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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 14739

PROJECT COMPLETION REPORT

PAKISTAN

SIXTH AGRICULTURAL DEVELOPMENT BANK PROJECT(LOAN 2693-PAK AND CREDIT 1699-PAK)

JUNE 29, 1995

Agriculture and Natural Resources DivisionCountry Department ISouth Asia Regional Office

This document has a restricted distribution and may be used bv recipients only in the performance oftheir ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Pakistan Rupees (PRs) per US Dollar

Appraisal Year (1985): 15.93 (16.13)Intervening Years (1986-91): 19.68 (20.40) '

Completion Year (1992): 25.08 (25.89)* For corresponding fiscal years.

FISCAL YEAR OF BORROWER

July 1 to June 30

WEIGHTS AND MEASURES

British/US Units Metric Units

1 foot (ft) = 30.5 centimeters (cm)1 mile (mi) = 1.609 kilometers (km)1 acre (ac) = 0.405 hectare (ha)1 square mile (sq.mi.) = 259 ha1 pound (lb) = 0.454 kilograms (kg)I long ton (1g.ton) = 1,016 kg (1.016 metric tons)1 cubic ft/sec. (cusec) = 0.028 m3/sec

ABBREVIATIONS

ADBP Agricultural Development Bank of PakistanATA Average Total AssetsATTC Agricultural Technology Transfer CenterFMCO Functional Mobile Credit OfficerICB International Competitive BiddingM & E Monitoring and EvaluationMCO Mobile Credit OfficerMCOI Mobile Credit Officer for Intensified SchemesMIS Management Information SystemOECF Overseas Economic Cooperation Fund of JapanPCR Project Completion ReportSBP State Bank of Pakistan

FOR OFMCLCL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A.

Office of Director-GeneralOperations Evaluation June 29, 1995

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on PakdstanSixth Agricultural Development Bank Project(Loan 2693-PAK and Credit 1699-PAK)

Attached is the Project Completion Report (PCR) on the Pakistan-SixthAgricultural Development Bank project (Loan 2693-PAK and Credit 1699-PAK, approved inFY86), prepared by the South Asia Regional Office. Part II was prepared by the Borrower.

The principal objective of the project was to further strengthen the AgriculturalDevelopment Bank of Pakistan (ADBP) as an effective and self-sustaining lendinginstitution-capable of reaching an increasing proportion of the rural community-by financing atime slice of its operations. The ADBP was to provide loans to farmers for medium- and long-term agricultural investments, while expanding the share of its lending going to smaller farmers.The US$165 million Loan and US$45 million equivalent Credit were expected to cover 13 percentof total project costs and be fully committed in three years.

The PCR-a good, balanced document-describes ADBP's successful lendingperformance in which the financing of tractors and equipment maintained a dominant thoughdeclining share of total investments. The small farmer targets were exceeded. Re-estimates ofthe financial and economic rates of return for appraisal farm models show values similar to thehigh rates originally projected. However, the PCR documents in detail the deterioration of keyfinancial and institutional indicators, especially after 1990. Sub-loan recovery rates fell from 73percent to 45 percent between 1985 and 1993: compared with a minimum recovery target of 81percent by 1989 set at appraisal. The number of loans and lending volumes declined as ADBPunsuccessfully tried to reverse the trend to higher delinquency. The PCR identifies the loss ofstable and strong leadership at ADBP as one of the factors explaining the decline in performance.The PCR concludes that ADBP is neither financially self-sustaining, nor becoming so. The Bankand its cofinanciers cancelled undisbursed loan funds for the follow-on operation in June 1994.

Despite impressive on-farm achievements, the project outcome is rated asunsatisfactory, institutional development as negligible and sustainability as unlikely.

A cluster audit is planned for this and the follow-on operation.

Attachment

This document has a restricted distribution and may be used by recipients only In the performance of theiroffidal duties. Its contents may not otherwise be disdosed without World Ban* authorizatlon.

PROJECT COMPLETION REPORT FOR OFFICIAL USE ONLY

PAKISTAN

SIXTH AGRICULTURAL DEVELOPMENT BANK PROJECT(Ln. 2693-PAK, Cr. 1699-PAK)

TABLE OF CONTENTS

PREFACE ....................................................... i

EVALUATION SUMMARY ........................................... iii

PARTI ........................................................ 1

1. Project Identity ................................................. 12. Background ................................................... 1

3. Project Objectives and Description ..................................... 24. Project Design and Organization ...................................... 25. Project Implementation ............................................ 3

Institutional Development and Viability ............................... 7Financial Perfornance ........................................... 9Impact on Sectoral Issues ........................................ 14

6. Project Results ................................................. 157. Project Sustainability ............................................. 168. Bank Performance .............................................. 179. Borrower Performance ............................................ 1810. Project Relationship ............................................. 1811. Consulting Services ............................................. 1912. Project Documentation and Data ...................................... 19

PART II ........................................................ 21

A. Comments on Part III of the Report .................................... 21B. Comments on Part I of the Report ..................................... 21C. Bank's Performance .............................................. 22D. Borrower's Performance ........................................... 23E. Problems Faced ................................................ 25F. Lessons Learnt ................................................. 25

PART III ....................................................... 27

1. Related Bank Loans and/or Credits ............... ..................... 272. Project Timetable ............................................... 283. Loan/Credit Disbursements ....... .......... ........................ 284. Project Implementation ............................................. 29

A. Tractor Lending ........................................... 29B. Farm Implements and Minor Irrigation Lending ....................... 29

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.

C. Livestock, Dairy and Poultry Lending ............................. 30D. Lending to Small Farmers .30E. Share of Short-term Lending .31F. Loan Recovery Rate .31G. Training and Technical Specialists .31

5. Project Cost and Financing .. 32A. Project Cost .32B. Project Financing .33

6. Project Results .. 33A. Direct Benefits .33B. Economic Impact .33C. Financial Impact .34D. Studies .34

7. Status of Covenants .358. Use of Bank Resources .................. 39

A. Staff Inputs .39B. Missions .40

MAP IBRD 19548

TABLES

Table 1 Trends in Average Capital and Staff Production of Services FY87-92Table 2 ADBP: Balance SheetTable 3 ADBP: Income and Expenses StatementTable 4 ADBP: Cash Flow StatementTable 5 ADBP: Term-wise Recovery PositionTable 6 Subsidy Dependence Index of ADBP - FY87-92

ANNEX 1: Financial and Economic Re-evaluation


PAKISTAN


PREFACE

1. This is the Project Completion Report (PCR) for the Sixth Agricultural Development BankProject (ADBP-VI) for which Loan 2693-PAK in the amount of US$165 million and Credit 1699-PAKin the amount of SDR 47.6 million (US$55 million equivalent) were approved on May 15, 1986. TheLoan was fully disbursed by the original closing date (June 30, 1991). After two extensions (by one yearand six months, respectively), the final credit closing date was December 31, 1992. The credit accountwas kept open until April 30, 1993, to accommnodate final withdrawal applications. With the lastdisbursement made on May 18, 1993, the credit was also fully disbursed.

2. The PCR, except Part II, was prepared by an FAO/World Bank Cooperative Programmission, which visited Pakistan in April 1994, and reviewed by the Agriculture and Natural ResourcesOperations Division, Country Department I, South Asia Region. Preparation was based on a review ofthe Staff Appraisal Report and legal documents, supervision reports and project files; a draft PCRprepared by the Agricultural Development Bank of Pakistan (ADBP); field visits; and discussions withofficers of ADBP and the State Bank of Pakistan (SBP), beneficiaries, and Bank staff associated with theproject. Part II was prepared by ADBP for the Borrower.

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PAKISTAN


EVALUATION SUMMARY

Introduction

1. The Bank's association with the Agricultural Development Bank of Pakistan (ADBP) datesback to a Credit (Cr. 76-PAK) in the amount of US$27 million, signed in June 1965. By mid-1986, theBank's lending to ADBP totalled nearly US$375 million through what became a series of six loans/credits.In addition to the lending programs, increasing emphasis was placed on the institutional development ofADBP.

Objectives

2. Designed as a 'traditional' credit project, the two principal objectives of the Sixth AgriculturalDevelopment Bank Project in Pakistan were to: (i) further strengthen ADBP as an effective and self-sustaining lending institution capable of reaching an increasing proportion of the rural community; and(ii) increase farm productivity and farmers' incomes through the provision of credit and related technicalsupport under ADBP's mobile credit officer (MCO) scheme.

3. These objectives were to be achieved by: (i) improving the efficiency of credit deliverythrough the MCO scheme; (ii) enhancing ADBP's ability to cater to the needs of small farmers; and (iii)developing ADBP's capacity to lend effectively in specific priority areas (tractors, implements, privateminor irrigation) through training and technical assistance.

Implementation Experience

4. The project became effective in September 1986, about three months after loan/credit signing.Disbursements were generally ahead of appraisal estimates for most of the project period, with the Bankloan fully disbursed by the original closing date (June 30, 1991) while the IDA credit experienced delaysmainly in disbursement for vehicles and the closing date was extended twice from June 1991 to December1992. The credit was also fully disbursed. At completion, project costs exceeded appraisal estimates by60% in Pakistan rupees due to the longer implementation period, coupled with an average inflation rateof 9% rather than 7.5% expected at appraisal, and a significant depreciation of the Pakistan rupee.

5. During the implementation period, total term lending and short-term loans financed by ADBPshowed a low annual growth of 3% compared to the appraisal estimate of 25% p.a. There was a 27%expansion in FY88, which steadily fell to 8% in FY90. Since FY90, total lending declined by 11% inFY91 and 16% in FY92, largely due to stricter lending criteria, greater attention to loan recovery andcutbacks in SBP funding. The share of lending for tractors in ADBP's total lending dropped considerablyfrom 43% in FY87 to 25% in FY92, thus leading to significant improvements in the diversification ofADBP's loan portfolio. The channelling of an increasing share of ADBP funds to small farms (below 25ac) met or even exceeded the agreed targets of 75%, and nearly 50% or more of funds went to farms ofless than 12.5 ac.

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6. These achievements have, however, been accompanied by some serious short-comings. First,overdues are high and loan recovery has been low and falling, largely as a result of rapid credit expansionwithout due attention to the quality of loans. While rapid growth in disbursements (prior to 1989) andrescheduling policies (since then) have helped to diminish arrears as a percentage of the portfolio, they alsohave masked the true state of portfolio quality. Almost 25% of ADBP's portfolio was affected by arrearsin 1993, before reschedulement (of PRs 6,134 million) or 12% after reschedulement. Loan recovery rates(before reschedulement) declined steadily from 67% in FY87 to 44% in FY93. Low recovery has beencaused by borrowers' low and variable income, poor sub-project selection, inappropriate loan amount andinadequate follow-up by branch staff and MCOs. In addition, political interference, remission of interestpayments from time to time as well as willful default continue to play a major role. Also, there areinsufficient incentives or penalties to induce timely repayments; borrowers who default take little risk, bankstaff receive the same rewards whether they make good or bad loans. Secondly, the low financial spreadsin the face of high provisions for possible loan losses are insufficient to cover the full cost of lending.While ADBP has been reporting profits in recent years, it is actually incurring losses if real bad debtprovisions and interest income reversal were properly reflected in its accounts. As a result, the financialviability of ADBP is in question.

7. The other outstanding problems include the avoidable costs of unprofitable branches (whichcould be minimized by closing unviable branches and merging others to make them viable), undueconcentration of risks in certain sectors (e.g., tractors), Government's resistance to increases in agriculturalinterest rates, low deposit base and the concomitant dependence on SBP for funding. ADBP hasdeteriorated to a point where its ability to respond to the growing needs of agricultural clients isincreasingly in doubt.

Project Results

8. The principal objectives of the project have not been fully achieved. Although the Bankappropriately placed increasing emphasis on ADBP's institutional development, weaknesses in its financialstructure caused largely by declining loan recovery rates continued to be an obstacle to successfulstrengthening of the bank through the project period. On the other hand, ADBP has made a substantial,though declining, contribution to the financing of farm investments during the period under review.Between 1987 and 1992, it expanded its network from 235 branches and 36 regional offices to 332branches and 48 regional offices. The number of staff benefiting from the training program totalled 10,000for locally conducted training courses and 39 for overseas training. The MIS was consolidated andupgraded. Some progress was also made in monitoring and evaluation.

9. As a result of the sharp increase in overdues, ADBP experienced a shortage of liquidity,which was partly overcome by soft loans from IBRD/IDA, the Asian Development Bank and OECF.ADBP was able to reschedule loans in arrears and continue to expand its portfolio until FY90. Since then,its lending declined and its dues to SBP were further delayed. After FY87, implementation of a moreprudent provisioning policy revealed the extent of ADBP's hidden losses. ADBP currently lends at ratesthat are positive in real terms, although they are below market rates and inadequate to cover the full costof lending.

10. Re-estimated financial rates of return range from 14% to 51 %, compared to 18% to 49% atappraisal, whereas re-estimated economic rates of return range from 25% to 60%, compared to 22% to50% at appraisal. This indicates that most investments could have supported loans at market rates ofinterest, and that the overall rate of investment would probably not have been lower in the absence ofadministered interest rates. Some investments with low returns, such as tractors on rainfed farms, mightnot have been made without the preferential interest rates.

Sustainability

11. ADBP's sustainability depends mainly on significant improvement in the loan recovery rate.This rate steadily declined from 67% (FY87) to 44% (FY93). Following the floods of 1992, 53% ofADBP's overdues were rescheduled in FY93. ADBP mounted a series of ineffective loan recovery drives.Unless the recovery rate improves, ADBP's move towards sustainability would be delayed. A subsidydependence index calculated for ADBP shows that reliance on subsidies fell from 52% to 46% betweenFY87 and FY91 but rose to 57% in FY92. While such progress is encouraging, prospects for ADBP'slong-run sustainability remain dim.

Lessons Learned

12. The main lessons learned from the implementation experience of the project are as follows:

(i) The critical importance of stable, strong and capable leadership on a continuing basisis demonstrated by the experience of ADBP, which had six chairmen between 1987 and 1992. While therecan be a role for short-term consultants, they cannot substitute for local management. Building goodinstitutions begins with continuity of strong management.

(ii) The case of ADBP confirms, a lesson often learnt, that institution-building is a slowprocess, the pace of which must be generated within the institution itself if it is to be sustained, and thatassistance which can be given by external agencies like the Bank, while at times valuable, also has clearlimitations. This is especially so in staffing and management.

(iii) ADBP's experience, which is matched by many similar cases in South Asia, suggeststhat it is preferable to have agricultural banks that are closely integrated into a country's financial systemrather than institutions given such a specialized position as ADBP. The risk is that the bank grows intoa complacent bureaucracy rather than a development-oriented, competitive business organization.

(iv) The Bank should take a firmer position regarding the financial performance of thebanks, insisting on satisfactory results as a precondition for (continued) lending. The Bank should alwaysreceive a thorough, independent audit report on the institution's financial position including its loanportfolio before lending to it.

(v) In designing repeater projects like the Agricultural Credit Project (Ln. 3226-PAKand Cr. 2153-PAK), it would have been desirable to avoid the overlap with the preceding sixth project,which reduced the opportunity of learning from the implementation experience of that project.

(vi) Poor profitability of agricultural banks in general, and ADBP in particular, is theresult of administered, subsidized interest rates to borrowers which do not pass on the full cost of lending.In addition, ADBP incurs losses due to non-accrual of interest on overdue loans while paying interest ondues to SBP, and interest remissions on bank loans introduced by Government from time to time withoutreimbursement. It is likely that interest rates are subsidized without full appreciation of the costs and effecton ADBP viability.

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PAKISTAN


PART I

1. Project Identity

Project Name Sixth Agricultural Development Bank ProjectLoan No. 2693-PAKCredit No. 1699-PAKRVP Unit South AsiaCountry PakistanSector : AgricultureSub-sector Agricultural Credit

2. Background

2.1 Pakistan is dependent on the flow of external resources to augment national savings. Asignificant part of this flow has come from the Bank Group, largely in the form of concessional creditsfrom IDA but with loans from the Bank increasing as IDA resources became limited. By mid-1986, boththe Bank and IDA had made cumulative commitments of US$4.4 billion to Pakistan. This amountincluded lending to ADBP totalling US$374.8 million (or 9% of total commitments) between 1965 and1986, through six credits/loans. The agricultural credit portfolio is thus a significant part of the BankGroup's agricultural program in Pakistan since 1965. Until the seventh lending operation approved in1990, the six previous credits/loans followed a similar pattern of objectives: financing of farminvestments, transfer of external resources to Pakistan, and development of ADBP as an institution. Thesixth operation, the subject of this report, became effective in September 1986. It provided US$165million in loan and US$55 million equivalent in credit funds - almost four times the loan/credit size ofthe fifth project - aimed at continuing the institutional development of ADBP and at increasing farmproductivity and farmers' incomes by supporting ADBP's lending program through its mobile creditofficers scheme. All six operations funded only investments and not seasonal inputs.

2.2 Until 1989, Bank lending for agriculture concentrated on strengthening the operations ofADBP, the major source of agricultural credit in Pakistan. The Agricultural Credit Project, which is theseventh in the series, was appraised in June/July 1989. In line with the Bank's recent strategy to moveaway from supporting a single financial institution, this project has sought to improve the rural financialsystem as a whole and complement the reform measures pursued under the Financial Sector AdjustmentLoan (Ln. 3029-PAK). The key implication is that financial sector lending should not only provideneeded credit to the real sectors but also simultaneously serve as a catalyst for the development of thefinancial sector, thereby enhancing the Bank's role in promoting sound policies and institutions in thefinancial sector.

3. Project Objectives and Description

3.1 The two principal objectives of the project were to: (i) further strengthen ADBP as aneffective and self-sustaining lending institution capable of reaching an increasing proportion of the ruralcommunity; and (ii) increase farm productivity and farmer incomes through the provision of credit andrelated technical support under ADBP's mobile credit officer (MCO) scheme. To achieve theseobjectives, the project was designed to: (i) improve the efficiency of credit delivery through an expandedMCO scheme that would focus on quality of lending; (ii) enhance ADBP's ability to cater to the needsof small farmers through more intensive area coverage by MCOIs (mobile credit officers for intensifiedschemes); (iii) further improve ADBP's capacity to lend effectively for priority investments, such astractor-drawn implements and private minor irrigation, and lend for investment packages that promotethe adoption of improved farm practices; and (iv) provide, through ADBP, loans to farmers for mediumand long-term agricultural investments during FY87-89 in farm mechanization, implements andequipment, private minor irrigation, dairy development, poultry and other livestock, orchards, vegetables,minor crops and other on-farm development.

3.2 The project was estimated to cost PRs 29,528 million or US$1,671 million, based onADBP's projected three-year lending program for FY87-89 extended to 41½ years in accordance withADBP's disbursement profile. Against this, an IBRD loan of US$165 million and an IDA credit ofSDR 47.6 million (US$55 million equivalent) were negotiated in March 1986. The legal agreements weresigned in May 1986 and the loan and credit became effective in September 1986.

4. Project Design and Organization

4.1 The basic project design and the implementation arrangements were similar to those of thefifth project. However, the project took into consideration lessons learned during the implementation ofprevious projects. These were: (i) the deterioration of ADBP's financial position and the failure toachieve institutional goals (third project); (ii) the successful MCO system, the successful expansion ofsmall farm lending, improved credit recovery, the interest rate subsidy to ADBP from Government andthe disappointing mechanization field trials (fourth project); and (iii) expansion in lending and changedcomposition along lines intended, with a lower share for tractors and increased lending to small farms,strengthening of ADBP largely as a result of its taking the necessary steps identified during projectpreparation and appraisal, expansion of the MCO system and satisfactory financial rates of return to farminvestments (fifth project).

4.2 The main issues identified during appraisal of the sixth project were: (i) Islamization ofthe ADBP lending operation and on-lending to ADBP; (ii) continued financing of tractors under theproject; and (iii) financing of vehicles. To overcome negative income effects from Islamic banking,ADBP was required to charge rates of return or other charges based on Islamic modes of financing thatwould be positive in real terms and sufficient to cover its total operating expenses and possible provisionsfor bad debts, with level of provisions to total overdues at 40% or more, and accumulate reserves thatwould be adequate to ensure, in conjunction with contributions by SBP to paid-in capital, that the ratioof debt to equity is not greater than 7:1. The tractor issue was resolved by limiting project lending fortractors to farmers with 25 ac or less on the grounds that tractorization may not have caused involuntaryunemployment as much as voluntary substitution of leisure for family labor inputs. The vehicles issuewas resolved by requiring procurement under ICB.

4.3 With hindsight it is clear that a gap in the appraisal process was the lack of sufficientattention to the ambitious projected lending growth (25 % p.a.), which outpaced management capabilitiesof ADBP, a lesson which should have become clear with continuing problems on loan recovery. There

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was a broad assumption that loan recovery measures introduced under ADBP-V (annual case-by-casereviews of overdues, policy on write-offs, and policy of making provisions for bad debts) would enhancerecovery rates as projected under the sixth project. The alarming rise in the level of overdues during theFY87-92 period made this assumption unrealistic, delaying implementation of a clearly focused actionplan (later to be introduced under the follow-up project). In addition, the bias in favor of lending at theexpense of savings was continued by ADBP during the project period.

4.4 The sixth project was prepared by ADBP with the assistance of consultants and appraisedby the Bank in August/September 1985. As appraised, the project, like its predecessor, aimed atcontinuing the institutional development of ADBP and at increasing farm productivity and farmers'incomes by supporting ADBP's lending program through its MCO scheme. The relevance of thesemeasures is reflected in the Bank's continued concern for small farmer clientele and the economicjustification of tractorization. The increase in the number of MCOs envisaged under the sixth projectbetween 1987 and 1992 is an indication of ADBP's role in facilitating access of small farmers to short-term credit and term loans, improving the quality of the loan portfolio and its recovery levels. Asregards lending for tractors, the Bank has followed up with a deliberate effort to keep the potential forlabor displacement under review. As in ADBP-V, the sixth project limited eligibility for tractorrefinancing to loans made to farmers with 25 ac or less, and provided for continued monitoring of itsimpact.

4.5 Timing of the project was opportune as the fifth project was scheduled to close in June1986. The implementation arrangements have followed a pattern established under previous projects.ADBP, as and when needed, was expected to increase its headquarters and field staff, and streamline itsorganizational structure and lending procedures in order to process expansion in lending volume.Considering that these adjustments had been made as required in the past, it might have been reasonableto assume that the projected lending targets would be achieved, but not the loan recovery which requiredimproved systems and management as much as good lending decisions.

5. Project Implementation

5.1 General Performance. The sixth loan/credit became effective in September 1986, aboutthree months after signature. By June 30, 1991, the loan was fully disbursed. After a 1 ½h year extensionof the closing date, to December 31, 1992, the credit was also fully disbursed.

