Colombia - Second Small-scale Industry Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4461 PROJECT COMPLETION REPORT COLOMBIA: SECOND SMALL-SCALE INDUSTRY PROJECT (LOAN 1451-CO) April 27, 1983 Latin America and Caribbean Projects 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.  LIST OF ABBREVIATIONS ACOPI Asociacion Colombiana Popular de Industria BR Banco de la Republica CFP Corporacion Financiera Popular COLCIENCIAS Fondo Colombiano de Investigaciones Cientificas y Proyectos Especiales DANE Departamento Nacional de Estadistica FFI Fondo Financiero Industrial FICITEC Fundacion para el Fomento de la Investigacion Cientifica y Tecnologica IDB Inter-American Development Bank IFI Instituto de Fomento Industrial KfW Kreditanstalt fur Wiederaufbau PROEXPO Fondo de Promocion de Exportaciones RAB Regional Advisory Board SENA Servicio Nacional de Aprendizaje SSI Small Scale Industry USAID United States Agency for International Development  PROJECT COMPLETION REPORT COLOMBIA: SECOND SMALL-SCALE INDUSTRY PROJECT (LOAN 1451-CO) TABLE OF CONTENTS Page No. Preface ................ -.**- .... ******* i Basic Data Sheet ... * ... * .... * ii Highlights .000*000000oooo00000eo00iii I. INTRODUCTION. 1 II. OBJECTIVES AND EXPECTATIONS OF THE BAN K. 1 III. UTILIZATION OF LOAN PROCEEDS . .......**** 3 Economic Environment . ... . ... . ..o.. 3 Commitments and Disbursements . .. 5 Characteristics of Lending ... 5 Impact of Subprojects.... -. .. 8 IV. INSTITUTION BUILDING ... ... .o. .... . .... .. 10 Management, Staffing and Organization . ..10 System and Procedures . . .11 Res our c es ...o...... .... ... .... 1 2 Interest Rates . . 0 .. . 0. . 0.. . 0. 0 0 . .0 0 0 - 13 Operations ..- . .. . . ....14 Financial Position and Results . . .15 Technical Assistance ..,oo .... -o .... oo .... . oo.... . o.. 16 New Developments o .. . ..o..*...00..0...O. 18 V. SECTORAL IMPACT. .- ..... -oo ... . - ... 19 VI. CONCLUSIONS . .20  Table of Contents (Continued) ANNEXES Page No. ANNEX 1 Manufacturing Performance Indicators 23 ANNEX 2 Some Characteristics of SSI in Colombia 24 ANNEX 3 Projected and Actual Cumulative Disbursements - Loan 1451-CO 25 ANNEX 4 Analysis of Subloan Approvals 26-28 ANNEX 5 Average Subproject Impact: Survey I 29 ANNEX 6 Average Subproject Impact: Survey II 30 ANNEX 7 Employment Generation and Its Cost on an Average Subborrower 31 ANNEX 8 Sales and Productivity Growth of an Average Subborrower 32 ANNEX 9 CFP's Staff: Costs and Productivity 33 ANNEX 10 CFP's Mobilization of Financial Resources 34 ANNEX 11 CFP's Commitments and Disbursements 35 ANNEX 12 CFP: Key Financial Indicators 36 ANNEX 13 CFP: Balance Sheets as of December 31, for the Period 1977-81 37 ANNEX 14. CFP: Income Statements, 1977-81 38 ANNEX 15 CFP's Arrears 39 ANNEX 16 Technical Assistance 1977-81 40 ANNEX 17 Fondo Financiero Industrial (FFI): Commitments 41 ANNEX 18 Comments received from the Borrower 42  PROJECT COMPLETION REPORT COLOMBIA: SECOND SMALL-SCALE INDUSTRY PROJECT (LOAN 1451-CO) PREFACE This report covers developments and achievements under Loan 1451-CO to the Banco de la Republica (BR) for onlending to the Corporacion Financiera Popular (CFP). The loan, in an amount of US$15 million, was intended to assist CFP's onlending and technical assistance operations with the small-scale industrial sector. It was appraised in October/November 1976, approved by the Board of Executive Directors in June 1977, declared effective in February 1978 and closed, with disbursements at 99%, in September 1981, nine months after the original closing date. The Project Completion Report was prepared by the Latin America and the Caribbean Regional Office. The report reviews the Loan's direct and sectoral objectives, discussing in particular CFP's resource base, systems and procedures, financial structure and changes in its technical assistance program. It also analyzes the relevance of CFP's experience gained under the project of improving the provision of its financial and technical assistance services to SSIs. Although the provision of an integrated technical assistance program and CFP's role in the program were given somewhat lower priority in designing this project than financial and institutional aspects, this report considers such assistance essential for CFP's financial program to have a lasting effect on SSI's development. Accordingly, this aspect is given prominence in the report, including some new developments in technical assistance and training programs in Colombia. Comments from the Borrower are shown in Annex 18. This project has not been audited by the Operation Evalu- ation Department.   - ii - PROJECT COMPLETION REPORT COLOMBIA: SECOND SMALL-SCALE INDUSTRY PROJECT (LOAN 1451-CO) BASIC DATA SHEET Amounts (in US$ mln) As of 1/31/83 Original Disbursed Cancelled Repaid Outstanding Loan 1451-CO 15.0 14.89 .11 1.95 12.94 Cumulative Loan Disbursement FY 1978 FY 1979 FY 1980 FY 1981 FY 1982 (i) Planned 1.5 7.6 13.1 15.0 15.0 (ii) Actual - 4.8 10.1 14.0 14.9 % of (ii) to(i) - 63 77 93 99 PROJECT DATA Actual Original Plan Revisions Est. Actual Board Approval 6/07/77 Loan Agreement 9/27/77 9/27/77 Effectiveness 12/27/77 1/27/78;2/28/78 2/14/78 Loan Closing 12/31/80 3/31/81 9/30/81 Total Project Cost (US$ mln) 42.0 44.2 MISSION DATA Item Sent Month/ No. of No. of Manweeks Date of By Year Weeks Persons Report Identification IDF 3/76 0.5 3 1.5 5/76 Preparation 5/76 0.5 1 0.5 6/76 Appraisal 10/76 4.0 4 16.0 5/77 Post Appraisal 2/77 2.0 2 2.0 Total 6.0 20.0 Supervision I 7/77 1.0 1 1.0 8/77 Supervision II 8/77 0.8 1 0.8 9/77 Supervision III 1/78 0.6 1 0.6 2/78 Supervision IV 4/78 0.8 1 0.8 5/78 Supervision V 8/78 2.4 3 7.2 10/78 Supervision VI 1/ 5/79 1.0 2 2.0 3/80 Supervision VII 5/80 1.0 2 2.0 6/80 Completion 2/82 2.0 2 4.0 8/82 Total 9.6 18.4 COUNTRY EXCHANGE RATE Name of Currency (Abbreviation) Colombian Peso (Col$) Year: Appraisal Year (1976) Average Exchange Rate: US$1 = Col$34.7 Intervening Years (1977-81) Average US$1 = Col$41.4 Completion Year (1982) Average (Jan-March) US$1 = Col$60.4 1/ With appraisal of Third Small-Scale Industry Project.   - iii - PROJECT COMPLETION REPORT COLOMBIA: SECOND SMALL-SCALE INDUSTRY PROJECT (LOAN 1451-CO) HIGHLIGHTS Reflecting its concern with two principal constraints which had been identified as impeding SSI development in Colombia--insufficient access to term credit and technical assistance--and based on the experience under the first SSI Loan 1071-CO, the Bank made a second loan for SSIs to the Banco de la Republica for onlending to the Corporacion Financiera Popular (CFP) totalling US$15 million in 1977. This report covers the 1977-81 period, during which Loan 1451-CO was committed and disbursed and focusses on activities that pertain mainly to the Loan. In making its second loan to CFP, which was designed to build on the achievements of Loan 1071-CO, the Bank had five basic objectives: (i) to provide term funds on reasonable conditions for establishment, expansion or relocation of privately-owned small industrial firms and coperatives; (ii) to assist CFP in building up a diversified and sound resource base; (iii) to help CFP build up further its technical capability and operational effectiveness; (iv) to support, through CFP's onlending, the government's industrial decentralization and regional policies; and (v) promote government policies more responsive to SSIs' financial and technical needs. Bank funds were provided for 696 subprojects with an estimated employment generation of some 3,300 jobs which was in line with expectations. About 75% of the lending went to smaller firms exceeding the 50% minimum target (para. 3.07). The average investment cost per job (US$13,500 equivalent) too, met the appraisal expectations; moreover, data on cost per job created were found to be highly correlated with the size of the firm (para. 3.13). While geographical dispersion of Bank assisted enterprises was more favorable than originally expected, relatively few new enterprises were created with Bank proceeds and a still smaller number of assisted SSIs was geared towards external markets (para. 3.10, 3.11). In early 1978, CFP decided to discontinue much of its direct technical assistance activities. Since then it has reoriented its activities towards helping SSIs to diagnose their technical assistance needs and referring them to appropriate specialized agencies, including SENA. CFP itself has focussed on supplying technial information and making loans to finance technical Consultants. In addition, CFP has sought to coordinate and better focus the technical assistance activities of the specialized agencies. This new approach represents a positive step,  - iv - although SSIs' reluctance to accept and pay for the full cost of technical assistance is likely to remain a constraint (para. 4.21-4.24). During the life of the Loan CFP's organization was streamlined considerably. The most important aspects of its institutional development have been the strengthening of CFP's regional offices and substantial changes in its operating policies and procedures (paras. 