Philippines - Small and Medium Industries Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3969 PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT (LOAN 1120-PH) June 16, 1982 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS BAAD - Branches and Agencies Department (of DBP) CB - Central Bank CEO - Chief Executive Officer DBP - Development Bank of the Philippines DLC - Department of Loans and Credits (of the Central Bank of the Philippines) DPI - Directorate for Promotion of Industries (of NEA) EC - Electric Cooperatives ERR - Economic Rate of Return IGLF - Industrial Guarantee and Loan Fund IPD II - Industrial Project Department II (of DBP) IPS - Integrated Plant Survey (done by SBAC) MASICAP - Medium and Small Industries Coordinated Action Program MOT - Ministry of Industry NACIDA - National Cottage Industrial Development Authority NEA - National Electrification Administration NEDA - National Economic and Development Authority PUD - Power Use Directorate (of NEA) RC - Review Committee (of IGLF) RIATs - Regional Industrial Assistance Teams (of DBP/SMILE) RIC - Rural Industrial Cooperative Program (of NEA) SBAC - Small Business Advisory Centers SGV - Sycip, Corres & Velayo Company SMI - Small and Medium Industries SMILE - Small and Medium Industry Lending Department (of DBP) UNIDO - United Nations Industrial Development Organization UPISSI - University of the Philippines Institute for Small-Scale Industries FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT (LOAN 1120-PH) TABLE OF CONTENTS Page No. Preface .............................................................. Basic Data Sheet ....................*...................*............. 11 Highlights .....................*...................................... .iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. BACKGROUND ............................................... 1 II. PROJECT OBJECTIVES AND DESIGN.... ..................... 2 III. ACCOMPLISHMENTS AND ISSUES IN PROJECT IMPLEMENTATION ..... 3 A. The Financial Component .............................. 3 (a) Selection of Financial Intermediaries............ 3 (b) Institutional Improvements ...................... 4 (c) Utilization of Bank Funds .. ................. 8 B. The Technical Assistance Component . .......... 11 (a) Institutional Developments ...................... 12 (b) Utilization of Bank Funds ....................... 13 IV. CONCLUSIONS ....................... .................... 14 ATTACHMENT A: COMMENTS RECEIVED FROM THE BORROWER ...... ........ 19 ATTACHMENT B: COMMENTS RECEIVED FROM THE BORROWER ................. 20 ATTACHMENT C: COMMENTS RECEIVED FROM THE BORROWER .................... 21 ATTACHMENT D: PROJECT COMPLETION REPORT ............... 22 Summary and Conclusions ...................................... 22 I. Introduction .......................... ................. 25 II. The Development Bank of the Philippines (DBP) ............ 28 The Institution ................... ................... 28 Features of the DBP Component........................... 28 Objectives of the Loan and Bank Expectations ........... 29 Utilization of Bank Funds................ ............ 29 Subproject Characteristics Based on Subproject Appraisal 30 Operational Results of a Sample of Subprojects.......... 31 Institutional Improvements .......................... 32 Quality of Portfolio .................. .............. 34 Resource Mobilization ............................... 35 Assessment of the DBP Component ........................ 35 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (Continued) Page No. III. Industrial Guarantee and Loan Fund (IGLF) ................ 36 The Institution ........................................ 36 Features of the IGLF Component ......................... 36 Objectives of the Loan and Bank Expectations ....... .37 Utilization of Bank Funds .............................. 37 Subproject Characteristics Based on Subproject Appraisal ................................. 38 Operational Results of a Sample of Subprojects 39 Institutional Improvements ............................. 40 Quality of Portfolio ................................... 43 Financial Position and Results ......................... 43 Resource Mobilization .................................. 44 Assessment of the IGLF Component .......................44 IV. National Electrification Authority (NEA) ............... 45 Background .................................... 45 The Objectives of the Loan and Bank Expectations ....... 45 Relations with Electric Cooperatives (EC) .............. 46 Utilization of Bank Funds ........................... 46 RIC Program ......................................... 47 Organization and Staff ................................. 48 Assessment of the NEA Component .................... 48 V. Small Business Advisory Centers (SBAC) ................... 49 Background .. . ..................... 49 Implementation ........................................ 49 Operational Concept .................................... 50 Utilization of Bank Funds ... ....................... 50 Organization and Staff .............................. 52 Assessment of the SBAC Program ...................... 53 Annex 1 - Projected and Actual Disbursements under Loan 1120-PH .... 54 Annex 2 - Development Bank of the Philippines ...................... 55 Tables: 1 - DBP - Features of Subprojects Financed under Loan 1120-PH (Based on data in DBP's Appraisal Reports) .-............ 55 2 - DBP - Partial Economic and Financial Indicators of Subprojects Financed under Loan 1120-PH (Based on data in DBP's Appraisal Reports) .......................... 56 3 - DBP - Current Status of Subloans Financed under Loan 1120-PH (as of June 30, 1980) ......... ................... ...... 57 4 - DBP - Partial Economic and Financial Indicators of Subprojects Financed under Loan 1120-PH (Data based on samples of projects surveyed) .......................... 58 TABLE OF CONTENTS (Continued) Page No. Annex 3 - Industrial Guarantee and Loan Fund ................... 59 Tables: 1 - IGLF - Features of Subprojects Financed under Loan No. 1120-PH (Based on data in IGLF's Appraisal Reports) . .. .......................... 59 2 - IGLF - Current Status of Subloans Financed under 4 Loan No. 1120-PH (as of September 30, 1980) ............... 61 3 - IGLF - Summarized Balance Sheets as of December 31, 1974 - December 31, 1980 ............................................ 62 4 - IGLF - Summarized Income Statements for Calendar Years 1974-80 .. ................... ....................... 63 Annex 4 - National Electrification Administration ................. 64 Tables: 1 - NEA - Status of Loan Released to Rural Industrial Cooperative as of December 31, 1980 .......................... 64 2 - NEA - Features of the 12 Operational RICs as of December 31, 1980 .......................... ............. 65 Annex 5 - Small Business Advisory Centers ........................... 66 Tables: 1 - SBAC - Summary of Operations (Cumulative), July 1975 - June 30, 1980 ................................... 66 2 - SBAC - Summary of Clients by Sources, July 1975 - June 30, 1980 ................................. 67 3 - SBAC - Actual Project Expenditures and Financing, July 1975 - December 31, 1980 .............................. 68 4 - SBAC - Summary of Clients by Size, July 1975 - June 30, 1980.. 69 5 - SBAC - Operational Status of Client Enterprises, July 1975 - June 30, 1980 .......... ............. 70 6 - SBAC - Summary of Clients by Industry, July 1975 - June 30, 1980 ............................ .... 71 7 - SBAC - Classification of Cases Handled by Problem Area, July 1975 - June 30, 1980 ................................. 72 PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT . _ _(LOAN 1120-PH) PREFACE This is a performance audit under Loan 1120-PH for US$30 million made by the Bank to the Government of the Philippines for on-lending to small and medium scale industry (SMI), directly through the Development Bank of the Philippines (DBP) and indirectly through (a) the Industrial Guarantee and Loan Fund (IGLF), which operates as an apex institution and channels funds through an array of private financial institutions; and (b) the National Electrifica- tion Administration (NEA), which fosters the development of industrial coop- eratives in rural areas. The project also included a technical assistance component. The loan was approved in May 1975 and disbursed in December 1981, with a delay of 28 months. A second SMI loan in the amount of US$25 million (Loan 1727-PH), involving only IGLF, was approved in June 1979. Two lines of credit (Loans 1190-PH and 1572-PH) extended to DBP in 1975 and 1978 also included SMI components. The Project Performance Audit Memorandum (PPAM) is based on the attached Project Completion Report (PCR) prepared by the East Asia and Pacific Regional Office of the Bank, completion reports prepared by DBP, IGLF, NEA and the Ministry of Trade and Industry (for the technical assistance component), sector studies, Staff Appraisal and President Reports, the loan documents, the summary of the Board discussion, study of the files, and discussions with Bank staff. While the PCR presents basically a factual review of the project experience, the PPAM focuses on the background and the rationale for the project design and selection of the financial intermediaries, elaborates on particular issues that arose during implementation, offers policy suggestions for improving the efficiency and performance of SMI, and draws lessons from this pioneering exercise. Comments received from the Borrower are reproduced as Attachments A, B and C. - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET PHILIPPINES - SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT (LOAN 1120-PH) PROJECT DATA (US$ Million) As of 03/31/82 Original Disbursed Cancelled Repaid Outstanding Loan Amount 30.0 30.0 - 5.0 25.0 Cumulative Loan Disbursement FY76 FY77 FY78 FY79 FY80 FY81 FY82 (i) Planned 1.9 11.6 29.0 30.0 30.0 30.0 30.0 (ii) Actual 9.4 12.2 20.6 22.0 27.4 29.5 30.0 (iii) (ii) as % of (i) 494.7 105.2 71.0 73.3 91.3 98.3 100.0 Original Loan Date Actual or Re-estimated Board Approval - 05/27/75 Loan Agreement 06/05/75 Effectiveness - 08/20/75 Loan Closing 08/31/79 12/31/81 MISSION DATA No. of No. of Date of Month, Year Weeks Persons Manweeks Report Preappraisal 01/74 4.0 2 8.0 03/74 Appraisal 11/74 5.0 4 20.0 04/18/75 Supervision I 12/75 5.6 4 22.4 01/31/76 Supervision II 11/76 5.2 3 15.6 01/07/77 Supervision III 05/77 6.0 4 24.0 07/15/77 Supervision IV/a 10/77 4.0 4 16.0 04/12/78 Supervision V 06/78 4.0 4 16.0 08/31/78 Supervision VL/b 12/78 4.0 4 16.0 03/30/79 Supervision VII 12/78 4.0 4 16.0 05/18/79 Completion 02/81 3.0 3 9.0 06/17/81 FOLLOW-ON PROJECT PHILIPPINES--Second Small and Medium Industries Development Project, Loan 1727-PH, approved on 06/12/79, in the amount of US$25.0 million. /a Staff Appraisal Report on DBP for the third industrial investment project (1572-PH). /b Full Supervision Report on DBP. - iii - COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Peso (P) Year: Appraisal Year Average (1975) Exchange Rate: US$1 = 7.0 Intervening Years Average (1976-79) US$1 = 7.5 Completion Year (1980) US$1 = 7.5 FISCAL YEAR World Bank Fiscal Year: July - June DBP Fiscal Year: July - June up to FY76 July - Dec. 76 interim accounting period Jan. - Dec. 1977 onward IGLF Fiscal Year: July - Dec. 75 interim accounting period Jan. - Dec. 1976 onward - iv - PROJECT PERFORMANCE AUDIT REPORT PHILIPPINES - SMALL AND KEDIUM INDUSTRIES DEVELOPMENT PROJECT (LOAN 1120-PH) HIGHLIGHTS This was the first Bank loan in support of small- medium industry (SMI) through direct and apex lending and the development of a technical assistance delivery system. The attempt by the Bank to devise and organize a SMI program was pioneering and inherently a complex and difficult task, more so in view of the traditional environment and the as yet undeveloped institu- tional framework. The project was well conceived and designed, and the rationale for the selection of the financial intermediaries convincing (PPAM, paras. 5-7, 30 and 32). The target groups were properly identified and the funds reached the designated groups, a good part in the outlying regions, through an extensive branch network. Labor-intensive activities have been promoted in an array of manufacturing sectors, and employment generation exceeded projected levels by a wide margin. The Development of the Philippines (DBP) and the Industrial Guar- antee and Loan Fund (IGLF) have been reasonably effective in disbursing the Bank Loan. However, the institutional objectives set for DBP have not been fully met, and there is need to upgrade its SMI set-up (organizational structure, procedures, staffing, appraisal/supervision capability). Although DBP's relatively high level of SMI arrears may, to some extent, be attributed to an all-out effort to promote new and therefore untried undertakings, stricter screening of applicants at appraisal and more effective loan supervi- sion and collection procedures is likely to have resulted in a much better arrears position (PPAM, paras. 8-10, 34; PCR, paras. 2.19-2.25). In connec- tion with the third SMI loan, DBP has undertaken to take specific actions to rectify persistent institutional and operational shortcomings (PPAM, para. 10). IGLF, on the other hand, did introduce significant institutional and policy changes with tangible results. In particular, progress was made in increasing the number of the accredited participating banks, though not in extensive use of their own funds for SMI lending (PPAM, paras. 11-15, 32; PCR, paras. 3.21-3.26). But although the apex system has not yet resulted in increased mobilization of funds, it performs a useful function by increasing the access of SMI to institutional financing. Of the two components of the loan, the experiment with the National Electrification Administration (NEA) to promote rural industrial cooperatives has not been successful, in part due to NEA's weak institutional base and lack of commitment (PPAM, paras. 16, 17; PCR, paras. 4.17-4.19). Still, given the pilot nature of this small component, the experiment with NEA has been instructive (PPAM, paras. 33 and 38). The Small Business Advisory Centers (SBAC) component has in large measure met the Bank's expectations, and the - v - utilization of the Bank's funds for the program has been sound (PPAM, paras. 24-28; PCR, paras. 5.07-5.23). Although the quality of services is still uneven, SBACs are low cost programs reaching out to SMI in the regions and have contributed toward helping this segment of industry. With further support and guidance, and linked with a well organized referral system, the SBACs can develop into an effective technical assistance delivery system (PPAM, paras. 27 and 35). The productivity and efficiency of SMI could be further improved over the medium term by addressing a number of sectoral issues (PPAM, para. 37). The experience with the SMI project is instructive in many respects. It suggests the need for a full understanding and appreciation of the cultural background, institutional arrangements and attitudes in a particular country, prior to introducing novel institutional arrangements; the importance of commitment by participating agencies to achieve set objectives and the need to avoid dissipation of effort; the difficulty of replicating models from one sector to another without full appreciation of the underlying subtle complexi- ties; the need for gradualism, in the sense of focusing-on a smaller number of institutions and fewer tasks instead of following an all-embracing approach, thereby making possible a more intensified and manageable institution-building and supervision effort; the need not only for close supervision but also for developing appropriate mechanisms to ensure effective supervision leading to tangible results; and that frequent changes in top management, resulting in instability and lack of leadership and direction, tend to seriously undermine the effectiveness of organizations. - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM PHILIPPINES - SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT (LOAN 1120-PH) I. BACKGROUND 1. Support for the small and medium scale segment of industry (SMI)'1 in the Philippines emanates from the appreciation by both the Government and the Bank of its importance and potential for development in terms of employ- ment generation, reduction of income disparities, more regionally balanced growth of industry, and export promotion. In 1975, SMI accounted for 85% of the total number of establishments in the "modern sector" (i.e., those employ- ing 20 or more workers), 29% of employment and 30% of gross value added. More importantly, SMI had been growing in the 1960s and continued to do so in the 1970s. Between 1967 and 1975, the number of establishments had reached 2,740 growing at about 4.6% per annum, while employment by 5.0% annually./* It is noteworthy that these respectable growth rates occurred despite the existence of a policy framework which unwittingly discriminated against SMI, as subsi- dized credit, overvalued foreign exchange, and an array of incentives were available almost exclusively to large enterprises, thereby enabling them to import capital goods, components and industrial raw materials at concessionary rates. These policies accelerated the substitution of capital for labor and induced vertical integration of production which, to some extent, could have been efficiently carried on in smaller independent units. 2. Certain changes in the policy framework (devaluation of the peso, introduction of labor-intensity criteria in granting incentives, etc.) were instituted early in the 1970s in an attempt to correct some of those distor- tions; but they hardly eliminated deep-seated problems afflicting SMI. Impediments to productivity improvements and growth of SMI persisted, reflect- ing the use of outmoded or inappropriate machinery; deficient technical and management methods concerning plant layout, production planning and work methods, raw materials selection and procurement, preventive maintenance, quality control, product design and new product development, marketing, 1/ Enterprises with fixed assets of less than P100,000 (about US$13,000) were defined as cottage industries and were not included among the recipients of the Bank loan; those between P100,000 to P1,000,000 (US$13,000 to $133,000) were defined as small scale industries; and those with P1 to P4 million (US$133,000 to $533,000) as medium scale industries. 2/ The corresponding rates for large industry were 2.9% and 4.3%, respec- tively. -2- accounting, etc.; the low level of skills employed; lack of an effective technical assistance delivery system; and limited access to institutional credit. To redress these shortcomings, early in 1974 the Government adopted a program to assist the development of SMI, the main elements of which included: (a) substantial increase of financial resources available to SMI; (b) provision of technical assistance on a regional basis; and (c) establish- ment of a Commission to implement and coordinate all programs of assistance to SMI. II. PROJECT OBJECTIVES AND DESIGN 3. In 1974, the Government requested the Bank's assistance in the development of the SMI sector. The major objectives of the loan were: (a) to provide SMI with greater access to institutional credit in terms of both volume and number of participating financial institutions; (b) to develop suitable financial intermediaries and technical assistance delivery systems; (c) to promote the regional dispersion of industry and employment generation; and (d) to achieve better coordination among all agencies supporting the SMI segment of industry. The project was expediently designed to include a financing and a technical assistance component. Financing was made available to individual SMI enterpreneurs directly through the Development Bank of the Philippines (DBP) and indirectly through the Industrial Guarantee and Loan Fund (IGLF), which functioned as an apex institution and channelled resources through private financial intermediaries. Further indirect lending to indus- trial cooperatives in rural areas was entrusted to the National Electrifica- tion Administration (NEA). The technical assistance component involved support for the establishment by the Ministry of Trade and Industry (MTI) originally of seven and subsequently twelve Small Business Advisory Centers (SBACs), one in each region of the country. The SBACs would address produc- tion, financial/ accounting, and marketing problems in new or established enterprises, including referral services for more complex problems. This extension service would complement the Medium and Small Industries Coordinated Action Program (MASICAP), intended to assist enterpreneurs in preparing feasibility studies, which was also instituted on a regional basis in the same year by the MTII/. 4. Specific institution-building objectives were set for the agencies to be involved. For DBP, they included reduction in loan processing time; improvement of operational efficiency in SMI lending through proper organiza- tional arrangements and qualitative and quantitative strengthening of staff at the head office and in the branches; improvement of appraisal and follow-up practices, including services available to smaller entrepreneurs located outside Greater Manila; improving IGLF's SMI project monitoring capability; 1/ Bank financing for MASICAP was extended under the Second SMI operation (Loan 1127-PH). - 3 - and on streamlining further the Central Bank's monitoring and review pro- cedures of IGLF's operations. For NEA the aim was to introduce better plan- ning and preparation of more focussed feasibility studies prior to establish- ing new industrial cooperatives; qualitative improvements and quantitative strengthening of the staff of NEA's Power Use Directorate (PUD) responsible for the promoting of the industrial cooperatives program; elimination of interest rate subsidies and lessening the dependence of the cooperatives on NEA's free of charge assistance; improvement in cooperative management and procurement practices; and strengthening of procedures for monitoring and evaluating the process of cooperative development. Finally, the objectives for the SBAC program were to develop the requisite institutional set-up for providing technical assistance to smaller entrepreneurs, particularly outside Greater Manila, including MTI's technical assistance and support capabilities to SBACs. III. ACCOMPLISHMENTS AND ISSUES IN PROJECT IMPLEMENTATION A. The Financial Component (a) Selection of Financial Intermediaries DBP 5. One-half of the Bank loan (US$15 million) was channelled through DBP, a wholly Government-owned development finance institution. DBP had instituted as early as 1971 a special lending program for SMI, including a specialized department to process SMI loans in the Greater Manila area and to supervise the loans processed at DBP's branch and agency network. A special department had also been established to coordinate the activities of the branches and agencies. The reluctance of commercial and private development banks to cater to the needs of SMI, DBP's commitment to support SMI and to build up the requisite organizational and institutional structure, its exten- sive regional branch network and, particularly, DBP's willingness to take steps to rectify institutional shortcomings along the Bank's suggestions, were major considerations that weighted heavily in the Bank's decision to favor the selection of DBP as a convenient channel for allocating the Bank's funds. IGLF 6. Another US$12 million of the Bank loan was allocated to IGLF for on-lending to SMI through private financial institutions. IGLF is a compen- satory financing and guarantee fund!