Document of The World Bank Report No: ICR0000777 IMPLEMENTATION COMPLETION AND RESULTS REPORT (DRAFT) (IDA-36810) ON A CREDIT IN THE AMOUNT OF SDR 3.9 MILLION (US$ 5 MILLION EQUIVALENT) TO THE PEOPLE’S REPUBLIC OF BANGLADESH FOR A FINANCIAL SERVICES FOR THE POOREST PROJECT June 16, 2008 Poverty Reduction, Economic Management, Finance & Private Sector Development South Asia Region The World Bank Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of The World Bank
Report No: ICR0000777
IMPLEMENTATION COMPLETION AND RESULTS REPORT (DRAFT) (IDA-36810)
ON A
CREDIT
IN THE AMOUNT OF SDR 3.9 MILLION (US$ 5 MILLION EQUIVALENT)
TO THE
PEOPLE’S REPUBLIC OF BANGLADESH
FOR A
FINANCIAL SERVICES FOR THE POOREST PROJECT
June 16, 2008
Poverty Reduction, Economic Management, Finance & Private Sector DevelopmentSouth Asia Region The World Bank
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CURRENCY EQUIVALENTS
(Exchange Rate Effective May 31, 2008)
Currency Unit = Taka Taka 1.00 = US$ 0.0146 US$ 1.00 = Taka 68.37
FISCAL YEAR July 1 – June 30
ABBREVIATIONS AND ACRONYMS
CAS Country Assistance Strategy FGD Focus Group Discussions FSP Financial Services for the Poorest GDP Gross Domestic Product GOB Government of Bangladesh ICR Implementation Completion and Results Report IDA International Development Association IGA Income Generating Activities
IGVGD Income Generation for Vulnerable Groups Development
IRR Internal Rate of Return ISR Implementation Status Results & Report LIL Learning and Innovation Loan M&E Monitoring and Evaluation MDG Millennium Development Goals MFI Micro Finance Institution Microfinance I Poverty Alleviation Microfinance Project Microfinance II Second Poverty Alleviation Microfinance Project MIS Management Information System NGO Non-Government Organization NPV Net Present Value PAD Project Appraisal Document PDO Project Development Objectives PKSF Palli Karma-Sahayak Foundation PO Partner Organization of PKSF PRIME Programmed Initiatives for Monga Eradication RWG Research Working Group SDR Special Drawing Rights UPP Ultra Poor Program VGD Vulnerable Groups Development
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Vice President: Praful C. Patel
Country Director: Xian Zhu
Sector Manager: Simon C. Bell
Project Team Leader: Kiatchai Sophastienphong
ICR Team Leader: Kiatchai Sophastienphong
ICR Primary Author: Sadruddin Muhammad Salman
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BANGLADESH Financial Services for the Poorest
CONTENTS
A. Basic Information....................................................................................................... 5 B. Key Dates ................................................................................................................... 5 C. Ratings Summary ....................................................................................................... 5 D. Sector and Theme Codes ........................................................................................... 6 E. Bank Staff................................................................................................................... 6 F. Results Framework Analysis ...................................................................................... 6 G. Ratings of Project Performance in ISRs .................................................................. 10 H. Restructuring (if any)............................................................................................... 10 I. Disbursement Profile ................................................................................................ 11 1. Project Context, Development Objectives and Design............................................. 12 2. Key Factors Affecting Implementation and Outcomes ............................................ 15 3. Assessment of Outcomes .......................................................................................... 20 4. Assessment of Risk to Development Outcome......................................................... 26 5. Assessment of Bank and Borrower Performance ..................................................... 26 6. Lessons Learned ....................................................................................................... 30 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 31 Annex 1. Project Costs and Financing.......................................................................... 33 Annex 2. Outputs by Component ................................................................................. 35 Annex 3. Economic and Financial Analysis................................................................. 37 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 39 Annex 5. Beneficiary Survey Results ........................................................................... 41 Annex 6. Stakeholder Workshop Report and Results................................................... 47 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR..................... 50 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders....................... 65 Annex 9. List of Supporting Documents ...................................................................... 66 MAP.............................................................................................................................. 67
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A. BASIC INFORMATION
Country: Bangladesh Project Name: Financial Services for the Poorest
Original Actual Sector Code (as % of total Bank financing) General finance sector 60 60 Micro- and SME finance 40 40
Theme Code (Primary/Secondary) Other financial and private sector development Primary Primary Small and medium enterprise support Primary Primary E. BANK STAFF
Positions At ICR At Approval Vice President: Praful C. Patel Mieko Nishimizu Country Director: Xian Zhu Frederick Thomas Temple Sector Manager: Simon C. Bell Marilou Jane D. Uy Project Team Leader: Kiatchai Sophastienphong Shamsuddin Ahmad ICR Team Leader: Kiatchai Sophastienphong ICR Primary Author: Sadruddin Muhammad Salman F. RESULTS FRAMEWORK ANALYSIS Project Development Objectives (from Project Appraisal Document) The objective of the learning and innovation loan (LIL) is to find models of sustainable interventions for reducing the number of the poorest through use of microcredit and other financial services to enhance their incomes and livelihood. Revised Project Development Objectives (as approved by original approving authority) PDOs were not revised in the course of project implementation.
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(a) PDO Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised Target Values
Actual Value Achieved at
Completion or Target Years
Indicator 1 : Income of at least 50 percent of those that are earning less than 50 cents a day raised to more than 50 cents a day.
Value quantitative or Qualitative)
About half of the poorest earn less than 50 cents a day.
More than 50 percent of borrowers earning less than 50 cents a day now earn more than 50 cents a day.
93.5 percent of borrowers earning less than 50 cents a day now earn more than 50 cents a day.
Date achieved 09/01/2003 12/31/2005 12/31/2007 Comments (incl. % achievement)
Fully achieved.
Indicator 2 : Incomes of at least 50 percent of those earning less than a dollar/day raised to more than a dollar/day (Tk.60/day)
Value quantitative or Qualitative)
A large number of the poorest earn less than a dollar a day
More than 50 percent of borrowers earning less than a dollar a day now earn more than a dollar a day.
83.4 percent of borrowers earning less than a dollar a day now earn more than a dollar a day
Date achieved 09/01/2003 12/31/2005 12/31/2007 Comments (incl. % achievement)
Fully achieved.
Indicator 3 : Innovative delivery mechanisms designed by POs to meet the financial needs of the poorest.
Value quantitative or Qualitative)
Very few innovative delivery mechanisms designed by POs to meet the financial needs of the poorest.
All 15 POs design and successfully implement innovative delivery mechanisms to meet the financial needs of the poorest.
All 19 POs under the LIL plus 91 POs under the replicated project have designed innovative delivery mechanisms to meet the financial needs of the poorest.
Date achieved 09/01/2003 12/31/2005 12/31/2007 Comments (incl. % achievement)
Fully achieved
Indicator 4 : POs incentivized to extend micro-financial services to the poorest. Value None At least 15 POs All 91 POs
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quantitative or Qualitative)
motivated and strengthened to design and implement innovative delivery mechanisms for extending financial services to the poorest
including the 19 POs under the project, are motivated and strengthened to design and implement innovative delivery mechanisms for extending financial services to the poorest.
Date achieved 09/01/2003 12/31/2005 12/31/2007 Comments (incl. % achievement)
Fully achieved.
Indicator 5 : Household vulnerability reduced by: 25 percent increase in total household assets; 50 percent reduction in chronically food insecure households; and 50 percent upgradation of “jhupri” (straw/leaves shelter) dwellers.
Value quantitative or Qualitative)
The poorest households are vulnerable to loss of income and food insecurity and are living in jhupris.
Household assets increase by 25 percent. Food insecurity reduced by half of the borrowers and they live in semi-durable housing structures.
Household assets increased by 43.8 percent. Food insecurity reduced by 64 percent households and 78 percent are living in semi-durable housing structures.
