Ghana - Rural Finance Project

 Rural finance project Report No: ; Type: Report/Evaluation Memorandum ; Country: Ghana; Region: Africa; Sector: Agricultural Credit; Major Sector: Agriculture; ProjectID: P000887 December 29, 1995 Ghana: Rural Finance Project (Credit 2040-GH) The Ghana Rural Finance project (Credit 2040-GH for US$20 million equivalent) was approved in FY89. The Credit was closed on December 31, 1994, and US$0.3 million was subsequently canceled. The Implementation Completion Report (ICR) was prepared by the Africa Regional Office. The Borrower had previously prepared its own implementation completion report, which is consistent with and appended to the ICR. The principal objectives of the project were: (i) to support viable rural investments in the agricultural sector that would contribute to rural income and employment; and (ii) to strengthen sectoral institutions to enable them to improve the efficiency of rural financial intermediation, particularly through better training and inspection services. The project consisted of two distinct components: a line-of-credit through participating financial institutions, comprising 76 percent of project costs; and various training and technical assistance programs in support of institutional development. The lending operation successfully encouraged productive investments by about 15,000 individuals, cooperatives and other groups. Their principal activities were poultry rearing, trading, crop production and cocoa growing. The institution- building components had mixed success. They concentrated on upgrading the financial condition and performance of a network of 125 community-owned and managed "rural banks" through training and other technical assistance, regulatory reform and better inspection by the Bank of Ghana (BOG). Progress was noteworthy, but less than expected. Management, internal controls and portfolio quality of over half the rural banks were still weak at project completion. However, the training capability of an apex Association of Rural Banks and the inspection capability of a reorganized unit in the BOG were both enhanced. Another component, for strengthening rural cooperatives in the northwest, was highly successful. The ICR does not discuss the financial and institutional performance of the Agricultural Development Bank (ADB), that had implemented previous Bank commodity credit lines, even though it onlent 74 percent of project credit funds. ADB was not the target of the institution-building activities under the project. The project outcome is rated as satisfactory by both the ICR and the Operations Evaluation Department (OED). It substantially achieved the objective of agricultural growth and rural income improvement and helped many rural banks advance toward financial solvency. The ICR rates institutional development as substantial. OED recognizes the progress made in raising the competence of many banks and the supporting agencies. However, considering also the original targets, OED rates institutional development as only modest, since the condition of most rural banks is still weak. Sustainability of the investments as well as the improved support facilities for the rural banks is rated as likely by the ICR and OED. However, it is unlikely that the medium-term lending portfolio of the participating banks will be continued without further outside assistance. Bank performance is considered satisfactory by both the ICR and OED. The ICR is comprehensive with respect to progress with rural bank reforms, the issue that was most important at appraisal and during supervision. The postimplementation operational plan deals exclusively with these reforms. Comments on the performance of ADB would have been useful. There are two important lessons of general interest: (i) training of staff and management are key factors in the development of a network of viable, local rural banks; and (ii) the emergence of a strong apex institution for such rural banks provides a sustainable, non-governmental alternative to the provision of vital services. An audit is planned.