/ controlled by the Government and administered by the Central Bank. Its basic function is to provide long-term 1/ Against their loans to SMI, participating banks receive from IGLF a special "time deposit" on which they must pay interest, allowing for a spread originally of 5% and now 8% for small and 6% for medium enter- prises. IGLF also provides a guarantee for a fee of 2% which is passed on to the borrower (see also para. 13). resources to financial institutions for on-lending to SMI, based originally on a sponsoring and subsequently on an accreditation systeml/. Criteria of project selection include labor intensity, export-orientation and location away from major urban centers. The opportunity to increase the number of participating financial institutions catering to the needs of SMI and to enlarge the available resources; the prospects of having an institution- building impact on IGLF as well as on the participating banks; the ability to utilize an institution already in place applying project selection criteria conforming with Government and Bank objectives and priorities; and IGLF's high quality of portfolio, suggested to the Bank that IGLF could perform a useful function as an apex institution for transferring Bank resources to SMI, along with DBP and NEA. NEA 7. The remainder of the loan amounting to US$2.3 million was allocated to NEA, a Government-owned corporation with a mandate to promote inter alia economic activities leading to power use and employment generation through an array of programs, including support for small industry. The Bank loan would finance the Rural Industrial Cooperative (RIC) program which involved the establishment of small industrial cooperatives using labor-intensive power technologies. The possibility of regional dispersion of industry and genera- tion of low cost employment in rural areas; the assessment that NEA and PUD, i.e., the department within NEA responsible for the RIC program, were well- managed and staffed with qualified and well-trained personnel; the fact that NEA combined financing with technical assistance to nascent cooperatives; NEA's receptivity to the need for institution-building and policy changes to improve PUD's promotional work and overall effectiveness and its willingness to take corrective action; and the innovative nature of the RIC program, were considerations that loomed large in the Bank's decision to include NEA among the institutions to be supported by the loan. (b) Institutional Improvements DBP 8. At the Bank's suggestion, DBP reorganized its SMI Lending Department (SMILE), the Branches and Agencies Department (BAAD) as well as the regional branches to increase their effectiveness. However, DBP's reorganization effort has had limited success in upgrading its SMI operations. The expected 1/ Under the sponsoring system, project appraisal is undertaken by a special unit in the Central Bank, while supervision by the sponsoring banks. Under the accreditation system, project appraisal reports are prepared by the accredited financial institutions and reviewed by IGLF. The accred- ited institution is also primarily responsible for project supervision and extension of technical assistance. - 5 - qualitative and quantitative strength of staff in SMILE and in the branches has not been accomplished. The branches in particular remain grossly under- staffed with respect to SMI activities and project officers to a large extent are not technically qualified (PCR, para. 2.25). In addition, middle level management has yet to be developed. The general shortage of technically qualified persons in the regions, the low pay scale and the attendant high turnover, the unwillingness of technically qualified people to move to or work for a long period in the regions, seem to be major factors accounting for the prevailing situation. DBP's response has been to embark on intensified training to enable the existing staff upgrade their skills. Finally, SMILE has failed to guide, provide feedback, and supervise responsibly the SMI operations of the branches, in part due to the prevailing organizational structure within DBP whereby branches and SMILE fall under different jurisdic- tions (PCR, para. 2.25). 9. Project appraisals prepared at the head office continue to be insufficiently analytical and need improvement in important aspects. Appraisals prepared by the branches vary considerably in quality and are far from satisfactory (PCR, paras. 2.19 to 2.22). Further, due to staff con- straints, there is no regular supervision of projects either at the head office or the branches. Diagnostic reports are prepared only when a sub- project is in arrears. DBP has also made little progress in improving its management information system, thereby seriously impairing its project moni- toring capability over SMI. There has been only slight improvement in DBP's arrears situation between 1974 and 1981, with 57% of the SMI loan portfolio still being affected by arrears over three months, and this despite the fast growth in the portfolio, the large number of refinanced and rescheduled loans, and the experience gained in the meantime in lending to SMI. DBP's reporting to the Bank on its SMI operations has been erratic and of uneven quality, reflecting inter alia lack of coordination among the various units within DBP involved in SMI operations. However, by 1980 DBP had succeeded in reducing the unduly long loan processing time close to targeted levels, had liberalized lending policies with respect to collateral requirements, amortization sched- ules, contingency financing, and had increased working capital financing. 10. It is evident that the institutional objectives set for DBP in a large measure have not been met. This is particularly disconcerting given DBP's early initiatives and commitment to promotion of SMI, and the fact that the Bank had identified and communicated these vexing problems to DBP's management. The persistent deficiencies in all these facets of DBP's institu- tional make-up and the limited progress in rectifying the situation and in meeting the specific institution-building objectives, seem to reflect in part the lack of continuity in DBP's top management which resulted in lack - 6 - of direction and inability to devise and implement workable solutions to inherently difficult problems!Y. IGLF 11. Since its association with the Bank, IGLF has enacted significant institutional and policy changes with tangible results. To administer an expanded level of operations under the prevailing sponsorship system would have required building up a large centralized bureaucracy, which was very likely to prove cumbersome, inefficient and dysfunctional. The adoption of the accreditation system at the Bank's recommendation meant a shift of the appraisal function to the participating banks, an opportunity to upgrade their appraisal/supervision capability, decentralization of those functions and better service to SML2/. 12. The accreditation scheme per se seems to be working satisfactorily. IGLF's loan processing time has been reduced dramatically: from four to six months to three to seven working days (PCR, para. 3.26). An increase in the size of the loans and the spread helped make the program more attractive and led to a rise in the number of the participating institutions, particularly commercial banks. By the end of 1980, 32 institutions have been accredited, with 10 accounting for some 80% of total lending. The quality of the ap- praisal and supervision of the more sophisticated institutions has been for the most part satisfactory; but the quality of the work of many of the remain- ing (mainly commercial banks with limited history of term lending) has been inadequate. IGLF has made progress in building up its capability to monitor the appraisal and supervision work of the accredited institutions. Neverthe- less, IGLF needs to intensify its overseeing efforts and to provide assistance to weaker banks to enable them to strengthen their appraisal/supervision/loan collection capability. 13. All financial institutions receiving Bank resources were originally required to carry a 60% automatic guarantee, which was intended to encourage them to lend to under-collateralized clients. But despite the guarantee, the 1/ In connection with the third SMI loan (approved on June 2, 1982), DBP's management has undertaken a commitment to develop an action program to reduce SMI arrears, to reorganize the project supervision group responsible for SMI, to work out a mechanism regarding the responsibility for SMI operations betwen SMILE and the branches, and to rectify a number of persistent institutional shortcomings. To ensure that DPB will pursue vigorously these objectives, the loan contains tranching provisions, with disbursements conditioned on performance in the implementation of a detailed action program. 2/ Only accredited institutions were eligible for Bank funds. - 7 - banks continued to require at least 100% collateral, which underscores the high risk of lending to SMI, particularly small establishments. This defi- ciency was rectified in the second Bank loan to IGLF (Loan 1727-PH, approved in June 1979) by establishing two distinct optional guarantees: a collateral guarantee for small industry loans which would cover a part of the actual collateral deficiency; and a credit-risk guarantee which would cover a fixed percentage of the outstanding amount of the loan. The latter scheme met with wide acceptance by the accredited banks (PCR, para. 3.27). 14. The organizational structure of IGLF, however, cannot meet present needs; in addition, IGLF is understaffed by some 50%. As a result, IGLF has not been fully effective in the discharge of its ordinary functions, which include the review and extension of assistance to upgrade the appraisal/super- vision capability of the accredited institutions and monitoring the informa- tion supplied by them. This suggests that, in terms of institution-building, modest progress was achieved so far both with respect to IGLF's development as well as that of the less sophisticated among the participating institutions. Belatedly, and during negotiations for the second SMI loan in April 1979, an understanding was reached with the Government that IGLF would be reorganized and strengthened. The proposed organizational changes have yet to be imple- mented (PCR, para. 3.21)1/ IGLF's inadequate performance on this score reflects the poor leadership provided by the inter-agency Review Committee (RC) which supervises IGLF's activities on behalf of the Central Bank (PCR, paras. 3.22 and 3.23). However, recently the RC was restructured and now appears to be working effectively. 15. One of the objectives of the IGLF program was to act as a catalyst, assuming some of the risks and high costs associated with SMI lending and thereby encouraging private banks to lend to SMI using part of their own resources. So far, little progress has been made in achieving this objective (PCR, para. 3.31). The reluctance of the participating banks to tie up their own moneys in SMI loans stems from various reasons: inexperience with term lending and SMI in particular; non-commensurate return compared with the administrative costs and risk involved; and fixed lending rates in the face of an inflationary environment. The latter suggests that appropriate policies (frequent adjustment of interest rates and service charges and, possibly, tax incentives) are necessary to elicit a favorable response by private banks. NEA 16. The NEA experiment failed to meet the Bank's expectations (PCR, para. 4.19). Except for achieving an increase in lending rates, none of the other specific objectives set forth (para. 4) was attained. NEA has been unable to form and train well-knit field teams to initiate the establishment 1/ It is now expected to be implemented in the course of the upcoming third SMI operation. - 8 - of RICs as well as the preparation and implementation of adequate feasibility studies. Also, it failed to provide both competent field staff assistance in the early stages of cooperative formation and sound follow-up support. PUD remained understaffed throughout the implementation period of the RIC program and, contrary to the Bank's original assessment, most of the staff was young and inexperienced. Moreover, PUD's meagre staff was encumbered with the additional responsibility for the implementation of the Rural Water Supply program which was launched in 1976. Two reorganizations at the Bank's sugges- tion failed to improve the situation. Though the training needs in coopera- tive management, marketing techniques and project monitoring had been acknowl- edged, NEA made no effort to provide such training to PUD's staff. Further, the high staff turnover due to the noncompetitive salary scale, the absence of middle-level management, the temporary status of PUD's director, and the virtual lack of leadership seriously undermined PUD's effectiveness. For almost three years (1976 - 1979), PUD approved no loans for cooperatives and was finally abolished in 1979. 17. Aside from staff constraints and lack of continuity in management, the PCR attributes PUD's poor performance to an underestimation on the part of both the Bank and NEA of the extent of technical assistance and training requirements for the success of the program. The PCR also doubts that NEA had the expertise at headquarters to provide the needed guidance (PCR, paras. 4.17 to 4.19), which is contrary to the Bank's original assessment. However, NEA's weak institutional base, lack of commitment to the RIC program and shift of emphasis to other social activities thrust upon it appear to have been addi- tional contributory factors. Also, both the Bank and NEA did not fully appreciate the fact that the electric cooperative model was not easily repli- cable in the manufacturing sector. Finally, the inherent difficulties in the management of cooperatives, particularly in rural areas where business and technical skills are virtually absent, also appear to have been played down. The Bank, in the course of its supervision, had brought some of these short- comings to NEA's attention but it has not been successful in eliciting remedial action. NEA was excluded subsequently from Bank lending to SMI. (c) Utilization of Bank Funds DPBI/ 18. The experience with DBP's allocation of Bank funds has been somewhat more felicitous. DBP disbursed the Bank loan one year ahead of schedule and financed 410 subprojects, or 14% more than originally estimated. In addition, DBP financed 35 subprojects through the US$1.7 million reallocated to it 1/ For details see PCR, paras. 2.05 to 2.17 and the Annexes referred to therein. - 9 - because of NEA's inability to utilize these funds!'. On the whole, the sectoral, enterprise size and geographical distribution of the Bank-supported subprojects was satisfactory. It is worth noting that 82% of the subprojects approved were new enterprises. This is an unusually high figure and suggests that DBP has actively tried to promote small undertakings, albeit somewhat indiscriminately (see para. 19). Ex ante estimates of economic and financial rates of return based on a sample were satisfactory. The employment generated (appraisal estimates) amounted to about 8,000 new jobs, which exceeds substan- tially the originally projected estimate of 6,500 for DBP and IGLF combined. The investment cost per job created ranged from US$2,760 to US$6,590 with an average of US$3,750. This is low and the evidence seems to support the view that there is a positive correlation between size of firm (in terms of assets) and cost per job created. 19. DBP's arrears, however, have been persistently high. No clear association could be established between size of SMI enterprise and level of arrears. Problems most commonly occurring seem to have been related to procurement of raw materials, production and marketing.' Subprojects which had developed subcontracting arrangements and marketing channels were problem- free. The high level of arrears appears also to reflect DBP's all-out effort to promote new and, therefore, untried undertakings which tend to have a higher risk of default. Nevertheless, stricter screening of borrowers at appraisal, greater reliance on existing but expanding firms, more effective loan supervision and collection procedures, and better monitoring and control procedures to minimize diversion of funds, is likely to have resulted in a much better arrears picture and in support of healthier enterprises. 20. On the basis of a fairly representative sample, over 70% of the firms failed to realize their estimated volume of sales, partly due to opti- mistic projections by DBP and partly due to technical and marketing problems. This in turn affected their profitability. Actual net profits were less than one third of the projected levels. Calculation of current and debt/equity ratios reflect an undue dependence of many firms on debt financing. Some 29% of the subprojects in the sample received technical assistance from DBP and MASICAP. Finally, two-thirds of the projects in the sample had financial problems, which seems to suggest the perversive undercapitalization of these enterprises, the relatively higher risk of SMI, particularly newly established firms, and the need for more careful selection of subborrowers. 1/ DBP's administrative costs for lending to SMI are estimated at 2.6% compared to 0.3% for large industry. The respective net spread for large industry is 5.3%, medium 3.0% and small 2.2%. The spread DBP receives for SMI loans is insufficient to cover overheads, write-offs, provisions and to allow a profit. This means that SMI operations are cross-subsidized from profits made by lending to larger industries. Though unprofitable, DBP continues to support SMI because of the high priority placed by the Government on this type of lending. - 10 - IGLF2J 21. IGLF has used the Bank's funds effectively. The IGLF component of the loan was fully disbursed six months ahead of schedule. Until 1978, IGLF was slow in committing the loan due to the uncertainties following the switch to the accreditation system, and the lack of interest by commercial banks to finance IGLF projects because of the red tape involved in dealing with IGLF and the inadequacy of the gross spread (5%). Operations picked up when the spread was raised to 8% and the accreditation scheme was put into effect. IGLF supported some 390 subprojects, or 70% of the number projected at appraisal. Of the subprojects approved, 10% were new projects reflecting greater selectivity. The subprojects financed are sectorally diversified, regionally dispersed, and generated some 11,500 new jobs, which exceeds by far the appraisal estimate. The average investment cost per job created amounted to US$3,100 and indicates that IGLF has supported labor-intensive enterprises. As in DBP's case, there appears to be a positive association between size of firm and capital intensity. Ex ante economic and financial rates of return based on a representative sample were satisfactory. Based on a survey of sample of subprojects, net profits and export sales had been consistently overestimated. The leather and basic metal industry groups have had no delinquencies, probably reflecting faster growing markets in these sectors. About one-quarter of the subprojects surveyed were undercapitalized, which suggests the need for increasing the supply of equity capital to facilitate expansion and to ensure a sound capital structure of SMI. 22. Following some reschedulings of the loan portfolio, IGLF's arrears over three months as of September 30, 1981 amounted to 1.7% of loans out- standing, which is well within acceptable limits. However, the arrears of many participating financial institutions were higher (6.7%), suggesting that the institutions make payments to IGLF out of their own funds to maintain their credit standing. This relatively higher level of arrears between financial institutions and users is explained by the lack of experience of the less sophisticated among the participating banks with SMI lending; misrepre- sentation, and unreliable and difficult to verify accounting records; their ineffective loan supervision and collection procedures; inadequate technical assistance by IGLF; and the lack of financial discipline by small enterprises, possibly reinforced by the lower effective interest rate of IGLF funds rela- tive to other s urces which leads to their diversion to other purposes and wilful defaults_y. 1/ For details see PCR, para. 3.07 - 3.27. 2/ The 12% (now 18% - 21%) effective interest rate IGLF charges has been below DBP's 14% - 16% (now 18% - 21%) and private development banks' 19% (now 21% - 23%). - 11 - 23. NEA disbursed only US$550,000 of the US$2.3 million allocation and with a delay of over two years. The undisbursed balance was reallocated to DBP and IGLF. The funds supported eleven new industrial cooperatives, compared to twenty-four estimated at appraisal, as well as eight which had been established earlier. Of the twelve cooperatives in operational stage (mostly garments and woodcrafts), five have suspended opertions and only two showed a small profit. Of the estimated at appraisal 5,800 new jobs, only 420 have been created at an investment cost of US$1,200. The cooperatives sup- ported have been consistently in arrears which, at the end of 1980, amounted to 10% of total portfolio. Ten subprojects have accumulated losses amounting to P0.8 million or 30% of total assets, and subborrowers are incapable of servicing debt. The very poor performance of the cooperatives are attributed to problems in management, production, and marketing and the unavailability of technical assistance; lack of working capital and difficulties in procurement of raw materials; NEA's inability to train the management of the cooperatives partly due to difficulties in recruiting suitable personnel and partly due to low priority assigned to training; the strained relations between managers and members of the cooperatives; and, generally, NEA's lack of concern about their development and neglect to monitor their progress and loan repayments. B. The Technical Assistance Component 24. The objective of the Small Business Advisory Centers (SBAC) com- ponent of the loan was to provide SMI with extension services (para. 3). An amount of US$700,000 was allocated under the loan to finance the entire capital expenditure and 50% of the preo erating and operating expenses of the SBAC program for the first two years2 . However, the Government, with the Bank's consent, decided to rent instead of building office space and this made it possible to increase the number of SBACs from seven to twelve--one in each region of the country. By February 1978 all SBACs had been in operation (PCR, para. 5.03). This decision, making possible a significant expansion of the coverage and services to SMI, at first blush appears sensible. However, in view of the inherent difficulties in establishing, organizing, and operating these centers and the attendant diffusion and over-extension of effort, it might have been more prudent to start on a smaller scale, say up to a half a dozen centers in key areas, and to increase their number gradually, learning at the same time from the experience gained. 1/ For details see PCR, paras. 4.07 - 4.16. 2/ The Government's contribution amounted to another US$1.5 million equiva- lent. - 12 - (a) Institutional Developments 25. In large measure, the SBAC program has met the Bank's expectations. Basically, the task of the SBACs is to diagnose problems and to tackle the simpler ones, referring complex cases to technical specialists in the private sector or technical institutes. The role of the SBACs therefore is catalytic in nature. This is achieved on an ad hoc basis or through an "integrated plant survey" and free of charge. However, being all-embracing, such surveys have tended to be limited in terms of practical recommendations, while tying up inordinate staff time and limiting the number of clients that could be reached. The referral system, which is an integral part of the SBAC concept, has been impaired because technology institutes (e.g. Metals Industry R&D Center, Philippine Textile Research Institute, Technology Resources Center, Food and Nutrition Research Institute, Forest Products Research and Industry Development Commission) are not adequately and properly staffed, are under- budgeted, and lack regional facilities; consulting experts are in short supply in the regions; and the fact that it took a long time to identify and to build up a roster of qualified referrals in the private sector. Thus, the quality of the SBACs' services varies and in certain instances clearly needs to be upgraded (PCR, para. 5.21). Also, in the initial years of its operation the SBAC program experienced a very high staff turnover due to noncompetitive salary scales and the difficult conditions in the regions, which frustrated SBACs' efforts to attract and retain qualified and experienced staff. The situation has somewhat improved during the past few years as a result of better pay scales and the provision of training opportunities to joining staff with a commitment to stay on the job for a fixed time span (18 months). 