Date achieved 09/01/2003 12/31/2005 12/31/2007 Comments (incl. % achievement)
Fully achieved.
(b) Intermediate Outcome Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised
Target Values
Actual Value Achieved at
Completion or Target Years
Indicator 1 : At least 30,000 new poorest borrowers given microcredit under innovative terms and conditions.
Value (quantitative or Qualitative)
Very few of the poorest borrowers receive microcredit under innovative terms and conditions.
30,000 new borrowers receive microcredit.
58,505 new borrowers received microcredit under innovative terms and conditions.
Date achieved 09/01/2002 12/31/2005 12/31/2007 Comments Fully achieved. In addition, 828,121 ultra poor have been given credit support
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(incl. % achievement)
under the government-backed replicated project "Ultra Poor Program".
Indicator 2 : At least 5,000 poorest households trained in self-employment activities.
Value (quantitative or Qualitative)
No self-employment training provided.
5,000 members provided training.
10,276 FSP beneficiaries and 175,809 ultra poor program beneficiaries trained in self-employment activities to increase their income level.
Date achieved 09/01/2002 12/31/2005 12/31/2007 Comments (incl. % achievement)
Over 100 % achieved.
Indicator 3 : Training provided for wage employment. Value (quantitative or Qualitative)
No training provided for wage employment.
2,000 members receive training on wage employment.
2,743 members received training on wage employment.
Date achieved 09/01/2002 12/31/2005 12/31/2007 Comments (incl. % achievement)
Over 100% achieved.
Indicator 4 : At least 20,000 of the poorest borrowers are being provided training on income generating activities
Value (quantitative or Qualitative)
None
At least 20,000 of the poorest borrowers are being provided training on income generating activities
13,019 FSP beneficiaries plus 175,809 ultra poor beneficiaries of replicated project received training on income-generating activities.
Date achieved 09/01/2002 12/31/2005 12/31/2007 Comments (incl. % achievement)
65 % achieved under the Bank’s own FSP project and beyond expectation for the replicated project backed by the government
Indicator 5 : Health and recreational facilities provided to at least half of the poorest participating in this LIL.
Value (quantitative or Qualitative)
None
All POs have delivered the health related services.
Under the social development services of FSP, all POs provided health, training, education, family planning, sanitation etc. services to
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63,000 beneficiaries.
Date achieved 09/01/2002 12/31/2005 12/31/2007 Comments (incl. % achievement)
1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN
1.1 Context at Appraisal Achieving the Millennium Development Goal (MDG) of halving the number of the poor living on less than a dollar a day by 2015 provides a powerful benchmark against which the Bank can measure the success of its operations in developing member countries. It has also underscores the role played by financial development in reducing poverty in Bangladesh. Accordingly, the Country Assistance Strategy (CAS1) reiterates the objective of supporting private sector-led growth through regulatory and structural reforms in the financial sector. Various studies have shown that the poorest totaling approximately 12 million individuals or 2.5 million households in Bangladesh are not reached by the regular or mainstream micro-credit programs due to various constraints. These constraints can be grouped broadly under two categories: those relating to the socioeconomic conditions of the poorest, which have bearings on their capacity and skills to use loans for financially viable activities; and those relating specifically to regular microcredit, which include lack of multiple income earning sources, seasonal shortfalls in income, lack of grace periods, mandatory weekly savings, unwillingness of peer groups to accept a perceived “higher risk” member, specific demographic factors, and higher incidence of ill-health amongst the poorest. Moreover, the microfinance institutions (MFIs) acting as intermediaries often shy away from the poorest because of higher delivery costs and risks. The studies also indicate that if the constraints for exclusion are properly addressed, it may be possible to extend financial services to this neglected section of the poor, so that they can use microcredit as the ladder to climb out of poverty. This Learning and Innovation Loan (LIL) was expected to pilot various delivery models that address the identified constraints so that the poorest are motivated to join the microcredit program and the MFIs are encouraged to offer tailor-made programs that suit the special needs of the poorest. The Palli Karma Sahayak Foundation (PKSF) has been implementing microcredit programs through its Partner Organizations (POs) since 1990. The Bank’s first transaction with PKSF in 1996 involved a Credit of US$105 million through Poverty Alleviation Microfinance project (Microfinance I). Upon successful completion of this project, PKSF/Government requested for a Second Poverty Alleviation Microfinance Project (Microfinance II) of US$151 million that was made effective in 2001. Both projects attained their respective development in terms of expanding outreach of microcredit in both rural and urban areas. As opposed to targeting the poorest of the poor in the proposed LIL, both of these projects promoted mainstream microfinance in Bangladesh.
1 The recent Bangladesh Country Assistance Strategy was discussed by the Board in March 2006, and had guided the Bank Group's program of support for 2006-09. This is a joint CAS with ADB, DFID and Japan, Bangladesh's 4 largest donors, accounting for more than 80% of aid to Bangladesh.
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1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the LIL was to find models of sustainable interventions for reducing the number of the poorest through use of microcredit and other financial services to enhance their incomes and livelihood. The Project Appraisal Document (PAD) lists the key performance indicators as follows:
• Income of at least 50 percent of those that are earning less than 50c a day raised to more than 50c (Tk.30) a day;
• Income of at least 50 percent of those that are earning less than a dollar/day raised to more than a dollar/day (Tk.60/day);
• Innovative delivery mechanisms designed by POs to meet the financial needs of the poorest;
• POs incentivized to extend micro-financial services to the poorest; • Household vulnerability reduced by: (a) 25 percent increase in total household
assets; (b) 50 percent reduction in chronically insecure households; and (c) 50 percent upgradation of “jhupri” (thatched house) dwellers to semi-durable housing structure.
1.3 Revised PDO (as approved by original approving authority), Key Indicators, and reasons/justification
PDO and key indicators were not revised in the course of project implementation.
1.4 Main Beneficiaries
This LIL targeted the poorest of the poor who comprise the bottom 10 percent of the population. While the partner organizations (POs) were responsible for selecting their members from this target group using any accepted method of identification such as the rapid rural appraisal, the selected members were not expected to be from households included in any ongoing microcredit program. However, it was decided that the profile of the households/borrowers to be selected under this LIL would broadly be as follows:
• Mostly landless, but a few with landholdings of up to 0.3 decimals • Unemployed or earning less than a dollar a day or dependent on temporary jobs • Asset-less and sometimes without a place to sleep • Deserted or separated women-headed households • Disabled and/or elderly (over 50 years of age) • Parents of former child laborers • Former sex workers • Domestic help or beggars • Seasonal wage earners or daily laborers • Having no skills or experience
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1.5 Original Components (as approved)
The LIL comprises four components: (1) Microcredit, (2) Capacity Building, (3) Disaster Fund for the Poorest, and (4) Monitoring and Evaluation. Component 1: Microcredit Component (US$3.33 million) The LIL proposed to test the hypothesis that an appropriately designed microcredit program can improve the welfare of the poorest in Bangladesh. The pilot also sought to determine the most effective delivery model, which could then be adopted for replication in the whole of Bangladesh to cover as many of the poorest as possible. Therefore, a main component of the LIL was the revolving fund for microcredit. This fund was to be lent by PKSF to selected POs for on-lending to new groups of the poorest. Component 2: Capacity Building Component (US$2.23 million)
Capacity building was considered critical to the success to this LIL. The IDA allocation for this component and that for Component 3 were disbursed to PKSF as a government grant. The budget for this component was composed of the following sub-components:
• PKSF’s Capacity Building - (US$0.14 million) to create an adequately staffed FSP unit to implement this LIL.
• Pos’ Capacity Building - (US$1.14 million) to cover household targets over the project period of three years, provide intense staff monitoring and supervision, enable MIS officers and field supervisors/trainers to guide the POs toward self-sufficiency and sustainability, and provide training and other logistical supports needed for effective supervision.
