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Inter-American Foundation & Fundação Getulio Vargas
Impact Evaluations 2007
Centre for Social Policies Fundação Getulio Vargas
Rio de Janeiro – Brazil
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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
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Impact Evaluation Aim
Define a coherent vision of how to support micro-finance programs consistent with the
IAF philosophy and mission
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“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
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Evaluation Methodology
? Institutional Assessment
?Qualitative Interviewing
?Financial analysis
?Video
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“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”
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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.
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“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.
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Bias: Scarce financial information
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Projects by Fund Performance
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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
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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%
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Where are the other organizations now?
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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”
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Positive Evidence: PU-481(Omate & Puquina, Peru)
?Credit to afford production inputs ? Sale of livestock to afford credit repayment
installment
Vulnerability Reduction
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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.
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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.
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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.
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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.
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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
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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.
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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.
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• 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
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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