Afghanistan - First Agricultural Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 2111 Project Performance Audit Report AFGHANISTAN FIRST AGRICULTURAL CREDIT PROJECT (Credit 202-AF) June 27, 1978 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS GOA - Government of Afghanistan MAI - Ministry of Agriculture and Irrigation MIS - Minor Irrigation Section DAB - Da Afghanistan Bank MIR - Minor Irrigation Rehabilitation CP - IBRD/FAO Cooperative Program PCC - Project Coordinating Committee AFC - Afghan Fertilizer Company PACCA - Program for Agricultural Credit and Cooperatives in Afghanistan BUREC - United States Bureau of Reclamation PDD - Provincial Development Department ICB - International Competitive Bidding AgBank - Agricultural Development Bank FOR OFFICIAL USE ONLY Project Performance Audit Report AFGHANISTAN FIRST AGRICULTURAL CREDIT PROJECT (Credit 202-AF) Table of Contents Page No. Preface Basic Data Sheet Highlights PROJECT PERFORMANCE AUDIT MEMORANDUM I. Introduction i II. Project Summary ii III. Comments iv A. Shift Toward the Tractorization-Expansion Model iv B. Failure in Implementing the Minor Irrigation Component vi C. Impact on Production vii D. Training ix Attachment PROJECT COMPLETION REPORT I. Introduction 1 II. Project Implementation 4 III. Institutional Development and Performance 11 IV. Financial, Economic and Social Impacts 23 V. Government Performance 33 VI. Bank Performance 35 VII. Conclusions and Lessons Learnt 37 Annexes 1-5 Map his documant has a restricted distribution and may be used by recipients only in the performance o1 their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Project Performance Audit Report AFGHANISTAN FIRST AGRICULTURAL CREDIT PROJECT (Credit 202-AF) PREFACE Credit 202-AF for US$5 million was signed in June 1970 and closed, fully disbursed, in December 1975. It was followed by a second agricultural credit project partly financed by Credit 539-AF for US$13 million, signed in April 1975, and by a third one, partly financed by Credit 721-AF for US$12 million, signed in June 1977. The report consists of a Project Completion Report (PCR), issued by the Europe, Middle East and North Africa Regional Office in November 1976, and a covering Memorandum prepared by the Operations Evaluation Depart- ment (OED), which summarizes the main developments under the prbjeqt and includes comments on some important issues. The audit finds the PCR comprehensive and accurate with respect to the project's principal achievements and shortcomings. The Memorandum is based on the PCR, on an examination of the project files, on discussions with Bank staff involved in the project, and on an OED mission to Afghanistan in April 1977. 1/ During the mission, officers of the Government, AgBank and UNDP, and the consultants in Kabul - as well as at their headquarters in Frankfurt (Hendrikson) and Cambridge (MacDonald) - were interviewed, and some farms whose development had been partly financed out of the credit proceeds were visited. Comments on a previous draft received from the Government, UNDP and the consultants were taken into consideration while preparing the final version. The valuable assistance provided by the Government of Afghanistan, the consultants, UNDP, and the farmers and ranchers visited during the preparation of this report is gratefully acknowledged. 1/ Made in connection with the Special Study by OED on The Role and Use of Consultants in Bank Group Projects, Report No. 1824, December 8, 1977.  basic Data Skeet AFGANISTAN FIRST AGRICULTURAL CREDIT PROJECT (CREDIT 202-AF) A. Amount (US$ m1n Exchange As of 12/31177 Original Disbursed Adjustment Outstanding Credit 202-AF 5.000 5.000 .291 5.291 1/ B. Borrower and Beneficiary Borrower: Republic of Afghanistan Fiscal Year of Borrower: 3/21-3/20 Beneficiary: Agricultural Development Bank of Fiscal Year of Beneficiary: Same Afghanistan (AgBank) to on-lend (621-1/4 yrs. behind Gregorian CY) C. Exchange Rates: 1970 US$1 Af75 1971 US$1 Af85 1972 US$1 = Af85 1973 US$1 Af8O 1974 US$1 = Af61 1975 US$1 Af55 D. Project Data Actual or Original Plan Revis ions Re-estimate Conception in the Bank 8/24/67 2/ Negotiations 5/20/70 Board Approval 6/11/70 Credit Agreement 6/24/70 Effectiveness 10/20/70 11/30/70 12/29/70 Physical Completion 12/31/74 11/75 % of original project 100 actually completed Credit Closing 12)31/74 6130/75 12/31/75 Total Costs (US$ min) 7.2 7.2 Econ Rate of Return (7) 21 25 E. Mission Data Month/ No. of No. of Date of year Weeks Persons Man-weeks-- Re ort Appraisal (first)5/ 1.f/7 3 4 12.0 8124767 Identification 1/69 1.9 2 3.8 2/9/69 Preparation 7/69 3.0 4 12.0 9/23/69 Appraisal (second) 11/69 4 4 16.0 5/27170 Subtotal 11.9 43.8 Supervision I 9/70 1.3 2 2.6 10/28/70 Supervision II 5/71 1 1 1.0 6/16/71 Supervision III 10-L1/71 3 3 6.0 1/12/72 Supervision IV 2/72 0.6 1 0.6 3/22/72 Supervision V 6/72 1 4 4.0 6/22/72 Supervision VI 1/73 1 3 3.0 3/12/73 Supervision VII 5/73 1 1 1.0 7/16/73 Supervision VIII LO/73 1 2 2.0 11/15/73 Supervision IX 6/ 4/74 1 3 3.0 5/13/74 Supervision X 1/ 20/74 3/28/75 Supervision XI J/ 4/75 1 2 2.0 5/27/75 Supervision XII _1 .1/75 1 2 2.0 1/7/76 Subtotal 27.2 Completion 17/ 3/76 1 2 2.0 11/5/76 Completion II 1. 7/76 1 3 3.0 Subtotal 5.0 Total 77.0 F. Follow-on Projects Credit 539 for US$13.0 million, signed 4/25/75 for Second Agricultural Credit ProJect. Credit 721 for US$12.0 million, signed 6/20/77 for Third Agricultural Credit Prolect. 1/ First maturity due on 6115/80. 1/ First Reference to the project as it was eventually implemented. The original lending plus technical assistance project was first mentioned in Bank files in December 1964. 3/ Based on a seven-day field week; adjusted to account for part-time mission members and missions responsible for several activities. 4/ Where appropriate, date of Full Report is given. 5/ Following two FAO/IBRD preparation missions in 1965 and 1966, the first Appraisal mission recommended against lending at the tine. 6/ Appraisal of the Second Agricultural Credit Project (eventually Credit 539-AF). 7/ Also supervised Credit 539-AF.  Project Performance Audit Report AFGHANISTAN FIRST AGRICULTURAL CREDIT PROJECT (Credit 202-AF) HIGHLIGHTS The project financed on-lending activities by the Agricultural Development Bank (AgBank). It also aimed at developing a capability in the Ministry of Agriculture and Irrigation to carry out minor irrigation rehabilitation projects. A UNDP project, with the Bank as executing agency, was implemented concurrently to reorganize, develop and manage AgBank. Consultant firms were involved in the last two efforts. The UNDP and the IDA projects made considerable progress in building up AgBank, which evolved from a poorly organized entity into a relatively independent, equity-based, revenue-generating agency. AgBank's development has been successfully continued under follow-on projects financed by UNDP as well as by IDA. On the other hand, institution building in the minor irrigation area failed, mainly because of poor design of this project component. Lack of experience with the Bank's procurement procedures initially delayed disbursements. Afterwards, funds provided for on-lending were fully utilized. Only 1251 sub-loans were made over a four-year period, as compared with the 7180 sub-loans over a three-year period envisaged at appraisal. About half of the participating farmers belong to the group of the very poor, receiving altogether 11% of the loan proceeds. On-lending shifted from wells, pumpsets and minor irrigation schemes towards tractors, which eventually accounted for 69% of total Bank disbursements. The number of tractor loans was almost 50% larger than expected, while only 5 sub-loans were made for minor irrigation schemes, down from the 2800 anticipated at appraisal. The project's incremental production was only one-third of what had been expected. There is no information on the effect of tractors on yields. Assuming they had some effect, the economic rate of return the project is likely to yield has been re-estimated at 25%, above the 21% anticipated at appraisal. The following points may be of special interest: - shift in on-lending towards tractors, and factors contributing to it, are similar to what has been observed in other projects reviewed by OED (paras. 13 and 14); - inadequate consideration of sociological variables contributed to the failure in implementing the minor irrigation com- ponent (para.. 17, and PCR, paras. 2.18, 2.19 (iv and v), and 7.05). - lack of data on on-farm developments made it difficult to assess project success (paras. 21, and 23-25); - consultants placed in in-line, executive positions could spare no time for training; need for full-time instructors (para. 27, and PCR, paras. 3.10, 3.40, 3.41, and 5.06); - problems in procuring certain goods initially delayed project implementation (PCR, paras. 2.20-2.23); - performance of one of the consulting firms was (and continues to be) very satisfactory; the performance of the other one was mixed, although there are extenuating factors (PCR, paras. 3.36-3.46); - satisfactory supervision by the Bank (PCR, paras. 6.07 and 6.08). Project Performance Audit Memorandum AFGHANISTAN FIRST AGRICULTURAL CREDIT PROJECT (Credit 202-AF) I. INTRODUCTION 1. Two different though closely associated projects were undertaken concurrently in Afghanistan: (i) Reorganization and Management of the Agricultural Development Bank (AgBank), a technical assistance project financed by UNDP, with the Bank as executing agency, approved in June 1969 and currently in its third three-year phase (1975-78); and (ii) First Agricultural Credit Project, a development project partly financed by Credit 202--AF for US$5 million, approved in June 1970 and closed in December 1975. Both projects are closely intertwined efforts towards a single endeavor: to develop AgBank from a small agency, poorly organized, managed and staffed, into a modern agricultural development bank. Thus, both projects have been generally considered as one throughout their history. 2. The particular objective of the UNDP project was to reorganize AgBank to make it a more effective agricultural lending institution. The Bank, which was chosen (al: its own suggestion) as executing agency, re- tained a consulting firm which supplied four experts to reorganize and manage AgBank. 1/ 3. The specific objectives of the Credit were to: (i) finance on- lending activities (tractors, wells and pumpsets, and minor irrigation re- habilitation works); and (ii) develop a capability in the then Ministry of Agriculture and Irrigation (MAI) to identify, design, and implement minor irrigation rehabilitation projects (MIR) in order to support AgBank on-lending in this field. A Minor Irrigation Section (MIS) was to be estab- lished in the MAI. A consulting firm was retained by the Government, as required in the Credit Agreement, to provide four experts to establish and manage MIS, to train its staff, and to prepare MIR projects. 4. Both the attached Project Completion Report (PCR) and this Memo- randum concentrate on developments under the Credit. References to the UNDP project are made throughout both documents, however, for developments under one project cannot be properly presented and understood without referring to the other. 2/ I/ A fifth expert (an instructor) was added in 1971. 2/ Since Bank regulations do not require that PCRs and PPARs be prepared on projects financed by other agencies with the Bank as executing agency, OED takes this opportunity to discuss Bank performance and achievements under the UNDP project. - ii - II. PROJECT SUMMARY 5. The Bank -found the project, as originally prepared by the Bank/FAQ Cooperative Program (CP), unsuitable for financing (May 1967) and recommen- ded a complete reorganization of AgBank as a condition for the Credit. In 1969, UNDP agreed to finance a technical assistance project, for which the Bank became the executing agency, to undertake such reorganization. After further preparation, the project was appraised in November 1969 and approved in June 1970. It anticipated a total of 7,180 loans to be made over a three-year period. About one-half of the US$6.0 million to be on-lent was to be devoted to tractors and related equipment; 28%, to MIR schemes; 17%, to pumpsets; and 4%, to animal drawn equipment. An on-farm development category was introduced in 1974. Of the total project cost of about US$7.2 million, 70% (US$5.0 million) was to be financed by the Credit, 18% (US$1.3 million) by sub-borrowers, 11% (US$0.8 million) by AgBank, and 1% (US$0.1 million) by Government. 6. Only 1,251 loans were actually made, and this was over a four-year period. More tractor loans were made than anticipated, but only a handful for MIR schemes, mainly because of problems in the MIS of MAI. Only one-third of the anticipated number of pump loans materialized as a result of the MIS problems, favorable precipitation, AgBank's appraisal and security procedures, and the lack of suitable pumps. Animal drawn implement loans were adversely affected by several factors. The on-farm development category proved to be both timely and successful. 7. The MIS, which included a Ground Water Development Sub-Section, was set up within MAI to assist the ministry in its dealings with minor irrigation rehabilitation and to provide AgBank with technical and economic appraisals of MIR schemes for its lending operations. The Bank appraisal assumed that substantial production increases could be achieved quickly and at low cost by rehabilitating existing small irrigation schemes. However, the implementation of this project component met with constant difficulties and, despite repeated attempts to overcome them, it was finally abandoned in May 1974. Institutional and organizational problems hampered the work of MIS; the consultants, while giving sound technical advice, were not able to build up a workable organization; farmers objected to incurring debt to finance MIR; and the absence of legal bases for establishing water users' associations, as well as loan security and land tenure problems, proved to be severe constraints. The implications of water, and water rights in this subsistence society were not fully appreciated by either the Government or the Bank. Of 72 schemes inspected by MIS, 27 were recommended for implementation; but only 9 detailed feasibility studies were prepared. Eventually, implementation proceeded on only three, but one of these was never completed. At that stage it probably would have been more desirable to develop a capability for minor irrigation rehabilitation in the AgBank rather than in the ministry. 8. Lack of experience with the Bank's International Competitive Bidding (ICB) procurement procedures initially delayed disbursements for - iii - farm mechanization and groundwater development. Requiring ICB for tractors proved correct, but too many spare parts were ordered. After-sales services for tractors were generally satisfactory. The Afghan farmers did not like the water pumps procured under the project, and after-sales services for them were unsatisfactory. 9. Regarding AgBank, the project made considerable progress in institution building. AgBank evolved from a poorly organized entity only used to channel Government funds and depending on annual budgetary transfers for its operations, to a relatively independent equity-based, revenue- gererating institution, organized in five functional departments. Increas- ing operating autonomy has been granted to AgBank's 12 branch and 4 sub- branch offices. A comprehensive staff training program was implemented, although more staff should have been trained during the initial project period. Top management has been strengthened. More effective and flexible lending policies and procedures are gradually being introduced, and the loan portfolio is expanding on the basis of sound financial operations. New programs, such as the Fertilizer Program have been successfully carried out by AgBank, which also served as a lending channel for an IDA-financed livestock project. Having the expatriate experts occupy executive positions (an idea originally opposed by the Government) was one important factor contributing to success. 10. Tractor sub-loans comprised about 90% of the lending program. Increases in total cultivated area conformed with appraisal targets, but double cropping intensity reached only half of the estimated percentage. Furthermore, the wheat area increased more than projected, while expected expansions of maize and cotton areas did not occur. Yield increases for wheat approached the appraisal targets, but no increases were recorded for maize and cotton. Incremental farm incomes increased more than expected - partly due to overestimated operating expenses at the time of appraisal. Based on the limited data available, the PCR's financial rate of return for tractors is 27%, as compared with the appraisal estimate of 31%. The financial rate of return for pumpsets is estimated at 68%, as compared with 23% envisaged at appraisal; and the financial rate of return for draft oxen loans is estimated to be over 200%. Thus, investments made under the project proved very profitable. Social implications of tractor mechaniza- tion on employment are not analyzed. 11. The project's value of incremental production - about Af 222 million (US$4 million equivalent) - is well below the appraisal targets (US$12 million), mainly because only 1,400 loans were made as compared with 7,180 estimated at appraisal. Tractor farms accounted for about 75% of the incremental production. The direct and indirect annual foreign exchange earnings generated by the project amount to about US$3.8 million equivalent. The overall economic rate of return according to the PCR is 46%, as compared with the appraisal estimate of 21%. The increase is due mainly to higher prices for major commodities and smaller than expected increases on farm costs. 12. About half of the project farmers belong.to the group of the very poor (below US$44 per capita incomes). They received 11% of the loan - iv - amount. At the other end, about 12% of the farmers, receiving 21% of the loan amount, had pre-project incomes five times the average per capita income. Small scale, low capital investments for on-farm developments proved relatively more profitable to farmers (although much smaller in absolute terms) than tractor investment, and more effective in reaching the very poor group. The average per capita income of farmers receiving tractor loans was twice that of farmers receiving other kinds of loans. The average farm size of tractor owners is well above that of farmers who bought pumps or received credit for on-farm development, and the percentage of leased land cultivated is higher for tractor farmers than for farmers receiving credit for oxen. III. COMMENTS A. Shift Toward the Tractorization-Expansion Model 13. While evaluating 5 Bank-financed agricultural credit programs begun during the 1960s, OED found that developments during implementation followed some general patterns: the loan/credit proceeds tended to be reallocated from tubewells, pumpsets and other minor irrigation investments towards tractors in cases where both lending lines were included in the project; the size of average farms participating was noticeably larger than envisaged at appraisal; production had indeed increased, but more as a result of expanding existing farming systems than through the adoption of new technologies and intensive methods that were described at appraisal; the rate of substitution of funds was high in the early years of the programs; recovery rates were poor in 2 of the 5 cases. I/ The Afghanistan First Agricultural Credit Project followed the same general pattern: (a) On-lending for tractors, which was expected, at appraisal, to be 45% of total Bank disbursements, was actually 69%. The number of tractor loans was almost 50% larger than expected. The share of tractor loans increased from 6% to 52% (PCR, Table 1, and para. 2.07) of all credit accounts. (b) On-farm irrigation investments were substantially less than expected: actual disbursements for pumpsets amounted to only half of the appraisal estimates: almost no dis- bursements were made for minor irrigation rehabilitation (MIR) schemes; both together accounted for less than 20% of the original allocation for these components. The number of loans decreased from 430 (appraisal) to 162 (actual) for pumpsets, and from 2,800 to 5 for MIR schemes (PCR, Table 1, and para. 2.07). 1/ OED, Agricultural Credit Programs Report No. 1357, November 18, 1976. - v - (c) Farms receiving loans were more than twice as large as expected: 136 ha (actual) vs. 60 ha (appraisal). (PCR, annex 2, table 7). (d) The cultivated area increased substantially (58%) on tractor farms, with above average expansions on large farms (177% increase for farms between 50 and 100 ha; 120% increase lor farms over 100 ha). There was an area reduction on small farms that the PCR does not analyze (PCR, Annex 2, Table 6). (e) Cropping intensities increased less than expected: from 103% to 117% (actual) compared with 100% to 135% (appraisal). Yields, too, showed lower increases than projected (PCR, Tables 3 and 4, and Annex 2, Table 1). (f) Loan security requirements (only mortgages on fixed assets were accepted; tractors could not be used as collaterals) prevented many small landowners, tenants and sharecroppers from borrowing (PCR, para. 3.21). (g) Tractor owners became heavily involved in custom work. On average, a farmer worked with his tractor about 230 hours per year (about one-fifth of the time a tractor is usually utilized in a year) on neighboring farms (PCR, para. 4.08). (h) Recovery rates are not yet adequate, though they have been improving steadily during the past years (PCR, para. 3.33). 