Benin - Rural Savings and Loan Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14790 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF BENIN RURAL SAVINGS AND LOAN REHABILITATION PROJECT (CREDIT 2086-BE) JUNE 29, 1995 Agriculture and Environment Division West Central Africa Department Africa Regional Office 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.  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$ = CFAF 530 WEIGHTS AND MEASURES Metric System GOVERNMENT FISCAL YEAR PROJECT FISCAL YEAR January 1 - December 31 October 1 - September 30 ABBREVIATIONS AND ACRONYMS BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank of West African States) CFD Caisse Fran,aise de Developement (French Development Agency, ex CCCE) CLCAM Caisse Locale de Credit Agricole Mutuel (Local Savings and Loans Cooperative Society) CRCAM Caisse regionale de Credit Agricole Mutuel (Regional Savings and Loans Cooperative Society) CNCA Caisse Nationale de Credit Agricole (National Agriculture Credit Bank) CPU Central Project Unit URCLCAM Union Regionale de Credit Agricole Mutuel (Regional Savings and Loans Cooperative Society) EEC European Economic Community FAC Fonds d'Aide et de Cooperation (French Bilateral Aid Agency) FECECAM Fe&dration de Caisses d'Epargne et de Credit Agricole Mutuel (Federal Union of Savings and Loan Cooperatives) FED Fonds Europ&en de Developpement European Development Fund FRG Federal Republic of Germany IDA Intemational Development Association IFAD International Fund for Agricultural Development SDC Swiss Development Cooperation  FOR OFFICIAL USE ONLY Table of Contents Page Preface Evaluation Summary ...................................................i Part I: Project Implementation Assessment A. Project Objectives ........................................1 B. Achievement of Objectives .........................................2 C. Major Factors Affecting the Project .........................................3 D. Project Sustainablity .........................................5 E. Bank performance ........................................6 F. Borrower Performance ........................................6 G. Assessment of Outcome .........................................7 H. Future Operation ........................................7 I. Key Lessons Learned ........................................7 Part II: Statistical Annexes Table 1: Summary of Assessments .9 Table 2: Related Bank Loans/Credits .11 Table 3: Project Timetable .12 Table 4: Credit Disbursements: Cumulative Estimated and Actual .12 Table 5: Key Indicators for Project Implementation .13 Table 6: Key Indicators for Project Operation .14 Table 7: Studies Included in Project .14 Table 8A: Project Costs ........................................ 15 Table 8B: Project Financing ........................................ 16 Table 9: Economic Costs and Benefits ........................................ 16 Table 10: Status of Legal Covenants ........................................ 17 Table 11: Compliance with Operational Manual Statements .................................... 18 Table 12: Bank Resources: Staff Inputs ........................................ 19 Table 13: Bank Resources: Missions ........................................ 20 ADDendixes: A: Borrower's Evaluation Summary B: Borrower's Comments on Bank's Draft ICR dThis ocument has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF BENIN RURAL SAVINGS AND LOAN REHABILITATION PROJECT (LOAN 2086-BE) Preface This is the Implementation Completion Report (ICR) for the Rural Savings and Loan Rehabilitation Project in Benin, for which Credit 2086-BEN in the amount of SDR 2.0 million was approved on June 1,1990 and made effective on November 27, 1990. The Credit is scheduled to close on December 31. 1995, but was almost fully disbursed in June 1995. Cofinancing for the project was provided by the Caisse Centrale de Developpement Economique (CCCE, now the Caisse Francaisse de Development, CFD), the Fonds d'Aide et de Coop6ration (FAC), the European Development Fund (FED), the Federal Republic of Gemiany and Switzerland. The ICR was prepared by a consultant and reviewed by L. Mosele, A. Brizzi, T. Turtiainen, S. Singh all of AF4AE; and Mr. Bertrand de Chazal, AF4DR. It is based on material in the project file and a field mission report. The Borrower contributed to the preparation of the ICR by assisting the consultant during the field mission. In addition, it prepared its own completion report. This report is available upon request in the project files, and a summaiy prepared by Bank staff is attached as Appendix A. The borrower's comments on a draft ICR are included as Appendix B. The co-financiers did not provide any comments.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF BENIN RURAL SAVINGS AND LOAN REHABILITATION PROJECT (Credit No. 2086-BEN) EVALUATION SUMMARY Introduction 1. The project addresses the needs and constraints of the fornal rural financial sector of Benin which became essentially insolvent in the late 1980s as a result of a very high percentage of non- performing loans and the bankrupcy of the National Agricultural Credit Bank (CNCA). More specifically, it deals with the urgent requirements of the cooperative savings and loan societies. It is consistent with the government's strategy to rehabilitate the national banking and financial sector and was the first Bank project in the sector. Project Objectives 2. The project objectives were to promote a self-sustaining rural financial intermediation system by strengthening the local and regional branches of the rural savings and loan cooperatives (CLCAMs and CRCAMs). Specific objectives were to: (i) undertake an institutional rehabilitation program; (ii) institute a financial rehabilitation program; and (iii) define and implement a credit development program. The project objectives adequately reflected the needs and constraints of the Benin financial sector in the context of rural credit and the urgent requirements of the savings and loan cooperatives. In this context, the project pertinently addressed the critical question of the legal status of these cooperatives; the deregulation of interest rates on their credit operations, the determination of prudent loan to deposit ratios; the guarantees and collaterals required for the loans; the setting of individual credit ceiling and the reconstitution of the equity and savings of the CLCAMs and CRCAMs members depleted as a result of previous mismanagement and the bankruptcy of the National Agricultural Credit Bank (CNCA). The project as designed was consistent with the government's strategy to rehabilitate the national banking and financial sector and its program of action worked out with the assistance of the Central Bank of West African States (BCEAO), the BF and the World Bank. Related major covenants include (i) CRCAMs and CLCAMs establish a Federal Union of Savings and Loan Cooperatives (ii) carrying out of a financial and management audit of CRCAMs and CLCAMs; (ii) setting up of a recapitalization account and CFAF 600 million paid in; (iv) CRCAMs and CLCAMs to have full autonomy on determination of interest rates and selection and dismissal of staff and determination of their