• Poorest Borrowers' Capacity Building - (US$0.95 million) to assess training needs for the members and evaluate the demand for different types of capacity-building initiatives: general orientation, income-generating training for self-employment, and income-generating training for wage-employment.
Component 3: Disaster Fund for the Poorest (US$ 0.31 million) PKSF would create a Disaster Fund by retaining an amount up to Tk.900,000 for each PO to compensate borrowers for losses sustained as a result of natural disasters or industry and sector-wide losses. Component 4: Monitoring and Evaluation Component (US$0.13 million)
The IDA allocation for this component was disbursed to PKSF as a government grant. Monitoring and evaluating the LIL focused on two broad areas: the substance of the M&E, covering issues related to methodology, scope, frequency and analytical tools; and the institutional set-up of the M&E, dealing with the issue of roles, responsibilities and capacity.
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1.6 Revised Components
The project components were not revised. 1.7 Other Significant Changes Most significant changes were that Government decided to replicate the LIL all over Bangladesh and that the unutilized funds of microcredit and disaster fund2 categories were reallocated for capacity building purposes.
2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2.1 Project Preparation, Design and Quality at Entry The project development objectives were well-defined, contributing directly to the needs of the country by addressing gaps in existing donor projects.
The LIL was designed by cross-consultation with various stakeholders. PKSF, MFIs, GoB, and other donors provided significant inputs during project preparation. All stakeholders considered the question whether the poorest of the poor could gainfully use microcredit which incorporated some elements of the safety net programs. There was a broad consensus that while the safety nets provide the “fish” for physical sustenance, microcredit could be the “technique to fish”, thus providing a source of financial sustainability. POs were working on several safety net programs, including those by the World Food Program (WFP), called the Vulnerable Group Development (VGD) programs, BRAC’s Income-Generating Vulnerable Group Development (IGVGD) program, the Food for Work and Food for Education programs, the pension scheme for the elderly, BRAC’s Targeting the Ultra Poor (TUP) program, and other safety net programs of bilateral donors as well as government-guaranteed employment schemes. POs under the LIL were encouraged to either enroll their FSP members in any of the existing safety net programs or select members from those already using such safety nets. It was agreed that the LIL would not pilot any new safety net program and would only avail of the existing programs already in place.
During project preparation, major project risks were identified risks, and pertinent mitigation measures put in place. The strong commitment of PKSF and POs as well as their willingness to assume these risks were considered two main factors for the success of this LIL.
2 PKSF established a centralized disaster management fund (DMF) on a permanent basis, which is financed by transferring 1 percent of net surplus of PKSF as well as IDA credit of US$10 million for the Livelihood Restoration Program under the Post-Flood Recovery Assistance Program (2005). PKSF asked its POs to establish their own DMF, to be financed by a 1 percent contribution from their service charge income. DMF is used as a revolving fund to provide risk mitigation loans and emergency loans to the disaster-affected households.
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The project design included the following innovations: (i) providing income-generating activities (IGAs) trainings commensurate with recipients’ capacities and needs; (ii) reducing the initial loan size to ensure that the loan proceeds were used for IGAs and make the debt service more affordable; (iii) introducing flexibility into the repayment schedules and program rules or obligations (such as group meetings and savings schemes); and (iv) introducing credit-plus services such as social development and health services, training of borrowers and MFI staff, etc.
On-lending and final rates of interest. It was agreed that PKSF would lend the microcredit funds to the selected POs at the rate of 4.5 percent per annum, the rate that PKSF charges POs for regular microcredit. This rate was retained to avoid a multiplicity of rates from PKSF to POs. The agreement specified that POs would also charge the same final rate, i.e., 12.5% percent per annum, to the poorest borrowers as they do under their regular microcredit programs. A unified final rate was agreed upon to avoid dual rates in order to prevent distortions, such as attempts by potential borrowers to disguise themselves as the poorest or campaigns by regular microcredit groups to reduce the rates. There was no formal Quality at Entry review for this project. Overall, the project design and preparation were satisfactory. There was clear understanding and a high sense of commitment on the part of Bangladeshi stakeholders to the objectives of this intervention. The design of the project also benefited greatly from focused groundwork and analysis carried out by PKSF and its partner organizations. 2.2 Implementation This LIL was approved on June 18, 2002; it became effective on August 21, 2002. PKSF had the overall management responsibility for coordinating and implementing the LIL. GOB was to disburse money to PKSF from the credit proceeds under a Subsidiary and Grant Agreement; in tern, PKSF was to on-lend to the selected POs under sub-project agreements, and POs would then make the funds available to their microcredit borrowers.
This project launching workshop in 2002 was very useful for improving implementation of the project, as POs could seek guidance on many problems that they had initially experienced or anticipated experiencing in the near future.
The Grameen Krishi Foundation dropped out of the pilot scheme at the later stage because of internal management problems.
This project was slow to get off the ground and had slow disbursements because of the following: (i) the staff of the FSP unit at PKSF was new and needed some time to mobilize the beneficiaries to be part of this LIL by way of frontloading awareness- and confidence-building exercises, linking them with other social services programs, etc.; (ii) POs were able to revolve the funds received under this LIL within a year and collect loans at a rate of 99 percent, rather than requesting fresh funds; (iii) considering the success of this LIL, GOB allocated Tk. 2,860,000 (US$ 42 million) from the national budget (FY06–FY08) for replicating these models all over Bangladesh through PKSF and its 91 POs (including FSP POs), thus decreasing the demand for funds; and (iv) the depreciation of the dollar against SDR and of the Taka against the dollar resulted in higher surplus funds and newer disbursement targets in Taka terms.
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The project mobilized 64,000 members, generated Tk.54 million (US$0.9 million) in savings and lent out Tk.644 million (US$9.3 million) to 58,505 beneficiaries. In contrast, over 828,000 beneficiaries were mobilized under the replicated Ultra Poor Program (UPP). This is because FSP, being a LIL, covered only 19 upazilas (sub-districts) of 17 districts – around 3,000 ultra poor from each upazila were mobilized by each of 19 POs as per project plan. Moreover, mobilizing the poorest of the poor in the LIL was more challenging than that experienced under the replicated project. UPP was implemented all over the country and covered a more extensive geographical area than the FSP which it replicated-- in 421 upazilas of 62 districts—through 91 POs (including FSP POs). Due to slackening demand for microcredit funds following GOB’s countrywide replication of the LIL, GOB requested the Bank to reallocate the unutilized funds for other uses and to extend the closing date for a further period of two years from the original date. Since grant funding from GOB for UPP was earmarked for relending purpose and no funds were allocated for capacity-building, it was agreed that the unused funds under FSP would be used for capacity-building of the borrowers and POs under UPP to ensure that the development objectives of the LIL were fully met. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The project set forth benchmarks and performance indicators to evaluate progress on individual subcomponents. These indicators were agreed upon during negotiations and were reviewed periodically to determine their effectiveness against performance standards and implementation schedules. In addition, a core component of this LIL was the monitoring and evaluation system that was planned to assess whether an appropriately designed and delivered microcredit program could improve the welfare of the poorest in Bangladesh. IDA allocation for this important component, amounting to US$0.13 million, was disbursed to PKSF as government grant. As detailed in the Project Appraisal Document (PAD), the M&E component for the LIL focuses on two broad areas: (i) the “substance” of the M&E covering issues related to methodology, scope, frequency, and analytical tools; and (ii) the “institutional set-up” for M&E dealing with the issues of roles, responsibilities, and capacity. PKSF created a separate cell for monitoring the LIL. The M&E component was initiated through the Research Working Group (RWG), which met on demand. The RWG comprised experienced persons from PKSF, a research institute, and a leading MFI. PKSF also developed the MIS system for data capture and analysis and trained the MIS officer from each PO to implement it at the PO level. In addition, PKSF retained a consultant to maintain M&E for the project period, established a research cell under the FSP cell, and strengthened the manpower with qualitative and quantitative research specialists. Streamlining the links among PKSF’s research cell, its FSP unit, RWG, and the POs remained challenging in the context of the M&E requirements. However, best efforts were made by PKSF through repetitive reconstitution of the FSP project unit during the project period and by deploying people to emphasize the M&E aspect of the project. All of the 19 selected POs had adequate experience in field data collection, but many lack the