4.02-4.07). Nevertheless, CFP's administrative costs have remained relatively high and target ratios of administrative costs to total assets were not achieved. Because of the strong monetary control measures adopted by the Colombian Authorities in the late 1970s, the Bank's discussions with the Government have focussed above all on CFP's resource position tending to preempt a broader review of SSI policies. Also, the lack of success in Bank's policy dialogue stemmed in part from a failure to define specifically enough which are the policies of particular relevance for SSI sector development and what policy changes might be conducive to promotion of SSI (paras. 5.02, 5.03). Other points of interest are: - An improvement in the maturity offered by CFP on its credits for fixed assets financing (para. 4.14); - Introduction of full time supervision of CFP's clients conducted by the regional offices (para. 4.05); - CFP's resource mobilization, while adequate in quantitative terms, was not fully satisfactory as CFP continued to depend heavily on official sources (paras. 4.08-4.11). - Substantial reduction of CFP's portfolio affected by arrears (para. 4.20);and - CFP's involvement in the new micro-enterprises program (para. 4.26).  PROJECT COMPLETION REPORT COLOMBIA: SECOND SMALL-SCALE INDUSTRY PROJECT (LOAN 1451-CO) I. INTRODUCTION 1.01 Corporacion Financiera Popular (CFP) was founded in 1967 by Banco Popular, a government-owned commercial bank, partly in response to a study by the Stanford Research Institute on the prospects and needs of Colombian small scale industry.1/ CFP's main institutional objective, as broadly defined in its statutes, is to assist in the promotion and development of small- and medium-scale industrial, agroindustrial and mining enterprises (SSIs) by providing medium- and long-term financing. Since commercial banks and private financieras focus mainly on medium and large firms, CFP's role is to develop and help put into effect a broad range of services tailored to the characteristics and needs of SSIs. 1.02 The Bank has made three loans for CFP. Loan 1071-CO, approved in January 1975, for US$5.5 million equivalent was the Bank's first SSI operation in Latin America; the second, Loan 1451-CO, for US$15.0 million was approved in June 1977; and the third, Loan 1834-CO for US$32.0 million was approved in April 1980. Bank lending to support the Colombian industrial sector has been well diversified, encompassing eight more loans totalling US$492.0 million to finance industry through private development finance companies; an agroindustrial loan component of US$19.0 million mainly for medium-sized and small enterprises; a loan of US$15.0 million for an export processing zone in Cartagena; and a loan component of US$2.0 million for very small enterprises in target areas of the Intermediate Cities Urban Project. 1.03 Preparation of Loan 1451-CO began in early 1976. Appraisal took place in October/November 1976 and February 1977. The Loan was signed in September 1977 and became effective five months later. This report covers the period 1977-1981, during which the Loan was committed and disbursed. It focusses on activities that pertain mainly to Loan 1451-CO. II. OBJECTIVES AND EXPECTATIONS OF THE BANK 2.01 The second loan to CFP was designed to build on the achievements of Loan 1071-CO, and to complement Bank lending to the private DFCs for larger industrial subprojects, with the following objectives: (i) alleviate SSI's inadequate access to credit by providing funds on reasonable conditions for the establishment, expansion or relocation of privately- owned small industrial firms and cooperatives; 1/ There is not a generally accepted definition of SSI in Colombia. For the purpose of Loan 1451-CO SSIs are defined as manufacturing enterprises with total assets below US$650,000 equivalent.  -2- (ii) assist CFP in building up a diversified and sound resource base for its operations through 1980; (iii) build up further CFP's technical capability and operational effectiveness for efficiently allocating scarce development funds and for coordinating technical assistance to SSI; (iv) support, through CFP's onlending, the government's industrial decentralization and regional development policies; and (v) promote government policies more responsive to SSI's financial and technical needs. 