ACTION MEMORANDUM FOR THE MISSION DIRECTOR FROM: David Johnston, SO4 SUBJECT: Project Assistance Completion Wegost of the "Rural E Growth Project " (CRECER) No. 519-0397 DATE: February 9,2001 In accordance with ADS 203 (Managing for Results: Monitoring and Evaluating Performance) and USAIDE1 Salvador Policy (Mission Operation Manual, Chapter 770), attached is the Project Assistance Completion Report (PACR) for the ""Rural Equitable Economic Growth Project " (CRECER) No. 519-0397. The PACR summarizes accomplishments of the Project. It includes Lessons Learned, Conclusions and Recommendations. That you approve the attached Project - Assistance Completion Report. Approved Disapproved ATTACHMENTS: Chemonics contract data Drafted by: RCuellar, SO4 ..- -- Cleared by: FBreen, CON &%uvI)Harrison, SD BPaige, OCG RGoughnour, ACTIVITY ASSISTANCE COMPLETION REP0 I- INTRODUCTION USAID/EI SaIvador signed a $20 million (including $5 million in counterpart), five-year, Grant Agreement with the Government of El Salvador in May 1995, to implement the Rural Equitable Economic Growth (CRECER) project. Subsequently, in September 1995, USAID/EI Salvador signed a $12.9 million (later reduced to $1 2.53 2 million), five-year, contract with Chemonics International to carry out the project. Chemonics in turn, sub￾contracted with the Cooperative League of the United States (CLUSA), the World Council of Credit Unions (WOCCIT) and the Instituto Interamericano para la Cooperacion en Agricuftura (IICA), to carry out the three components, which are listed in the following paragraph. The contract ended in September 30,2000 as well as the Grant Agreement with the GOES. CRECER was divided into three components: 1) Rural Enterprises: Agricuftural enterprises, implemented by CLUSA and Non-Agricultural enterprises implemented by Chemonics itselfl, 2) Rural Financial Enterprises, implemented by WOCCU; and 3) Rural Policy Formulation, implemented by HCA. In addition, Project Management and Monitoring and Evaluation reposibilities were performed by Chemonics. Each component was carried out by a separate project unit, comprised of expatriate and Salvadoran personnel. II. GOAL AND PURPOSE The Goal of the Rural Equitable Economic Growth Project (CRECER) was increased equitable economic growth. The purpose of the Project was to reduce rural poverty. The contractor, Chemonics, is still liquidating remaining expenditures under the contract. As of December 3 1,2001, the financial status is as follows: t I RURAL FINANCE s~,wu*oo.~~~~~W,ooo~Oo 4,567,168 32,832 ELEMENT RURAL ENTERPRISES AND ORGANIZ.4TIONS USAID MANAGEMENT COSTS I $700,000.00 / 470,000.00 1 441,681 1 '28,318 I BUDGET $4,500,000.00 POLICY & MANAGEMENT OBLIGATIONS $4.500.000.1)0 $5,200.000.00 I I \ I DISBURSEMENTS $4.464,283 3,432,000.00 PIPELINE $35,717 3,39$3 1 1 TOTAL $130,556 33,689 Note: It is expected that all fbnds under the contract will be expended. $15,000,000.00 $13,002,000.00 $12,871,444 W. END OF PROJECT STATUS A. Rurd Enterprises Component End-of-Project Output (Contract) An estimated 10,000 rural families will kne-fit. Measured by the number of rural families receiving marketing and other services frcam strengthened rural enterprises and organizations. Thirty (30) member-owned organizations: fifteen (15) at the secondary level, including agroindustries, and fifteen ( 15) affiliated primary-level organizations producing diversified crops and delivering production, post-harvest handling, processing, and marketing services to farmer members in a cost-effective manner. Eight (8) agricultural producer (commodity-specific) groups receiving and/or delivering a range d production, marketing technical, and legal assistance, as well as policy advocacy on behalf of the growers. Status Organized 13,283 agricultural producers in cooperatives or as individuals. Of these, 11,623 (88 percent) were affiliated with CRECER-assisted organizations; the rest j 12 percent) were affiliated with rural enterprises using the services of CRECER organizations. The ncm-agricultural component assisted 19 1 families. Assisted 38 member-owned organizations, including 20 secondary-Ievel organizations, 14 pnrnary-level organizations, and four third-level organizations (regional organizations and the CCPNSALCOOP and CIONFENACOA confederations). A former primary￾level organization (CORALM - La Maraiionera) was reclassified as an agroindustry. Frovided planning, marketing, processing, and research support for 10 cmodities: coffee, cashew, sesame, lemongrass, basic grains (corn, rice and sorghum), honey, organic brown crude sugar, and organic fertilizer. CRECER also pursued research in cashews, rice, and honey. Directly supported planning and evaIuation of the results d planting commodities on 8,205 hectares falling into six agricultural categories. Supported the creation of technical rnannab for c&i production, cashew production, and apiculture. ManuaIs distributed to entrepreneurs, technicians, universities, NCOs, and departments within Ministry of Agriculture. Two (2) regional member-owned organizations are profitably providing services to their members, such as input procurement and distribution, packing storage, transport, and marketing. End-of-Project Output (Contract) Developed service activities (grain and agricultural supply sales) through the Sonsonate Regional Organization, comprising five service organizations {Asociacidn de Productores CRECER, ASID, ADECPRO and two federations of CONSALCOOP). Status Expanded into the municipalities