salaries; and (v) political and administrative authorities not to interfere with the financial and credit operations of the CRCAMs and CLCAMs. Lending policies to be followed by the cooperative network have been spelled out in detail. The main features included: (i) credit shall be either short-or medium-term and shall finance investment projects;  - ii - (ii) elected officials of the local CLCAM/CRCAM should be deeply involved in the review and approval of credit applications; (iii) credit can be either to individuals or to groups. Credit to individuals shall have a ceiling of CFAF 200,000; (iv) credit shall be secured by lien on assets or a repayment guarantee from solvent persons; (v) credit beneficiary shall be a member of good standing and have an amount of savings equivalent of at least 10 percent of the amount of credit applied; (vi) interest rate shall range between 12 and 24 percent; and (vii) the credit/deposit ratio shall not exceed 40 percent for a CLCAM and 50 percent for a CRCAM. Covenants and lending policies were essentially met and were crucial to projet success. Implementation Experience and Results 3. The project achieved its major objectives. Sector Policy: the redefinition of the legal statutes governing the operations of rural savings and loan cooperatives was completed and interest rate ceilings were removed and the cooperatives exempted from rules governing interest rates on deposits and credits. This made it possible for the cooperative network to charge positive real interest rates. Institutional Rehabilitation: institutional development objectives have been substantially achieved: restructuring of the 64 CLCAMs has been completed with the closing down of many of them and the operational merging of others; the six CRCAMs have been restructured and no longer provide loans but only support services to the CLCAMs within their jurisdiction; the legal status of the savings and loan cooperative system has been changed; a Federal Union of Savings and Loan Cooperatives (FECECAM) has been established to replace the central project unit and at the level of each region; the CLCAMs created a union of local cooperatives (URCLCAM); an improved budgeting, accounting and financial information system is being put in place; and substantial training activities have taken place. 4. Financial Rehabilitation: all the major financial rehabilitation objectives have been achieved: members' equity and savings depleted by accumulated losses have been reconstituted and the frozen deposits at the defunct National Agricultural Credit Bank (CNCA) compensated; administrative, accounting and financial control procedures have been put in place and are continually being improved; interest rates have been deregulated; personnel audits have been conducted and organization restructuring has been pursued; and finally, all new credit requests are effectively reviewed and approved by the boards of directors of the individual cooperative societies without interference from political or administrative structures. Loan recovery rates have substantially improved and most cooperatives now show a loan recovery rate of more than 97 percent. Savings and Credit  - iii - Development Program: the savings and credit development program has been successful. Total membership increased from 20,800 in September 1989 to almost 41,000 in September 1992 and more than 80,000 in December 1994, clearly attesting to the return of the rural population's confidence in the network. Total deposits increased from CFAF 2.4 billion in September 1989 to CFAF 6.6 billion in December 1994 while total loans increased from FCFA 205 million to FCFA 3.2 billion during the period. The CLCAM network could lend up to 40 percent of its total deposits and same enjoyed a very favorable financial situation which allowed for convenient returns on excess liquidity invested with commercial banks (10 percent) and on loans (24 percent). This situation has, however, changed since the CFAF devaluation in January 1994 which caused a considerable fall on returns on invested excess liquidity (4-5 percent) and on loans (18 percent). The lower returns have reduced the capability of the network to cover all its administrative and operational costs. Increasing the amnount of deposits and loans and reducing administrative and operational costs would have to be part of an action program to address this problem. 5. Sustainability. Interest rates need to remain deregulated to allow the network to continue to have positive gross financial margins on its loan operations. The cooperative system should be allowed to continue with its current procedures and the government should maintain its non-interference policy. This would ensure that loans are made for viable operations and that repayments collection is enforced. Given the current commitment of the government, these conditions are likely to be met. Financial viability cannot be achieved in the short-to-medium tern because of the current structure of the network, which leads to relatively high administrative and other overhead costs. More generally, experience elsewhere with similar undertakings suggests that the important functions of training and institutional building that are required for sustainability cannot be satisfactorily carried out over a project implementation period of five years. The potential for deposit and loan demand growth is good because of the still low level of penetration of the network in the rural areas. Also, ownership and commitment by the members of the cooperative societies have been achieved and this remains one of the major achievements of the project. The overall assessment is that project activities and achievements can be maintained and developed although some subsidies for capacity building would need to be provided for several years to strengthen the network through training and technical support especially for the key functions of financial and accounting management. 6. Actual project costs and their financing have been basically in line with appraisal estimates. Estimated costs were US$12.8 equivalent compared to current estimates of US$12.3 with most of the difference coming from exchange rate fluctuations. The financing arrangements have been substantially as envisaged at appraisal. The implementation timetable has been basically respected except for some initial delays for some components such as training and the replenishment of members' equity and deposits. 