Colombia - Fifth Small and Medium Scale Enterprise Project

 Fifth small and medium scale enterprise project Report No: ; Type: Report/Evaluation Memorandum ; Country: Colombia; Region: Latin America And Caribbean; Sector: Financial Sector Development; Major Sector: Finance; ProjectID: P006809 April 21, 1995 Colombia: Fifth Small and Medium Scale Enterprise Project(Loan 3025-CO) The Implementation Completion Report (ICR) for the Colombia Fifth Small and Medium Scale Enterprise project (Loan 3025-CO) was prepared by the Latin America and Caribbean Regional Office with Part II contributed by the Borrower. The main objective of the loan was to increase the employment creation and value added of the small- and medium- scale enterprise (SME) sector. This was to be achieved by, inter alia, reforming policies and institutional mechanisms influencing SME access to credit. The three main project components were: a credit line for SMEs (US$77 million); a microenterprise component (US$3 million); and sector-wide studies. The project was intended to support 2,500 SMEs and 2,000 microenterprises. The project achieved its resource transfer and policy reform objectives. Many central bank regulations governing development credit rediscount facilities were simplified and liberalized and interest rate subsidies were eliminated. The credit line financed 2,188 subloans made by 32 financial intermediaries throughout the country. The repayment performance of these subloans has been highly satisfactory for the most part, although the Corporacion Financiera de Desarrollo (CFD, a state-owned development bank privatized in 1992), the largest user of the credit line, experienced arrears problems. One project objective was not achieved. The sector-wide studies had a negligible impact on the policy environment. The extent to which another objective— microenterprise development—was reached is not known, since alternative funding sources from the Inter-American Development Bank were obtained. The institutional reform objectives met with only partial success. The CFD's institutional performance (even after its privatization) remains weak, though improving. Its arrears continue to be high and its level of efficiency and profitability are below industry standards. The ICR rates the project outcome as highly satisfactory. Institutional development is rated as modest and sustainability as likely. The ICR notes that although the unit established at the central bank to rediscount the credit line has now been largely disbanded, future SME financing is likely to continue through use of intermediaries' own funds, and rediscount credit lines and guarantees provided by the Instituto Financiero Industrial, a state-owned financial institution. The project outcome and Bank's performance, considered highly satisfactory in the ICR, are rated satisfactory by the Operations Evaluation Department (OED), especially since there were issues of poor donor coordination regarding the microenterprise component and weak project design regarding the sector studies. There is no disagreement over the ICR ratings of institutional development, sustainability and other performance indicators. The ICR is in compliance with the new guidelines and is of satisfactory quality. However, it does not provide an adequate sectoral background against which issues of market failure and project relevance can be carefully judged. An audit is not planned.