north of Sonsonate. Legalized associations in Ahuaehagxln and Santa Ana. DeveIoped and implemented a network of agribusiness centers throughout the region, classified and distributed as follows: agrobodegus - Sonsonate (Ishuatan, Santa Rita and Miramar), Ahuachapan (Tacuba and Atiquizaya), and Santa Ana (Metapan and San Jacinto); agmmevcados - Sonsonate (San Julian), Ahuachapan (Ahuachapan and Atiquizaya), and Santa Ana (Metapan and Santa Am). In San Vincente, consolidated and legally constituted Sonsonate's sister regional organization in Lempa 1 Acahuap, the Paracentral region. It includes three groups: the irrigation district of Lempa-Acahuapa, producers affiliated to CONSALCOOP and , CONFENACOA, and the CORDES-coordinated group in the Bajo Lempa (SES, IDES, and MES). Conducted a study focused on improving the management capacity of CONSALCOOP and COMiENACOA. ' Helped the two confederations identify 13 and 1 1 projects, respectively, and present five institutional strengthening projects to international donors. End-of-Project Output (Contract) Ten (10) smaWmedium-sized non-farm enterprises created or expanded and operating profitably and creating employment opportunities in rural areas in light industry, commerce, and the service sector. Status In Ilobasco and Nahuizalco, 54 small enterprises sell a variety of products through three cooperative-owned stores. ARTECRECER in Ilobasco opened a showroom and produces handicrafts in the name of the cooperative. Work emphasized product innovation. Prepared a manual with new fachada designs in clay and woad. Brought an international cansaltant to work with artisans to improve product quality and design for foreign markets. Organized "Looking for Ourselves" achievement day, sponsored by BCIE. Helped the cooperative prepare quarterly financial statements and papemork necessary to receive a second BCE grant disbursement. Helped San Carlas Lempa cooperative consolidate its accounting; trained board of directors in accounts preparation. Helped cooperative prepare meeting minutes for different wcommittees. Through a specialist, helped MOJE, an ex-gang group, improve handicraft design to make products more marketable. B. Rural Financial Enterprises CRECER assisted 13 ~redit unions over the life of the project. The project discontinued assistance to two of the credit unions (Cooperativa Financiers Avance and Cooperativa El Esfberzo) at the end of December 1999 as a result of their lack of dedication to CECER principles and methodologies. The data presented hereafter includes recent quarterly activities for the 1 1 remaining credit unions. This final report contains information through June 30,2000, for 10 of the 1 1 participating credit unions. Only the Cooperativa Fiananciera Dinarnica (ACCOVI de R.L.) was unable to close its books in the established time frame. - End-of-Project Output (Contract) A minimum of 20.000 rural clients served Status Thirteen (13) CRECER-assisted credit unions (including the 2 expelIed) assisted 76,987 dients (members, youth members, and third-party savers), as per the total reported in USAZD indicators. The 11 credit unions remaining in the project served 72,189 clients. A minimum of $4 million in new local savings will be mobilized and used to fiaance lending at market rates of interest for agriculture and small and medium-scale rural enterprise by the end of the project. Fifteen (15) credit unions and 1 or 2 NGOs institutionally strengthened and providing competitively priced financial se~ces (savings and loans). As of June 30,2000,lO credit unions had mobilized $16.3 million in savings, current accounts, time deposits, and youth savings programs. Credit unions adopted an interest rate policy that allowed savings to maintain their real value. Worked with 13 credit unions and 2 WGas. Provided institutional suppart to FEDECACES, 6 branch offices, and 3 credit union agencies. Credit unions provided se~ce at 22 locations. An additional 15 credit unions afliliated with FEDECACES @ally adopted the methodology, financial discipline, and structural changes promoted by CECER. Savinn: As of Dec. 3 1, 1995 $5.5 million As of June 30,2000 $25.5 million Increase $19.0 million I An accumulated total of 80 percent ($3.2 millian) of savings accumulated will be relent to finance farming and related rural industries, commerce, micro and small-scale enterprise, housing, and other rural household needs over the life d the project through participating credit unions and nongovernmental organizations. Net loan portfolio of 10 cooperatives increased to $20.7 million through Jane 2000. C.U. Dinamica had a net portfolio of $11.3 million through Much 2000. Cansolidated, 11 credit unions had a net portfolio of $32 million. Loans: As ofDec. 