7. The project outcome has been highly satisfactory. The performance of the Bank has been satisfactory through all the stages of the project cycle. The performance of the Borrower has also been satisfactory. The single most important factor for success has been the decision to reconstitute the members' equity. This reestablished members' confidence in the rural savings cooperatives and led to their strong support by the local population. The restructuring of the network to decentralize decision-  - iv - making to the local level also had a similar impact. The insistence of the lenders that the govemment does not interfere with the rural savings network management, allowed the project to proceed with susbstantial management autonomy; and technical assistance made a positive contribution to project implementation. The government promulgated the required new laws on the legal statutes governing the administration and operations of rural savings and loan cooperatives; it cancelled claims on the cooperatives network as a result of the liquidation of the CNCA and deregulated interest rates. The Central Project Unit (CPU) carried out its responsibilities in a satisfactory manner. FECECAM and its secretariat, both created in 1993 to succeed the CPU, continued to consolidate on the achievements of the CPU. Summary of Findings, Future Operations and Key Lessons Learned 8. The key lessons learned can be summarized as follows: (a) The right mix of financial sector policies that encourage effective financial intermediation were vital to the success of the project. (b) Obtaining the confidence of the rural population and the real transfer of decision making authority to the local level are prerequisites for the establishment of a sound savings and loan rural cooperative network. (c) Significant resources should be allocated to institution building and training functions in order to lay the foundation for a sustainable savings and loan network. Areas to be emphasized include management and financial control mechanisms, development of perfornance criteria, and independent auditing of the financial operations. (d) Savings mobilization should be made a priority as a basis for future sustainability; lending should be based on own resources and savings generated; the use of external lines of credit should be avoided as much as possible. (e) Group lending yields the best results and is facilitated through (i) awareness campaigns, and (ii) peer pressure under repayment rule that all the group members are refused new loans if previous ones are not 100 percent repaid. (f) The government should respect the autonomy of the cooperatives and encourage self- reliance. (g) Interest rates should be deregulated so that real positive interest rates can be charged for the loans to provide sufficient margins for cost recovery.. (h) Insofar as possible, the savings generated should be kept in the rural areas and not be transferred to savings-deficit sectors that cater mainly to the needs of the urban dwellers.  9. A follow-on project, the Second Rural Savings & Loan Cooperatives Rehabilitation Project (or Rural Credit I[), has become effective in December 1994. The central objective of the second phase project is to continue with the rehabilitation and strengthening of the network of rural savings and loan cooperatives initiated under the project under review. The project aims to assist the network in establishing an efficient institutional structure and making substantial progress toward financial viability. It is expected that full financial viability and autonomy would be reached only in the longer term (10 to 15 years). Emphasis is being given to reducing overhead costs, increasing membership, and expanding deposits and loans.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF BENIN RURAL SAVINGS AND LOAN REHABILITATION PROJECT (Credit No. 2086-BE) PART L PROJECT IMPLEMENTATION ASSESSMENT Project Objectives 1. The primaiy objective of the project was to help transform Benin's rural savings and loan cooperative system into a better managed, more efficient, and financially viable rural savings mobilization and credit delivery network. This was to be achieved through: (i) an institutional rehabilitation program for: (a) restructuring the 64 existing local savings and loan cooperatives (CLCAMs) and recasting the role of the 6 regional cooperatives (CRCAMs); (b) redefining the legal statutes goveming rural savings and loan cooperatives in Benin; (c) helping establish a Federal Union of Savings and Loan Cooperatives (FECECAM); (d) reestablishing improved budgeting, accounting and financial information systems; (e) designing and implementing a training program for board directors, members and staff of the cooperative network; and (f) reducing the staff of the cooperative network. (ii) a financial rehabilitation programn for: (a) reconstituting members' equity and savings depleted by accumulated losses of the previous National Agricultural Credit Bank (CNCA); (b) putting in place adequate administrative, accounting and financial control procedures; and (c) supporting the efforts of the local and regional cooperatives towards financial autonomy by financing the equivalent of their first year operating losses. (iii) a credit development program for: (a) mobilizing savings to meet part of the credit demand; and (b) developing sound lending policies. 2. The project objectives adequately reflected the needs and constraints of the Benin financial sector which was in distress and, more specifically, the rural credit sector and its savings and loan cooperative societies. The objectives also pertinently addressed the critical question of the legal status of these societies and the deregulation of interest rates in their credit operations. The project as designed was consistent with the government's strategy to rehabilitate the national banking and financial sector and the program of action worked out with the assistance of the Central Bank of West African States (BCEAO), the 1MF and the World Bank for its longer term viability.  - 2 - 3. Project scope and activities were manageable. The policy measures to be implemented were essential and sector specific. No interagency coordination was required given the large measure of autonomy granted to the network and the number of components was limited. The provisions for technical assistance were adequate. There were several co-financing agencies and the lack of familiarity of the CPU with their respective procedures led to disbursement delays. Although, the project's geographical coverage reflected the existing network of cooperative societies, the project design failed to take into account the regional diversity in operating conditions. Achievement of Objectives 4. The project's major objectives were substantially achieved. The main criteria for assessing the achievement of the objectives were clearly defined in the SAR. The attainment of specific objectives is reviewed below. 5. Sector Policy. The required policy reforms were completed. Legal statutes governing the operations of rural savings and loan cooperatives were amended to eliminate government interference. Interest rate ceilings were removed and the cooperatives were exempted from rules governing interest rates on deposits and credits. Cooperative societies were forbidden to run complex banking operations. 6. Insitudonal Rehabilitation. Institutional development objectives have been substantially achieved: All 64 CLCAMs were completely restructured with the closing down of many of them and the operational merging of others. All six CRCAMs have been restructured and no longer provide loans and their main activity now is the provision of support services such as training, accounting, budgetary and financial control and overall supervision to the local cooperatives which are now solely responsible for mobilizing savings and providing loans. The legal status of the savings and loan cooperative system has been changed and a Federal Union of Savings and Loan Cooperatives (FECECAM) has been established. Despite delays and problems, an improved budgeting, accounting and financial information system is gradually being put in place with already visible results. An intemal audit system is already functioning with noticeable results and extemal audit reviews are routinely conducted by a foreign firm in partnership with a local one. The auditors issued a clean opinion on the accounts, statements of expenditures and special accounts for financial statements covering the fiscal years ending September 30, 1993 and September 30, 1994. 