14. Factors contributing to the shift towards tractors in Afghanistan seem to have been similar to those identified in the Agricultural Credit Study. On the one hand, farmers are interested in tractors because mechani- zation affords them opportunities to expand their farms, and their cultivated area, which usually results in the eviction of some tenants. Financial returns on the investment are attractive. 1/ On the other hand, different problems hampered on-lending for animal-drawn equipment (unsuitability of the locally made tool frame; lack of efficient extension services to promote their sale), pumpsets (favorable precipitation in 1974 through 1976, non-availability of suitable pumps, lack of agreement on fees to extend the services of the groundwater expert) and MIR schemes (see below, paras. 15-19). 1/ The PCR's current estimate of the financial rate of return for tractors is 27%; the appraisal estimate had been 31%. - vi - B. Failure in Implementing the Minor Irrigation Component 15. The failure to establish an efficient Minor Irrigation Section in the Ministry, and to carry out the minor irrigation rehabilitation activities scheduled in the project, meant that additional funds were available for lending for tractors. Legal and institutional problems, inadequate support of the concept and MIS by the MAI, and similar works provided free by the Government contributed to the failure. However, the main problem was the design of the MIR component, a factor mentioned in the PCR that deserves further elaboration. 16. Many of the old, minor schemes that serve most of the 2.6 million irrigated hectares in Afghanistan badly need rehabilitation; substantial benefits can accrue from it. The objective of the project was sound, namely, to try to rehabilitate these areas, to develop MAI's ability to identify, design, and implement MIR projects, and to establish a specialized section for this purpose. 17. However, linking the irrigation institutional development proposal to the on-lending component of the project, and requiring that farmers use credit to finance the MIR works, led to a number of problems. First, water distribution among users is governed by traditional laws and customary rights that favor upstream farmers at the expense of those located down- stream. There was no way to ensure that users profiting from MIR schemes - each scheme would normally benefit several farmers - would receive a pro- portional share of the additional water to be obtained. Thus, no basis existed for apportioning the cost of the MIR works - and the amount of credit and debt - among them. Specific legislation on water rights would have been needed to overcome that problem; passage of such legislation was not made a covenant of the Credit Agreement. I/ Second, most intended beneficiaries did not have legal title to their land; thus they could not be easily identified, and individual as well as collective guarantees were difficult to establish. Third, the Government was already involved in build- ing some major irrigation schemes at no charge to farmers, while the project required farmers to incur debt to finance the cost of the MIR works - this created some opposition by farmers to the credit scheme as established under the project. Fourth, other Government agencies - mainly the Provincial Development Department - began implementing similar minor irrigation schemes, at no cost to beneficiaries. Although these problems soon appeared, no attempt was made to modify the project's basic assumption - that MIR works had to be financed through farmer credit - throughout the project period. The PCR concludes that persistence with the scheme as originally conceived was a mistake (PCR, paras. 7.04-7.06). 1/ The Credit Agreement required only that legislation on water users association be passed, with no reference to water rights. This covenant was complied with only towards the end of 1974, the original closing date for the credit (PCR, paras. 1.12, 5.02 and 6.02). - vii - 13. Another cause of the delay was the opposition to the project which developed inside :he Ministry of Agriculture. The irrigation authorities became aware of the agreement entered into by the Government only after it had been negotiated. They strongly expressed their dis- agreement and even attempted to stop retainment of the consultants. I/ 19. In addition to these difficulties, problems arose with the con- sultants. The project called for the consultants to coordinate the task of other teams that were working in minor irrigation rehabilitation (mainly from FAO and US Bureau of Reclamation; also from the USSR, Bulgaria, India, et.c.); these teams resisted such coordination. C. Impact on Production 20. The first project did not provide for establishing a monitoring system. At the Bank's request, however, AgBank carried out a special survey on a 10% sample, by loan category, of all sub-borrowers, upon com- pletion of the project. In addition, 31 case studies (2.5% of all sub- borrowers) were studied in depth. Findings were compared with pre-project situation, as documented in AgBank files. The Bank found the survey data marginally reliable but the best judgment of the completion mission was that they could be considered as a reasonable, though not conclusive, basis upon which to assess the impact of the project (PCR, paras. 4.01-4.03). 21.. Overall increase in production was only one-third of what had been expected (US$4 million, as compared with US$12 million). Since project costs were in line with appraisal estimates, such a shortfall should have resulted in an economic :cate of return well below the 21% forecast at appraisal. The PCR, however, estimates it at 46% (PCR, para. 4.27). Several factors explain this unexpected result. First, prices for the major commodities (mainly wheat) were much higher than forecast at appraisal. Second, farmers' expenses did not increase as much as envisaged at appraisal (50% as compared with 150%, for tractors; 100% as compared with 900%, for pumpsets). And third, the PCR was able to isolate only 3% out of the 60% increase in yields observed on farms which received tractor loans as origi- nated from factors outside the project (PCR, paras. 4.21 and 4.27; 4.10, 4.17 and Annex 2, Table 1.; and footnote 4/ to Annex 2, Table 9). 1/ In addition the Ministry of Planning recommended that no consultant be retained under the Credit and proposed investigating the possibility of UNDP's financing it on a grant basis instead. - viii - 22. Benefits arising from the price factor were windfall benefits. The high price in 1975 accounted by itself for more than 5 points in the economic rate of return for tractor farms (87% of all sub-loans). The favorable comparison with appraisal expectations arising from the savings in costs does not necessarily reflect the project's effectiveness. It might mean only that incremental costs associated with the project were overestimated at appraisal; or that farmers were using tractors and pumpsets at an intensity below that anticipated at appraisal; or that farmers did not or could not provide accurate information on actual expenditures. The PCR does not examine these factors. 23. The effect of tractors on yields is a matter on which there is a great deal of uncertainty. Since tractors have been an important com- ponent in many of its projects, the Bank has conducted some research in this field. These studies, including the OED Agricultural Credit Evaluation, have found no evidence of significant tractor impact on yields. Control groups have shown that yield improvements ought to be attributed mostly to varietal changes and the use of chemical fertilizer, and would have occurred anyway.1/ 24. Nevertheless the data in the PCR give a different impression. The EMENA Regional Office has expressed the opinion that the data in the PCR are the most reliable findings that could be reported at this time, and that they are consistent with its staff's field observations. It acknowledges that reliability of the data could be questioned, but it does not feel that suf- ficiently sound basis exists to substitute alternative results to those re- ported. Unfortunately, the field survey run in Afghanistan for the PCR did not collect information that would allow a quantitative analysis of the re- ported yield increments. Appropriate measures have been adopted by the Bank and AgBank to obtain more reliable farm survey data during the preparation of the completion report for the Second Agricultural Credit project which will be fully disbursed in June 1979. 2/ 25. In view of this uncertainty it would be safer, in the meantime, to use a conservative figure for the effect of tractors on yields. If the contribution of tractors to the total yield increase is reduced from 95% to 25%, the economic rate of return on the whole project would be 25% rather than 46%. The financial rate of return on tractors would be 16%. 1/ There is some evidence however that tractors produce a yield impact on the hard pan of the Sahel and North Africa. 2/ Annex 2 of the last supervision report on the second project (Credit 539-AF) is attached to this memorandum. - ix - D. Training 26. The PCR presents the main problems encountered during implementation oE the training activitLes envisaged under the project, as well as the main achievements (PCR, para3. 3.10-3.13). Some additional comments can be made. 27. The consulting team retained under the UNDP project found that reorganizing and managing AgBank called for a full-time effort and was there- fore unable to devote sufficient time and manpower to training during the first two years of Phase I. The project design, which did refer to training as an activity of the consultants, did not provide for the resources (mainly manpower) to implement it. This was in line with the Bank's approach at the time: training within the country was regarded as a by-product of the con- sultants' main work. But this approach did not work in AgBank, because 95% of its staff needed basic training. When the Bank and the consultant realized that full-time training was necessary, they agreed that three instructors should be provided. However, the Government decided that Afghans could occupy two of these positions and agreed to only one being provided by the consultants. 28. While agreeing on the point made in the preceding paragraph, the consultants have pointed out a second reason for not conducting formal class- room training in the first two years. As long as the charter; board regulations; loan, finance, and supply regulations; working procedures, tools and tech- niques, had not been introduced yet, there would have been no relationship between what the employee would have been told in the training room, and what he was experiencing at his working place. For instance, he would have been told that a credit should be properly appraised and then approved by the Board, while in practice credits were still being extended without appraisal upon instructions coming from outside AgBank. 29. The training program in AgBank eventually succeeded; the qualifi- cations and efficiency of the average AgBank staff member have increased noticeably, contributing to - and being in itself a part of - the success of the project. Training of Afghan instructors, so that training will be continued in the future after the expatriates leave, has been another important achievement. 30. The consulting team involved in the MIS/MIR component prepared three manuals (on Minor Irrigation, Farm Management, and Groundwater), which seem to have met a need and are currently in use. 31,. Funds earmarked for fellowships under the credit were not used. As a matter of policy, the Government is reluctant to finance technical assistance (consultants, fellowships, etc.) out of loans or credits, because grant funds from bilateral sources are usually available and there is a large UNDP program.  Attachment AFGHANISTAN Second Agricultural Credit Project-/ Project Completion Report 1. The mission discussed with the AgBank monitoring unit the details of ithe preparation of the PCR for the Project. An agreed tentative outline of the coverage is attached as an Appendix to this Annex. It was agreed in principle that AgBank would prepare chapters II, III (1-4) and IV of such outline, paying particular attention to the financial and social aspects of the project and addressing the following questions: Who aresthe beneficiaries? What has been the impact of the project on production, income and employment? 2. The analysis of the financial and social aspects of the project would be based on a sample survey carried out in early 1978 covering 226 farms. The stratified sample is representative with a 95% probability of accuracy. For - the purposes of the PCR, the investments financed under the Second Agricultural Credit Project would be t3elected. 3. To obtain more reliable information on the impact of the project, the sample farms would be visited again at the end of 1978. The sample would thus cover the pre-investment year and - depending on when the investments were made - a point in time 1 to 3 years after completion of investments. 4. In order to compare the with-project situation with the without- project situation for the most important loan categories (tractors and fertilizer), some 25 "without-project" benchmark farms would be questioned not later than July, 1978. 5. AgBank would evaluate the sample survey and the information received on benchmark farms and prepare 7 farm investment models as follows: - tractor (lowland areas) - tractor (highland areas) - oxen - water pump - livestock - fertilizer (owner operated) - fertilizer (tenant operated) 6. The development of cropping patterns, crop yields, livestock numbers, various expense items and farm income of the sample farms would be compared with appraisal estimates and the performance of the benchmark farms. 1/ This is Annex 2 to the Supervision Report on the Second Agricultural Credit Project (Credit 539-AF), dated April 17, 1978. 7. Financial rates of return would be calculated for the models mentioned above. 8. The sample survey would be analyzed with regard to the beneficia- ries (area, farm size and type, family size, pre-project income) and the impact of the project on production, employment and income. 9. AFC would provide AgBank with information on fertilizer warehouses (e.g., implementation, procurement, costs, utilization). 10. AgBank would present its contribution to the PCR to IDA by March 1979. The next supervision mission (recommended for September) would review the monitoring unit's progress in data analysis. Appendix AFGHANISTAN SECOND AGRICULTURAL CREDIT PROJECT Project Completion Report Outline Outline I. Introduction 1. Background 2. Project Preparation and Appraisal 3. Project Objectives II. Project Implementation 1. Effectiveness 2. Project Cost 3. Disbursements, Reallocation of Funds 4. Physical Execution AFC Warehouses 5. Procurement 6. Monitoring and Reporting III. Institutional Development and Performance 1. Development of AgBank's organization and Structure 2. Development of Lending Policies and Procedures 3. Development of Loan Recovery 4. Development of AgBank's Financial Position 5. Performance of Consultants 6. Development of AFC's Organization and Structure IV. Financial, Economic and Social Impacts 1. Data Sources, Sample Survey, Benchmark Farms 2. Economic Benefits 3. Ecohomic Benefits 4. Social Benefits V. Government Performance VI. Bank Performance VII. Conclusions and Lessons Learnt  AFGHANISTAN COMPLETION REPORT 1/ First Agricultural Credit Project - Credit 202-AF Table of Contents Page No. I. INTRODUCTION ............. ............. 1 Background ..........I Project Preparation and Appraisal . 2 Project Objectives ........................ 3 II. PROJECT IMPLEMENTATION .................. . ..... 4 Effectiveness ..4 Disbursements, Reallocation of Funds and Project Costs 4..... 4 Physical Execution............... . .... 6 Minor Irrigation Rehabilitation . 8 Procurement .........o......o .... 10 Project Monitoring and Reporting ..............10 III. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE....... 11 Development of AgBank's Organization and Structure 11 Development of Lending Policies and Procedures .. 15 Summary ............ ............ 17 The Fertilizer Program and AFC.. 17 Development of AgBank's Financial Position ...... 18 Performance of Consultants (a) AgBank - Hendrikson Associates ............20 (b) MIS - Sir MacDonald Partners 22 IV. FINANCIAL, ECONOMIC AND SOCIAL IMPACTS .... ........ 23 Data Sources ..................................... 23 Financial Benefits ............................... 25 (a) Tractors ............... ..... 25 (b) Punpsets ......... ....... 28 (c) On-Farm Development ..................... 29 Economic Benefits................... .. ..... 29 Economic Analysis of the Whole Project 30 Social Benefits .... . 31 1/ As revised in February 1978. TABLE OF CONTENTS (Continued) Page No. V. GOVERNMENT PERFORMANCE .............................. 33 VI. BANK/IDA PERFORMANCE .................................. 35 VII. CONCLUSIONS AND LESSONS LEARNT ......................... 37 ANNEXES 1. Basic Data SheetL/ 2. Case Study and Random Sample Analysis, and Financial and Economic Benefit Streams 3. Credit Disbursements and Distribution 4. AgBank Financial Data 5. Organizational Changes LIST OF TABLES Annex 2 1. Case Study Analysis - Pumpsets 2. Case Study Analysis - Oxen 3. Case Study Analysis - Incremental Crop Production by Loan Category 4. Random Sample Analysis - Changes in Area Cultivated and Net Income by Loan Category and Family Size 5. Random Sample Analysis - Type of Investment, Farm Size, and Average Investment Per Farm by Loan Category 6. Random Sample Analysis - Changes in Area Cultivated by Loan Category and Farm Size 7. Random Sample Analysis - Project Beneficiaries 8. Cost and Benefit Streams for Financial Rate of Return - Tractors - Pumps - Oxen 9. Cost and Benefit Streams for Economic Analysis - Tractors 10. Economic Rate of Return - Whole Project Annex 3 1. Schedule of Disbursements 2. AgBank Disbursements from IDA Credit by Year and Category 3. Geographical Distribution of Borrowers 1/ Included in the Memorandum. TABLE OF CONTENTS (Continued) Annex 4 1. Comparative Balance Sheets 2. Comparative Income Statements 3. Changes in Loan Portfolio 1970/71-1975/76 4. Loan Recoveries 5. Total Annual Loan Disbursements by Branches and Kind of Loan Annex 5 Chart 1 - Organization Chart of Agricultural Development Bank of Afghanistan as of September 1, 1969. Chart 2 - Organization Chart as of March 20, 1975.  I. INTRODUCTION Background 1.01 The Project, the first for agricultural credit financed by the IDA in Afghanistan, was first prepared by the FAO/IBRD Co-operative Program (CP) in 1966 and a formal loan request from the Government of Afghanistan (GOA) was received in March 1967. An IDA Appraisal Mission in May 1967 found the project unsuitable for IDA funding on the grounds that because of the absence of any financial accounts the Agricultural and Cottage Industries Bank could not be financially appraised and the proposed credit projects were insuf- ficiently developed. The mission recommended a complete reorganization of the Bank and a program of technical assistance as a prelude to preparing a suitable project. 1.02 Following discussions between Mr. McNamara and the Government in December 1968, an IDA mission visited Afghanistan in January 1969 to advise on further steps necessary for the preparation of a lending program. A CP Preparation Mission followed in July. UNDP/Special Fund agreed to fund a three year technical assistance program for which IDA became the executing agency. A consultant firm was engaged and four experts charged with accept- ing managerial and training responsibilities and reorganizing the Bank, com- menced duties in September 1969. The project was appraised in November 1969 and an IDA Credit of US$5 million approved in June 1970. Two subsequent credits have since been approved; one for US$13 million in March 1975 and another for US$12 million in June 1977. The third credit includes an addi- tional IDA-administered amount of Can.$5 million from the Canadian Interna- tional Development Association as well as a grant of US$5 million from USAID. 1.03 The Agricultural and Cottage Industries Bank, as it was then known, was the only institutional credit source for farmers. It was a mixed public- private enterprise, which had been in operation since 1954 but had exper- ienced great difficulty in trying to establish an effective lending program. 1.04 The AgBank was weakly developed. Of a total of 168 employees as of 1968, 67 or 40% had very little school education. No members of the staff had received vocational training in banking or agricultural credit. In- service training programs and loan appraisal and evaluation systems did not exist. The lending program which included no short-term production loans had come almost to a complete standstill. No proper system of accounting existed. Loan recoveries were low. Security requirements were complicated, time con- suming and inflexible and could not be used satisfactorily for any short-term lending program. The nine branches acted purely as collecting agencies. 1.05 The AgBank had concentrated on equity investment in trading compa- nies or depositing funds in interest bearing accounts. Through the activi- ties of the Supply Department the Bank's main function was that of a trading organization and an executing agency for the Ministry of Agriculture which decided, for example, which farmers should receive tractor loans. 