continued

basis.

(viii) Training allowances should be abolished to reduce training costs and remove distortedincentives. Trainees should be selected based on demonstrated demand for the training,such as a token fee from applicants for their selected training programs.

(ix) The impact of one-off training without continued assistance is limited. Efforts areneeded to develop long-term institutions in a project area that can provide training andextension services after project completion.

(x) When a government is restricted by budgetary constraints, its assurance on providingO&M funds is insufficient. More effective measures should be included in a project

design to ensure a reliable funding source for O&M of the project facilities after projectcompletion. This should become a standard requirement for project approval.

(xi) Most delays occurred in the early stages of implementation due partly to the projectstaffs inexperience and unfamiliarity with ADB guidelines and procedures. Thus, asufficient amount of preservice training should be given to project staff prior to projectcommencement. ADBs project supervision should be intensified in the initial years,especially with new executing agencies.

C. Follow-Up Actions

61. The Government should grant MYS the authority to use all accumulated interest

earnings to cover the operating costs of credit operations, with a target date of June 2002. TheBangladesh Resident Mission should monitor implementation of this action.

62. MYS should evaluate its role in microcredit services and consider the two optionsdiscussed in para. 59. In either case, MYS should convert the PIU into a business-orientedentity with the authority to use interest earnings to cover its operations as well as the flexibility todesign financial products based on market demand. A target date of December 2002 isproposed for the completion of the evaluation. The Bangladesh Resident Mission shouldmonitor implementation of this action.


25/39

18

APPENDIXES

Number Title Page Cited on(page, para.)

1 Project Cost: Appraisal Estimated vs. Actual 19 2, 4

2 Achievement of Project Targets 20 3, 10

3 Performance of Microcredit Operations 23 7, 24

4 Results of Household Survey 24 11, 38


26/39

19Appendix 1

Foreign Local Total Foreign Local Total Foreign Local Total

A. Training

1. Training and Workshops 194 3,360 3,554 68 1,066 1,134 35.1 31.7 312. Training Materials 0 686 686 0 126 126 18.4 18

Subtotal 194 4,046 4,240 68 1,192 1,260 35.1 29.5 29

B. Credit Component 0 9,722 9,722 0 7,393 7,393 76.0 76Loans to Beneficiaries

C. Institution Building

1. FacilitiesCivil Works 169 506 675 260 780 1,040 153.8 154.2 154Land Cost 0 500 500 0 727 727 145.4 145Vehicles 150 54 204 179 66 245 119.3 122.2 120Equipments 53 39 92 29 23 52 54.7 59.0 56Furniture 0 86 86 0 252 252 293.0 293

2. Proj. Implementation &Recurrent CostsIncremental Staff Salaries- PIU 0 160 160 0 78 78 48.8 48- Field Staff 0 2,076 2,076 0 4,267 4,267 205.5 205Operation & Maintenance 54 18 72 0 1,442 1,442 0.0 8,011.1 2,002

Subtotal 426 3,439 3,865 468 7,635 8,103 109.9 222.0 209

Physical Contingencies 37 118 155 Price Contingencies 33 760 793

Total Costs 690 18,085 18,775 536 16,220 16,756 77.7 89.7 89

Service Charge 178 0 178 183 0 183 102.8 102Taxes and Duties 0 402 402

GRAND TOTAL 868 18,487 19,355 719 16,220 16,939 82.8 87.7 87

= not available, AR = appraisal report, PCR = project completion report, PIU = project implementation unit.

Source: PCR and AR.

Project ComponentsAppraisal Estimate

($'000)PROJECT COST: APPRAISAL ESTIMATE VS. ACTUAL

(As per PCR)(As per AR)At Appraisal Actual Actual as % of


27/39

20Appendix 2, page 1

ACHIEVEMENT OF PROJECT TARGETS

ActivityTargets Set at Appraisal

(as per RRP/Appraisal Report)Actual Achievement (as per PCR

and OEM Inspection)

A. Training 1. Orientation and livelihood skills training

for 70,000 beneficiaries.

2. Special skills training for 1,500 selectedyouth.

3. Enterprises training for 14,000beneficiaries with entrepreneurialpotential.

4. Training equipment and materials forRULSTECC and ZRTC Library.

Orientation training for 185,010

beneficiaries; livelihood skillstraining for 70,000 beneficiaries.