7. Staff restructuring, including redeployment and lay-offs, was implemented following a personnel audit. An adequate training program was designed and implemented by the project. A training unit was established early but training activities only started one year after project effectiveness. These activities have included seminars, rural radio broadcasts, attachment to relevant organizations, study tours and formal and on-the-job training. Personnel taking part in training activities have included directors of cooperative societies and members, and officials of cooperatives surveillance boards. Training costs have averaged CFAF 25 million per annum compared to the average of about CFAF 5 million planned at appraisal. 8. Financial Rehabilitation. All the major financial rehabilitation objectives have been achieved. Members' equity and savings depleted by accumulated losses have been reconstituted and compensation obtained for the frozen deposits at the defunct CNCA. Administrative, accounting and  - 3 - financial control procedures have been put in place and need continued vigilance to make these fully effective. The first year's operating losses of the cooperative societies were financed by the project as planned. The deregulation of interest rates has facilitated the financial rehabilitation program. The establishment of standard operating budgets including a salary structure decided by the boards of the societies, and defining more narrowly the operations has had similar effect. Finally, all new credit requests are effectively reviewed and approved by the boards of directors of the individual cooperatives without interference from the political or administrative structures. 9. Savings and Credit Developmewnt PWgram. The savings and credit development program has been very successful in mobilizing savings. Total membership went up from 20,822 in September 1989 to almost 40,000 in June 1992 and more than 80,000 in December 1994 clearly attesting to the return of the rural population's confidence in the network. Total deposits increased from CFAF 2.4 billion in September 1989 to CFAF 6.6 billion in December 1994 while total loans went from FCFA 205 million to FCFA 3.2 billion during the same period. A substantial share of total deposits are mobilized from non-members who use the CLCAMs as a banking facility without contributing to their capital and, therefore, are not eligible to borrow. Under the project, the network was restricted to lending up to 40 percent of its total deposits. Although loans to individuals are permitted, most loans are made to farmers' groups who provide group-guarantees. The strict application of the rule that fresh loans are only made after all loans due for collection have been fully recovered, has been critical in restoring financial discipline. Peer pressure has proved to be a very effective instrument to achieve recovery rates close to 100 percent. Loan recovery rates have improved substantially and most societies now show a loan recovery rate of more than 97 percent. Since there is a high proportion of non-member deposits, it has been agreed that under the follow up operation, Rural Credit II, that CLCAMs would be allowed to lend up to 50 percent of savings deposits. There is a geographical dimension to the network's performance largely related to the resource base and transportation infrastructure. The Atacora region, which is generally resource poor and has deficient road infrastructure, has consistently shown lower performance than the other regions in all categories. Limited natural resources and poor road infrastructure have influenced negatively savings generation resulting in a weaker lending base and therefore, lower lending volumes and higher operating costs. Major Factors Affecting Project Performance 10. Four major groups of factors have affected project implementation performance: (a) features of the project design; (b) factors beyond government control; (c) government-influenced factors; and (d) factors related to the implementing agency. (a) Project Design. Probably the single most important factor that has contributed to the substantial achievement of project objectives was the decision to reconstitute the members' equity and savings. Members' confidence in the rural savings network was reestablished, and this led to their strong support. The second design factor which contributed to the project's success was the restructuring of the network to decentralize decision-making to the local level. This created a strong sense of identification with the project and established a sound sense of project ownership which provided strong motivation.  - 4 - (b) Factors beyond the government's control. Although technical assistance generally made a positive contribution to project implementation correcting the initial lack of experience of local personnel and contributing to its training, the impact of short term consultancies has been quite variable. Some consultants have performed in accordance with their terms of reference and thus contributed to the development of the project. However, others have misinterpreted and ovestepped their role and mandate and, ignored the role of the local technical personnel of the project. Finally, the schedule and cadence of consulting missions often did not fit with the development and absorption capacity of the network resulting in a number of reports neither being discussed nor utilized. This is particularly true for the 'brientation audits" (c) Government-related factors. The government generally fulfilled its obligations. In particular, it promulgated new laws on the legal statutes governing the administration and operations of rural savings and loan cooperatives, it cancelled claims on the cooperatives as a result of the liquidation of the CNCA and it deregulated interest rates. The government's decision not to interfere with the network's policies and implementation rules had a substantial impact in the achievement of the project's objectives as it facilitated orderly operations in the network. (d) Implementation agency-relatedfactors. The Central Project Unit (CPU) carried out its responsibilities in a satisfactory manner. FECECAM, that was created in 1993 to succeed the CPU, has consolidated on the earlier achievements. CPU commissioned a personnel audit as required and implemented staff reduction to reduce costs and redeployment for better skills match. Staff training rightly emphazised member's ownership, sound lending policies and financial discipline. The CPU made effective use of technical assistance to clean up the network's accounts and to institute a system of internal control and audit. There was no major work foi contractors under the project and no irregularities or specific procurement problems have been reported. 