31, 1995 $15.2 million As of June 30,2000 $32 million Increase $16.8 million Legal and regulatory change leading to an improved environment for rural financial institutions and a stronger set of regulatory mechanisms that will govern both savings and lending services. New law for financial intermediaries passed and published in the Diurio Ojcial on March 3 1,2000 and kame effective January 1,2001. End-of-ProOiect Output (Contract) Status Analyze the requirements for loan agreement enforcement and foreclosure and recommend measures to streamline and simphfy procedures for creditors while still protecting the rights of borrowers. Draft mo&cations to the current laws. Review and summarize existing or proposed legislation in other countries that governs alternative, non-bank financial intermediaries, such as banks for micro and small businesses, village and/or rural banks, etc. Provided logistical support to the Financial Coinmission of the Legislative Assembly to assist in final review of the law. Trained Superintendency of , Banks personnel to facilitate implementation of the law. C. Sectoral Policy Support Recommend supenrimy mechanisms and authorities that could be established to oversee operations and protect depositors and sharehoIders of non-bank intermediaries. Rural poverty reduction strategy developed. , Raised awareness of the rural poverty situation among government afficiak anand key economic agents through dialogue with diverse sectors of the economy. The elected president, his advisors, and government officials continue to state that combating poverty and promoting ma1 development is a prior* for the administration. Among other concrete actions, the govement has invested in rural infrslstmcture, opened lines of credit for agriculture, and continued to support the transfer of technology. Ministry of Agriculture skilled at maintaining stable sectoral policy, regulatory, and legal framework. Strengthened ana1ytical capacity of the ministry. The head of OAPA directly requested the ministry to find a mechanism to continue CRECER support. The ministry was researching the possibility of retaining the services of specific individuals to continue strengthening OAPA and transferring critical analytical technologies. V. EVALUATIONS. MID-TERM EVALUATION During October-November 1998 the mid-term evaluation was carried out by Cargill Technical Services. The major conclusions are quoted fiom the evaluation report and follow: "The evaluation team has found that since the inception of the CRECER activity all three project components have yielded positive results within the framework of the project design. The demand for the services that are provided by each one of the project components is visible given the strong positions and expressions of support from their beneficiaries. The team feels that the project is reaching the intended sector, viz. the rural poor, and that significant impacts have been achieved in both tangible and intangible terms. Despite a shift in strategic objectives due to the internal USAXD reengineering that took place subsequent to the project start-up, the CRlECER activity was generally implemented according to design parameters. The only amendment to the project slightly modified the outputs for the Rural Enterprise (RE) component, although the Policy (POL) component experienced a redefinition of expected results. Apart from the contract amendment, the only significant deviation made in the contract is the change in activities of the monitoring and evaluation unit. The original description of the responsibilities of the monitoring and evaluation unit includes the establishment and maintenance of a system to integrate formal and informal evaluations and other inputs required to evaluate project activities. Surveys were also to be implemented throughout the fife of the project, and were to gather data fiom households, samples of participants in project components and institutions involved in the project. To date, the CRE@ER monitoring and evaluation system is focused at the macroeconomic level and is based on a household survey. The system never evolved to include the impact on the beneficiaries from an operational point of view, although it was considered early on in the project. Despite its success, CKECER continues to be a project challenged by its original three￾component design. Each subcontractor seems to have brought its own perceptions and model to the project, and due to the way the project is managed within USPaID and outside it, the overall concept for the project is weak. Nonetheless, the subcontractors (CLUSA/NCBA., IICA and WOCCU) perceive that the contractor (Chemonics International) has involved all project players to a great extent, and seem to understand the challenges presented by the unique project design. From the point of view of integration, the design of the original project along the lines of three distinct components and the way it is managed at USAD and at the CRECER office emphasize the division and do not promote integration of the individual components. At USAID, one manager is assigned to each component, but no one person seems to actively oversee the project on a daily basis to bring together the three components. At the CRECER office, the extent to which component coordinators work together to solve challenges of their individual components is somewhat lited due to the way in which the components have evolved, rather than to the willingness of the coordinators to solve a problem. The options for integration are therefare that the components are maintained together under the umbrella of one implementing agency or project, Cl3ECEK or that they are separated. Although it would be dicult to justify maintaining the components together based on the concept of integration, there should not be any doubts about the usehl synergy taking place under the current arrangement. In fact, one of the most important synergy effects is the opportunity for the CRECER staff to maintain continuous interactions among themselves and learn fiom the experiences and knowledge of each other. There are also economies of scale and logistical cost saving advantages by hnctioning as one project rather several separate ones. In addition, it is also reasonable to expect that