2.02 The Bank Loan of US$15.0 million was made to Banco de la Republica (BR), Colombia's Central Bank, which onlent the proceeds to CFP in local currency. The Loan had two components: US$14.9 million for CFP to make subloans to SSIs, and US$0.1 million for technical assistance to CFP and its clients, an amount which was later increased to US$0.2 million. Under the lending component, to help ensure financing on reasonable terms, all subloans were subject to a minimum four-year maturity and one year grace period. The onlending interest rate for subborrowers was initially 24%, with CFP's spread of 5.5% per subloan to enterprises located in Bogota, Medellin and Cali, and 7% elsewhere. Technical assistance subloans carried an interest rate of 15% p.a., and CFP's spread was 3%. Maturity and approval conditions were similar to those applied under the lending component. All subloans were in Colombian pesos, with BR bearing the foreign exchange risk. 2.03 The economic and social benefits to be brought about by the project were expected to be substantial. An estimated 600-750 small entrepreneurs were expected to benefit from Bank funds, with an expected 40% of subloans going to enterprises located outside Colombia's three major cities. Bank financing was expected to help foster 3,000-4,000 direct job opportunities with another 1,000-1,500 created indirectly through forward and backward linkages. A wide variety of industries were to benefit from the project, with no single industrial subsector likely to receive more than 20% of the subloans. It was also expected that about 10-15% would involve export-oriented operations and an equal number the establishment of new enterprises. Since the revenues generated by the project were estimated to accrue mostly to unskilled workers, small owners-operators and the government, its income distribution impact was expected to be good. 2.04 The project was expected also to help CFP's development as a specialized SSI institution by assisting CFP to strengthening its resources, setting up an internal information system and SSI data bank, and laying the basis for organizing its regional offices as cost centers. Specifically, the government was expected to take steps through 1980 to provide CFP with an adequate resource base including (i) annual contributions to CFP's capital stock to help compensate for the erosion of CFP's paid-in capital through inflation, for a total of Col$225  -3- million; (ii) opening of new local sources of borrowings to CFP of Col$50 million annually through 1980 to cover a local currency gap of Col$250 million; and (iii) reviewing with BR the Fondo Financiero Industrial's (FFI)2/ financial situation and the issuing of appropriate resolutions to improve, by year-end 1977, FFI's resource base and rediscounting characteristics to permit broader SSI access to its financing and provide financial intermediaries with a better incentive structure to assist SSI in the less developed regions of the country. Also, CFP expected to play a major role in coordinating the activities of the National Vocational Training Organization (SENA), the Foundation for the Development of Scientific and Technological Research (FICITEC) and other institutions in providing technical assistance to SSEs. 2.05 As part of Loan preparation, the Bank identified some areas where improvements were needed to strengthen the overall impact of national SSI policies and programs. In this regard, in addition to the institutional development of CFP, and the coordination of technical assistance for SSIs, the Loan was expected to have a sectoral impact by institutionalizing within the government responsibility for: (i) gauging the impact of past and new government policies and programs on SSIs; (ii) ensuring a sufficient and timely flow of resources to SSIs; and (iii) establishing a coordinated policy framework to promote SSIs. 2.06 Most of the project's objectives were met in a satisfactory degree. The project represented a major source of SSI term financing, supporting relatively small subprojects and achieving a satisfactory geographical and subsectoral distribution. It also had an important impact on SSI employment, output and productivity with most of the assisted subprojects