5.2 ADBP's sources of low-cost funds had been the key instrument in its rapid expansion interms of organization, coverage and lending in Pakistan. The various organizational units of ADBP inFY92 included its headquarters, 48 regional offices and 332 branches where over 8,600 employeesprovided credit services including loan disbursements. The mobile credit system expanded from coverageof 39,576 villages in FY87 to about 43,930 villages in FY92, although at 1,454 the number of MCOswas lower (by 9%) in FY92 than the SAR target of 1,590. For general credit lending, the number ofborrowers declined from 120,944 in FY87 to 97,655 in FY92, compared with a target of 150,000, partlydue to the increased size of loans from PRs 44,300 to PRs 66,650. The lending growth rate was higherat 27% in FY88 than planned at appraisal (25% p.a.) but dropped to 12% in FY89, 8% in FY90, -11 %in FY91 and -16% in FY92. The slower growth during the FY89-92 period was attributed largely tocutbacks in SBP funding and linkage of disbursement with recovery.

5.3 The annual growth of total loan disbursements over the 1987-92 period continued todiversify in response to borrower demand. Tractor loans, which expanded by 29% between 1984 and1987 accounting for nearly 43% of total lending in FY87, decelerated (because of marked increases intractor prices), falling to 25% in FY92. Short-term lending progressively increased its share in total

lending from 19% in FY87 to 43% in FY92. This exceeded the ceiling of 20% targeted at appraisal inall years except in FY87. The bank's customer base was broadened during the project period to improvelending to smaller farmers. About 79% of its term loans (excluding project loans) in FY92 wereprovided to farmers with up to 25 ac of land, and within this total nearly 49% were provided to farmersholding under 12.5 ac, thus exceeding or almost meeting the targets set at appraisal (75% and 50%,respectively).

5.4 However, these achievements were accompanied by some serious shortcomings. First,overdues are high and loan recovery has been low and falling, a reflection of poor (past) lending. Inaddition, political interference, interest remission from time to time, as well as willful default continueto play a major role. Secondly, the low financial spreads in the face of high provisions for possible loanlosses are insufficient to cover the full cost of lending. As a result, ADBP is not financially viable orsolvent. The other outstanding problems include the burden of unprofitable branches, undueconcentration of risks in certain sectors (tractors), Government's resistance to increases in agriculturalinterest rates, low deposit base and the concomitant dependence on SBP for funding.

5.5 Lending and Portfolio Mix. ADBP's lending for agriculture showed a dramatic shift inthe structure and scale of disbursements as evidenced in the following table.

ADBP's Lending to Agriculture - Loan Disbursement FY87-92(PRs million)

Indicators FY87 FY88 FY89 FY90 FY91 FY92.:

Short-term loans 1,139 1614 2,063 2,228 2,444 3,043

0Tlerm 0loans0 0Cl;00 000000000 0 0 ;; 0 4,21;1-0;; 000;005,340: 60 12 .6,414 5,9 3,447

Agri-business credit:t 681 762 593 748 588 506

GrossAdisbursements. 6,031 7,716 8,668 9,,390 8,324 :6,996

Loan recoveries 3,780. 4,697 : 5,211 6,579- 7,808 i:9,438l

Net disbursements6.: 2,251 3,019 3,457 2,811 :5:16 (2,442)

SBP financing: 75S%. 65% 71% 61% 68%S E24% l

As proportion of gross disbursements.

As shown in the table, aggregate loan disbursements to agriculture expanded at a nominal rate of only3% p.a. between FY87 and FY92, compared to the projected rate of 25% p.a. Short-term lendingincreased its share in total lending progressively from 19% in FY87 to 43% in FY92. Since January1991, ADBP has stopped new loans for agri-business due to its dismal loan repayment performance,which explains the falling trend in loan disbursement in this sector. Overall, financing by SBP fell from75% to 24% of total disbursements due to ADBP's failure, or inability, to honor its debts to SBP withoutrecourse to involuntary rescheduling, plus SBP's insistence that ADBP should generate its own resourcesthrough loan repayments, income, borrowing, and savings mobilization.

5.6 There was increased lending between 1987 and 1990, which required an expansion oflending per branch from an average of PRs 25.7 million in 1987 to PRs 29.2 million in 1990. Lendingper branch declined to PRs 25.1 million in 1991 and PRs 21.1 million in 1992. Despite this impressive

early growth, disbursements in FY92 as a proportion of ADBP's total assets averaged only 16% and fellshort of loan collections, representing a net withdrawal of ADBP's funds from the economy. Theoutstanding nominal loan portfolio, however, stood at 97% of total assets in FY92. This higherproportion is primarily a reflection of poor loan recovery.

5.7 The number of villages covered expanded while the number of borrowers declined, partlydue to the larger size of loans, as indicated below.

Coverage of Villages and Borrowers during FY87-FY92

Projected ActualYear

Villages Borrowers Branches Villages Borrowers Average size ofl l general credit loans

FY87 36,869 140,000 235 39,576 120,944 44,300

FY88 40,697 165,000 250 40,294 154,490 45,100

FY89 42,500 175,000 276 41,115 151,128 53,500

FY90 43,250 173,950 322 41,769 133,210 65,000

FY91 - 140,000 332 43,722 109,600 70,800

FY92 - 150,000 332 43,930 97,655 66,650

5.8 The portfolio mix (in terms of disbursement) of the FY87-92 period highlights ADBP'sdiversified lending with major changes in short-term lending and tractor lending (see para 5.3 above).Analysis of total loan disbursement in FY92 by landholding shows that 52 % by number of borrowers and31% by amount went to farmers with holdings of less than 12.5 ac. A further 23% by number and 29%by amount went to farmers holding 12.5-25 ac. The balance was made up of the landless and individualholdings over 25 ac.

5.9 Lending to Small Farmers. A noticeable feature of the loan portfolio is the growing shareof lending to small farmers (with 25 ac or less) which absorbed about 79% of term loans in FY92compared to 58% in FY87, exceeding the 75% projected at appraisal. The share of loans disbursed tofarmers with holdings below 12.5 ac was 59% in FY87, 64% in FY88, 69% in FY89, 65% in FY90,66% in FY91 and 49% in FY92 - within appraisal expectations. ADBP's experience with credit to verysmall farmers and landless peasants is still limited. It involved three initiatives since 1984. The first wasa credit program to finance income-generating activities among households owning 2 ha (about 5 ac) orless. It covered only ten villages in the Gujranwala District. In 1985, it was incorporated into a largeprogram in the same district, supported by IFAD, for farmers owning not more than 2 ha of irrigatedland or 4 ha of rainfed land, landless persons with assets worth not more than the local market value of1 ha of irrigated land, and rural women. Loan disbursements were largely for dairying to the landless(38%), to small farmers (31 %) and for cottage industries (28%). By FY92, PRs 182 million for 12,538cases were disbursed, using 43 MCOs including 3 couple mobile credit officers. The recovery rate was74% in FY88 but dropped to 62% in FY89 and 58% in 1992, which is lower than the 68% recovery ratefor general credit in Gujranwala district. The third initiative - the Rural Credit Scheme - started inOctober 1987 and expanded nationally, using 42 trained male functional mobile credit officers (FMCOs).During FY92 disbursements were PRs 25 million, 20% higher than in FY88, with the largest number

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of loans also for dairy farming. Total disbursement since commencement of the program arnounted toPRs 138 million covering 6,371 cases. The recovery rate in FY92 was 70%.

5.10 Equipment and vehicles have been procured, albeit with some delay. Altogether, 344vehicles (144 more than appraisal estimate) were procured under ICB with the concurrence of the Bankto meet requirements under the Agricultural Credit Project as well. These comprised 4 buses, 135 long-wheelbase landcruisers and 205 light vehicles (4 wheel-drive).

5.11 Technical Assistance. Between 1987 and 1992, a total of 114 staff-months of technicalspecialists were contracted, but only 81 staff-months were utilized to assist ADBP in O&M studies,training management, agriculture technology, livestock/dairy development, horticulture, and monitoringand evaluation, at an average cost of US$8,150 per staff-month compared to the appraisal estimate ofUS$6,250 per staff-month covering 144 staff-months.

5.12 Training. There were shortfalls in overseas training - only 24 officers were trained abroadand 15 officers undertook study tours/visits, against the appraisal estimate of 138 officers. This wasmainly due to restrictions by the Ministry of Finance which has to approve each individual application.In addition, over 10,000 employees were trained at ADBP's staff colleges and other institutions inPakistan during the project period. There were three staff colleges in FY87, and their number increasedto four in FY88 and to five in FY89. But three were closed (two in FY91 and one in FY92) on thegrounds that the remaining two - at Islamabad and Karachi - would be able to handle ADBP's trainingneeds. However, the staff college at Islamabad has only two permanent faculty members. As aproportion of administrative costs, training expenditure has also declined during the project period. Thebank is aware of these problems and has recently taken measures to address them - revision of trainingcurricula and introduction of 20 % incentive allowance to trainers. While much has been done to improvetraining, there is still much scope for improvement in the quality and effectiveness of ADBP's bankingcourses, especially on finance and credit policies.

5.13 Studies. Two studies were planned at appraisal. Given the expected negative incomeeffects of Islamic banking, both studies were directly related to the primary project objective - financialviability of ADBP. The first study, concerned with ADBP's collateral system under Islamic banking, wasnot undertaken, while the second study, related to annual reviews of ADBP's past and projected incomeand profit-generating capacity, was carried out in 1987 and 1989. The results of the reviews led to theincrease in the borrowing rate from SBP from 4% to 5% in July 1987 and further to 6% in July 1989.

5.14 Project Costs. Actual cost at project completion was PRs 47.3 billion (US$2.34 billion),60% higher in rupee terms than the appraisal estimate of PRs 29.5 billion (US$1.67 billion). Becauseof the devaluation of the Pakistan rupee, the cost increase in US dollars is lower at 40%. An item-by-item comparison shows significant differences between projected and actual disbursement of loans.Fishery development loans accounted for the highest increase (374%), followed by short-term loans(238%), farm development loans (81%) and project loans (43%), while institutional developmentassistance absorbed about 66% of appraisal estimates. The cost overrun was partly due to unit priceincreases and partly due to quantity increases. Appraisal estimates of local price and physicalcontingencies proved to be too low. Total project costs at appraisal and completion are given in Part111/5A.

Institutional Development and Viability

5.15 Institutional Effectiveness and Culture. During the project period, there was a significantdeterioration in the quality of bank management. The frequent changes of the chairman (six chairmenduring the six years commencing 1988), apart from bringing about a destabilizing effect on the bank asa whole, resulted in lowering staff morale especially at the senior level. This is in sharp contrast to thesituation which prevailed during ADBP-V, when strong leadership, coupled with a pioneering spirit,motivated regional staff and MCOs. In order that ADBP develop as a viable institution, it was imperativethat innovative managerial leadership and decision-making processes were developed within its ownsystems. As such, decentralization of its administration and increasing professionalization of themanagement were expected to become a part of its evolution. However, the dynamism and enthusiasmgenerated appear to have been thwarted by political interference in decision-making at various levels -from head office down to the branches - and also by rigid policies of the head office. Although branchmanagers/regional managers are delegated loan sanctioning powers, they enjoy little discretion inexercising these powers. For example, these officers cannot vary targets for lending categories (e.g.tractors, private minor irrigation, etc.) allocated in the branch budget by the Credit Division at the headoffice.

5.16 Moreover, in addressing problems that arose at the regional level, decision-making powerhas been increasingly centralized at the head office (for example, reschedulement), thereby furtherrestricting the scope for initiative by regional staff. Low morale and helplessness, and the politicalinterference (for example, even for transfer of MCOs), appear to characterize the organization. Thecontinued dependence on SBP funding, administered margins, and political interference have allcontributed to create an atmosphere in which collective management effort towards transforming ADBPinto an autonomous, viable organization receives low priority.

5.17 Although about one-third of total staff in 1993 (up from 24% in 1987) were experienced,counting those over 40 years of age, and nearly 65 % of graduates were non-agricultural graduates (upfrom 58 % in 1987), job rotation has remained minimal and career progression is based on seniority. Thebank is overstaffed and often provides poor service to its customers. Management accountability has beendiluted, loan appraisal standards have been lowered and collection efforts have become ineffective.

5.18 Supervised Credit Scheme. An important component of institutional viability is thesupervised credit system operated through MCOs since 1979. The number of MCOs increased from1,259 in FY87 to 1,454 in FY92, which was slower than targeted at appraisal, as indicated below.

Growth in MCOs

FY87 FY88 FY89 FY90 FY91 FY92

Target 1,600 1,450 1,700 1,500 1,590 1,590

Actual 1,259 1,382 1,349 1,487 1,434 1,454

5.19 Since FY86, all general credit loans are being handled by MCOs as supervised credit. Theaverage loan portfolio covered by all MCOs grew from PRs 16 billion in FY87 to nearly PRs 31 billionin FY92, an annual increase of 13.5%. Annual loan disbursements by MCOs were PRs 5,351 millionin FY87 and PRs 6,490 million in FY92 - an annual growth of 4%. The average loan portfolio

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supervised per MCO was PRs 12.8 million in FY87 and PRs 21.2 million in FY92, which seems high;annual disbursement per MCO was PRs 4.25 million and PRs 4.46 million, respectively.

5.20 The MCO system was to be strengthened by specialized staff. A cadre of functional mobilecredit officers (FMCOs) - technical specialists covering the fields of dairy, poultry, irrigation, fruit andvegetables - was introduced in the course of the project. In addition, MCOIs have also been deployedto intensify credit disbursements in selected villages. These MCOIs were allocated five to six villagesinstead of 25 to 30 villages covered by MCOs under the supervised credit scheme. The number ofFMCOs declined from 74 in FY87 to 17 in FY92, while that of MCOIs averaged 30 in the FY87-FY92period. The reasons for the shortfall were that: (i) MCOs with required qualifications were not availablein some regions; and (ii) field staff were diverted to general lending operations. Consequently, theimplementation of both schemes (FMCO and MCOI) was well below appraisal expectations.

5.21 The success of the MCO system has to be measured against its impact on loan quality andits operating cost. Loan quality, measured by recovery rates, is not encouraging, as discussed in para5.29. Cost figures for the supervised credit scheme alone are not available. However, totaladministrative costs of ADBP, including the MCO system, as a proportion of average assets remainedat 2.2% to 2.9% between FY87 and FY92. Because of differences in loan quality and administrativecosts, these figures do not suggest whether the MCO scheme is fully successful, something that needsrigorous examination.

5.22 Administrative Efficiency. ADBP's administrative expenses rose by 16% p.a. while itstotal loan portfolio increased only at about the same rate (18% p.a.). The average number of staff perbranch, around 22-23, compares adversely with an average of 14 for other banks in Pakistan. Salariesincreased by 17.1%, 45.9% and 5.6% in FY90, FY91 and FY92, respectively, while the number ofemployees increased by 12.5% in FY90 and 1.1% in FY91, but declined by 1% in FY92 following aGovernment ban on new recruitment since August 1990. The sharp increase of salaries in FY91 was dueto a pay increase of 44%. As a result, salaries to total expenses have increased from 52% in FY87 to68% in FY92, which is nearly 3% higher than the average percentage for banks in Pakistan, andcompares with 60%-65% in many other developing countries. Part of the explanation lies in theextensive branch network and very large staff of ADBP.

5.23 Capital and Staff Productivity. The productivity of capital (defined as fixed and otherassets) and employees (defined as the number of staff) can be measured in terms of the averageproduction of ADBP's services such as borrowers, loan disbursement, loans outstanding, and savings anddeposit mobilization (see Table 1 following Part III). The average of borrowers per employee and capitaldeclined from 18 to 11 and 0.0002 to 0.0001, respectively, from FY87 to FY92. Similarly, average loandisbursement in this period per employee and capital decreased from PRs 0.9 million to PRs 0.8 millionand from PRs 12.2 million to PRs 8.7 million, respectively. In contrast, loans outstanding per employeeand capital increased from PRs 2.8 million to PRs 5.1 million and from PRs 37.97 million to PRs 54.36million, respectively. The same pattern of high staff and capital productivity gains is registered forsavings and deposits mobilization during FY87-92. Because of differences in labor and capitalproductivity trends, these figures do not provide conclusive evidence whether ADBP is cost efficientoverall in producing its products and services, something that needs in-depth review. The challengefacing ADBP is to reduce staffing levels and to improve operational effectiveness. The level ofemployees at ADBP headquarters is excessive and suggests a disproportionate share not dealing directlywith borrowers. A key challenge for ADBP would be to increase the proportion of its staff who aredirectly engaged in income-generating activities and collection of arrears.

5.24 Management Information System. The project provided for consolidation and upgradingof the existing management information system (MIS) in order to improve its speed, accuracy andcoverage. The changes introduced to achieve this included: (i) implementation in FY88 of a new systemcalled field operations computerization system in all regional computer centers of ADBP; (ii) installationof new NCR systems at the regional computer centers to enable electronic data processing close to thesource of data generation; (iii) strengthening of procedural standards; and (iv) preparation of a first everusers' manual. Progress is being made in fully achieving an integrated management information systemresponsive to the special needs of ADBP. The existing data processing equipment is outdated, slow andrequires heavy air conditioning and a high level of maintenance. The bank is aware of these problemsand has decided to replace current equipment, which would cost just one year's maintenance expensesfor the old equipment. A unified direction to the operation of four departments under the ComputerDivision has recently been put into effect with the assignment of a senior officer in overall charge of thedivision.

5.25 Monitoring and Evaluation. The status of the M&E unit changed several times duringthe project period - at one time elevated to the level of a division and at other times downgraded to itspresent status of a wing within a department. The unit was expected, inter alia, to analyse recoveryperformance, monitor administrative costs, refine the incentive scheme, evaluate the system'seffectiveness with a view to improving the efficiency of the organization. Except for loan recovery, thesetasks were performed by the M&E unit satisfactorily. However, its effectiveness seems to have suffereddue to leadership changes, the shifting status of the unit within ADBP and depleted staff in later years.Project-related functions, such as preparation of periodic returns for submission to international lenders,are carried out more as an obligatory routine task, and such reports do not form - as a matter of regularprocedure - the subject for discussion and analysis by senior management. The unit is also handicappedby the lack of staff specially trained in banking and monitoring and evaluation. Learning from poorrecovery experience, there is also a need to review repayments from borrowers who have received newloans following the rescheduling of their earlier overdues, and borrowers who have not received loansrecently because they have overdue loans. It would have helped to establish which group is performingbetter in order to guide future rescheduling operations.

Financial Performance

5.26 General. ADBP's financial position has been weakening since 1988 because of poorportfolio performance, inappropriate financial and credit policies, high administrative costs and poormanagement. The bank's comparative financial statements (Balance Sheets for FY87-92 - Table 2following Part III, Income Statements for FY87-92 - Table 3) are typical of several specializedagricultural banks, characterized by mainly term lending, reliance mostly on contributions from SBP andfunds from external agencies under soft terms, and poor loan recovery rates. ADBP has also notsucceeded in mobilizing domestic savings. As a result, it has limited capacity to function as a financialintermediary.

5.27 Resources. Cash flow statements of ADBP for the FY87-92 period are presented in Table4 following Part III. Until 1992, the Bank had provided ADBP with more than 50% of its foreignborrowings, which peaked in FY90 at 72% before falling to 56% in FY92. In itself, this diversificationof resources was a positive development, with the Asian Development Bank and OECF of Japan togethercontributing about 35% of ADBP's foreign borrowings. SBP's new financing peaked in FY87 at 44%but fell to 13% in FY92. At the end of 1992, domestic loan resources (from SBP) outstanding stood atPRs 27.2 billion or 76% of all debt, foreign or domestic. Up to now, ADBP has relied almost entirelyon SBP for access to local resources. Deposits had grown slowly from PRs 332 million in FY87 to PRs1,819 million in FY92, representing less than 5% of ADBP's total resources. However, these have since

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declined sharply. As stated earlier, ADBP has thus played a very minor role in mobilizing domesticsavings.

5.28 Financial Structure and Growth. ADBP's total assets increased over twofold betweenFY87 (PRs 20.6 billion) and FY92 (PRs 45.1 billion); adjusted for inflation, this growth is about 1.4times or 7.5% per annum on average. Most of this growth took place between 1987 and 1990 when theloan portfolio increased by almost 60%. Since 1990, there has been a decline in growth in real terms,as shown below.

ADBP Balance Sheet Selected Data 1987-1992(PRs In constant 1992/93 prices) '

Fiscal Year :;000000igigi t;;0fllll:0000001987t:0000|ig-g 19U 01989000200;|-; -719 ::00:000000000090 1991. 1

-Tota assets --- 34,451 41.630 - -46,48100 52,306 g 51,3280 -49,0750

Grass loan: portfolio i : : :301,305 l: -:377'45- : 44,045 g;i049,520: 50,i844 t ;47,828-

Lon-tem debt " : 26903 30951i-- 34,170 32,852 :39:209 39,152-

Pravisios; 10j000 ;0:0;;3,172 j-:2:, 027 3,172 j :4,3560000003: 5,787S0 7,0590Net wilh00 0;000000000:00i g i7003t,7920- 4,342 0j 4,;933000000000 :5,-049 i;g4,73 5749

" Using GDP deflator: 1.669 (1987), 1.559 (1988), 1.429 (1989), 1.330 (1990), 1.211 (1991) and 1.089 (1992).4i See Part 11, para 9.

5.29 Quality of Portfolio. ADBP's loan portfolio is of poor and deteriorating quality. The tableboelow shows the deteriorating trend in past dues, which grew from 8% to 18% of the portfolio betweenJune 1987 and June 1992. It also shows that the past dues growth outpaced the growth in the loanportfolio. This clearly underlines the deterioration in the quality of ADBP's loan portfolio and the criticalimportance of achieving a marked improvement in recovery rates.

Past Dues as a % of Loan Portfolio

.. .... E i : E : 7 :Ei:E EEEEi: 7 :. . . .: : . .: .: . .. .. .. .. . .. .. .. .. . . . . . . . . .: ..: .: . .. . . . . .. .... .. . .. :EE E :EEEE

T10ora porf UiAsf.8.741 1.630 ,234 41985 . 4 2,9t: 306- 5 3 ... .. .:9 075

year onyear 0 0 i 0 i 0 i00-: ; : :0i ; 0 : t

;~~~~~~~~~~~~~~~~~. ..l*tW ..75 .. ..21 ..,8 ..... ... . 3 3 . . .. :........:.-

5.30 Loan Recoveries. Overall, loan recoveries dropped steadily from FY88, when they werearound 67%, to FY92, when they were at 53%. Recoveries out of past dues were only 27% in 1992reflecting the difficulty in recovering funds once a borrower goes into default. Recoveries from currentdues were 65% in 1992 compared with 75% in 1987. ADBP mounted a series of ineffective loanrecovery drives, including a comprehensive action plan under the follow-up project.