some interaction among components might arise as the individual components get closer to meeting their objectives. Also of great consideration is the possible chaos and demoralization of staffthat would likely arise as a result of splitting the project at this stage in time. The fact that policy analysis is the weakest component from the viewpoint of justifying the expenditure of grant fbnds to finance it is also a consideration. At this stage of El Salvador's progress in the policy area, it appears more reasonable to use grant knds only for those components that affect the poor in a more direct and immediate manner. The government should finance with its own hnds its policy analysis efforts. Despite the above comments about the policy analysis component, the evaluation team recommends that the three components be maintained under the current structure through the project completion date given that: f 1) all three components are making progress and generating good results, (2) the benefits already achieved by a given component could be reduced or eliminated if the component is eliminated, (3) hnding is still available in the overall project for each component." FINAL EVALUATION The Mission concluded that it was not necessary, nor required, to cany out a final evaluation of the project. 1. CONCLUSSIONS, LESSONS LEARMED, AND RECOWNDATIONS. During the life of the CRECER project some valuable lessons were learned. From these lessons important conclusions have been drawn about the best ways to implement a long￾term technical assistance project. 1. Technical Assistance The overarching lesson of CRECER is that the success of any project critically depends on client and counterpart buy-in to the activity. It is absolutely necessary for the technical assistance team to do the job well, treat cIients with respect, demand active participation, recommend practical applications, and provide follow-up. 2. Strengthen Organizations from the Bottom BJp The only way to build effective, sustainable institutions is from the bottom up. CRECER invested an immense amount of time, energy, and human and financial resources to create producer associations that would continue to grow and prosper after project assistance concluded. CRECER worked diligently to comprehend and tackle the challenges to economic growth in rural El Salvador, and designed a strategy to overcome these challenges in collaboration with local rural actors. 3. Change Attitudes toward Collaborative Production Working with non-agricultural clients - primarily artisans - was much more difficult than originally anticipated. After mmy ef3Forts to introduce Salvadoran artisans to new production techniques and business opportunities, CRECER concluded that most artisans were reluctant to adopt new practices and change their mind-set from artisan to entrepreneur. Unlike agricultural producers, who were willing to pool resources to market their products more efficiently, artisans were reluctant to collaborate for fear that their designs would be copied and their prices undercut by competitors. This made it difficult to establish the trust and mutual confidence necessary to transform cottage industries into mmket-oriented enterprises. Based on this conclusion, it is recommended that kture artisan projects target attitudes toward collaborative production before providing technical assistance to improve production and design. CRECER taclded these two tasks in reverse. In hindsight, this subcomponent would have been more effective if it had concentrated on team building and achieving true consensus before providing production and design assistance. 4. Focus on Financial Diseiphe to Change Prattices md Habits Among the many lessons learned from the rural financial enterprise component, the most important is that a persistent emphasis on financial discipline pays off in the Iong m. When CRECER first began working with rural credit unions, the managers of these institutions were extremely reluctant to change their practices. However, over time and with constant encouragement fiom CWECER technical advisors, credit union managers changed their mindset. At the end, credit union managers ranked financial discipline as the project's most important impact. Statistics buttress these findings. Consolidated delinquency rates dropped fi-om 34.2 percent in 1996 to 11.3 percent in 1999. Loan loss provisions to cover 100 percent of delinquent loans over twelve months were put in place in all but two credit unions. By the end of 1999, six credit unions had a net capital ratio greater than 7 percent, and four bd surpassed the WOCCU standard of 16 percent. Based on this dear evidence of success, it is recommend that all projects with a financial enterprise component dedicate time and resources to improving financial discipline, as well as developing new products and services. Frequently, the latter activity is tackled first because it can achieve rapid results. However, over the long term, strengthening the financial discipline of credit union managers allows credit unions to expand and serve a larger market. 