1.06 Project 202-AF and the repeater projects 539-AF and 721-AF have been implemented with the assistance of a concomitant UNDP/Special Fund technical assistance project. While this report attempts to evaluate the IDA project per se, (in some areas) it is not possible to define the benefits or other effects of each project separately. Project Preparation and Appraisal 1.07 Project identification arose from an FAO report in 1962 which in discussing increased agricultural production drew attention, inter alia, to the lack of suitable credit services for farmers. The report commented on the virtual failure of the Agricultural and Cottage Industries Bank to pro- vide such credit. This was due to farmers in particular not being accustomed to using institutional credit, the loan standards being too soft and often misused, inadequate supervision, lack of loanable capital, and complex in- flexible security requirements. 1.08 In 1964 during discussions with FAO, Government expressed a strong interest in providing proper agricultural credit through a reorganized Agri- cultural Credit Bank. After further discussions, two FAO/IBRD Cooperative Program (CP) missions in 1965 and 1966 finally led to a GOA official loan request being made to IDA in March 1967. 1.09 The long delay in preparation can be attributed to three main factors: (i) The weak base upon which any suitable credit program could be devised; the lack of management and operational proce- dures and reliable quantitative farm production data, and particularly the absence of a legal framework for securing short-term loans. (ii) The massive inaction of- Government. (iii) Insufficient co-ordination between the CP and IDA, partic- ularly the absence of any fixed time schedule for prepara- tion. 1.10 As indicated in para 1.01 above an IDA mission in May 1967 found the project unsuitable, and recommended a three-year technical assistance program as a pre-condition to finalizing an acceptable project. The proposed reorganization included, inter alia, a satisfactory audit of the AgBank ac- counts, establishment of a new accounting system, administrative separation of the supply department from AgBank's normal banking activities, the appoint- ment of expatriate technical experts to executive positions, re-drafting of the charter and by-laws, and appointment of the Minister of Finance as Chair- man of the Supreme Council. - 3 - 1.11 Some Government resistance to these proposals, particularly to the expatriate technical assistance program, was experienced, but final agreement was reached during the visit of an IDA mission in February 1969. The final preparation report was completed in September 1969 and the project appraised in November 1969. 1.12 Throughout the long preparation period the need for Government to pass cooperative and chattel mortgage laws so as to facilitate accelerated lending to farmers was constantly discussed. Government agreement that 'every effort would be made' to pass legislation to legalize water users' associations became a covenant of the Credit Agreement. Despite the impor- tance of such laws and in particular the potential impact on the minor irri- gation rehabilitation component of the project, and notwithstanding the fact that a Cooperative Law was finally enacted towards the end of 1974, no strong stand appears to have been taken by IDA with the GOA on the subject. IDA did assist with the preparation of a draft Cooperative Law which was not passed by the 1973 Parliament. Subsequent political changes further delayed the enact- ment of this important legislation. 1.13 The project was in support of a three-year lending program to farmers together with supporting technical services and was estimated to cost US$7.2 million made up as follows: US$00 % Tractors, Related Equipment and Spares 3,087 43 Animal-drawn Equipment 233 3 Pumpsets 1,004 14 Irrigation Rehabilitation 1,680 23 Supporting Technical Services 1,219 17 Total 7,223 100 1.14 Total Project costs were to be financed by sub-borrowers 18%, Gov- ernment 1%, AgBank 11% and IDA 70%. The IDA credit of US$5 million was to finance (a) foreign exchange component of the above categories and (b) local currency costs covering 10% of irrigation rehabilitation and 50% of additional extension. Project Objectives 1.15 The primary objective of the project was: to accelerate the momen- tum of modernization of Afghan agriculture through careful deployment of technical assistance, strengthening of the development agencies of Govern- ment, and meeting the increasing demand by farmers for output-increasing goods. Aside from financial assistance for the lending program, it aimed at institution building: to enable AgBank to meet farmers' credit needs and to assist the Ministry of Agriculture and Irrigation (MAI) in minor irrigation improvement and groundwal:er development, during and beyond the Project's disbursement period. II. PROJECT IMPLEMENTATION Effectiveness 2.01 The Credit agreement was signed on June 24, 1970. Project effec- tiveness scheduled for October 20 was postponed until November 30 and then again until December 29, 1970. The delays were due to the inability of the Ministry of Agriculture to complete, in time, firstly the steps necessary to legally establish the Project Coordinating Committee, and secondly the con- tract with Consultants 1/ for implementation of the Minor Irrigation Section (MIS). Additional delay was caused by IDA's refusal to accept the audited AgBank accounts for 1969 and 1970 without GOA first making acceptable ar- rangements regarding the 'Managed Funds'. These funds represented advances made in 1969 by Da Afghanistan Bank (DAB) to MAI and Ministry of Commerce for operations not budgeted for by the ministries concerned. DAB found it expe- dient to record the respective amounts as loans to AgBank, which made the latter fully liable for repayment. Strong representations by IDA finally succeeded, after much reluctance, in having the loans repaid by the Minis- tries concerned. Disbursements, Reallocation of Funds, and Total Project Costs 2.02 Disbursements during the first year were confined to technical services and vehicles. The initial slow pace of disbursements (Annex 3, Table 2) for farm mechanization and groundwater development was due to lack of experience with procurement procedures under the Bank's procurement guide- lines for International Competitive Bidding. As for the overall low level of funds disbursed for minor irrigation rehabilitation, the reasons stem from the problems with this project component as detailed in paras. 2.12-19. By December 31,1974, the original closing date, 91% of the funds had been disbursed. The closing date was extended to June 30, 1975 and subsequently to December 31, 1975. Rather than reallocate all remaining funds to Category I (Imported Farm Equipment), IDA supported the extensions in order to encour- age continuity in disbursement under individual categories as agreed under the second revision. Possible delays in making the Second Credit effective were also taken into account. The final disbursement was made on December 22, 1975 in partial payment of 400 tractors. The balance was paid under the Second Credit in which a provision of $850,000 was made for retroactive fi- nancing for tractors and equipment purchased after October 15, 1974. 2/ Table 1 sets out the original Allocation of the Proceeds of the Credit and subsequent revisions. 1/ Sir M. MacDonald and Partners. This contract was separate from the consultant management team-Hendrikson Associates-provided for AgBank under the UNDP/SF technical assistance project. 2/ Development Credit Agreement - Credit 539-AF dated April 25, 1975, Schedule 1, para. 4 - 5 - Table 1: ALLOCATION OF THE PROCEEDS OF THE CREDIT US$ Original Ist Revision 2nd Revision Allocation Category Allocation 6/73 12/73 12/22/75 ---------- US$ I Imported Farm Equip- 2,225,000 2,956,000 2,956,000 3,463,119.87 ment e.g. tractors and attachments II Pumpsets 480,000 480,000 480,000 232,962.95 III Locally-made farm 111,000 20,000 20,000 2,902.73 equipment including animal-drawn imple- ments and stationary threshers IV Minor irrigation re- 840,000 200,000 100,000 6,239.73 habilitation schemes V Vehicles, office 620,000 620,000 720,000 567,579.02 equipment, construc- tion and design equip- ment, and initial set of spare parts for imported equipment VI Technical Services, 666,000 666,000 466,000 482,017.89 Computer service charges /l and Fellowships VLI Local Extension 58,000 58,000 58,000 68,409.68 Services VIII On farm development - - 200,000 176,750.13 and Agrobusiness /2 Total 5,000,000 5,000,000 5,000,000 5,000,000.00 /1 Computer service charges added to Category VI in May 1974. /2 Category VIII introduced on December 13, 1973. - 6 - 2.03 The first revision was mainly due to poor performance under the MIS component (Category IV), to the unsuitability of the locally-made poly- culteur, to the lack of efficient extension services to promote their sale, and to the low unit and total cost of this equipment (Category III). The polyculteur was part of a package of recommended practices for improvement of cotton production. The package, as part of the French Technical Assistance Project included intensive extension. The extension agents were withdrawn and the French Project terminated after the change of Government in July 1973. Thus $731,000 from Categories III and IV were reallocated to Category I (Im- ported Farm Equipment), for which there was an increased demand. A second revision became necessary due to MAI's reluctance to use IDA funds for fel- lowships, to continued problems with MIS, and in order to provide AgBank with experience in new types of lending envisaged for the Second Agricultural Cred- it. $200,000 was transferred from Category VI, (Technical Services and Fel- lowships), to create a new Category VIII, 'on -farm development and agro- business'. In addition $100,000 was transferred from Category IV (MIS), to Category V (Vehicles, office equipment, etc.). One additional amendment to the Credit and Project Agreements was introduced in May 1974 to reflect IDA's agreement to finance 75% of computer service charges in connection with AgBank's accounting system. 2.04 The breakdown of the final allocation of funds (Table 1) shows the shortfall in achieving the goals envisaged for Categories II through V even at the time of the second revision, largely for the reasons enumerated above. Less than half the amount allocated for pumpsets (Category II) was disbursed while disbursements under the other four Categories were within 22% of the estimates made at the time of the second revision. Most of the funds left over from Categories II through V were reallocated to Imported Farm Equipment. 2.05 The total credit proceeds of US$5 million were disbursed. The out- standing debt of $5,290,501.80 includes a foreign exchange adjustment of $290,501.80 due to devaluations of the US dollar in May 1972 and February 1973. The first repayment installment falls due on June 15, 1980. 2.06 No direct information exists on total project costs. Nevertheless, the case studies reviewed while preparing this completion report, plus other evidence obtained from AgBank and field visits, lead to the assumption that the contributions of the Government, AgBank, and the farmers were in line with appraisal estimates. Thus, actual project costs were probably in line with the US$7.2 million envisaged at appraisal. I/ Physical Execution 2.07 Appraisal was based on a total of 7,180 loans being made over three years, but only 1,251 were finally made over four years. 1/ Small variations occurred that have compensated for each other: (i) farmers contribution fell slightly below appraisal estimates, for they were supposed to contribute 32% to the total cost of wells and pumpsets, (as compared with 20% in the other categories) and expenditures in this category were about one-half of the original- and revised-expectations; and (ii) AgBank's contribution was slightly greater, for some of the credit proceeds earmarked for technical services - which would finance on the average 96% of the costs of such services - were spent to re- imburse 75% of computer service charges for AgBank's accounting system. - 7 - Lending Program Appraisal % Actual % Tractors and Attachments 450 6 655 52 Animal Drawn Implements on-Farm Development 3,500 49 429 34 Pumpsets 430 6 162 12 Irrigation Rehabilitation 2,800 39 5 1 Total 72180 100 1,251 100 2.08 Tractors loans claimed more money than had originally been envi- saged, while irrigation rehabilitation and, until the introduction of the on-farm development category in 1974 (mainly oxen and related equipment), animal drawn implements played a very minor role. Pumpset loans, at only 38% of the original target were disappointing. The animal drawn implement loans were adversely affected by the factors described in para 2.03 above. The distribution of loans as shown in Annex 3, Table 2 reveals the slow buildup and falling off of pump loans towards the end of the project. 2.09 The MIS problems (paras 2.12-19) were the primary reason for the low number of irrigation and pump loans, although favorable precipitation in years 1353 (1974/75) and 1354 (1975/76) also contributed by adversely affect- ing the demand for pumps. During the first year of the project (1971/72) the effects of drought stimulated interest in pumps, but the MIS problems together with AgBank appraisal and security procedures did not allow the demand to be met. Non-availability of suitable pumps was also a factor. During the final year, the departure of the expatriate groundwater expert, and the failure of MIS to second irrigation engineers to AgBank, as had been agreed upon, ad- versely affected AgBank's ability to technically appraise pump loans. 2.10 The geographical distribution of loans as revealed by the sample survey (Annex 3, Table 3) is regarded as a reasonably good guide to the actual situation. The higher percentage of tractors sold in Kandahar and Ghazni reflects the demand created by earlier introduction and the opportunities offered for their use on larger holdings found in these areas. Provided adequate water is assured, opportunities for double cropping and thus more economic use of tractors are greater in the North and South lowlands. 1/ 2.11 The introduction of the on-farm development component late in the project has proved both timely and successful, thus paving the way, in con- junction with more flexible security requirements, for an expansion and diversification of AgBank's lending program. The supply of tractors (see para 2.20) in 1973 could not meet demand and affected loans in this category accordingly. The retroactive financing of tractor purchases under the Second Agricultural Credit was mentioned in para 2.02. 1/ During the period covered, only Russian built tractors were sold in the North-lowlands. - 8- Minor Irrigation Rehabilitation 2.12 Within the Ministry oE Agriculture and Irrigation, a Minor Irriga- tion Section (MIS)j including a Ground Water Development Sub-section (GWD), was established. The objective was to develop and strengthen MAI capability in this sector and to provide AgBank with a technical and economic appraisal of schemes as a basis for credit financing. It was felt by the Government, IDA, and AgBank that substantial increases in production could be achieved quickly and at low cost by the rehabilitation of existing small (about 1,000 ha or less) irrigation schemes. 2.13 The appointment of Consultants and the establishment of a Project Coordinating Committee (PCC) were made conditions of effectiveness. The PCC was to coordinate all technical aspects of irrigation and agricultural exten- sion with AgBank's lending program, to approve each scheme before construc- tion and credit operations were allowed to begin, and to develop training programs for AgBank and MIS. Furthermore, assurances were obtained from Gov- ernment that sufficient funds would be made available on a timely basis for operating expenses of MIS. A consulting firm, Sir M. MacDonald and Partners, was engaged to provide four experts for a period of three years commencing January 1971. 2.14 Throughout the period of the project this component met with con- stant difficulty and despite repeated attempts to overcome these, it was finally abandoned in May 1974 with a reallocation of undisbursed funds ($830,760 or 93% of original allocation). 2.15 Within the component, the Ground Water Development section was com- paratively successful both in terms of pump loans approved and valuable data assembled. A Farm Management Section also built up a wealth of information for use in both planning and appraisal of projects, but the benefits could not be effectively utilized because of Government's inability, through MAI, to consistently provide adequate counterpart staff. In addition MAI felt un- able to use credit funds for fellowship training. The PCC did not meet as required and cooperation between MIS, MAI, and AgBank was never satisfactory. Government budgetary allocations proved to be neither timely nor adequate and this hampered both the efficiency and morale of MIS. 2.16 Despite repeated assurances to the contrary, the desire of MAI to make the scheme work must also be questioned. Agreements made were seldom implemented and if so only after much delay and difficulty. The staff of MAI, and in some cases even AgBank, clearly did not believe in the scheme and this itself made implementation almost impossible. Furthermore, the consultants, whilst technically sound, did not display the firm and innovating leadership which the situation called for. 2.17 After many attempts, in a final endeavor (November 1973) to get farmers and MAI to agree to the principle of credit financing, drastic revi- sions of lending terms required by AgBank and the percentage of these loans which would be financed by IDA were made. A Government grant for part of - 9 - scheme costs and recognition of the value of farmers' labor as part of the down payment required were included. But by then it was too late. Previous prejudices and resentments proved stronger than any new professed will to cooperate. - 2.18 Of 72 schemes for which preliminary inspections were done, 27 were recommended for implementation, and nine detailed feasibility and appraisal reports for recommended projects were forwarded to AgBank. Because of the difficulties over security, land tenure, water rights and farmer disagree- ment, implementation proceeded on three projects only. Of these at least one was never completed whilst the remaining two involved single ownership. 2.19 The minor irrigation rehabilitation component was not included in the repeater project. In addition to points made above, further reasons contributing to failure could be summarized as follows: (i) Resentment by authorities within the MAI who felt they had not been consulted during the preparation stages and that the scheme was imposed upon them. Some also saw MIS as a competitor which could undermine their power and authority. (ii) Lack of cooperation between three agencies, MAI-MIS-AgBank, caused partly by personalities and partly by weakness in the project design. (iii) Initial lack of coordination with other expatriate advisors already actively engaged in the field of irrigation - FAO, USAID, BUREC. (iv) Lack of understanding by farmers of the benefits which credit-financed schemes could bring and how they operate. (v) Non-cooperation between farmers in the command area, parti- cularly those upstream, and who, according to ancient water rights, have first call up on existing supplies. (vi) The effects of two consecutive droughts and consequent impoverishment of the farmers which reduced their inclina- tion to cooperate and incur further debt. (vii) Absence of cadastral surveys and clearly defined rights as to land ownership sufficient to meet AgBank security require- ments. (viii) Lack of a legal basis for formation of cooperatives, water users' associations, or farmers' groups. (ix) The AgBank security and cash deposit requirements which, with full support of IDA, were rigidly maintained for too long. - 10 - (x) Government competition through the Provincial Development Department (PDD) and other agencies in the form of similar schemes implemented at no cost to beneficiaries, which made farmers unwilling to cooperate and accept credit financing. These schemes became active only subsequent to the appraisal of the project. Procurement 2.20 Administrative difficulties associated with IDA's ICB procurement procedures, caused some delay in timely delivery of goods. Procurement con- tract performance was hampered firstly by industrial problems in the UK which caused delivery delays for tractors and resulted in low activity in this category in 1973, and secondly by the conflict between India and Pakistan which resulted in the closure of the Karachi delivery route for Indian tractors. Ultimately tractors and related implements obtained from India were airlifted with the additional costs being absorbed by the supplier. Airlift- ing of Indian tractors continues under the second project. 2.21 All ICB contracts for pumps and tractors included requirements for provision of spare parts (10-15% of contract value) to be made available in Afghanistan together with specific after sales service. The provision for spare parts for tractors, although reasonable in terms of planning, proved excessive, and suppliers complained of their slow movement and the conse- quential costs involved. This slow movement could be partly attributed to demand factors and partly due to spurious parts being available at cheaper prices in the bazaar. The tractor after sales service was generally satis- factory. 