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capacity to process, analyze, and prepare reports. The POs were responsible for administering the survey questionnaire (a borrower profile survey). The data was then entered into a computer program developed to process and analyze the data. Although FSP program staff provided hands-on data collection and data entry training to PO field workers and MIS officers, a number of POs, nonetheless faced capacity constraints in managing proper data entry and analysis and preparing reports. Thus, the FSP cell in PKSF assumed the entire task of data analysis and reporting. PKSF conducted two impact evaluations using external agencies in 2005 and 2007 respectively to assess the impact of the project on the livelihood of the poorest of the poor in both social and economic terms. The impact study used measurable indicators to estimate changes in income, assets, and living conditions of the beneficiaries, using a sample survey; the study gathered both quantitative and qualitative information. Furthermore, PKSF (either on its own or using external consultants) conducted a number studies such as a comparative study of microfinance programs of PKSF (FSP), BRAC, Plan International, and Grameen Bank for the poorest in order to apply lessons learned from those programs to FSP including lessons learned on process management and the selection process of area & beneficiary. POs also separately conducted a number of case studies and focus group discussions (FGD) to ascertain the implementation effectiveness of the LIL. The case covered various occupational groups including beggars, day laborers, and former sex workers. 2.4 Safeguard and Fiduciary Compliance Financial Management, Procurement, and Disbursement
Procurement
The FSP unit at PKSF was responsible for procuring goods, developing consultant services, and training at the PKSF level, as well as for procuring some logistical support and training at the beneficiary level. No procurement or financial management issues posed a cause for concern during project implementation. Although PKSF’s capacity to handle procurement under the LIL was adequate, procurement progress generally was slow and gradual over the project period. Recruiting experts to provide orientation programs and IGA training for beneficiaries in remote areas was the most challenging because qualified people were unavailable. Among the issues raised, one was related to procurement at the PO level. To help the POs implement this project money was set aside to buy motorcycles or motorized boats, bicycles, and computers for every PO. During supervision missions, all the POs pointed out that the original plan for PKSF to buy these items centrally and then distribute them to the POs was not feasible because—(i) transportation from Dhaka to the sub-districts (upazilas) involved not only additional cost, but also undue risks that could be avoided by procuring them at the point of use; (ii) goods procured at Dhaka had to be brought back to Dhaka for service, whereas such service could be easily obtained from the authorized agents in the upazilas, if bought from them; and (iii) some POs said that they wanted to upgrade the models by adding their own funds, which would not be possible through
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central procurement. It was then decided by IDA and PKSF to allow each PO to procure these goods individually. Financial management and reporting arrangements PKSF designated one staff member from its finance department, who had experience in Bank-financed projects, to be solely responsible for financial management activities under the FSP project. PKSF regularly submitted a set of agreed-upon financial management reports throughout the project period. PKSF maintained a computerized financial management, accounting, disbursement, and reporting system for the project. The accounts and records were verified and audited by the external audit firms. Internal controls included a built-in audit team that worked under a well-defined TOR and reported directly to MD. Internal audit cells audited POs to verify, among other things, whether the POs complied with the sub-project agreement and recommended corrective measures. Participating POs reported to PKSF on a defined format for project data/performance and submitted annual audit reports conducted by external auditors to PKSF. Social Safeguards The social safeguard aspect of FSP was well designed, as it was developed through discussions with MFIs that were already providing micro-finance and other services to the poorest and studying key social and cultural issues of potential beneficiaries, including the poorest poor who were not included in micro-finance activities or who had dropped out for various reasons. Among the social safeguards desired by the poorest groups were a flexible mechanism for repayment, such as providing assets through grants or repayment of the total amount after six months or after harvest or the productive season; skill development training; market information; production inputs, and market linkage for the sale of products. Some POs proposed providing microcredit as a package with other essential services such as health care, social mobilization for unity and empowerment, child development, etc. These POs had realized that the poorest need microcredit that offers flexibility to suit their situation, as well as other supportive services so that they can invest the credit (rather than consume it) in productive activities and thus benefit from the services. The project took these aspects into account and focused on a credit plus approach3 while offering the microfinance package to the poorest.
3 Credit Plus approach includes a broad range of products and services: credit, training, social development services including that for backward and forward linkages. This approach advocates for flexible and handholding supports for the poorest in order to build confidence, prosper and gradually come out of chronic poverty.
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2.5 Post-completion Operation/Next Phase Three triggers4 contemplated in the PAD of FSP for a follow-on operation had been met successfully well before completion of the project. The government, being fully satisfied with the outcome of the project, replicated the project all over the country. Therefore, the question of a follow-on operation became moot as GOB immediately mobilized another 72 POs (for a total of 91 POs) to replicate the program, called Microfinance for the Ultra Poor or the Ultra Poor Program (commonly known as UPP).
3. ASSESSMENT OF OUTCOMES 3.1 Relevance of Objectives, Design and Implementation The project remains highly relevant to the development of Bangladesh. Within the framework of the Country Assistance Strategy to substantially reduce poverty in Bangladesh, the FSP contributed to this goal by offering targeted groups opportunities to develop skills, improve income, and accumulate assets. Project design and implementation that have direct bearing on the attainment of project outcomes included: (i) financing the revolving fund to be used by the POs to extend microcredit to the poorest. POs designed the delivery of financial services for target groups within the broad parameters of PKSF, which offered ranges for setting interest rates to borrowers, savings requirements, maturity of loans, repayment periods, and linkages with other safety nets. POs also offered training on income-generating activities; (ii) setting up the FSP unit and the research cell, whose incremental costs were paid out of the monitoring and evaluation component, supported on a declining basis. PKSF supported the POs’ capacity-building needs and helped them acquire specific skills for income-generating activities; (iii) creating a disaster fund, from disbursements by PKSF to compensate losses beyond borrowers’ control; and (iv) establishing a monitoring and evaluation system to analyze performance indicators. In terms of project implementation, the country’s needs did not change during the course of the project; however, the project responded to changing circumstances by a budget reallocation during its second extension.
4 Triggers included: (i) more than half of the microcredit borrowers continued to demand microcredit and use it profitably; (ii) the borrowers maintained an annual repayment rate of at least 90 percent; and (iii) the POs continued to show interest in extending microcredit to the poorest and in expanding operations to reach a sustainable scale.
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3.2 Achievement of Project Development Objectives The objective of the LIL is to find models of sustainable interventions for reducing the number of the poorest through use of microcredit and other financial services to enhance their income and livelihood. By introducing flexibility in the microcredit delivery model, the project reached the lowest income group of the population and proved beyond doubt that the poorest could also be credit-worthy to receive financial services. The experience of this pilot not only convinced the government to replicate it all over Bangladesh, but gave birth to half a dozen projects being initiated by donor agencies and GOB and implemented by PKSF and MFIs. The interim and final impact evaluation studies conducted on the project showed positive changes in the lives of the poorest borrowers over the period of project implementation. These changes were revealed in two broad dimensions. First, a marked change has occurred in the lives of the poorest through various phases of interventions. Second, a difference in living standards at a given point in time is observable between the situation under intervention and that with no intervention at different stages of the project’s life cycle. The studies concluded that the project had made significantly positive changes in the lives of the poorest of the poor. All performance/result monitoring indicators (including PDOs or outcome indicators to measure project development objectives and intermediate outcome or output indicators to measure component performance), as well as the three triggers set for follow-on operations, were fully achieved. Five main outcome indicators used to assess the PDO achievements are as follows:
1. The first outcome indicator, Income of at least 50 percent of those who are earning less than 50 cents a day raised to more than 50 cents a day, has been fully achieved. As a result of the project intervention, 93.5 percent of borrowers now earn more than 50 cents a day.