About 1,600 youth were trained.

Not conducted.

Procured and stored in ZRTC.

B. Credit Operation 1. Number of beneficiary groups38,400

2. Number of beneficiary centers4,800

3. Number of borrowers70,000

4. Loans (maximum 3 loans perbeneficiary).

5. Large enterprise loans (4 percent of totalloan amount).

6. Growing revolving fund with 90 percentloan recovery.

7. Group savings, weekly individualsavings, contribution to risk fund.

8. Self-reliance of credit operation achievedwithin five years.

42,202

5,028

185,010

First loans totaling Tk451.9 millionto 185,010 beneficiaries.

Second loans totaling Tk427.8million to 122,350 beneficiaries.

Third loans totaling Tk285.8 millionto 69,218 beneficiaries.

Not disbursed. However, theGovernment disbursed 2,436enterprise loans after projectcompletion.

99 percent accumulated loanrecovery.

Conducted as planned, with alarge amount of accumulated fundunused.

All costs relating to the creditoperation were covered bygovernment budget allocationinstead of project earnings, whichhave been accumulated in MYSbank accounts.


28/39





and OEM Inspection)

C. Institutional

Building for MYS

1. Construct RULSTECC and four ZRTCs.

2. Provide training facilities, furniture,training equipment, and vehicles.

3. Support project implementation unit andfield staff.

Three ZRTCs completed during

project period; one ZRTCcompleted after project completion;RULSTECC was not completed asof February 2001.

Procured with delays. In particular,the mobile training van wasdelivered in year six.

Conducted.

D. TA 1439-BAN:Staff Development

and TrainingMaterials

1. Upgrade the training capacity inMYS/DYD, RULSTECC, and ZRTC.

(i) orientate and train 655 project staff,

(ii) provide 15 international fellowships(1-3 months duration each), and

(iii) provide 15 international study tours(2-3 weeks each).

2. Design and develop training materials.

Prototype training materials include Training manuals

audio-cassettes multimedia packages handbooks training kits for field staff documentation relevant to training

Conducted for 486 staff.

19 fellowships.

11 study tours.

Prepared or procured.

E. TA 1440-BAN:Research andDevelopment

1. Strengthen MYS capacity in research andevaluation.

(i) Studies and research on(a) rural livelihood trades and other

related topics,(b) role of youths and women in

poverty reduction program, and(c) assessment of the socialcomponents of TRDEP.

Partly conducted.

Conducted.

Not conducted.

Not conducted.

(ii) Management information system(MIS) activities(a) evaluate innovative activities

under the Project, and(b) computerize the MIS.

Partly conducted.

MIS established.


29/39





and OEM Inspection)

2. Research and evaluation of TRDEP.

(i) Monitor/evaluate credit managementand delivery system.

(ii) Eight research studies.

(a) Development of povertyalleviation program year 2000.

(b) Alternative credit deliverysystems for the poor.

(c) Reorganization and restructuringof MYS.

(d) MIS study toward more efficientmanagement.

(e) Impact of literacy on the projectbeneficiaries.

(f) Livelihood technologies:appropriateness of differentlivelihood, trades, and skills forpoverty alleviation.

(g) Role and impact of governmentagencies and nongovernmentorganizations in povertyalleviation, rural employment,and women in development.

(h) Media profile, utilization of mediapackages, and povertyalleviation among rural poor.

Conducted at field level but not atproject implementation unit level.

Not conducted.

Conducted with good reports.However, recommendations werenot implemented.

Conducted.

Conducted.

Not conducted.

Not conducted.

Not conducted.

Not conducted.

DYD = Department of Youth Development; MIS = management information system; MYS = Ministry of Youth andSports; OEM = operations evaluation mission; PCR = project completion report; RRP = report and recommendation of

the President; RULSTECC = rural livelihood self-employment, technology, education, and communication center;TRDEP = Thana Resource Development and Employment Project; ZRTC = zonal resource training center.Source: OEM, PCR, and RRP/AR.


30/39

23Appendix 3

PERFORMANCE OF MICROCREDIT OPERATIONS

Table A3.1: Clients and Subloans

First Loan Second Loan Third Loan

YearNo. ofClients

LoanDisb.

(Tk m)

Ave.

LoanSize(Tk)

No. ofClients

LoanDisb.

(Tk m)

Ave.

