www.fgv.br/cps

Inter-American Foundation & Fundação Getulio Vargas

Impact Evaluations 2007

Centre for Social Policies Fundação Getulio Vargas

Rio de Janeiro – Brazil

www.fgv.br/cps

A Study of Micro-Credit

11 projects in 3 countries

• Peru: PU-481, PU-492, PU-493 and PU-507

• Mexico: ME-407, ME-419, ME-426 and ME-431

• Nicaragua: NC-227, NC230 and NC234

www.fgv.br/cps

Impact Evaluation Aim

Define a coherent vision of how to support micro-finance programs consistent with the

IAF philosophy and mission

www.fgv.br/cps

“The sustainability of development rests on people’s capacity to control their own

circumstances, and sees the enhancement of this capacity as a principal result of the

projects it supports.”

IAF Values

www.fgv.br/cps

Evaluation Methodology

? Institutional Assessment

?Qualitative Interviewing

?Financial analysis

?Video

www.fgv.br/cps

“Micro-credit is not a panacea, but it can

be a viable strategy to reach and help

poor people, when the grantee is well-

prepared to deal with the immediate

dimensions of poverty”

www.fgv.br/cps

Categories – Fund Performance

?Group A: weak credit component, poor governance structure, difficulties in recovering loans & covering operational costs, low impacts and weak sustainability.

?Group B: reasonable growth, learns from experience and applies knowledge to new projects, incorporates new technologies.

?Group C: sound portfolio, self-sufficiency, growth potential, good outreach.

www.fgv.br/cps

“An early example of the paucity of financial data in development finance is found in the Inter-American Foundation’s They know how… publicized in 1977 (available from the Superintendent of Documents, US Government Printing Offices, Washington DC 20402, stock no. 022-000-00137-0, reprinted in 1986). The foundation reports that, ‘out of 21 projects, sufficient data (are) available on eight projects to make general statements on loan repayment (rates)’. Twelve projects had been in operation long enough to have expected loan collections, but no data were on hand (pa. 42).” Von Psichke, Measuring the performance of small enterprise lenders Kimenyi, Wieland and Von Pischke (1998) Strategic issues in Microfinance, Ashgate.

.

.

Bias: Scarce financial information

www.fgv.br/cps

Projects by Fund Performance

www.fgv.br/cps

Name Country Total Assets

Return on Assets

Portfolio at Risk>30 days Ratio

Number of active borrowers

Average Loan Balance per Borrower

FONDESURCO Peru 2,228,098 5.13% 2.47% 1,818 1,168Fundacion Leon 2000Nicaragua 6,263,954 0.22% 6.34% 9,43 554

Top Fund Performers: Financial

Source: MixMarket.org

www.fgv.br/cps

Top Fund Performers : Financial

Source: grantee records.

?Accedde, Jalisco, Mexico

Index FormulaCapital Assets - Passive 18,066 (Millions $)Self-Sufficiency Capital/Assets 17%Solvency Assets/Passive 1.19%

LiquidityCurrent Asset/Current Passive 116%

www.fgv.br/cps

.

.

Where are the other organizations now?

www.fgv.br/cps

Project Impacts

Source: Hassan Zaman, Assessing the Poverty and Vulnerability Impact of Micro-Credit in Bangladesh: A case study of BRAC, World Bank.

a) Vulnerability Reduction

Access to assets that decrease susceptibility to shocks.

“In a scenario where the credit-financed investment does not generate a significant net profit then an asset is created which can reduce vulnerability but will not reduce poverty as the loan installment repayment takes place through a reduction in consumption and not from the returns to the investment”

www.fgv.br/cps

Positive Evidence: PU-481(Omate & Puquina, Peru)

?Credit to afford production inputs ? Sale of livestock to afford credit repayment

installment

Vulnerability Reduction

www.fgv.br/cps

Project Impacts

B) Poverty Reduction:

“Increases in income or consumption (i.e. reduction in poverty) can occur if credit is used for an income generating activity and that activity generates returns in excess of the loan installment repayments”

Source: Hassan Zaman, Assessing the Poverty and Vulnerability Impact of Micro-Credit in Bangladesh: A case study of BRAC, World Bank.

www.fgv.br/cps

Poverty Reduction

• PU-492: Arapa and Chupa, Peru.

?Credit to buy and sell animals at a profit.

• ME-507 (Jalisco, Mexico)

?Credit as working capital, with a profit that does not compromise future consumption while also improving living standards.

www.fgv.br/cps

Unexpected Negative Results

PU-493 – Cedes (Abancay, Peru)

? Sacrifice of the future consumption.? Vulnerability after the project: reacting to

circumstances.

ME-419 – Group Knan Choch (Motozintla, Mexico)

? Poor management of the funds? Lack of evidence for the equitable distribution of loans

– power imbalance.

www.fgv.br/cps

Key Ingredients for Success

?Clear vision, mission, focus.

?Good alliances

? Financial ethos (interest rates, recovery) and skills

?Division of labor: credit activities distinct from other operations.

? Transparency: high level of information disclosure

? Self-critical organizations: re-evaluating strategies.

www.fgv.br/cps

Challenges

• Beneficiaries’ aversion to risk

• Beneficiaries’ restricted access to good quality land, productive resources and other collateral

• Poor infrastructure: e.g. lack of irrigation.

• Resistance to new technologies.

• Governance and management structure of the organizations

www.fgv.br/cps

A Challenge myth

“The regulatory framework is paramount to the performance of organizations”

• The Case in Nicaragua: institutions in the same regulatory environment with different performances.

www.fgv.br/cps

Credit Lessons

• Willingness to borrow is greatly determined by the borrower’s land tenure and /or access to other resources.

• A beneficiary’s repayment capacity should not be underestimated – negative incentive.

• Diversification of the portfolio – spreading risks so often associated with agricultural activities.

• Social intermediation costs are worthwhile.

• Capacity building and technical assistance: sine qua noncondition to improve the efficient use of resources.

.

www.fgv.br/cps

• Enhance financial management of beneficiaries:Provision of capacity building and technical assistance.

• Ensure high repayment rates: Good credit profile assessment prior to the concession of the loan.

• Improve participation in the productive chain: Organization of producers to reach markets.

• Lower monitoring costs: take advantage of available information about borrower’s repayment capacity.

Important Strategies

www.fgv.br/cps

www.fgv.br/cps

www.fgv.br/cps

Create viable institutions can be a project and

building strong organizations can be even

more important than the swift disbursement of

funds.

• (Schmidt and Zeitinger & Kimenyi, Wileand and Von Pieschke, 1998