26. Although the SBACs are part of the organizational structure of MTI, due to a series of reorganizations and changes in top level officials, the technical support the SBACs were to receive from MTI's Support Unit to help resolve special problems with respect to production management and marketing has not always been forthcoming. Support from MTI's Information Analyses Unit to coordinate information on available technical services in various fields left much to be desired, while the development of a monitoring system and criteria for evaluating the effectiveness of the SBAC program has yet to materialize. The SBAC and MASICAP programs were integrated in July 1980, and conceptually this appears to have been a sound decision given their complementarity. With some delay, the organizational structure and work content of the integrated program has now been determined, and the Bank will follow up on progress in connection with the third SMI loan. Other issues still unresolved include: shortage of space for the combined staffs, which suggested the possibility of establishing subcenters in major towns in the regions; the kind and extent of support to be extended to the SBAC/MASICAP field offices by MTI; and a permanent solution to the problem of attracting and retaining qualified staff. Though some of these issues are being tackled, protracted delays in resolving important organizational issues create a hiatus which affects the smooth integration of the two staffs and impacts adversely on the effectiveness of the integrated program. - 13 - 27. The ,proposal to assign to the SBAC/MASICAP centers tasks related to regional industrial development, involving promotion of industrial proj- ects and regional planning for industry at the sectoral level (PCR by MTI, pp. 10-11, PCR, para. 5.23), is somewhat disquieting. Aside from staff constraints, SBAC/MASICAP centers are not properly equipped for such sophis- ticated and ambitious tasks and the matter should be given more thought. At this juncture, it is of utmost importance to ensure that the integrated program is in a position to deliver technical assistance to SMI effectively and efficiently--a more practical task that has yet to be fully accomplished. In this regard, a number of shortcomings would have to be addressed. They include: increase in the number of more experienced staff (possibly part-time consultants) to reduce undue reliance on very young and unseasoned profes- sionals and to enhance the effectiveness of the advice given by the SBAC/ MASICAP; more focused and shorter plant surveys (as opposed to indiscriminate reviews of all aspects of the enterprise) to the end of providing concrete and action-oriented recommendations, saving consultant time and increasing cover- age; increasing the help and support to SBAC/MASICAP centers from headquarters and sectoral technical institutions to which referrals- are made, encouraging these institutes to develop properly staffed and well-equipped field offices and closer cooperation with the SBAC/MASICAP centersil; organizing more advisory services at a group level through preparation of modular materials (e.g. costing systems, planning and control, plant layouts, etc.); building up groups of more experienced technical sectoral specialists at the regional level to provide, inter alia, assistance in the choice of technology; closer coordination of SBAC/MASICAP centers with financial institutions and training programs. Also, greater budgetary appropriations, larger and more seasoned staff, improvements in pay scales, travel allowances, and provision of more vehicles and other equipment should help improve the quality of service, staff morale and efficiency, and should increase the coverage of these integrated centers. (b) Utilization of Bank Funds2/ 28. The utilization of the Bank's funds for the SBAC program has been sound. Disbursement of this component was completed 18 months behind sched- ule; but the delay was due to changes in the scope of the extension program, in particular the decision to lease space and thereby increase the number of regional offices and to integrate the SBAC and MASICAP programs (as of July 1980)--initiatives that were fully justified. During July 1975 - June 1980, the SBAC program extended technical assistance to some 1,430 clients, of which 25% was generated by staff visits, 20% were walk-in clients, 18% were 1/ Participating banks may be encouraged to develop some of MASICAP's functions. But it is doubtful that banks would--or should--be prepared to assume the functions of SBACs. 2/ For details, see PCR, paras. 5.07-5.15. - 14 - entrepreneurs previously assisted by MASICAP, 11% were referrals by other institutions, 6% were referred by clients and 20% from other sources. It is noteworthy that referrals by financial institutions have been minimal. This indicates limited cooperation, a notion also supported by the persistent high levels of arrears in SMI subprojects. The attitude of the banks may in part still reflect lingering perceptions of the SBACs' initially limited capability to deliver services of the requisite type or quality on time and in the location needed. A number of allegedly "hopeless" cases that have been referred to SBACs in the past may also have tarnished their reputation. 29. More than 65% of the firms assisted by SBAC were in manufacturing and the rest in agriculture/fishing and services. Cottage (not originally envisaged) and small-scale enterprises each received about 38% of SBAC's assistance, medium-scale about 8%, and the balance (16%) could not be classi- fied but it is mostly SMI. This suggests the greater need for technical assistance by SMI occupying the lower (in terms of size) end of the spectrum. The majority of cases assisted by SBAC had financial problems (37%); next ranked technical and production problems (17%), management (37%), and market- ing (11%). Reportedly, about 88% of SBACs' recommendations have been accepted and have or are being implemented, which is impressive. Nevertheless, cri- teria have yet to be developed to assess the impact of SBACs' assistance on the performance of the recipient firms as well as the cost-effectiveness of SBAC's services, as had been suggested by the Bank at appraisal. Presently, SBAC staff do not follow up on the progress made after enterprises have sought their advice. The Bank, in the course of its subsequent lending for SMI and supervision, could have taken up the matter with MTI and helped in the devel- opment of meaningful and practical indicators. IV. CONCLUSIONS 30. Devising and organizing a financial and technical assistance program to cater to the needs of SMI is inherently a complex and difficult task. It is more so when this is a pioneering attempt on the part of the Government and the Bank to service this segment of industry, relying on an undeveloped insti- tutional framework and a highly bureaucratized and fragmented environment which is not receptive to swift changes. The project under review was well conceived, albeit somewhat over-designed, particularly in that it combined financing with extension of technical assistance. The institutions involved had both strengths and weaknesses, and the selection of the lending institu- tions and the development of technical assistance delivery systems by neces- sity involved weighing pros and cons and making value judgments. With little experience to go by, choices inevitably involved an element of experimenta- tion. It follows, that risks tend to be higher and the results cannot be expected to be immediate and spectacular. The process is a slow and a drawn out one. - 15 - 31. The target groups were properly identified11 and the funds reached the designated groups through a number of intermediaries which, directly or indirectly, provided an extensive branch network. Employment generation exceeded projected levels by a wide margin, while significant progress was made toward decentralization of industry with over 50% (in value terms) of the subprojects located in the regions. Labor-intensive activities have been promoted in an array of manufacturing sectors producing a wide range of intermediate and final goods, including low-priced mass consumption and a variety of exportable items. 32. In general, DBP and IGLF have been reasonably effective in disburs- ing the Bank loan; not so NEA. Yet, even though the objective of transferring resources to the SMI segment of industry has been met, the high frequency of undercapitalized and problem-ridden enterprises suggests that the viability of quite a number of the firms supported remains a vexing issue. Notwithstanding the presence of institutional deficiencies in many financial intermediaries selected to provide assistance to SMI, there still seem to be advantages in using existing entities, particularly in the private sector, and in building them up, compared with the alternative of creating ab initio new specialized institutions. In this sense, the Bank's decision to use DBP and IGLF, and through the latter to extend significantly the network of the participating private banks, was correct in the Filipino environment. Although the apex system has not yet resulted in increased mobilization of funds, it performs a useful function by increasing the access of SMI to institutional financing. 33. Though the idea of promoting rural industrial cooperatives is appealing, the experiment with NEA has not been successful due to a confluence of factors. They relate primarily to a weak institutional base and NEA's lack of capacity and will for improvement which the Bank had not been able to detect at appraisal; the belief that the electric cooperative model could easily and conveniently be transplanted in the industrial sector; the under- estimation of the extent of technical assistance and training requirements for the task at hand; and the lack of commitment to the RIC program (para. 16). Still, given the limited scope and experimental nature of this component, support for NEA should not be disapproved. Nonetheless, more thorough knowl- edge and careful assessment of NEA's institutional capabilities, potential for development, and internal and external constraints at appraisal could have enabled the Bank to make a sounder judgment. 34. The institutional objectives set for DBP largely have not been met, while IGLF did bring about important institutional and policy changes with tangible results. It would appear that the Bank overestimated DBP's and IGLF's capability to effect on their own the requisite organizational changes, to build up their staff, and to upgrade and monitor properly their operations. Instability in DBP's top management and the attendant inability 1/ Cottage industries received Bank support through the second SMI loan. - 16 - to provide leadership, was a major contributing factor to this wanting insti- tutional performance. Similarly, the inability of IGLF's supervisory organ (the inter-agency Review Committee) to provide policy guidance, in part due to unclear views regarding its composition and role and frequent changes in membership, have hampered IGLF's effectiveness!1. The Bank, on its part, though it kept drawing the attention of the institutions involved to the need for remedial action, did not avail itself fully of the opportunity provided by subsequent SMI loans to elicit action on key institutional issues. This is particularly true with respect to DBP. In this connection, it should be noted that DBP's present organizational structure clearly is not conducive to achieving the requisite coordination between headquarters and branches, and steps would have to be taken to rectify the situation. Also, the large number of branches (43) magnifies staffing problems. Perhaps a more selective approach could be followed to improve their effectiveness2/. Finally, the experience with NEA has been very disappointing. Among other things, the shift of emphasis to other social activities thrust upon it, and to which the Bank remained rather passive, diluted NEA's earlier commitment-- if indeed there was one. 35. Although the quality of service is still uneven, the SBAC program has been reasonably successful. The idea of opting for an extension service, i.e. getting the service to the entrepreneur as opposed to the passive concept of just making the service available to him, is a valid one. SBACs are low cost programs reaching out to SMI in the regions and, despite shortcomings, they have made a contribution toward helping this segment of industry. Further support and guidance is needed, however, along the lines suggested in para. 27, to enable the SBACs develop into an effective extension service. In this regard, consideration might be given to establishing SBAC/MASICAP as an autonomous institution under MTI's aegis. By not being part of the civil service system, conditions of employment and compensation could be established that would attract and retain qualified personnel and thereby enhance the credibility of the program with the financial and business communities; services, technologies and other inputs could be better adapted to the needs of prospective users; and arrangements could be made for the provision of common services--features that should improve the effectiveness of SBACs. MTI would provide policy guidance and budget control and would monitor per- formance. Gradually, a system of cost sharing could be instituted for repeater clients, larger firms or for more demanding services (e.g., when a report is prepared). 1/ The IGLF Review Committee was restructured recently and, according to Bank staff, is now functioning effectively. 2/ Specifically, since about 70% of DBP's SMI lending is generated in about one-third of the branches, it may be worth considering building up at first only these branches so that they can provide adequate services to SMI. - 17 - 36. The objective of achieving better coordination between financing and technical assistance agencies at the policy making level has fallen short of expectations. The Commission on Small and Medium Industries, an advisory body representing a number of such agencies, has had no budget, suffered from debilitating leadership problems, and lacked direction following dissent on the scope and approach to fulfil its mandate. The Commission was abolished in July 1981 and the creation of a new body has been proposed. 37. To help improve the productivity and efficiency of SMI, and in parallel with the intensified efforts needed to build up financial institu- tions and technical assistance delivery systems, a number of sectoral policy issues need to be addressed by the Government over the medium term. They include: suitable arrangements for the provision of short-term capital whose shortage persists; increase in the supply of equity capital!/ to improve the lop-sided capital structure of most SMIs; promotion of leasing/hire-purchase schemes which economize on a firm's investment outlays; review of the present system of vocational and technical training and apprenticeship to meet rising skill shortages and needs for skill upgrading; strearilining procedures for implementation of administrative regulations affecting the establishment and operations of SMI; creation of additional specialized technical institutions (e.g., leather and footwear, electronics, ceramics, chemicals) and encourage- ment of both new and existing ones to establish field offices; promotion of commercial linkages between SMI and large enterprises through subcontracting by eliminating impediments to its development; development of an industrial estate program; facilitation of SMI's access to public sector procurement; fostering the development of trading companies or cooperative arrangements to cope with problems of procurement, marketing and, possibly, short-term financ- ing; harmonization of lending rates between public and private banking insti- tutions, along with adjustments to maintain positive real rates; and greater access to Government incentives to put SMI on an equal footing with large enterprises2/. 38. The experience with the SMI project is instructive in many respects. It suggests the need for a full understanding and appreciation of the cultural background, institutional arrangements and attitudes in a particular country, prior to introducing novel institutional arrangements; the importance of commitment by participating agencies to achieve set objectives and the need to avoid dissipation of effort; the difficulty of replicating models from one 1/ This has also been the concern of the Bank's Board. 2/ In this regard, recent initiatives include a UNDP financed and Bank executed technical assistance project to support planning, establishment and operation of industrial estates/export processing zones, which is being implemented; and the establishment of a number of mixed ownership venture capital companies. - 18 - sector to another without full appreciation of the underlying subtle complexi- ties; the need for gradualism, in the sense of focusing on a smaller number of institutions and fewer tasks instead of following an all-embracing approach, thereby making possible a more intensified and manageable institution-building and supervision effort; the need not only for close supervision but also for developing appropriate mechanisms to ensure effective supervision leading to tangible results; that frequent changes in top management, resulting in instability and lack of leadership and direction, tend to undermine the effectiveness of organizations; and that reorganizations and reshuffling of staff without addressing important and deep-seated underlying causes, such as lack of effective leadership, staff motivation, morale, remuneration and career development paths, development of management information systems, cannot in themselves turn situations around. - 19 - ATTACHMENT A COMMENTS RECEIVED FROM THE BORROW 248423 WORLDBANK RCA NAYRCA CPTE- 248423 WORLDEANK MAY 25, 1982 YR. SHIV S. KAPUR DIRECTOR, OPERATIONS EVALUATION DEPARTMENT NORLD BANK UASHINGTON D.C. RE: PROJECT PERFORKANCE AUDIT REPORT (LOAN 1120-PH)- YOUR LETTER DATED 18 MARCH 1932 UE FIND THE PRESENT DRAFT OF THE PROJECT PERFORMANCE AUDIT REPORT SATISFACTORY AND FEEL COMLIKELTED THAT THE 02JECTIVES SET FOR THE PROJECT WERE ACHIEVED. SBAC/MASICAP PROGRANS SHOULD BE ENHANCEL JITH THE ESTA3LISHMENT OF TRADE AND INDUSTRY ASSISTANCE CENTERS PROVIDED AITH SPACE, EOUIPMENT AND TECHNICAL SUPPORT IN THE REGIONS. THIS INVOLVE THE PHYSICAL INTEGRATION OF SEVERAL SERVICE BUREAUS OF THE NINISTRY THAT SHOULD EVENTUALLY LEAD TO IrPROVED DELIVERY OF SERVICE IN THE COUNTRYSIDE. CURRENT PROGRAPS AND PROJECTS HAVE BEE, ADJUSTED TO TAKE INTO ACCOUNT LESSONS LEARNED FRO PAST EXPERIENCE. BANK OBSERVATIONS ARE WELL TAKEN PARTICULARLY WITH REGARD TO rANAGEMENT OF TECHNICAL INFORMATION. NE LOCK FORWARD TO RECEIVING THE FINAL REPORT. KIIl REGARDS KIISTER ROBERTO V. ONGPIN 2331" RHP] PH- lhz477 BAI - 20 - ATTACHMENT B COMMENTS RECEIVED FROM THE BORROWER JORLD3NK64145,' 63343 CE'BN'PN NAY 26, 1932 'R. SHIV S. KAPUR DIRECTOR OPZRATIO;lS EVALUATION DEPART'ElT INT3AFRAD JASHINGTONDC APPRECIATE YOUR REQUEST FOR OUR CONIENTS ON PROJECT PERFORIANCE AUDIT REPORT - PHILIPPINES S-ALL AND NED IUi I4DUSTRIES DEVELOPiET PROJECT (LOAN 1120-PH). UE FIND YOUR ASSESSIENT OF IGLF OPERATIONS FACTUAL AND OJECTIVE AND THE PIONEERING EXPERIENCE NUTUALLY INSTRUCTIVE AilD RE'ARDING. WITH 3ANK'S CONTINUED ASSISTANCE AND INTEREST DJE LOOK FOR'ARD TO FURTHER INPROVENENTS I IGLF OPERATIONS. 3EST REGARDS. EJGEIj NIERRAS, JR. DEPUTY GOVER!OR DOIESTIC OPcRATIOiS SECTOR PHILCENBANI NANIILA DRL D3: 4 1 45 633 3 43 C E B PC - 21 - COMMENTS RECEIVED FROM THE BORROWER 248423 WORLDBANKSHIV KAPUR DIRECTOR OPERATION EVALUATION DEPARTWENT INTbAFRAD WASHINGTON DC REUR DRAFT PROJECT PERFORMANCEAUDIT REPORT ON SMI DEVELOPHENT PROJECT. WE IN MOST PART CONCUR WITH FINDINGS STOP WILL PURSU411 SUGGESTION OR RECOMMENDATION THAT WILL MAKE PROGRAMS EFFECTIVE AND PROGRAMS EFFICIENTLY ADMINISTERED STOP WARMEST REGARDS PLACIDO L MAPA JR DIkECTOR GENERAL NEDAPHIL J v P& 248423 WORLDBANK ..... - 22 - ATTACHMENT D PROJECT COMPLETION REPORT PHILIPPINES--SMALL AND MEDIUM INDUSTRIES DEVELOPMENT PROJECT (LOAN 1120-PH) SUMMARY AND CONCLUSIONS 1. Loan 1120-PH was the Bank's first SMI loan to the Philippines. In 1974-75, when the loan was being appraised, the potential of the SMI sector in terms of employment generation, regional dispersal of investment and export promotion was recognized. However, neither the Government of the Philippines nor the Bank had any well developed philosophy on lending to this sector. Hence, the first SMI project was a pioneering one for both the Government and the Bank. Probably the most important conceptual contribution of the project was the clear recognition that if the SMI sector were to be developed, financing alone would not suffice and that it would have to be coupled with technical assistance. 2. The design of the project was reasonably complex as the Bank, through the project, was essentially experimenting with various financing/ technical channels to service this sector. In the broadest terms, the project comprised a financing and a technical assistance component. Financing was made available to individual SMI entrepreneurs directly through the Development Bank of the Philippines (DBP), and indirectly through the Industrial Guarantee and Loan Fund (IGLF) which operated as an apex institu- tion and channeled resources through private financial institutions. Indirect lending to industrial cooperatives was undertaken through the National Electrification Administration (NEA). In addition, there was a technical assistance component for the Ministry of Industry's (MOI) Small Business Advisory Centers (SBAC). With respect to project monitoring, in order to reduce the time taken for loan processing/disbursement, the Bank decided not to review for approval appraisal reports on individual subprojects. Instead, the Bank was to receive ex post from the various institutions regular reports on their operations and the characteristics of the projects financed. 3. In terms of overall project design, the project was successful in reaching the SMI sector through various intermediaries and it was possible to judge the relative effectiveness of the various channels. However, because of the various institutions involved, IBRD technical assistance was spread a little thinly and therefore the institution-building impact on a specific institution was less than it might otherwise have been. In addition, owing to the diffused project design, the project provided little insight into the factors responsible for the success/failure of SMI. To some extent this was corrected through the sample surveys undertaken by DBP and IGLF for the Project Completion Report (PCR). 4. The major objectives of the project were to: transfer resources to the SMI sector and develop institutional channels to service this sector. Neither objective was particularly easy to achieve at the time as the SMI sector had little experience with institutional sources of finance. The extent to which project objectives were met under the loan varied by component. In general, the DBP, IGLF and SBAC components were reasonably - 23 - successful, while lending to NEA was much less so. The DBP and IGLF components of the loan were particularly successful in terms of resource transfer: (a) under the loan, DBP financed 410 subprojects as against the 360 estimated at the time of appraisal. IGLF financed 391 subprojects compared to the 550 estimated at appraisal (b) in the case of both DBP and IGLF, less than 50% (by value) of subprojects financed were located in Metro Manila. Given the high overall concentration of industrial investment in Metro Manila, this could well be considered a more than acceptable regional dispersal of investment; (c) the employment generation impact of the projects was significantly greater than anticipated: 17,953 jobs were created as against the 6,500 estimated at appraisal; (d) while overall sales estimates were met, the value of export sales was significantly lower than anticipated, reflecting the over-optimistic assumptions made by the financing institutions; (e) finally, among the sample of small industries surveyed for the PCR, it was found that 20% had graduated from small to medium industries (in terms of asset size) within a four to five year time frame. Hence, financially and economically viable SMI were financed under DBP and IGLF. 5. Under this loan DBP and IGLF were, for the first time, chosen as the financial institutions for channeling IBRD resource to the SMI sector. Subsequent IBRD/SMI loans have also been channeled through them so that DBP and IGLF have now become the major institutional sources of term credit to the SMI sector. The Bank has achieved some institution-building impact with DBP, although much remains to be accomplished, particularly with regard to coordination between head office and branch SMI lending and the adequate, timely provision of reporting requirements. The Bank's institution-building impact on ICLF has been more successful: the restructured Review Committee and the establishment of the accreditation scheme have greatly improved the management and operations of IGLF. Certain policy changes have also made the IGLF program more .attractive to the private financial institutions and the volume of their operations has increased significantly. While the private financial institutions are now actively using IGLF's resources to finance SMI projects, there still seems to be no indication, however, that they are interested in promoting SMI development with their own resources. 