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5.31 As the bank did not fundamentally alter its lending culture, financial and credit policies,or improve its institutional capacity as an autonomous banking organization, it is not surprising that theresults have been disappointing. The overall recovery rate (before reschedulement) went down furtherby 9% to 44% in FY93. Other reasons have been identified for poor recovery. These includeborrowers' low and variable income, poor sub-project selection, inappropriate loan amount, andinadequate follow-up by branch staff and MCOs. In addition, political interference, and concessions likeinterest remissions as well as willful default continue to play a major role. Also, there are insufficientincentives or penalties to induce timely repayments; borrowers who default take little risk; bank staffreceive the same rewards whether they make good or bad loans.

5.32 The breakdown of recoveries by regions shows that recovery rates are higher in Punjab(67%). Baluchistan with 27%, Sindh with 34%, and NWFP with 45% in 1992 remain a cause forconcern. Recovery rates have also been affected by the law and order situation as well as floods in 1992.

5.33 As shown in Table 5 following Part III, short-term loans had the best recovery rate (57%)for 1992, better than medium-term (for livestock, etc., 48%) and long-term loans (53%). It should benoted that the short-term (crop loan) will tend to be higher than other categories of past dues, not onlybecause they have no grace period but also because ADBP's year-end coincides with the major harvestperiod. If the harvest is delayed by a few weeks, then past dues will be inflated by the payments due atJune 30, which are significant. In the case of short-term, this will be the full amount of the loan,whereas in the case of long-term of 10 years, this will only be 10% of the loan. However, tractor loansare included in long-term and their recovery rate was 63% for 1992. This was the highest rate for alltypes of long-term loans but because of very poor recovery rates on other types (e.g., 12% on dairyfarming), the average was only as given above.

5.34 Loan recovery rates are, however, masked by loan rescheduling. While loan reschedulingis valid in exceptional cases, in practice, in areas where calamity is declared, all loans are rescheduledunder Government instructions. This has the effect of artificially improving the loan recovery rate forthe year concerned. In FY91, floods caused severe damage to many areas and as a result ADBP wascompelled by GOP to offer mass rescheduling of loans, to the extent of PRs 1,587 million. In FY92,fewer calamities occurred and reschedulement was reduced to PRs 477 million. Recovery rates afterreschedulement increased in 1992 from 53% to 55%, and in 1991 from 53% to 59% (see Table 5).

5.35 Recoveries analyzed by borrower show poor recovery from landless borrowers. Smallfarmers with holdings up to 12.5 ac consistently show the best recovery rates, which for the year endedJune 1992 remained at 58%. Recoveries analyzed by branches show a wide variation in loan recoveryperformance. This suggests that branch-specific factors - such as branch management and procedures -may be at least as important a contributor to poor collection performance as poor credit discipline.

5.36 Past Approach to Improve Loan Recovery. Past experience shows that establishingtargets for intensive recovery efforts (linking branch lending to branch recovery), while providing short-term incentives, is not an adequate response to the underlying problems. The targets also encourageddecisions to write off interest in return for payments which, while maximizing short-term collections,rewarded defaulters for not having paid earlier and may have been suboptimal from a longer termperspective. A key element introduced under the project was the setting of minimum recovery targetsof 77% of total demand by June 1987, 79% by June 1988, and 81% by June 1989. However, theapproach did not assist in improving ADBP's policies and procedures for enhancing collection on asustainable basis. It is clear that tightening of eligibility criteria alone will not secure better recovery andimprove the financial integrity of the lending institution. There is a need to improve profit measurementsat the branch level to allow it to make good lending decisions. A more significant need is better loan

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appraisal, effective supervision and (most important) effective collection of dues. Adequate provisionsto cover doubtful loans are required while interest accrued on overdue loans should be reversed. Thebroad issues affecting credit operations also need to be addressed in order to create a bankingenvironment conducive to healthy lending operations and growth.

5.37 Operating Results. ADBP's "net profit" dropped considerably from about PRs 390 millionin FY87 to PRs 152 million in FY92. While ADBP was reporting profits, though on a declining levelin recent years, it was actually incurring losses, as shown below, if real bad debt provisions and interestincome reversal had been properly reflected in its accounts. ADBP's income policies need a completeoverhaul. Poor profitability is due primarily to low financial spreads (6.9% of average total assets in1992) in the face of unusually high provisions for massive non-repayment of loans. Administrativeexpenses (2.6% of average total assets in 1992) are more reasonable.

Annual Profit/Loss without Reschedulement

FY89 FY90; FY9I1 FM i

............. (PRs millittn) .......

Loans. rescheduled 1,132 1 169 1,587: 478

Net profits;as reported in annual 301 344 115 152..itaccounts

Less additional provisions (40% of 453 468 635 191 ......reschedulement)

Leis additional interest: income : 126 127 178 51reversal on rescheduled: loans

Real Net Profit/(Loss) (278) (251) ti ;(698) (90)i

5.38 Some financial and profitability indicators, from Table 3, are presented below.

ADBP - Financial Indicators(Percentages)

i1987 1988 1989 1990 1991 199 l

Gross income to ATA 10.7 10.21 0 10.30 10.4 10.8 104

Financial expenses to ATA 3.4 3.3 3. 8 : 4. 2 4.2 3.5

Financial spread: 7.3 i:6.9 6.5 6.2 6.6 6.9

Admin.expenses:mATA 2.9 2.9 2.4 2.2. . 2.6 26.

Eamings before povision to ATA 4.4 4.0 4.1 4.0 4.04 3.3

Note: ATA = Average Total Assets.

5.39 The financial spread suggests that it would be inadequate to absorb the real losses fromADBP's lending. The resulting losses are partly a result of administered lending rates that do not passon the full cost (inclusive of bad debt expenses) of providing loans. This practice results in interestsubsidies to borrowers many of whom, as monitoring studies reveal, are well-to-do persons. De facto

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subsidies are enormous for borrowers who subsequently default permanently on such loans. The resultinglosses will eventually, whether directly or indirectly, become a claim on the Government budget. Animportant policy issue is the extent to which these losses should be reduced by: (a) raising lending rates;(b) improving portfolio as well as borrowers' mix; (c) tighter loan appraisal and collection proceduresto reduce losses from bad loans; and (d) greater explicit subsidies. A comprehensive program is neededto restructure ADBP, designed to restore financial stability, enhance loan recovery and implement priorityprograms at an acceptable cost.

5.40 Financial expenses, especially the impact of call market borrowings in 1989 and 1990,increased dramatically between 1989 and 1991, shrank ADBP's spread on borrowed funds and led to afinancial decline in 1992. The interest charge on call money ranged from 6.5% to 11.50% p.a. duringthis period. The average cost of SBP debt grew from about 5% in July 1987 to 6% in July 1989 andremained at that rate. Increases in ADBP's fixed lending rate, which went up by 0.5% to 12.5% in July1990 (until July 1992, when it was raised to 13.5%), could only be applied to new loans and thereforehad a very slow impact on the average yield of the loan portfolio. ADBP had ignored three basicfinancial principles by: (i) not matching the terms of borrowing - short-term borrowing from SBP tofinance long-term lending; (ii) exposing itself to uncovered loans by indiscriminate rescheduling; and (iii)undertaking emergency loans without cover from Government. ADBP, short of funds, was unable tomake timely payments to SBP. This added to the mismatching of borrowing/lending terms and strainedADBP's liquidity severely.

5.41 ADBP's return on average net worth of 3.3% in 1992 may be adequate, if based on soundfinancial policies and continuing, to ensure financial viability. However, as a real return on equity (netof inflation) it is negative. As long as ADBP camlot achieve better profitability, it will have to continueto rely heavily on SBP for new infusion of funds, as needed. This means that ADBP is financially notself-sustaining, or becoming so.

5.42 The case is different for branch profitability, with some making nominal profits and othersincurring losses. The number of branches reporting losses increased from 45 in 1987 to 179 in 1992.Analysis of branch profitability in relation to the size of the loan portfolio or recovery rates does notshow any correlation between these variables. In FY92, the region of Nawabshah had a profit of PRs7.5 million, with a portfolio of PRs 1,134 million and a low recovery rate of 43%. On the other hand,the region of Bahawalnagar with a portfolio of PRs 915 million had a profit of PRs 16.1 million and thehighest recovery rate of 97 %. This is explained by the present practice of measuring net profit at branchlevel, which does not take account of provisions or interest income reversal on overdue loans. Bothprovisions and income reversal are collectively consolidated only in the profit and loss account of ADBPas a whole. As a result, the branch profit and loss account ceases to be a performance measuremotivating the branch to make good loans, although information on provisions and income reversal ispassed on to the branches as a matter of routine.

5.43 Financial and Economic Subsidy. The reported profits of ADBP show that its lendingprogram as a whole was profitable during the period FY87-92. If underprovision as set out in para 5.38is reckoned, the financial subsidy would range from PRs 90 to PRs 698 million during this period. Thefunds utilized by ADBP were subsidized (as they were either equity or concessional finance borrowedat lower than market rates); as such the bank enjoyed economic subsidy, defined as the subsidy due tothe differences between the actual costs and the opportunity costs of these funds valued at the market rateof interest. The opportunity costs of its funds are evaluated using the weighted average interest rate forfixed deposits of five years or over. ADBP receives economic subsidy in the case of borrowings fromSBP and international agencies as well as on total equity. The results of this evaluation are presented inTable 6 following Part III. It shows that the economic subsidy of ADBP's lending varied from 43 % to

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59% during the project period. The analysis suggests that ADBP could have eliminated the nominalsubsidies by raising the prevailing average lending rate from 10.6% to 16.6% in FY92. In reality, muchhigher lending rates would have been required for self-sustaining profitability and growth.

Impact on Sectoral Issues

5.44 Interest Rates. Under the project, ADBP was required to review its rates of return orother charges to ensure that they remained positive in real terms and sufficient to cover its operatingexpenses including taxes, if any, and interest payments or returns and service charges on borrowings;make provisions for bad debts and maintain such provisions at a ratio to total overdues satisfactory to theBank; and accumulate reserves that would be adequate to ensure, in conjunction with a contribution bySBP to paid-up capital, that the ratio of debt to equity was not greater than 7:1. ADBP increased itsnominal rate to 12 % in April 1985, to 12.5 % in July 1990, and further to 13.5 % in July 1992. Provisionsfor bad debts were raised to 40% or more of overdues since FY87, and ADBP relied on funding fromSBP to maintain a debt to equity ratio not greater than 7:1. ADBP's rates of return, however, tendedto be somewhat below market rates. For some activities like tractor loans, the rate to sub-borrowers wasreduced from 12% to 8% in January 1992, and then progressively increased again to 9% in July 1992,10% in July 1993, 11% in August 1993 and finally to 13.5% in September 1993.

5.45 While short-term rates equal long-term rates, they have played a minimal role in resourceallocation. Instead, they have been used mainly as a distributional instrument to lower the cost of loansto borrowers rather than to allocate credit to sub-projects with high returns.

ADBP Interest Rates Compared with Inflation and Market Rates (%)

FY87 FY88 FY89 FY90 FY91: FY92

ADBP interest rate eamed on 11.9 11.2 11.1 10.9 11.2 10.6average outstanding loans

Inflation rates 3.6 6.3 10.4 6.0 12.7 9.6

Marketreference rate"' 12.2 12.1 12.3 11.5 1.1.2 11.9

h Measured by consumer price index on 12 month average basis.h/ Measured by weighted average return on fixed deposits of 5 years and over.

5.46 Savings Mobilization. The issue of savings mobilization was not addressed in the sixthproject. However, funds were provided in the follow-up project for consultants to develop a savingsmobilization strategy. The follow-up project also included strategic planning and upgrading facilities topromote savings mobilization. ADBP has been under pressure from SBP to increase its domesticdeposits, for which, on average, it would have to pay 7%, and some progress was made in savingsmobilization under the sixth project. As domestic deposits grew from PRs 332 million in FY87 to PRs1,819 million in FY92 and liabilities grew at a slower rate, deposits increased from 2% to 5% of totalliabilities (excluding equity). This slow growth reflected ADBP's relative inability to mobilize and deploy(lend) savings profitably in competition with other financial intermediaries (formal and informal).

5.47 ADBP's Place in Rural Market Reform. The Bank has supported a series of investmentsin Pakistan's agriculture including irrigation and drainage, research and extension services. Hence, aneffective agricultural credit system was perceived as being essential to facilitate growth in agriculture.Given ADBP's involvement in agricultural financing in the past, its continued role raises two majorissues: firstly, whether the farm investments financed by ADBP loans have generated adequate returns;and secondly, what impact the Bank's projects have had on the development of sustainable rural financial

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markets that are able to provide longer term support to agriculture. ADBP's M&E unit made an attemptto evaluate impact at farm level, but not much is known on how the returns on farm investments havebeen utilized, considering the rising level of overdue loans.

5.48 The issue of broadening the rural financial markets was addressed under the follow-upproject. At one end of the market, commercial banks were included as participating agencies which couldcompete with ADBP in term lending. At the other end of the market, NGOs' involvement was proposedin order to reach smaller farmers with less collateral in an effective manner at low cost, thereby drawingthem into the financial system. It is not clear whether any single institution can meet all the needs of therural financial sector. ADBP has not been successful in mobilizing savings. It has also provided loansbelow market rates although agricultural investments have a poor repayment record. This may havecontributed to the crowding out of other formal financial intermediaries so that in FY92 ADBP'sagricultural lending accounted for 29% of short-term credit and 91 % of term lending to agriculture.There may be a case for promoting other institutions as well to mobilize savings and extend credit in thecountry's rural financial sector.

6. Project Results

6.1 The principal objectives of the project have not been fully achieved. While ADBP has notdeveloped into an effective and self-sustaining lending institution, M&E data suggest that it may havecontributed to increased farm productivity and incomes among its borrowers. ADBP's coverage andlending volumes have declined since FY90; loan recoveries have deteriorated, and domestic savingsmobilization has remained marginal, all combining to increase reliance on low-cost funding from SBP,critical for its sustainability. On the other hand, ADBP has made a substantial, though declining,contribution to the financing of farm investments during the period under review. This is reflected inits position as the country's largest supplier of agricultural credit, with 47%, followed by commercialbanks (31%) and the Federal Bank for Cooperatives (22%). Project funds were substantially allocatedto farm investments: in financing the expansion of durable farm assets in order to strengthen the basisfor increasing the annual marketable surplus. This meant capital deepening: traction machinery,irrigation equipment, livestock and orchards. These improvements were neither new to the economy norto the farmer. Nevertheless, capital deepening is part of the process of technical progress and theseproject achievements are substantial. The falloff in tractor lending did occur more or less as projected,and lending for small tractors appears not to be generally acceptable to even those with smaller farms,largely because local soil conditions require the power of the more customarily used medium-size tractors.The secondary use of tractors for transport is also a factor favoring the traditional size. The channellingof an increasing share of ADBP funds to small farms did meet the planned targets.

6.2 The project has directly benefited about 767,000 beneficiaries, about 467,000 more thantargeted at appraisal, and has generated incremental employment of about 82.5 million workdays annually(at full development). Indicative as these numbers are, they point clearly to the significant role playedby ADBP in the creation of rural employment.

6.3 Re-estimated financial rates of return ranged from 14 % to 51 %, compared to 18 % to 49%at appraisal, whereas re-estimated economic rates of return ranged from 25 % to 60 %, compared to 22 %to 50% at appraisal. The ERRs presented in Part III/6B were estimated on the basis of appraisalassumptions. The lower than expected ERR for the rainfed wheat model at completion (32% vs. 48%)is mainly attributed to a smaller proportion of fodder area than estimated at appraisal which was not fullyoffset by higher yields. On the other hand, the higher ERR for the irrigated wheat model (25 % against22% at appraisal) is largely explained by the reduction in wheat in favor of Basmati rice which had abetter price.

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6.4 The levels of FRRs indicate that most investments could have supported loans at marketrates of interest. Accordingly, the overall rate of investment would probably not have been lower in theabsence of administered interest rates, though some investments with low returns, such as tractors onrainfed farms, might not have been made without the preferential interest rates.

7. Project Sustainability

7.1 While both domestic and foreign sources of low-cost funds have helped ADBP support itshigh-cost supervised credit operation, they raise a serious question about its sustainability. It is apparentthat ADBP cannot survive as a meaningful financial intermediary without these subsidized funds. Theissues are whether ADBP can operate without subsidy, and what such non-subsidized operation wouldmean for farmers, particularly small farmers. There are two sources of subsidy - financial and economic.If ADBP is not cost-effective, it will need financial subsidy to continue its operation. If the sources offunding for on-lending are cheaper when evaluated at their opportunity costs, ADBP will enjoy economicsubsidy. Both types of subsidy are relevant for ADBP as they determine its long-run relevance.However, their "permanent" requirement defines ADBP's lack of long-term viability.

7.2 Financial and economic viability are necessary but not sufficient for ADBP's viability asa financial institution. The bank also needs to be institutionally viable to be able to cater to its clientson a sustainable basis. However, institutional viability cannot be achieved unless the benefits generatedfor borrowers are also sustainable. This is because of high collinearity between the viability of borrowersand the viability of the lender which depends on the same environmental and production risks. The inter-relationships between financial, economic, institutional and borrowers' viabilities can be illustrated byconsidering ADBP's access to low-cost funds. At present, ADBP's access to low-cost funds substantiallyreduces the cost of borrowing, which has implications for both the financial and economic viability ofADBP as well as borrowers' viability and, hence, institutional viability. If these sources of inexpensivefunding were not available and ADBP was forced to borrow money from the market, the sustainabilityof ADBP would depend on whether it could break even at the market rate of interest, whether borrowerscould meet the higher cost of borrowing or whether ADBP, through cost efficiency and institutionalimprovements, could absorb the increased costs. The long-run sustainability of ADBP, therefore,depends on its cost and institutional structures as well as funding sources.

7.3 ADBP has relied heavily on subsidized funds to support its high-cost lending but cannot relyon these funds for a longer period. The long-run sustainability issue for ADBP, therefore, is how tobecome financially profitable and self-sustaining. ADBP's experience suggests that small farmers areindeed a lesser credit risk as higher repayment rates have been recorded. This reduces the default costof lending. The loan portfolio mix is also closely related to the risks and costs. For example, as tractorloans are given in large amounts and to bigger farmers, the cost per unit of disbursement is perhaps lowerthan the cost for a similar loan lent out in small amounts to many individuals. ADBP, with help fromdonors, has been investing substantially in staff training and development, which might have a positiveimpact on institutional sustainability in a conducive environment; otherwise its impact is negligible.

7.4 ADBP's sustainability also hinges on a significant improvement in the loan recovery rate.As mentioned earlier, this rate declined from 66% in 1987 to 44% in 1993. In 1993, ADBP recoveredonly 13.7% of overdue balances in project loans. Following calamities, approximately 28% of ADBP'sarrears were rescheduled in 1990, another 30% in 1991, 6% in 1992, and 53% in 1993. While the bankhas made a series of efforts to improve its recovery rate, the continued decline in loan recovery hasentailed substantial losses. The sn!bsidy dependence index calculated for ADBP shows that reliance onsubsidies fell from 52% to 46% between FY87 and FY91 but rose to 57% in FY92. While such progressis encouraging, prospects for ADBP's long-run sustainability remain dim.

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8. Bank Performance

8.1 While the Bank's performance throughout the project cycle was generally satisfactory, theBank could usefully have paid more attention to ADBP's financial condition. While recognizing problemsin the financial sector (later during implementation through a joint GOP/Bank review of the rural financialsector) that made progress in improving ADBP slow, covenants did not initiate critical improvements (forexample, in control of loan arrears) necessary for long-term stability.

8.2 Bank supervision missions visited ADBP with reasonable frequency, on average once everyeight months in the years 1987 to 1992. There was good staff continuity and the missions performedwell, concentrating on institutional objectives, though not sufficiently on credit and financialpolicies/issues. As a result of suggestions made during supervision, improvements were made resultingin an increased lending rate. While supervision reports usually reflected a constructive attitude and effort,they also at times appear uncritical in their evaluation of ADBP's situation, progress and prospects.

8.3 While the SAR of April 1986 had cleared ADBP, the May 1987 supervision missionexpressed strong concern over, inter alia, poor loan recovery. The next mission in December 1987 statedbluntly that "vigorous recovery efforts have to be made to reach the envisaged overall recovery rate of79% at the end of FY88". Similar concerns were expressed with varying force through FY92.

8.4 The Bank was also flexible in agreeing to reallocation of resources for lending and inallowing utilization of savings from technical assistance for purchase of vehicles.

8.5 The main lessons learned from the implementation experience of the project are as follows:

(i) The case of ADBP confirms, a lesson often learnt, that institution building is aslow process, the pace of which must be generated within the institution itself if it is to be sustained, andthat assistance which can be given by external agencies like the Bank, while at times valuable, also hasclear limitations. This is especially so in staffing and management.

-(ii) The critical importance of stable, strong and capable leadership on a continuingbasis is demonstrated by the experience of ADBP, which had seven chairmen between 1987 and 1992.While there can be a role for short-term consultants, they cannot substitute for local management.Building good institutions begins with strong management.

(iii) ADBP's experience, which is matched by many similar cases in South Asia,suggests that it is preferable to have agricultural banks that are closely integrated into a country's financialsystem rather than institutions given such a specialized position as ADBP. The risk is that the bankgrows into a complacent bureaucracy rather than a development-oriented, competitive businessorganization.

(iv) The Bank should take a firmer position regarding the financial performance of thebanks, insisting on satisfactory results as a precondition for (continued) lending. The Bank should alwaysreceive a thorough, independent audit report on the institution's financial position including its loanportfolio before lending to it.

(v) In designing repeater projects like the Agricultural Credit Project (Ln. 3226-PAKand Cr. 2153-PAK), it would have been desirable to avoid the overlap with the preceding sixth project,which reduced the opportunity of learning from the implementation experience of that project.

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(vi) It is clear that establishing targets for recovery efforts, while providing short-termincentives, is not an adequate response to the underlying problems. Adequate provisions to cover possibleloan losses are required, while bad debts should be written off. The broad issues affecting loanoperations also need to be addressed in order to create a banking environment conducive to healthylending operations and growth.

(vii) Poor profitability of agricultural banks in general, and ADBP in particular, is theresult of administered, subsidized interest rates to borrowers, which do not pass on the full cost oflending. In addition, ADBP incurs losses due to non-accrual of interest on overdue loans while payinginterest on dues to SBP, and interest remission on bank loans introduced by Government from time totime without reimbursement. It is likely that interest rates are subsidized without full appreciation of thecosts and effect on ADBP viability.