5. Tackle Policy on Multiple Fronts In the policy area, it was difliculf to effect significant policy change in the midst of political turbulence and economic recession. Although CRECER succeeded in significantly strengthening the capacity of gavement decision makers to analyze data and draw conciusions, as evidenced by CECER's contribution to the government's new agPlcultural and rural poverty strategies, the ability to influence national policy was limited by a change of government. CRECERys policy efforts were also hampered by concentrating on a single ministry, the Ministry of Agriculture. Although CRECER was frequently able to persuade decision makers in the ministry to modernize specific aspects of sectoral policy, its efforts were sometimes quashed by other ministries and/or agencies with competing interests. To mitigate against this in fbture projects, it is recommend that future policy projects be designed to have a presence in several ministries and agencies to tackle policy issues &om different angles, building widespread consensus. 6. Training One accomplishment that spanned all project components was CRECWs ability to structure and host effective fora, workshops, and other training events. An internal review of the training component concluded that these events were very successfiil. The targeted persons attended, specific goals and objectives were achieved, and the resulting discussions measurably raised the level of understanding of key messages and issues. CRECERys success in training was linked to the efficient administration of these events We recommend the following techniques to ensure successfbl training: e Hold workshops outside the capital, in areas near clients. Hand-deliver invitations; follipw up with phone calls whenever possit>k?.Events should be well organized and professionally presented (printed name tags and folders, good food, comfortable venues, professional sound systems, taping of sessions, timely and professional document preparation and distribution). e Provide meals, as many participants, many of them poor, travel long distances. .S Combine panel presentations with discussion and breakout sessions to keep the audience engaged. a Pre-assign participants to working groups to ensure 111 representation of all issues and opinions. c Each working group should comprise 8-12 persons, including two project team members. This encourages participation without agowing any one person to dominate the discussion. Promoting open discussion and pre-assigning each participant to a working group were especially effective in producing realistic, practical recommendations. The CRECER team heard repeatedly that this format allowed bankers and producers to discuss their problems frankly - in many cases for the first time - and develop solutions together. 7. Technology Using digital camera, laptop computers and LCD projectors allowed CRECEW to complement presentations and use pictures to communicate points to illiterate farmers. High-speed laptops and software allowed organizers to work efficiently with associations and producers to compile business projections and strategic plans in their own places of business. Based on the positive response of CRECER clients to the use of these technologies, it is recommended that all projects consider using these media for education, training, and information dissemination. 8. Contract Management The three components of CRECER - rural agricultural enterprises, ma1 financial enterprises, and policy - shodd have been better integrated. In part, the lack of integration may be attributed to the fact that each ofthree subcontractors was responsible for implementing one of the three components. The disaggregation of the project was also heled by having three separate project officers in USAID, each focused on only one component. Second, CRECER reports did not always provide USAID with the information it needed to make decisions and report to Washington. This was because USAZDIEI Salvador was reengineered according to a strategic objective framework shortly after CRECER began operations, but the contract was never modified to reflect this change. The lesson learned from this experience is that the contract should have been amended during implementation to reflect changes in the mission's strategy and results framework. Chemonics reported in the last quarterly counterpart contribution report: (June 30,2000), a contribution of $1 1.049 million, which was higher than the one required by the Grant Agreement ($5 million). Continue the process of reimbursement of expenditures until Chemonics submits the %a1 voucher. Contract Data Contract No. 5 19-C-OO-94-OOlS4-OO (formerly 5 19-0397-C-00-4 154-00) Total level of effort (implementation) 1 3 06.9 person-months Total estimated cost $12,925,062 Obligated amount $12,925,062 1. Cumulative level of effort (implementation)* 1226 person-months 2. Unused level of effort 80.9 person-months 3. Cumulative expenditures through September 2000"" $12,836,047 4. Remaining unexpended balance $89,015 5. Remaining unexpended obligated $0 * Cumulative level of effort was revised as a result of an audit to account for all professional level of effort dedicated to the project during the contract life - short-term, long-term, and home￾office. Although our contract budgeted both the local accountant and the office manager as professionals, neither position was billed as professional in an effort to respect cost consciousness. If the level of effort for these positions is applied to the cumulative professional level of effort for implementation, the total number of person-months expended increases by 1 18 person-months to 1,344 person-months. ** Cumulative expenditures through September 2000 do not reflect all costs incurred through September 2000, but all costs billed through September 2000. During the next few months we will bill all remaining costs incurred prior to September 30,2000.