6. The SBAC program has been successful in providing technical assis- tance, and business and managerial counseling to individual SMI entrepreneurs. While the SBAC has been successful in its firm-level assistance approach, the Bank endorses its recent expansion. The merger of the MASICAP program with SBAC recognizes that both programs were dealing with the same clientele group, albeit at different stages of project development, and should help to integrate the support services provided to the SMI sector. The subsector development approach, about to be initiated in the SBACs, should also help to identify and assist those SMI having a greater comparative advantage, thereby promoting regional growth and development. - 24 - 7. The NEA component of the loan has been much less successful than the others. The idea of providing finance to rural industrial cooperatives through NEA was interesting, particularly as it would have provided employ- ment in the rural areas at a very low cost per job. However, the scope and extent of assistance (marketing, production, management, etc.) that needed to be provided by NEA to the cooperatives was significantly underestimated by both the Bank and NEA. It is also debatable whether NEA would have had the necessary technical expertise to provide this degree of assistance to the cooperatives. 8. While the first SMI loan was, in many ways, both innovative and pioneering, its scope in terms of enterprises assisted was reasonably limited. Under the first loan, financing was made available principally to small manufacturing enterprises. Since the problems faced by cottage, small and medium industries are essentially the same, there seems no reason to exclude a particular size structure of SMI enterprises from IBRD financing. In addition, there also appears to be no reason to exclude commercial/service SMI enterprises from IBRD financing. The first loan has clearly shown that for the successful development of the SMI sector, it is vital to have both financial and technical assistance. While overall problem solving technical assistance is clearly needed, the impact of the technical assistance might be greater if focussed on bottlenecks affecting specific industrial/regional subsectors. Finally, it is necessary to integrate as far as possible the Bank's DFC lending to large industry and SMI operations by encouraging large industry to subcontract to SMI in those areas of their operations which they do not have an obvious comparative advantage stemming from economies of scale. These lessons learned from the first SMI project will be kept in mind when designing the next SMI loan. - 25 - PHILIPPINES PROJECT COMPLETION REPORT (LOAN 1120-PH) I. INTRODUCTION 1.01 The idea behind small enterprise development programs is to extend finance and supporting services to small industries with the purpose of improving earnings opportunities for a greater share of the labor force, and achieving more regionally balanced growth of industry. The additional point is often made that small industries overall are more labor intensive, so that increased investment in them would either reduce unemployment or increase laborers' wages and incomes./l These were broadly the purposes behind the small and medium industry programs introduced in the Philippines in 1974./2 In the previous 20 years, labor supply in the Philippines had increased from 7 to 14 million and by the mid-1970s, 500,000 people were entering the labor force each year. The bulk of the industrial investment in the country was taking place in Manila and its surrounding regions, resulting in rural urban migration and its associated problems. While the bulk of private financial investment was being made in medium and large scale industries in Metropolitan Manila, workshop and factory based manufacturing employment was both more extensive and growing more rapidly in the provinces. Finally, in the 1970s, an increase in the rate of growth of provincial industries was expected as a consequence of a new emphasis to be placed on agricultural growth. As a result of these developments the Government decided to promote actively small scale industry through a regionally based program to address constraints on the flow of finance and supporting services to Small and Medium Industries (SMI)./3 1.02 Historically, lending to SMI by financial institutions has accounted for only a small share of their total lending to industry and commerce. The reluctance of private financial institutions to lend to SMI is explained by four major reasons: (a) the perceived higher risks on loan repayments and the higher administrative costs per unit lent, which together militate against the development of an SMI lending program; (b) institutional biases in favor /1 This report borrows heavily from an IBRD study entitled: Small Enter- prises and Development Policy in the Philippines: A Case Study (July 12, 1980). /2 Enterprises with fixed assets of less than P 100,000 are defined as cottage industries; between P 100,000-1 million are defined as small industries; and between P 1-4 million as medium industries. /3 An outline of the arguments can be found in the ILO (1974) report. - 26 - of lending to the more established corporate sector; (c) the high transaction costs faced by the SMI entrepreneur in applying for institutional credit; and (d) interest rate ceilings and other structural constraints affecting the returns on lending to SMI. This reluctance on the part of private financial institutions to finance SMI induced the Government to initiate its own SMI program which would include not only the provision of credit, but also technical assistance to SMI entrepreneurs. In 1974, the Bank was requested by the Government to help in the development of the SMI sector in the Philippines. 1.03 The SMI program designed by the Bank and the Government comprised a financing and a nonfinancing component. With regard to the provision of finance, two separate financial institutions were selected to meet the financing needs of SMI. The Government-owned Development Bank of the Philippines (DBP), with its extensive regional branch network and its experience in term lending, was a logical channel for financing the Government's SMI lending program. The Industrial Guarantee and Loan Fund (IGLF) was chosen as the second channel. IGLF, in existence since 1952, had been dormant for some time owing to lack of resources. It was decided to revitalize IGLF and use it as an apex institution to channel resources through private sector institutions to the SMI sector. To induce the private sector to participate in the IGLF program, a guarantee system was developed. It was also hoped that once private institutions had dealt with SMI they might, over time, develop their own SMI lending programs. 1.04 To meet the technical assistance needs of the SMI sector, two programs were introduced, both of which were administered by the Ministry of Industry (1401) and were intended to complement the SMI financing programs sponsored by DBP and IGLF. The Medium and Small Industries Coordinated Action Program (MASICAP) /1 was established to help SMI entrepreneurs in preparing project proposals which would be presented to the financing institutions. This type of project preparation assistance was viewed as being one way of reducing the transaction costs of financial institutions in their lending to SMI. The Small Business Advisory Centers (SBAC) program was introduced to offer entrepreneurial counselling, business management, tech- nical and marketing services. The regional specific Centers were established to disseminate ideas and information on business opportunities and practices and their services were to be utilized by SMI entrepreneurs planning to set up or expand their businesses. 1.05 As noted earlier, one of the objectives of the Government's SMI strategy was to generate employment. To achieve this objective, resources /1 There was no MASICAP component under the Bank's first SMI loan, although a $500,000 component was included in the Bank's second SMI project (Loan 1727-PH). - 27 - were to be channeled to the National Electrification Authority (NEA) to establish workers- cooperatives in rural areas which would use labor-intensive power technologies. Employment generation through the establishment of cooperatives was particularly appealing as it concentrated on developing industry in populous areas rather than forcing the relocation of workers. In addition, this practice would help bring about regional development (another Government stated objective) and provide employment for very low income groups. Finally, although the cooperatives would start small, the potential for growth was considerable and if successful, the operation could easily (so it was believed) be replicated. The Loan 1.06 The Bank's appraisal mission for this first SMI project was sent to the Philippines in October-November 1974. On May 27, 1975 the Board approved a Small and Medium Industry Loan (Loan 1120-PH) of US$30.0 million to the Government of the Philippines. The proceeds of the loan were to finance technical assistance and fixed assets and permanent working capital for SMI subprojects in manufacturing, agro-industries, transportation services, small engineering facilities and small construction industries. The loan, signed on June 5, 1975 and effective August 20, 1975, consisted of the following four components: (a) DBP - US$15.0 million to finance an estimated 360 SMI projects; (b) IGLF - US$12 million for onlending through private financial institutions to about 550 small enterprises; (c) NEA - US$2.3 million to help establish 24 industrial producer cooperatives in rural areas; and (d) MOI - US$0.7 million to establish seven SBAC to provide operational and technical assistance to SMI enterprises. 1.07 The interest rate on the IBRD loan was 8.5% p.a.; the term of the loan was 16 years, including a grace period of 4 years. The relending rate on subloans was 12% p.a.; the maximum term allowed on subloans was 12 years with a 2-year grace period. It was expected that subloans would be committed over a period of two years and disbursed over four years; the Philippine Government was to bear the full foreign exchange risk. The ceiling for subloans financed under the DBP component was US$360,000 while that on the IGLF and NEA components was US$115,000. Disbursements were to be made on the basis of a statement of expenses and would be limited to 75% of the value of loans made by DBP, IGLF and NEA. While the closing date of the loan was originally August 31, 1979, it was later extended to February 28, 1980, and then again to December 31, 1980; the loan was closed on February 13, 1981. - 28 - II. THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) The Institution 2.01 Established in 1958, DBP is a wholly Government-owned development finance institution which provides a wide range of financial assistance to the industrial and agricultural sectors. Until 1973, it was the only financial institution providing long-term credit for the SMI sector. In early 1971, DBP in conjunction with the University of Philippines Institute for Small-Scale Industries (UPISSI) started a special lending program for SMI. Later in the same year, the countryside development lending program was launched to stimulate the growth of SMI outside the Greater Manila Area. In November 1973, the Industrial Project Department II (IPD II) was formed to handle small loans./1 IPD II was renamed the Small and Medium Industry Lending Department (SMILE) in 1980. SMILE is in charge of processing all home and SMI loans in Metro Manila and is also responsible for supervising branch operations. DPB-s loans to cottage, small and medium industries are channeled through SMILE and its network of 62 /2 branches and agencies whose activities are coordinated by a Branches and Agencies Department (BAAD) at the head office. Features of the DBP Component 2.02 A component of US$15.0 million was earmarked under Loan 1120-PH for DBP and was projected to finance about 50% of DBP's SMI loans during FY76 and FY77./3 Both fixed assets and permanent working capital were to be financed under the loan. A total of 360 subprojects was expected to be financed under this component. The maximum subloan size was to be about U$360,000 (or P 2.5 million equivalent /4) and the average loan size was expected to be US$55,000 (or P 388,000-equivalent /4). While no minimum loan size was set, the Bank indicated that the minimum would probably be around P 50,000 for administrative simplicity. No specific geographical or industrial distri- bution goals were laid down in view of DBP's affirmation that it would implement its SMI lending program on the basis of the Government's industrial lending strategy. To avoid duplication DBP agreed that projects which were eligible for financing under other IBRD loans would not be financed under this loan. /1 Initially IPD II handled loans below P 1.0 million; the ceiling was later raised to P 3.0 million. /2 As of October 1980. 13 DBP changed its accounting period from fiscal to calendar year in 1978. /4 At the exchange rate of US$ 1 = P 7.0. - 29 - 2.03 The DBP loan component was channeled through the Government which onlent the proceeds to DBP on the same terms that it received from the Bank. In terms of the subprojects financed, the Bank agreed to finance up to 60% of total project cost, DBP 20% and the entrepreneur the remaining 20%. For administrative simplicity, IBRD disbursement was set at 75% of the subloan amounts advanced by DBP. To speed up and to reduce DBP's SMI loan processing time, it was decided to disburse against a statement of expenses. DBP agreed to submit monthly reports on loans approved, including appraisal reports for all subloans over P 500,000. Objectives of the Loan and Bank Expectations 2.04 A major objective of the DBP component of the loan was to develop DBP into an efficient channel for the transfer of resources to the SMI sector. At the time of appraisal the SMI department, IPD II, faced two major problems: an excessively long loan processing time and a high level of arrears. It was decided to try and reduce loan processing time to a maximum of 30 days for loans requiring the approval of the Branch and head office Managers and 60 days for loans requiring Board approval. With respect to arrears, DBP agreed to take all necessary measures to try and reduce its SMI arrears ratios substantially prior to the closing date of Loan 1120-PH (Loan Agreement, Section 3.08). It was also agreed that DBP would provide the Bank with quarterly data on the arrears position of its SMI portfolio. The Bank also expected other institutional improvements, including closer communications between the head office and the branches; improved appraisal and supervision procedures; the establishment of a management information system for SMI operations; and qualitative and quantitative strengthening of staff in SMILE, BAAD and in the branches. Utilization of Bank Funds 2.05 Rate of Utilization. Loan 1120-PH became effective on August 20, 1975. By August 1977, the US$15.0 million DBP component had been committed and it was fully disbursed by June 1978, a year ahead of schedule. Under the DBP component 410 subprojects were financed, about 14% more than the 360 subloans estimated at the time of appraisal. In February 1979, the Bank authorized a reallocation of funds, US$1.69 million, from the NEA component of the loan as NEA was not able to utilize it as anticipated at appraisal; by March 1980, DBP had fully disbursed this portion by financing 35 additional subloans. 2.06 Fund Allocation. With the inclusion of the reallocated funds, the DBP component amounted to US$16.69 million, used to finance 445 subprojects. Total financing provided by DBP for these subprojects amounted to P 164.7 million, 75% of which was covered by the loan. The average loan size was - 30 - P 370,000, slightly lower than the projected P 388,000. Subloans ranging from P 100,001 to P 500,000 were the largest category (50%) in terms of the number of projects approved (Annex 2, Table 1). However, in value terms, this group ranked second (32%) to subloans over P 1.0 million (36%). The 33 subloans above P 1.0 million together received P 59.0 million, substan- tially more than the P 35 million targeted at appraisal. The actual maximum subloan size (US$278,000), however, was lower than the maximum permitted (US$360,000). Subproject Characteristics Based on Subproject Appraisal 2.07 Asset size. In line with the Government's SMI development program, DBP actively tried to promote small enterprises. About 45% of the enter- prises receiving IBRD/DBP funds under the loan were cottage industries with total assets below P 100,000, 47% were small industries with total assets between P 100,000 to P 1.0 million while the remaining 8% were medium industries with total assets of P 1.0-4.0 million./1 Of the 445 sub- projects approved, 367 (82%) were new projects while the remaining 78, or 18%, were expansion projects. 2.08 Regional Distribution. The share of project approvals going to Metro Manila was 39% in number and 44% in value, reflecting the larger average loan size approved at the head office. Following Metro Manila were Central Luzon and Western Visayas each receiving about 10% of the financing provided by DBP under the loan (Annex 2, Table 1). 2.09 Sectoral distribution. Subprojects financed under the loan have been relatively well dispersed sectorally. Industries receiving the largest share of funds were mechanical and electrical equipment (14%), lumber, wood products and furnitures (11%), ice plants and cold storage (11%), extractive industries (10%), food manufacturing (9%), and textile and apparel (8%) (Annex 2, Table 1). 2.10 Economic Impact of Subloans. Based on appraisal estimates the total project cost of the 445 subprojects financed amounted to P 224 million. Bank financing accounted for 55% of total investment cost (compared to 60% estimated at loan appraisal), DBP financing accounted for another 19% (compared to 20% estimated at loan appraisal), with the remaining 26% of project cost coming from the entrepreneurs. The incremental employment generated by the projects financed totalled 8,046 jobs, greatly exceeded the appraisal estimate of 6,500 jobs for both the DBP and the IGLF components. Consequently, the average investment cost per job was relatively low, /1 As the Government's definition of cottage, small and medium industries is based on fixed and not total asset size, DBP's financing of cottage and small industries is likely to be higher than indicated by the above percentages. - 31 - US$3,750. The projects financed are estimated to generate P 449 million in incremental sales of which P 66 million (15%) are expected to be export sales (Annex 2, Table 2). DBP was not required to compute the economic rate of return (ERR) for the subprojects financed under Loan 1120-PH. To measure the economic significance of the subprojects, a sample of 49 projects approved during April 1976-June 1977 was selected for the calculation of the ERR which ranged from 13.7% to 116% with a weighted average of 49.5%. During field visits, the mission found that projects that did not grow as estimated are those facing marketing and technical problems and projects that succeeded are those with subcontracting arrangements and marketing channels. 2.11 Current Status of Subloans. As of June 30, 1980 total arrears (principal plus interest) of subloans financed by DBP under Loan 1120-PH amounted to P 10.3 million or 10.5% of loans outstanding. However, these figures probably underestimate the true situation as data on reschedulings and writeoffs are not available on loans made under this line of credit (Annex 2, Table 3). Operational Results of a Sample of Subprojects 2.12 The Sample. In order to evaluate the impact of DBP's SMI lending under the loan, a post-disbursement review was made on a randomly selected sample (89 subprojects) of the original 445 subprojects financed under the loan. Some major differences exist between the population and DBP's sample: 82% of the population were new projects as against 19% in the sample; 39% of the population were located in Metro Manila as against 59% in the sample; 80% of the population were in the subloan size of P 10,001- P 500,000, while the corresponding figure for the sample was 44%; and 82% of the population went to borrowers with assets of P 100,000 to P 500,000 as against 21.2% of the sample. The above seems to indicate that the sample of subprojects chosen by DBP for the review tended to be the larger expansion projects and those located in Metro Manila. The larger number of Metro manila based projects in the sample might, in part, be explained in terms of the administration of the survey and SMILE's lack of jurisdiction over branch SMI operations. Questionnaires were sent by SMILE to the branches, but as many branches were slow in replying, their responses could not be incor- porated in the sample. SMILE therefore had to rely on a disproportionate number of its own Metro-Manila subprojects. But while the sample may be skewed in favor of the capital-city area, there is no a priori reason to assume that this bias will necessarily prejudice the qualitative findings of the sample. 2.13 Project Cost Estimates and Completion. Cost estimates made by DBP at project appraisal were reasonable. Cost overruns on the 89 projects averaged 8% at project completion. Actual project costs for over 50% of the sample were the same as projected. There were 17 projects with cost overruns exceeding 15% of the estimated cost, due mainly to increases in prices of - 32 - raw materials and construction costs and changes in project design. More than half the projects were completed on schedule while the maiority the remaining projects differed by only a couple of months. 2.14 Economic Impact of Subloans. Sales performance of the sample was much below expectation. Over 70% of the firms failed to realize their estimated sales, and profits suffered as a consequence. Actual net profits were less than a third of the projected profits. Seven firms (about 9% of the sample as against 15% of the population) planned to export and the export performance varied from project to project. Actual incremental employment generated by the 85 sample projects (data on 4 projects was not available) amounted to 1,702, 31% more than estimated at the time of DBP's appraisal, resulting in a cost per job of US$4,911 as against the estimated $5,946. As might be expected a positive correlation was noticeable between the asset size of the borrowing firm and the cost per job generated 2.15 Current Status of Subloans. Total arrears of the 89 projects amounted to P 1.2 million as of December 31, 1980, of which over two thirds were in arrears over 6 months. Arrears as a proportion of total loan outstanding amounted to 6.4%. Nineteen projects had been rescheduled between 1978 and 1980, four were foreclosed, one was acquired by DBP and one is still under litigation procedures. The rescheduled loans amounted to P 6.5 mil- lion and 9 of the 19 projects that had been rescheduled were in arrears again. Only 30 projects or 34% of the sample had no financial problems (Annex 2, Table 4). 2.16 Financial Performance. Of the 89 sample projects, financial data is only available for 66 projects or 74% of the sample. Of the 53 subprojects for which the current ratio was calculated, 14 had current ratios of less than 1, indicating that the projects might face liquidity problems. Total debt-equity ratios were available for 59 subprojects and were in excess of 80:20 in 11 cases. This does not necessarily mean that DBP has not been adhering to the 80:20 debt/equity criterion when granting loans, but that subborrowers increase their debt after receiving DBP financing. However, it does lend support to the theory that small enterprises in the Philippines rely heavily on debt financing. 