9. Borrower Performance

9.1 The project was prepared by ADBP with the assistance of consultants. However, duringimplementation, project performance suffered partly due to the lack of stable, strong and capableleadership. Equally or more important were the cumulative effects of poor credit and financial policies,and of a worsening external environment for agricultural lending (notably natural disasters, politicalinterference, and a breakdown in agricultural credit discipline). Relatively low disbursements were madeby ADBP in the last two years of the project due to cutbacks in SBP funding. There was also increasingconcern over deteriorating loan recovery performance, which necessitated more attention to loancollection than to loan disbursements. As a result, new project loans (financed largely by the AsianDevelopment Bank) have been stopped for the past 26 months, because of their unacceptably lowrepayment performance. Problems in getting Government agreement to raising lending rates as stipulatedin legal covenants were eventually resolved to a significant (though insufficient) degree.

9.2 The rapid expansion of agricultural lending (annual growth of 39%) under ADBP-V wouldhave been difficult to absorb administratively even for the best managed institutions, and it has,predictably, placed ADBP with its inadequately prepared staff and systems under serious strain. Thecontribution of the sixth project to improving the capability of the bank is hard to isolate, since ADBPhas gained from concurrent implementation of several projects as well as from interaction with Bank staffand expatriate consultants provided under various projects. The major institutional benefits of thisinteraction include: (a) diversification of loan portfolio; (b) lending to small farmers in a significantmanner; (c) strengthening of the MCO system; and (d) development of improved monitoring proceduresand prudent financial policies.

10. Project Relationship

10.1 Through long association with ADBP under five previous credit lines, the Bank haddeveloped a good working relationship, allowing its supervision staff to become familiar with the countryand the implementing agency (ADBP), its issues and concerns. While most project-specific problemswere eventually resolved, crucial issues such as loan recovery rates were not resolved.

10.2 Bank and Borrower relationships with other relevant parties, including consultants, havebeen generally satisfactory. However, the Bank together with ADBP's other donors (OECF, ADB andIFAD) subsequently cancelled their financial support (in June 1994) due to ADBP's continuing poorperformance under the seventh lire of credit.

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11. Consulting Services

11.1 The number of staff-months (81 staff-months at US$8,150 per staff-month) utilized undcrthe project was modest, compared to those provided and utilized under the previous (fifth) project (192staff-months at US$12,200 per staff-month), or those provided under the follow-on project (181 staff-months at US$15,750 per staff-month). In general, satisfaction was expressed by ADBP over theperformance of the consultants engaged under this project. Apart from recommendations made by O&Mconsultants, which were found to be practically unworkable, the work of other consultants was consideredsatisfactory by the user departments of ADBP.

12. Project Documentation and Data

12.1 The Staff Appraisal Report, the Loan Agreement, Development Credit Agreement andProject Agreement were detailed enough to provide a basic framework for the Bank and ADBP duringproject implementation.

12.2 During supervision, there was not much difficulty in getting data on the status of projectimplementation. The supervision reports and the relevant project documents available at the Bankprovided information for the preparation of the project completion report. ADBP's project completionreport contained a good factual account of project implementation. In addition, ADBP was able to meetthe remaining data requirements requested by the PCR mission.

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PART-1IPROJECT COMPLETION REPORT

OF ADBP-VI PROJECT

A. Comments on Part-III of the Report

1. Part-III of the report contains statistical tables prepared by the mission. The informationpertaining to ADBP activities is accurate and sufficient to evaluate the project.

B. Comments on Part-I of the Report

2. Para 4.2: The bank kept its provision at 40% or more of past dues and maintainingdebt:equity ratio at desired level. The rate of return was approved by Federal Government at 13.5% bywithdrawing 1 % excise duty on Agricultural loans w.e.f. 01-07-92.

3. Para 5.3: It has been observed that Bank's short term lending has progressivelyincreased its share in total lending from 19% in FY 87 to 43% in FY 92 and thus exceeded the ceilingof 20% (targetted at appraisal) in all the years except in FY 87. The reason is that Agriculture dependson nature. The increase in production loans was due to damages to crops by recurring floods and attackof pest. The price of inputs - seed, fertilizer and pesticides, increased manifold. Besides, inputs areessentially required to boost production of crops to meet the growing needs for wheat, sugar and maizeetc.

4. Para 5.4: It has further been reported in the report under review that over-dues are highand loan recovery has been low and falling, largely as a result of rapid credit expansion without dueattention to the quality of loans. No doubt the overdues increased but this was not due to lack ofattention to quality of loans. The Bank paid due attention to the quality of lending. The actual reasonof increase in over-dues remained un-precedented floods and attack of diseases and pests to crops. Thefarming community, especially the small farmers, have no other means of income than agriculturalproduce. Once their crops are destroyed by natural calamities, the farmers cannot repay their loans untilthe harvest of next successful crop. Unfortunately natural calamities hit farmers again and again.

5. Para 5.5: It has also been observed in the report that aggregate loan disbursements toagriculture expanded at a nominal rate of only 3% P.A. between FY 87-92 compared to the projectedgrowth rate of 25 % per annum. The low growth rate is due to continuous decrease in the financing byState Bank of Pakistan. The recovery of dues remained low due to natural calamities.

6. Para 5.9: Bank's growing share of lending to small farmers (with 25 acres or less)which absorbed about 79% of term loans in 1992 compared to 58% in 1987 has been noticed withsatisfaction. The Bank is laying more and more stress on lending to small farmers.

7. Para 5.22: ADBP is a dynamic organization and is providing loan to the Agriculturistsat their door steps. It was, therefore, considered necessary to expand the branch net-work in the country.So the staff strength also increased due to increase in number of branches. The Salaries and Wages ofOfficers and Staff of NCBs and Financial Institutions are revised by Pay Committees/Commissions arebinding on both the employer and the employees. There was an overall increase of about 28 % in the payscale in salaries and benefits, the cost per employee has increased.

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8. Para 5.23: A study in depth is being made in the Personnel Division and excess staff inthe field offices/H.O is being adjusted in the branches in a phased manner to increase the staff strengthin the field to serve the needy farming community in a more efficient and dedicated manner. ResourceMobilization and Kissan Bank Windows have been opened under the directives of Prime Minister ofPakistan. Thus more staff is needed to meet the challenges. The Regional Recovery Officers have beenposted at Regional Headquarters to supervise and assist in collection of arrears from the defaulters of theBank.

9. Para 5.28: Long term debt in FY-1990 at 1992/93 prices by using GDP deflator has beenreported as Rs.32,852/- Million instead of Rs.34,184/- Million.

10. Para 5.38: The net profit of the bank dropped in FY-91 due to reflection of full impactof provision of bad & doubtful loans under the Prudential Regulations according to which the productionloans which are in default for more than 360 days are classified and provision thereof is made under theprudential Regulations.

11. Para 5.40: Concessions to borrowers are allowed on the instruction/approval of theFederal Government.

12. Para 5.41: ADBP was not able to make repayment of SBP loans in FY 1991 and 1993mainly due to two reasons i.e. (i) Reduction in supply of credit by SBP which rose to 30%, 40%, 50%and 60% in FY 1990, 1991, 1992 and 1993 respectively. (ii) Rescheduling of SBP loans availed by theBank in FY 1990, 1991, 1992 & 1993 converting maximum amount of loan into short term mis-matchingto the terms of ADBP's own disbursement. However, SBP agreed to reschedule its loans availed byADBP in FY 1990, 1991, 1992 and 1993 in accordance with the terms of ADBP's own terms in FY1994. In addition of this an amount of Rs.6951 Million defaulted by Bank, out of previous rescheduledloans upto 30-06-1989 was also converted into long term finance limit by SBP. Accordingly SBP loansamounting to Rs.4702 Million fallen due upto 30-06-1994 has been fully repaid.

13. Para 5.42: Efforts are being made to increase recovery of bank dues to make the returnon average net worth adequate for ensuring financial viability.

14. Para 5.45: The rate of return with the approval of the Federal Government has alreadybeen increased from 12.5% to 13.5% from 01-07-1992. The bank maintained the provision for Bad &Doubtful at 40% or more of its past dues and kept the debt:equity ratio at the desired level of 7:1.

C. Bank's Performance

15. The appraisal report of ADBP-VI project covered targets for individual project componentsin line with trend of ADBP-V project. It also included a system of farm development loans package,technical assistance and training component. The comprehensive appraisal of ADBP-VI project helpedADBP in expanding the size of general lending, loans to small farmers, adoption of new technologies inagriculture and institutional development.

16. Before the loan negotiations started in January 1986, the Bank was requested to meetreimbursement against short term lending for production loans to small farmers (with holding below 25acres) during the currency of the project. The Bank did not agree to ADBP's request on the plea thatthe inclusion of short term lending in the covenant would lead to distortions.

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17. During the loan negotiations, the Bank was fully supportive in the sense that Bank agreedfor certain modifications in the draft agreements like i) 7 % spread to ADBP during first year and fixingof lending rate by SBP to ADBP on the basis of annual review of ADBP's financial position in thesubsequent years ii) waiving of the condition of maintaining 1:1 reserves to paid-up capital ratio iii)enhancement of IBRD loan by US$20 million and iv) raising the expenditure to be financed from the loanfrom 25% to 31%.

18. The Bank was equally concerned with ADBP's financial viability and profitability as a resultof the introduction of the Islamic Banking System. The Bank appraisal mission agreed over three majormodes of financing under IBS viz-a-viz, hire purchase, leasing and mark-up. However, the Bank did notagree for reimbursement against any sub-loans made by ADBP under the PLS and service charge modes.In order to ensure ADBP's financial viability, the Bank allowed a covenant under Section 2.06 of ProjectAgreement which states that ADBP shall not utilize any part of the loan proceeds and the credit to extendfinancing on the basis of PLS or service charge or any other basis which is not acceptable to the Bankand the Association.

19. With respect to procurement of vehicles the Bank did not accede to reserved procurementwhich was apparently compulsory for projects executed by GOP agencies. Accordingly, the Bank didnot cover vehicles in the project. However, at the end of the project, ADBP made a request to the Bankfor no objection to the procurement of vehicles under local competitive bidding procedures by using partof the remaining funds from category (8) "Equipment for part b(i) and b(ii) of the project and (9)consultants services and training of ADBP-VI for this purpose. The Bank agreed to use the remainingfunds of ADBP-VI for the procurement of vehicles under ICB.

20. The funds earmarked for farm implements and PMI were exhausted in FY'89. Fundsprovided for orchards, vegetable farms and on-farm development had moved slower than expected.Accordingly, it was proposed to the Bank for re-allocation of funds which was agreed by the Bank.

21. The Bank's Missions maintained close monitoring of the ADBP-VI project. The Missionsvisited the ADBP fairly on regular basis with an average interval of 8 months a year. The rnissionmembers were qualified, and well experienced. The Staff continuity was good, as the same missionleader continued to lead the mission. During their visits, the pace of implementation of the project wasreviewed and the observations made in the form of Aide Memoires. Timely and comprehensive reviewsprovided the management required feed-back to overcome the implementation shortcomings.

D. Borrower's Performance

22. The Bank was equally concerned to reduce the relative weight of ADBP tractor lending inorder to diversify overall lending operations of ADBP. The Bank's proposal was appreciated by ADBP.Resultantly, ADBP's lending for non-tractor items was raised from 51 % in FY'87 to 73 % in FY'92. Asharp change in share of tractor lending was also contributed by persistent rise in prices of tractor units.

23. The amount allocated for small tractors in the project loan agreement could not be utilized.This was due to the fact that small tractors did not attract a significant market response in Pakistan mainlybecause of generally hard soil texture in the country along with non-suitability of small tractors for allfarm operations. Almost all farmers including small land operators preferred to keep medium-sizetractors to supplement their income from off-farm activities and use of trolley. Similarly, the fundsprovided for solar pumps remained unutilized due to delay in the finalization of the forthcominggovernment subsidy. Besides, these pumps were found to have a low discharge capacity and were notcapable of crop irrigation. On the other hand, funds earmarked for farm implements and PMI were

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exhausted much earlier as the demand for these items was strong. However, these facts were not keptin view at the appraisal time which ultimately resulted in delay in the implementation of the project.

24. Compliance of clause-I schedule 2 of the project agreement of ADBP-VI benefitted ADBPwith the introduction of following institutional reforms:-

(i) Establishment of Agricultural technology transfer centres and Mobile MechanizationDemonstration Units (MMDUs).

(ii) Strengthening of credit policy and appraisal department with the introduction of institutionalreform measures.

(iii) Use of FMCOs and MCO(I).

25. Concern of the Bank was growing over the repayment performance of ADBP as the rateof recovery remained much behind the level of 81% stipulated during FY'89. Severe drought conditions,short-fall in production targets of major crops except cotton, some parte of the country with deterioratinglaw and order situation, traditionally bad recovery behaviour particularly in Sindh and Baluchistancoupled with resolution passed by one provincial assembly for postponement of ADBP loans anddeclaration of interest-payment as repugnant to Islamic injunctions caused serious set-back to the recoveryefforts of ADBP. As such, recovery targets set in section 4.08 of the project agreement could not befully achieved.

26. A financial covenant under section 4.04 of the Project Agreement was included by the Bankwhich stipulates that ADBP shall carry out an annual review of its past and projected income and profitgenerating capacity and develop proposals for the measures to be taken to achieve a level of profits thatwould be required to accumulate reserves sufficient to ensure, in conjunction with GOP's contributionsto ADBP's paid-up capital, that ADBP's debt to equity ratio does not exceed 7:1 level. This type ofstudy was carried out for the first time by ADBP. This study helped ADBP to analyse its currentfinancial position and develop proposals to achieve a desired level of profit through maintaining 7:1 asdebt-equity ratio.

27. Computerization of loan and financial data base is vital for any large development financialorganization like ADBP. It is a pre-requisite to establish an efficient Management Information Systemwith required precision and speed to cater to the ever-growing Management data needs. Keeping theinherent weaknesses in the generation of management information in view, the Bank recommended to re-organize and strengthen computer documentation of the field operation computerization system (FOCS).Accordingly, procedural standards were strengthened and re-inforced and a first-ever users' manual wasintroduced. A new software relating to WRITE-OFF LOANS INFORMATION SYSTEM was developedand implemented in all regional computer centres.

28. Pakistan is a small-farm country. In line with the Bank's policy, emphasis on small farmsis one of the major objectives of ADBP. The Bank introduced a covenant under Section 4.06 (a) ofproject agreement to channel at least 75 % of its medium and long term loans/financing to farmers owning25 ac. of land or less, and within this category, at least 50% of such loans to farmers owning 12.5 ac.of land or less. Accordingly, lending to small farmer (under 25.0 ac.) under medium and long termfinancing of total credit shared 79% while share of 12.5 ac. land operators' within the small farmerloaning under medium and long term financing amounted to 49% which is almost in conformity to thecovenant of the World Bank.

29. A total of 144 man-month of consultancy services were provided under ADBP-VI project.During the project, Consultancy of 114 mm were contracted with different firms for service to various

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departments of ADBP. Out of 114 mm, 81 mm were utilized during the project. The performance ofthe consultants was reported satisfactory by the user departments. However, in view of a userdepartment, the report prepared by Mr. Steven C. Shepley was conceptually satisfactory butrecommendations on MIS were not considered practically workable under the already existing large EDPenvironment.

E. Problems Faced

30. ADBP experienced serious practical problems in achieving a breakthrough in resourcemobilization which could not be visualized as the ADBP branches do not possess the required orientationtowards deposit mobilization. This is a reflection of the Bank's organizational culture that has developedbecause its activities are geared particularly towards loan disbursement, recovery and extension work.Deposits were generally of short term duration while Bank's lending was predominantly long-term,resulting in maturity mismatching besides the inconvenient location of ADBP branches. Linking of SBPfunds with resource generation at a rate of 10% per annum progressively with effect from FY'87 createdserious resource constraints to ADBP. As a result, ADBP could not disburse sufficient credit to thefarmers as stipulated in appraisal report of the project.

31. The second major set-back was fall in recovery rates due to various unforeseen factors likedeteriorating law and order situation in Sind, crop failures, flood devastations, resolution by NWFPprovincial government to defer recovery of ADBP dues, and decision of Shariat Court declaring interestas repugnant to the injunctions of Islam etc. These factors severely hampered the recovery efforts of allDFIs in the country for which ADBP was no exception.

F. Lessons Learnt

32. The ADBP-VI project was a step forward in utilizing valuable World Bank's support toADBP in strengthening its financial and technological capabilities which greatly benefitted a large ruralpopulation and farming community in Pakistan. During the process of implementation of the project,many new avenues were seen which need to be kept in view more carefully in all future projectformulation process with particular reference to Pakistan. These are discussed below:-

(i) The creation of a steady and tangible deposit base is one of the more challenging aspectsconfronting the ADBP. Some infrastructural changes are needed so that ADBP shouldbecome capable of generating some resources on its own. ADBP is a premier specializeddevelopment credit institution in the country. It has to be kept in view that depositmobilization/resource mobilization should not be prioritized in a way that the primarymandate of providing wider service to target population covering landless, small landoperators, women and role of ADBP in modernization of agriculture is hampered.

(ii) Recovery of loan is vital for any development financial institution. However, someshortcomings in recovery due to unforeseen natural calamities, which are frequent inagriculture sector, should not obstruct the development role of a non-financial developmentinstitution. The large community of a country engaged in production of food and cash cropcould not be deprived of further investment in this area for want of high recovery rates.

(iii) ADBP is obliged to accommodate investment capital needs of farmers. The demand forproduction loans has substantially increased as a result of persistent rise in prices andincreased use of modern farm inputs. Accordingly, the conditioning of production loansto a specific percentage was not considered workable during the project.

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(iv) Introduction and expansion of appropriate new technology is always welcome subject to itsprospects for adoption on commercial scale in an area. Tight conditions for small tractorfinancing did not work. Accordingly, conditions for introduction of new technologywithout thorough experimentation in advance may not be adviseable.

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PART HI

1. Related Bank Loans and/or Credits

Loan/Credit Title Purpose Year of Loan/Credit Sttus CommensbApproval Amoutm

Agricultural Finance foreign exchange costs of 1965 US$27 M CompletedDevelopment Bank tubewells and farm machinery. (Credit)Project(Cr. 76-PAK)

Second Agricultural Provide one year bridging finance 1968 US$10 M CompletedDevelopment Bank between the first and a proposed third (Credit)Project project.(Cr. 117-PAK)

Third Agricultural Continue to assist in financing the 1969 US$30 M Completed PAR issued inDevelopment Bank lending program undertaken under the (Credit) June 1978Project first two projects, and to assist(Cr. 157-PAK) consolidation of ADBP as a sound

agricultural development bank.

Fourth Agricultural Finance, through loans to farmers, 1979 US$30 M Completed PAR issued inDevelopment Bank medium and long-term agricultural (Credit) June 1986Project investments - largely on-farm(Cr. 957-PAK) mechanization and minor irrigation,

and improve development impact ofADBP, and its financial andadministrative efficiency.

Fifth Agricultural Continue supporting ADBP's 1983 US$10.0 M Completed PAR issued inDevelopment Bank medium- and long-term lending (Loan) October 1990Project program and further strengthen ADBP SDR 44.3 M(Ln. 2305-PAK & to make it a sound and effective (Credit)Cr. 1380-PAK) lending institution.

Agricultural Credit Support medium- and long-term 1990 US$148.5 M Ongoing Undisbursed loanProject lending by ADBP & NCBs for farm (Loan) amount of US$84(Ln. 3226-PAK & mechanization, minor irrigation, SDR 1.2 M million wasCr. 2153-PAK) livestock, orchards, inland fisheries (Credit) cancelled as of

and other on-farm development, and June 28, 1994by ADBP for rural small-scale enter-prises and time-saving technologies;ADBP incremental short-term lending;and the institutional development ofADBP & NCBs.

- 28 -

2. Project Timetable

Item Date Plned Date Revised Date Actual

Identification/Preparation Jan. 1985"

Appraisal Aug/Sept. 1985

Negotiations 2' March 01, 1986 March 24, 1986

Board Approval May 20,1986 May 15, 1986

Credit/Loan Signature May 28, 1986

Credit/Loan Effectiveness Aug. 26, 1986 Nov.26, 1986 Sept. 04, 1986

Credit/Loan Closing June 30, 1991 June 30, 1992 Dec. 31, 1992Dec. 31, 1992

Credit/Loan Completion May 18, 19933'

" Prepared by ADBP with assistance of consultants, with one year taken for preparation.2' Starting date.3/ The credit account was kept open untl April 30, 1993, to accommodate final disbursements.

3. Loan/Credit Disbursements

Cumulative Estimated and Actual Disbursements

FYM7 FYN8 MF9 FY90 FY91 FY92 FY93

IBRD Loan (USS million)

Appaisal Esdimte - 25.3 103.0 148.0 165.0 165.0 165.0Actual 1.2 43.0 109.3 141.0 165.0 165.0 165.0

IDA Credit (SDR million)

Appraisal Estimate 21.8 43.3 45.0 46.7 47.6 47.6 47.6Actua 28.0 39.3 44.5 45.0 45.2 45.3 47.6

Total Loan and Credit (USS miilion)

Appraisal Estinate 25.2 75.3 155.0 202.0 220.0 220.0 220.0Actual 36.4 93.2 166.2 198.6 222.9 222.9 226.2

Actual as % of Appraisal

Loan - 169.8 106.1 95.3 100.0 100.0 100.0Credit 128.4 90.9 98.8 96.4 95.0 95.2 100.0Loan and Credit 144.6 123.7 107.2 98.3 101.3 101.3 102.8

Date of Final Disbursement: May 18, 1993

- 29 -

4. Project Implementation

A. Tractor Lending (Medium and Long-term)

Fiscal Year Projected Actual Share in Total Lending No. of Tractors(PRs million) (PRs million) (%) Financed

1987 2,460 2,622 43 23,648

1988 3,400 2,651 34 20,288

1989 4,195 2,899 33 19,725

1990 3,460 3,465 37 20,290

1991 3,600 2,650 32 12,468

1992 3,938 1,743 25 8,823

B. Farm Implements and Minor Irrigation Lending (Medium and Long-term)

Fiscal Year No. of Amount Disbursed Share in Total Share in TractorLoans (PRs million) Lending (%) Lending (%)

Farm Implements

1987 N.A. 330 5.5 12.6

1988 4,996 452 5.9 17.1

1989 6,012 555 6.4 19.1

1990 4,460 591 6.3 17.1

1991 3,531 500 6.0 18.9

1992 2,662 367 5.2 21.1

Minor Irrigation

1987 4,621 221 3.7

1988 6,743 392 5.1

1989 6,632 477 5.5

1990 5,898 487 5.2

1991 5,388 564 6.8

1992 3,281 305 4.4

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C. Livestock, Dairy and Poultry Lending(Short, Medium and Long-term)

(Amounts in PRs million)

Fiscal Year Livestock Dairy Poultry

Amount Share (%) Amount Share (%) Amount Share (%)

1987 73 1.2 408 6.8 223 3.7

1988 161 2.1 870 11.3 400 5.2

1989 225 2.6 929 10.7 470 5.4

1990 217 2.3 896 9.5 305 3.2

1991 184 2.2 838 10.1 220 2.6

1992 140 2.0 629 9.0 149 2.1

D. Lending to Small Farmers(Medium and Long-term)(Amounts in PRs million)

Fiscal Share in Share of upYear Up to 12.5 ac 12.5 ac to 25 ac Total up to 25 ac total term to 12.5 ac

lending loan in total

No. of Amount No. of Amount No. of Amount (%) termLoans Loans oanslending up to

25 ac(%

1987 17,970 1,447 3,506 1,001 21,476 2,448 58 59

1988 51,339 2,754 17,575 1,539 68,914 4,293 80 64

1989 52,082 3,340 14,566 1,524 66,648 4,864 81 69

1990 45,159 3,204 12,694 1,744 57,853 4,948 77 65

1991 34,914 2,723 8,838 1,389 43,752 4,112 78 66

1992 23,168 1,343 8,140 1,388 31,308 2,731 79 49

' Excludes project loans.