2.22 Water pump after sales service was never satisfactory and AgBank was required to redeem performance bonds with both Indian and Pakistani sup- pliers. The Indian suppliers proved particularly unsatisfactory, whilst the pumps concerned, although appraised by the Ground Water Expert as suitable, were never really accepted by Afghan farmers. 2.23 In retrospect ICB requirements for tractors proved correct whilst those for waterpumps may have been a little restrictive. The Credit Agree- ment provided for minimum lots of about 420 pumpsets or $50,000 equivalent. Since AgBank procured the pumpsets before receiving loan applications and since the demand for them was low for the reasons discussed above, the high minimum lot requirement resulted in a large pumpset inventory, causing main- tenance problems. About half the minimum lot size would have been more ap- propriate, although it is uncertain that this would have been sufficient to attract foreign bidders. Moreover, the provision for and insistence upon adhering to ICB terms and conditions assisted AgBank to withstand local pressures affecting bid evaluation and awarding of contracts. Project Monitoring and Reporting 2.24 Monitoring of on-farm effects of the lending program was not dis- cussed in the appraisal report and no serious consideration appears to have - 11 - been given this aspect by AgBank or IDA supervision missions. AgBank files do provide basic informai:ion on all borrowers on a 'pre-project' basis. Com- parison with 'non-project' farms is not made nor is any formal follow-up re- cording done on clients' year-by-year progress. While monitoring of this nature can prove expensive and overly time-consuming and is not always as productive as hoped, consideration to this aspect of AgBank's activities has been given and a sample survey has been undertaken to serve as a basis for the introduction of a lending operations monitoring and evaluation system. 2.25 With respect to IDA's reporting requirements, monitoring and re- porting procedures by thE Consultants (both firms) were satisfactory in the context of contract performance and banking operations. Indeed the forms designed for use by the AgBank Consultants are worthy of consideration for use in similar credit projects. Although much of the financial data is in- corporated in AgBank's annual reports, the quarterly reports were not sum- marized in an annual review, which would have been of more value in terms of evaluating institutional progress. Furthermore, while the present financial monitoring is an important management tool for AgBank, less frequent and less wordy reporting would now be justified as far as IDA is concerned. III. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE Development of AgBank's Organization and Structure 3.01. As the only institutional source of rural credit in Afghanistan, Ag Bank has evolved from a poorly organized channel for distributing Govern- ment funds dependent on annual budgetary transfers, to a largely independent, equity-based, revenue-generating institution. As an outstanding example of successful institution building this project deserves close study by all the agencies involved, viz: GOA, IDA, and UNDP. 3.02 Charter: One of the earliest tasks of the management team was the revision of Ag Bank's Charter with a view to improving management efficiency and increasing operating autonomy. The first IDA Appraisal Mission partici- pated in the redrafting, and the final revised Charter became effective on February 11, 1970. Its most significant feature was the establishment of an Executive Board with managerial responsibility for day-to-day operations. The 1xecutive Board consisted of the President, the two Vice-Presidents, and the Eour expatriate consultants. The Supreme Council, as the Policy-making body, was retained, but its chairmanship transferred from the Minister of Agriculture to the Minister of Finance. The General Assembly of Shareholders and the Board of Auditors, as the other two governing bodies, remained essen- tially unchanged, except that the responsibility for annual audits could be - 12 - delegated to an acceptable firm of chartered accountants. 1/ The Executive Board has consistently met about once a week, but initial problems in conven- ing the Supreme Council, which according to AgBank's Charter must meet at least quarterly, at times held up policy decisions. 3.03 Organizational Structure: Annex 5 Charts 1 and 2 illustrate the organizational restructuring of AgBank from eight overlapping departments reporting to two vice-presidents to five functional departments: (1) Credit, (2) Supply, (3) Finance, (4) Administration, and (5) Staff. 3.04 Credit Department: Each of the four divisions, Credit Services, Credit implementation, Collection, and since 1974 Fertilizer, reports to the Assistant Credit Manager, who in turn reports to the VP-Credit and to the Credit Manager. 2/ The reorganization of the credit function was a priority activity, as during 1968/69 total loan disbursement amounted to only 14 loans. During the reorganization period this number increased to 48 and in the follow- ing year to 163 while in 1975/76 total loans amounted to 47,764 (see Annex 4 Table 5). Although much has been achieved, the operations of this Department are still constrained by the absence of adequate legislation governing collec- tion procedures, security requirements, etc. The capability of loan appraisal staff improved early in the project, and significant accomplishments, such as the compilation of credit and appraisal manuals, were made in addition to expanding lending activities. 3.05 Supply Department: The supply function was administratively sepa- rated from the banking function. Until 1974 its profits compensated for losses incurred in banking operations. The objective has been to provide farmers with equipment and inputs at reasonable prices. Initially, the shortage of English-speaking staff placed a heavy burden for daily operation on the German expatriate who as a consequence was unable to devote adequate time to staff training. Until recently all loans were made in kind thus re- ducing the risks of credit misuse. The introduction of cash loans coincided with the diversification of the lending program under the newly introduced on-farm development category. Until September 1975, the three divisions re- ported to the Assistant Supply Manager, who in turn reported to the expatriate Supply Manager, but an Afghan Vice-President is now in charge. More recently 1/ A revised charter which became effective in 1977 provides inter alia that the AgBank be administered by a Board of Directors, an Executive Board, and a Board of Auditors. The Board of Directors is chaired by the Minister of Agriculture with the Deputy Minister of Planning, the President of Da Afghanistan Bank, the President of the Treasury Depart- ment of the Ministry of Finance, and a Representative of the Cooperative Department of the Ministry of Agriculture as members. The President of the Executive Board is also a member but without the right to vote. 2/ Expatriate with managerial responsibility until September 1, 1975, sub- sequently appointed in an advisory status. - 13 - Government required AgBank to take over the after sales service for tractors. A separate company, AMSCO, which will be wholly owned by AgBank is in the process of formation and will take over the role and activities of the Supply Department. The Supply Department is being supported by a UNDP funded tech- nical assistance project, executed by FAO. 3.06 Finance Department: This unit continues to have staffing problems. The expatriate manager assumed an advisory function as of September 1975, but no Afghan has so far been appointed to take on his responsibilities. The major innovation within the Finance Department was the introduction of a modern centralized accounting system, first the Taylorix bookkeeping system, and subsequently a mixture of Taylorix with computerized loan accounts. The computer services, which have proved a successful innovation, were financed under Category VI of the Credit. 3.07 Administration and Staff Departments: The seven divisions in the two Departments deal with Personnel, Management and Administration. Staff- ing problems have affected their efficiency but the position is gradually improving. 3.08 Branches: On September 1, 1969, AgBank had nine branches in addi- tion to Kabul with three branches and four sub-branches added since. The branches were virtually inactive in 1969, being little more than collecting stations. Due to the priority assigned to the reorganization of headquarters, improving the Branch system became a key component of the Consultants' Terms of Reference only under the second phase of the UNDP/Special Fund Project. The introduction of the Field Inspector Service with increasing emphasis on economic and technical appraisal of projects, together with supervised credit is playing an increasing role in strengthening Branch activities. In order to increase branch autonotmy, seminars for branch staff have been introduced. In addition authority to approve unregistered promissory notes of up to Af 25,000 without reference to headquarters was granted in 1977. Thus, the Branches can now approve a wide range of on-farm development loans such as oxen, thereby speeding up the loan process. The importance of greater dele- gation of authority from Head Office and increased Branch activities in order to expand AgBank's role in national agricultural development have been recog- nized in the two repeater projects and particularly in the third phase of the concomitant UNDP/SF technical assistance project. Sound progress on the implementation of the Reorganization Program under the third credit is being made, as evidenced in part by the fact that the ratio of professional staff in the Branches is now higher than in Headquarters. 3.09 The problem of recruiting and training qualified staff, particularly competent Branch managers, is crucial to the strengthening of the Branch network. This problem is being addressed in the Reorganization Program under the third credit project. 3.10 Training: The importance of training was recognized by GOA, the two Consultant teams, AgBank and IDA. Recognition of the problem, however, was not enough, and it was not until recently that real progress could be - 14 - seen. The major deterrents to training were the Consultants' preoccupation with day-to-day operational matters, difficulties encountered in hiring instructors and freeing of funds allocated for fellowships, and the shortage of qualified trainees. Language has also been a handicap. The training program developed within AgBank under the first Credit is described below. Some refinements and expansion of this program, including special training for middle management, have more recently been introduced under Phase III of the AgBank/UNDP Project. 3.11 (a) Internal (1) Basic training: (since 1971) a twelve-month course; six months theoretical classroom training; six months on-the-job training, including three months at the Branch level. Due mainly to the diversion of trainees to assist in the fertilizer campaign, only about 45 staff completed this course during the period of the first credit. 3.12 (2) Field Inspector Training: a twelve-month course intro- duced in April 1972 combining theoretical with on-the-job training. Up to March 20, 1975, 32 trainees, or about 10 per year, have completed the course and 27 were employed in Branch Offices. The objective is to have 7 Field In- spectors in each Branch. Present training allows for 20 trainees annually. Military service has interrupted both the training and use of field inspectors. More recently completion of military service has been made a condition of entry into Field Inspector training. Since the field inspector service is recognized by AgBank and IDA as a key factor in AgBank's future development, the continua- tion and possible acceleration of this training program are crucial. 3.13 (b) External - Fellowship Training: As of April 1974, 23 AgBank em- ployees had received fellowship training. Only part of the proceeds of Cate- gory VI under the Credit, roughly $80,000 (about 28% of allocation), were used for this program due to the Government's preference for using bilateral technical assistance funds for fellowships. 3.14 Personnel: Although a key component of AgBank's reorganization, the adoption of Personnel Regulations was delayed until September 13, 1972. The objective of the regulations was to assign and promote staff on the basis of professional competence and performance only and to disassociate AgBank's personnel policies from those of the Civil Service. Ultimately, it was expected that the regulations would attract qualified staff to fill the numerous vacancies, but this has been hampered by Government's inability to assist in allowing recruits to be released from Civil Service. 1/ While this 1/ New Personnel Regulations introduced late in 1976 had an adverse effect on salaries at the higher professional levels, but seem to have had no negative effects on staffing. - 15 - was probably part of the explanation for continued vacancies, a more active recruitment campaign by AgBank may have improved the situation. GOA attitude to release of civil servants for AgBank staff no doubt reflects the shortage of trained and experienced personnel throughout Afghanistan and the need to ensure that one organization does not get an unduly high proportion of this scarce resource. 3.15 The total staff of AgBank has increased from 168 in September 1969 to 533 as of March 20, 1975, and 975 as of September 22, 1977. The most dramatic change, that of staff quality, is not reflected in numerical records. From a position in 1969 when 40% had received very little schooling, the majority have now had at least some formal education, undergone in-service on-the-job training, or benefited from outside courses such as that provided by the PACCA project (see para. 3.18). A total of 49 staff completed the PACCA course which was discontinued in 1974 as a consequence of the changes in that Project. In addition the quality of new recruits has been steadily improving. Development of Lending Policies and Procedures 3.16 By October 1970 AgBank's Policy Statement and Loan Regulations had been approved by the Supreme Council, although due to IDA's request for cer- tain clarifications, final acceptance was delayed until end-November. The major provisions are summarized below. 3.17 Interest rates which had been at 4% for short-term, and 5-7% for medium- and long-term loans were raised and structured regressively at 10% and 8% respectively. The rates have been in line with commercial rates pre- vailing for comparable investments in Afghanistan, and since 1971/72 have provided sufficient coverage for AgBank's administrative expenses, overhead and bad debts (Annex 4, Table 2). Inflation was relatively low during the project years, making it unnecessary to modify interest rates. Any change in interest rates would be decided by the Supreme Council on the recommendation of the Executive Board. Increasing administration costs may justify a review of interests in the near future. 3.18 The Program for Agricultural Credit and Cooperatives in Afghanistan (PACCA), was initiated in 1968 under an agreement between GOA, the Swedish International Development Authority and FAO. The main purpose was to demon- strate in pilot areas how a coordinated and integrated approach to agricul- tural credit and cooperatives could lead to the development of agriculture. The program included a Training Institute (near Kabul) and two development centers situated in intensive farming areas, Koh-i-Daman and Baghlan. The program was incorporated into a wide national scheme for cooperatives in 1974. 3.19 The Loan Regulations provide for economic appraisal for all loans, technical evaluation for irrigation projects, and close supervision. In practice the shortage of qualified staff, as well as dependency on MIS for pum'pset and minor irrigation project appraisal, have limited these activities. The deficiency was addressed in the repeater projects, and with improved traLning and Government cooperation, progress is being made. - 16 - 3.20 Categories for which short-, medium-, and long-term loans may be extended are specified in the Loan Regulations, and allowance has been made for the introduction of new types of loans. Short-term loans are for produc- tion or seasonal inputs, small tools and equipment, etc. Medium- and long- term loans are, inter alia, for farm equipment having a useful life of no less than five years, livestock development, construction, and on-farm devel- opment. 3.21 Although eligibility for AgBank loans is wide, the rigid security requirements consisting of a mortgage on fixed assets, have prevented many small landowners, tenants and sharecroppers from borrowing. Irrigated land- holdings are said to be small, about 2-3 ha on average, and are frequently fragmented. In many areas, however, a few farmers may own large areas of land and employ many tenants and sharecroppers. Tenants pay a stipulated rent to the landowner, mostly in kind and based on the productivity of the land. Agreements are rarely in writing and, although usually on a year-to-year basis, they customarily extend for longer periods. Sharecropping is usually on a single crop basis allowing for a change of contract after each crop. Agree- ments are never written. The system varies widely but where the sharecropper provides all inputs, except land and water, crops are shared 50-50. Where the owner provides all inputs and the sharecropper only labor, the landowner usually receives 75-80% of the crop. The introduction of promissory notes in February 1974 for loans of up to Afs 100,000, and subsequently up to Afs 200,000, has made credit accessible to landless farmers although the problems related to obtaining co-guarantors remains high. In addition, for short-term production loans, AgBank introduced joint and several liability, by which a group of farmers (not necessarily landowners) able to produce the previous year's tax receipts for the land they cultivate, prove that they live in a given village, are of good reputation and agree to assume joint and several responsibility for one another's loans could obtain short-term credit. The success of this instrument has to some extent been illustrated by the in- crease in the number of fertilizer loans (Annex 4 Table 5), although it should be remembered that these loans carry a Government guarantee. Nonetheless, the fact remains that heavy emphasis has been placed on security, particularly land, rather than on the production potential and incremental cash flow to be derived from the investment. Improved standards of appraisal and closer supervision of loans and thereby also improved collections (Annex 4 Table 4) which should evolve with the strengthening of the Field Inspector Service, should allow AgBank to take a less rigid, increased risk approach to lending. Terms of loans range from one year for current inputs to 4 to 5 years for shallow well pumps and up to twelve years for on-farm development. The majority of short-term loans, mostly fertilizer and seed, are made in kind. In future, Cooperatives, to which AgBank is now lending, should play an increasing role in handling production input loans thus reducing the administrative overheads for AgBank involved with large numbers of small accounts. 3.22 With medium- and long-term loans, when a written request from a farmer is received, a field inspector is sent to appraise the project. When the requested loan amount exceeds Branch approval authority, his report is - 17 - reviewed by the Credit Services Division at Headquarters. If the loan is approved, funds are disbursed only after proper security is produced. The farmer has usually been expected to provide a cash down payment of 20% but more recently the value of family labor has been recognized as part of the farmer's investment contribution for on-farm development. Procedures for irrigation, including pump loans, are more complex. In the past, MIS experts have had to technically appraise all loan applications, resulting in the many delays and problems already described. More recently an irrigation depart- ment has been established in AgBank, which is expected to accelerate proce- dures for obtaining pump loans in particular. 