2. The second outcome indicator, Income of at least 50 percent of those who are earning less than a dollar/day raised to more than a dollar/day (Tk.60/day), has been fully achieved as 83.4 percent of borrowers now earn more than a dollar/day.
3. The third outcome indicator, Innovative delivery mechanisms designed by POs to meet the financial needs of the poorest, exceeded what was envisaged in the PAD. All 19 POs under the LIL plus 72 POs under the UPP p have designed or implemented innovative delivery mechanisms to meet the financial needs of the poorest.
4. The fourth outcome indicator, POs incentivized to extend micro-financial services to the poorest, has also been fully achieved. The target was for at least 15 POs to be motivated and strengthened to design and implement delivery mechanisms for extending financial services to the poorest. The project extended both financial and technical support to the POs that acted as incentives to augment their ideas and participate in this delivery model. POs gained substantial knowledge and
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experience in how to reach and serve the poorest and were motivated to adopt this as an additional product line in their mainstream microfinance programs. Thus, not only 19 POs that were enlisted in this LIL, but also another 72 POs were motivated to offer the micro-financial services to the poorest.
5. The fifth outcome indicator, Household vulnerability reduced by: (a) 25 percent increase in total household assets; (b) 50 percent reduction in chronically insecure households; and (c) 50 percent upgradation of “jhupri” (thatched house) dwellers to semi-durable housing structure, has been fully achieved. Household assets increased by 43.8 percent. There was a 64 percent reduction in the number of chronically insecure households and 78 percent of households could afford to live in in semi-durable housing structures.
FSP also financed skills development training for about 175,834 beneficiaries of the replicated project. 3.3 Efficiency As the main objective of this LIL was to identify sustainable models of extending financial services to the poorest, a full-fledged economic analysis may not be appropriate. Nor was such an analysis performed at the time of the LIL appraisal. Quantifying exact benefits of this LIL to the poorest when they come out of their chronic poverty and into the microfinance sector was found to be very difficult. However, a conservative estimate of the project’s impact during its implementation phase, taking into account the microcredit disbursed to the LIL beneficiaries and the savings mobilized, minus the discounted cost streams, shows a financial rate of return of 23 percent and a net present value (NPV) of Tk. 241.63 million (see Annex 3). As discussed before, all development objectives were achieved and implemented by utilizing the full project cost. Although the replicated program (UPP) decreased the demand for microcredit components, the aptly made reallocation, along with almost full utilization of funds for capacity-building for PKSF and POs and beneficiary training, helped the project achieve the development objectives fully. Two large impact evaluation studies were conducted on the FSP project. The mid-term evaluation was done in 2005, and the final evaluation of the project was done in 2007. Both studies showed that PKSF and the POs achieved operational and financial sustainability. They observed that in the first year, POs needed technical assistance for one-off training (for awareness- and confidence-building) of the identified members (beneficiaries). Once they started recovering the credits, after one year, the POs could sustain themselves, even if there had been no built-in subsidy (which was set on a declining trend until 2004). With the increase in the number of borrowers and the increase in the size of the loan portfolio, the project took off at the end of 2004 and became financially sustainable. Although the subsidy for staff salary and training ended at the end of the third year of project implementation, POs were able to retain their staff with project income. Again, as it gained full momentum in the third year in terms of human resources, logistics, outreach, and operational income, the project achieved
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operational sustainability and maintained it until the end of the project. It should be noted that, unlike FSP, where POs had to pay 4.5 percent in interest charges to PKSF and borrowers were charged as high as 12.5 percent (flat), the UPP, which the GOB is implementing through PKSF, involves a grant to PKSF paid out of the national budget; this has enabled PKSF to on-lend to POs at an interest rate as low as 1 percent and POs to re-lend to the poorest at the maximum interest rate of 10 percent (in many cases, it is much lower). The UPP, like FSP, is linked to other existing nationwide safety net programs with free health and education services being offered to the poorest borrowers. The actual and potential economic benefits derived as a result of this LIL are expected to be very high. Many of these are not considered in NPV calculations, as discussed in Annex 3, mainly because of (i) the unavailability of year-by-year data, (ii) some benefits being of a non-quantifiable nature, and (iii) indirect benefits that were not easily attributable to the LIL. The project outperformed almost all of its targets. It was able to increase microcredit outreach (58,505 borrowers) by doubling the number of beneficiaries targeted to graduate to mainstream microcredit programs at project inception to 24,514 of the poorest borrowers at the project’s close. Households could increase their income significantly (48 percent per final impact study) and save potential costs by receiving free health, social, education, and training services. Inspired by this sustainable model of delivering micro-financial services to the poorest, we have observed six follow-on operations being implemented by PKSF, including the UPP, financed by GOB.
3.4 Justification of Overall Outcome Rating
(combining relevance, achievement of PDOs, and efficiency) Rating: Highly Satisfactory The project exhibited high relevance of objectives, design, and implementation. All the PDOs were fully met, with results, in some cases, far exceeding the targets. The project was efficient considering its cost-effectiveness and long term sustainability. Furthermore, all the intermediate outcome indicators were found to be satisfactory, specifically the following: (i) 58,505 new borrowers received microcredit under innovative terms and conditions; (ii) 10,276 FSP beneficiaries and 175,809 UPP beneficiaries were trained in self-employment activities to increase their income levels; (iii) 2,743 members received training on wage employment; (iv) 13,019 FSP beneficiaries plus 175,809 UPP beneficiaries s received training on income-generating activities; (v) under the social development services of FSP, all POs provided health, training, education, family planning, and sanitation services to 63,000 beneficiaries. Moreover, all of the three triggers for follow-on operations had been met much earlier than originally planned. This LIL has achieved its objective of finding sustainable models for extending financial services to the poorest of the poor. Considering the success of this LIL, GOB allocated around Tk. 2.86 billion (US$ 42 million) from the national budget to PKSF to replicate
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the LIL all over Bangladesh. This project has, therefore, been implemented all over the country through 91 POs that have reached more than 828,000 of the poorest borrowers in more than 18,000 villages covering 62 districts. The LIL demonstrates that IDA has been able to inspire innovations in product design and delivery, and it clearly shows the creditworthiness of clients who had previously been considered not “bankable” and who had been denied access to funding from the country’s many MFIs - a simple but powerful demonstration with potential lessons across the world. The task team rated the achievement of PDO as Satisfactory in its final ISR in absence of a detailed final impact study and definitive figures on achievement of PDOs and intermediate outcome indicators at the end of the project. Based on the mission’s findings at ICR and the subsequent availability of data, as summarized above, a Highly Satisfactory assessment for the Overall Outcome Rating has been given; this reflects the relevance and achievement of the PDOs and the efficiency of the LIL. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The overall development impact of this LIL and, for that matter, the replicated project, is huge, as it enabled the MFIs to extend microcredit and other financial services to around 900,000 people, who are the poorest of the poor and who did not have access to mainstream microfinance, with innovative terms and conditions to enhance their incomes and livelihood. The two large impact evaluation studies conducted under the project suggest that individuals in the targeted population have significantly improved their income levels and livelihoods. Women, who were previously either sex workers, beggars, or domestic help and who had no voice in their families, were empowered with FSP’s intervention to participate actively (even, in some cases, to dominate) their families’ decision making processes; many of them even became entrepreneurs and started employing their husbands and others in their business enterprises. These women believe that they have achieved a new social status unimaginable five years ago. (b) Institutional Change/Strengthening The capacity-building component of the project made important contributions to institution-building both at PKSF and at the PO level. Market participants (donors, GOB, MFIs) started recognizing that PKSF had been significantly strengthened to implement the projects/programs dedicated to the poorest of the poor. As a result, PKSF undertook half a dozen projects of this nature in the last couple of years. PKSF has established a permanent cell to look after programs dedicated to the ultra poor. This cell is basically the successor to the FSP and retains existing project staff. PKSF staff members benefited from training, site visits, and other exposures and, consequently, were able to make major improvements to M&E, MIS, research, etc. The POs also benefited significantly from FSP intervention. They were sufficiently motivated by the training and logistical supports to provide micro-financial services with innovative credit terms. Each PO was provided with an MIS officer to monitor the project with a view to strengthening research/M&E capability within the organization and received tangible support such as PCs, motor vehicles, etc. POs also adopted the FSP model in their mainstream microfinance and set-