LoanSize(Tk)

No. ofClients

LoanDisb.

(Tk m)

Ave.

LoanSize(Tk)

Total

LoanAmoun(Tk m)

1993 22,611 40.7 1,800 3,398 7.4 2,178 2,604 9.0 3,456 571994 31,093 73.4 2,361 26,408 90.7 3,435 13,488 40.6 3,010 2041995 54,393 142.3 2,616 16,216 44.7 2,757 5,851 17.1 2,923 2041996 38,772 92.3 2,380 46,028 181.8 3,950 14,244 66.2 4,648 3401997 38,141 103.2 2,706 30,300 103.2 3,406 33,031 152.9 4,629 359

Total 185,010 451.9 2,443 122,350 427.8 3,497 69,218 285.8 4,129 1,165

Disb. = disbursement, m = millionSource: Project completion report.

Table A3.2: Recovery Rate of Subloans(percent)

Yearly Cumulative

YearRecovery

RateRecovery

Rate

1993 100.0 100.01994 99.9 99.91995 99.9 99.9

1996 99.7 99.91997 97.8 99.0

Source: Project implementation unit.

Table A3.3: Participation of Women

No. of All Cumulative Membersa 317,747No. of Cumulative Women Members 121,563Percentage of Women in Total Borrowers 38.3

No. of Beneficiary Groups 63,590No. of Women-Only Groups 4,284Percentage of Women-Only Groups in Total Groups 6.7a

Including current borrowers as well as borrowers graduated or dropped out.

Source: Project implementation unit.


31/39


Percent

1. By GenderMale 62.5Female 37.5

2. By Age15 - 25 29.326 - 30 18.331 - 35 14.536 - 40 12.341 - 45 8.246 - 50 7.5

51 - 55 3.656 - 60 3.460 + 2.9

3. By EducationNo schooling 34.4Class I-V 37.4Class VI-VIII 13.0Class IX-X 10.8Class XI-XII 2.2Graduate 1.7Master 0.5

4. By Main ProfessionBusiness or Services 46.6Housewife with Small Business 21.3Agriculture 12.8Daily Labor 2.3Fishing 0.9Livestock 6.8Government Service 0.5Others 8.8

5. Average Size of the Borrower's Households NumberNumber of Members per Household 5.05

Income Earning Member per Household 1.87

aThe household survey was conducted by the Operations Evaluation Mission in

March-April 2001 on 606 borrowers from 18 beneficiary centers located in

6 branches in 3 subdistricts.

RESULTS OF HOUSEHOLD SURVEYa

Table A4.1: Beneficiary Profile

Classification


32/39


($)


33/39


Percent

Households with the following views:

Volume of business/activities increased 56.5

Household income increased 36.8

Skills increased 5.4

No change 0.8Negatively affected 0.5

Percent

Households with the following views:Benefited in some ways 97.4

Benefited financially 94.3Benefited through increasing assets 91.3

Benefited through employment 31.6

Benefited through increased awareness 13.4

Benefited through education of children 2.6Not benefited at all 2.6

Table A4.4: Borrowers' Views

1. What were the major benefits from the Project?

2. What were the other benefits of the Project?


34/39


1. Type of House Structures

Building 0.8 0.5 -0.3Tin-Roofed 23.8 44.1 20.3

Thatched 27.5 10.4 -17.1

Brick + Tin 3.4 9.0 5.6Tin + Thatched 17.6 27.5 9.9

Low Hut 23.1 5.0 -18.1

Building + Tin + Thatched 0.4 1.0 0.6Building + Low Hut 0.2 0.2 0.0

Tin shet + Low Hut 1.3 1.2 -0.1

Tin + Thatched + Low Hut 1.7 0.9 -0.8Brick + Tin + Low Hut 0.2 0.2 0.0

2. No. of Tin-Roofed Room

0 57.4 26.0 -31.4

1 35.0 48.4 13.42 5.9 19.0 13.1

3 1.2 5.0 3.8

4 0.5 1.0 0.55 0.0 0.2 0.2

6 0.0 0.2 0.2

8 0.0 0.2 0.2

3. No. of Straw-Roofed Room

0 41.3 66.4 25.11 47.7 24.8 -22.9

2 9.6 7.8 -1.8

3 1.0 0.8 -0.24 0.0 0.2 0.2

6 0.2 0.0 -0.2

7 0.2 0.0 -0.2

Percentage of Borrowers Surveyed

Table A4.5: Quality of Houses

Item Before After Changes


35/39


1 - 10 4.511 - 20 2.9

21 - 30 16.7

31 - 40 10.841 - 50 19.3

51 - 60 4.9

61 - 70 4.5

71 - 80 11.181 - 90 5.9

91 - 100 19.4

Percent

Table A4.6: Enhancement of Employment Opportunity Due to the Project

Increase in Employment Opportunity


36/39


Before After Changes

1. No. of meals per day taken by all family members

2 10.0 2.2 (7.8)3 80.7 78.4 (2.3)

4 9.3 19.4 10.1

2. No. of meals per day taken by old family members

2 4.8 3.1 (1.7)

3 45.4 47.0 1.6

4 0.0 0.4 0.4

Household without old member 49.8 49.5 (0.3)

3. No. of meals per day taken by adult family members

2 14.8 2.0 (12.8)

3 85.2 97.2 12.0

4 0.0 0.8 0.8

4. No. of meals per day taken by children

2 2.5 0.0 (2.5)

3 45.9 30.7 (15.2)

4 12.5 22.3 9.8

5 5.3 14.4 9.1

6 0.5 2.3 1.8

33.3 30.3 (3.0)

5. No. of days when meat was consumed per month

0 9.7 1.3 (8.4)

1 - 5 89.3 93.7 4.4

6 - 10 1.0 4.5 3.5

11 - 15 0.0 0.5 0.5

6. No. of days when fish was consumed per month

0 0.7 0.7 0.0

1 - 5 36.9 16.0 (20.9)

6 - 10 15.7 25.5 9.8

11 - 15 13.5 12.1 (1.4)

16 - 20 22.6 18.3 (4.3)

21 - 25 8.3 17.3 9.0

26 - 30 2.3 10.4 8.1

7. No. of months in a year when the households had

difficulty in buying enough food0 38.5 53.7 15.2

1 3.9 14.8 10.9

2 11.7 15.7 4.0Households with difficulties for more than three months 45.9 15.8 (30.1)

3 20.5 2.3 (18.2)

4 7.9 3.1 (4.8)

5 4.3 3.7 (0.6)

6 4.3 3.2 (1.1)

7 0.7 1.4 0.7

8 5.0 0.4 (4.6)

9 0.8 0.7 (0.1)

10 2.4 1.0 (1.4)

Of which, number of difficult months

Table A4.7: Improvements in Food Consumption


Not applicable

Food Consumption


37/39


1 - 30 3.1 3.1 0.0

31 - 40 0.7 9.3 8.6

41 - 50 3.8 12.0 8.2

51 - 60 12.0 22.1 10.1

61 - 70 12.8 27.6 14.8

71 - 80 35.7 21.4 (14.3)

81 - 90 26.9 4.5 (22.4)

5.0 0.0 (5.0)

1 - 10 92.9 49.8 (43.1)

11 - 20 6.3 49.4 43.1

21 - 30 0.1 0.5 0.4

41 - 50 0.2 0.2 0.0

61 - 70 0.3 0.0 (0.3)

71 - 80 0.2 0.1 (0.1)

Before Changes

Before After ChangesPercentage of Clothing Expenditure

Table A4.8: Monthly Expenditure on Food as Percent of Total Expenditure



Table A4.9: Annual Expenditure on Clothes as Percent of Total Expenditure

Percentage of Food Expenditure

More than 90

After


38/39



1. Per family member

1 14.1 1.5 (12.6)2 48.5 18.4 (30.1)3 25.0 37.1 12.14 12.4 43.1 30.7

2. Per male member

1 23.3 2.0 (21.3)2 56.1 28.5 (27.6)3 15.2 39.5 24.34 3.9 18.6 14.7

3. Per female member

1 14.7 2.3 (12.4)2 51.0 15.5 (35.5)3 26.4 39.6 13.24 7.9 42.6 34.7

4. Per child

1 30.5 25.1 -5.42 23.6 3.6 -20.0

3 25.8 17.2 -8.64 13.8 24.2 10.45 6.3 29.9 23.6


0 52.0 26.0 (26.0)

1 17.2 15.0 (2.2)2 19.3 15.2 (4.1)3 6.1