3.23 As part of the IDA financed Herat Livestock Development Project (Credits 375 and 649-AF) also carried out by AgBank, more flexibility has been introduced in regard to livestock and on-farm development loans. Until November 1975 virtually no loans had been disbursed under the first of these credits. Apart from difficulties in proving land ownership the problem was compounded by the absence of a legal basis for taking security over livestock and chattels. The principle of a single 'package' loan integrating such components as livestock, wells, seed, fertilizer, etc. and recognition of the value of farmer's labor as his required contribution towards the cost of the investment has been accepted. HLDC technicians are assisting AgBank staff to appraise these loans in which emphasis is on economic benefits. Although land security is still important, there is now provision for accept- ance as loan guarantors, persons who do not own land but who are in a sound financial position. At present this approach is confined to HLDC loans, but the experience gained is likely to prove the forerunner to its acceptance on a national scale, provided of course that the Field Inspector Service can be built up so as to ensure adequate supervision. Although not strictly part of the first credit project, these developments illustrate the conti- nuing evolution of AgBank's lending policies. Summary 3.24 While much has still to be achieved, the gaining of confidence by top management, the continued expansion of the loan portfolio on the basis of a sound financial operation, and the gradual introduction of more flexible lending policies as described above, are all indications of the outstanding success of the First Agricultural Credit Project - institution building! The Fertilizer Program and AFC 3.25 Although it was not a part of the project, the fertilizer program is worth mentioning, for it was very important in developing AgBank as a solid development and financial agency. In 1972 after two consecutive years of drought, GOA introduced an emergency fertilizer and seed program in which these inputs were distributed to farmers on a credit basis. AgBank assisted with administration of the credit aspects but all finance was provided by GOA in whose name loans were made. The Afghan Fertilizer Company (AFC), the shares in which are now all owned by AgBank was formed to be responsible for the importation, transportation, and storage and distribution of fertilizer. The fertilizer program resulted in the introduction-of the principle of "joint and several" liability for farmers "groups". - 18 - 3.26 Since September-October 1973, AgBank has implemented its own fertil- izer program. A manual was prepared stating job responsibilities of parties involved in fertilizer distribution, namely, Government, AgBank and AFC. GOA undertook a guarantee for all fertilizer loans not repaid within one year. Government performance in honoring this guarantee has not always been satis- factory. 3.27 The short-term lending program presents some risks, but these could be reduced by closer supervision of loans made, strengthening of program staff and facilities, and continued guarantee of loans by the joint and sev- eral liability system. In view of the economic importance of the program to the nation, GOA should continue to guarantee a proportion of the losses in- curred by AgBank on loans more than one year overdue, but the time is now due when AgBank should accept a progressively increased liability for all fertil- izer loans. 3.28 Taking into account the collection rates achieved (63%), the large number of farmers serviced in scattered areas of the country (47,000-1975/ 76), the difficult communication conditions, and the limited number of staff assigned to the operation, the fertilizer program has been successful. Al- though not a part of the First Credit Project, the Program has had a profound effect on the lending activities and the institutional building aspects of AgBank. Development of AgBank's Financial Position 3.29 Established in February 11, 1970 as a joint stock company which took over the assets and liabilities of the former Agricultural and Cottage Industries Bank, AgBank's authorized capital as of March 1970 was Af 150 mil- lion. Total resources at the time amounted to Af 162 million consisting of paid-up capital of Af 86 million, reserves of Af 14 million (after write-off of estimated portfolio losses), long-term liabilities of Af 32 million, and current liabilities of Af 30 million. Paid-up shares were distributed as follows: Shareholders Amount % -Af millions- Da Afghanistan Bank 76.6 89.1 Ministry of Finance 0.9 1.0 Karakul Institute 0.5 0.6 Government Monopoly 5.0 5.8 Bank Melli Afghan 2.0 2.3 Others 1.0 1.2 Total 86.0 100.0 - 19 - Appraisal projections anticipated total resources of Af 579.5 million as of the year ending March 1976, while actual, audited figures for that year come to Af 2,149.2 million (Annex 4 Table 1). As of March 1976, DAB and GOA held 99% of paid-up shares, until July 22, 1976 when, under the new Money and Banking Law, the Government was to purchase all shares. The seven-fold in- crease in paid-up capital is mainly due to proceeds from the two IDA credits and Government contributions from the Development Budget. 3.30 Long-term liabilities, which represented 23% of total current as- sets and non-current liabilities as of March 1975, now make up 34% of total liabilities. The main reason for the 66% increase in long-term liabilities over the previous year is that Af 280 million or 58.6% of long-term liabili- ties represents the proceeds on-lent to AgBank by the Government (at 4%) under the Second Agricultural Credit, (539)-AF. The remainder consists of proceeds on-lent under the first credit (Af 27.3 million), the fifth and final install- ment of an interest-free fertilizer loan from Iran (Af 32.6 million), other Government borrowings (Af 15.6 million), time deposits (Af 106.3 million) and pension, health and provident funds (Af 15.9 million). The long-term debt/ equity ratio has increased from 12.4% in 1970/71 to 65.2% in 1976/76 showing a significant improvement in the use of financial leverage. 3.31 AgBank's liquidity position remained healthy until 1974/75, when liquid asset coverage of current liabilities declined from 102% in the pre- vious year to 68%. The deterioration was due to a disproportionate increase in current liabilities (165%) representing mainly AFC's special time deposits for fertilizer loans, as compared with only a 10% increase in cash and bank baLances. The liquidity position improved somewhat in 1975/76 showing a liquid assets/current liabilities ratio of 83.4%. 3.32 Since its reorganization, AgBank's lending operations have grown from 163 loans disbursed for Af 21.7 million in 1970/71 to 47,764 loans dis- bursed for Af 715.6 million in 1975/76. The net loan portfolio has, over the same period, grown from Af 65.8 million to Af 1,242.0 million. Profit- ability, which for the last three fiscal years has come primarily from bank- ing operations, increased from a net profit of Af 2.1 million in 1970/71 to Af 52.1 million in 1975/76. This substantial increase is largely explained by the rapid expansion oE lending activities and by interest earned on de- posits. The profits from banking operations in 1975/76 have, however, been partially offset by a decrease in profit for supply activities and large in- creases in personnel and administrative costs. 3.33 Collections of loan principal amounts outstanding have steadily im- proved, with overall collections ranging from 26% in 1970/71 to 55% in 1974/75 (Annex 4 Table 4). While collections of loans past due have remained stagnant, 24% recovered in 1970/71, as compared with 26% in 1974/75, the proportion of arrears in principal to loans outstanding has declined steadily; 29% of loans fallen due during the year were recovered in 1970/71, as compared with 58% in 1974/75, and 79% for the first two quarters of 1975/76. The recovery rate for medium-term loans (on-farm development, mechanization, pumps, agrobusiness - constituting over half of principal due until 1974/75 when fertilizer loans - 20 - fell due) has shown steady improvement from 41% in 1970/71 to 72% in 1974/75. Recoveries of short-term loans, mainly fertilizer, have fluctuated as has the degree of activity in this category. Overall long-term collections, while improving slightly, have not surpassed 10% but this is due to poor collections of overdues prior to 1970-71. Long-term loans falling due in 1973/74 and 1974/75 have been fully recovered. At the urging of IDA, AgBank has kept careful loan recovery records, and has made efforts to improve collection mainly through the branch field inspector network. Loan collection, none- theless, remains a problem, particularly in view of the rapid expansion of lending operations. 3.34 The provision for doubtful debt (principal) has increased from Af 21.9 million in 1970/71 to Af 38.5 million in 1974/75 and has adequately covered overdues. 3.35. The accounts of AgBank have been audited annually since 1969/70 by an independent auditor, currently Khanna and Annadhanam, Chartered Account- ants. Performance of Consultants (a) AgBank Management Team-Hendrikson Associates Consultants 1/ 3.36 Hendrikson's four man team commenced duty on September 1, 1969. The terms of reference required the consultants to reorganize the Agricul- tural Development Bank, provide efficient management, train Afghan staff, accelerate lending activities, and establish an efficient agricultural credit and supply organization. Following upon the initial three years the contract with some modifications has been renewed for two similar periods, and a fourth contract through August 31, 1980 is currently being prepared. As executing agency for the UNDP/Special Fund financing the team, IDA has been responsible for the selection and supervision of the Consultants. 3.37 Within 18 months the Consultants had undertaken a complete reorgan- ization of management and operational procedures which is described in detail in Chapter III above. Subsequently they have continued to improve all aspects of AgBank's operation and management. Not the least of their achievements has been, by training and example, the development of good work habits and discip- line by their counterparts and AgBank professional staff in general. 1/ Hendrikson Associate Consultants GMBH and Co. Kg., Frankfurt, Germany. UNDP Technical Assistance Project (UNDP/SF AFG/70-527/H/01/42). Although not strictly part of AF-202 the projects are so integrated that some com- ment on the consultants performance is felt appropriate. - 21 - 3.38 At the outset the Consultants recognized three main limiting factors to the development of an effective banking institution and agricultural credit program: (i) lack of properly trained people at all levels, (ii) insufficient credit outlets, (iii) absence of legislation for bankable securities and debt collection which would provide a proper framework upon which to base an effective credit system. They saw proper training of all personnel as essential if AgBank's objectives were to be achieved. 3.39 The position of AgBank in 1969 demanded, inter alia, good manage- ment, hard work, and credit discipline. While recognizing the necessity for proper training, the consultants found, with the manpower available, that it was not possible to reorganize, manage, and train. In retrospect it appears that adequate training, and the staff means to provide it, proved to be a deficiency in project design. It is to the Consultants' credit that they recognized this position and tried at an early stage, but without success, to convince GOA of the necessity to appoint three expatriate training officers. Subsequently GOA did agree to the UNDP funding of one such ex- pert for a period of three years. Considerable efforts were made to provide training. Excellent cooperation developed with the PACCA project, and the British Council and in recent years more attention has been given to basic introductory and in-service training of staff. 3.40 Despite the observations made above, two consistent criticisms of the Consultants' performance has been their alleged failure, at least ini- tially, to pay adequate attention to staff training, and a lack of initiative and flexibility in developing credit systems for new types of agricultural credit, e.g. livestock, on-farm development and short-term production loans. 3.41 The position was perhaps more a question of deciding upon priori- ties. While the criticisms do have some justification in themselves, they must be considered with a background of the almost chaotic situation of AgBank in 1969, together with the absence of proper legislation to provide an effec- tive agricultural credit: system, the land ownership problems, and the almost complete lack of experience among the farming community with institutional credit and the discipline it requires. The proper establishment and reor- ganization of AgBank was for example considered more important than making large numbers of inadequately appraised high risk loans. The somewhat con- servative approach followed has transformed AgBank from a failure to, in the Afghan context, a conspicuous success. Thus, despite these partly justifiable criticisms, the Consultants deserve considerable credit for their contribution to the success of the AgBank project. - 22 - 3.42 The quality and continuity of personnel provided by the Consultants has been very satisfactory. Reporting procedures have been adequately ful- filled and have been of a good standard. (b) Minor Irrigation Section - Sir M. MacDonald and Partners 1/ 3.43 Commencing January 1971, MacDonald's were engaged to provide four experts for a period of three years. (Project Manager-Design engineer, con- struction engineer, farm management expert, groundwater specialist). In their first progress report the Consultants identified key problem areas as, inter alia, water rights, land tenure, and lack of farmer experience with credit financing. 3.44 The MacDonald Consultants were employed for what turned out to be a very difficult task - the implementation of the Minor Irrigation Section - part of which failed. From the outset the Minor Irrigation Section (MIS) of which MIR formed a sub-project, experienced cooperation and acceptance diffi- culties with an inefficient Ministry of Agriculture, itself plagued by the problem of inadequate budget. This problem was never resolved and no doubt adversely affected the morale and ultimate performance of the experts. Proj- ect design by which MIS was separated administratively from AgBank and came under direct control of MAI also contributed to implementation difficulties. 3.45 The groundwater and farm management sections were reasonably suc- cessful. Despite valiant efforts by the MIS consultants, AgBank, IDA, and MAI, the Minor Irrigation Rehabilitation (MIR) section failed. Although the Consultants experienced much frustration, and in the face of it exercised an equal amount of patience, they must accept some responsibility for the sec- tion failure. The selection of the Project Manager was in retrospect a key problem. His experience was wide but rather bureaucratic and he lacked the initiative, drive and personality necessary to deal with a very difficult situation. A decision was made to replace him about mid-way through the contract term but was ultimately frustrated by a series of mishaps with another members of the team who had to be replaced for compassionate reasons. Despite this, even at a very late stage, a new manager and initiative may have salvaged the situation. 3.46 To their credit the experts displayed good professional standards and remarkable tolerance. They built up a wealth of technical and socio- economic information which should, if preserved, be of considerable future value. On balance, despite the difficulties they encountered, the apparent absence of an innovating attitude was a disappointing feature of the Con- sultants' performance. 1/ Sir M. MacDonald and Partners, Consulting Engineers, London. - 23 - IV. FINANCIAL, ECONOMIC AND SOCIAL IMPACT OF THE PROJECT Data Sources 4.01 In order to make a comparison of the actual project impact vis-a-vis the appraisal estimates, AgBank undertook, on the advice of the project comple- tion mission (March 1976), an analysis of the subborrowers for each of the three major investment categories on the following basis: 1.(a) A 10% sample by loan category of all subborrowers was ques- tioned by Aglank professional staff, with emphasis on col- lecting information on farm size, land ownership and cultivation, family size, and farm income. A summary of the sample analysis, which has proven valuable for the assessment of the social impact of the project, is given in Annex 2, Table 4-7. 1.(b) On the basis of 31 case studies selected at random by loan categories and representing 2.4% of the subborrowers, a detailed analysis was carried out to obtain information on the impact of: investments on cropping patterns, crop yields and farm incomes. Information derived from these case studies has been used to assess the financial and economic impact of the project. Basic information from the analysis of the case studies is shown in Annex 2, Tables 1-3. 4.02 The numbers of farms covered by the sample and the case studies are shown below: - 24 - Table 2 - Number of Sample and Case Study Farms, and Total Project Loans Investment No. of farms covered No. of farms covered No. of loans Category by sample by case studies made actual adjusted/1 Tractors 65 17 655 563 Pumpsets 16 9 162 114 On-farm development 43 5 429 732 Minor irrigation 5 - 5 5 Total 129 31 1251 1414 /1 For the purposes of economic evaluation the actual number of loans dis- bursed using IDA credit has been adjusted so as to allow for retroactive financing from the second credit. As number of loans financed in this manner is not known precisely, a pro-rata adjustment has been made in major loan categories. Actual US$ disbursement for each of the three categories has been converted to Afs using a rate of Afs 57 = $1. Total Afs was then divided by average loan size as revealed by the Case Study Analysis. Reason for larger number of adjusted loans in On-Farm Develop- ment category is because case study loans were all for oxen, and were on average smaller than those made for other development. Both the sample and the case study questionnaires were jointly designed by AgBank and the completion mission. AgBank staff interviewed the farmers who made their investments during the years 1973 through 1975, most of which were made in 1974. The pre-project analysis covers the year preceding the investment, while the with-project analysis is based on the farmers' actual performance in 1975. 4.03 The follow-up mission has analyzed and cross-checked the question- naires and, although some inconsistencies were discovered, has accepted the information as being reasonably reliable. The analysis could have been more useful had more detailed information on employment impact, and on the development of farms outside the project been obtained. Based on experience gained with farmer interviews, the mission feels that both the sample and the case studies represent a reasonably good picture of the lending program, with the exception that in the tractor category the cotton farmers may be slightly under represented. It must be accepted that the data are not derived from precise measurements or written records. Reliance is placed primarily on farmers' memories, with, where possible, some cross checking from AgBank files. The reliability of the data can therefore be questioned but taken as a whole, the best judgment of the mission is that they can be considered as a reasonable basis upon which to assess the impact of the project. - 25 - Financial Benefits 4.04 In this section the impact of the project on the financial situation of the direct beneficiaries is discussed. Since the tractor component com- prises about 90% of the total lending program of the project, the impact of tractor investment is discussed in more detail. (a) Tractors 4.05 Cropping Patterns. Table 3 compares the appraisal estimate of crop- ping pattern development with the analysis of the 17 case studies. Table 3: Tractor Farms - Crop Pattern Actual Performance Appraisal Estimate Average of 17 Case Studies Before After Without With % Invest- Invest- % Project Project Increase ment ment Increase ------ ha------- h------- Wheat 36 40 11 21.8 31.8 46 Maize 6 25 317 2.8 3.4 21 Cotton 3 10 233 1.2 2.4 100 Alfalfa 5 6 17 1.8 1.4 -22 Orchards - - 1.3 1.6 23 Other Crops - - 6.7 7.4 10 Total Area Under Crops 50 81 62 35.6 48.0 35 Of Which Double Cropped - 21 N.A. 0.9 6.8 655 Total Area Cultivated 50 60 20 34.7 41.2 19 Cropping Intensity 100 135 35 103 117 14 The table reveals that the average area of cultivated land of the case study farms is significantly smaller than that assumed in the appraisal farm model. 4.06 While the increase in cultivated land which had been fallowed without the project was correctly anticipated, the increase in the double cropped area was overestimated. Furthermore, the expected expansion in the areas to be planted with maize and cotton did not occur while the area under wheat increased more than projected. 4.07 Crop Yields. A table comparing appraisal yield estimates with actual performance in 17 tractor farm case studies is shown below: - 26 - Table 4: Tractor Farms - Crop Yields /1 Actual Performance Appraisal Estimate Average of 17 Case Studies /2 Before After Without With % Invest- Invest- % Project Project Increase ment ment Increase ----m ton/ha---- ---- m ton/ha- Wheat 1.47 2.52 71 1.48 2.38 60 Maize 1.78 2.8 57 1.63 1.73 6 Cotton 1.01 2.02 100 1.53 1.52 0 /1 Unweighted averages. /2 The questionnaire did not define whether the land was irrigated or rainfed, but because of yield levels it can be reasonably assumed that at least a large proportion of the land was irrigated. The results show that the wheat yield increase anticipated by the appraisal mission was realistic. Maize and cotton yields apparently remained practically unchanged, although very few of the case study farms grew maize or cotton and to this extent the sample could be biased and not be a fair comparison with the appraisal estimates. The above results may not accurately represent the true position for other summer crops as well. 4.08 Custom Work. Although not quantified by the appraisal mission, cus- tom work plays an important role for the incomes of the tractor farmers covered by the case study. On the average, a farmer worked for about 230 hours/year with his tractor on neighboring farms which resulted in Afs 34,000 additional income. 