2.17 Technical Assistance. Of the 89 projects, 26 (29%) received technical assistance from different government agencies. DBP extended tech- ical advice to 25 projects while MASICAP assisted 11 of them in preparing feasibility studies and loan applications to financial institutions. Some projects received assistance from both DBP and MASICAP. Institutional Improvements 2.18 In addition to the transfer of resources, the DBP component of the loan also had an institution building objective. The SMILE department is responsible for SMI loans at office and is authorized to monitor SMI operations in the branches. The organization and staffing of the SMILE - 33 - Department has changed over time. At present SMILE is headed by a Manager, who is assisted by seven assistant managers in charge of seven functional groups./1 2.19 Project Appraisal. The quality of appraisal reports at the head office is satisfactory although the market analysis of projects needs to be improved. Breakeven analysis is now routinely conducted for loans in excess of P 500,000 and the internal financial rate of return is calculated for loans in excess of P 1.0 million. Since 1978, the economic rate return (ERR) has also been calculated for loans in excess of P 1.5 million. To avoid loan processing delays, SMILE uses standard industrial subsector ERRS to determine the economic viability of projects in industries in which it has lending experience, computing project specific ERRs only for those projects for which it has no previous lending experience. 2.20 The quality of appraisal reports conducted by the branches varies and is not particularly satisfactory. In some instances an incremental approach is not used in appraising expansion projects and working capital calculations are often not computed appropriately. In addition, the market analyses of branch appraised projects is often extremely weak. The Regional Industrial Assistance Teams (RIATs) of the head office will need to be more active if the appraisal standards of the branches are to be improved. 2.21 Project Supervision. Owing to manpower constraints, there is no systematic or regular supervision of projects at the head office. Diagnostic reports are prepared only when the project is in arrears. The SMILE depart- ment is aware of the inadequate supervision, and a reorganization of the Project Supervision Group is proposed. Once the reorganization is implemented, there should be more time available for "preventive" supervision. 2.22 While the branches are responsible for the supervision of projects outside Metro Manila, regular project supervision is not undertaken owing to staff constraints. In order to obtain reliable financial data on subprojects, DBP, in 1978, commissioned the Philippine Institute of Certified Public Accounts to produce industry specific accounting manuals /2 for DBP clients. DBP is also arranging a tie-up between its clients and one of a selected group of accounting firms which will be responsible for installing accounting and monitoring systems for its SMI clients. These tie-ups will be compulsory for all new accounts and for existing loans in excess of P 500,000 which are in arrears. Once this scheme is operational, it should assist DBP considerably in its project monitoring efforts. /1 The seven groups are: three Project Evaluation Groups, Project Super- vision Group, Regional Industry Assistance Teams, Loan Disbursements and Administrative Services Group, and Plans and Programs Group. /2 To date six industry specific manuals have been produced: food pro- cessing, leather products, concrete products, garments, wood and wood products and ice plants. - 34 - 2.23 Loan Processing Time. Long loan processing time was identified as a major weakness of DBP-s SMI operations under both Loan 1120-PH and 1572-PH. Under the first loan DBP agreed to try and reduce its loan processing time to 30 days for loans which could be approved directly by Branch managers and SMILE, and 60 days for projects requiring Board approval. DBP was not successful in meeting these targets and the targeted loan processing time under Loan 1572-PH was very similar to that under the first loan. However, a major effort was made by DBP in 1979-80 to meet the targets and as a result, for the period January-August 1980 the loan processing time at head office was reduced to 28 days. The average processing time for the branches in 1979 was 50 days; over the period January-August 1980, 40% of loans were processed within 30 days. 2.24 Reporting Requirements. At the time of loan negotiations for Loan 1120-PH, it was agreed that DBP would provide the Bank with monthly reports on its SMI operations; in 1977, it was agreed that quarterly reports would be sent instead. DBP's reporting to the Bank on its SMI operations has been erratic and there have often been long delays before the reports have been received. In addition, the reports have often been of dubious quality. If DBP is to monitor adequately its operations, timely and accurate reports are vital. To achieve this objective the Data Processing Unit, BAAD and SMILE will have to coordinate their operations more closely. 2.25 SMILE and the Branches. The inadequate staffing of the DBP branches and the unsatisfactory relationship between SMILE and the branches was first identified during the appraisal of Loan 1120-PH and in successive IBRD loans to DBP. However, the problem continues and is essentially twofold. First, the SMI unit in DBP's branches is grossly understaffed and the project officers lack the necessary technical expertise to undertake project appraisal and supervision. Second, although authorized to do so, SMILE is not providing the branches with guidance on SMI operations nor is it performing a quality control function on branch SMI operations. The problem in part, springs from the organizational structure of DBP wherein DBP's branches and agencies fall under the jurisdiction of the BAAD while SMILE is under the Industrial Projects Department. Quality of Portfolio 2.26 The quality of DBP's SMI loan portfolio appears to have improved substantially in 1979 and 1980. Total arrears (principal plus interest) as percentage of loans outstanding was 11% as of June 30, 1980, as against 18% at year-end 1978. The improvement in the arrears position can, in part, be explained by the considerable number of Home and SMI loans restructured in 1979 and 1980 (June): loans amounting to P66.4 million and P 22.2 million were restructured in 1979 and January-June 1980 respectively./1 As of June 30, 1980, 57% of the SMI loan portfolio was affected by arrears. /1 The loans restructured are not broken down by Home and SMI loans. - 35 - Resource Mobilization 2.27 DBP's SMI loans are financed from IBRD/DBP funds on a 75:25 basis. The Bank has been the major source of foreign exchange resources to the SMILE department. As Loan 1120 is fully disbursed, and the SMI components of Loans 1190 and 1572 were fully committed by August 1980 and no new Bank loan is likely to be available in the near future, DBP-s SMI operations are facing a resource constraint. To continue its SMI operations, SMILE was permitted in September 1980 to utilize the "second generation"/l fund from the SMI component of the Bank-s credit lines (Loans 1120 and 1190). DBP management estimates that utilization of these "second generation" funds could cover SMI operations until June 1981. Thus DBP will need to tap additional resources if its SMI operations are not to be curtailed for lack of funds. Assessment of the DBP Component 2.28 The DBP component of the loan was fully successful in terms of resource transfer. The number of subprojects financed by DBP exceeded that estimated at the time of appraisal. In addition, the employment generated by DBP financed subprojects was greater than that estimated for both the DBP and IGLF components at appraisal. The decision to develop DBP as a financing channel for SMI was a sound one for two main reasons. First, as DBP is the only government-owned term financing institution in the Philippines it is required to implement most, if not all, Government-financed programs affecting SMI and, consequently, has a major impact on the development of the SMI sector. Second, given DBP-s 42 branches, 12 subbranches and 8 agencies, it has been possible to bring about a greater regional dispersal of investment than would have been possible if IBRD financing were channeled through essentially Manila-based financial institutions. 2.29 While the Bank has achieved some institution-building impact with DBP, much still remains to be accomplished. On the positive side, loan processing time at both head office and the branches appears to have been reduced and the needed policy changes, such as realistic guidelines for repayment and cost overruns, have been implemented. Notwithstanding the above, much still needs to be done: the appraisal and supervision expertise of branch level SMI staff need to be upgraded; SMILE should coordinate more closely the SMI operations of the branches and provide the necessary quality control; and DBP-s reporting of its SMI operations needs to be timely and accurate if it is to be in a position to adequately monitor its operations. /1 "Second generation" funds are the excess funds generated from IBRD lines of credit, net of principal repayment to the Bank, and interest and administrative expenses. - 36 - III. INDUSTRIAL GUARANTEE AND LOAN FUND (iGLF) The Institution 3.01 The Industrial Guarantee and Loan Fund (IGLF) is a long-term compensatory financing and guarantee fund originally established in 1952 which is owned by the National Economic and Development Authority (NEDA) and is administered by the Department of Loans and Credits (DLC) of the Central Bank of the Philippines (CB). Decisions on policy issues affecting IGLF are made by an inter-agency Review Committee (RC). IGLF-s basic objective is to provide resources to a variety of financial institutions for onlending to small- and medium-scale industries. Criteria governing project selection conform with national development priorities such as employment generation, export promotion and geographical dispersion of industry. Resources are transferred by IGLF to financial institutions under both an accreditation and a sponsorship scheme. The resources are then onlent by the financial institutions to the final subborrowers. Features of the IGLF Component 3.02 A component of US$12.0 million was earmarked under the loan for IGLF and was projected to finance about 70% of IGLF's SMI loans during FY76 and FY77. Financing under the IGLF component was available for both fixed assets and permanent working capital. A total of 550 SMI projects were expected to be financed under this component. The maximum subloan size was to be P 800,000 (US$115,000), while the lower limit was to be P 50,000. Enterprises with assets of between P 100,000 to P 4.0 million were eligible for IGLF financing. 3.03 The loan did not require any specific industrial or geographic distribution of subprojects. However, in order to bring about greater regional dispersal of investment, IGLF has been applying a 40:60 ratio to the lending undertaken by its sponsoring institutions. According to this rule, no more than 40% of an institution's IGLF lending over a six month period could be for projects located in Metro Manila. 3.04 The IGLF component of the loan was made to the Government which onlent the proceeds to IGLF on the same terms it had received from the Bank. In the case of subprojects financed, the Bank would finance up to 60% of the total project cost, IGLF up 20% and the entrepreneur a minimum of 20%. For the sake of administrative simplicity IBRD disbursements were routinely amounted to 75% of the loan amount. 3.05 In order to speed up loan processing time, the Bank agreed to dispense with its project review prior to loan disbursement. Instead, a post review system was introduced wherein disbursements would be made against a Statement of Expenditure and IGLF would provide the Bank with monthly reports - 37 - on loan approvals including certain key characteristics of the loans approved. In addition, appraisal reports on all loans above P 500,000 were to be sent to the Bank. The Bank felt that a review of routine reports, coupled with frequent supervision, would be sufficient to ensure the efficient and viable use of its funds. Objectives of the Loan and Bank Expectations 3.06 The broad objectives of the project were to: transfer resources to small-scale industry; generate employment (the estimated 550 SMI subproject financed under IGLF, together with 360 SMI subprojects to be financed by DBP, were expected to create 6,500 additional jobs); contribute to greater regional dispersal of investment (it was estimated that by FY77 the value of IGLF financed projects in Manila would be 40%); and develop the institutional capabilities of IGLF so that it would be in a position both to appraise and to supervise SMI projects itself and provide financing institutions with the necessary technical expertise to do so. Utilization of Bank Funds 3.07 Rate of Utilization. The IGLF component of the loan become effec- tive in August 1975 and was fully utilized by end February 1979. The volume of IGLF operations declined during the period CY75 to CY77 as a result of uncertainties brought about by the transition from the sponsorship to the accreditation scheme. In addition, many institutions, particularly commercial banks, were not interested in financing IGLF projects as the 5% gross spread was deemed inadequate. Once these issues were resolved the volume of operations increased significantly. 3.08 Fund Allocation. Under the loan, IGLF financed 391 subprojects (compared to the 550 projected at the time of appraisal) for P 118.6 mil- lion /1 ($16.1 million) which are estimated to have generated a total investment of P 227.6 million (Annex 3, Table 1). The average subloan size of P 303,325 was higher than that expected at appraisal (P 210,000) owing to the ineligibility of rural banks to use IBRD funds. Seventy nine percent of the projects financed had loans ranging from P 100,000-500,000 and received 95% of IGLF/IBRD resources. Despite an IGLF decision in September 1977 to finance certain medium-scale industries most of the resources under the loan went to small enterprises (95.5%) with medium industries receiving only 4.5%. /1 The listing of subprojects is provided in Annex 3, Table 1. - 38 - Subproject Characteristics Based on Subproject Appraisal /1 3.09 Asset Size. In terms of number of projects financed, about 97% went to borrowers with an asset size of less than P 1.0 million; of these, 21.5% went to borrowers with an asset size of less then P 100,000, 49% to borrowers with asset size ranging from P 100,001 to P 500,000 and 26% to borrowers with asset size between P 500,001 and P 1.0 million. In terms of the value of projects financed, approximately 95.0% went to firms with assets of less than P 1.0 million; of these, 3.3% went to firms with an asset base of less than P 100,000 while borrowers with assets of between P 100,001 and P 500,000, received 69% and those with assets ranging from P 500,001 to P 1.0 million received 23%. 3.10 Sectoral Distribution. Manufacturing activities accounted for 97.5% of the number of subloans financed and 96.3% of the value of loans financed (versus 98% expected at the time of appraisal), while tourism accounted for 2.5% of the number of subloans and 3.7% of the value of loans financed. Miscellaneous manufacturing /2 was the most important subcategory within the manufacturing sector and accounted for approximately 14.5% of the number and value of loans financed. 3.11 Regional Distribution. In terms of regional dispersion, the target set at appraisal of no more than 40% of projects financed being located in Metro Manila has, to a large extent, been met. Metro-Manila accounts for 39% by number (versus 35% projected at the time of appraisal) and 47% by amount of the value of total investment generated (vs. 42% projected at the time of appraisal). The degree of concentration of projects in Metro Manila for IGLF/IBRD resources was greater (48.5%) than IGLF funds as a whole (46.9%), since rural banks were not eligible for IBRD funds as they could not meet the accreditation criteria (paras. 3.25-3.26). 3.12 Economic Impact of Subloans. The 391 projects financed generated 9,889 new jobs much more than the 6,500 estimated at the time of appraisal for both the IGLF and DBP loan components, with an investment cost per worker of P 23,012 ($3,110). The incremental sales was expected to be about P 363.6 million ($49 million) of which export sales would account for P 47.8 million ($6.5 million). Firms located in Metro Manila would account for 59% of the estimated exports sales. Under the loan, IGLF was not required to compute the economic rate of return of the subprojects owing to their small size. In order to evaluate the economic impact of the subloans, IGLF had computed ERR for a sample of 30 subloans. The ERR ranged from 17.2% to 215.5% with an average of 59%. During field visits to some of the subprojects, the mission found that the most successful projects are those which have subcontracting arrangements and those which have successfully penetrated both the export and domestic markets. /1 Miscellaneous manufacturing comprises handicrafts, agro-business and plastic manufacturers. /2 Data Summarized in Annex 3, Table 1. - 39 - 3.13 Current Status of Subloans. As of September 30, 1980 total arrears (principal plus interest) of subloans financed by IGLF under the loan amounted to P 6.4 million (10%) of loans outstanding. However, as of the same date, 49 subloans with an amount outstanding of P 17.4 million had been rescheduled (Annex 3, Table 2). Operational Results of a Sample of Subprojects 3.14 The Sample. In order to assess the actual impact of the loan, IGLF undertook a survey of a sample of subprojects financed under the loan on a post disbursement basis. The initial sample comprised 122 firms but owing to inaccurate/incomplete information on some of them, the final sample comprised 81 firms representing 21% of the total number of projects financed under the loan. Projects in Mindanao were not included in the sample owing to floods and the "peace and order" situation in the region. 3.15 Some major differences exist between the population and the sample: in terms of regional distribution, projects located in Metro Manila represented 47% of total investment cost in the population, as against 19% for the sample; firms with assets of over P 1.0 million represented 12% of the population but amounted to 53% of the sample. Thus, while the sample may be statitically skewed in favor of small projects located outside Metro Manila, there is no a priori reason to assume that this bias will necessarily prejudice the qualitative findings of the sample. 3.16 Project Cost, Employment Generation and Export Sales. The overall estimated project costs for the 81 sample projects closely approximated the actual costs with only a 2% variance. However, on the basis of individual projects, project costs were underestimated in 41% of the cases, and overestimated in 31%. The 81 firms surveyed generated 2,240 jobs, 83 more than appraisal estimates. Sales were overestimated in 75% of the sample projects, and in 40% of the cases the projected sales figure was over 50% higher than the actual figure. In general, there was a tendency consistently to overestimate export sales of the projects financed. A major reason for this was an inadequate understanding on the part of sponsoring institutions and entrepreneurs of the difficulties faced by SMI in breaking into export markets. The situation was further exacerbated by fluctuations in the major export markets of the USA, Australia and Europe. 3.17 Current Status of Subloans. Total loans made by IGLF to the 81 firms amounted to P 23.8 million of which P 16.4 million or 69% was outstanding as of September 30, 1980. Total arrears amounted to P 4.6 mil- lion, representing about 28% of the outstanding portfolio. By comparison, the arrears of financial institutions to IGLF as of the same date came to about 10% of their outstanding portfolio, indicating that institutions often make payments to IGLF out of their own funds to maintain their credit standing with the CB. For the sample projects, most of the arrears (74%) were past due for over 6 months, 15% were in arrears for 3-6 months and 11% were in arrears for - 40 - less than 3 months (Annex 3, Table 2). The relatively high level of arcears is in part explained by the lower effective interest rate on IGLF funds relative to other sources of funds, which make it more profitable for borrowers to invest the resources in other activities such as short-term money market operations rather than repay IGLF. 3.18 Financial Performance. The current ratio was computed for 71 projects an. 27% of these projects had a arreant ratio of less than 1.0 signifying liquidity problems. The total debt equity ratio was calculated for 75 projects; about 77% had ratios below 4:1 (with 28% having total debt equity ratios of less than 1:1), 15% ranged between 4:1-10:1, 4% ranged between 10:1-20:1 and another 4% were in excess of 20:1. IGLF's lending guidelines restrict its financing to those firms having total debt-equity ratios not in excess of 4:1. Among the sample, 68 projects showed a profit, 41% reported their net profit as a percentage of total assets to be less than 5%; 15% had net profits ranging from 5-10% of total assets; 24% had net profits ranging from 10-20% of total assets and the remaining 20% showed net profits in excess of 20% of total assets. Of the remaining 13 projects, 10 stated they were operating at a loss while three projects failed to report their actual net profit. When reviewing the profitability figures, however, it is worth noting that there is a distinct tendency on the part of businesses to underestimate profits for taxation purposes. 3.19 Technical Assistance. While over 60% of the project sponsors of the 81 sample projects were aware of the MASICAP/SBAC services, only 11% of them were assisted by MASICAP staff in preparing their feasibility studies and one project received technical assistance from SBAC. Institutional Improvements 3.20 Implementation of understandings reached at negotiations as well as the recommendations of subsequent supervision missions resulted in several institutional and policy changes within IGLF. Utilization of the proceeds of the second Bank loan to IGLF (Loan 1727-PH), which became effective in November 1979 has involved further changes in the policies and procedures of IGLF. 3.21 Organization. Since 1973 IGLF has been administered by the DLC At present the IGLF organizational structure is made up of 2 divisions:/1 /1 A third division - the Examination Division - has been recently created; however, when the mission was in the field no new positions in it had been filled. - 41 - the Industrial Loan Division and the Accounting, Securities Control and Collection Division. In addition, the reporting requirements of IGLF are handled by four of the staff from the Technical and Special Studies Division of the DLC. The present organizational structure has resulted in IGLF being unable adequately to review either the appraisal/supervision capabilities or the portfolio of accredited institutions. In addition, IGLF has been unable to monitor adequately the information sent by accredited financial institutions. For these reasons, during negotiations for Loan 1727-PH in April 1979, an understanding was reached with the Government that IGLF would be reorganized and strengthened so as to be more responsive to the operating needs of the program. The new organizational structure comprises five units/divisions of which two deal with the accreditation and sponsorship schemes, respectively. The other three deal with promotion of the IGLF program; research and information; and accounting. This proposed organizational structure has not thus far been implemented, although some steps in that direction have been initiated. 