- 31 -

E. Share of Short-term Lending(Amounts in PRs million)

Fiscal Year Short-term Lending Total Lending Share of Short-termLending (%)

1987 1,139 6,031 19

1988 1,614 7,716 21

1989 2,063 8,668 24

1990 2,228 9,390 24

1991 2,444 8,234 29

1992 3,043 6,996 43

F. Loan Recovery Rate (Before Reschedulement)(Amounts in PRs million)

Fiscal Year Recoverable Recoveries Overall Recovery Rate (%)

1987 5,725 3,780 66.0

1988 7,057 4,697 66.6

1989 9,306 5,211 56.0

1990 11,955 6,579 55.0

1991 14,755 7,808 52.9

1992 17,711 9,438 53.3

G. Training and Technical Specialists

SAR Actual Actual as % of SAR

No. of employees trained locally - 10,077

No. of employees trained abroad

- Training ) 24 )- Visits )138 15 )28

Technical specialists (staff-months) " 144 81 56

Amount disbursed (US$ million) 0.9 0.66 73

" Against the SAR provision of 144 staff-months, only 114 staff-months were actually contracted, of which only 81 staff-months were eventually used.

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5. Project Cost and Financing

A. Project Cost

Purpose Apprisal Esthnate Actual Cost" Actual s % ofAppraisal Esimte

PRs MIlIIon USS Mlflion PRs Million USS MilIIon PRs US$A. Farm Development Loans1.Farmers with 25 ac or less

Tractors 8,577.0 532.7 13,006.1 656.0 152 123Farm implements 756.1 47.0 2,478.2 124.2 328 264Private minor irrigation 360.2 22.4 1,882.4 92.8 523 414Poultry, other livestock 723.8 45.0 1,875.0 95.8 259 213Dairy development 1,237.9 76.9 3,804.1 187.9 307 244Vegetable/orchard/HV crops 383.4 23.8 187.0 9.4 49 39On-farm development (other) 477.3 29.6 824.0 41.4 173 140Sub-total 12,515.6 777.4 24,056.8 1,207.S 192 155

2. Farmers with over 25 ac

-Tractors 2,887.9 179.4 2,990.0 147.8 104 82-Farm implements 253.3 15.7 1,081.7 53.9 427 343-Private minor irrigation 67.7 4.2 702.3 34.4 1,037 819-Poultry, other livestock 240.3 14.9 659.1 33.4 160 131-Dairy development 411.0 25.5 338.2 16.9 141 113-Vegetable/orchard/HV crops 132.6 8.2 142.7 6.9 108 85-On-farm development (other) 168.3 10.5 251.9 12.7 150 120

Sub-total 4,161.0 258.4 6,165.9 306.0 148 118Farm Development Loans (1 + 2) 16,676.7 1,035.8 30,222.7 1,513.S 181 146

B. Fishery Development LoansMarine fisheries 100.5 6.2 214.4 - -Inland fisheries - - 262.3 - - -

Sub-total 100.5 6.2 476.7 24.3 474 392C. Agro-Industry Project Loams 2,737.5 170.0 3,903.6 197.1 142 116D. Short-term Loans

Farmers with 25 ac or less, seasonal 2,773.8 172.3 5,464.3 263.0 197 153inputsFarmers with over 25 ac, seasonal 927.0 57.6 7,057.8 338.7 761 588inputsOther short-term loans - - - - - -Sub-total 3,700.8 229.9 12,S22.1 601.7 338 262

E. Institutional DevelopmentAssistance

-Vehicles and equipment 143.7 8.9 108.8 4.4 76 49-Training and technical specialists 42.4 2.6 19.5 0.8 46 30-Staff college buildings 8.8 0.5 - - - -

Sub-total 194.8 12.1 128.3 5.2 66 43Total Baseline Cost 23,410.3 1,454.1 47,253.4 2,34.8 202 161Physical contingencies 44.6 2.8 0 0 0 0Price contingencies 6,073.3 213.9 0 0 0 0Total Project Cost 29,528.2 1,670.7" 47,253.4 2,341.8 160 140

" Annual expenditure in Pakistan Rupees converted to US dollars using exchange rates of PRs 17.165 (FY87), PRs 17.555 (FY88), PRs 19,162(FY89), PRs 21.393 (FY90), PRs 22.369 (FY91) and PRs 24.781 (FY92) per US$1.00.

v Figures may not add up due to rounding.

- 33 -

B. Project Flnancing

Expenditure Category Panned Actual* (USS million) . %of Pblanned

IBRDIIDA 220.0 226.2 103Farm development loans 213.8 220.7 103- Tractors (for farmers with 25 ac or less) 108.0 97.6 90- Private minor irrigation 9.1 22.5 247- Other non-tractor investments 96.7 100.6 104Institutional development assistance 6.2 5.5 89Domestic funds 1,450.7 2,115.6 146Total fmancing 1,670.7 2,341.8 140

6. Project Results

A. Direct Benefits

Indicators Appraisal Estimate EAdmatd Actual at FullDevelopment

No. of beneficiaries 300,000 767,000Employment creation 62 million work days 82.5 million work days

- Orchard and vegetable development 41 million work days 24.5 million work days- Dairy development 19 million work days 44.6 million work days- Poultry and other livestock 10 million work days 21.5 million work days

- Minor irrigation 3 million work days 16.3 million work days- Farm mechanization (11) million work days (14.4) million work days

B. Economic Impat

Appraisal Estimate PCR Eatinate

Economic Rate of Return

Rainfed wheat model 48% 32%

Irrigated wheat model 22% 25%

Vegetable model > 50% not estimated"

Orchard model 41% 40%

Livestock model not estimated 60%

Private minor irrigation not estimated 49%

Assumptions

Project life 20 years 20 years

Farm labor (using CF of 0.8) PRs 3.1-3.81 per hour PRs 6.6-9.421 per hour

Standard conversion factor 0.9 0.9

Because of insignificant volume of loas disbuned.Z Differences due t peak med low seaon variation in wage rates.

- 34 -

C. Financial Impact

Appraisal Estimate PCR Estimate

Financial Rate of Return

- Rainfed wheat model 45% 17%

- Irrigated wheat model 18% 14%

- Vegetable model 49% not estimated

- Orchard model 41% 51%

- Livestock model not estimated 31%

- Private minor irrigation not estimated 47%

D. Studies

Study Purpose as Defrned at Status Impact of StudyAppraisal

Study of ADBP's collateral To make collateral policy Not carried out.system under Islamic compatible with Islamicbanking. banking and facilitiate access

of smallholders and thelandless to institutionalcredit.

Annual reviews of ADBP's To analyze the effects of Carried out in 1987 and Borrowing rate from thepast and projected income financing modes under 1989. State Bank of Pakistan raisedand profit-generating Islamic banking on ADBP to 5% in July 1987 and 6%capacity. and propose and implement, in July 1989.

in consultation with theBank, appropriate measuresto ensure a continuedsatisfactory financial positionand profitability.

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7. Status of Covenants

Agreement Section Covenant Original Date Status

Project Agreement

2.01(a) ADBP commitment to project objectives Complied with.(Schedule 2, LA).

2.01(b) ADBP to carry out project in accordance with Mostly observed.implementation program in Schedule 2.

2.01(c) ADBP to make funds available to farmers and Complied with.farmers' groups under terms and conditions ofSchedule 3.

2.04 ADBP to perform all obligations under the Mostly complied with.Financing Agreement.

2.05(a) ADBP to exchange views with the Bank. Regularly done.

2.05(b) ADBP to inform the Bank of any condition Complied with.which interferes with the purposes of theproject.

2.06 ADBP not to utilize any loan/credit proceeds to Complied with. Ratio under serviceextend financing under P & L sharing or charge is negligible.service charge or on any other basis notacceptable to the Bank.

3.03 ADBP to take out insurance against risks in Complied with.amounts consistent with appropriate practice.

4.01(a) ADBP to maintain records and accounts of its Complied with.operations and ftnancial condition, includingseparate project accounts.

4.01(b)(i) Accounts and financial statements to be audited Complied with.each year by independent auditors.

4.01(b)(ii) Furnish to Bank no later than six months after Complied with.end of each year:(a) certified copy of financial statements;(b) audit report.

4.01(b)(iii) Furnish other information on accounts and Complied with.financial statements the Bank may request.

4.01(c) For loan/credit withdrawals made on the basis Complied with.of SOEs: maintain separate records andaccounts reflecting expenditures; enable Bankrepresentatives to examine records; and ensurethat separate accounts are included in annualaudits and that audit reports contain separateopinion whether proceeds were used for thepurposes for which they were provided.

4.02(a) Except as otherwise agreed, ADBP to maintain The ratio at end FY91 was 8:5, buta debt to equity ratio of 7:1. improved to 7:1 by end FY92. In

reality ADBP's equity may have beennegative throughout the loan period ifproper credit and financial (income)policies were adopted.

- 36 -


4.03(a) Except as otherwise agreed, ADBP to chargeinterest rates on loans made before 4/1/85 andrates of return or service charge on financir.gprovided thereafter, which are positive in realterms and sufficient to enable it:

4.03(a)(i) to cover expenditures and charges including Complied with.taxes, interest payments, returns and servicecharges on borrowings;

4.03(a)(ii) to make provision for bad debts maintained at Complied with nominally. Provisionsa ratio to total overdues satisfactory to the to overdues were kept at 40% orBank; above between FY87 and FY92. In

reality ADBP did not fully recognizeall overdues using realistic policies.

4.03(a)(iii) to accumulate reserves adequate to ensure a Not complied with.debt to equity ratio of 7:1.

4.03(b)(i) ADBP to charge interest rates of not less than Complied with.11 % p.a. on outstanding balances of loansmade before 4/1/85.

4.03(b)(ii) ADBP to charge service charges of not less Complied with.than 3% p.a. on outstanding balances of fundsprovided on that basis.

4.03(b)(iii) ADBP to charge rates of return of not less than 11 % p.a. during FY87, which was12% p.a. plus 3% of each installment due on revised upwards to 12% from FY88.outstanding balances of funds provided on thatbasis.

4.04(a) ADBP to take measures to achieve adequateprofits to fund its reserves, and to this end:

4.04(a)(i) not later than 12/31 each year, beginning with Review as of 12/31/90 was conducted1986, review past and projected income and but results and recommendations notprofit generating capacity; conveyed to GOP and Bank.

4.04(a)(ii) not later than 3/31 each year, beginning with See above.1987, obtain concurrence of Borrower andBank to proposed measures;

4.04(a)(iii) thereafter but no later than 7/1 each year, See above.beginning with 1987, implement proposals.

4.04(b) ADBP not to pay dividends when profits fall Complied with.short of level required to fund reserves.

4.05(a) ADBP to account for income on accrual basis. Reverted back to accrual basis inFY86.

4.05(b) ADBP for early repayment to calculate and Complied with.collect out-standing principal and income onreduced balance basis.

4.05(c) ADBP to continue to apply permanent write-off Not complied with. Due to drop inpolicy. recoveries and political situation,

ADBP was reluctant to write off;exercise to review policy wasconducted.

- 37 -


4.06(a) ADBP to extend each fiscal year 75% of Complied with.medium- and long-term loans to farmers with25 ac or less, of which 50% to farmers with12.5 ac or less.

4.06(b) ADBP not to extend more than 20% of total Under ACP, limit increased to 25%.lending for short-term loans, and 2% of total Actual since FY88 exceeded 20%lending on P & L sharing or service charge with 43% ruling in FY92.basis.

4.07(a) ADBP to review collateral policy. Complied with.

4.07(b) ADBP to submit recommendations for Bank 10/31/86 Report stated that no new measuresconcurrence. needed to be taken.

4.07(c) ADBP to implement recommendations. See above.

4.08 ADBP to reach minimum recovery rates of Recovery rate in FY90 dropped from77% by 6/30/87, 79% by 6/30/88, and 81% by 61% to 55 %. A special action6/30/90. program was agreed with the Bank in

FY92 but is not being implementedfully.

Schedule 2

1(a) ADBP to prepare action plan to increase use of 10/31/86 Complied with.FMCOs and MCOls.

I (b)(i) ADBP to establish agricultural technology 06/30/87 Some have been established but ideatransfer centers (ATTCs) in all its regions. of technology transfer has lost

momentum.

1 (b)(ii) ADBP to establish three mobile mechanization 06/30/87 Bank has requested and ADBP hasdemonstration units (MMDUs), and another agreed that at least 15 MMDUsthree the following year. should be used only to promote

primary tilling.

1(c) ADBP to strengthen credit policy and appraisal 12/31/86 New review due under ACP (ADBdepartment so as to enable it to: covenant).

l(c)(i) train all MCOs in new appraisal procedures. 12/31/87 Complied with.

l(c)(ii) modify and refine appraisal techniques. Complied with.

2(a) ADBP to prepare a report on staff training and 12/31/86 Complied with.action plans for future training.

2(b) ADBP to prepare annual staff training plans. 03/31/87 Complied with.

2(c) ADBP to report annually on monitoring of its 09/30/87 Complied with.staff training activities.

3(a) ADBP to make financing available only after Complied with.appraisal using procedures satisfactory to theBank.

3(b) ADBP to finance solar pumps only if appraisal GOP subsidies not available. Fundsreport is accompanied by data establishing have been reallocated to general PMItechnical and financial viability. use.

4(a) ADBP to cause its M & E unit to:

- 38 -


4(a)(i) assume additional responsibilities to monitor Complied with.efficiency and assess project impact;

4(a)(ii) prepare semi-annual M & E reports; Complied with.

4(a)(iii) prepare quarterly project progress reports. Complied with.

4(b) ADBP to ensure that project investments in GOP subsidies not available. Fundssolar pumps are incorporated in M & E system have been reallocated to general PMIand a selection of pumps is instrumented for use.technical monitoring.

Loan Agreement

3.01(a) Borrower declares commitment to project GOP/SBP have curtailed additionalobjectives, shall cause ADBP to perform funds to ADBP because ADBP didaccordingly, and shall provide funds, etc. not meet deposit mobilization targets.

3.01(b) Borrower to make proceeds available under a Complied with.financing agreement including terms andconditions set forth in Schedule 3 of PA.

3.01(d) Borrower to provide additional funds on terms GOP/SBP have curtailed additionaland conditions set forth in Schedule 3 of PA. funds to ADBP because ADBP did

not meet deposit mobilization targets.

3.02 Procurement of goods, works and consultants' Complied with.services to be governed by provisions ofSchedule I to PA.

3.04 Borrower to take measures necessary to enableADBP to:

3.04(a) include movable/immovable property as Complied with.security for loans made before 04/01/85;

3.04(b) retain ownership of movable/immovable Complied with.property as security;

3.04(c) repay loan proceeds made available to it at rate Complied with.of interest or equivalent referred to in para l(a)of Schedule 3 to PA;

3.04(d) repay credit proceeds made available to it at Complied with.rate of interest or equivalent referred to in paral(b) of Schedule 3 to PA;

3.04(e) repay other funds made available to it at rate Complied with.of interest or equivalent referred to in para l(c)of Schedule 3 to PA;

3.04(f) enjoy spread on funds (other than loan/credit) See Sec. 4.04(a)(i) Projectmade available by Borrower of 7% during Agreement.FY87 and of such other rate during eachsubsequent FY as agreed upon after eachannual review of its financial position;

3.04(g) extend loans and provide financing after Complied with.appraisal in accordance with proceduressatisfactory to the Bank.

3.05 Borrower not to require ADBP to undertake Not complied with.emergency lending.

- 39 -


3.06 If ADBP's lending rates, rates of return and See Sec. 4.04(a)(i) Projectservice charges are not positive in real terms, Agreement.Borrower to take necessary measures toachieve levels satisfactory to the Bank.

3.07 Borrower to increase ADBP's paid-up capital Complied with.as and when needed to maintain its debt/equityratio at 7:1.

8. Use of Bank Resources

A. Staff Inputs (staff weeks)

Preappraisal Appraisal Negotiations Supervision Total

FY82 3.0 - - - 3.0

FY83 - -

FY84 10.0 - - - 10.0

FY85 7.9 - - - 7.9

FY86 2.6 49.0 4.0 6.1 61.7

FY87 - - - 12.1 12.1

FY88 - - - 8.0 8.0

FY89 - - - 10.2 10.2

FY90 - - - 13.9 13.9

FY91 - - - 11.1 11.1

FY92 - - - 5.5 5.5

FY93 0.7 0.7

FY94 - - - 21.41' 21.4"

Total 23.5 49.0 4.0 89.0 165.5

" Time spent on PCR preparation, of which 18.5 staff weeks by FAO/CP.

- 40 -

B. Missions

Stage of Month/Year No. of Days in Specializations Performance Types ofProject Cycle Persons Field Represented" Rating2 ' Problems3'

Preparation

Appraisal Aug./Sept. 1985 6 23 ACS, AG(2), EC(2), FM -

Supervision 1 June 1986 3 18 ACS, AG, EN I

Supervision 2 4 April/May 1987 2 24 ACS, AG 2 F, M

Supervision 3 5/ Nov./Dec. 1987 2 18 ACS, AG I M

Supervision 4 6/ Feb. 1989 3 14 ACS, AG, CS 2 F, M

Supervision 5 ' Nov. 1989 2 14 ACS, AG I F, M

Supervision 6 8 June/July 1990 2 19 ACS, AG 2 C, D, F, M

Supervision 7 8/ Jan. 1991 2 20 ACS, AG 2 C, F, M

Supervision 8 8' Sep. 1991 2 22 ACS, AG 2 C, D, F, M

Supervision 9 June/July 1992 4 24 FA(2), SO, WI 2 C, F, M

Supervision 10 Dec. 1992 2 7 AG, FA 2 C, F, M

PCR April 1994 3 21 ACS(2), EC

" ACS = Agricultural credit officer; AG = Agriculturalist; CS = Computer specialist; EC = Economist;EN = Engineer; FA = Financial analyst; FM = Farm mechanization specialist; SO = Sociologist; WI = WIDspecialist.

' Status: 1 = Problem-free or minor problems; 2 = Moderate problems.

3' C = Compliance with legal covenants; D = Project development objectives; F = Financial; M = Managerial.

4' Combined supervision of ADBP-V & VI and initiating efforts for joint review of the rural and financial sector.

5' Combined supervision of ADBP-V & VI.

6/ Supervision of ADBP-VI and discussion of preparation of the follow-on project.

Supervision of ADBP-VI and appraisal of the follow-on project.

8/ Combined supervision of ADBP-VI and the follow-on Agricultural Credit Project (ACP).