experiencing satisfactory rates of return. During the project's implementation, CFP's technical capabilities in allocating financial resources and coordinating technical assistance to SSI were further strengthened as well as the role of its regional offices. CFP succeeded in achieving a satisfactory operational growth, maintaining a sound quality of its portolio and mobilizing financial resources. Diversification uf its resource base that would allow CFP a more stable growth, however, has not been fully achieved. The project has been less successful in promoting a government coordinated policy framework more responsive to SSI's development needs. III. UTILIZATION OF LOAN PROCEEDS Economic Environment 3.01 During the second half of 1978, when the first disbursememts under the loan were made, the industrial sector began to lose the dynamism it had experienced in the 1976-78 period. Industrial production during that time (1976-1978) grew at an average annual rate of 6.6% mainly because of a strong domestic demand resulting from the boom in coffee prices that 2/ FFI rediscounts loans made by financial intermediaries to SSIs for fixed assets and working capital.  -4 - began in late 1975. As a result, capacity utilization in manufacturing reached 86% in 1978 and factory employment was up 1.8% over the 1977 level. Manufacturing exports, however, stagnated during that time, and in 1978 they represented only 6.9% of total gross value of industrial output as compared to 10.7% in 1974. 3.02 Given the priority of the stabilization effort to control inflation through restrictive credit policies, the industrial sector was not able to take full advantage of the flow of financial resources to Colombia during 1976-78, to further increase its rates of real growth and capital accumulation. During the period industrial investment remained relatively low. By mid-1979, the economic conditions changed, the economy began slowing down, inflationary pressures resumed after a year's respite and the balance of payments outlook began to deteriorate. Industrial output growth rate in 1979 (4.5%) barely surpassed half of that achieved in the previous year (8.6%). Manufactured exports showed a modest growth in 1979, but because of the real appreciation of the exchange rate they started to decline and experienced a substantial drop in real terms in 1980 (Annex 1). High interest rates, which in the 1979-80 period reached 15% or more in real terms further affected industrial sector investment. Factory employment in the manufacturing sector declined by 1% in 1980 and the output growth was only 2.6%. 3.03 Although increased investment efforts by the public and private sectors provided a stimulus for improved growth performance in 1981, the industrial sector still faced a series of constraints. Low export competitiveness, persistence of slow growth in domestic and international demand and frequent power shortages during the early part of 1981 were the principal factors leading to a negative growth rate of -1.2% in industrial production in 1981.3/ 3.04 Detailed data are not available to determine the impact of the changes in the overall world and national economic conditions on the SSI sector. Based on recent surveys, some observations can nevertheless be made.4/ During 1978-80, SSI's output grew about 6.6% p.a. in real terms as compared to 5.2% for the manufacturing as a whole. Like the total industrial sector, SSI's growth rates have been declining since 1978 (see Annex 2). The average capacity utilization of the SSIs in the sauple was 67%. Rubber products, metal mechanical and garment industries show the most vigorous growth whereas firms producing paper had no increase in production, and production of footwear declined during 1978-80. In 1980, four SSI subsectors had negative growth rates (textiles, leather, paper and chemicals). SSIs on the average exported less than 2.5% of their output in 3/ Preliminary estimate. 4/ A recent survey carried out by the Bank and annual surveys carried out by CFP during 1978-81 (Encuesta Industrial--Situacion y Perspectivas de la Pequena y Mediana Industria en Colombia). The CFP's surveys were on some 700 enterprises, which are the larger SSIs with access to banking sector's financing.  -5 - spite of an exports growth of 13% p.a. in real terms from 1978-80. Total sales showed a real growth similar to that of SSI production in 1978-80 period (6.7% p.a.), but during the last two years because of declining domestic demand they grew considerably less than the output. In SSIs' view, the main problems concerning the production process were high cost of raw materials, difficulties to obtain working capital financing and the absence of government support to stimulate SSI. Because of difficulties to obtain external resources, 52% of the total financing came from small industrialists' own resources in 1980, commercial banks provided 15.6% and CFP 12.5%. Almost 71% of the financing in 1980 went for working capital and over 25% for machinery and construction. Commitments and Disbursements 3.05 After some initial start-up delay the pace of commitment of Loan 1451-CO became faster than foreseen at appraisal due to the strong demand for subloans. During 1979, however, demand slackened somewhat and the terminal date to submit to the Bank subloans had to be extended by six months (until June 30, 1980). Investment and technical assistance subprojects submitted by CFP by June 30, 1980 appeared sufficient to fully commit the loan. Nevertheless, due principally to exchange rate fluctuations between the Colombian peso and the US dollar during the loan commitment period, it became obvious by early 1981 that about 6.7% of the proceeds of the loan (US$1.0 million equivalent) would not be required by the subprojects submitted theretofore. The Bank accepted the CFP's proposal that the uncommitted proceeds be made available to finance a group of 55 investment and technical assistance subprojects, all of which had been submitted to the Bank prior to June 30, 1980. Throughout the commitment period, Bank funds represented an important source of CFP's financing, accounting on average for some 23% of total CFP commitments between mid-1978 and mid-1981. 3.06 Disbursements under the loan started some five months after loan effectiveness. As of December 31, 1980, the original closing date for the loan, aggregate disbursements amounted to US$13.5 million, equivalent to 90% of the loan (Annex 3). Due mainly to the initial commitment delays, cancellations during the commitment period, and exchange rate fluctuations, the closing date for disbursements was extended to September 30, 1981. Overall, given the growing number of small entrepreneurs which experienced delays in meeting the legal and other conditions of subloan effectiveness, both the commitment and disbursement experience of the loan was quite good. Characteristics of Lending 3.07 Since term-lending for SSI was in short supply in Colombia during 1978-81, CFP had no difficulties in identifying a large number of projects that were eligible for financing. Bank subloans provided term financing for 696 subprojects that were expected to create 3,280 direct jobs in line with the original target ranges of 600-750 subprojects and 3,000-4,000 direct new jobs. About 75% of the lending was to firms with  -6 - total assets below US$300,0005/ equivalent which compares favorably with a 50% minimum target. Only 12 subloans were above the US$100,000 "free limit" for Bank review, accounting for some 11% of total commitment under the loan. Annex 4 gives a detailed breakdown of subloan approvals. 3.08 Characteristics of ultimate beneficiaries matched up closely with the initial expectations. About 70% of the assisted enterprises have less than five owners/shareholders, while about half of the assisted concerns have total assets below Col$5 million (about US$116,000 equivalent), and employed less than 20 people (three-quarters of the firms fall in the below 50 employee category). Out of the 665 enterprises that benefited from Bank funds 70 were newly established with the help of the loan and about 35% had been in existence for less than five years. CFP's clientele included a broad spectrum of industrial subsectors, and no single subsector received more than 20% of subloans. The firms that obtained the largest number of subloans are in the food and beverage (17.8%), paper and printing (13.7%), wood and furniture (10.6%), non-metallic minerals (8.9%) and apparel and footwear subsectors (8.9%). 