3.22 Management. At the present, the CB handles all the operations of IGLF under the supervision of an inter-agency RC which advises IGLF on all policy issues. Since the Bank first became associated with IGLF in 1975, a number of changes have occurred in the composition and role of the RC. 3.23 The RC initially comprised four regular members, one each from NEDA, CB, UPISSI and MOI. Until 1977, the RC was essentially a working level committee which met frequently to consider loan approvals and handle IGLF's day-to-day operations; the RC was therefore not in a position to provide IGLF with necessary policy guidance. Furthermore, since representation on the RC was at the working level, the committee was unable to: (a) influence Government policies with respect to IGLF or SMI financing; (b) promote the necessary inter-agency cooperation for the successful implementation of joint SMI programs; or (c) encourage financial institutions to participate in the IGLF programs. The need to strengthen and upgrade the RC resulted in a restructuring of the RC in late 1977. The four original member agencies are now represented at the deputy minister level on the RC; in addition, the Director of the DLC has been appointed Chief Executive Officer (CEO) of IGLF and designated as an ex-officio member of the RC. In 1978, the membership was further broadened to include a representative from the Ministry of Finance. The present RC is a high-powered body which has the necessary influence to formulate and implement, through IGLF, policies and programs affecting SMI. A multi-agency Technical Committee was established by the RC in 1976 to brief the RC about current IGLF operations and carry out any special assignments given by the RC. 3.24 The Accreditation and Sponsorship Schemes. Prior to September 1976, when Loan 1120-PH became effective, IGLF operated under a sponsorship system whereby financial institutions would "sponsor" projects for IGLF financing, but actual project appraisal and supervision were undertaken by IGLF staff. At the time of appraisal for Loan 1120-PH, it was realized that - 42 - as the level of IGLF's operations increased, IGLF staff would not be able to handle the required project evaluation and monitoring effort; the Bank mission, therefore, recommended that these functions be decentralized to the participating financial institutions. It was recognized however, that not all the financial institutions participating in the IGLF program had the necessary expertise to conduct their own project appraisals and supervisions; for this reason, it was agreed that while some institutions would continue to process their IGLF loans under the sponsorship scheme, other institutions would become accredited by the Central Bank to appraise, approve and supervise their own IGLF loans. Only projects financed by accredited institutions are eligible to utilize the proceeds of Bank loans. Commercial and thrift banks and nonbank financial intermediaries with authority to engage in quasi-banking functions are currently eligible for accreditation provided they meet the criteria established by the CB (such as minimum paid-in capital, adequate personnel, nonarrearages with CB/IGLF, etc.). While rural banks were originally eligible for accreditation, it was later agreed between the Bank and the Government that IBRD assistance for SMI financing through the rural banks would be channelled through the Bank's rural credit projects. The Government, however, continues to allow rural banks to avail of IGLF resources (but not Bank funds) through the sponsorship scheme. 3.25 Under the accreditation scheme, the financial institution submits its project appraisal report to IGLF. IGLF then releases the loan amount requested (usually in two tranches) after cursorily reviewing the appraisal report and supporting papers to make sure that the accredited institution and the project are in compliance with IGLF policies and the guidelines established in its Policy Manual (i.e., requirements relating to debt/equity ratios, regional dispersal of industry, capital/labor ratios, etc.). While IGLF staff conduct end-use verifications of all projects receiving IGLF resources, the accredited institution is primarily responsible for project supervision and is therefore required by IGLF to undertake periodic inspections of its projects to ensure that the loan proceeds are utilized properly. The accredited financial institutions are also responsible for providing their borrowers with the necessary assistance (technical, managerial, marketing, etc.) to ensure successful project implementation. 3.26 After some initial delays in its implementation, the accreditation scheme has made progress and currently is working satisfactorily. An important result of the accreditation scheme has been to reduce significantly IGLF's loan processing time from 4-6 months to about 3-7 working days. As of December 1980, 32 institutions have been accredited of which 14 are commercial banks, 13 are NBFI, 3 are development banks and two are savings and mortgage banks. Certain changes in IGLF's operating policies, undertaken in connection with the Bank's second loan to IGLF (such as increasing the maximum loan size to better provide for the financing needs of medium industries, and increasing the spread) have made the program more attractive to the financial institutions and particularly to commercial banks who have increased significantly their participation in the IGLF program since - 43 - higher loan ceilings and spreads were adopted under the last loan. While the quality of appraisal and supervision by the accredited institutions has, for the most part been satisfactory, there have been some cases of inadequate project work. It appears that IGLF may have to monitor more closely the appraisal and supervision procedures of its accredited institutions to avoid having its portfolio affected by problem projects or increasing arrears. 3.27 The Guarantee Scheme. The 60% automatic guarantee was introduced to the IGLF program under Loan 1120-PH. The guarantee was intended to encourage financial institutions to lend to under-collateralized clients and was required for all subborrowers receiving Bank resources. Unfortunately, despite the guarantee the financial institutions continued to require at least 100% collateral. Under the second Bank loan to IGLF, the deficiencies of the guarantee scheme were addressed by the establishment of two distinct optional guarantees: a collateral guarantee for small industry loans which would cover a part of the actual collateral deficiency; and a credit-risk guarantee which would cover a fixed percentage of the loan amount outstanding. While the credit risk guarantee scheme has proven very popular with the accredited financial institutions, very few loans carry the collateral guarantee. Quality of Portfolio 3.28 The quality of IGLF's portfolio has been steadily improving. Total arrears of financial institutions to IGLF which were 16% of the outstanding portfolio in 1978 and 13% in 1979, dropped significantly to only 4% as of December 31, 1980. While a good part of this improvement may be explained by the large increase in the outstanding portfolio (P 152 million as of December 31, 1979 to P 246 million as of December 31, 1980), the Central Bank's policy of debiting accounts of financial institutions in arrears to IGLF, after allowing a 45-day grace period, has also helped to improve the arrears situation. Financial Position and Results 3.29 IGLF-s balance sheets and income statements for the period 1974 through 1980 are summarized in Annex 3, Tables 3 and 4. IGLF's total assets as of December 31, 1980 stood at P 288.6 million, having increased almost fivefold since December 31, 1974. As of year-end 1979, IGLF's current ratio was 4:1 while the debt/equity ratio was only 1.4:1. IGLF derives its gross income from interest on its outstanding loans, income from short term investments and the guarantee fee, the first two sources accounting for the bulk of its income. Since 1979 the relative share of interest on loans outstanding has increased significantly, owing to the sharp increase in IGLF-s portfolio. - 44 - Resource Mobilization 3.30 As of December 31, 1980, IGLF had mobilized total resources of P 395 million (US$52.7 million), of which 10.0% (P 39 million) were net original resources, that is, resources coming from the US Government over the period 1952-64 and 90.0% (P 356 million) were new resources, that is, resources coming from the Government and the Bank covering the period 1976-the present. Of the original resources, the counterpart Special Fund Account of P 20 million and the earnings accumulated from this account constitute the "permanent working capital" of IGLF; resources under other accounts are essentially long-term debts. In January 1975, when IGLF was short of resources the Government agreed to provide the necessary resources until Loan 1120-PH became effective in August 1975. As IGLF loans are funded on a 75:25 basis from Bank and IGLF funds each IBRD loan is accompanied by Government counterpart funds. The Government provided P 40 million in counterpart funds to match Loan 1120-PH and has agreed to provide P 50 million to match Loan 1727-PH. Of the P 50 million, P 15 million was contributed in 1980 while the remaining P 35 million is to be provided in 1981. Assessment of the IGLF Component 3.31 Under the IGLF component, the Bank expected to: (a) transfer term resources to the SMI sector; (b) have an institution-building impact on both IGLF and participating financial institutions; and (c) increase the willing- ness of private financial institutions to lend to the SMI sector form their own resources. In terms of the resource transfer objective, the component was successful; the component was fully utilized by February 1979 and helped to finance 391 subprojects. Employment generated by IGLF financed subprojects was 150% more than the combined IGLF/DBP estimate made at appraisal. In addition, the cost per job was low. In terms of the institution-building objective, significant progress was achieved both with respect to IGLF and participating institutions. The adoption of the accreditation scheme and the restructuring of the Review Committee represent major operational and management improvements. The introduction of the accreditation scheme helped to upgrade the appraisal and supervision capabilities of accredited institutions as these responsibilities were transferred to them from IGLF. Further improvements, however, remain necessary with regard to both IGLF and the accredited institutions. The IGLF unit needs to be reorganized if it is to monitor effectively the operations of the accredited institutions. In addition, some of the accredited institutions, particularly commercial banks, still lack the expertise to successfully undertake term lending operations. In such instances, the staff of these institutions could benefit from training programs. With respect to the objective of inducing private financial institutions to lend to SMI out of their own resources, little progress has been made. Given the costs and risks associated with lending to SMI it is unlikely that private financial institutions will be willing to do so in the foreseeable future. If private financial institutions are to participate in SMI lending they will probably only be willing to do so if they operate as channels for government resources and procure and adequate spread in so doing. -45 - IV. NATIONAL ELECTRIFICATION AUTHORITY - (NEA) Background 4.01 NEA is a fully Government-owned stock corporation with a corporate mandate to achieve total electrification of the Philippines on an area coverage basis. Corporate powers are vested in a Board of Administrators comprising six members including NEA's executive head as an ex-officio member; the Chairman of the Board is the Minister of Human Settlements. All Board members are presidential appointees. 4.02 NEA is empowered to make loans to public utility entities and is also responsible for granting electric power distribution franchises. In addition, NEA is engaged in promoting economic activities which lead to power use and employment generation. NEA promotes the use of electric power through the following programs: (a) illumination for learning and work; (b) rural water service; (c) fishermen's assistance; (d) small-scale industry; and (e) irrigation. At the time of loan appraisal the Rural Industrial Cooperative (RIC) Program was one of the two major experimental power use programs (irrigation being the other) which had been launched by NEA to generate a minimum level of demand for electricity and productive employment, and raise rural income. The Objectives of the Loan and Bank Expectations 4.03 Under Loan No. 1120-PH, US$2.3 million was allocated to NEA for its RIC Program;/1 under this program small industrial cooperative projects using labor intensive power technologies were to be established in rural areas. 4.04 The Power Use Directorate (PUD) was established in NEA to implement the RIC program. The PUD was expected to carry out feasibility studies prior to cooperative establishment, provide a management team to run the coopera- tives in their early stage, and supervise cooperative loan accounts. Prior to mid-1974, five pilot industrial cooperatives had already been established. These cooperatives were being heavily supported by NEA through interest rate subsidies (funds were provided at 6%) and substantial technical/ managerial assistance for which no fees were charged. In order to reduce the level of dependence of the RICs on NEA assistance, it was agreed during loan negotiations that the RICs would be charged an interest rate of 12% on NEA loans. In addition it was agreed that free technical assistance would be provided by NEA to a new RIC for a start-up period of six months during which the RIC's management would be appointed and trained by NEA's staff. At the end of the period, consultancy services provided by NEA would be on a cost-recovery basis. Further, in view of the experimental nature of the RIC program, it was deemed necessary to introduce a project monitoring and /1 Of this, during 1979, US$1.7 million were reallocated to DBP, and US$49,400 to IGLF component of the loan. - 46 - evaluation system. At negotiations NEA also agreed to establish an independent project monitoring and evaluation unit within PUD no later than one year after loan signing. 4.05 The major objective of this component of the loan was to generate employment and bring about a greater regional dispersal of investment. The NEA cooperative program was a novel means of achieving this objective by developing modern rural based small-scale industrial cooperatives. Over the period FY76-77, NEA planned to establish 24 RICs: 5 in FY75, 11 in FY76 and 13 in FY77. Over this period the RIC program was expected to generate roughly 5,800 new jobs at a total capital cost of P 27 million, at an average cost per job of P 4,700. Relations with Electric Cooperatives (EC) 4.06 NEA-s loans were channeled to the RICs through local Electric Cooperatives (EC) which were also to operate as loan collection agencies for NEA. The interest rate charged the RICs by the local ECs was 12%; the ECs, in turn, paid interest to NEA at 11.75% retaining 0.25% as a service fee. A direct lending relationship between NEA and RICs was discussed at the time of appraisal, but NEA felt that it would prefer loans to be channeled through ECs as the ECs served as an overall umbrella for other NEA financed power activities. In addition, NEA felt that identification with the ECs would ensure greater local level support for the RICs, which in some cases proved true as some ECs were willing to provide their associated RIC with technical and managerial expertise. Utilization of Bank Funds 4.07 The original loan to NEA under the loan amounted to US$2.3 million. Owing to NEA's inability to utilize the entire loan by the terminal disbursement date, US$1.7 million was allocated to DBP in February 1979 and US$49,400 to IGLF in April 1979. Consequently, the total amount actually disbursed by NEA under the loan was US$550,600, the final disbursement was made on February 13, 1981 (Annex 4, Table 1). 4.08 Rate of Utilization. At appraisal, it was estimated that the NEA component would be fully disbursed by March 1979. Actual loan utilization by NEA was much slower. As of March 1979, NEA had disbursed only 1.8% of its original allocation. The slow pace of disbursements reflected a shift in NEA's priorities among its different power-use programs. The balance of the revised NEA loan component was fully disbursed by February 1981, approximately two years after the date estimated at the time of appraisal. 4.09 Fund Utilization. As of February 13, 1981, NEA had established 19 Rural Industrial Cooperatives, eight of them established prior to the effectiveness of the loan. Between the time the loan was declared effective (August 1975) and year-end 1976, only two new RICs were established (vs the 24 estimated at the time of appraisal), and none was started during calendar year 1977 and 1978. NEA, in cooperation with BLISS III, established one RIC in August 1979 and another eight during 1980. All 19 RICs were funded under the loan (Annex 4, Table 1). - 47 - RIC Program 4.10 Current Status of the RICs. Of the 19 RICs that have been estab- lished, 12 are in the operational stage and 7 are in the preoperational stage. As of December 1980, of the 12 RICs in the operational phase 4 had completely suspended operations and one appears to be on the point of doing so. The remaining 7 are considered to have promising prospects. By any criteria, the performance of the RIC program has been way below that projected by either NEA or the Bank at the time of appraisal. The estimated financial rate of return for 10 of the RICs (not including the two RICs that started operating in late 1979 and early 1980) ranged from 15% to 49% while the actual rate of return in all cases has been negative, ranging from 8% to 62%. At the time of IBRD appraisal it was expected that the RIC program would generate 5,800 jobs; as of December 1980 the RICs employed 419 full time workers. 4.11 The poor performance of the RICs can, in part, be explained by the management, production and marketing problems faced by most of the RICs. At the time of loan negotiations it had been agreed that NEA would train the management of the RICs. NEA experienced some difficulties in recruiting the appropriate personnel and in many cases accorded a low priority to their training. In addition, the managers of the RICs found it difficult to work with members of the local cooperatives since members often refused to recognize the manager-s authority or to accept his directives. 4.12 In spite of fairly simple production technologies, many RICs faced production problems owing to a shortage of working capital, periodic nonavail- ability of raw materials and inadequate transportation. The production problems were further exacerbated by an underdeveloped accounting system whereby product pricing was done haphazardly. 4.13 In almost every instance RICs have found it difficult to market their output. In some instances the RIC has depended almost entirely on one buyer while in others it has produced only one product line. In both instances the RIC has been vulnerable to market fluctuations. 4.14 Financial Performance. As of December 31, 1980 NEA had disbursed P 3.6 million to the 12 operating RICs against total loan approvals of P 3.8 million. As of the same date only two operating RICs showed a small profit. Accumulated financial losses for the program amounted to P1.1 million which is an underestimate as it does not reflect the finan- cial costs of the management services provided. 4.15 The RIGs have consistently been in arrears to both the ECs and NEA. During the entire history of the RIC program only three payments have been made by the RICs to the ECs. Despite rescheduling by NEA in January 1980, all loans continue to be in arrears as of December 31, 1980. While it is undoubtedly true that many of the RICs have not been in a financial position to make loan repayments, NEA does not appear to have been con- cerned about the development nor has it monitored loan payments. - 48 - 4.16 Status of Preoperating RICs. As of December 31, 1980, 7 RICs were in the preoperational stage. Loans approved by NTEA to these RICs for the financing of fixed assets and working capital amounted to P 3.4 millica. On the basis of appraisal estimates, the 7 RICs are expected to generate 261 jobs with an estimated cost per job ranging from P10,000 to P16,000. The estimated financial rates of return are expected to range from 30% to 54%. While the appraisal estimates are impressive, past RIC operations indicate that they might be over-optimistic. Organization and Staff 4.17 Organization. Since its establishment, the RIC program has been under the jurisdiction of NEA's PUD. After the change in the top management of NEA in 1979, PUD was disbanded as it had failed to approve loans for the RICs over the period June 1976-February 1979. However, responsibility for the RIC program was not allocated to any other unit in NEA. As a result, the 10 RICs which had been established during the period 1973-76 received no support whatever from NEA. In 1980, the Directorate for Promotion of Industries (DPI) was created to develop nonconventional energy projects and take over the functions of PUD. Since the creation of the DPI several new RICs have been established. 4.18 Staff. The PUD was consistently understaffed during the entire implementation period of the RIC program. In addition, most of the PUD staff was young and inexperienced and a high staff turnover rate meant that there was no continuity of management of senior staff within the unit,/l resulting in RIC projects not being adequately identified or supervised. Assessment of the NEA Component 4.19 The NEA component was viewed as an innovative approach to employment creation. Under this component, IBRD resources were to finance small rural industrial cooperatives which would use labor-intensive power technologies. If successful, the NEA would have been able to generate employment at a grass roots level and at a very low cost per job. In addition, it could be easily replicable throughout the country. Unfortunately, this component was not successful by almost any standard. Most of the cooperatives financed are operating either way below capacity or have ceased to operate altogether. As a result, all the cooperatives are in arrears to NEA. In addition, the employment impact has been much below expectation. The major reason for the dismal performance was an underestimation on the part of both the Bank and NEA of the technical assistance (management, production and marketing) that would be needed if the cooperatives were to be successful. It is debatable whether NEA had the expertise to provide the necessary guidance even if the situation had not been exacerbated by frequent changes in the head office unit at NEA administering the RIC program. Clearly SMI lending through NEA should not be considered in the foreseeable future. NEA recognizes this and given its limited staff and financial resources is concentrating on its mandate to achieve electrification of the Philippines. /1 The high turnover rate was the result both of a noncompetitive salary structure and of the low priority accorded the RIC program by NEA. - 49 - V. THE SMALL BUSINESS ADVISORY CENTERS (SBAC) Background 5.01 In parallel with the financing programs for small and medium industries, the Government decided in 1974 to introduce two regional indus- trial extension services programs, which were both administered by the same head office at MOI and often shared the same field offices. These two com- plementing extension programs were the MASICAP and SBAC. Under MASICAP entrepreneurs were helped in preparing project feasibility studies which were necessary to procure institutional finance. The other service, known as the SBAC was purely advisory in nature and provide entrepreneurial counselling and referral services to new or established enterprises. It was envisaged that MASICAP would help enterprises procure the necessary finance from institu- tional sources whil SBAC would deal with the problems faced by the operating enterprise. 5.02 The main objective of the SBAC component of the loan was to provide SMI with extension services. The SBAC program has been and continues to be an important element in the Government-s strategy in supporting this sector since it has been recognized that small enterprises need both financial and non- financial assistance. SBAC services were to be provided free of charge, and were to cover most aspects of small business activity. An amount of US$700,000 was allocated under Loan 1120-PH to MOI for the establishment of seven SBACs between July 1, 1975 to June 30, 1977. The proceeds of the loan were to finance the entire capital expenditure (including construction of buildings), and 50% of the preoperating and operating expenses of the SBAC program for the first two years. However, MDI later decided, with the Bank consent, not to construct SBAC offices but to rent them; the savings so incurred were used to increase the number of SBACs from 7 to 12, so that there was one SBAC in each region of the country. Implementation 5.03 By February 1978, all 12 SBACs had been estabished. Four of the SBACs started operations in mid-1975, five in mid-1976, two in late 1977 and one in February 1978. Being located in regional administrative and commercial centers, all SBACs have easy accessibility to the communi- cation and transportation facilities of other government agencies. 