4.09 Operating Income. Information on gross income, operating expenses and operating income is shown in Table 5. Table 5: Tractor Farms - Farm Income Actual Performance Appraisal Estimate Average of 17 Case Studies Before After Without With % Invest- Invest- % Project Project Increase ment ment Increase ----Af '000----- -----Af '000----- Gross Income 360.7 938.2 160 367.9 720.0 96 Operating Expenses 290.1 721.8 149 262.0 409.5 56 Operating Income 70.6 216.4 202 104.9 317.5 203 Incremental Opera- 145.8 212.6 ting Income Debt Service 95.5 94.8 Tncrement After Debt Service 50.3 117.8 - 27 - 4.10 The most strikLng discrepancies between appraisal estimate and actual performance are: (a) Pre-project expenses appear to have been overestimated resulting in an overly conservative estimate for the pre- project operating income. The full maintenance situation is however not known. (b) The impact of the investments on gross income and operating expenses were overestimated. This is particularly true for the expenses which increased by only 56% compared to 149% as estimated at appraisal. As a result, the farmers' operating income, in absolute terms, increased more signi- ficantly than anticipated. The same is true for the incre- ment after deduction of debt service. The study shows that the incremental income was sufficiently high to provide for the debt service and to facilitate a significant improve- ment of the farmers' liquidity situation (see Annex 2 Table 1c and 2c, and Table 5 above). 4.11 Employment. A thorough analysis of the employment impact of the project is not possible since the questionnaire gives only indirect informa- tion and the appraisal report does not contain any information on this subject. However, the analysis of the case studies reveals that expenses for family and hired labor increased by 19% and 8%, respectively. In view of a moderate in- crease in family expenses and wages, this suggests a slightly low proportional increase in outside hired employment. Farmers were asked whether as a conse- quence of the development investment annual labor requirements increased or decreased. All but two of the questionnaires record a decrease. Subsequent investigations by AgBank staff do not support this view. It appears that tractors do result in a decrease in labor during cultivation periods, but as a consequence of increased area and yield (total volume and absolute) more labor is required at harvesting and for threshing, work still done completely by hand. The annual profile of labor demand and supply suggests an overall increase in demand. 4.12 Financial Rates of Return. Since the case studies were carried out one, but in some cases two or three, years after the investments had been made, only part of the benefits have so far materialized. Further benefits will occur during the lifetime of the investments. As a result, the financial rate of return analysis requires both actual information and estimates on future data, a point to remember when interpreting the results. Furthermore, all of the improvement is not necessarily due to the effect of tractors alone, effect of tractors alone, and so, cannot be credited to the project as a whole. Part of the expansion in the cropped area may have taken place on lands previously cropped in other farms that were bought or rented by the recipients of the tractors, or inside their farms, by tenants that were evicted as a result of the arrival of the new tractor. Part of the increase in yields may have resulted from the use of additional inputs such as fertilizers (for which a huge national campaign was carried out; see paragraphs 3.25 to 3.28), new - 28 - varieties or improved seeds. No information is available on these topics, however. Thus, in order to make some allowance for these unknown factors it has been assumed that half of the increased area under cultivation had been farmed at the-same level of intensity before the project, and that a 3% increase in wheat yields occurred due to factors outside the project. In view of the fact that only one year's incremental income has been used and no secondary benefits are included, the Mission feels that the ensuing quid pro quo, gives some credence to the final net benefit streams. 4.13 The financial rate of return is 27%. The cost and benefit streams and notes on assumptions made are shown in Annex 2 Table 8. Although slightly below the appraisal estimate of 31%, it can be stated that the profitability of the tractor investments has been reasonably adequate. 4.14 The order of magnitude of this estimate appears to be fairly re- liable. A slight overestimate may stem from the fact that price and without- project yield increases have been deducted for wheat only. On the other hand, a further build up of yields and income due to the use of the tractors and additional implements which is likely to occur as farmers become more familiar with the new techniques, has not been included in the analysis. Furthermore, no account has been taken of the value of better marketing due to transport dependability. (b) Pumpsets 4.15 As shown in Annex 2, Table 1A, cropping pattern development based on the average area of cultivated land for nine pumpset case studies was sig- nificantly less (30%) than estimated in the appraisal model (200%). The area under wheat did expand (41%) although significantly less than assumed (100%), while contrary to the appraisal assumption that maize would be introduced with the project, the crop was not grown on farms after investment in pump- sets. Maize was grown on only 22% of farms pre-project and constituted about 12% of the total area of crops grown. There was nonetheless, expansion of areas under crops for commodities not included in the appraisal model such as orchard, alfalfa, melons, beans, etc. 4.16 With respect to crop yields (Annex 2 Table 1B), the findings based on the nine studies, are similar; i.e., wheat yields increased less than projected (140% to 226%), although the absolute yield for wheat after development (2.4 ton/ha) is higher than projected at appraisal (2.28 ton/ha). The reason for the lower percentage increase in yield lies in an apparent underestimation of pre-project level of production. Given the fact that the case study data is from one season only, not too much weight can be attached to the figures. Maize was no longer grown after pumpset investment, orchard yields increased, and other crop yields actually declined. The information on 'other crops' is not detailed but would include melons, beans, alfalfa and vegetables. The reason for the decline cannot be explained other than in respect of these crops the sample may not be truly representative. - 29 - 4.17 The comparison of appraisal farm income estimates with case study results (Annex 2 Table IC) shows that both gross income and operating expenses were underestimated in the 'without project' situation and greatly overesti- mated in the 'with.project' situation. The actual performance thus revealed that while the percentage increase in operating income was lower than pro- jected (135% compared to 348%), the order of magnitude was high enough to result in an incremental operating income two and one-half times greater than estimated. 4.18 The financial rate of return for pumpsets assuming a lifetime of twelve years is 68% as compared with the appraisal estimate of 23% (Annex 2 Table 7 for net benefit stream). 1/ (c) On-farm Development 4.19 The five case studies used to measure performance under the on-farm development component of the credit were limited to oxen loans, while the appraisal model was buili: around investment in animal-drawn implements (polyculteur) and inputs. A valid comparison cannot, therefore, be drawn. The case study results show that average area cultivated increased overall by 35% after investment. Area under alfalfa showed the largest relative increase, and. only area under wheat: showed no increase at all. Crop yields increased for all commodities except "other crops", the largest increase again being with alfalfa. Finally, operating expenses increased by 34% while gross income almost doubled resulting in a substantial (666%) increase in operating income. The financial rate of return is estimated to be over 200% for the oxen loans. While the small sample and the single year data reduce the weight of this result, it is of sufficient magnitude to suggest that investment of this nature, which has the effect of reducing labor constraints on adequate land preparation and timely sowing, could prove very profitable both for the individual and the nation. Where it formed part of an integrated package involving the use of improved seed, fertilizer, insecticide, better water supply, and intensive extension, the results could be even more spectacular. Economic Benefits 4.20 The economic benefits of the project are first discussed for the tractor component only. Thereafter an assessment is made for the whole project. (a) Tractors 4.21 Under the assumptions and caveats listed in paragraph 4.12 above, the economic rate of return for the tractor component is 46% (see Annex 2 1/ No allowance has been made for engine replacement. Including such allowance would not affect substantially that figure, however: if the cost of the engine is estimated at 50% of the cost of the whole pumpset, the FRR ges down to 66%; if it was estimated at 75%, the FRR would go down to 0% - 30 - Table 9). This rate is higher than the corresponding financial rate of return because the actual and anticipated world market prices for wheat are significantly above the farm-gate prices used for the financial analysis. Furthermore, for Afghanistan as a landlocked country, the surplus/deficit situation has an enormous impact on the economic price of a commodity. For this calculation it has been assumed that Afghanistan remains a net importer of wheat. If we were to assume, however, that the incremental wheat produc- tion had to be exported, the price to be used for the economic rate of return calculation would have to be reduced by US$60/m ton (twice the transport cost) with dramatic effects on the rate of return. (b) Economic Analysis of the Whole Project 4.22 Production. By aggregating the incremental production of the three investment groups, the following production increase has been computed and compared with the appraisal estimate: Incremental Production Brought About By the Project Actual Estimate Appraisal Estimate Tractors Pumps Oxen Total ---------------------Metric Tons---------------------- Wheat 70,000 14,240 1,440 710 16,390 Maize 50,000 760 (154) 210 816 Cotton 10,000 1,000 - 140 1,140 In addition to the commodities mentioned above, the investments made have re- sulted in production increases of alfalfa, fruit and other commodities. Fur- thermore, the custom work done by tractor farmers has resulted in additional production of wheat, maize and cotton in farms outside the project. The amount of such increase is, of course, difficult to estimate. However, it is very likely that the value of the additional production induced by custom work is at least as great as the price the farmers pay for it. Expressed in wheat equivalent, the custom work has resulted in an annual increase of about 3,700 tons of wheat. 4.23 The difference in production between the appraisal estimate and actual is mainly due to the fact that the total number of loans made is only about 1,400 compared to the appraisal estimate of 7,180. 4.24 Value of Production. Valued at farmgate prices, the project is generating an annual production increase of about Af 222 million (equivalent to US$4.0 million at Af 55=$1), 1/ well below the appraisal targets (US$12 million). About 75% of this stems from the tractor farms. 1/ Exchange rates used throughout this report are current market rates thought to be prevail at the appropriate time, viz: Investments Afs 57:1, 1975 Afs 55:1, and 1976 onwards Afs 46:1. - 31 - 4.25 Foreign Exchange Earnings. The project is generating direct and indirect foreign exchange earnings through cotton exports and wheat import substitution. Valued at 1975 prices, the direct and indirect annual foreign exchange earnings are about US$3.8 million equivalent. 4.26 Economic Rate of Return. The economic rate of return has been computed by aggregating the net benefit streams of the three investment categories and by including the cost for the supporting services. 4.27 Although the incremental production turned out to be considerably lower than expected, the overall economic rate of return is 46%, compared to the appraisal estimate of 21%. As previously explained above, this sig- nificant difference is due to: (a) the prices for the major commodities being much higher than expected, and secondly (b) farmers' expenses not increasing as much as anticipated. The Cost and Benefit streams for the economic rate of return for tractor farms is shown in Annex 2 Table 9, and for the Project as a whole in Annex 2 Table 10. Social Benefits 4.28 To assess the social benefits of the project, a special effort has been made to analyze the data collected with respect to the income distribu- tion of the direct beneficiaries. The following analyses are based on the 10% sample survey undertaken by AgBank (refer to Annex 2 Tables lC and 2C, and Table 4, page 25 above). Thereafter an attempt is made to assess the impact of the project on Government revenues. 4.29 A summary of the information contained in the sample is shown in Annex 2, Table 7, from which the following major conclusions can be drawn: (a) About 1,400 farms supporting 13,500 persons benefited directly from the project. The average investment amount was about Afs 190,000 (US$3,330). (b) The average land holding of the benefiting tractor farmers is substantially above the holdings of farmers who bought pumps or received credit for on-farm development. However, the percentage of owned land cultivated is low for tractor farmers but high for farmers receiving credit for oxen. A substantial portion of land farmed by oxen farmers is being sharecropped. (c) The family size increases with the area farmed. Consequently, the pre-project per capita incomes do not vary as greatly as the farm incomes. - 32 - (d) The bulk of the investment amounts was spent for tractors, thus benefiting farmers with a pre-project per capita income higher than the national income (US$130/capita in 1975). (e) The most significant increase in per capita income resulted from investments in pumps. 4.30 A further analysis of the sample survey shows: (a) About 46% (640) of the project farmers belong to the group of the very poor (the absolute poverty level was US$44 per capita in 1975). These farmers received 11% of the loan amount made. (b) About 12% (170) of the farmers received 21% of the loan amount and had pre-project incomes larger than five times the average per capita income. 4.31 The sample survey indicates that small scale, low capital invest- ment - on-farm development - is not only more profitable to the farmer than say tractor investment, but is more effective in reaching the very poor group. The financial rates of return for tractors, pumps, and oxen, were 27%, 68%, and 203% respectively. Similarly the respective increase in operating income on a farm basis was about 23%, 60%, and 200% of the invested amount. 4.32 Government Revenue. The Afghan Government monopolizes the marketing and external trade of several inputs and commodities. In some cases, it makes a profit out of the difference between the prices prevailing in the internal and external markets. Through this way, the lending program has had a direct impact on Government revenues through increased wheat and to a lesser extent cotton production as well as through higher fertilizer consumption. For the years 1975 and 1976, the impacts were: Government Income 1975 1976 resulting from: Af Million Wheat Production /1 87.3 48.0 Cotton Production 8.6 4.4 Fertilizer Consumption (4.3) 1.5 Total 91.6 53.9 US$ equivalent (million) 1.7 1.2 /1 Would be in the form of import substitution. 4.33 With declining world market prices, future revenues will fall below the 1976 level. Further Government revenues resulted from AgBank's taxes on profits. Due to the ineffective farm taxation system, no significant tax increase from farmers could be assessed. - 33 - V. GOVERNMENT PERFORMANCE .5.01 Government performance must be considered within the context of a prestige conscious society in which cooperation between many Ministries Ls poor and in some cases almost obstructive. Furthermore the background of weakly developed institutions, and cumbersome bureaucratic administrative procedures must be taken into account. The creation of new para-statal or- ganizations or strengthening of those existing, is frequently seen by those In positions of authority as a challenge to their power and influence. The ramifications of the political changes which took place in 1973 did also influence the actions of Government. 5.02 The Government was unable to satisfactorily implement three cove- nants of the Development Credit Agreement: (a) the necessary extension services in respect of Category IV, animal drawn implements, were not pro- vided until after the original closing date; (b) after the 1st year MIS was not given adequate and timely budgetary support; (c) finally, the Ministry of Agriculture intervened on one occasion in the operation of AgBank with regard to a procurement decision, where AgBank's professional evaluation was overrated for price considerations alone. Furthermore, AgBank under instruc- tion from MAI changed two Vice Presidents, which, without initial approval of IDA, did not conform with the Development Credit Agreement. It should be noted that this took place immediately after the proclamation of the Republic and the staff concerned were subsequently reinstated. In addition the covenant in respect: of legislation for water users' associations was complied with only towards the end of 1974, the planned closing date for the credit. 5.03 The Government deserves credit for agreeing to the mixed Afghan- Expatriate management, to the new Charter with its Joint Voting Executive Board provision, and to the divorcing of AgBank personnel regulations from those of the Civil Service. Many people both in Government and Senior Civil Service, probably did niot (and may still not) appreciate the significance of the joint voting executive which did not allow the President overriding powers. Furthermore, Government has supported AgBank financially at all times, a situation not always enjoyed by Government Ministries and Para-statal organizations. Within the context of such a successful project and when comparing performance of other projects, the positive aspects of Government actions are in this case important lessons. 5.04 Preparation of the project was delayed because of "massive Govern- ment inaction" whilst effectiveness had to be extended due to delay in em- ploying consultants for MIS and in repaying "managed funds". 5.05 Government decisions which directly affected AgBank, the consequences of which were not thought through sufficiently, included those mentioned in paragraph 5.02 (c); plus the imposition of the fertilizer program with the requirement that AgBank be responsible for distribution of fertilizer and administration of loans; and, the decision to make AgBank responsible for all - 34 - after sales service of tractors without more careful consideration for their ability to perform such a task. Although it caused many problems at the time, the emergency fertilizer program has probably done AgBank more good than harm in that it ultimately resulted in major innovations for security requirements, and a noticeable improvement in AgBank's financial position, and in its prestige. 5.06 Government was rather critical, with some justification, of the apparent lack of attention to training by the AgBank Management team, and felt unable to agree to a request by AgBank for the appointment, under UNDP sponsorship, of three expatriate training officers. Eventually one training officer was appointed for a period of three years. Training deficiencies probably delayed the ultimate attainment of overall project goals in insti- tution building and prolonged the period required for direct expatriate in- volvement in management. It is probably fair to say that Government, AgBank Consultants, and IDA share responsibility for the deficiency. 5.07 Recruitment of experienced and qualified staff remains a problem throughout Afghanistan and this inevitably has influenced Government's at- titude. AgBank's problems were increased by the difficulties placed in the way of recruits employed in the Civil Service. This made it difficult to appoint suitable people to middle and senior management positions, and has already led to problems in the second IDA financed project. 5.08 The failure of the minor irrigation rehabilitation section of the minor irrigation component must be attributed partly to Government performance through the Ministry of Agriculture. For reasons discussed elsewhere and despite repeated assurances to the contrary co-operation of the Ministry of Agriculture was minimal. An appreciation, that in order to build up experience with and understanding of credit financing, and to develop credit discipline within the community, farmers should be made to pay, at least in part, for schemes from which they benefit was almost completely lacking in those re- sponsible in MAI for project implementation. 5.09 The Ministry of Agriculture affected project implementation by being unable to second, until a very late stage, the extension agents required to implement the farm equipment (cotton polyculteur) component. Furthermore, the MAI decision not to use IDA credit to finance fellowship training for both MAI and MIS staff was difficult to understand as it will ultimately contribute to slower development of the Agricultural Sector of the economy. 