3.09 The average size of subloans under the lending component was Col$1.0 million (about US$23,950 equivalent) which falls within the US$20,000-25,000 range estimated at the time of appraisal. About 60% of the subloan amounts were below Col$2 million (US$46,400 equivalent). Some 14% of the subloans had maturities of less than 4 years, about 70% were between 4 and 6 years, and 16% had maturities above 6 years. The relatively low average maturity is partly a result of weaknesses in CFP's cash flow and repayment capacity analysis. In response to Bank recommendation during project supervision, CFP introduced a detailed flow of funds analysis for all subloans exceeding Col$0.5 million. This gradually improved the adequacy of the maturities and grace periods granted during the loan commitment period. 3.10 As can be seen in Annex 4, more than 86% of the subprojects involved capacity expansion, 10% provided "start-up" costs for new enterprises, and 4% were for technical assistance. As expected, purchase of machinery and equipment was the main category financed under the loan, amounting to 62% of the total. Industrial construction expenditures accounted for a high 37% of the total financing under the loan.6/ About US$0.2 million were used for technical assistance to finance 26 technical assistance subprojects, accounting for 1.2% of total loan amount. Over 50% of the technical assistance subprojects were for accounting and administrative assistance, 25% for assistance related to production 5/ Smaller SSI as defined in Loan 1451-CO. 6/ Under Loan 1834-CO CFP started a new policy for industrial construction financing. Up to 90% of construction costs for productive purposes, and no more than 20% of total construction costs for office construction can be financed with CFP funds. For subprojects to be established in the Rio Negro industrial park, the maximum financing is 70% of the subproject cost.  - 7 - processes and the balance for technical assistance regarding marketing, financial management and organization. Geographical dispersion of Bank assisted enterprises was more favorable than originally expected.7/ Some 63% of the subloans accounting for 49% of the total loan amount went to the firms located outside of the most industrialized departments of Cundinamarca, Antioquia and Valle. This positive shift in geographical distribution of CFP's lending is in part a result of CFP's efforts to strengthen the role of its regional offices. 3.11 The bulk (93%) of the expected production of the subprojects was geared towards local markets. Only 2.5% of the production was oriented solely towards exports and 4.5% towards both exports and domestic markets. Lower than expected export orientation8/ of Colombian SSIs can be attributed to the strong domestic demand for SSI subsector products as well as to the lack of knowledge of foreign markets, the difficulties in obtaining adequate working capital financing,and the appreciating real value of the Colombian peso during the loan commitment period which lowered the export competitiveness of enterprises. 3.12 The average total cost per subproject amounted to about Col$2.7 million (US$63,500 equivalent) as compared to the SAR estimate of Col$2-2.75 million (US$55-70,000 equivalent). The total project cost reached US$44.2 million i.e., 5% higher than expected. The Bank's participation in total project cost reached 34% (Table 1) compared to an original forecast of 36%. Reflecting domestic currency resources constraints experienced during the project period, CFP credits contributed only 40% of total cost of the project, compared to 60% expected; subborrowers contributed 38% (24% forecast) and other local sources, including extra-bank market and suppliers' credit, provided 11% (7% estimated at the time of appraisal). Overall, institutional credit financed 50% of subproject costs, compared to 76% projected at appraisal. 7/ About 40% of the subloans were supposed to go to enterprises located outside of Colombia's three major industrial centers. 8/ The SAR contemplated that some 10-15% of the subprojects would be export-oriented.  - 8 - Table 1: Sources and Uses of Funds for Subproject Financing Under Loan 1451-CO Uses Working Technical Sources Fixed Assets Caeital Assistance Total ColS ColS CclS ColS 14illion % Vil1icn % Yillion 7 Miillion 2 CFP Credits 719.2 60.5 30.3 4.5 7.7 20.7 757.2 39.7 CUP C--n Resources 72.6 6.1 - - 72.6 3.8 .ondo Fir:anciero Industrial 7.5 0.6 30.3 4.5 0.3 0.8 38.1 2.0 World Bank 639.1 53.3 - - 7.4 19.9 646.5 33.9 Ultimate Eorro-zers' Resources 256.2 21.6 462.9 68.0 14.7 39.5 733.8 33.5 Other Fina.ncial Institutiouts 121.9 10.3 84.1 12.3 0.2 0.5 206.2 10.8 Others 91.4 7.7 103.8 15.2 14.6 39.3 209.8 11.0 Trotal 1,168.7 100.0 U,