Project Comptetion ReportPakistan: Sixth AgricuLtural Development Bank Project

(Ln. 2693-PAK, Cr. 1699-PAK)

Table 1. Trends in Average Capital and Staff Production of Services FY87-92

No. of Borrouers per Loan Disbursement per Loans Otitstarnding per Deposit & Savings PobiLization perFiscal Year

Capital Eployee CapitaL EI m ployee Capital Employee

(No.) (PRs milLion) (PRs miLLion) (PRs miLLion)

1987 0.0002 18 12.2 0.9 38.0 2.8 0.7 0.05

1988 0.0002 20 11.7 1.0 36.6 3.2 2.2 0.2

1989 0.0003 20 19.4 1.1 69.2 4.0 6.6 0.4

1990 0.0003 15 20.9 1.1 82.9 4.3 15.3 0.8

1991 0.0002 13 17.1 1.0 86.0 4.8 7.1 0.4

1992 0.0001 11 8.7 0.8 54.4 5.1 2.3 0.2

42

Project Completion Report

Pakistan: Sixth Agricultural Development lank Project(Ln. 2693-PAK, Cr. 1699-PAK)

Table 2. Agricultural Development Bank of Pakistan: Balance Sheet(PRs million)

As of June 30 FY87 FYN8 FY89 FY90 FY91 FY92

ASSETS

Cash in hand and Banks 777.9 762.1 1,130.1 1,165.9 1,606.9 3,791.0Investment in Govt. Securities 401.4 1,394.2 1,313.6 2,703.8 2,004.8 1,918.6

LOAN PORTFOLIO

Gross Loan Portfolio 18,757.3 24,211.8 30,822.1 37,222.8 41,985.4 43,918.5Less provision for Bad Debts 702.0 1,300.3 2,220.2 3,274.9 4,778.9 6,482.3

18,055.3 22,911.5 28,601.9 33,957.9 37,206.5 37,436.2

Net Fixed Assets 114.0 144.6 175.8 163.4 160.8 163.6Other Assets 493.8 661.3 447.3 448.8 488.4 808.1

Total Assets (excluding assets relating 19,842.4 25,873.7 31,668.7 38,439.8 41,467.4 44,117.5to Bangladesh)

Average Assets (assets relating to 17,632.7 22,858.1 28,771.2 35,054.3 39,953.6 42,792.5Bangladesh excluded)

Assets relating to Bangladesh 799.7 829.0 858.4 887.8 917.2 946.5

Total Assets (including asset 20,642.1 26,702.7 32,527.1 39,327.6 42,384.6 45,064.0relating to Bangladesh)

Average Assets (relating to 18,417.7 23,672.4 29,614.9 35,927.4 40,856.1 43,724.3Bangladesh included)

LLIBILITIES AND EQUITY

Deposits and other accounts 331.5 1,459.7 2,945.4 6,854.5 3,466.6 1,818.8Other liabilities 907.2 1,491.0 985.9 1,612.7 1,100.1 1,067.2

BORROWINGS

From GOP on Account:- IDA 1,657.1 1,886.0 1,965.6 1,888.7 1,812.8 1,686.1- IBRD 155.3 910.9 2,099.0 2,566.9 2,824.7 3,269.4

Sub-Total (IDA + IBRD) 1,812.4 2,796.9 4,064.6 4,455.6 4,637.5 4,955.5

IFAD 649.6 671.9 678.4 664.6 636.7 622.3SIDA 0.6 0.0 0.0 0.0 0.0 0.0ADB 365.6 661.2 971.7 971.2 1,572.6 2,172.4USAID 0.0 33.1 134.4 134.4 131.7 115.2OECF Japan 0.0 0.0 0.0 0.0 0.0 933.0

Sub-Total (Foreign Borrowing) 2,828.2 4,163.1 5,349.1 6,225.8 6,978.5 8,798.4

State Bank of Pakistan 13,291.0 15,689.9 16,062.7 19,476.0 25,398.4 27,153.8

16,119.2 19,853.0 23,911.8 25,701.8 32,376.9 35,952.2

Average Deposits and Borrowings 14,584.0 17,986.1 21,882.4 24,806.8 29,039.4 34,164.6

PROVIDENT FUND 212.7 284.6 373.8 474.7 612.9 0.0

Authorized Capital (1,500.0) (1,500.0) (1,500.0) (1,500.0) (3,000.0) (3,000.0)Paid-up Capital 799.9 988.3 1,353.3 1,353.3 1,353.3 2,569.3Reserves 1,081.8 1,472.0 1,796.9 2,098.3 2,442.5 2,557.4Profit of the year 390.2 324.9 301.4 344.3 114.9 152.4

Total Equity 2,271.9 2,785.2 3,451.6 3,795.9 3,910.7 5,279.1Total Liabilities 19,842.5 25,873.5 31,668.5 38,439.6 41,467.2 44,117.3Liabilities in respect of Bangladesh 799.6 829.2 858.6 888.0 917.4 946.7

TOTAL 20,642.1 26,702.7 32,527.1 39,327.6 42,384.6 45,064.0

43

Project ComipLetion ReportPakistan: Sixth AgricuLturaL DeveLopment Bank Project

(Ln. 2693-PAK, Cr. 1699-PAK)

Table 3. Agricultural Development Bank of Pakistan: Income and Expenses Statement(PRs million)

FY87 FY88 FY89 FY90 FY91 FY92

INCOME

Gross Operating Income 1,963,5 2,408.5 3,063.4 3,727.1 4,434.9 4,551.7

Bad Debt provision/reversal of income 406.6 616.4 922.0 1,082.1 1,525.7 1,729.4

Net Operating Income 1,556.9 1,792.1 2,141.4 2,645.0 2,909.2 2,822.3

EXPENSES

Interest on customers' deposits and on FundBorrowed 626.2 787.3 1,117.2 1,495.0 1,721.5 1,539.5

Total Financial Expenses 626.2 787.3 1,117.2 1,495.0 1,721.5 1,539.5Salaries and Allowances 317.6 457.3 468.6 548.6 772.1 811.9Rent and Office Expenses 77.9 82.4 99.0 102.4 124.8 152.3

Depreciation (including expenses 395.5 539.7 567.6 651.0 896.9 964.2on repairs and renovation) 68.2 70.1 77.9 77.0 80.8 74.7Other Expenses 76.8 70.1 77.3 77.7 95.1 91.5

145.0 140.2 155.2 154.7 175.9 166.2

Total Expenses 1,166.7 1,467.2 1,840.0 2,300.7 2,794.3 2,669.9

APPROPRlATIONS

Net Profit 390.2 324.9 301.4 344.3 114.9 152.4Reserves 390.2 324.9 301.4 344.3 114.9 152.4Dividend

RATIOS (%)

Eamings Rate:- Average Total Assets 8.5 7.6 7.2 7.4 7.1 6.5

Expenses Rate:- Interest Expenses on average total assets; 3.4 3.3 3.8 4.2 4.2 3.5- Operating Costs on average total assets; 2.9 2.9 2.4 2.2 2.6 2.6- Total Expenseson averagetotal assets; 6.3 6.2 6.2 6.4 6.8 6.1

Net Margin on Total Assets 2.2 1.4 1.0 1.0 0.3 0.4

Interest Cost of Deposits and Borrowings on 4.3 4.4 5.1 6.0 5.9 4.5Average Outstanding

Return on Average Equity 19.2 12.8 9.6 9.5 3.0 3.3

44

Project Completion ReportPAKISTAN: Sixth Agricultural Development Bank Project

(Ln. 2693-PAK, Cr. 1699-PAK)

Table 4. Agricultural Development Bank of Pakistan: Cash Flow Statement(PRs million)

FY87- FY88 FY89 FY90 FY91 FY92

APPLICATION OF CASH

1. Loan Disbursement 6,032 7,716 8,668 9,390 8,324 6,997

(a) Agricultural loans 5,351 6,955 8,075 8,642 7,736 6,490(b) Project loans 681 761 593 748 588 507

2. Capital Expenditure 150 206 226 248 230 292

3. Administrative Expenditure 487 625 662 746 1,073 1,131

4. Total Interest paid 626 787 1,117 1,405 1,721 1,539

5. Repayment of Foreign Loans 61 67 151 536 555 690

6. Repayment to SBP 2,703 2,893 3,921 4,697 0 0

(a) Agricultural 2,681 2,845 3,839 4,697 0 0(b) Project 22 48 82 122 148 185

7. Repayment to Bank 0 50 430 1,520 4,285 1,755

8. Return on PLS Borrowing (SBP) 298 424 638 851 1,024 752

Total 10,357 12,768 15,813 19,605 17,360 13,241

SOURCES OF CASH

1. Repayment of Bank's Loans 3,780 4,697 5,211 6,580 7,809 9,438

(a) Agricultural Loans 3,623 4,512 5,077 6,409 7,533 9,219(b) Project Loans 157 185 134 171 276 219

2. Equity 96 188 365 0 0 1,216

3. Deposits 177 699 398 -138 927 -560

4. Borrowing for Agri. Loans 5,317 6,110 7,615 6,550 6,780 3,868

(a) Loans from SBP (ACD) 4,526 4,992 6,177 5,758 5,670 1,750(b) Loans from IDAIIFAD/IBRD/ 791 1,118 1,438 792 1,110 2,163

ADB

5. Borrowings (Project Loans) 521 585 516 596 600 482

(a) Loans from SBP (ICO) 330 300 117 475 400 235(b) Loans from ADB/USAID 191 265 399 121 200 247

6. Loans from Banks (call money) 0 430 1,520 5,585 0 455

7. Capital Receipts (receipts against 15 15 31 36 45 66advances)

8. Miscellaneous Receipts (loan 51 94 71 149 153 155application fee, etc.)

9. Miscellaneous Items 669 -66 454 283 1,487 305

Total 10,626 12,752 16,181 19,641 17,801 15,425

Surplus/(Deficit) 269 (16) 368 36 441 2,184

Opening Balance 509 778 762 1,130 1,166 1,607

Closing Balance 778 762 1,130 1,166 1,607 3,791


Pakistan: Sixth AgricuLtural Development Bank Project(Ln. 2693-PAK, Cr. 1699-PAK)

Table 5. Agricultural Development Bank of Pakistan: Term-wise Recovery Position(PRs million)

Tern/Year | Recoverable | Rescheduleaent | Met Recoverabte | Recovery | 5 as Percentage of 2 | 5 as percentage of 4 | Past Dues as on June 30

1 2 3 4 = 2-3 5 6 7 8 = 4-5

1987-88

Short-term 1941.749 86.058 1855.650 1414.650 72.9 76.2 441.041Mediun-term 1059.397 75.583 983.814 608.039 57.4 61.8 375.775Long-term 4056.169 370.879 3685.290 2676.686 65.9 72.6 1010.604

Total 7,057.315 535.520 6524.795 4697.375 66.6 72.0 1827.420

1988-89

Short-term 2621.184 372.834 2248.350 1537.272 58.6 68.4 711.078Medium-term 1381.842 103.238 1278.604 704.347 51.0 55.1 574.257Long-term 5303.323 655.610 4647.713 2969.848 56.0 63.9 1677.865

Total 9306.349 1131.682 8174.667 5211.467 56.0 63.8 2963.200

1989-90

Short-term 3291.152 308.275 2982.877 1915.830 58.2 64.2 1067.047Mediun-term 1904.609 111.768 1792.841 968.753 50.9 54.0 824.088Long-term 6760.216 749.085 6011.131 3695.089 54.7 61.5 2316.042

Total 11955.977 1169.128 10786.849 6579.672 55.0 61.0 4207.177

1990-91


Total 14755.940 1586.876 13169-064 7308.523 52.9 59.3 5360.541

1991-92


Total 1 m 11017 477.534 17233.483 9438.104 53.3 54.8 7795.379

46


Pakistan: Sixth Agricultural Development Bank Project(Ln. 2693-PAK, Cr. 1699-PAK)

Table 6. Subsidy Dependence Index of ADBP - FY87-92

I Unit FY87 FY88 FY89 FY90 FY91 FY92

Market Interest Rate" % 12.2 12.1 12.3 11.5 11.2 11.9

Average (concessional) PRs million 14,584 17,986 21,883 24,806 29,039 34,165borrowings2 '

Average cost of (con- % 4.2 4.1 4.9 5.4 5.3 5.5cessional) borrowings3 '

Subsidy on borrowings PRs million 1,167 1,439 1,619 1,513 1,713 2,187

Average equity PRs million 2,029 2,579 3,118 3,624 3,853 4,595

Subsidy on equity PRs million 248 312 384 417 432 547

Net Profit PRs million 390 325 301 344 115 152

Total Subsidy (net of PRs million 1,025 1,426 1,702 1,586 2,030 2,582profit/loss)

Subsidy DependenceIndex % 52 59 56 43 46 57

Average loan portfolio PRs '000 16,493 21,485 27,517 34,027 39,609 42,952

Average lending rate % 11.9 11.2 11.1 10.9 11.2 10.6

Increase required % 6.2 6.6 6.2 4.7 5.2 6.0

New lending rate required % 18.1 17.8 17.3 15.6 16.4 16.6to eliminate subsidies

Based on weighted average return on fixed deposits of 5 years and over.

v Borrowings from SBP and international lenders.

31 Interest paid to SBP and on foreign borrowings is PRs 616 million (FY87), PRs 730 million (FY88), PRs 1,074 million (FY89),PRs 1,350 million (FY90), PRs 1,527 million (FY91) and PRs 1,875 million (FY92).

47

ANNEX 1

FINANCIAL AND ECONOMIC RE-EVALUATION

A. INTRODUCTION

General

1. This Annex presents the main assumptions and results of the financial and economic analysisof investment models financed under ADBP-VI. All calculations were done in 1991/92 prices.

2. At appraisal, the financial and economic analysis was undertaken in constant 1985 pricesfor four representative farm models to illustrate the viability of the proposed investments. Theseincluded: (i) a mouldboard plow for a 40 acre rainfed wheat farm; (ii) a reversible mouldboard plow fora 10 acre irrigated wheat/cotton farm; (iii) special equipment for a 12.5 acre vegetable production farm;and (iv) development of a 12.5 acre apple orchard (semi-dwarf varieties). Constant 1985 prices ofoutputs and inputs were used in both the financial and economic analysis. For traded commodities likewheat, rice, sugarcane, maize and cotton, economic prices were based on export parity prices, and forfertilizers on import parity prices. Prices of non-traded commodities were based on financial prices,adjusted by a standard conversion factor (SCF) of 0.90. The economic cost of unskilled labor was basedon seasonal market wage rates, adjusted by a CF of 0.80.

3. The financial and economic analysis in the PCR followed the appraisal methodology. Threeof the four investment models were used; the vegetable production model was dropped because lendingwas negligible. Two additional farm models - private minor irrigation and livestock productiondevelopment - have been analyzed, which accounted for substantial lending under the project.

4. The analysis utilized information from the baseline and terminal surveys conducted in FY86and FY91, respectively, by the Monitoring and Evaluation Unit of ADBP. The baseline survey wascarried out using samples of 1,500 prospective borrowers and collected information on land utilization,cropping patterns and intensities, yields, farm mechanization, production costs and incomes. It wasfollowed by annual monitoring surveys. The terminal survey concentrated mainly on the impact of theinvestments.

Yields

5. Actual crop yields are based on the results of surveys. A comparison of appraisal and PCRestimates is in Table 1.

Financial Prices

6. Average 1991/92 farmgate prices prevailing in the project areas have been used in thefinancial analysis. The price of wheat (PRs 3.25/kg) is slightly above the Government's support price(PRs 3.10/kg) reflecting the high demand and better market access in the main producing areas. Theprice of paddy is also above the Government's support price given the high demand from private tradersfor basmati rice. The price of seed cotton (PRs 6.25/kg) is below the Government's support price (PRs6.83/kg) illustrating farners' dependence on the closest ginnery in selling their crop. The price ofsugarcane is close to the Government's support price. Prices for maize, livestock products and fruitreflect average farmgate prices received by farmers. Unskilled labor has been costed at the average

48 Annex 1Page 2

seasonal market wage rates, which range from PRs 9.4/hour during the peak season to PRs 6.6/hourduring the slack season.

7. Production and operating costs are also based on 1991/92 data. For the calculation of debtservicing, a borrowers' contribution of around 13% of total investment and interest rates of 12.5%presently charged by ADBP for both short-term and long-term loans were adopted.

Economic Prices

8. The economic prices used are based on the estimates in the Staff Appraisal Report on theFordwah Eastern Sadiqia (South) Irrigation and Drainage Project (Cr. 2410-PAK). To reflect the higherquality of basmati rice, a 25 % premium has been added to the economic price of IRRI rice. Economicprices of maize and other crops have been obtained by applying the SCF of 0.9 to their financial prices.Subsidy elements have been eliminated from the investment cost for private minor irrigation. Thefinancial costs of inputs and labor have been converted to economic costs by applying the SCF of 0.90and CF of 0.8, respectively. However, as these costs are only available in lump sum per farm, thedisaggregation of cost elements followed the appraisal assumptions. The percentages of input and laborcosts are summarized below.

Costs of Inputs and Labor as Percentage of Total Production Costs

| Farm: Model j i i: 0 X: j g: i: 0 Percentage of Inputs:; i| :Percentage of abor.

Small rainfed farm - tractor anduimplement 94 6

Large. irigated farm - tractor and implements 93..... 7:

Livestocak production 94: 6.

'Private minor irrigation 93 X7

Fruit production 64 1 36EJ ~ ~ ~ ~ . . . . ... . . .. . . .. . ..

Farm Models

9. The five representative farm models described below are based on the activities for whichloans were granted under the project.

Fann Model 1: Rainfed Subsistence Farm - Tractor and Implements. This farm owns 12.5acres of barani area, with additional 26.5 acres leased. The main crop is wheat,covering 36% of the cropped area. The mix of other crops grown includes cotton,sugarcane, maize and rice under rainfed conditions. In the "with project" (WP)situation, cropping intensity would reach 93 % at full development, 24 % more thanin the "without project" (WOP) situation. The purchase of a tractor permitsexpansion of the cultivated area and increase in yields through better landpreparation. Additional income is obtained from provision of tractor services toneighboring farmers.

49 Annex 1Page 3

Farm Model 2: Large-scale Irrigated Farm - Tractor and Implements. This farm owns 42acres and leases 12 acres. Wheat is the major crop, occupying about 37 % of thetotal area, followed by rice and cotton, together accounting for about 39%. Othercrops are fodder, oilseeds, pulses and chillies, which provide significantcontributions to total farm income. Cropping intensity would increase onlymarginally with the availability of a tractor and implements. The main benefitsfrom the investment are higher yields and additional income from provision oftractor services.

Farm Model 3: Rainfed Fann - Livestock Production. This farm owns 19 acres, with additional9 acres leased. Cultivation is under rainfed conditions, with limited irrigation.Wheat and cotton are the main crops. Rice and sugarcane are grown on theirrigated land. Other crops play a minor role, with the exception of fodder tosustain livestock. Cropping intensity averages about 150%. Livestock providesabout 12% of total farm income.

Farm Model 4: Large-scale Irrigated Farm - Private Minor Irrigation. This farm owns 35acres, with additional 19 acres leased. Wheat and rice are the most prominentcrops providing almost 50% of total farm income. Cotton and sugarcane are alsoimportant sources of income. Cropping intensity varies between 150% and 170%.The investment in a shallow tubewell is intended to provide mainly supplementaryirrigation.

Farm Model 5: Rainfed Farm - Fruit Production. This model represents a medium-sized farmin barani area with some access to irrigation water. The farm owns about 18 acresand, in addition, leases up to 7 acres. The main crop is wheat. About 3-4 acresare allocated to rice, cotton, sugarcane, maize and other minor crops at fulldevelopment. Cropping intensity would increase by 21 % "with project".Intercropping with tree crops is commonly practised during the establishmentperiod. Income from fruit production at full development represents some 20%of total farm income.

B. FINANCIAL AND ECONOMIC RESULTS

10. Based on the above assumptions, financial and economic analysis has been undertaken. Thefinancial analysis has been carried out over ten years while the economic analysis has been carried outover twenty years. The equipment in Models 1, 2 and 4 is assumed to be replaced in Year 11. For theLvestock model, replacement of stock has also been assumed in Year 11. Financial and economicbenefits and costs are presented in Tables 3-22. The financial (FRR) and economic rates of return (ERR)likely to be achieved if funds are used as intended are shown below.

50 Annex 1Page 4

Comparison of FRRs and ERRs

Farm Mode) f IRR.(%) E IRR (%)

...... ~~~SAR PR SAi J PR

Rairaed subsisten ai fan 45 17 48 32

Lvestock production . :. NA. 1 N.A. D60

Private miinor ittgation N. 47 :NA. 49:

Fruit pwduction .41 5 41. 40

11. FRRs and ERRs of all production models range from acceptable to robust. FRRs of farmmodels 1 and 2 (14%-17%) are lower than the SAR estimates (18%-45%). The lower FRR for therainfed subsistence farm model is due to lower wheat, pulses and fodder areas, and substantially higherinvestment costs. The lower FRR for the large-scale irrigated farm is due to lower wheat yield and highinvestment costs. The ERR of the rainfed subsistence farm is substantially lower than estimated by theSAR due mainly to lack of crop diversification and high investment costs. The ERR of the large-scaleirrigated farm is slightly higher because crop production is more diversified allowing for adjustments tochanging market conditions. The FRR for the fruit model is higher mainly because of larger farm sizeand higher cropping intensity for other crops. The ERR for this model is practically identical with theappraisal estimate. FRR and ERR of livestock production and private minor irrigation are robust.

Project Completion ReportPakistan: Sixth AgricuLtural DeveLopment Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)

Annex 1: FinanciaL and Economic Re-evaLuation

Table 1. SAR and PCR Yield Estimates(kg per acre)

Appraisal Estiintes PCR Estimtes

1906/87 1991/92 1966/87 1991/9Z

Wheat, irrigated 852 1,126 859 1,000

Wheat, rainfed 432 572 496 840

Rice, basmati 1/ 778 944 906 3/ 1,360

Rice, IRRI 1,422 1,573 810 4/ 1,000 LA

Cotton 432 543 432 800

Sugarcane 15,940 19,926 16,730 22,000

Maize, irrigated 660 849 610 5/ 920

Maize, rainfed 360 496 610 5/ 920

Other crops 2/ 1,950 3,520

1/ More than 80X of the rice cultivated by project participants is basmati rice.2/ Mostly fodder, pulses and oilseeds for which no separate yields have been established at appraisaL.3/ Average yield for basmati and IRRI rice for large farm.4/ Average yield for basmati and IRRI rice for small farm.5/ Average yield for irrigated and rainfed maize.

52


Pakistan: Sixth AgricuLtural DeveLopment Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)Annex 1: FinanciaL and Economic Re-evaluation

Table 2. Prices Used in the Financial and Economic Evaluation(in PRs)

Outputs Unit Financial Price " Economic Price 2/

(Constant 1991/92)

Wheat kg 3.25 4.73

Rice (paddy) 3/ kg 5.60 3.86

Seed cotton kg 6.25 11.82

Sugarcane kg 0.43 0.33

Maize 41 kg 3.00 2.70

Other crops 5' kg 2.00 1.80

" Prices for inputs based on 1991/92 ADBP field survey. Production costs are indicated as lump sums perfarm and have been allotted according to percentages derived for the appraisal report.

2' Based on prices used in SAR of Fordwah Eastern Sadiqia (South) Irrigation and Drainage Project, June1992.

v As about 80% of the rice grown in the project area is basmati rice, the economic price for rice (paddy)has been increased 25% over the price of IRRI rice.

" Maize grown under the project was largely used for human consumption; therefore economic price has beencalculated by applying SCF of 0.9 to financial price.

" Price based on ADBP survey results for a mix of crops, including fodder, oilseeds and pulses.