5.10 In summary, positive Government performance has outweighed the negative but not without some frustation and ultimately a restraining effect on the pace of development of AgBank as an institution and agricultural devel- opment as a whole. Perhaps the most positive aspect was the decision, cons- cious or otherwise, to leave AgBank alone and allow it to reorganize, develop, and manage, without undue interference. - 35 - VI. BANK/IDA PERFORMANCE 6.01 IDA performance is assessed as satisfactory but not without negative aspects. The first appraisal mission correctly insisted upon a complete reor- ganization including technical assistance and auditing of accounts before an IDA credit could be considered. The Project became the first in Afghanistan to have mixed Afghan-Expatriate management, a factor which has significantly contributed to its success. The pre-effectiveness audit also provided a basis for placing AgBank in a sound financial position and resolving problems such as the 'managed funds'. 6.02 At identification, preparation, and appraisal and throughout super- vision the problem of art adequate framework for developing a credit program in the form of Cooperative and Chattel Security laws was recognized. A loan covenant required the GOA to "take all steps necessary including legislative measures to establish water users' associations". This covenant was not honored until a Cooperative Law was passed towards the end of 1974 and IDA does not appear to have taken a strong stand on this long delay or the other fundamental issue of Chattel Security laws. However IDA did assist with the preparation of a draft of both Cooperative and Chattel Security laws, and Government did present the Cooperative Law to Parliament in 1973 but it was not passed. No further action was taken on the Chattel Security law. 6.03 Although it highlights the basic issues, the Appraisal report is deficient in its consideration of security requirements at the "grass roots" level and the extent to which this problem could restrict the implementation of the lending program and development of institutional credit financing in Afghanistan. 6.04 In terms of Project design the establishment of MIS as a separate organization, outside of AgBank and responsible to another Government Ministry, resulted in less than satisfactory cooperation between AgBank and MIS. MIS was primarily responsible to MAI but a high priority function was to advise AgBank on the economic and technical viability of irrigation loans. Coop- eration between AgBank and MAI proved to be minimal and consequently MIS effectiveness was greatly reduced. 6.0.5 The level of technical assistance required was probably under- estimated in that the demands of day-to-day management did not allow the AgBank consultants to devote adequate time to training. Inclusion in the original technical assistance package of at least one and preferably three training specialists might have accelerated the pace of development with consequential benefits overall. The disciplines of the experts employed within AgBank appear to have been appropriate. The addition of an agricultural economist could have proved beneficial, although, had he been more closely identified with AgBank, the Farm Management Expert with MIS could have filled such a role. 6.06. Despite country difficulties, one might suggest that IDA should have taken a stronger stand on the Government's action in respect of MIS - 36 - budget, extension services, and interference with AgBank procurement pro- cedures involving water pumps. More recently, however, when the decision by Government to transfer after sales tractor service from the private sector to AgBank met with a strong IDA objection, this led to what might be considered a 'second best' situation; transfer of the service to an AgBank owned Company with foreign technical assistance. This move, which has weakened the private sector, is likely to prove of questionable benefit to Afghanistan as a whole, and although stronger IDA objections may have been appropriate, the prevailing political feeling at that time meant that IDA had little choice but to accept the situation. 6.07 The MIS problem received appropriate attention from all Supervision Missions. IDA endeavors to improve the situation were considerable and ulti- mately not without imagination. In restrospect, because of the attitude adopted by MAI, it is unlikely that any move by IDA, AgBank or the consultants would have proved successful. It does appear however that AgBank, fully sup- ported by IDA, continued to adhere too rigidly to the lending conditions for MIR as laid down in the loan agreement. At a late stage these conditions were drastically revised, but by then this component of the project could not be salvaged. 6.08 In total 12 supervision missions were made at an average interval of 5.5 months with a range of 3 to 8. Good consistency of personnel was main- tained with the same senior staff member being involved in identification, appraisal and in all but two of the first 8 supervision missions. Subsequent continuity has not been maintained to the same extent but with little apparent affect on Project performance. 6.09 During the preparation and implementation phases, two Resident Repre- sentatives were involved. Their relations with the Borrower and AgBank appear to have been good and their assistance appreciated. In general cooperation between the RR and HQ has been good, although some inconsistencies in approach developed during the period when the project was designated 'problem'. These concerned the training efforts of the AgBank consultants and the view expressed by a Supervision Mission that the project had 'political' problems. 6.10 IDA performance has generally been 'low-key' and, as far as can be judged from discussions with AgBank, Project Officers, Consultants and Govern- ment Officials, regarded as helpful. A suggestion by the Hendrikson Manage- ment Consultants that at times they 'felt' rather unsupported by IDA is worthy of note. In this regard the rather delicate relationship between all parties, (IDA, GOA, AgBank, UNDP and Consultants) and in particular the position of the Consultants vis-a-vis IDA, as lender to GOA and supervisor of the Consultants, may render such criticism invalid. Cooperation between all staff, IDA and Consultant, was always considered to be both good and frank. In Afghanistan a 'low-key' approach usually proves the most effective, but it may be that in terms of some of the breaches of covenants and other important problems which related to the long-term development of AgBank and other IDA Projects, such as the two Livestock Projects, in particular, and Afghanistan in general, stronger action by IDA may have been more appropriate. On the other hand IDA deserves - 37 - credit for the exercise of considerable patience and persistence in regard to the MIS problems, and during the period of uncertainty which surrounded all expatriate supported institutions immediately following the change of Govern- ment in July 1973. VII. CONCLUSIONS AND LESSONS LEARNT 7.01 The First Agricultural Credit Project in Afghanistan has, despite some minor qualifications, been outstanding as an example of successful institution building and provides valuable lessons for both IDA and GOA. 7.02 Whilst the social impact has not been as wide as present day thinking would consider desirable and the absolute impact upon the economy comparatively small, the institution building objectives have been substantially achieved. Not only has this led to a second project, with wider social benefits, being implemented ahead of schedule, but a banking institution has been established whLch can now play an increasingly significant role in the development of the agricultural sector of the economy. It should be noted that a wide social impact among the very poor group was not an original objective of this project. 7.03 As they become more familiar with the procedures involved, an increasing number of farmers are recognizing the advantages of the use of institutional credit financing. Of equal significance, is the build-up of credit discipline within the rural community and the recognition by Govern- ment authorities and officials of the importance of this basic requirement for a successful credit operation. 7.04 The lessons of the Project are summarized as follows: although potentially sound from an economic viewpoint the Minor Irrigation Rehabilita- tion (MIR) scheme was ahead of its time and involved some fundamental errors in preparation, design and implementation; and, project objectives in terms of institution building should probably have concentrated on AgBank alone as the resources available to both IDA and GOA were, in retrospect, not sufficient to make the necessary impact on the irrigation department of MAI. 7.05 The full implications of water, and water rights (within this particular climatic setting), in a subsistence tribal society of fiercely independent people was not fully appreciated by all concerned (Afghan and expatriate) right from the outset of preparation, through appraisal and initial implementation. Furthermore, the absence of any legal framework for the formation of cooperatives or water users' associations and the land- ownership problems, although recognized at all stages as fundamental problems in developing a credit program for MIR, proved severe constraints. Govern- ment programs which were introduced subsequent to project appraisal, and provided free to beneficiaries, were also an important element. 7.06 Thus, persistence with the MIS section as originally conceived has in retrospect proved a mistake, as has the reluctance on the part of IDA and - 38 - AgBank to relax MIR lending conditions until the third year after effectiveness. Early warnings of impending failure were not ignored, but the attempts to fore- stall the inevitable probably continued for too long. As a consequence of the negative experience with this component, no similar scheme was included in the second or third Agricultural Credit Projects. Given the now stronger institu- tional setting and improved credit framework, a better designed MIR type of development, with its significant quick-yielding benefits, should be recon- sidered for inclusion in future AgBank lending operations. 7.07 Within Afghanistan tractors appear to be a profitable and economic investment both for farmers and the nation. This is likely to prove even more so if they are used in areas where climate and water supply allows for double cropping and in situations where they can include a package, integrating mechanization with production inputs, such as fertilizer and improved seeds, and the production of high value cash crops. The high financial rates of return and the large demand for credit for these investments confirm this. Even where there is no double cropping feasible, these investments show good results. The ERR for tractors, calculated at 27%, is high. Even if it were lowered somewhat by taking into account the risk factor of drought occurrence, it would still be sufficiently high to justify making such investments. The social implications of tractor mechanization vis-a-vis employment are not clear. Present indications are for a shift in peak demand and an increase in labor requirements for those tasks, e.g., harvesting, threshing, still undertaken by hand. Furthermore, unless channelled through cooperatives, tractor invest- ment appears to benefit larger and probably wealthier farmers. 7.09 The insistence on using a locally-made untested implement, the poly- culteur, resulted in the manufacture of a product unacceptable to farmers. This adversely affected the implementation of this component of the project. The initial importation of a range of makes followed by field testing and then local design and manufacture, would have been a sounder approach. 7.10 The importance of training at all levels must be highlighted. Despite the institutional growth and development achieved, AgBank would, particularly at Branch and Middle management levels, be in an even stronger position today had the proposal to include three training officers been accepted. Within this context and taking account of the significant benefits which have accrued to AgBank as a result of overseas staff training, the MAI attitude is difficult to accept. 7.11 The revised Charter and Management of AgBank together with accept- ance of mixed expatriate-Afghan management must serve as a significant lesson to both IDA and GOA. The successful use of expatriates in management positions of a Government agricultural credit bank is of particular significance to IDA. 7.12 The principle of Executive Board Management by which all seven members have equal voting rights and the President does not have overriding powers or a casting vote is unusual in Afghanistan and within the context of a successful institution should be carefully noted. - 39 - 7.13 Whilst working within the framework of Government Policy, AgBank has been allowed to operate on a reasonably autonomous basis, viz. budget, staff, management and development. The level of Government non-interference in these areas is an important lesson. 7.1.4 The Project did not, at least initially, provide for a program for short-term production loans. The land ownership position and legal framework together with borrower experience and the institutional strength of AgBank did not allow this to be undertaken. Although progress in developing a more flexible and diversified lending program, constrained as it was by security problems, has been slower than hoped, the overall policy adopted by AgBank may prove in the future to have been more correct. Constrained by, inter alia, shortage of trained staff, effective lending procedures and overall banking experience, a minimum risk policy was appropriate. Now as the pace and diversity of Agricultural Development within Afghanistan accelerates and with the removal of all or part of these constraints, a more confident and sounder AgBank is in a position to play a very positive role.  ANNEX 2 Table 1 AFGHANISTAN COMPLETION REPORT Virst Agricultural Credit Project -Gei CA Case Study Analysis - Ptompsets A. CROPPING PATTERNS Appraisal Estimate Actual Performance Average of 9 Case Studies Without With % Before After % Project Project Increase Investment Investment Increase (ha. (ha) (ha) (ha) Wheat 20 40 100 9.8 13.8 41 Maize - 20 0.9 - (100) Alfalfa - - 0.58 0.6 4 Orchards - - 2.1 2.8 33 Other Crops - - 3.4 4.6 35 Total Area Under Crops 20 60 200 16.8 21.8 30 Area Cultivated 20 60 200 16.8 21.8 30 CROP YIELDS Appraisal Estimate Actual Performance Average of 9 Case Studies Witholt With % Before After % Projec. Project Increase Investment Investment Increase (m ton/ba)(m ton/ha) (m ton/ha) (m ton/ha) Wheat 0.7 2.28 226 1.0 2.4 140 Maize - 2.66 0.4 - N.A. Alfalfa - - 5.0 3.3 (34) Orchards - - 3.5 6.0 71 Other Crops - - 6.2 3.7 (40) C. FARM INCOME Appraisal Estimate Actual Performance Average of 9 Case Studies Without With % Before After % Project Project Increase Investment Investment Increase (Afa 000's) (Afs 000's) Gross Income 70.0 645.0 821 227.2 487.6 115-\ Operating Expenses 57.2 587.6 927 143.7 291.2 103 Operating Income 12.8 57.4 348 83.5 196.4 135 Incremental Operating Income 44.6 112.9 Debt Service 30.0 25.7 Increment after Debt Service 14.6 87.2 ANNEX 2 Table 2 AFGHANISTAN COMPLETION REFCFT First Agricultural Credit Project - Credit 202AF Case Study Analysis - Oxen A. CROPPING PATTERNS Actual Performance Average of 5 Case Studies Before After % Investment Investment Increase (ha) (ha) Wheat 2.8 2.8 - Maize 0.2 0.4 100 Cotton 1.0 1.6 60 Alfalfa 0.1 0.6 500 Orchards 0.1 0.2 100 Other Crops 0.7 1.0 43 Total Area Under Crops 4.9 6.6 35 Area Cultivated 4.9 6.6 35 CROP YIELDS Actual Performance Average of 5 Case Studies Before After % Investment Investment Increase (m ton/ha) Wheat 1.8 2.2 22 Cotton 1.2 1.2 - Maize 0.4 0.9 125 Alfalfa 3.0 15.0 400 Orchard 2.1 5.7 171 Other Crops 4.5 3.3 (27) c. FARM INCOME Actual Performance Average of 9 Case Studies Before After % Investment Investment Increase (Afs 000's) Gross Income 60..3 117.5 95 Operating Expenses 54.5 73.1 34 Operating Income 5.8 44.4 666 Incremental Operating Income 38.6 Debt Service 5.3 Incremental After Debt Service 33.3 AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202AF Case Study Analysis - Incremental Crop Production by Loan Category No. of Farms Area in Crop Yield Total Production/ Incremental Production Before After Before After Before After Before After -------MTons-------- Loan Category ------ha------- -----MTons/ha --------MTons-------- 1. Tractors Wheat 17 17 21.8 31.8 1.5 2.4 555.9 1,297.4 741.5 Cotton 3 3 7.0 13.5 1.5 1.5 31.5 60.8 29.3 Maize 11 6 4.27 9.5 6 1. 7 75.2 96.9 21.8 Alfalfa 15 11 2.0 2.2 15.0 15.0 450.o 363.0 (87.0) Orchard 10 12 2.2 2.2 10.0 11.6 220.0 306.2 86.2 Other Crops 12 14 9.5 9.0 6.9 8.1 786.6 1,020.6 234.0 2. Pumpsets Wheat 6 8 14.8 15.6 1.5 2.8 133.2 349.4 216.2 Cotton - - - - - - - - - Maize 2 - 3.9 - 1.6 - 12.5 - (12-5) Alfalfa 3 2 1.7 2.7 15 15 76.5 81 4.5 Orchard 4 5 4.8 5 8 13.6 153.6 34o 186.4 Other Crops 5 5 6.2 8.3 11.2 6.7 347.2 278.1 (69.1) 3. Oxen Wheat 5 5 2.8 2.8 1.8 2.2 25.2 30.8 5.6 Cotton 4 4 1.3 2 1.5 1.5 7.8 12.0 4.2 Maize 1 3 0.8 0.73 1.8 1.6 1.4 3.5 2.1 Alfalfa 1 5 0.6 0.6 15 15 9 45 36.0 Orchard 1 2 0.4 0.6 10.5 14.3 4.2 17.2 13.0 Other Crops 3 4 1.13 1.3 7.5 4.1 25.4 21.3 (4.1) AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202AF Random Sample Analysis - Changes in Area Cultivated and Net Income By Loan CategDry ana Faruy GC Loan Category Loans Land Cultivated Net Income Per Capita Net Income Number Before ha After ha Cha Before After Change Before After Change ) ha -Af----------- Afs - ------------A--------------------Afs------------------- 1. Tractors and Implements Family Size 4 - 8 22 33.8% 41.9 74.1 32,2 77% 5,449.5 155,455.9 150,006.4 2,753% 530.5 26,4o9.5 25,879.0 4,878% 9 - 12 12 18.5% 45.7 71.7 26.0 57% 46,915.2 128,123.9 81,208.7 173% 4,978.8 12,200.5 7,221.7 145% abv 253.0 78.7 2.7 4 1,8. 104,892.2 1, 642. above 12 31 L77 3. 7 25. % 6,797.2 111,689.4 10,9. ,4% (130.1) 6,298.0 ~ ____ All 1ons 65 100.0% 47.9 75.8 27.9 58% 13,856.0 129.815.6 115,959.5 837% 1,055.0 14,317.0 13,262.0 1,257% 2. Animal Drawn Implements Family Size 4 - 8 25 73.5% 5.0 6.5 1.5 30% 5,667.0 22,506.9 16,839.9 295% 596.4 3,801.4 3,205.0 537% 9 - 12 6 17.7% 7.5 10.5 3.0 4o% (1,330.2) 23,406.8 24,737.0 (81.5) 2,236.5 2,318.0 above 12 3 8.8% 11.2 16.7 5.5 j 96,861.3 130,112.3 33,251.0 34% 5,674.0 8,331.7 3,657.7 Y All loans 34 100.0% 6.0 8.1 2.1 38% 12,478.9 32,160.3 19,681.4 158% 954.2 3,925.0 2,970.8 311% 3. Pump Sets Family Size 4 - 8 11 68.8% 15.9 28.9 13.0 82% 23,596.2 84,180.7 60,584.5 257% 3,381.4 13,307.5 9,926.1 294% 9 - 12 4 25.0% 9.0 9.7 0.7 7% (862.8) 50,581.2 51,444.0 (284.5) 5,120.2 5,404.7 above 12 1 6.2% 6.4 6.4 - - 83,600.0 130,920.0 47,320.0 57% 2 4,364.0 1,577.0 561 All loans 16 100.0% 13.6 22.7 9.1 67% 21,074.1 78,336.8 57,262.7 272% 2,364.2 10,528.0 8,163.8 334% M x AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202AF Random Sample Analysis - Type of Investment, Farm Size, Average Investment Per Farm by Loan Category Average Farm Size Number of Loans Average Investment/Fa-4 Total Investment Loan Category Appraisal Actual Appraisal Actual Appraisal ActualIJ Appraisal Sample . Actual/ ----------ha---------- ---------Af'--00---------- -------Af mail.------ 1. Tractors and Attachments 60 120 450 655 476 449 214 50 294.1 90 308.3 87 2. Animal-drawn Implements 4 7 3,500 429 5 33 18 4 14.2 4 30.1 8 3. Pumpsets 4o 16 430 162 175 93 75 17 15.1 5 15.2 4 4. Irrigation Rehabilitation 5 3 2,800 5 45 454 126 29 2.2 1 2.0 1 Total - - 718 1,251 433 100 325.6 100 355.6 100 I/ Includes farmer contribution. 2/ Number of Loans x Avg. Investment as derived from questionnaires. Provides guide only to total cost of production component. 3/ Actual cost as estimated by AgBank. 4/ Includes on-farm development category introduced in 1974. ANNEX 2 Table 6 AFGRANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202AF Random Sample Analysis - Changes in Area Cultivated by Loan Category and Farm Size Loans Land Cultivated Loan Category Number % Before After Change Area % Loan Category ha ha ha 1. Tractors and Attachments Farm Size 0 - 50 ha 21 32.3% 1,431.0 568 (863) 51 - 100 ha 28 43.1% 1,152.6 3,200.4 2,047.8 above 100 ha 16 24.6% 528.8 1,160.8 632 All Loans 65 100.0% 47.9 75.8 27.9 58% 2. Animal Drawn Implements Farm Size 0 - 3 ha 12 35.3% 28.7 7.3 (21.4) 3.1 - 6 ha 10 29.4% 50.4 80.9 30.5 above 6 ha 12 35.3% 124 188.2 64.2 All Loans 34 1007 6.0 8.1 2.2 37% 3. Pump Sets Farm Size 0 - 5 ha 6 37.5% 2.7 3.1 0.4 6 - 15 ha 4 25.0% 6.4 7.0 0.6 abovel5 ha 6 37.5% 29.4 52.8 23.4 All Loans 16 100% 13.6 22.7 9.1 67% ANNEX 2 Table 7 Random Sample Analysis. - Project Beneficiaries2/ On-farm 3/ Number of farms Tractors pps Development Total Number of farms 563 114 732 1,409 Average Land Owned (ha) (Pre-project) 136.2 24 7.4 60.2 Average Area Cultivated (ha) (Pre-project) 47.9 13.6 8.6 24.7 Average Family Size 12.6 8.4 7.4 9.6 Average Operating Income (Af'OOO) (Pre-project) 117.9 39.9 37.2 69.7 Average Operating Income per capita (Af'OO0) (Pre-project) 9.4 4.75 5.0 7.3 As % of Average per capita Income 244 123 130 190 1/ Average Investment Amount (Af'000)- 499.0 145.3 17.2 192.1 Average Increase in per capita Operating Income (Af'000) after debt service!! 9.3 10.3 4.5 7.4 Share of Number of Beneficiaries 53 7 40 100 Share of the Lending Program (%) 90 6 4 100 1/ Based on information extracted from the case studies. 2/ Excluding five minor irrigation schemes. 