5.04 Of the US$700,000 allocated for the establishment of SBAC, more than 40% was used to purchase office equipment, 31% went for consultancy services and staff training, 11% and 7% went for travelling costs and rental expenses respectively and the remaining for other expenses and services. Each center is provided with a transportation vehicle for field operations, a mini-library for the use of both staff and clients and recently, with a xerox machine and additional typewriters. Arrangements are currently being made for the installation of telex machines in the centers. - 50 - Operational Concept 5.05 The SBAC program is functioning as envisaged at appraisal. SBAC staff spend a significant amount of their time in client counselling. In the provision of consultancy services to their clients, the SBAC are expected to draw on and refer clients to the specialized services offered by other agencies and organizations. Although SBAC staff initially experienced some difficulty in providing the necessary referrals, this became easier as the program developed and the staff had an opportunity to get to know other institutions/agencies servicing the SMI sector. 5.06 Originally, the SBACs confined their operations to addressing specific problems faced by their clients. In early 1976, the SBAC decided to broaden their services and started conducting integrated plant survey (IPS) when these were deemed necessary. The IPS provided an opportunity for the extension officer to review the overall operations of the firm, thereby enabling more systematic, comprehensive and in-depth counselling to be provided. Utilization of Bank Funds 5.07 Rate of Utilization. At project appraisal, it was expected that MOI would be in a position to utilize its entire allocation of US$700,000 during the period 1975-78. However, owing to changes both in the physical establish- ment of the program (para. 5.02) and the organization (paras. 5.16-5.17), dis- bursements under the loan have been slower than anticipated. At the time of appraisal it had been estimated that the SBAC component of the loan would be fully utilized by March 1978. However, as of that date MOI had requested reimbursement for only 20% of its total allocation; the remaining 80% was disbursed during the period mid-1980 to February 1981. 5.08 Clients and Cases Handled. During July 1975-June 30, 1980, the SBAC program extended client counselling assistance to 1,428 clients, of which 42 (3%) were repeat clients (Annex 5, Table 1). Of the 1,994 cases generated, 1,567 cases (79%) have been completed, 88 cases (4%) are being processed and the remaining 17% cases have been dropped or transferred. In addition, the SBAC have assisted another 4,634 clients by providing inform- ation or by referring the client to the appropriate agency. 5.09 Client Generation and Promotion. Since their establishment, SBAC staff have undertaken intensive promotion campaigns to familiarize small businesses with their services. As part of their promotion campaign, SBAC staff had visited 2,253 firms as of June 30, 1980. Out of the 1,428 clients, 25% were generated from visits, 20% were walk-in clients, 18% were clients previously assisted by MASICAP, 11% were referred by other organizations, 6% were referred by clients and the remaining 20% were from other sources (Annex 5, Table 2). As a result of the integration of the MASICAP and SBAC programs in July 1980, the period July 1 to December 31, 1980, was spent principally in developing a. new work program and recruiting personnel. - 51 - 5.10 Project Expenditures and Financing. For the period July 1975 to December 1980, the total project expenditures of the SBAC program amounted to P 16.6 million, of which P 5.2 million (US$700,000 equivalent) came from the proceeds of Loan 1120-PH,/1 the rest being financed by MOI (Annex 5, Table 3). 5.11 Size of Client Enterprises. As defined by asset size, cottage and small-scale enterprises each received about 38% of SBAC's assistance, medium- scale enterprises accounted for about 8% while assistance to large-scale industry was almost negligible (about 1%), the remaining 15% of clients receiving assistance could not be categorized by asset size. Classified according to the number of persons employed, cottage industry received 61% of all services rendered, 19% went to small-scale enterprises, 2% went to medium-scale industries, 1% to large-scale industries and the remaining 17% could not be categorized (Annex 5, Table 4). The relatively high partici- pation of cottage industries, not originally envisaged, has occurred for the following reasons: a need for extension services by cottage industries during the early operational phase which is normally not available from any other agency except, to a limited extent, from the National Cottage Industry Development Authority (NACIDA); a tendency on the part of clients to under value their business assets; and a reliance on SBAC services by newly established MASICAP assisted firms. 5.12 Operational Status of Client Enterprises. Over the period 1975-80 prebusiness and new business counselling by SBAC increased sharply. Pre- business "entrepreneurial" counselling by SBAC increased from 13% of SBAC services during the period 1975-77 to 36% during the period January-June 1980. The number of new businesses (less than one year in operation) assisted by SBAC increased from 3% in 1975-77, to 19% for the first half of 1980. Over the period 1975 to June 1980, SBAC services to established businesses with no serious problems have varied from 26% to 37% but have declined from 27% to 13% for established businesses with serious problems (Annex 5, Table 5). 5.13 Sectoral Distribution. In terms of industrial classification, more than 65% of SBAC clients were in the manufaturing sector, of which the major subsectors were metal working (13%), wood and wood products (11%), and food processing and beverages (11%). Agriculture and fishing industries accounted for about 14% of all SBAC clients and the service sector accounted for another 9% (Annex 5, Table 6). 5.14 Distribution by Problem Area. The majority of cases handled by SBAC over the period 1975-80 were classified as having financial problems (37%); financial assistance offered by SBAC included accounting services and computation of working capital requirements. Technical and production problems ranked next in frequency (17%); the increase in the engineering staff of the SBAC staff has enabled SBAC to cope with this type of problem more effectively. General management counselling accounted for about 15% of /1 As noted in para. 5.08, however, final reimbursement by the Bank to MOI took place in February 1981. - 52 - SBAC services and marketing for about 11%. So far, SBAC has conducted 99 IPS (6% of total SBAC cases) for their clients (Annex 5, Table 7). 5.15 Implementation of SBAC Recommendations. SBAC recommendations have been, or are in the process of being, implemented by 88% of all completed cases; in only 3% of the cases, have the clients rejected SBAC recommenda- tions. The status of the remaining 140 cases (9%), is not known. Implementation of SBAC recommendations is measured through client reporting and follow-up visits by SBAC staff. Given the limited information, the record of client acceptance of SBAC recommendations is quite impressive. There is at present no effective and comprehensive method of evaluating either the "external" effectiveness (in terms of the advice provided by SBAC to their clients) or the "internal" efficiency (i.e., cost-effectiveness of operations) of the SBAC program. The Economic Development Foundation is currently trying to devise measures to judge both the external and the internal effectiveness of the program. Organization and Staff 5.16 Organization. During their initial stage of operation, each SBAC was loosely organized and had significant freedom of action with the SBAC manager reporting to an Executive Director within MOI. Support for the SBAC-s activities was provided through the MOI's Support Unit, which gave technical information to the SBAC field offices and the Information Analyses Unit which consolidated reports received from the field offices. 5.17 As a result of the integration of the SBAC/MASICAP programs the organizational structure and the work content of the programs are in a state of flux. Several issues still need to be resolved such as the extent of interaction between SBAC/MASICAP client counselling and industry level work, the programming and monitoring of SBAC/MASICAP operations, and the support to be provided by MDI. A number of organizational proposals are being developed, one of which would divide each SBAC/MASICAP field office into three groups to deal respectively with industry development, project development and operations planning and control. While recognizing that a rather informal organization structure will probably prevail, given the scale and variety of operations at the SBAC level, greater organizational clarity will become increasingly necessary as the functions and role of the SBAC/MASICAP field offices expand. 5.18 Staff and Staff Turnover. As a result of the integration of the SBAC/MASICAP programs, MASICAP staff (who for the most part were employed on a 2-year basis) were given the option of taking the civil service exami- nation to become permanent staff of the integrated program. As of January 1981, SBAC staff totalled 192 (excluding clerical staff), of which 41% had previous MASICAP experience while the remaining 59% were directly recruited professionals. 5.19 In the first two years of its operations, SBAC experienced very high staff turnover which was felt to be a major weaknesses of the program. A noncompetitive salary structure, both at the entry level and for - 53 - established SBAC staff, relative to the private sector made it difficult for SBAC to recruit and retain qualified and experienced staff. However, staff turnover has declined during the past two years as various measures were taken to correct the situation such as upgrading salary scales, providing training opportunities (both locally and abroad) and providing opportunities to acquire higher academic qualifications. In addition, job satisfaction has been increased owing to the greater recognition accorded the program both by MOI and by other Government ministries and recognition of the value of the program by SMI. 5.20 Staff Training. All new SBAC recruits attend a basic training course in small business consultancy offered by UPISSI. An Advanced Manage- ment Consultancy Course, conducted by SGV in cooperation with University of the Philippines College of Business Administration, is available for senior staff. In January 1981, a course on Project Management and Industry Level consulting was given to center managers and head office division chiefs. Some staff have also been awarded scholarships to participate in foreign training courses. In addition, foreign experts under UNIDO's technical assistance program have provided courses on metals, wood, food, garments, leather, plastics and subcontracting. Assessment of the SBAC Program 5.21 Apart from the rate of utilization of Bank funds (para. 5.07), which was slower than anticipated at the time of appraisal, the SBAC program has, in overall terms, lived up to the expectations held at appraisal. In a short period of six years it has become the only MOI program having a regional infrastructure. As such, several other Government-sponsored small enterprise activities are being channeled through the SBAC/ MASICAP regional centers. The program is now in a position to provide small enterprises with a variety of services ranging from assistance in the preparation of project feasibility studies to counselling established businesses. The quality of the services provided by SBAC varies and clearly needs to be upgraded in some instances. However, judging from the rate of acceptance of SBAC recommendations small businesses clearly find it helpful. In addition to providing services itself the SBAC have often played a major role in arranging for other Government agencies workshops on technical matters affecting the industries in the area. The SBAC have also been responsible for referring entrepreneurs to other agencies (often Manila based) servicing the sector. 5.22 However, at present there is no effective and comprehensive method of evaluating the effectiveness of the counselling provided by the program or the internal cost effectiveness of the program. The Economic Development Foundation has been asked by the MOI to formulate such a system. 5.23 While SBAC staff have been very active in offering financial, managerial and technical assistance to SMI, SBAC involvement has been limited with regard to regional planning and problem identification and resolution on a sectoral level. These weaknesses are presently recognized within the MOI and the integration and upgrading of the SBAC/MASICAP programs should help to address them. ,/J74977/D3112/62-03 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT Projected and Actual Disbursements Under Loan 1120-Pil (US$-000) Disbursement by quarter Total disbursements DBP IGLF NEA SBAC /a By quarter Cumulative Actual Actual Actual Actual Fiscal Pro- By Cumu- Pro- By Cumu- Pro- By Cumu- Pro- By Cumu- Pro- Pro- year jected qtr. lative jected qtr. lative jected qtr. lative jected qtr. lative jected Actual jected Actual 1976 2nd qtr. - 1,657 1,657 - 2,289 2,289 - - - - - - - 3,946 - 3,946 3rd qtr. 400 946 2,603 250 - 2,289 100 - - - - - 750 946 750 4,892 4th qtr. 600 4,003 6,606 350 459 2,748 100 - - 100 - - 1,150 4,462 1,900 9,354 1977 1st qtr. 1,000 2,151 8,757 400 619 3,367 200 42 42 - - - 1,600 2,812 3,500 12,166 2nd qtr. 1,200 2,462 11,219 500 1,037 4.404 200 - 42 100 - - 2,000 3,499 5,500 15,665 3rd qtr. 1,500 3,117 14,336 900 - 4,404 200 - 42 100 35 35 2,700 3,152 8,200 18,817 4th qtr. 1,900 664 15,000 1 200 1,163 5,567 200 - 42 100 - 35 3,400 1 827 11,600 20,644 1 U, 1978 k> 1st qtr. 2,000 - 15,000 1,600 - 5,567 200 - 42 100 46 81 3,900 46 15,500 20,690 2nd qtr. 2,200 - 15,000 2,000 - 5,567 250 - 42 100 60 141 4,550 60 20,050 20,750 3rd qtr. 2,200 - 15,000 2,100 1,248 6,815 250 - 42 100 - 141 4,650 1,248 24,700 21,998 4th qtr. 2,000 - 15,000 2,100 - 6,815 200 - 42 - - 141 4,300 - 29,000 21,998 1979 1st qtr. - - 15,000 600 - 6,815 150 - 42 - - 141 750 - 29,750 21,998 2nd qtr. - - 15,000 - 1,247 8,062 100 - 42 - - 141 100 1,247 29,850 23,245 3rd qtr. - - 15,000 - 2,141 10,203 150 - 42 - 129 270 150 2,270 30,000 25,515 4th qtr. - - 15,000 - 1,846 12,049 - - 42 - - 270 - 1,846 - 27,361 1980 Ist qtr. - - - - - - - - 42 - - 270 - - - 27,361 2nd qtr. - 1,363 16,363 - - - - - 42 - - 270 - 1,363 - 28,724 3rd qtr. - 337 16,700 - - - - 75 117 - 194 464 - 606 - 29,330 4th qtr. - - - - - - - - 117 - 198 662 - 198 - 29,528 1981 lst qtr. - - - - - - - 20 137 - - 662 - 20 - 29,548 X 2nd qtr. - - - - - - - 20 137 - - 662 - 20 - 29,568 3rd qtr. - - - - - - 394 551 - 38 700 - 432 - 30,000 /a Formerly called RTACs (Regional Technical Assistance Centers). - 55 - ANNEX 2 Table 1 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT DBP - Features of Subprojects Financed Under Loan 1120-PH (Based on data in DBP's Appraisal Reports) Financing provided DBP No. of DBP projects IBRD funds resources Totgl approved Amount Amount Amount No. ( (US$-000) 7 (P-000) (P-000) % By Size of Subloans (P) 50,001 - 100,000 132 29.7 1,046 6.3 2,578 10,314 6.3 100,001 - 500,000 225 50.6 5,379 32.2 13,267 53,073 32.2 500,001 - 800,000 30 6.7 1,975 11.8 4,873 19,487 11.8 800,001 - 1.0 million 25 5.6 2,311 13.9 5,703 22,811 13.9 Over 1.0 million 33 7.4 5,980 35.8 14,750 58,998 35.8 Total 445 100.0 16,691 100.0 4 1 164,683 100.0 By Size of Borrowers-Assets (F) 100,000 and below 201 45.2 3,416 20.5 8,428 33,713 20.5 100,001 - 500,000 167 37.5 5,833 34.9 14,387 57,548 34.9 500,001 - 1.0 million 40 9.0 2,934 17.6 7,237 28,948 17.6 Over 1.0 million 37 8.3 4,508 27.0 11,119 44,474 27.0 Total 445 100.0 1 100.0 41,17 164,683 100.0 By Geographical Distribution Region I Ilocos 34 7.6 999 6.0 2,466 9,857 6.0 Region II Cagayan Valley 12 2.7 642 3.9 1,583 6,337 3.9 Region III Central Luzon 55 12.4 1,712 10.3 4,223 16,887 10.3 Region IV Metro Manila 172 38.7 7,326 43.9 18,071 72,292 43.9 Region IVA Southern Tagalog 34 7.6 1,017 6.1 2,510 10,040 6.1 Region V Bicol 13 2.9 346 2.0 854 3,407 2.0 Region VI Western Visayas 42 9.4 1,745 10.5 4,307 17,222 10.5 Region VII Central Visayas 24 5.4 972 5.8 2,396 9,586 5.8 Region VIII Eastern Visayas 2 0.4 88 0.5 216 867 0.5 Region IX Western Mindanao 8 1.8 174 1.0 428 1,713 1.0 Region X Northern Mindanao 19 4.3 502 3.0 1,236 4,946 3.0 Region XI Southern Mindanao 23 5.2 760 4.6 1,875 7,506 4.6 Region XII Central Mindanao 7 1.6 408 2.4 1,006 4,023 2.4 Total 445 100.0 l6 100.0 41,171 164,683 100.0 By Industry Food manufacturing & beverage 75 16.9 1,559 9.3 3,944 15,375 9.3 Coconut products & preparation 4 0.9 246 1.5 607 2,430 1.5 Textile, apparel & other finished products 43 9.7 1,315 7.9 3,244 12,975 7.9 Lumber, wood products, furniture & fixtures 50 11.2 1,880 11.3 4,637 18,551 11.3 Paper & paper products 2 0.4 121 0.7 298 1,195 0.7 Printing, publishing & other allied industries 25 5.6 934 5.6 2,305 9,219 5.6 Leather & leather products 23 5.2 856 5.1 2,111 8,447 5.1 Chemical & chemical products 15 3.4 1,107 6.6 2,732 10,926 6.6 Nonmetallic products 33 7.4 760 4.5 1,874 7,490 4.5 Metal industries 19 4.3 924 5.6 2,279 9,114 5.6 Mechanical/electrical equipment, ap- pliances, accessories, parts, etc. 59 .13.3 2,268 13.6 5,592 22,383 13.6 Ice plant & cold storage 20 4.5 1,874 11.2 4,624 18,493 11.2 Manufacture of transport equipment & repair 18 4.0 483 2.9 1,192 4,766 2.9 Extractive industries 43 9.7 1,579 9.5 3,894 15,575 9.5 Rubber products 6 1.3 422 2.5 1,043 4,167 2.5 Miscellaneous mfg. Industries 10 2.2 363 2.2 895 3,577 2.2 Total 445 100.0 16,691 100.0 41,171 164,683 100.0 - 56 - ANNEX 2 Table 2 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT DBP - Partial Economic and Financial Indicators of Subprojects Financed Under Loan 1120-PH (Based on data in DBP's Appraisal Reports) Total Incremental employment project cost Total Investment Sales (P'000) /a Amount incremental cost/job Export Domestic Total (POOO) (%) employment (US$) /a sales sales sales By Size of Subloans (P) 50,001 - 100,000 13,581 6.1 1,149 1,597 3,429 39,228 42,657 100,001 - 500,000 77,221 34.5 3,674 2,840 13,437 150,083 163,520 500,001 - 800,000 25,841 11.6 870 4,014 20,237 60,783 81,020 800,001 - 1,000,000 30,298 13.5 1,062 3,855 4,029 41,512 45,541 Over 1.0 million 76,578 34.2 1,291 8,016 25,234 91,298 116,532 Total 223,519 100.0 8,046 3 66,366 38 By Size of Borrowers-Assets (P) 100,000 and below 41,580 18.6 2,034 2,762- 1,096 78,238 79,334 100,001 - 500,000 75,578 33.8 3,268 3,125 17,642 131,479 149,121 500,001 - 1,000,000 37,500 16.8 1,331 3,607 36,220 90,514 126,734 Over 1.0 million 68,861 30.8 1,413 6,586 11,408 82,673 94,081 Total 23 100.0 ,04 37 By Geographical Distribution Region I Ilocos 11,711 5.2 374 4,231 293 24,328 24,621 Region II Cagayan Valley 9,336 4.2 264 4,779 3,521 6,157 9,678 Region III Central Luzon 22,761 10.2 911 3,376 777 44,229 45,006 Region IV Metro Manila 98,914 44.3 3,782 3,534 59,769 171,147 200,916 Region IVA Southern Tagalog 15,992 7.2 410 5,271 180 27,222 27,402 Region V Bicol 4,514 2.0 361 1,690 - 17,667 17,667 Region VI Western Visayas 23,456 10.5 650 4,877 - 46,820 46,820 Region VII Central Visayas 11,617 5.2 533 2,945 1,321 13,419 14,740 Region VIII Eastern Visayas 1,170 0.5 44 3,593 - 1,003 1,003 Region 1X Western Mindanao 3,199 1.4 111 3,895 - 6,176 6,176 Region X Northern Mindanao 6,229 2.0 199 4,230 - 7,408 7,408 Region XI Southern Mindanao 8,649 4.3 273 4,776 505 11,943 12,448 Region XII Central Mindanao 4,971 2.2 134 5,013 - 5,385 5,385 Total 23 100.0 8, 3 449,270 By Industry Food manufacturing & beverage 18,995 8.5 869 2,954 293 84,521 84,814 Coconut products & preparation 3,401 1.5 69 6,661 - 11,704 11,704 Textile, apparel & other finished products 16,128 7.2 1,268 1,719 24,675 28,706 53,381 Lumber, wood products, furniture & fixtures 25,321 11.3 1,424 2,403 17,103 30,946 48,049 Paper & paper products 1,410 0.6 31 6,147 - 2,109 2,109 Printing, publishing & other allied industries 12,307 5.5 175 9,503 - 12,940 12,940 Leather & leather products 10,669 4.8 1,007 1,430 3,521 21,657 25,178 Chemical & chemical products 17,189 7.7 381 6,097 - 20,787 20,787 Nonmetallic products 9,756 4.4 501 2,631 313 17,929 18,242 Metal industries 13,964 6.3 167 11,300 731 28,262 28,993 Mechanical/electrical equipment, appliances, accessories, parts, etc. 27,116 12.1 786 4,662 5,097 32,718 37,815 Ice plant & cold storage 29,475 13.2 210 18,967 - 19,376 19,376 Manufacture of transport equipment & repair 7,427 3.3 177 5,670 - 6,767 6,767 Extractive industries 19,701 8.8 711 3,744 - 26,431 26,431 Rubber products 6,277 2.8 105 8,079 990 7,092 8,082 Misc. manufacturing industries 4,383 2.0 165 3,590 13,643 30,959 44,602 Total 223 100.0 8,046 3,754 66,366 3 449,70 /a Expected sales for the year in which the Droject reaches full capacity utilization as projected in DBP-s appraisal reports. ANNEX - 57 -Tal3 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT DBP - Current Status of Subloans Financed Under Loan 1120-PH (as of June 30, 1980) By size of subloan (P) 50,001- 100,001- 500,001- 800,001- Over 1.0 100,000 500,000 800,000 1,000,000 million Total DBP Financing IBRD ($-000) 1,046 5,379 1,975 2,311 5,980 16,691 DBP resources (P '000) 2,578 13,267 4,873 5,703 14,750 41,171 Total (P -000) 10,314 53,073 19,487 22,811 58,998 164,683 Amount Outstanding IBRD ($-000) 723 3,083 1,521 782 3,815 9,924 DBP resources (P -000) 1,783 7,604 3,753 1,923 9,410 24,478 Total (P -000) 7,131 30,416 15,011 7,713 37,638 97,909 Prepayment No. of subloans ------------------Data not available------------------- Amount (P -000) Rescheduling No. of subloans ------------------Data not available------------------- Amount (P '000) Write-offs No. of subloans ------------------Data not available------------------- Amount (P -000) Present Arrears (P '000) Less than 3 months 3 127 52 19 177 373 3-6 months 66 279 72 32 404 853 Over 6 months 733 3,003 1,577 372 3,375 9,060 Total (P -000) 802 3,409 1,701 423 3,956 10,291 ANNEX 2 58 - Table 4 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT DSP - Partial Economic and Financial Indicators of Suhprojects Financed Under Loan 1120-PH (Data based on samples of projects surveyed) Total Incremental employment project cost Total Investment Sales (P'000) Amount incremental cost/job Export Domestic Total (P'000) (%) employment (US$) sales sales sales By Size of Subloans (P) 50,001 - 100,000 5,623 9.0 391 7,026 80 7,462 7,542 100,001 - 500,000 23,082 36.0 697 14,131 14,435 32,761 47,196 500,001 - 800,000 18,173 29.0 178 43,481 12,000 11,716 23,716 800,001 - 1,000,000 10,152 16.0 376 15,074 7,300 9,106 16,406 Over 1.0 million 6,490 10.0 60 14,617 2,256 10,614 12,870 Total 6 100.0 5,043 36,071 71,659 By Si!e of Borrowers'Assets (F) 100,000 and below 140 0.2 83 1,969 - 410 410 100,001 - 500,000 13,241 21.0 721 6,370 14,515 23,860 38,375 500,001 - 1,000,000 12,092 19.0 176 35,069 - 7,798 7,798. Over 1.0 million 38,047 59.8 722 35,903 21,556 39,591 61,147 Total 63,520 100.0 5,043 30 By Duration Up to 3 years - - - - - - - 3 to 5 years 10,235 16.0 180 28,004 12,000 6,902 18,902 5 to 7 years 2,802 4.0 81 6,000 - 1,541 1,541 7 to 9 years 4,504 7.0 42 20,752 - 5,000 5,000 Above 9 years 45,979 73.0 1,399 14,854 24,071 58,216 82,287 Total 63,520 100.0 5,043 3 By Nature of Enterprise New enterprises 12,342 19.0 178 22,554 15,006 18,509 33,515 Existing enterprises 51,178 81.0 1,524 14,781 21,065 53,150 74,215 Total 63,520 100.0 1,702 5,043 36,071 71,659 107,730 By Geographical Distribution Region I Ilocos 5,237 8.0 106 6,676 - 7,916 7,916 Region II Cagayan Valley - - - - - - - Region III Central Luzon 3,552 6.0 227 4,489 1,670 3,253 4,923 Region IV Metro Manila 37,373 59.0 831 6,077 21,636 42,001 63,637 Region IVA Southern Tagalog 4,016 6.0 102 15,292 12,750 6,329 19,079 Region V Bicol 1,433 2.0 90 2,152 15 673 688 Region VI Western Visayas 4,443 7.0 95 7,213 - 1,130 1,130 Region VII Central Visayas 1,680 3.0 67 14,600 - 1,861 1,861 Region VIII Eastern Visayas 767 1.0 15 6,910 - 293 293 Region IX Western Mindanao 759 1.0 37 2,772 - 2,160 2,160 Region X Northern Mindanao - - - - - - - Region XI Southern Mindanao 2,252 4.0 96 6,125 - 3,538 3,538 Region XII Central Mindanao 2,008 3.0 36 14,622 - 2,505 2,505 