Project Completion ReportPakistan: Sixth AgricuLturaL DeveLopment Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)

Annex 1: FinanciaL and Economic Re-evaluation

Table 3. Farm Model 1 - Tractor and Set of Implements (Rainfed Subsistence Farm - 12.5 acres and 26.5 acres leased)A. Land Use and Production

(Area in acres; Yield in kg per acre; Production in kg)

Without Projt Wnh Project

1985186 1986/87 1987/88 1988/89 1989/90 199091 1991/92Area I Yied Production A ae i Yield Production Area Yid Production Area Yield Production Area Yield Production Area Yield Production Area Yield Production

Wheat 10 446 4,460 12 496 5,952 13 550 7,150 12 612 7,344 12 680 8,160 14 756 10,584 14 840 11,760

Rice 4 810 3,240 5 840 4,200 5 877 4,385 6 910 5,460 5 940 4,700 4 975 3,900 5 1,000 5,000

Catton 7 432 3,024 7 456 3,192 8 510 4.080 7 570 3,990 7 640 4,480 8 715 5,720 7 800 5,600

Sugarcane 2 16,730 33,460 3 17,500 52,500 4 18,280 73,120 3 19,120 57,360 3 20,000 60,000 3 21,000 63,000 4 22,000 88,000L.A

Maize 2 610 1,220 2 653 1,306 2 700 1,400 3 750 2,250 3 800 2,400 2 860 1,720 2 920 1,840

Other crops 4 1,950 7.800 5 2,125 10,625 6 2,350 14,100 6 2,600 15,600 6 2,880 17,280 6 3,185 19,110 7 3,520 24,640

Cropped area 29 34 38 37 36 37 39

Cropping

intensity in % 69 81 90 88 86 88 93

Project Completion ReportPakistan: Sixth AgricuLtural Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)

Annex 1: Financial and Economic Re-evaluation

Table 4. Farm Model 1 - Tractor and Implements (Rainfed Subsistence Farm - 12.5 acres and 26.5 acres leased)B. Financial Budget (in PRs)

Without 1 Uith Project 1 Projected| Project 1 1986/87 1 1987/B 1988/89 I 1989a/0 1 1990/91 T 1991/92 1992/93 1993/94 1 1994/95 I 1995/96

Gross ince fro crapsWheat 14,495 19,344 23,238 23,868 26,520 34,398 38,220 38,220 38,220 38,220 38,220

Rice 18,144 23,520 24,556 30,576 26,320 21,840 28,000 28,000 28,000 28,000 28,000

Cotton 19,100 20,563 25,250 23,800 25,594 31,500 29,750 29,750 29,750 29,750 29,750

Sugarcane 14,388 22,575 31,442 24,665 25,800 27,090 37,840 37,840 37,840 37,840 37,840

Maize 3,660 3,918 4,200 6,750 7,200 5,160 5,520 5,520 5,520 5,520 5,520

Other crops 15,600 21,250 28,200 31,200 34,560 38,220 49,280 49,280 49,280 49,280 49,280

Sub-totaL 85,387 111,170 136,886 140,859 145,994 158,208 188,610 188,610 188,610 188,610 188,610

I ncoe frautractor operationon-farm operation 0 20,257 35,739 28,937 29,807 30,676 43,786 43,786 43,786 43,786 43,786

Off-farm operation 0 13,926 19,832 21,786 27,723 33,659 36,183 36,183 36,183 36,183 36,183

Sub-total 0 34,183 55,571 50,723 57,530 64,335 79,969 79,969 79,969 79,969 79,969Total gross ineome 85,387 145,353 192,457 191,582 203,524 222,543 268,579 268,579 268,579 268,579 268,579

Recurrent costsCrop production costs 41,779 54,694 58,970 63,124 68,516 70,585 92,403 92,403 92,403 92,403 92,403

Tractor reLated costs

Wages 0 7,390 13,272 18,257 20,970 23,681 24,865 24,865 24,865 24,865 24,865

Petrol, oil & 0 16,278 26,462 24,154 27,395 30,636 38,081 38,081 38,081 38,081 38,081Lubricants

Repair & maintenance 0 9,228 14,859 20,068 22,755 25,242 26,504 26,504 26,504 26,504 26,504

Sub-totaL 0 32,896 54,593 62,479 71,120 79,559 89,450 89,450 89,450 89,450 89,450

Total recurrten costs 41,779 87,590 113,563 125,603 139,636 150,144 151,853 181,853 181,853 181,853 181,853inco e before debt 43,608 57,763 78,894 65,979 63,8B8 72,399 56,726 86,726 86,726 86,726 86,726service

Project Completion ReportPakistan: Sixth Agricultural Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)


Table 5. Farm Model 1 - Tractor and Set of Implements (Rainfed Subsistence Farm - 12.5 acres and 26.5 acres leased)

C. Cash Flow Statement (in PRs)

without Years

project 1 2 3 4 I 5 | 6 | 7 a 8 | 9 | 10

INFLOWS

Gross income from 85,387 111,170 136,886 140,859 145,994 158,208 188,610 188,610 188,610 188,610 188,610production

Gross income from 0 34,183 55,571 50,723 57,530 64,335 79,969 79,969 79,969 79,969 79,969tractor oper.

Total inflow 85,387 145,353 192,457 191,582 203,524 222,543 268,579 268,579 268,579 268,579 268,579

OUTFLOWS

Investment 0 160,734 0 0 0 0 0 0 0 0 0

Crop production costs 41,779 54,694 58,970 63,124 68,516 70,585 92,403 92,403 92,403 92,403 92,403

Recurrent costs

tractor operation 0 32,896 54,593 62,679 71,120 79,559 89,450 89,450 89,450 89,450 89,450

Total outflou 41,779 248,324 113,563 125,803 139,636 150,14 181,853 181,853 181,853 181,853 181,853

NET CASHFLOW

BEFORE FINANCING 43,608 (102,971) 78,894 65,779 63,888 72,399 86,726 86,726 86,726 86,726 86,726

IncrementaL fLow 0 (146,579) 35,286 22,171 20,280 28,791 43,118 43,118 43,118 43,118 43,118

FRR = 17XFINANCINGShort-term Loan 20,890 0 0 0 0 0 0 0 0 0 0

Long-term Loan 139,839 0 0 0 0 0 0 0 0 0

Debt service short-term Loan (23,501) 0 0 0 0 0 0 0 0 0

Interest on Long-term Loan 0 (17,480) (15,295) (13,110) (10,925) (8,740) (6,555) (4,370) (2,185) 0

Capital repayment 0 (27,312) (27,312) (27,312) (27,312) (27,312) (27,312) (27,312) (27,312) 0

Net financing 20,890 116,338 (44,792) (42,607) (40,422) (38,237) (36,052) (33,867) (31,682) (29,497) 0

NET CASH FLOW

AFTER FINANCING 22,718 13,367 34,102 23,172 23,466 34,162 50,674 52,859 55,044 57,229 86,726

Incremental flow 1/ (9,351) 11,384 454 748 11,444 27,956 30,141 32,326 34,511 64,008

1/ Negative cash fLow in year 1 represents farmers' contribution to investment.

Project Completion ReportPakistan: Sixth Agricultural Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAKJ


Table 6. Farm Model 1 - Tractor and Implements (Rainfed Subsistence Farm - 12.5 acres and 26.5 acres leased)

D. Economic Cash Flow (in PRs)

w ithout YearsProject 1 2 3 4 | 5 | 6 | 7 | 8 | 9 I 10 11 12-20

Gross benefitsfrm cropsWheat 21,096 28,001 33,820 34,737 38,597 50,062 55,625 55,625 55,625 55,625 55,625 55,625 55,625Rice 12,506 16,212 16,926 21,076 18,142 15,054 19,300 19,300 19,300 19,300 19,300 19,300 19,300Cotton 35,744 37,729 48,226 47,162 52,954 67,610 66,192 66,192 66,192 66,192 66,192 66,192 66,192Sugarcane 11,042 17,325 24,130 18,929 19,800 20,790 29,040 29,040 29,040 29,040 29,040 29,040 29,040Maize 3,294 3,526 3,780 6,075 6,480 4,644 4,968 4,968 4,968 4,968 4,968 4,968 4,968other crops 14,040 19,125 25,380 28,080 31,104 34,398 44,352 44,352 44,352 44,352 44,352 44,352 44,352SAb-totaL 97,722 121,918 152,262 156,059 167,077 192,558 219,477 219,477 219.477 219,477 219,477 219,477 219,477

Benef its f rmtractor operationOn-farm operation 0 18,231 32,165 26,043 26,826 27,608 39,407 39,407 39,407 39,407 39,407 39,407 39,407off-farm operation 0 12,533 17,849 19,607 24,951 30,293 32,565 32,565 32,565 32,565 32,565 32,565 32,565Sub-totaL 0 30,764 50,014 45,650 51,77 57,901 71,972 71,972 71,972 71,972 71,972 71,972 71,972Total inflow 97,722 152,682 202,276 201,709 218,854 250.459 291,449 291,449 291,449 291,449 291,U9 291,U9 291,449

Investment costs 0 160,734 0 0 0 0 0 0 0 0 0 160734 0Recurrent costsCrop production 37,350 48,896 52,719 56,433 61,253 63,103 82,608 82,608 82,608 82,608 82,608 82,608 82,608costsTractor relatedcostsWages 0 5,912 10,618 14,606 16,776 18,945 19,892 19,892 19,892 19,892 19,892 19,892 19,892Petrol, oil & 0 14,650 23,816 21,739 24,656 27,572 34,273 34,273 34,273 34,273 34,273 34,273 34,273lubricantsRepair & 0 8,305 13,373 18,061 20,480 22,718 23,854 23,854 23,854 23,854 23,854 23,854 23,854maintenanceSub-total 0 28,867 47,807 54,406 61,912 69,235 78,019 78,019 78,019 78,019 78,019 78,019 78,019Total recurrent 37,350 77,763 100,526 110,839 123,165 132,338 160,627 160,627 160,627 160,627 160,627 160,627 160,627costsTotal outflow 37,350 238,497 100,526 110,839 123,165 132,338 160,627 160,627 160,627 160,627 160,627 321,361 160,627

Met benefits 60,372 (85,815) 101,750 90,870 95,689 118,121 130,822 130,822 130,822 130,822 130,822 (32,912) 130,822

Net incremental benefits (146,187) 41,378 30,498 35,317 57,749 70.450 70,450 70,450 70,450 70,450 (90,284) 70,450

ERR = 32X

Project Completion ReportPakistan: Sixth AgriculturaL Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)


Table 7. Farm Model 2 - Tractor and Set of Implements (Large Scale Irrigated Farm - 42 acres and 12 acres leased)A. Land Use and Production

(Area in acres; Yield in kgs per acre; Production in kg)

Without Project With Project

1985/86 1986/87 1987/88 1988/89 : 1989/90 1990/91 1991/92

Area Yield I Production Area I Yield I Production Area I Yield I Production Area I Yield I Production Area I Yield I Production Area I Yield I Production Area Yield Production

Wheat 20 852 17,040 22 859 18,898 22 886 19,492 22 913 20,086 23 941 21,643 16 970 15,520 20 1,000 20,000

Rice 12 906 10,872 16 983 15,728 13 1,050 13,650 10 1,120 11,200 10 1,200 12,000 12 1,275 15,300 10 1,360 13,600

Cotton 13 432 5,616 11 456 5,016 13 510 6,630 14 670 7,980 13 640 8,320 13 715 9,295 11 800 8,800

Sugarcane 2 16.730 33,460 3 17,500 52,500 4 18,280 73,120 3 19,120 57.360 3 20,000 60,000 3 21,000 63,000 4 22,000 88,000

Maize 2 610 1,220 2 653 1,306 2 700 1,400 3 750 2,250 3 800 2,400 2 860 1,720 2 920 1,840

Other crops 4 1,950 7,800 5 2,125 10,625 6 2,350 14,100 6 2,600 15,600 6 2,880 17,280 6 3,185 19,110 7 3,520 24,640

Cropped area 53 59 60 58 58 52 54

Croppingintensity in 126 140 143 138 138 124 129

Project Completion ReportPakistan: Sixth AgricuLturaL Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)


Table 8. Farm Model 2 - Tractor and Implements (Large Scale Irrigated Farm - 42 acres and 12 acres leased)B. Financial Budget (in PRs)

Without With Project ProjectedProject 1986/87 1987/88 / 1989/90 1 1990/91 1991/92 1992/93 1993/94 l 1994/95 19I5/96

Gross incne frocropsWheat 55,380 61,419 63,349 65,280 70,340 50,520 65,000 65,000 65,000 65,000 65,000Rice 60,883 88,077 76,440 62,720 67,200 85,680 76,160 76,160 76,160 76,160 76,160Cotton 35,100 31,350 41,438 49,875 53,875 58,094 55,000 55,000 55,000 55,000 55,000Sugarcane 14,388 22,575 31,442 24,665 25,800 27,090 37,840 37,840 37,840 37,840 37,840Maize 3660 3,918 4,200 6,750 7,200 5,160 5,520 5,520 5,520 5,520 5,520Other crops 15,600 21,250 28,200 31,200 34,560 38,220 49,280 49,280 49,280 49,280 49,280Suh-total 185,011 228,589 245,069 240,490 258,975 264,764 288,800 2 o800 288,800 288,800 288,800Inrc.e fro tractoroperation

On-farm operation 0 22,104 34,862 49,629 61,228 65,820 74,295 74,295 74,295 74,295 74,295 00Off-farm operation 0 12,094 22,783 33,306 43,102 46,335 49,810 49,810 49,810 49,810 49,810Sub-totat 0 34,198 57,645 82,935 104,330 112,155 124,105 124,105 124,105 124,105 124,105Total gross inrom 185,011 262,787 302,714 323,425 363,305 376,919 412,905 412,905 412,905 412,905 412,905Recurrent costs

Crop production costs 87,504 106,670 128,320 137,178 143,465 145,698 156,625 156,625 156,625 156,625 156,625Tractor reLated costs

Wages 0 7,390 13,272 18,257 23,681 24,865 26,108 26,108 26,108 26,108 26,108Petrol, oiL & 0 16,285 27,450 39,493 49,681 53,407 57,413 57,413 57,413 57,413 57,413lubricants

Repair & maintenance 0 9,228 14,859 20,068 25,242 26,504 27,829 27,829 27,829 27,829 27,829SLh-totaL 0 32,903 55,581 77,818 98,604 104,7716 111,350 111,350 111,350 111,350 111,350Total recwrent costs 87,504 139,573 153,901 214,996 242,069 250,474 267,975 267,975 267,975 267,975 267,975Income before debt 97,507 123,214 118,813 108,429 121,236 126,445 144,930 144,930 144,930 144,930 144,930service

Project CompLetion ReportPakistan: Sixth Agricultural Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)


Table 9. Farm Model 2 - Tractor and Set of Implements (Large Scale Irrigated Farm - 42 acres and 12 acres leased)C. Cash Flow Statement (in PRs)

without __Years

Project I 2 3 4 5 6 7 a 9

INFLOWSGross incomefrom production 185,011 228,589 245,069 240,490 258,975 264,764 288,800 288,800 288,800 288,800 288,800Gross incomefrom tractor oper. 0 34,198 57,645 82,935 104,330 112,155 124,105 124,105 124,105 124,105 124,105TotaL infLow 185,011 262,787 302,714 323,425 363,305 376,919 412,905 412,905 412,905 412,905 412,905OUTFLOWS

Investment 0 180,947 0 0 0 0 0 0 0 0 0Crop production costs 87,504 106,670 128,320 137,178 143,465 145,698 156,625 156,625 156,625 156,625 156,625Recurrent coststractor operation 0 32,903 55,581 77,818 98,604 104,776 111,350 111,350 111,350 111,350 111,350TotaL outflow 87,504 320,520 183,901 214,996 242,069 250,474 267,975 267,975 267,975 267,975 267,975NET CASHFLOWBEFORE FINANCING 97,507 (57,733) 118,813 108,429 121,236 126,445 144,930 144,930 144,930 144,930 144,930Incremental flow 0 (155,240) 21,306 10,922 23,729 28,938 47,423 47,423 47,423 47,423 47,423FRR = 14X

FINANCINGShort-term loan 43,752 0 0 0 0 0 0 0 0 0 0Long-term Loan 157,424 0 0 0 0 0 0 0 0 0Debt service short-term Loan (49,221) 0 0 0 0 0 0 0 0 0Interest on Long-term Loan 0 (19,678) (17,218) (14,759) (12,299) (9,839) 17,379) (4,920) (2,460) 0CapitaL repayment 0 (19,678) (19,678) (19,678) (19,678) (19,678) (19,678) (19,678) (19,678) 0Net financing 43,752 108,203 (39,356) (36,896) (34,437) (31,977) (29,517) (27,057) (24,598) (22,138) 0NET CASH FLOWAFTER FINANCING 53,755 50,470 79,457 71,533 86,799 94,468 115,413 117,873 120,332 122,792 144,930Incremental fLow 1/ (3,285) 25,702 17,778 33,044 40,713 61,658 64,118 66,577 69,037 91,175

1/ Negative cash flow in year 1 represents farmers' contribution to investment.

Project Completion ReportPakistan: Sixth AgriculturaL DeveLopment Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)


Table 10. Farm Model 2 - Tractor and Implements (Large Scale Irrigated Farm - 42 acres and 12 acres ]eased)

D. Economic Cash Flow (in PRs)

ithout Yarsl ~~~~~P1roject I 2 3 4 5 X 6 7 8 9 T 0 lo I a 12-20

Gross benefits from cropsWheat 80,599 89,388 92,197 95,007 102,371 73,410 94,600 94,600 94,600 94,600 94,600 94,600 94,600Rice 41,966 60,710 52,689 43,232 46,320 59,058 52,496 52,496 52,496 52,496 52,496 52,496 52,496Cotton 66,381 59,289 78,367 94,324 98,342 109,867 104,016 104,016 104,016 104,016 104,016 104,016 104,016Sugarcane 11,042 17,325 24,130 18,929 19,800 20,790 29,040 29,040 29,040 29,040 29,040 29,040 29,040Maize 3,294 3,526 3,780 6,075 6,480 4,644 4,968 4,968 4,968 4,968 4,968 4,968 4,968Other crops 14,040 19,125 25,380 28,080 31,104 34,398 47,952 47,952 47,952 47,952 47,952 47,952 47,952Sub-totaL 217,322 249,363 276,543 285,647 304,417 302,167 333,072 333,072 333,072 333,072 333,072 333,072 333,072Benefits from tractor operationon-farm operation 0 19,894 31,376 44,666 55,105 59,238 66,866 66,866 66,866 66,866 66,866 66,866 66,866Off-farm operation 0 10,885 20,505 29,975 38,792 41,702 44,829 44,829 44,829 44,829 44,829 44,829 44,829Sub-total 0 30,779 51,881 74,641 93,897 100,940 111,695 111,695 111,695 111,695 111,695 111,695 111,695Total infLov 217,322 280,142 328,424 360,288 398,314 403,107 444,767 444,767 444,767 444,767 444,767 444,767 444,767Irvestmnt costs 0 180,947 0 0 0 0 0 0 0 0 0 180,947 0Recurrent costsCrop production 78,141 95,256 114,590 122,500 128,114 130,108 139,866 139,866 139,866 139,866 139,866 139,866 139,866costsTractor related costsWages 0 5,912 10,981 14,606 18,945 19,892 20,886 20,886 20,886 20,886 20,886 20,886 20,886Petrol, oil & 0 14,657 24,705 35,544 44,713 48,066 51,672 51,672 51,672 51,672 51,672 51,672 51,672LubricantsRepair & 0 8,305 13,373 18,061 22,718 23,854 25,046 25,046 25,046 25,046 25,046 25,046 25,046maintenanceSub-totaL 0 28,874 49,059 68,211 86,376 91,812 97,604 97,604 97,604 97,604 97,604 97,604 97,604Total recurrent 78,141 124,130 163,649 190,711 214,490 221,920 237,470 237,470 237,470 237,470 237,470 237,470 237,470costsTotaL outflow 78,141 305,077 163,649 190,711 214,490 221,920 237,470 237,470 237,470 237,470 237,470 418,417 237,470Net benefits 139,181 (24,935) 164,775 169,577 183,824 181,187 207,297 207,297 207,297 207,297 207,297 26,350 207,297Net incremental benefits (164,116) 25,594 30,396 44,643 42,006 68,116 68,116 68,116 68,116 68,116 (112,381) 68,116

ERR = 25X



Table 11. Farm Model 3 - Livestock Production (Rainfed Farm with Access to Irrigation - 19 acres and 9 acres leased)A. Land Use and Production

(Area in acres; Yield in kgs per acre; Production in kg)


1985/86 1986/87 1987/88 1988/a9 1989/90 1990/91 1991/92

Area Yield Production Area Yield Production Area Yield P Production Area Yield I Production Area Yield Production Area Yield Production Area Yield I Production

Wheat 10 852 8.520 8 859 6.872 10 88s 8,860 11 913 10,043 11 941 10,351 12 970 11,640 9 1,000 9,000

Rice 4 906 3,624 3 983 2,949 3 1,050 3,150 3 1,120 3,360 3 1,200 3,600 4 1,275 5,100 2 1,360 2,720

Cotton 3 432 1,296 4 456 1,824 5 510 2,550 4 570 2,280 5 640 3,200 7 715 5,005 8 800 6,400

Sugarcane 2 16,730 33,460 4 17,500 70.000 2 18,280 36,560 2 19,120 38,240 2 20,000 40,000 2 21,000 42,000 4 22,000 88.000

Maize 5 610 3,050 5 653 3,265 6 700 4,200 5 750 3,750 4 800 3,200 3 860 2,580 3 920 2,760

Other crops 3 1,950 5,860 2 2,125 4,250 3 2,350 7,050 4 2,600 10,400 3 2,880 8,640 3 3.185 9,555 2 3,520 7,040

Cropped area 27 26 29 29 28 31 28

Cropping

Intensity in 142 137 153 153 147 163 147



Table 12. Farm Model 3 - Livestock Production (Rainfed Farm with Access to Irrigation - 19 acres and 9 acres leased)B. Financial Budget (in PRs)

Without | Vith Project | Projected| Project 1986I87 | 1987/88 | /1981/89 | 1989/90 | 1990/91 1991/92 1992/93 1993/94 | 1994/95 | 1995/96

Gross income fromcrops

Wheat 27,690 22,334 28,795 32,640 33,641 37,830 29,250 29,250 29,250 29,250 29,250Rice 20,294 16,514 17,640 18,816 20,160 28,560 15,232 15,232 15,232 15,232 15,232Cotton 8,100 11,400 15,938 14,250 20,000 31,281 40,000 40,000 40,000 40,000 40,000Sugarcane 14,388 30,100 15,721 16,442 17,200 18,060 37,840 37,840 37,840 37,840 37,840Maize 9,150 9,795 12,600 11,250 9,600 7,740 8,280 8,280 8,280 8,280 8,280Other crops 11,700 8,500 14,100 20,800 16,920 19,110 14,080 14,080 14,080 14,080 14,080Sub-total 91,322 98,643 104,794 114,198 117,521 142,581 1U,682 144,682 144,682 144,682 144,682

Income fram

livestock production 0 8,921 9,417 12,500 12,847 13,194 19,792 19,792 19,792 19,792 19,792Total gross income 91,322 107,564 114,211 126,698 130,368 155,775 164,474 164,474 164,474 164,474 164,474

Recurrent costsCrop production costs 39,801 49,553 52,576 56,741 59,338 65,795 76,176 76,176 76,176 76,176 76,176Livestock production 0 6,334 6,686 8,875 9,122 9,368 14,052 14,052 14,052 14,052 14,052costsTotal recurrent costs 39,801 55,887 59,262 65,616 68,460 75,163 90,228 90,228 90,228 90,228 90,228Income before debt 51,521 51,677 54,949 61,082 61,908 80,612 74,246 74,246 74,246 74,246 74,246service


Annex 1: Financial ard Economic Re-evaluation

Table 13. Farm Model 3 - Livestock Production (Ibinfed Farm with Access to Irrigation - 19 acres and 9 acres leased)C. Cash Flow Statement (in PRs)

Wi thout Years

Project ¶I 2 r 3 4 4 5 6 7 7 I 8 I 9 o10

INFLOWS

Gross income from production 91,322 98,643 104,794 114,198 117,521 142,581 144,682 144,682 144,682 144,682 144,682

Gross incomefrom livestock production 0 8,921 9,417 12,500 12,847 13,194 19,792 19,792 19,792 19,792 19,792

Total inflow 91,322 107,564 114,211 126,698 130,368 155,775 164,474 164,474 164,474 164,474 164,474

OLT F LOWS

Investment 0 40,608 0 0 0 0 0 0 0 0 0

Crop production costs 39,801 49,553 52,576 56,741 59,338 65,795 76,176 76,176 76,176 76,176 76,176 ,ct

Livestock production costs 0 6,334 6,686 8,875 9,122 9,368 14,052 14,052 14,052 14,052 14,052

Total outflow 39,801 96,495 59,262 65,616 68,460 75,163 90,228 90,228 90,228 90,228 90,228

NET CASHFLOWBEFORE FINANCING 51,521 11,069 54,949 61,082 61,908 80,612 74,246 74,246 74,246 74,246 74,246

IncrementaL fLow 0 (40,452) 3,428 9,561 10,387 29,091 22,725 22,725 22,725 22,725 22,725

FRR = 31X

FINANCING

Short-term loan 19,901 0 0 0 0 0 0 0 0 0 0

Long-term Loan 32,486 0 0 0 0 0 0 0 0 0


Interest on long-term loan 0 (4,061) (3,553) (3,046) (2,538) (2,030) (1,523) (1,015) (507) 0

Capital repayment 0 (4,061) (4,061) (4,061) (4,061) (4,061) (4,061) (4,061) (4,061) 0

Net financing 19,901 10,097 0 0 0 0 0 0 0 0 0

NET CASH FLOW

AFTER FINANCING 31,620 21,166 46,827 53,468 54,801 74,013 68,155 68,662 69,170 69,678 74,246

Incremental flow (10,454) 15,207 21,848 23,181 42,393 36,535 37,042 37,550 38,058 42,626

Negative cash flow in year 1 represents farmers' contribution to investment.