3/ Mostly oxen. 4/ Excludes MIR loans and adjusted for retroactively financed loans - see Table 1, page 23. ANNEX 2 Table E AFGHANISTAN COMPLFTION REPORT First Agricultural Credit Project - Credit 202-AF Cost and Benefit Streams for Financial Rates of Return A. Tractors 1/ Incremental 2} Salvage Year Investment Operating Income Value Net Benefit ----------------------------AF '000--------------------------------- 1 448.7 -- -- (448.7) 2 - 5 -- 172.0 -- 172.0 6 -- 172.0 50.0 222.0 B. Pumps 1 145.3 -- -- (145.3) 2 - 12 -- 98.9 -- 98.9 C. Oxen 1 17.2 -- -- (17.2) 2 - 5 -- 35.0 -- 35.0 6 -- 35.0 8.6 43.6 Financial Rate of Return 4. Tractors - 27% B. Pumps - 68% C. Oxen - 100%+ 1/ From case study analysis 2/ The major assumptions made for computing the financial rates of return are: (a) The average lifetime of the tractor is six years. The appraisal estimate has not been revised although past experience shows that the average lifetime is expected to be 7-8 years. The salvage value of the implements after six years is 50% of the purchase price. (b) Since no information on the phasing of yield and area increases due to mechanization was available, it has been assumed that the increase in operating income realized in the second year will remain constant over the lifetime of the tractor. (c) The case studies contain data for comparisons between a 'pre-project' and 'after-project' rather than between 'without project' and 'with project' situations. Consquently, adjustments have had to be made for price changes and yield increases due to factors outside the project. These adjustments have been made for wheat only, since this is by far the most important crop, contributing about 61% of the total increase in production value. It can be assumed that price changes for other commodities are offset by corresponding changes for inputs. Since, for the case study farms, project and non-project impacts on yields cannot be isolated, macro data had to be used. Afghanistan's 1975 wheat production was 6% higher than the 1973/74 average while the area under wheat increased by only 3% Qtfghanistan Economic Memorandum, June 7, 1976). Therefore, it has been assumed that a 3% increase in wheat yields occurred due to factors outside the project. (d) The net benefit stream has been adjusted accordingly as follows: Af'000 Incremental Operating Income - 212.6 (from Chapter 4, Table 4) Adjustment for Price Increases - (28.8) Adjustment for Yield Increases - (11.8) Net Incremental Operating Income - 172.0 ANNEX Table AFGHANISTAN COMPLETION REPORT FIRST AGRICULTURAL CREDIT PROJECT - CREDIT 202AF Cost and-Benefit Streams for Economic Analysis - Tractor Farms Incremental Adjustments 1/ Operating for Net Years Investmentg- Income Adjustments for Wheat 3/ FertilizerA/ Benefit Stream and Value at Value at Replacement Financial Economic Prices 4/ Prices 5/ --------------------------fs '0------------ ------------------ 1974 (448.7) - - - (448.7) 1975 - 212.,6 (216.5) 286.1 (6.1) 276.1 197E - 212.,6 (216.5) 225.6 2.2 223.9 1977 - 212. 6 (216.5) 222.8 1.5 220.4 197E - 212.6 (216.5) 215.8 1.2 213.1 197S (149.6) 212.6 (216.5) 211.7 .8 59.0 1980 (149.6) 212. 6 (216.5) 211.8 (.3) 58.0 1981 (149.6) 212. 6 (216.5) 211.8 - 58.3 1982 212.6 (216.5) 211.8 - 20.7.9 1983 212.6 (216.5) 211.8 - 207.9 1984 212. 6 (216.5) 211.8 - 20,7.9 1985 (149.6) 212.6 (216.5) 211.8 - 58.3 1986 (149.6) 212. 6 (216.5) 211.8 - 58.3 1987 (149.6) 212. 6 (216.5) 211.8 - 58.3 1988 212. 6 (216.5) 211.8 - 20.7.9 1989 212. E (216.5) 211.8 - 20,.9 1990 212. 6 (216.5) 211.8 - 20,7.9 1991 (149.6) 212. 6 (216.5 ) 211.8 - 58.3 1992 (149.6) 212. 6 (2165 ) 211.8 - 58.3 L993 (149.6 212. 6 (2165 ) 211.8 - 58)7 Economic Rate of ieturn - 46% I/ Tractor life of about 6 years, a.sume replacement by all of project farms spread over 3 years. 2/ From Case Study analysis - Table 4, Page 25. 3/ Adjustment is not the same as for FRR as described in Annex 2, Table 8, footnote 2(d). 4/ Incremental Wheat production has been adjusted downward so as to allow for increases due to factors outside project (3%), and half of increased area under cultivation (3-25ha) being farmed pre-project at same level of intensity. 5/ World market prices plus transportation cost $30/mton using ex. rate of Afs 57,1974, Afs 55, 1975. and Afs 46: $ thereafter. 6/ Represents difference between world market price c.i.f. Afghanistan and price actually paid by farmers. Assumes farmers pay full cost as from year 7. AFGHAVISTAN COMPLETION REPORT FIRST AGRICUITURAL CREDIT PROJECT - CREDIT 202AF Econoic Rate of Return on Whole Project Year Net Benefit Stream Farms Net Benefit Streams by Project Component Supporting Serv:ces Total Project Tractor Pmpset- On-Farm Tractors Pumpsets On-Farm Other Lending Spare Parts 3/ Technical Services -t .Development Development Program and Vercocle and Expenses --- Af 1000 - -------- ----------------------------------------------Ate VrTenwcl n E-xpense 1974 (448.7) (149.3) (17.2) (252.62) (17.02) (12.59) (0.07) (32.35) (0.46) (325.1) 1975 276.,1 186.1 39.2 155.44 21.22 28.69 o.16 - (,0.46) 195.4 1976 223.9 154.3 37.8 122.06 17.59 27.67 0.15 10.46) 161.o 1977 220.4 151.3 37.4 124.o9 17.25 27.38 0.15 - (10.46) 158,4 1978 213.1 148.o 37.2 119.98 16.87 27.23 0.15 - (10.46) 153.8 1979 59.0 146.3 37.1 33.22 16.68 27.16 0.15 - (10.46) 66.8 1980 58.0 146.3 28.5 32.65 16.68 20.86 0.11 (32-35) (10.46) 27.5 1981 58.3 145.9 36.9 32.82 16.63 27.01 0.15 - (10.46) 66.2 1982 207.9 145.9 36.9 117.05 16.63 27.01 0.15 - (10.46) 150.4 1983 207.9 145.9 36.9 117.05 16.63 27.01 0.15 - (10.46) 150.4 i94 P07.Q 145.9 36.9 117.05 16.63 27.01 0.15 - (10.46) 150.4 1985 58.3 145.9 36.9 32.82 16.63 27.01 0.15 - (10.46) 66.2 1986 58.3 o.6 28.3 32.82 0.07 20.72 0.11 (32.35) (10.46) 10.9 1987 58.3 145.9 36.9 32.82 16.63 27.01 0.15 - (10.46) 66.2 1988 207.9 145.9 36.9 117.05 16.63 27.01 0.15 - (10.46) 150.4 1989 207.9 145.9 36.9 117.05 16.63 27.01 0.15 - (10.46) 150.4 1990 207.9 145.9 36.9 117.05 16.63 27.01 0.15 - (10.46) 150.4 1991 58.3 145.9 36.9 32.82 16.63 27.01 0.15 (32.35) (10.46) 33.8 1992 58.3 145.9- 28.3 32.82 16.63 20.72 0.11 - (10.46) 66,P 1993 58.3 145.9 36.9 32.82 16.63 27.01 0.15 - (10.46) 66.2 Economic Rate of Return - 46% happens to be the same as for the tractor component alone. Apparently, the negative net benefit stream of the supporting servIces are offset by the even higher rates of return generated through the pump and on-farm development investments. 1/ Assume pump life for 12 years. 2/ Individual farm net benefit streams and number of loans in each category, 563,114,732,4; No detailed information has been collected on the 5 loans made for minor irrigation schemes or on loans for animal-drawn implements. In view of the small sine of these components, it can be justifiably assumed that the net benefit stream generated through AF 1,000 investment notcovered by the case studies has the same order to magnitude and structure as the equivalent stream generated per Af 1,000 invested in pumpsets. Deviations from this assumption would only marginally affect the overall economic rate of return of the project. 3/ Spare parts for tractors comprising about 2 % of the total project cost, are being held in stock at AgBank and a private firm to be sold to tractor farmers upon their request. Since the farmers' demand for spare parts generally increases during the lifetime of the tractors, farmers' expenses for spare parts are likely not to be adequately covered by the questionnaires. To be on the conservative side, the full amount spent X on spare parts has, therefore, been considered as a project cost while the corresponding returns are assumed to be part of the benefits resulting from the tractor investments. Annex 3 ,Pble 1 AFGHANISTAN COMPLETION REPORT First Aericultural Credit Proiect - Credit 202AF Schedule of "isburserents 1/ Actual Disbursements Actual Disbursements Appraisal Estimates- as a Percentage of IDA Fiscal Year & Quarter Cumulative Disbursements in US$ 000's Appraisal Estimates FY71 2nd- - 3rd - 250 - 4th 39 1,151 3.4 FY72 1st 39 1,359 2.9 2nd 413 2,265 18.2 3rd 574 2,566 22.4 4th* 1,000 2,760 36.2 FY73 1st 1,500 2,913 51.5 2nd 1,900 3,885 48.9 3rd* 2,006 4,195 47.8 4th 2,391 4,342 55.1 FY74 lst 2,600 4,626 56.2 2nd 2,700 4,761 56.7 3rd 2,900 4,873 59.5 4th 3,053 4,966 61.5 FY75 1st 3,184 4,988 63.8 2nd 4,540 5,000 90.8 3rd 4,572 - - 4th 4,864 - - FY76 1st. 4,864 - - d-'/ d/ 2n- 5,291- - - 1/ No schedule of disbursements was included in Appraisal Report. "Appraisal Estimates" shown are based on Appraisal Report p. 16, para. 4.19 and supervision mission reports. 2/ Effective date: December 29, 1.970. C3osing chte: December 31, 1975. / Of vnich US$290,501.80 foreign exchange adjustment. * Devaluation of US$ dollar AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202AF AgBank Disbursements from IDA Credit by Year and Categcry --------- YEAR--------------------------------------------- 1351 (1972/73) 1352 (1973/74)_ 1353 (107LI1q75) 1354 (197-5/76) Total US$ 1o. Af.Mil No. Af.Mil No. Af.Mil No. Af.Mil No. Af.Mil m 000 . Imported Farm Equipment (a) Tractors 267 89,377 95 31,100 159 54,612 137 46,604 658 221,693 (b) Spare parts 1 3 1 - - -- 2 5,258 (c) Sub-total 268 93,098 96 32,637 159 54,612 137 46,604 660 226,952 3,463.1 2. Pumpsets - - 18 1,461 102 7,167 48 2,961 168 11,589 232.9 3. Farm Equipment 1/ 8 206 11 282 79 3,113 104 4,628 202 8,229 2.9 4. Minor Irrigation Re- habilitation 2/ - - 3 440 11 987 2 116 16 1,543 6.2 5. On-farm Development (a) Orchard Development - - 3 385 65 1,509 34 1,336 102 3,230 (b) Livestock - - - - 56 13,969 117 3,362 173 17,332 (c) Beekeeping - - 2 245 16 1,466 8 352 26 2,063 Sub-total 5 630 137 16,945 159 5,051 301 22,626 176.8 T o t a 1 17 334 13 3 5 488 82.82 5 450 59.36 1.347270942 3,881.90 1 Includes imported tractor equipment as well as locally made farm equipment. 2/ Numbers relate to number of beneficiaries with each project. Official number of loans as provided by AgBank is 1251, figure adjusted by Mission for Retroactive financial is 1414 (Table 1, Page 23 ). The above table provided by AgBank probably includes some loans from Credit 539AF and some which were approved but never actually disbursed. Figures must therefore be used as a guide only. From Table 1, Page 5. ANNEX 3 Table 3 AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202AF Geographical Distribution of Borrowers (Sample) On-Farm Irrigation Province Tractor Pumpset Development Rehabilitation Total No. % No. % No. % No. % No. % North-Lowlands Balkh - - - - 3 7 - - 3 2 KundUz - - - 5 12 - - 5 4 Baghlan - - - - - - 1 20 1 1 Subtotal - - - - 8 19 1 20 9 7 South-Lowlands Nimroz 4 6 1 6 - - - - 5 4 Helmand 9 14 - - 2 5 - - 11 8 Kandahar 22 34 - - 1 2 1 20 24 19 Herat 5 8 - - 1 2 1 20 7 5 Farah 2 3 19 - - - - 5 4 Nangarhar - - - - 10 23 - - 10 8 Subtotal 42 65 4 25 14 32 2 40 62 48 Central Highlands Paktia 9 14 - - 5 12 - - 14 11 Ghazni 12 18 1 6 5 12 - - 18 14 Kabul 2 3 7 44 7 16 2 40 18 14 Parwan - - - - 3 7 - - 3 2 Jozjan - - 3 19 - - - - 3 2 Wardak - - 1 6 - - - - 1 1 Laghman - - - - 1 2 - - 1 1 Subtotal 23 35 12 75 21 49 2 40 58 45 Total 65 100 16 100 43 100 5 100 129 100 ANNEX 4 Table 1 AFGHANISTAN COMPLETION (EPORT First Agricultural Credit Project - Credit 202 AF Comparative Balance Sheets as of March 29 -AF Nillion.- 1354 1353 1352 1351 1350 1349 1975/76 1974/75 1973/74 1972173 1971/72 1970/71 ASSETS Cash and Bank Balances 782.8 661.5 602.1 266.1 119.2 131.3 Estimated current portion of loans inc. interest 560.3 421.6 274.2 67.9 24.0 17.4 Special fertilizer loans 65.3 97.9 130.5 163.2 - - Less: Collections (65.3) (97.9) (130.5) (19.8) - - Loan to AFC - - 841.9 - - Less: Loan from USAID - - (841.9) - - - Advances 5.3 19.8 2.6 12.7 24.2 - Other receivables (net) 29.7 8.2 19.5 3.7 2.3 7.2 Inventories and goods in transit (net) 118.4 146.3 69.2 54.4 63.1 28.2 Total Current Assets 1,496. 12257.4 967.6 548.3 232.8 184.3 Estimated non-current portion of loans including interest 671.7 672.3 350.5 232.0 118.9 94.7 Less: Provisions for doubtful debt & interest (57.0) (50.5) (65.7) (60.1) (52.5) (41.3) Equity investment (net) 11.4 11.4 12.6 12.1 12.0 12.0 Investment in subsidiary company 8.0 5.0 4.3 4.3 4.3 4.3 Total Non-Current Assets 634.1 638.1 301.7 188.3 82.7 69.6 Fixed Assets (net of depreciation) 18.6 12.6 9.4 10.5 6.2 4.5 Total Assets 2,149 .2 1i90.2 1,78.7 748.0 321.6 258.4 Managed Funds - 12.4 38.0 86.0 - - Appraisal Estimates 579.5 567.6 557.6 488.1 386.2 310.9 LIABILITIES Demand deposits 305.4 184.4 165.2 23.3 11.8 3.8 Time deposits and other interest bearing deposits 302.7 670.0 344.6 83.2 3.2 2.1 Short-term borrowing from DAB 201.0 - - - - - Creditors and advances 11.8 27.6 19.4 24.2 59.0 22.4 Other accounts payable and deferred credits 84.9 58.7 27.1 11.3 3.6 7.0 Current portion of long-term liabilities 32.6 32.6 32.6 33.6 - - Total Current Liabilities 938.5 973.4 588.9 175.6 77.6 38.5 Estimated non-current portion of time deposit 106.3 178.9 63.0 - - - Non-current portion of creditor supply - - - - 12.0 15.0 Long-term liabilities (net of current portion) 355.5 96.2 109.1 142.2 6.3 - Pension, Health, and Provident Funds 15.9 13.1 12.2 12.3 10.3 9.3 Total Non-Current Liabilities 477.7 288.2 184.3 154.5 28.6 24.3 Paid-up share capital 577.2 543.3 461.0 394.7 214.8 183.7 Reserves 103.7 52.1 19.1 8.4 8.3 9.9 Retained earnings before appropriation 52.1 51.2 25.4 14.8 (7.7) 2.1 Total Stockholders equity 733.0 646.6 505.5 417.9 215.4 195.7 Total Liabilities 2.149.2 ,9 278 748.0 321.6 258.4 Managed Funds - 12.4 38.0 86.2 - - Appraisal Estimate. 579.5 567.6 557.6 488.1 386.2 310.9 AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202-AF Comparative Income Statements as of March 20 - Af Millions - 1354 1353 1352 1351 1350 1349 1975/76 1974/75 1973/74 1972/73 1971/72 1970/71 INCOME Interest & banking charges earned 149.4 111.4 72.7 23.3 11.9 11.7 Sales of merchandise 158.0 152.3 92.9 176.2 28.2 30.1 Less: Cost of Merchandise sold (124.5) (111-4) (67.1) (135.7) (22.6) (2-28) Net Profit Supply 33.5 40.9 25.8 40.5 5.6 7.3 Commissions earned 2.2 - 0.1 0.2 1.0 0.3 Other Revenues 1.4 1.2 2.0 4.6 2.4 3.0 Total 186.5 153.7 100.6 68.6 20.9 22.3 EXPENSES Increase in provision for losses 7.3 5.7 3.7 9.4 9.1 2.2 Interest and banking charges 35.9 27.7 24.8 1.1 1.1 1.5 Personnel costs 44.5 27.8 20.3 17.8 12.2 6.4 Other administrative costs 14.2 9.9 7.4 6.1 3.8 2.8 Depreciation 4.8 3.5 2.6 2.3 0.7 0.4 Extraordinary expenses 1.8 2.7 5.0 0.8 0.9 6.0 Turnover taxi/ 10.8 8.7 5.5 4.8 1.4 0.7 Total 69.3 42.3 29.2 20.0 Profit (loss) before taxes 68.0 68.4 31.3 26.3 (8.3) 2.3 Taxes (15.9) (17.2) 5.9) J2.j2) q.2) (0.2) Profit (loss) after taxes 52.1 51.2 25.4 24.1 (8.5) 2.1 Appraisal Estimates 11.3 13.0 11.9 7.8 2.6 - 1/ Tax computed on revenues from selling merchandise (2%) and on commission from supply, dividend and rents receivable (5%) AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202 AF Agricultural Development Bank Changes in Loan Portfolio 1970/71-1975/76 -Af OQO'a 1970/71 1971/72- 1972/71/ 1973/ 1974/75- 197572/ Princ. Inter. Total Princ. Inter. Total Princ. Inter. Total Princ. Inter. Total Princ. Inter. Total Princ. Inter. Total 1. Net Loan Portfolio as at beginning of year 584 90496 2 107079 239.836 S 1iA M.648 9 68.850 1,056.898 2. Loans diabursed during the year and interest charged including interest accrued 21,706 6,149 27,855 46,487 8,756 55,243 217,996 17,831 235,827 398,629 37,209 435,838 807,866 68,716 876,582 563,565 75,000 638,565 3. Collected aount. 12858 4,0 1 1 j.24 24,328 71,592 I 70 864 86.080 24.94 111.028 3 40722 393,916 378.385 68,537 446.922 4. Net Increase of loan portfolio (2-3) 8 2 10914 2848 3,982 30915 146. 105 1 31254 1 324810 4 27994 482666 185180 612 26 5. Increase (Decresee) of provisions for doubtful debts and suspensed interest (1.684) 1.50 (184) 8.138 7 5,22 240 13 3 1211 (16,395) (15.184) 5.376 1.163 6. Net Loan Portfolio as at end of year (I + 4 - 5) 2 4976 70,75 84,57 5 9 2,757 14,079 239.836 534.587 24461 559 4.9 4 ,0 056,898 1 74,150 .2j 02 7. Provisions on doubtful debts and suspensed interest 20,216 21,058 41,274 28,354 24,093 52,447 33,574 26,496 60,070 37,293 28,375 65,668 38,504 11,980 50,484 43,880 13,143 57,023 (as % of Total Portfolio) (24) (81) (37) (25) (80) (37) (13) (65) (20) (6) (54) (11) (4) (15) (5) (4) (15) (4) 8. Loan Portfolio as at end of year (6+7) 85,994 26,034 112,028 112,927 30,016 142,943 259,331 40,575 299,906 571,880 52,836 624,716 1,026,552 80,830 1,107,382 1,211,732 87,293 1,299,025 Princ. - Principal Inter. - Interest 1/ Based on Ag Bank Annual Reports 2/ For first three quarters only, i.e., as of 12/22/75, based on Ag Bank/Hendrikson Quarterly Progress Reports 3/ Actual disbursemients for full fiscal year - Af 715,562.0 thousand 4/ Estimated Includes amount wtitten-off against provision AFGHANISTAN Firat Agricultural Credit Project Loan Recoverie. (Principal) Af Milliont 1349 1350 1351 1352 1353 1354 2/ 1970/71 1971/72 1972/73 1973174 1974/75 1975/76= S/T H/T L/T Total SIT M/_T LT Total SLT äIT L/T Total S/T M/T L/T Total l/T !CT LT Total ' LT å/T L/T Total ILa var,du. at Begioning of Yar 7.2 9.8 9.5 26.5 7.2 16.1 9.4 32.7 9.2 23.7 9.5 42.4 9.5 26.7 9.6 45.8 8.9 24.3 9.4 42.6 124.5 17.7 7.8 150.0 Rectification. nd Anounta Witten off agoai-t ProI.ion- - - - - - - - - - - (0.7) (3.8) (0.8) (5.3) - - - - Lott alle l4, d~"8af Nat 0.1 19.3 0o.2 19.6 j j 23 0K 0_3 31.3 37.9 23.9 0.3 64.1 - 40.3 . 40.4 249.9 51. 0.22 301.6 11.0 6.6 17 16 Toal Du 7.3 29.1 9.7 dur 3n 471 49.6 9.8 06.3 9.5 67.0 9.7 86.2 238.1 72.0 8.9 338.9 135.3 24.3 j_ 167.6 Rcovria. of Loa avrdt, - 6.2 0.3 6.5 . 6.0 0.1 6.1 1.5 5.8 0.1 7.4 0.6 9.7 0.2 10.5 0.2 10.3 0.7 11.2 21.9 4.3 0.2 26.6 %- 63 3 24 - 37 1 19 16 24 1 17 6 36 2 23 2 42 7 26 18 25 3 19 Recoverie. of Loat. Fall- e - 5.7 - 3.7 5.9 7.0 - 1.2.9 36.1 15.6 - 51.7 - 30.5 0.1 30.6 133.4 41.8 0.2 175.4 10.9 3.0 - 13.9 S- _ 30 - 29 75 30 - 41 95 60 - 81 - 76 100 76 53 81 100 58 99 45 - 79 Total Reoveries -- l. 0.3 12.2 5, 13 0 .1 19.9 37.6 21.4 0.1 59.1 0.6 40.2 Q3 41.1 133.6 52.1 09 186.6 32.8 7.5 2i 605 2 - 41 3 26 39 33 1 30 80 43 1 55 6 60 3 48 52 72 10 55 24 31 Extension Granted - Loa averdu- - 0.8 - 0.8 - 1.7 0.1 1.8 - 0.6 0.1 0.7 - 1.3 - 1.3 - 1.3 0.1 1.4 - - - - %- 8 - 3 - 11 1 6 - 2 1 2 - 5 - 3 - 5 1 3 - - - - Extenions Granted - Lon. Fallen DUe 0.1 0.3 - 0.4 - 0.7 - 0.7 - 0.9 - 0.9 - 1.2 - 1.2 - 0.9 - 0.9 - - - - Total Extension1 Granted2 2 3 - 2 - 4 1 3 ~ 2 - 3 -- Toa ttoto0Grned9l1 1 1.2 - 24 0-1 2Y33 1.5 0.1 1.6 - 2.5 - 2.5 - 2.2 0_1 2.3 - - - - 1 1 4 - 3 - 6 1 4 - 3 1 2 - 4 - 3 - 3 1 1 - - - - 1~ averdua at end of Ytor2 6.1 14 32.7 9.2 ±3.7 9&5 62.6 9.5 .7 9&6 .8 9 24 9.4 6 124.5 17 1 .8 150.8 105.7 1 127 1 1/ Inolud. Precollection. 2/ FIrst to quart-er only (Mrch 22, 1975-Septmber 22, 1975) AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202AF Total Annual Loan Disbursement by Branches and Kind of Loan 1347 - 1354 (March 21, 1968 - March 30, 1976) 1347 1348 1349 1350 1351 1352 1353 14 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 By Branches g A 32 - No. Af, N AfOOO N. Af! A f OQO jig &L= M A.WQ Kabul - - 5 259 35 2,084 77 12,260 43 105,621 3,143 123,991 3,658 397,916 3,046 237,551 Jalalabad - - 9 746 4 444 4 362 4 484 5,828 24,346 12,818 70,169 13,460 95,094 Charikar - - 1 95 2 274 - - 5 1,034 4,788 34,823 8,565 39,543 4,124 22,686 Kunduz - - 2 115 21 4,292 20 2,998 43 8,642 2,070 19,744 5,120 47,790 6,286 63,767 Baghlan - - - - - - - - - - 641 8,318 1,675 17,102 1,475 17,244 Mazar-i-Sharif - - - - 16 3,494 18 2,551 55 13,176 1,109 14,514 1,004 14,356 1,285 14,853 Herat - - - - 3 485 18 1,251 28 5,149 2,685 18,715 2,475 22,490 3,125 29,018 Gardez - - 3 220 3 725 2 137 14 4,534 94 7,573 849 12,291 1,652 22,386 Qhazni - - 1 63 13 2,967 14 937 25 6,884 414 10,994 1,415 19,367 $54 12,334 Parah - - 19 745 44 1,997 36 1,934 25 6,292 373 3,680 582 12,256 810 13,053 Lashgagah - - - - - - 1,491 12,209 108 33,724 6,376 85,321 7,105 111,665 8,125 132,679 Kandahar - - 4 4,945 216 11,847 112 32,45 3,448 4 2 42,642 3,722 8 Total 14 32800 4 2 163 21 1,856 646,486 462 7 30,969 6 1 0 47,764 2 By Kind of Loan Farm mechanization 14 - 43 2,575 153 20,924 389 32,648 436 118,034 248 58,831 563 102,609 466 93,032 On-farm development - - - - 5 410 3 550 3 515 5 444 83 3,303 155 9,421 Livestock - - - - 5 - - - 6 13,969 265 16,995 Agro-basiness - - - - - - - - 8 49,134 5 26,301 13 32,637 37 t4,887 Fertilizer and Seed - - 1 25 1 100 1,434 11,499 - - 30,698 252,748 47,407 418,449 46,784 510,142 Cotton promotion - - - - - - - 7 46,000 9 59,725 5 228,638 - - Other - - - - 4 3 _Ld89 8 4,313 4 580 23 J7,98 57 1,085 Total 14 3,800 24 0 163 2,707 1,856 46486 462 217,996 30,969 3 862948,1 7 47,764 715,562 % Increase (Decrease) (32) 735 114 369 83 103 (11) Compared to Previous Years 1/ Total AgBank Lending program including IDA credit AFGHANISTAN COMPLETION REPORT First Agricultural Credit Project - Credit 202 AF Organization Chart of the Agricultural Development Bank of Afghanistan as on September 1, 1969 GENERAL ASSEMBLY SUPREME COUNCIL BOARD OF AUDITORS PRESIDENT TECHNICAL SECRETARIAT ADMINISTRATIVE VICE PRESIDENT] 7 VICE PRESIDENT CREDIT TECHNICIAN SUPPLY PERSONNEL ACCOUNTING INSPECTION CONTROL ARCHIVES DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT CHARIKAR FARAH GARDEZ HERAT JALALABAD MAZAR KABUL World Bank-16497 禹FOH涌州唱T禹N 州坤網州名禹L OF 為因A，•哺細州O&d.h砷頗 州州劇h以個O•d甲間間，口．由 偽叩•匕也開C輪州一。C絀“由開，1，奮•7口 廉痲導 自•目自口睦一•口口口 0-& 才I宅 pl式 叫l閃 &！× 計。lu, IBRD 12718 MARCH 1977 U 5 S R ar CHHNA N1- Pa. K- 7 KUN SHEBERG la ýI.I.ba,1 I T.,gli -35. r L I,i ý.2 Y11 HERA 10 Q., AFGHANISTAN Third Agricultural Credit Projecý z Head office af AgBANK* Branches of AgBANK Sub-branches af AgBANK 300- Isobyets sn millimeters Sh,nd,ý Poved roads Gravel roads F A R A Rivers 0 Cities ar towns Falh International cirports Main donneslic airports FAIRAH '5ý ý1 -------- Provincial boundortes -----International boundarres Elevations in meters! ------ Ove, 4,500 3,000-4,500 Z A B U L 1,500-3,000 Dahl Under 1,500 Q1 cý sýk,ý i, ý1 11 0 *Agriculturaf Development Bank of Afghanistan 0 u 5 5 R CHINA AFGHANISTAN 0 40 80 170 ý6r 2N 240 1. ,X IRAN KILOMETERS PAKISTAN l N C) l A 00 .11-Es A-b- 5- J