11. Implementation delays of one year were experienced in the replenishment of members' equity and savings, and instituting improvements in budgeting, accounting and financial information systems which are still continuing. Major reasons for these delays include difficulties of the CPU in mastering the disbursement procedures of the different lenders and the long-term nature and requirements of effecting institutional change. Project Sustainability 12. The sustainability of the project is dependent on four main factors: (a) the policy environment; (b) financial viability; (c) potential for savings mobilization and credit demand; and (d) project beneficiaries' ownership and commitment. (a) Policy Envronment. For the achievements of the project to be sustainable, interest rates on loans would have to continue to be deregulated and the current statutes of the cooperative credit system maintained. The deregulation of interest rates is important because it allows the network to have positive financial margins. When interest rate  ceilings existed, the savings and loan societies had negative real interest rates and negative financial spreads and operated at a loss. The government would need to continue its non-interference policy. In the absence of any other credit institution in the rural areas, the rural savings and loan network could be pressured by authorities to meet credit demands that do not correspond to its mandate. This could affect the viability of its operation. (b) Financial Viability. Sustainability of the current scheme will depend on the level of administrative expenses, loan recovery performance, structure of interest rates, and cost of financial resources. The network has widespread coverage and the local cooperatives tend to be smaDl and the average amount of the loan modest with operating costs relatively high. However, because of their interest rate policy, the adequate spread between deposit and loan rates, and the financial revenues from excess liquidity, almost al CLCAMs are financially autonomous and do not receive any subsidy. Under the new policy adopted by the network in April 1993, CLCAMs incurring losses would be submitted to a restructuring plan and closed after three consecutive years of losses. Such losses are covered through a Solidarity Fund established under the Federation and which is funded from CLCAMs profits. The costs of the regional and central services provided by the network cannot yet be internally sustained. External donors have, therefore, played an essential role in financing the training, technical assistance, audits and some of the recurrent costs incurred. Appraisal projections did not envision that financial sustainability would be achieved during the five years of the project. From that perspective, some subsidies would still be required for capacity-building purposes, but could be justified only within a framework of consistent policy and institution strengthening measures. The project shows satisfactory trends towards financial viability. According to projections made for the follow-on Rural Credit II, the system would become financially self-sustaining in the year 2001 at the regional level and in the year 2007 for the entire network. The projections might, however, be modified by events. Until 1993, the network enjoyed a very favorable financial situation which allowed for convenient retums on excess liquidity invested with commercial banks (10 percent) and on loans (24 percent). This situation has radically changed since the CFAF devaluation at the beginning of 1994 which caused a considerable fall in returns on invested excess liquidity (4-5 percent) and on loans (18 percent). This fall has reduced the capability of the network to cover all its administrative and operational costs. This deficit can be made up by increasing the amount of deposits and loans and by reducing administrative and operational costs as the benefits of a devalued CFAF work back into the rural economy. (c) Savings Mobilization and Credit Demand The financial autonomy indicated in subparagraph (b) above assumes that deposits would grow by 10 to 15 percent per annum and that actual lending would stabilize at 45 percent of deposits from 1995 onwards. Based on current trends, this level of growth is quite likely to be achieved.  - 6 - (d) Beneficiary Ownership and Commitment. The ownership and commitment of the beneficiaries is one of the main assets of the network and can be expected to remain so if government continues to respect its autonomy. 12. The overall assessment is that project activities and achievements can be maintained and developed if some financial assistance continues to be provided in the medium-term to build up the network through training and technical support especially for the key functions of financial and accounting management. The volume of deposits and loans must also continue to grow to a level that generates sufficient income to meet the costs. Bank Performance 13. Bank performance was consistent and satisfactory throughout all the stages of the project cycle. The macro-policy framework of the project was consistent with the strategy of the government in the financial sector and the reform programs worked out with multi-lateral and regional partners. Project identification and preparation were closely coordinated with potential co-lenders. The appraisal report incorporated the findings of separate missions conducted by co-financiers. Before the start of project implementation, pre-project activities were initiated with funds from some of the co-lenders. This made it possible to test in advance some of the key project assumptions. Bank supervision missions were regular and staffed with qualified persons with the appropriate skills mix. Staff continuity was not always maintained in supervision missions and the Borrower has expressed some concern at this. These missions were usually coordinated with those of the co-lenders.. 14. However, the Bank at appraisal did not fully appreciate the regional economic differences within the country. This penalized regions such as the Atacora which are not as well-endowed or as developed as others and which also face severe communications problems. The higher staff inputs and operating costs for the particular situation of the Atacora region should have been taken account of or it could have been decided that the Atacora region did not meet the criteria for project assistance or provisions made for more support in the form of subsidies.. Borrower Performance 15. The performance of the Borrower was highly satisfactory. Key prerequisites for the success of the project were the commitment of the government to reform the rural savings and loan sector and to restore the confidence of the beneficiaries. Both these prerequisites were met. All the measures that were planned were taken within a reasonable time. The statutes of the savings and loan sector were changed as proposed; interest rates on credit and on deposits were deregulated; and outstanding claims on the savings network were canceled as agreed. From a financial perspective, proceeds from the Credit were promptly put at the disposal of the network and the recapitalization of the network's account carried out as stipulated. Institution-wise, the CPU was set up on time and staffed with competent local staff and technical assistance. It was subsequently replaced by the FECECAM. The required financial and management audit of the network was conducted and its recommendations implemented. Most importantly, the Borrower refrained from interfering in the operations of the savings and loan cooperative network respecting the ownership and autonomy of the cooperatives.  -7 - Assessment of Outcome 16. The project outcome was highly satisfactory because all the major objectives were achieved or exceeded. The key project objective of regaining the trust of the members of the cooperative societies has been achieved beyond expectations. This was mainly achieved through the restoration of the equity and savings of the members and the decentralization of management to provide credibility to ownership. The institution building objectives have also been substantially achieved with better staff skill-mix and competence at all levels, and a reliable accounting and financial monitoring system. Also, the establishment of FECECAM heralds the transfer of project operations to the beneficiaries. Future Operation 17. A follow-up project, Rural Credit II was approved in June 1993 and became effective in December, 1994. The central objective of the new project is to continue with the rehabilitation and strengthening of the network of rural savings and loan cooperatives initiated under the project being reviewed. The new project aims to assist the network in establishing an efficient institutional structure and expedite progress toward financial viability. It is expected that full financial viability and autonomy would be reached only in the longer term (10 to 15 years) and that, by the end of project implementation, all primary level cooperatives would not only break even financially but also contribute to finance the operating costs of network' regional and national levels. The new project will support, over five years, activities, such as: (i) the establishment of efficient service units at the regional level (URCLCAM) to provide CLCAMs with the necessary backstopping (accounting and financial management); (ii) the institutionalization of FECECAM as the network's policy-making and supervisory body; (iii) technical assistance, equipment, training and annual audits; and (iv) completing the financial restructuring of CLCAMs and providing limited financial assistance to a few CLCAMs operating in the poorest areas of the country but having a potential to reach a deposit base necessary to break-even financially. Key Lessons Learned 18. The key lessons learned can be summarized as follows: (a) The right mix of financial sector policies that encourage effective financial intermediation were vital to the success of the project. (b) Obtaining the confidence of the rural population and the real transfer of decision making authority to the local level are prerequisites for the establishment of a sound savings and loan rural cooperative network. (c) Significant resources should be allocated to institution building and the training functions in order to lay the foundation for a sustainable savings and loan network. Areas to be emphasized include management and financial control mechanisms, development of perfornance criteria, and independent auditing of the financial operations.  - 8 - (d) Savings mobilization should be made a priority as a basis for future sustainability; lending should be based on own resources and savings generated; the use of external lines of credit should be avoided as much as possible. (e) Group lending yields the best results and is facilitated through (i) awareness campaigns, and (ii) peer pressure under a repayment rule that all the group members are refused new loans if previous ones are not fully repaid. (f) The government should respect the autonomy of the cooperatives and encourage self- reliance. (g) Interest rates should be deregulated so that real positive interest rates can be charged for the loans to provide sufficient margins for cost recovery. (h) Insofar as possible, the savings generated should be kept in the rural areas and not be transferred to savings-deficit sectors that cater mainly to the needs of the urban dwellers.  - 9 - Part II: Statistical Annexes Table 1: Summary of Assessments A. Achievement of Substantial Partial Negligible Not applicable Objectives (M) ('I ) (4 Macro Policies Q Sector Policies 0 Financial Objectives 0 Institutional Development 0 Physical Objectives ..1 Poverty Reduction 0 Gender Issues 0 Other Social Objectives 0 Environmental Objectives 0 Public Sector Management 0 Private Sector Development 0 Other (specify) B. Project Sustainability Likely Unlikely Uncertain (i)1() (4) Highly C. Bank Performance satisfactory Satisfactory Deficient (v) (4) ( Identification 0 Preparation Assistance 0 Appraisal 0 Supervision 0 (Continued)  - 10- Highlv D. Borrower Performance satisfactory Satisfactory Deficient (4) (4) (% Preparation E Implementation 0 Covenant Compliance 0 Operation (if applicable) Highly Highly E. Assessment Outcome. satisfactory Satisfactorv Unsatisfactory unsatisfactory (4) (4) (4) (4) 0z-.  - 11 - Table 2: Related Bank Loans/Credits Loan/credit title Purpose Year of approval Status 1. Cr. 1887-BEN Consolidate gains 1988 Closed Second Borgou Rural under first Borgou ISecond Borgou Rural Prjet prpr Development Project Project; prepare medium term restructuring and development program for rural sector; rehabilitate cotton sub-sector 2. Cr. 2285-BEN Reorganization of 1991 Ongoing Agricultural Services agric. institutions for Ag .ricutural Sercs better provision of l Restructuring Project services 3. Cr. 2344-BEN Institution building 1992 Ongoing Natural Resources and pilot actions to l NauralResorces promote sound Management Project eromental environmental management 4. Cr. 2601-BEN. Improve food and 1993 Ongoing Food Security dietary habits of disadvantaged groups 5. Cr. 0871-BEN Environmental Not yet effective Environment protection Management Project 6. Cr. 2529-BEN Continuation of 1994 Ongoing Secod Rrehabilitation of rural Second Rural Savings savings and loan and Loan Cooperative network Rehabilitation Project  - 12 - Table 3: Project Timetable Date actual/ Steps in project cycle Date planned latest estimate Identification December 1988 December 1988 Preparation Dec.88-Feb.89 Dec.88-Feb.89 Appraisal April 1989 April 1989 Negotiations November 1989 November 1989 Board presentation January 1990 January 1990 Signing June 1990 June 1990 Effectiveness November 1990 November 1990 Project completion June 1994 December 1994 Loan closing December 1995 June 1995 Table 4: IDA Credit Disbursements: Cumulative Estimated and Actual (SDR thousand) FY91 FY92 FY93 FY94 FY95 Appraisal Estimate 0.4 0.5 0.9 1.5 2.0 Actual 0.1 0.7 1.4 1.9 2.0 Actual as % of estimate 25 140 156 127 100 Date of final disbursement June 1995  - 13 - Table 5: Key Indicators for Project Implementation (1) I. Key Implementation