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up completely separate cells to monitor programs of this nature. POs learned significantly how to best deliver and monitor micro-financial services to the poorest of the poor. (c) Other Unintended Outcomes and Impacts (positive or negative) The government’s acceptance of the lessons learned from FSP’s experience motivated it to allocate US$ 42 million from the national budget to replicate the FSP across the whole country. Thus, the availability of microcredit funds from GOB caused the FSP to extend three times and to reallocate funds to support not only FSP, but also the replicated program in the area of capacity-building for POs and final beneficiaries. Consequently, the project was able to serve more of the poorest poor than it had initially been intended to reach. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops External consultants conducted three different impact studies based on sample surveys of beneficiaries: (i) A comparative study of the impact of four similar microfinance programs in the country, 2005; (ii) Impact Evaluation, 2005; and (iii) Final Impact Evaluation, 2007. The mid-term impact evaluation in 2005 found a positive impact for the FSP interventions on the livelihoods of the target groups in both social and economic terms. Some of the main findings worth highlighting are (i) the increase in household annual income and expenditure by 20 percent and 12 percent, respectively in 2005 compared to the pre-intervention period; (ii) about 90 percent of the beneficiaries were able to save Tk. 1,000 or more per annum. The study also indicated that the success of projects similar in nature to the FSP project depends not only on the commitments of the service providers, but also on their institutional and financial growth potential. The final impact assessment of FSP conducted in 2007, based on a sample survey of 1,900 respondents (75 percent project beneficiaries; 25 percent control group), was positive (see summary of the final impact evaluation report in Annex 5).The key findings/conclusions were as follows:
(i) As a result of project interventions, participants made significant progress toward a change in occupation from doing almost nothing significant to self-employment (livestock rearing, rickshaw/van owning, small business ownership, farming through leasing, mortgaging, share cropping, and renting, etc.);
(ii) The project was able to increase income (more than 48 percent during the project period compared to 34 percent for the control group) and expenditures (also 40 percent compared to 22 percent for the control group) of beneficiaries’ households, which enhanced their standards of living;
(iii) Significant improvements took place in terms of living conditions, sanitation, and food intake (increased from one or two meals to three meals per day throughout the year);
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(iv) About 24,500 out of 58,500 ultra poor borrowers have graduated to the mainstream microcredit program for which they had been ineligible before joining the FSP program;
(v) Awareness of group formation, health, water and sanitation, savings and credit, skills development, IGA selection, building group solidarity and leadership, management, and building improved quality life all increased;
(vi) The beneficiaries were made “bankable” and credit worthy so as to gain access to financial services from quasi-formal financial institutions in the near future;
(vii) The savings rate increased from Taka 1 per week to Taka 12 per week, indicating the potential for capital formation and growth even at the poorest level—a significant achievement;
(viii) The POs were able to generate an income of about Taka 60 million (US$ 0.9 million) during the project period. In order to attain financial sustainability, one of two options must be exercised–increasing the number of beneficiaries to a desired level so as to cover the operational cost or continuing the subsidy for some gestation period; and
A stakeholders’ workshop was conducted during the ICR mission to learn about the experiences shared by PKSF and its POs. Annex 5 delineates the summary of the workshop.
4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Negligible to low. The development outcomes achieved through this project seem to be sustainable in the future as the government and PKSF have demonstrated their commitment by replicating the LIL all over Bangladesh.
5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE (relating to design, implementation and outcome issues) Bank Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Satisfactory
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The Bank team was proactive in identifying, preparing, and appraising the LIL in a fashion most likely to achieve planned development outcomes. FSP directly supports the GOB and CAS objective of poverty alleviation. The project design was sound in terms of stakeholder involvement, focus on the poorest of the poor, and anticipating problem areas to ensure the objective of making the innovative model of microfinance sustainable. The targeting criteria of the project beneficiaries were determined upfront, at the pre-appraisal stage, in consultation with POs and PKSF. The preparation of the project was flexible in design, which improved implementation readiness. The Bank’s implementation arrangement through PKSF was realistic. PKSF was established in 1990 under the sponsorship of the government to play a direct role in alleviating poverty by providing financial services to rural borrowers through NGOs/MFIs. It had already attained a high level of competence at the time of the appraisal of the project in 2002. It had established a system of financial intermediation and its outcome has been commendable. PKSF’s staff competence was high, as it recruited people with high caliber and good motivation to work with the poorest of the poor. PKSF’s strength also lay in its independent and strong governing board, comprising microfinance practitioners, notable civil society members, and government representatives. A result-based monitoring and evaluation system, the sequencing of M&E activities, an improved system of accountability and strengthening of the internal audit unit, and a separate FSP cell and research sub-cell were included in the project design to ensure effective project implementation and improved portfolio quality. Inclusion of capacity-building for PKSF, POs, and borrowers was a wise move, as we all were new to this mode of delivery of microfinance. The selection of POs based on strict criteria was crucial for the LIL. The Bank had organized a full array of fiduciary arrangements in the area of procurement and financial management, including capacity-building in these areas. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory. It is evident that the Bank’s supervision missions focused on development effectiveness of the project. The team paid attention not only to the implementation results on the ground, but also to the long-term sustainability of the LIL and the POs involved, the social impact on beneficiaries, and the demonstration effect of successful microfinance programs targeted for the poorest. The team maintained well-managed relations with the borrower and other stakeholders. The team wisely included social development training, which turned out to be very attractive and useful to the poorest. The impact on beneficiaries, in terms of their involvement with IGAs, increases in income, and other indicators, was successfully tracked. Overall monitoring of progress, implementation performance, and supervision of fiduciary/safeguard aspects were effective. The team’s fiduciary staff always acted promptly on the issues raised at different points in time. The team, along with the Bank’s disbursement office, always tracked the disbursement condition of the project and followed up with PKSF.
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A high quality of supervision was maintained throughout: (a) regular supervision from the field office; (b) semiannual supervision; and (c) an extensive supervision mission (similar to a regular midterm review) in conjunction with a midterm review for Microfinance II project in mid-2005. Regular field office supervision had been very effective in resolving day-to-day implementation issues. The semiannual supervision concentrated on broader implementation issues—e.g. using supervision resources optimally, reallocating resources, revising budgeting/action plans, etc. Upon GOB’s request and through close consultation with PKSF, the Bank extended the project three times to ensure better development outcomes. The supervision teams included professionals with an appropriate mix of skills to diagnose the major operational and implementation issues. Therefore, the composition of the supervision missions changed, depending on the stage of implementation and the issues that the project confronted. The supervision teams included experts on microcredit, financial analysis, financial management, institutional development, poverty reduction, social science, procurement, and disbursement. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory. Overall, the Bank’s performance was satisfactory. It was evaluated in terms of: (a) the soundness of the LIL design and its in-built flexibility for effective implementation; (b) its assessment and the reliability of the implementing agency in terms of its institutional capacity, management efficiency, commitment, and poverty alleviation objectives; (c) the quality of supervision; and (d) actions taken and followed up.