Total 63,520 100.0 I0 5,043 3 71 71,659 157373 By Industry Food manufacturing & beverage 5,249 8.2 139 5,103 12,750 14,555 27,305 Coconut products & preparation - - - - 1,765 - - Textile, apparel & other finished products 916 1.4 232 534 - 1,553 3,318 Lumber, wood products, furniture & fixtures 7,002 11.1 405 2,336 7,300 4,965 12,265 Paper & paper products - - - - - - - Printing, publishing & other allied industries 3,374 5.3 67 6,805 - 3,478 3,478 Leather & leather products 1,059 1.7 23 6,221 - 1,055 1,055 Chemical & chemical products 689 1.1 10 9,310 - 2,367 2,367 Nonmetallic products 6,549 10.3 217 4,078 - 8,945 8,945 Metal industries 965 1.5 96 1,358 - 3,390 3,390 Mechanical/electrical equipment, appliances, accessories, parts, etc. 15,782 24.8 280 7,616 12,000 6,635 18,635 Ice plant & cold storage 2,421 3.8 4 81,790 - 159 159 Manufacture of transport equipment & repair 9,343 14.7 126 10,020 2,256 13,559 15,815 Extractive industries 6,114 9.6 45 18,360 - 6,448 6,448 Rubber products 180 0.3 8 3,040 - 588 588 Misc. manufacturing industries 3,877 6.2 50 10,478 - 3,962 3,962 Total 63,520 100.0 1,702 5,043 36,071 71,659 10 La Total project cost divided by total incremental employment. - 59 - ANN 3 PHILIPPINES Page 1 SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT IGLF- Features of Subprojects Financed Under Loan 1120-PR (Based on data in IGLF-s Appraisal Reports) No. of IGLF/IBRD projects resources financed Amount No. % (P-000) % BySieof Subloana (P) 30,0 ndbeow 26 6.6 1,226 1.0 50,001 - 100,000 54 13.8 4,363 3.7 100,001 - 500,000 311 79.6 113,021 95.3 500,001 - 800,000 - - - - Total 391 100.0 1 100.0 By Size of Borrowers'Assets (P) 100,000 and below 84 21.5 3,873 3.3 100,001 - 500,000 193 49.3 81,987 69.1 500,001 - 1,000,000 102 26.1 27,450 23.1 Over 1,000,000 12 3.1 5,300 4.5 Total 391 100.0 118,610 100.0 By Duration Up to 3 years 22 5.6 6,207 5.2 3 to 5 years 177 45.3 53,257 44.9 5 to 7 years 87 22.2 28,877 24.3 7 to 9 years 7 1.8 2,900 2.5 Above 9 years 98 25.1 27,369 23.1 Total 391 100.0 1,0 100.0 By Nature of Enterprise New enterprises 37 9.5 12,710 10.7 Existing enterprises 354 90.5 105,900 89.3 Total 391 100.0 1,0 100.0 By Geographical Distribution Region I 11ocos 14 3.57 2,472 2.08 Region II Cagayan Valley 1 0.25 450 0.38 Region III Central Luzon 50 12.75 12,670 10.68 Region IV Metro Manila 153 39.03 57,554 48.52 negion IVA Southern Tagalog 52 13.27 14,880 12.55 Region V Bicol 17 4.34 4,280 3.61 Region VI Western Visayas 27 6.89 5,640 4.76 Region VII Central Visayas 44 11.22 12,449 10.49 Region VIII Eastern Visayas 5 1.27 755 0.64 Region IX Western Mindanao 3 0.77 890 0.75 Region X Northern Mindanao 10 2.81 2,715 2.29 Region XI Southern Mindanao 12 3.06 3,007 2.54 Region XII Central Mindanao 3 0.77 848 0.71 Total 391 100.00 j18,60 100.00 By Industry Food & food products 56 14.73 15,928 13.43 Beverages - - - - Tobacco products - - - - Textiles 17 4.35 5,445 4.59 Footwear/apparel/garments 46 11.77 12,183 10.27 Wood & cork products 32 8.18 9,169 7.73 Furniture & fixtures 32 8.18 9,623 8.11 Paper & paper products 5 1.28 1,755 1.48 Printing publishing & allied industries 12 3.07 4,985 4.20 Leather & leather products 9 2.30 2,805 2.37 Rubber products 8 2.05 2,765 2.33 Chemical & chemical products 12 3.07 3,986 3.36 Nonmetallic minerial products 13 3.32 2,656 2.24 Basic metal industries 11 2.81 2,780 2.34 Metal products 19 4.86 6,655 5.61 Electrical machinery/appliance 10 2.56 4,392 3.70 Nonelectrical machinery/appliance 37 9.46 10,246 8.64 Transport equipment 5 1.28 1,761 1.49 Miscellaneous 57 14.57 17,076 14.40 Tourism services 10 2.56 4,400 3.71 Total 391 100.00 j1,610 100.00 ANNEX 3 - 60 - Tablel Page 2 Total Incremental employment Sales /b project cost Total Investment Export Domestic Total Amount incremental cost/job sales sales sales (P-000) % employment (Pesos) /a (P'000) (1) (2) (3) By Size of Subloans (F) 50,000 and below 2,073 0.9 142 14,599 - 3,028 3,028 50,001 - 100,000 32,692 14.4 2,417 13,526 2,788 74,015 76,803 100,001 - 500,000 192,801 84.7 7,330 26,303 44,990 238,757 283,747 500,001 - 800,000 - - - - - - - Total 2276 100.0 9.889 2 4 By Size of Borrowers'Assets (P) 100,000 and below 14,889 6.6 790 18,846 25,545 30,394 55,939 100,001 - 500,000 101,876 45.1 4,187 24,331 5,771 138,828 144,599 500,001 - 1,000,000 83,088 36.8 4,485 18,526 8,554 137,701 146,255 Over 1,000,000 25,970 11.5 368 70,570 7,908 8,877 16,785 Total /c 2 100.0 9 0 2 7 3158 3 58 By Duration Up to 3 years 12,228 5.4 707 17,380 - 17,053 17,053 3 to 5 years 102,632 45.1 3,661 28,034 24,367 142,425 166,792 5 to 7 years 50,975 22.4 3,119 16,343 23,411 73,581 96,992 7 to 9 years 4,324 1.9 168 25,738 - 6,632 6,632 Above 9 years 57,347 25.2 2,234 25,670 - 76,109 76,109 Total 27 100.0 923012 47,7 3 0 363578 By Nature of Enterprise New enterprises 24,350 10.7 1,021 23,849 - 31,896 31,896 Existing enterprises 203,216 89.3 8,868 22,916 47,778 283,904 331,682 Total 227,56 100.0 9, 2 4 363,578 By Geographical Distribution Region I Ilocos 3,641 1.6 318 11,450 77 10,269 10,346 Region II Cagayan Valley 696 0.3 36 19,333 - 154 154 Region III Central Luzon 26,310 11.5 1,512 17,008 12,691 17,915 30,606 Region IV Metro Manila 106,743 46.9 3,976 26,847 28,220 161,652 189,872 Region IVA Southern Tagalog 37,563 16.5 1,766 21,270 1,722 48,758 50,480 Region V Bicol 7,415 3.3 602 12,317 1,394 14,636 16,030 Region VI Western Visayas 9,211 4.0 434 21,224 483 10,438 10,921 Region VII Central Visayas 21,345 9.4 648 32,940 2,969 27,942 30,911 Region VIII Eastern Visayas 1,337 0.6 38 35,184 - 712 712 Region IX Western Mindanao 1,283 0.6 42 30,548 - 4,761 4,761 Region X Northern Mindanao 4,757 2.1 302 15,752 - 4,735 4,735 Region XI Southern Mindanao 5,605 2.5 171 32,777 222 12,296 12,518 Region XII Central Mindanao 1,660 0.7 44 37,727 - 1,532 1,531 Total 227,566 100.0 9,889 2 4 3 363,578 By Industry Food & food products 11,693 5.1 438 26,696 541 13,327 13,868 Beverages - - - - - - - Tobacco products - - - - - - - Textiles 8,838 3.9 455 19,424 1,209 12,918 14,127 Footwear/apparel/garments 21,387 9.3 1,228 17,416 5,364 30,159 35,523 Wood & cork products 23,527 10.3 1,153 20,405 1,899 34,155 36,054 Furniture & fixtures 17,499 7.6 1,148 15,243 9,483 16,114 25,597 Paper & paper products Printing publishing & allied } 9,963 4.3 414 24,065 - 15,302 18,302 industries Leather & leather products 5,640 2.5 142 39,718 21,070 10,034 31,104 Rubber products 4,617 2.0 392 11,778 250 8,919 9,169 Chemical & chemical products 9,800 4.3 316 31,013 - 23,003 23,003 Nonmetallic minerial products 6,040 2.6 217 27,834 - 9,647 9,647 Basic metal industries - - - - - - - Metal products 13,860 6.1 445 31,146 561 15,850 16,411 Electrical machinery/appliance 7,991 3.5 105 30,743 - 4,962 4,962 Nonelectrical machinery/appliance 28,483 12.9 706 41,761 - 30,645 30,645 Transport equipment 3,596 1.6 300 11,987 - 8,511 8,511 Miscellaneous 46,861 20.6 2,249 54,274 7,401 74,179 81,580 Tourism services 7,771 3.4 181 42,934 - 5,075 5,075 Total 27 100.0 9 2 315,800 3 /a Please note: Column 1 - Column 2 - Column 3. /b Expected sales for the year in which the project reaches full capacity utilization as projected in IGLF-s appraisal reports. /c Three subprojects did not report their respective asset sizes and are therefore not included in this distribution. - 61 - ANNEX 3 Table 2 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT IGLF - Current Status of Subloans Financed Under Loan 1120-PH (as of September 30, 1980) By size of subloan (P) 50,000 and 50,001- 100,001- 500,001- below 100,000 500,000 800,000 Total IGLF/IBRD resources (P-000) 1,226 4,363 113,021 - 118,610 Amount outstanding (P-000) 366 1,362 60,495 - 62,223 Prepayment No. of subloans 3 6 15 - 24 Amount (P-000) 115 470 5,322 - 5,907 Rescheduling No. of subloans 1 2 46 - 49 Amount (P'000) 50 180 17,183 - 17,413 Present Arrears (P'000) Less than 3 months 11 57 1,217 - 1,285 3-6 months 6 37 654 - 697 Over 6 months 116 440 3,867 - 4,423 Total 133 534 5,738 - 6,405 -62 - ANNEX 3 Table:3 PHILIPPINES SMALL AND tEDIUM INDUSTRY PROJECT PROJECT CORPLETION REPORT /d IGLF - Summarized Balance Sheets as of December 31, 1974-December 31, 1980 (P000) 1974 1975 1976 1977 1978 1979 1980 Assets Due from Central Bank 970.6 2,825.3 9,531.3 5,586.1 5,782.6 5,277.4 10,907.5 Accounts receivable from: NEDA 276.2 276.2 276.2 276.2 276.2 276.2 - USAID PL480 165.0 205.0 245.0 - - - - EXId Bank 900.0 800.0 - - - - - Temporary investments 11,617.8 20,294.0 25,762.9 46,089.1 42,417.3 44,906.8 24,085.1 Special time deposits outstanding 42,080.3 79,120.7 87,051.0 89,865.7 113,961.2 152,158.9 245,722.7 Advances to Hinistry of Industry - - - - - 45.0 45.0 Advances to NEDA-promotion expenses - - - - - - 70.7 Accrued interest receivable - - - - - 7,089.5 7,776.7 Total Assets 56,009.9 103,521.2 122,866.4 141,817.1 162,437.3 209,753.8 288,607.7 Liabilities and Net Worth Accounts payable 1,125.0 1,015.8 299.2 819.8 38.1 34.1 - Accounts payable to Treasurer of the Philippines /a - 77.5 1,898.2 3,441.7 3,445.3 9,254.3 - Reserve for deficiencies on EXIM loan amortization 8.1 108.4 203.9 330.7 446.6 636.7 39.1 Advances for EXIM loan amortization 0.9 0.9 0.9 0.9 0.9 0.9 0.9/e Accrued interest payable (EXIM and IBRD loans) - - - - - 2,591.5 2,893.3/f Subtotal 1,134.0 1,202.6 2,402.2 4,3 1 3,930.9 12,517.5 2,933.3 Long-term loans due to EXIM Bank 23,648.7 23,029.1 22,378.3 21,695.2 20,979.1 20,228.7 19,443.2 Long-term loans due to IBRD - 17,070.8 32,718.5 41,288.4 59,612.4 86,744.6 151,676.1 Subtotal 23,648.7 40,009.9 55,096.8 62,983.6 80,591.5 106,973.3 171,119.3 Provisions for possible losses 1,000.0 1,000.0 1,000.0 1,600.0 2,505.0 3,365.3 3,798.3 Total Liabilities 25,782.4 42,302.5 58,499.0 69,176.7 87,027.4 122,856.1 177,850.9 Accumulation from counterpart funds 19,000.0 49,000.0 49,000.0 59,000.0 59,000.0 59,000.0 74,000.0 Earned surplus 11,227.2 12,218.7 15,367.4 13,640.4 16,409.9 27,897.7 36,756.8 Total Net Worth 30,227.2 61,218.7 64,367.4 72,640.4 75,409.9 86,897.7 110,756.8 Total Liabilities and Net Worth 56,009.9 103,521.2 122,866.4 141,817.1 162,437.3 209,753.8 288,607.7 Ratios Current ratio /b 11.1:1 19.2:1 14.7:1 11.3:1 12.3:1 4.0:1 Debt equity ratio /c 0.8:1 0.7:1 0.9:1 0.9:1 1.1:1 1.4:1 /a Interest and commitment fees on IBRD loan. /b Current assets include due from Central Bank, temporary investments. /c Accumulated counterpart funds are treated as equity. /d Accounts through 1978 were prepared on a cash basis; starting with 1979, accounts are on an accrual basis. /e Relates only to EXIM loans. /f Accrued interest payable IBRD - P 2,461.3; accrued interest payable EXIM Bank loan - P 432.0. - 63 - C65347/J74789/D981/22-23 WS ANNEX 3 PHILIPPINES :able 4 SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT IGLF - Summarized Income Statements for Calendar Years 1974-80 (P-000) 1974 1975 1976 1977 /a 1978 1979 1980 Income Interest income on STD loans 1,002.1 1,983.3 3,781.9 3,920.8 4,267.7 8,217.3 19,176.0 Interest income on temporary investments 1,148.1 680.7 2,469.2 3,326.3 5,328.1 5,489.6 2,728.4 Guarantee fees 10.5 186.0/b 732.3 423.3 518.3 1,160.0 1,791.1 Total Income 2,161.7 2,850.0 6,983.4 7,670.4 10,114.1 14,866.9 23,695.5 ExDenses Administrative expenses 340.9 559.3 954.0 785.7 1,216.5 1,738.8 2,365.0 Interest expense on EXIM Bank loans 951.6 929.0 905.0 879.7 853.3 818.3 1,228.1 Interest expenses and commitment fees on I3RD loans /c - 77.5 1,898.2 3,441.7 4,269.8 8,140.4 11,189.6 IGLF promotional expenses Id 50.0 288.1 155.0 170.2 100.0 - Total Expenses 1,342.5 1,853.9 3,912.2 5,277.3 6,439.6 10,717.5 141782.7 Profit Before Provisions 819.2 996.1 3,071.2 2,393.1 3,674.5 4,149.4 8,912.8 Provision for possible losses 1,000.0 - - 600.0 905.0 968.0 476.0 Net Profit (Loss) (180.8) 996.1 3,071.2 1,793.1 2,769.5 3,181.4 8,436.8 Ratios as % of Average Total Assets Gross income 3.9 3.6 6.2 5.8 6.6 7.7 Financial expenses 3.5 1.3 2.5 3.7 4.0 4.3 Gross margin 0.4 2.3 3.7 2.1 2.6 3.4 Administrative/promotional expenses 0.7 1.1 1.0 0.7 0.9 1.0 Net income (deficit) - 1.2 2.7 1.4 1.7 1.7 /a Starting in 1977, IGLF accounts have been audited by the Office of the Auditor of the Central Bank. /b Includes miscellaneous income of P 23,500.00. /c Accumulated interest on IBRD loan in respect of 1975 was paid by IGLF in 1977 and charged to earned sur- plus. To present a comparable picture, summarizations of the past years have been suitably adjusted. /d Promotional expenses were allocated to NEDA and other non-Central Bank agencies represented at the Review Committee, upon approval of the Review Committee. .64 - ANNEX 4 Table 1 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT NEA - Status of Loan Released to Rural Industrial Cooperative /a as of December 31, 1980 Approved Date of Sept. 1975 - June 5, 1975 - Loan Fund disbursed loan approval June 4, 1975 December 1980 Total balance by the Bank (Pesos) ---------------- (Pesos) Operational Active Bulacan I 250,000 04/25/74 140,883.99 98,540.00 239,423.99 10,576.01 73,905.00 Bulacan II 650,000 09/29/76 - 650,000.00 650,000.00 - 487,500.00 Capiz 300,000 08/10/73 245,292.75 54,707.25 300,000.00 - 41,030.44 300,000 08/04/76 - 300,000.00 300,000.00 - 225,000.00 Laguna 250,000 12/12/74 46,830.99 203,169.01 250,000.00 - 152,376.75 Pampanga 250,000 02/05/74 120,085.55 129,876.90 249,962.45 37.55 97,407.68 Newly Established and Active Cobo (BLISS) 300,000 08/02/79 - 300,000.00 300,000.00 - 225,000.00 Pakil (BLISS) 150,000 01/16/80 - 150,000.00 150,000.00 - 112,500.00 Inactive Aklan 100,000 08/14/74 41,539.49 13,057.00 54,596.49 45,403.51 9,792.75 Albay 300,000 09/06/73 249,973.15 44,737.85 294,711.00 5,289.00 33,553.39 Benguet 200,000 05/06/75 - 140,317.00 140,317.00 59,683.00 105,237.75 La Union 300,000 02/05/74 171,014.33 78,582.77 249,597.10 50,402.90 58,937.08 Nueva Ecija 450,000 01/23/75 146,413.99 285,891.10 432,305.09 17,694.91 214,418.32 Nonoperational Naawan charcoal 500,000 03/26/80 - 500,000.00 500,000.00 - 375,000.00 Quezon ice plant 200,000 09/10/80 - 200,000.00 200,000.00 - 150,000.00 Agusan Norte woodbox making 400,000 09/17/80 - 400,000.00 400,000.00 - 300,000.00 Nueva Ecija rice mills 200,000 12/17/80 - - - 200,000.00 } Iloilo charcoal 800,000 12/17/80 - - - 800,000.00 Davao fabrication shop 790,000 12/17/80 - - - 790,000.00 } 1,502,009.34/b Zamboanga woodbox making 500,000 12/17/80 - - - 500,000.00 Total 001,162,034.24 3,548,878.88 4,710,913.12 2,479,086.88 4,163,668.50/c /a Figures in this table show intended releases from EC to RIC. The actual releases are not necessarily as shown here. See Table 10. /b Disbursement against the five new-established RICs were made on February 13,1981. 7c Equivalent to US$550,599.78. PHILIPP INES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT NEA - Features of the 12 Operational RICs as of December 31, 1980 Year operations Project Location Region/province started Products Active Bulacan I - 1st Bulacan Embroidery-Apparel Producers Bonga II Plaridel Central Luzon/Bulacan Aug 1974 Childrensa dresses (partly embroidered) a Bulacan II - Pulilan Embroidery-Carments Assn. Pulilan Central Luzon/Bulacan Feb 1977 Children's dresses (partly embroidered) Capiz - First Capiz Garments Industries Assn. Panitan Western Visayas/Capiz Aug 1973 T-shirts, baby dresses, school uniforms Laguna - Laguna Apparel Producers Assn. Kalayaan Southern Tagalog/Laguna May 1975 T-shirts, school uniforms, children's dresses (partly embroidered) Pampanga - Pampanga Bamboocraft Industries Gulap Central Luzon/ Mar 1974 Placemats, trays, lampshades, etc. Newly Established and Active Cobo - Cobo Bagong Settlement Assn. Cobo Bicol/Albay Oct 1979 Scissors, bolos, knives, razors Pakil - Villa Cristina Embroidery Pakil Southern Luzon/ Aug 1980 Embroidered children's dresses Inactive Aklan - Aklan Pinacloth & Sinamay Industries Assn. Kalibo Western Visayas/Aklan Oct 1914/a Pinacloth Albay - Albay Crafts Industries Assn. Sto. Domingo Bicol/Albay Sep 19737 Woven abaca, bags, twine bags & place- mats, cotton bags Benguet - Baguio-Benguet Knitters Assn. La Trinidad Ilocos/Benguet Jan 1976/a Sweaters, pullovers, blankets, bikinis, blouses, etc. La Union - La Union Wood Industries Urayong Ilocos/La Union Mar 1974/a Executive toys Nueva Ecija - Nueva Ecija Furniture Industries Assn. Penaranda Central Luzon/ Dec 19757a Rattan & wood industries /a Not operational as of December 31, 1980. ANNEX 5 -66 - Table 1 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT SBAC - Summary of Operations (Cumulative), July 1975-June 30, 1980 /a Cases dropped/ RISC /b Clients Repeat Cases Cases Cases in transferred/ Cases handled Clients generate completed process deferred completed By Centers Legaspi 143 - 169 138 8 23 651 Tacloban 223 11 313 245 19 49 773 SFLU 83 11 191 124 2 65 168 Zamboanga 108 - 194 140 11 43 268 Davao 108 - 148 125 3 20 199 Iloilo 177 15 256 210 3 43 493 Cebu 112 - 156 136 - 20 664 Cagayan de Oro 140 - 223 185 9 29 503 Manila 79 - 72 58 3 11 219 Cotabato 68 - 75 49 24 2 88 Tuguegarao 124 - 130 92 4 34 463 SF, Pampanga 63 5 67 65 2 - 145 Total 1,428 42 1,994 1,567 88 339 4,634 /a With the integration of MASICAP program in July 1980, the regular procedures were revised. The integration also brought some changes in the thrusts of the SBAC program. For the period July 1 to September 1980 activities were mainly concentrated on the planning for the consolidated work program and recruitment of new personnel. /b Referrals, Information Services and Consultations. PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT SBAC- Summary of Clients by Sources, July 1975-June 30, 1980 Clients Clients Clinets Total Establish- Clients Walk- referred to referred to previously number ments generated in by other by other assisted by Other of visited from visits clients clients organization MASICAP sources Unknown clients By Centers Legaspi 423 12 - 6 13 35 77 - 143 Tacloban 128 21 54 14 13 21 100 - 223 SFLU - 26 20 4 13 1 19 - 83 Zamboanga 194 44 17 6 10 28 3 - 108 Davao 293 16 28 21 28 15 - - 108 Iloilo 180 59 71 7 4 36 - - 177 Cebu 148 32 44 1 4 30 - 1 112 Cagayan de Oro 265 42 13 3 11 54 17 - 140 Manila 151 19 11 - 7 16 2 24 79 Cotabato 37 23 8 - - 11 25 1 68 Tuguegarao 287 22 21 23 46 9 3 - 124 SF, Pampanga 147 50 1 - 5 1 6 - 63 Total 2,253 366 288 85 154 257 252 26 1,428 % of total 25 20 6 11 18 18 2 100 3~J PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT SBAC - Actual Project Expenditures and Financing, Jul. 1975 to Dec., 31, 1980 Cumulative 1975 1976 1977 1978 1979 1980 Total Project Expenditures Equipment 5,790.40 - 623,677.40 810,081.01 399,096.73 500,000.00 2,338,645.56 Training 6,547.90 5,739.20 66,220.00 129,560.18 130,220.00 204,258.00 542,545.28 Subtotal 12,338.30 5,739.20 689,897.40 939,641.19 529,316.73 704,258.00 2,881,190.84 Salaries and wages 101,433.44 298,856.98 630,570.81 968,439.97 1,570,210.41 2,003,574.09 5,573,085.70 GSIS premiums 5,071.67 13,426.35 37,596.19 72,982.91 103,369.01 161,882.34 394,328.47 1 Traveling 23,405.25 110,138.92 260,628.24 585,557.06 659,024.39 559,943.02 2,198,696.88 o Communication 1,012.35 4,258.75 36,809.67 68,044.23 71,117.53 66,226.65 247,469.18 00 Supplies & materials 1,273.05 43,486.20 148,455.26 503,936.13 607,915.37 453,909.09 1,758,975.10 Rent and power 14,054.39 61,976.96 208,619.90 437,214.60 411,700.50 400,570.40 1,534,136.75 Representation - 23,262.04 99,139.96 125,035.33 85,290.33 125,625.72 458,353.38 Subscription & printing - 1,057.35 13,143.27 24,453.44 11,234.01 6,893.95 56,782.02 Miscellaneous 13,207,56 88,393.95 237,936.39 339,593.14 377,870.65 488,633.10 1,545,634.79 Subtotal 159,457.71 644,857.50 1,672,899.40 3,125,256.81 3,897,732.20 4,267,258.36 13,767,462.27 Total 171,796.01 650,596.70 2,362.796.80 4,064,898.00 4,427,048.93 4,971,516.36 16,648,653.11 Project Financing DOI budget NA NA 2,068,000.00 2,582,710.00 .3,417,000.00 4,911,000.00 12,978,710.00 IBRD loan - - 600,688.00 2,290,290.00 1,500,000.00 859,000.00 5,249,978.00/a /a Equivalent to US$700,000 at the exchange rate of P 7.5 - US$1. (Aj I . - 69 - ANNEX 5 Tabl I, PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT SBAC - Summary of Clients by Size, July 1975-June 30, 1980 1975 1980 Cumulative Jul-Dec 1976 1977 1978 1979 Jan-Sep Total No. % No. N o. No. % No. % No. % By Asset Size (f) Cottage Industry Up to 20,000 13 9.1 12 6.6 12 6.3 29 6.8 26 8.2 9 5.2 101 7.1 20,001 - 50,000 13 9.1 27 15.0 29 15.2 74 17.5 50 15.8 20 11.5 213 14.9 50,001 - 100,000 13 9.2 34 18.8 31 16.2 63 14.9 45 14.3 23 13.2 209 14.6 Subtotal 39 27.4 73 40.4 72 37.7 166 39.2 121 38.3 52 29.9 523 36.6 Small-Scale Industry 100,001 - 500,000 57 40.2 48 26.5 61 31.9 109 25.7 107 33.8 50 28.7 432 30.2 500,001 - 1 million 9 6.3 14 7.7 17 8.9 25 5.9 29 9.2 17 9.8 111 7.8 Subtotal 66 46.5 62 34.2 78 40.8 134 31.6 136 43.0 67 38.5 543 38.0 Medium-Scale Industry 1 million - 4 million 16 11.3 13 7.2 12 6.3 25 5.9 27 8.6 21 12.1 114 8.0 Large-Scale Industry Over 4 million 1 0.7 - - 2 1.1 3 0.7 2 0.6 4 2.3 12 0.9 Uncategorized 20 14.1 33 18.2 27 14.1 96 22.6 30 9.5 30 17.2 236 16.5 Total 142 100.0 181 100.0 191 100.0 424 100.0 316 100.0 174 100.0 1,428 100.0 By Number of Workers Cottage Industry Below 20 99 69.7 96 53.0 109 57.1 263 62.1 206 65.2 103 59.2 876 61.3 Small-Scale Industry 20 - 99 25 17.6 31 17.1 50 26.2 56 13.2 73 23.1 34 19.5 269 19.0 Medium-Scale Industry 100 - 199 - - 3 1.7 3 1.6 5 1.2 6 1.9 7 4.0 24 1.6 Large-Scale Industry 200 - 499 1 0.7 1 0.6 1 0.5 1 0.2 5 1.6 1 0.6 10 0.7 500 and above - - 1 0.6 1 0.5 1 0.2 - - - - 3 0.2 Uncategorized 17 12.0 49 27.0 27 14.1 98 23.1 26 8.2 29 16.7 246 17.2 Total 142 100.0 181 100.0 191 100.0 424 100.0 316 100.0 174 100.0 1,428 100.0 ANNEX 5 - 70 - Table 5 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT SBAC - Operational Status of Client Enterprises, July 1975-June 30, 1980 Jul 1975 1980 Cumulative to 1977 1978 1979 Jan-Jun Total No. % No. % No. % No. % - No. % Prebusiness "entrepre- neurial counselling" 66 12.8 113 26.7 90 28.5 63 36.2 332 23.3 New business (less than 1 year old) 15 2.9 34 8.0 47 14.9 29 16.7 125 8.8 Established business with serious problems 138 26.9 114 26.9 48 15.2 22 12.6 322 22.5 Established business with no serious problems 156 30.4 122 28.8 117 37.0 45 25.9 440 30.8 Business ordinary (other established business) 41 8.0 30 7.1 7 2.2 8 4.6 86 6.0 Failed business 28 5.4 - - - - 1 0.6 29 2.0 Others - - 1 0.2 - - - - 1 0.1 Unknown 70 13.6 10 2.3 7 2.2 6 3.4 93 6.5 Total 514 100.0 424 100.0 316 100.0 174 100.0 1,428 100.0 7-1 - ANNEX 5 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT SBAC - Summary of Clients by Industry, July 1975-June 30, 1980 1975 1980 Cumulative Jul-Dec 1976 1977 1978 1979 Jan-Jun Total No. % No. 1 No. N No. % No. % No. % No. % Agriculture Agriculture, fishing, forestry 8 5.6 14 7.7 12 6.3 81 19.1 29 9.2 19 10.9 163 11.4 Mining Mining 1 0.7 1 0.6 1 0.5 3 0.7 - - 1 0.6 7 0.5 Manufacturing Food processing, beverages 7 4.9 17 9.4 32 16.8 51 12.0 30 9.5 16 9.2 153 10.7 Textile, wearing apparel 6 4.2 32 17.7 16 8.4 27 6.4 30. 9.5 14 8.0 125 8.8 Wood & wood products, furniture 16 11.3 24 13.2 31 16.2 37 8.7 38 12.0 20 11.5 166 11.6 Chemicals - - 5 2.8 3 1.6 6 1.4 4 1.3 6 3.4 24 1.7 Grain & animal feed 4 2.8 5 2.8 6 3.1 25 5.9 26 8.2 20 11.5 86 6.0 Nonmetallic mineral products 7 4.9 3 1.7 8 4.2 10 2.4 11 3.5 1 0.6 40 2.8 Metal working, machinery 47 33.1 26 14.3 26 13.6 34 8.0 41 - 11 6.3 185 13.0 Leather products 3 2.1 2 1.1 4 2.1 4 0.9 - - 2 1.2 15 1.0 Handicrafts 12 8.5 6 3.3 12 6.3 21 5.0 8 2.5 5 2.9 64 4.5 Rubber products 2 1.4 2 1.1 - - 5 1.2 3 - 3 1.7 15 1.0 Others 10 7.1 6 3.3 6 3.1 9 2.1 14 4.4 13 7.5 58 4.1 Subtotal 123 86.6 143 79.0 157 82.2 313 73.8 234 74.0 131 75.3 1,101 77.1 Nonmanufacturing Construction 2 1.4 1 0.6 1 0.5 2 0.5 - - 1 0.6 7 0.5 Electricity, gas & sanitary services - - 1 0.6 - - 2 0.5 1 0.3 1 0.6 5 0.4 Commerce 4 2.8 6 3.3 9 4.7 12 2.8 16 5.1 6 3.5 53 3.7 Transport, warehousing & communications 2 1.4 7 3.9 1 0.5 9 2.1 4 1.3 7 4.0 30 2.1 Services 3 2.1 L8 9.9 14 7.4 42 9.9 35 11.0 18 10.3 130 9.1 Printing 2 1.4 1 0.5 - - 14 3.3 3 1.0 3 1.7 23 1.6 Other 1 0.8 2 1.1 5 2.6 3 0.7 5 1.6 3 1.7 19 1.3 Unknown 5 3.5 2 1.1 4 2.1 27 6.4 18 5.7 4 2.3 60 4.2 Total 142 100.0 181 100.0 191 100.0 424 100.0 316 100.0 174 100.0 1,428 100.0 ANNEX 5 - 72 - Table 7 PHILIPPINES SMALL AND MEDIUM INDUSTRY PROJECT PROJECT COMPLETION REPORT SBAC - Classification of Cases Handled by Problem Area July 1975 to June 30, 1980 Finan- Manage- Technical/ Market- Year cial ment production ing IPS/a Others Total 1975 (July-Dec.) 33 9 23 10. 1 1 77 1976 89 31 36 27 7 5 195 1977 102 42 36 28 23 10 241 1978 129 52 57 40 30 34 342 1979 153 87 95 41 32 80 488 1980 (Jan.-June) 78 20 25 19 6 76 224 Total 584 241 272 165 99 206 1,567 As % of total 37.3 15.4 17.4 10.5 6.3 13.1 100.0 /a Integrated plant survey.