Indicators in SARI President's Report Estimated (2) Actual 1. Deposit Growth (PY1-PY3) 10%,20%,30% -6%,26%,47% 2. Member Entrance Fees (FCFA) 200 1,200 3. Share Value (FCFA) 1,000 6,020 4. Interest on members' deposits 6% 3% CRCAMS/URCAMs 1. Interest on CLCAM Deposits 7% 5% 2. Interest on Loans 12-24% 24% 3. Interest on Term Deposits 9% 7.25% CLCAMS: 1. Cash/Total Resources 10% 9-49o/o 2. Loan/Deposit Ratio (PY1-PY3) 20%,30%,40% 30%,40%,400/% 3. Operating Costs per CLCAM 2.15 5.7-44.5 (Deposits>50m,MF), CFAF Million 4. Operating Costs per CLCAM 1.31 Not applicable (Deposits<50m,MF), CFAF Million 5. Interest on Members' Deposits 3-5% 3% 6. Interest on Loans 15-24% 16-24% 7. Interest on Deposits at CRCAMS 5-7% 5-7% 8. Provisions for Bad Debts 2% 0.4-19% 9. Staff Number (per CLCAM) 5-11 1-5 10. CLCAM Administrative 3-15 Costs/Year (CFAF Million) 11-23 1989 1992 1994 No. of members 20,822 - 40,000 More than 80,000 Total deposits CFAF 2.4 3.1 6.6 Billion Total loans CFAF 205 550 3,200 Million No. of borrowers 4,000 11,000 25,000 Recovery rates 96% 98% (1) Some of the indicators are financial assumptions made in the SAR (2) Since the project became effective only on November 9, 1990, the actual first project year has been taken as 1990/91 instead of 1989/90 as indicated in the SAR.  - 14 - Table 6: Key Indicators for Project Operation No specific key indicators for project operation were provided in the SAR. Table 7: Studies included in Project Purpose as defined Status Impact of study Study at appraisal/redefined 1. Management audit of Done Resulted in restructuring of CRCAMs and CLCAMs, network, staff dismissal and financial audit of their accounts design of appropriate and staff performance evaluation management and financial I___ ___ ____ ___ ____ ___ I_____ ______ _control system s  - 15 - Table 8A: Project Costs Component Appraisal Estimate (US$M) Actual (USSM) Local Foreign Total Total Itemn Costs Costs 2. Training 0.1 0.0 1.1 0.2 3. Audits and Studies 0.2 0.2 0.4 0.5 4. Operating Costs: 0.8 1.2 2.0 2.2 Cooperatives 5. Financial Rehabiliation 6.4 0.0 6.4 6.4 6. Credit 0.6 0.0 0.6 0.6 Total Base Costs 9.1 2.2 11.3 12.3 Physical Contingencies 1.2 0.2 1.4 Price Contingencies 1.3 0.2 1.5 TOTAL 10.4 2.4 12.8 12.3  - 16 - Table 8B: Project Financing Appraisal Estimate (US$M) Actual (US$M) Local Foreign Total Total Source Costs Costs IDA 1.9 0.6 2.5 2.7 CCCE (CFD) 2.7 0.7 3.4 3.4 FAC 0.4 0.3 0.7 0.7 FED 0.9 0.1 1.0 0.8 F.R. Germany 0.5 0.0 0.5 0.4 Switzerland 0.9 0.3 1.2 0.8 Government and 3.1 0.4 3.5 3.5 Beneficiaries TOTAL 10.4 2.4 12.8 12.3 Table 9: Economic Costs and Benefits Not applicable  - 17- Table 10: Status of Legal Covenants Agreement Section Covenant Present Original Revised Description of Comments type status fulfillment fulfillment covenant date date Credit 2086 2.02(b) 3 C N.A. N.A Opening of Special Account 3.01(a) 5 C N.A. N.A. Commitment to Project and proper management 3.01(b) 3 C. N.A. N.A. On-passing of Credit proceeds 3.02 3 C N.A. N.A. Procurement guidelines 3.03(a) 5 C N.A. N.A. Establishment of Central Project Unit (CPU) 3.03(b) 5 CD 12/93 7/94 Establishment of Federal Union of Savings and Loan Cooperatives 3.03 (c) 5 C 12/93 7/93 Conversion of CPU into technical support unit of Federal Union 3.04 5 C N.A. N.A. Reorganize network in accordance of conclusions of management and staff audit 3.05(a) 5 C 12190 12/90 Submission of personnel performance evaluation 3.05(b) 5 C 2/91 2/91 Implementation of recommendation of 3.05(a) 3.06(a) 3 C N.A. N.A. Opening and management of Recapitalization Account 3.07 5 C N.A. N.A. Management autonomy of network 4.01 1 C N.A. N.A. Accounts, SOE and Audit requirements Schedule 4 5 C N.A. N.A. Lending policies Covenant typa: i. = Accounsaudits 8. = Indigenous people 2. = Financial perfonnrancerevenue generation from 9. = Monitoring, review, and reporting beneficiaries 10. = Project imnplementation not covered by categories 1-9 3. Plow and utilization of project fuxds 11. = Sectoral or cross-sectoral budgetary or odher resource 4. = Countrpait funding allocation 5. = Maagement a ofthe projet or executing agency 12. = Sectoral or cross-sectoral policy/ regulatoryritutional 6. = Environment covenant action 7. = Involuntary resettlement 13. = Other 8. Present Status: C = covenant complied with CD = complied with afIer delay CP = complied with partially NC= not comnplied with  - 18- Table 11: Compliance with Operational Manual Statements No lack of complance was observed.  - 19- Table 12: Bank Resources: Staff Inputs State of Project Cycle Staff Weeks Through Appraisal 9.7 Appraisal-Board 14.4 Supervision 32.5 Completion 3.9 TOTAL 60.6  - 20 - Table 13: Bank Resources: Missions Perfomante Rating Number Specialized hnplemen- Develop- Stage of MontW of Days in Staff Skills tation mant Types of Project Cycle Year Penons Field Rem-aned Status Objectives Problatw Through Appraisal 12/88- 2 3 weeks Economist, N.A NA. N.A 04/89 Finacial _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~~~~~~~Analyst_ _ _ _ _ _ _ Appraisal though June 2 6 days Economist, N.A. N.A. N.A. Board Approval 1989 Financial _ _ _ _ _ _ _ _ _ _ _ _ _ ~~~Analyst _ _ _ Board Approval N.A. N.A. N.A. through Effectiveness Supervision 1 May 90 3 2 (1) E; AE; FA N.A. N.A. N.A. Supervision 2 Nov 90 1 2 E N.A. N.A. N.A. Supervision3 May91 1 8 FA 2 1 F Supervision4 Nov91 1 6 FA 1 F,M Supervision March93 2 6 FA 2 1 F,M Supervision 6 June93 2 6 FA 2 1 F,M Supervision 7 Feb 94 I 4 FA I 1 F Completion Jan95 1 15 FA None ---------------------------------------------------__--_____-------- (1): E=economist; AE=agro-economist; FA=financial analyst Implementation status: 2=moderate problems; l-no significant problems. * Types of problems: F=funds availability; M=-project management  - 21 - APPENDIX A StUMMARY OF THE IMPLEMENTATION COMPLETION REPORT PREPARED BY FECECAM' . INTRODUCTION This summary has been prepared by Bank staff based on the French document provided by FECECAM. It particularly deals with: (i) impact of the project; (ii) major factors affecting the project; (iii) project sustainability; (iv) Bank performance; (v) Borrower performance; (vi) Suppliers performance; and (vii) key lessons learned. 2. IMPACT OF THE PROJECT The CLCAM/CRCAM network has become a major institution to promote rural development and poverty alleviation because of its presence in rural areas, where it serves mainly the rural poor, including women, who have no access to the commercial banks mainly based in major urban centers. Moreover, it promotes group solidarity, participation, sense of ownership, and progressive realization that the improvement of the economic and social situation can only come from self-help. Its success is demonstrated by the performance indicators: membership (from around 21,000 in 1989 to more than 80,000 in 1994), equity (from CFAF 103.7 million in 1989, to 289.7 million in 1994), deposits (from CFAF 2.4 billion in 1989 to 6.6 in 1994), loans ( from CFAF .2 billion in 1989 to 3.2 billion in 1994) and number of borrowers (from 4,000 in 1989 to 25,000 in 1994). 