5.2 Borrower Performance
(a) Government Performance Rating: Satisfactory The government had full commitment to achieving the project’s development objectives. Both the Ministry of Finance and the Bangladesh Bank were actively involved in the consultation process during preparation of the project. GOB expressed its support by on-lending IDA funds to PKSF through a Subsidiary Loan Agreement (SLA) under the terms―US$ 3 million as a revolving fund for microcredit at 1.25 percent per annum and the remaining US$ 2 million as a grant for capacity- building and M&E components. The government’s performance during the project implementation was commendable. It supported PKSF all through by responding to the issues raised in a timely fashion. GOB fully owned the LIL and replicated it across the country through PKSF by allocating more than US$ 42 million from its national budget. GOB’s launch of the replicated program at the midpoint of the LIL helped produce a smooth transition for regular operation of supported activities after the credit closed. (b) Implementing Agency or Agencies Performance Rating: Satisfactory
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The performance of the implementing agency, PKSF, has been undoubtedly satisfactory. It showed strong ownership of the project during the design, preparation, and implementation. Its beneficiary and stakeholder consultations were adequate. PKSF contributed greatly to successful implementation of the LIL and it helped prove that the poorest of the poor are bankable. PKSF management also acquired necessary skills for a new mode of microfinance by implementing this LIL. It strengthened staff capacity, hired additional staff with required skills, and strengthened supervision capacity. The FSP cell was dedicated to look after the LIL. The cell has now been converted to a UPP cell. PKSF also deployed dedicated people to look after the fiduciary aspects of the project. For financial management issues, it leveraged the experience of staff members who already had solid track records in of dealing with IDA’s Microfinance I project and were dealing with another parallel Microfinance II project. PKSF maintained a good MIS and POs’ monitoring system. POs’ performance was discussed at PKSF’s regular coordination meetings. This strict monitoring enabled PKSF to guarantee that the loan portfolio was of a high quality. PKSF arranged timely capacity-building training sessions and site visits for the PO staffs. It responded promptly to client demands with regard to on-lending of funds to the POs. The recovery rate in the credit operation of the project at both tracks—PKSF to POs and POs to borrowers—was more than 99 percent. PKSF showed prudence in utilizing and allocating the money. Its timely identification of the need to allocate funds among the different categories of the IDA credit and the need to extend the project, as well as its support for the extension process, contributed to successful implementation. Based on the experience of FSP, PKSF undertook six diversified projects targeting the poorest of the poor, including the biggest UPP (US$ 42 million) financed by the GOB that has been replicated all over the country by its 91 POs (including FSP POs). UPP already disbursed more than US$ 113 million to over 800,000 of the poorest borrowers. The ICR team rates the performance of 19 POs as highly satisfactory; they were behind the success of this LIL. POs exerted tremendous effort from the very beginning of the project, accepted the challenge, and proved by their hard work that microfinance services can be offered to the poorest of the poor in innovative ways in a sustainable manner. It was a good learning experience for these 19 POs and had demonstrable effects on the replicated program. Overall, PKSF maintained a strong identity and kept itself outside the influence of the government. This helped PKSF earn a good reputation in the microfinance industry as well as the respect of all of the stakeholders. These results were possible because PKSF’s governing board was composed of respected individuals known for their integrity and dedication, including Dr. Muhammad Yunus, Managing Director, Grameen Bank; Dr. Wahiduddin Mahmud, former advisor to the caretaker government, Managing Director of PKSF; academicians; central bankers; and social workers. The board demonstrated strong
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leadership of the project by making major implementation and policy decisions and by formulating policies to develop a sound microfinance sector. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory. Combining the two ratings for government and implementing agency performance, overall borrower performance is rated satisfactory.
6. LESSONS LEARNED The LIL attained its objective of finding sustainable interventions for reducing the number of the poorest by using microcredit and other financial services to enhance their income and livelihood. The project demonstrated the following major lessons:
(i) The poorest are bankable if the microcredit is designed in an innovative fashion with flexibility in the areas of eligibility criteria, small savings, loan size, IGA-based repayment system, etc. Selection of potential IGAs, skills enhancement training, social development and safety-net services, and others were areas requiring attention.
(ii) Microcredit for the poorest of the poor is economically viable, as it helps the beneficiaries to increase their income and savings and improve their socio-economic conditions.
(iii)A credit plus approach should be used. Flexible microfinance products for the poorest should be combined with safety net type interventions. The rationale for combining such approaches is that the primary objective of microfinance - developing sustainable livelihoods for the extreme poor - cannot be met unless a household is first able to meet its minimum needs, which includes coping with the effect of shocks. This combination proved to be very effective in supporting income-generating activities – one without the other might not be effective for poverty reduction in this group. Offering needs-based social development services was a key to success for such programs. However, the social development services offered by the POs depended on their external sources of funding, the willingness of MFIs’ management, surpluses in other programs, and adequacy of equity, among other things
(iv) The program involved subsidies (from FPS, PKSF, and POs) in training, staff costs and, most important of all, in social development services. However, POs were able to bear these costs after the third year of operation. In order to ensure program success organizers must determine the exact amount (or proportion) of subsidies required and devise a realistic strategy to finance the gap to make it sustainable. Although the beneficiaries of FSP had been linked with many other ongoing and available safety net programs, it would be worthwhile to study what would happen if such programs were terminated and what could be done in their absence.
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(v) Selection of income generating activity (IGA) is crucial for the poorest. It was found that IGAs that were in some way related to their family businesses were best suited for them.
(vi) Small POs faced financial problems because their equity decreased as a result of cross-subsidizing the program expenditure over the project period. The volume of operation and operational efficiencies, including overhead and administration costs, needed to be rationalized to achieve reasonable returns. In that sense, large POs having large portfolios could provide reasonable returns.
(vii) Collaboration among GOs–NGOs and NGOs–NGOs helped the extremely poor to gain access to social safety net programs. The necessity of these linkages became even more evident when the Ultra Poor Program started reaching the whole country. Collaboration was necessary among various types of interventions and all stakeholders, including government, NGOs, private organizations, development partners, civil society, and others.
(viii) Training needs assessment of the beneficiaries was a precondition for selecting the proper type of IGA training. Also, interactive training materials were more useful than conventional training materials.
(ix) Because the poorest tend to be highly vulnerable to disasters and emergencies, bringing them under the mandate of PKSF and its POs’ disaster management (DMF) fund was very important. Such funds should remain flexible and pay particular attention to this segment of the poor. As DMF also financed disaster preparedness needs, the borrowers of projects like FSP should be guided by POs and be linked with DMF where such a preparedness need was foreseeable. Gradually, disaster-related micro-insurance products should be brought into the microfinance industry to hedge such risks in a more formal and efficient manner. There was scope for revisiting the existing regulatory framework which did not explicitly allow MFIs to act as agents/brokers of insurance companies, although some MFIs had investigated this line of business for their clients to a limited extent.
(x) The poorest of the poor should be provided with proper counseling and market information in respect to the appropriate types of IGAs they choose. Studying this segment of the poor more deeply in respect to their socioeconomic dynamics is essential.
7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS (a) Borrower/implementing agencies
(i) PKSF raised the issue that POs provide social development services to the poorest either by cross-subsidizing or by introducing them to other safety net programs. There was no specific component or allocation reserved for these activities in FSP. In the starting years, as the POs were struggling to achieve financial and operational sustainability, they had to subsidize the project by diverting funds from other projects. This created problems for the smaller POs, as their surplus reserve base is not strong. PKSF has no special fund allocation for small POs for
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this purpose in its replicated program. Going forward, the government can consider allocating separate funds for social development services built into the program.
(ii) PKSF suggested that further research/study and consultation would help them better understand the segment and serve them with proper guidance and adequate information. A concerted effort among all stakeholders is required to make such a program a success.
(b) Cofinanciers Not Applicable. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) Annex 6 explains the issues raised and discussed with partner organizations during the ICR mission. The workshop supports the view that the FSP was a learning experience for microfinance industry about the innovative ways of eradicating poverty.