Annex 1: Financial and Economnic Re-evaLuation

Table 14. Farm Model 3 - Livestock Production (Rainfed Farm with Access to Irrigation - 19 acres and 9 acres leased)D. Economic Cash Flow (in PRs)

YearsWithout I iProject 1 2 J 3 1 4 | 5 6 7 8 9 10 11 12-20

Gross benefits fromcrops

- Wheat 40,300 32,505 41,908 47,503 48,960 55,057 42,570 42,570 42,570 42,570 42,570 42,570 42,570

- Rice 13,989 11,383 12,159 12,970 13,896 19,686 10,499 10,499 10,499 10,499 10,499 10,499 10,499

- Cotton 1F '19 21,560 30,141 26,950 37,824 59,159 75,648 75,648 75,648 75,648 75,648 75,648 75,648

- Sugarcane 11,042 23,100 12,065 12,619 13,200 13,860 29,040 29,040 29,040 29,040 29,040 29,040 29,040

- Maize 8,235 8,816 11,340 10,125 8,640 6,966 7,452 7,452 7,452 7,452 7,452 7,452 7,452

-Other crops 10.530 7,650 12,690 18,720 15,552 17,199 12,672 12,672 12,672 12,672 12,672 12,672 12,672

Sub-total 99,415 105,014 120,303 128,887 138,072 171,927 177,881 177,881 177,881 177,881 177,881 177,881 177,881

Benefits fromlivestock production 0 8,029 8,475 11,250 11,562 11,875 17,813 17,813 17,813 17,813 17,813 17,813 17,813

Total inflow 99,415 113,043 128,778 140,137 149,634 183,802 195,694 195,694 195,694 195,694 195,694 195,694 195,694

Investment costs 0 40,608 0 0 0 0 0 0 0 0 0 40,608 0

Recurrent costs

Crop production costs 35,582 44,300 47,003 50,726 53,048 58,821 68,101 68,101 68,101 68,101 68,101 68,101 68,101

Livestock production 0 5,663 5,977 7,934 8,155 8,375 12,562 12,562 12,562 12,562 12,562 12,562 12,562costs

Total recurrent costs 35,582 49,963 52,980 58,660 61,203 67,196 80,663 80,663 80,663 80,663 80,663 80,663 80,663

Total outflow 35,582 90,571 52,980 58,660 61,203 67,196 80,663 80,663 80,663 80,663 80,663 121,271 80,663

Net benefits 63,833 22,472 75,798 81,477 88,431 116,606 115,031 115,031 115,031 115,031 115,031 74,423 115,031

Incremental net (41,361) 11,965 17,644 24,598 52,773 51,198 51,198 51,198 51,198 51,198 10.590 51,198benefits

ERR = 60%.

Project Completion ReportPakistan: Sixth Agricultural Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAKl


Table 15. Farm Model 4 - Private Minor Irrigation (Large Scale Irrigated Farm - 35 acres and 19 acres leased)A. Land Use and Production

(Area in acres; Yield in kgs per acre: Production in kg)


1985/86 1986187 1987/88 1988/89 1989/90 1990/91 1991/92

Area Yield Production Area Yield Production Area Yield Production Area Yield Production Area I Yield Production Area Yid Production Area Yield Production

Wheat 17 852 14,484 23 859 19,757 24 888 21,264 20 913 18,260 22 941 20,702 22 970 21,340 21 1,000 21,000

Rice 5 906 4,530 6 983 5,898 7 1,050 7,360 8 1,120 8,960 8 1,200 9,600 9 1,275 11,475 10 1,360 13,600

Cotton 12 432 5,184 9 456 4,104 10 510 5,100 8 570 4,560 8 640 5,120 7 715 5,005 8 800 6.400

Sugarcane 5 16,73 83,650 5 17.50 87,500 7 18,28 127,960 9 19.12 172,080 8 20,00 160,000 5 21,00 105,000 7 22,00 154,0000 0 0 0 0 0 0

Maize 4 610 2.440 4 653 2,612 6 700 4,200 5 750 3.750 5 800 4,000 5 860 4,300 4 920 3,680

Othercrops 4 1,950 7,800 5 2,125 10,625 6 2,350 14,100 5 2,600 13,000 5 2,880 14,400 6 3,185 19,110 4 3,520 14,080

Cropped area 47 52 60 55 56 54 54

Cropping intensity 134 149 171 157 160 154 154M%

Project Comptetion Report

Pakistan: Sixth AgricuLturat DeveLopment Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)Annex 1: Financiat and Economic Re-evatuation

Table 16. Farm Model 4 - Private Minor Irrigation (Large Scale Irrigated Farm - 35 acres and 19 acres leased)

B. Financial Budget (in PRs)

With Project ProjectedWithoutProject 1986/87 1967/8 1988/89| 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96

Gross income from crops

- Wheat 47,073 64,210 69,108 59,345 67,282 69,355 68,250 68,250 68,250 68,250 68,250

- Rice 25,368 33,029 41,160 50,176 53,760 64,260 76,160 76,160 76,160 76,160 76,160

- Cotton 32,400 25,650 31,875 28,500 32,000 31,281 40,000 40,000 40,000 40,000 40,000

- Sugarcane 35,970 37,625 55,023 73,994 68,800 45,150 66,220 66,220 66,220 66,220 66,220

- Maize 7,320 7,836 12,600 11,250 12,000 12,900 11,040 11,040 11,040 11,040 11,040

- Other crops 15,600 21,250 28,200 26,000 28,800 38,220 28,160 28,160 28,160 28,160 28,160

Sub-totat 163,731 189,600 237,966 249,265 262,642 261,166 289,830 289,830 289,830 289,830 289,830

Income fromtubeweLL operation 0 24,427 24,668 26,087 28,185 30,282 37,385 37,385 37,385 37,385 37,385

Totat gross income 163,731 214,027 262,634 275,352 290,827 291,448 327,215 327,215 327,215 327,215 327,215

Recurrent costs

Crop production costs 82,096 102,986 127,521 139,474 147,039 154,626 161,186 161,186 161,186 161,186 161,186

Tubewett reLated costs

- Wages 0 2,169 3,747 5,111 5,860 6,608 9,874 9,874 9,874 9,874 9,874

- Petrot, oit & Lubricants 0 18,367 22,291 18,673 20,982 23,291 24,456 24,456 24,456 24,456 24,456

- Repair & maintenance 0 4,556 6,019 4,655 5,397 6,119 6,425 6,425 6,425 6,425 6,425

Sub-totaL 0 25,092 32,057 28,439 32,239 36,018 40,755 40,755 40,755 40,755 40,755

Totat recurrent costs 82,096 128,078 159,578 167,913 179,278 190,644 201,941 201,941 201,941 201,941 201,941

Income before debt service 81,635 85,949 103,056 107,439 111,549 100,804 125,274 125,274 125,274 125,274 125,274


Pakistan: Sixth AgricuLturaL Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)Annex 1: Financial and Economic Re-evaluation

Table 17. Farm Model 4 - Private Minor Irrigation (Large Scale Irrigated Farm - 35 acres and 19 acres leased)


Years

lPronject 1 2 3 46 | 7 | 8 |9 10

INFLOWS

Gross income from production 163,731 189,600 237,966 249,265 262,642 261,166 289,830 289,830 289,830 289,830 289,830

Gross income from tubewell operation 0 24,427 24,668 26,087 28,185 30,282 37,385 37,385 37,385 37,385 37,385

Total inflow 163,731 214,027 262,634 275,352 290,827 291,448 327,215 327,215 327,215 327,215 327,215

OUTFLOWS

Investment 0 61,000 0 0 0 0 0 0 0 0 0

Crop production costs 82,096 102,986 127,521 139,474 147,039 154,626 161,186 161,186 161,186 161,186 161,186 -J

Recurrent costs tubeweLL operation 0 25,092 32,057 28,439 32,239 36,018 40,755 40,755 40,755 40,755 40,755

TotaL outflow 82,096 189,078 159,578 167,913 179,278 190,644 201,941 201,941 201,941 201,941 201,941

NET CASHFLOW BEFORE FINANCING 81,635 24,949 103,056 107,439 111,549 100,804 125,274 125,274 125,274 125,274 125,274

IncrementaL ftow 0 (56,686) 21,421 25,804 29,914 19,169 43,639 43,639 43,639 43,639 43,639

FRR = 47X

FINANCING

Short-term toan 41,048 0 0 0 0 0 0 0 0 0 0

Long-term loan 53,070 0 0 0 0 0 0 0 0 0


Interest on Long-term Loan 0 (6,634) (5,805) (4,975) (4,146) (3,317) (2,488) (1,658) (829) 0

CapitaL repayment 0 (6,634) (6,634) (6,634) (6,634) (6,634) (6,634) (6,634) (6,634) 0

Net financing 41,048 6,891 (13,268) (12,439) (11,609) (10,780) (9,951) (9,122) (8,292) (7,463) 0

NET CASHFLOW AFTER FINANCING 40,587 31,840 89,788 95,000 99,940 90,024 115,323 116,152 116,982 117,811 125,274

IncrementaL flow' (8,747) 49,201 54,413 59,353 49,437 74,736 75,565 76,395 77,224 84,687

1/ Negative cashflow in Year 1 represents farmers' contribution to investment.

Project CompLetion ReportPakistan: Sixth Agricultural DeveLopment Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)

Annex 1: FinanciaL and Economic Re-evaLuation

Table 18. Farm Model 4 - Private Minor Irrigation (Large Scale Irrigated Farm - 35 acres and 19 acres leased)D. Economic Cash Flow (in PRs)

YearsWithout | I I I YeersI Protect 1 2 3 4 5 6 7 8 9 10 11 12-20

Gross benefits from crops

- Wheat 68,509 93,451 100,578 86,370 97,920 100,938 99,330 99,330 99.330 99,330 99,330 99,330 99,330

- Rice 17,486 22,766 28,371 34,586 37,056 44,294 52,496 52,496 52,496 52,496 52,496 52,496 52,496

- Cotton 61,275 48,509 60,282 53,899 60,518 59,159 75,648 75,648 75,648 75,648 75,648 75,648 75,648

- Sugarcane 27,605 28,875 43,227 56,760 52,800 34,650 50,820 50,820 50,820 50,820 50,820 50,820 50,820

-Maize 6,588 7,052 11,340 10,125 10,800 11,610 9,936 9,936 9,936 9,936 9,936 9,936 9,936

- Other crops 14,040 19,125 25,380 23,400 25,920 34,398 25,344 25,344 25,344 25,344 25,344 25,344 25,344

Sub-total 195,503 219,778 269,178 265,140 285,014 285,049 313,574 313,574 313,574 313,574 313,574 313,574 313,574

Benefits from tubewelloperation 0 21,804 22,201 23,478 25,367 27,254 33,647 33,647 33,647 33,647 33,647 33,647 33,647

Total inflow 195,503 241,582 291,379 288,618 310,381 312,303 347,221 347,221 347,221 347,221 347,221 347,221 347,221

Investment costs 0 61,000 0 0 0 0 0 0 0 0 0 61,000 0

Recurrent costs

Crop production costs 73,312 91,967 113,876 124,550 131,306 138,081 143,939 143,939 143,939 143,939 143,939 143,939 143,939

Tubewell related costs

- Wages 0 1,735 2,998 4,089 4,688 5,286 7,899 7,899 7,899 7,899 7,899 7,899 7,899

- Petrol, oil & lubricants 0 16,530 20,062 16,806 18,884 20,962 22,010 22,010 22,010 22,010 22,010 22,010 22,010

- Repair & maintenance 0 4,100 5,417 4,190 4,857 5,507 5,783 5,783 5,783 5,783 5,783 5,783 5,783

Sub-total 0 22,365 28,477 25,085 28,429 31,755 35,692 35,692 35,692 35,692 35,692 35,692 35,692

Total recurrent costs 73,312 114,332 142,353 149,635 159,735 169,836 179,631 179,631 179,631 179,631 179,631 179,631 179,631

Total outflow 73,312 175,332 142,353 149,635 159,735 169,836 179,631 179,631 179,631 179,631 179,631 240,631 179,631

Net benefits 122,191 66,250 149,026 138,983 150,646 142,467 167,590 167,590 167,590 167,590 167,590 106,590 167,590

Incremental net benefits (55,941) 26,835 16,792 28,455 20,276 45,399 45,399 45,399 45,399 45,399 (15,601) 45,399

ERR = 49%.

Project Completion ReportPAKISTAN: Sixth Agricultural Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)


Table 19. Farm Model 5 - Orchard Fruit Production (Rainfed Farm with Access to Irrigation - 18 acres and 7 acres leased)A. Land Use and Production

(Area in acres; Yield in kg per acre; Production in kg)

Without Proelact With Project

1985/86 1986/87 1987/88 1988/89 I 1989/90 1990/91 1991/92

AreeI Yield IProckcn Yield Productio Area Yield Production Area Yield I Production Aree Yield I Production Area Yld Production Area Yield Production

Wheat 7 852 5,964 5 859 4,295 7 886 6,202 5 913 4,565 5 941 4,705 6 970 5,820 8 1,000 8,000

Rice 1 906 906 3 983 2,949 2 1,050 2,100 3 1,120 3.360 3 1,200 3.600 3 1,275 3,825 3 1,360 4,080

Cotton 4 432 1,728 4 456 1,824 3 510 1,530 2 570 1,140 2 640 1,280 1 715 715 4 800 3,200

Sugarcane 3 16,730 50,190 4 17,500 70,000 3 18,280 54,840 2 19,120 38,240 3 20,000 60,000 3 21,000 63,000 3 22,000 66,000

Maize 2 610 1,220 3 653 1,959 3 700 2,100 2 750 1.500 3 800 2,400 4 860 3.440 3 920 2,760

Other crops 3 1,950 5,850 4 2,125 8,500 4 2,350 9,400 5 2,600 13,000 5 2,880 14,400 5 3,185 15,925 4 3,520 14,080

Cropped area 20 23 22 19 21 22 25

Croppingintensity 111 121 116 106 111 116 132

Project Comptetion ReportPakistan: Sixth AgricuituraL Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)

Annex 1: Financial and Econonic Re-evaLuation

Table 20. Farm Model 5 - Orchard Fruit Production (Rainfed Farm with Access to Irrigation - 18 acres and 7 acres leased)B. Financial Budget (in PRs)

With Project ProjectedWithout l I 19192917-50Project 1986/87 1987/88 1988/89 1989/90 1990/91 I 1991/92 1992/93 1993/94 1994/95 1995/96 96197-05106

Gross income from crops

-Wheat 19,383 13,959 20,157 14,836 15,291 12,431 26,000 26,000 26,000 26,000 26,000 26,000

-Rice 5,074 16,514 11,760 18,816 20,160 21,420 22,848 22,848 22,848 22,848 22,848 22,848

-Cotton 10,800 11,400 9,563 7,125 8,000 4,469 20,000 20,000 20,000 20,000 20,000 20,000

- Sugarcane 21,582 30,100 23,581 16,443 25,800 27,090 28,380 28,380 28,380 28,380 28,380 28,380

- Maize 3660 5,877 6,300 4,500 7,200 10,320 8,280 8,280 8,280 8,280 8,280 8,280

-Other crops 11,700 17,000 18,800 26,000 28,800 31,850 28,160 28,160 28,160 28,160 28,160 28,160

- Fruit 0 0 0 0 0 2,227 4,528 6,151 7,604 9,057 29,876 31,818

Total gross income 72,199 94,850 90,161 87,720 105,251 109,807 138,196 139,819 141,272 142,725 163,544 165,486

Recurrent costs

Crop production costs 27,826 30,720 33,790 35,480 37,254 40,980 44,974 44,974 44,974 44,974 44,974 44,974

Fruit production costs 0 1,020 1,120 1,120 1,485 1,485 3,000 4,500 5,250 5,950 13,200 14,000

Total recurrent costs 27,826 31,740 34,910 36,600 42,465 42,465 47,974 49,474 50,224 50,924 58,174 58,974

Income before debt service 44,373 63,110 55,251 51,120 62,786 67,342 90,222 90,345 91,048 91,801 105,370 106,512


Pakistan: Sixth AgriculturaL Development Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)Annex 1: Financial and Econornic Re-evaluation

Table 21. Farm Model 5 - Orchard Full Production (Rainfed Farm with Access to Irrigation - 18 acres and 7 acres leased)


Years|Without|IIYer ;

Project 1 2 3 4 S 6 7 | 8 9 10 11-20

INFLOWS

Gross income from crop production 72,199 94,850 90,161 87,720 105,251 107,580 133,668 133,668 133,668 133,668 133,668 133,668

Gross income from fruit production 0 0 0 0 0 2,227 4,528 6,151 7,604 9,057 29,876 31,818

Total inflow 72,199 94,850 90,161 87,720 105,251 109,807 138,196 139,819 141,272 142,725 163,544 165,486

OUTFLOWS

Investment 0 58,314 0 0 0 0 0 0 0 0 0 0

Crop production costs 27,826 30,720 33,790 35,480 37,254 40,980 44,974 44,974 44,974 44,974 44,974 44,974

Fruit production costs 0 1,020 1,120 1,120 1,485 1,485 3,000 4,500 5,250 5,950 13,200 14,000

Total outflow 27,826 90,054 34,910 36,600 38,739 42,465 47,974 49,474 50,224 50,924 58,174 58,974

NET CASHFLOW BEFORE 44,373 4,796 55,251 51,120 66,512 67,342 90,222 90,345 91,048 91,801 105,370 106,512FINANCING

Incremental flow 0 139,577) 10,878 6,747 22,139 22,969 45,849 45,972 46,675 47,428 60,997 62.139

FRR = 51 %

FINANCING

Short-term loan 13,913 0 0 0 0 0 0 0 0 0 0 0

Long-term loan 50,733 0 0 0 0 0 0 0 0 0 0

Debt service short-term loan 115,6521 0 0 0 0 0 0 0 0 0 0

Interest on long-term loan 0 16,342) 15,5491 14,7561 13,9631 13,171) 12,3781 11,585) 17921 0 0

Capital repayment 0 16,342) (6,3421 16,3421 16,3421 16,3421 16,3421 16,3421 16,3421 0 0

Net financing 13,913 35,081 (12,6841 (11,891) (11,098) (10,305) (9,513) 18,720) 17,9271 17,1341 0 0

NET CASHFLOW AFTER FINANCING 30,460 39,877 42,567 39,229 55,414 57,037 80,709 81,625 83,121 84,667 105,370 106,512

Incremental flow" 9,417 12,107 8,769 24,954 26,577 50,249 51,165 52,661 54,207 74,910 76,052

" Negative cashflow in Year 1 represents farmers' contribution to investment.

Project Completion ReportPakistan: Sixth Agricultural Developnent Bank Project (Ln. 2693-PAK, Cr. 1699-PAK)

Amnex 1: FinanciaL and Economic Re-evaluation

Table 22. Farm Model 5 - Orchard Fruit Production (Rainfed Farm with Access to Irrigation - 18 acres and 7 acres leased)D. Economic Cash Flow (in PRs)

Wilhout ~~~~~~~~~~~~~~~~~~~YearsProject 2 4 2 3 4 * 8 9 10 11-20

Gross benefits from crops

- Wheat 28,210 20,315 29,335 21,592 22,255 27,529 37.840 37,840 37,840 37,840 37,840 37,840

- Rice 3,497 11,383 8,106 12,970 13,896 14,765 15,749 15,749 15,749 15,749 15,749 15,749

- Cotton 20,425 21,560 18,085 13,475 15,130 8,451 37,824 37,824 37,824 37,824 37,824 37,824

- Sugarcane 16,563 23,100 18,097 12,619 19,800 20,790 21,780 21,780 21,780 21,780 21,780 21,780

- Maize 3,294 5,289 5,670 4,050 6,480 9,288 7,452 7,452 7,452 7,452 7,452 7,452 t-

- Other crops 10,530 15,300 16,920 23,400 25,920 28,665 25,344 25,344 25,344 25,344 25,344 25,344

Fruit 0 0 0 0 0 2,006 4,075 5,536 6,844 8,151 26.888 28,636

Total inflow 82,519 96,947 96,213 88,106 103,481 111,494 150,064 151,525 152,833 154,140 172,877 174,625

Investment costs 0 58,314 0 0 0 0 0 0 0 0 0 0

Recurrent costs

- Crop production costs 24,042 26,542 29,195 30,655 32,187 35,407 38,858 38,858 38,858 38.858 38,858 38,858

- Fruit production costs 0 881 968 968 1,283 1,283 2,592 3,888 4,536 5,141 11,405 12,096

Total recurrent costs 24,042 27,423 30,163 31,623 36,690 36,690 41,450 42,746 43,394 43,999 50,263 50,954

Total outflow 24,042 85,737 30,163 31,623 36,690 36,690 41,450 42,746 43,394 43,999 50,263 50,954

Net benefits 58,477 11,210 66,050 56,483 66,791 74.804 108,614 108,779 109,439 110,141 122,614 123,671

Incremental net benefits (47,267) 7,573 (1,994) 8,314 16.327 50.137 50,302 50,962 51.664 64,137 65.194

ERR e 40%

PAKISTAN U. S. S. R.

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