3. MAJOR FACTORS AFFECTING THE PROJECT The project benefited much from the stable political situation and from the government non- interference in the activities of the network. Until 1993 the network enjoyed a very favorable financial situation which allowed for convenient returns on excess liquidity invested with commercial banks (10 percent) and on loans (24 percent). This situation has radically changed since the CFAF devaluation at the beginning of 1994 which caused a considerable fall on returns on invested excess liquidity (4-5 percent) and on loans (18 percent). This fall has reduced the capability of the network to cover all its administrative and operation costs. 4. PROJECT SUSTAINABILITY The sustainability seems to be guaranteed by the excellent results obtained in building a viable institution and by involving the members and their representatives in the decision-making process. In fact, the project has promoted people's participation and ownership and has trained a large number of l Summary prepared by Bank staff based on the French document provided by FECECAM, "Rapport d'achevement du projet de rehabilitation de caisses regionales et locales de credit agricole (Cr. IDA 2086-BE)", April 1995. The document is available in the project files.  - 22 - CLCAMs' elected officials on the principles and working of the system. Considerable sensitization efforts and adequate procedures have been set in place to promote close collaboration among the different actors of the network and in particular between the elected officials and the staff. Adequate management, accounting, inspection and auditing procedures guarantee transparency and accountability, therefore reinforcing the confidence of the rural population in the network. 5. BANK PERFORMANCE The Bank has played an important role in the improvement of the network. At the moment of preparation and appraisal of the project, the Bank in collaboration with the other donors, contributed to the formulation of objectives, strategy and procedures with the aim of earning the confidence of the rural population and ensuring the viability of the network. The Bank has contributed to the creation of a culture of transparency and accountability which proved to be crucial to the success of the project. The positive impact of the Bank has been obtained despite the concem caused by the frequent turnover of Bank personnel responsible of the project. 6. BORROWER PERFORMANCE The network greatly benefited from the support of the govemment and its non-interference in the management of the network. 7. SUPPLIERS PERFORMANCE The network had to work with a large number of suppliers of goods and services(mostly consultancies). For the supply of goods the network worked with both local and intemational suppliers. The main findings are that local suppliers of imported goods and equipment are usually costlier and that intemational bidding is the most adequate procedure to ensure better prices for the network. Long term consultants attached to the project made a valuable contribution to the reorganization of the network and the establishment of adequate management, accounting and auditing procedures. The impact of short term consultancies has been quite variable. Some consultants have performed in accordance with their terms of reference and thus contributed to the development of the project. However, others have misinterpreted and overstepped their role and mandate, ignoring the role of the technical personnel of the project, and have considered the project as a domain for practicing their personal philosophies. Finally, the schedule and cadence of consulting missions often did not fit with the development and absorption capacity of the network resulting in a number of reports neither being discussed nor utilized. This is particularly true for the " orientation audits". 8. KEYLESSONS LEARNED The key lessons learned can be summarized as follows: (a) people's participation dynamism is the best indicator of the success of the project; (b) the access to credit is the main cause of growth of the membership;  - 23 - (c) at the beginning of a development of a cooperative organization such as the network, there might be a confusion of roles between elected officials and staff The former sometimes engage in micro-management, the latter often resists the guidance and control imposed by the elected officials. Training and sensitization are required to clarify responsibilities; and (d) the promotion of savings and loan cooperatives needs to be customized to take into account the particular requirements of the banking sector.  - 24 - APPENDIX B Comments of FECECAM on the Implementation Completion Report for Cr. 2086-BEN Prepared by the World Bank2 On the whole, the Implementation Completion Report (ICR) prepared by a Consultant recruited by the World Bank adequately describes the project's development during its five-year life-span. The report demonstrates that the results achieved by the network correspond with the Bank's expectations. In terms of the volume of activity undertaken and the results achieved by the network at the end of the project is two years ahead of projections. The report mentions that one of the network's achievements was the continued improvements of its administrative, accounting and iffnancial control procedures. On a number of occasions, the report stresses the importance of supporting the management and financial control mechanisms, establishing performance criteria and conducting an independent audit of the financial statements. We agree with the report that medium-term subsidies should be provided to strengthen the network through training and technical support, to a point where it is able to carry out its key financial management and accounting functions autonomously. With regard to the financial viability of the network, the report confirms the Bank's expectations; in essence, financial viability and autnomy can be expected in 10 to 15 years (the maturity date is set for the year 2007). The network will make it an objective to break even before this maturity date, as the development of rural savings and loans is already ahead of schedule. The report highlighted the weaknesses of the Atacora region whose achievements, in all performance categories, are always less impressive than those of other regions. Even if there are improvements, and these should be apparent by the end of the 1994-1995 fiscal year, a more systematic support structure ought to be established for the implementation and monitoring of management methods suited to local conditions. Finally, with regard to the sustainability of the system, the report notes that the network could be under pressure to respond to other credit requests which are not part of its mandate, and this could entail negative consequences. 2 This is a translation of the original French version available in the Project file.  - 25 - We would like to emphasize the importance of the FECECAM in West Africa and in Benin where the network is critical to rural development. However, because there is a great demand for the network's success, it should exercise caution in carrying out its activities as it runs the risk of being overburdened in expanding services, managing several external lines of credit and adapting to the procedures of the various donors, etc.        I IMAGING Report No: 14790 Type: I CP