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ANNEX 1. PROJECT COSTS AND FINANCING
(a) Project Cost by Component (in USD Million equivalent)
Components Appraisal Estimate (USD millions)
Actual/Latest Estimate (USD
millions)
Percentage of Appraisal
MICROCREDIT 3.33 2.90 87.00* CAPACITY BUILDING OF BORROWERS 0.95 2.48 260.95*
CAPACITY BUILDING OF PARTNER ORGANIZATIONS 1.14 1.03 90.53*
CAPACITY BUILDING OF PKSF 0.14 0.29 210.00*
DISASTER FUND FOR THE POOREST 0.31 0.00 0.00*
MONITORING & EVALUATION 0.13 0.07 50.77
Total Baseline Cost - IDA &
Borrower (PKSF) 6.00 6.77 112.80
Total Baseline Cost - IDA & Borrower (PKSF & POs)** 6.00 7.10 120.28
Notes: * This figure reflects the reallocation of funds among categories (from microcredit and disaster funds to capacity-building). Detail is presented in section 1.7 of this ICR. ** In FSP, the borrower’s contribution was meant to be contributions by PKSF and POs. While PKSF’s component-wise contributions were known at the time of ICR, PO contributions were known only in total, US$ 0.336 million.
*** This reflects IDA contributions of US$ 5.69 million and borrower contribution of US$ 1.41 million. However, IDA contributions seem to be inflated in dollar terms as USD depreciated against SDR over the project period (on an average, 4 percent each year); so did Taka against USD. However, in SDR terms, IDA disbursement was 97.4 percent (SDR 3.8 million out of total commitment SDR 3.9 million).
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(b) Financing
Source of Funds Type of Cofinancing
Appraisal Estimate
(USD millions)
Actual/Latest Estimate
(USD millions)
Percentage of Appraisal
Borrower 1.00 1.41 141.20 International Development Association (IDA) 5.00 5.69 113.84
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ANNEX 2. OUTPUTS BY COMPONENT As the outputs by components have been discussed in different sections/annexes including Borrower’s ICR (Annex 7), in stead of repeating those, a summary of outputs is presented in the following matrix:
FSP Intervention (Activities)
Measurable Output
Immediate Effects Impact
Social Capital Formation
1. Identifying the poorest group & Selecting beneficiaries according to set criteria
1. 64,725 identified
1. Poorest stimulated 2. Synergy among beneficiaries
2. Counseling and motivation, Building awareness & Activating the group through
- weekly meetings
- learning and sharing
- Creating peer sense of belonging
- Building leadership
- Collecting weekly savings on an agreed rate & withdrawal from savings under allowed flexibility condition
- Training on awareness
- Practicing group dynamics
- Perceiving that “Unity is Strength”
1. 58,891 trained on awareness
2. Taka 50.66 million mobilized as savings fund
1. Access to social and financial services opened
2. Poorest aware of their needs and services
3.Poorest organized into self-help groups (SHGs)
4. Created capital through savings initiated and built
Financial Services to the Poorest
1. Positive and upward change in livelihood occurred 2. 64,725 organized and trained to become social capital for the community 3. Vulnerability reduced 4. Household income increased 5. Relationship between income and expenditure remained steady 6. Employment-generation raised 7. Living conditions (food intake, quality housing, WATSAN, energy use) improved 8. Use of micro-credit facility increased up to 4th loan 9. Average loan size increased by 26.6 percent from Taka 1,500 to Taka 5,500 (on scale of 100) 10. Per member weekly savings raised by 10.22 percent (on scale of 100) 11. Adoption of IGAs enhanced household income 12. Dependency on loans from other sources reduced 13. Poorest achieved entitlement as
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1. Microcredit delivery
2. Loan follow-up and supervision
3. Loan recovery
4. Enhanced credit utilization capacity , Linkage with quasi – formal MFIs & Established as bankable
5. Provided incentives
to POs up to three years on a scaled-down approach
6. Access of disaster loan
3. 58,505 received microcredit & 34,044 graduated
4. PKSF sanctioned Taka 258.34 million as credit fund to the POs & POs delivered Taka 644.19 million as microcredit up to fourth loan
5. 99 percent recovery rate achieved
6. 15,320 integrated to the normal microcredit program of the POs
7. POs received Taka 19.00 million as incentive. Loan operation cost of POs increased by 41 percent
8. 15 percent of beneficiaries used the disaster loan facility
1.Poorest become
eligible for microcredit 2. Poorest
increase loan
utilization
capacity
3.Self-income and employment generation commenced
4. Poorest begin to gear up for eliminating extreme poverty
5. Implementing partners motivated t
6. Forward and backward linkages in the local economy established 13. Poorest identity as floating and migrant reduced
7. Perception change in livelihood and quality life established
8. Transformation process established
bankable 14. POs internalize FSP in their normal microcredit program
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ANNEX 3. ECONOMIC AND FINANCIAL ANALYSIS The LIL achieved its intended objective of determining a sustainable model of extending micro-financial services to the poorest of the poor, and its long-term impact is huge. The task team did not consider conducting an economic or financial analysis for the LIL at the time of its appraisal. However, an attempt has been made to quantify the short-term impact during the project’s life based on the financial benefits/costs. This yields a positive NPV (Tk.241.63 million) and a considerably higher IRR of 23 percent of the overall project. While indirect benefits are not calculated, two obvious financial benefits prove the viability of such intervention. Thus, a very conservative approach was followed in looking at the financial NPV/IRR for the project. Obviously, the actual financial and economic benefits in both the short and the long run are expected to be much higher.
Table: Economic/Financial Analysis – Summary
Financial Benefits Present values @12% (in Million Taka)
Incremental household income 619.63 Savings mobilized by the poorest 33.21
Total discounted benefits 652.84 Financial Costs Project Cost (per IDA disbursements)-discounted 345.37
Costs borne by PKSF(operational, consultancy services and goods) 50.32 Costs borne by POs (operational, consultancy services and goods) 15.51
Total discounted costs 411.21 Net Present Value – Financial 241.63 Financial Internal Rate of Return 23%
Main Assumptions:
1. The NPV calculation is based on the actual project life cycle (August 21, 2002, to December 31, 2007), with no scrap value at the end of the project;
2. The cost of funds was assumed to stand close to the market (formal) and thus, all cash flows (benefits/costs) were discounted at 12%;
3. Incremental household income5 and the savings induced by FSP are considered two of the most direct benefits derived from the LIL which would not have happened without the intervention;
4. Actual disbursements under the IDA credit were taken into account to estimate NPV and IRR;
5 Calculated as the difference between before and after figures of average household incomes of the project beneficiaries per PKSF’s Final Impact Study multiplied by 58,505 project borrowers.
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5. Actual costs (operational, consultant services, and goods) borne by PKSF and POs in implementing FSP were used in calculations. IDA portion of these costs is included in project cost (calculated per IDA disbursements).
6. Service charges earned/paid by the PKSF, POs, and beneficiaries are not considered, as these are benefits to one party and a cost to others.
Other additional direct and indirect benefits derived are shown in the PDO and intermediate outcome indicators (see Results Framework Analysis at the beginning of this report). It is notable that 58,505 new borrowers received microcredit under innovative terms and conditions, which was about double of the original target of the LIL. In terms of achieving the LIL objective of enhancing the incomes and livelihoods of the poorest, per final impact evaluation study of PKSF, average household incomes (in Tk.) increased significantly (around 48 percent over the project period. Around 93.5 percent of FSP borrowers who earned less than 50 cents per day in 2002 now earn more than 50 cents per day. The project also directly benefited 13,019 FSP beneficiaries and 175,809 UPP beneficiaries, who received training in self-employment/income generating activities to help them to increase their income levels. The economic benefit would also include the indirect/potential cost savings made by the 64,000 FSP beneficiaries who received free health services, training, education, family planning, sanitation services, etc. POs also benefited from capacity–building, which has long-term advantages for the entire microfinance sector (and economy). Over the project period, they earned Tk. 21.5 million, in total, in the form of service charges from borrowers. Thus, the indirect benefits derived as a result of this LIL are, obviously, very high. As mentioned, 24,514 of the poorest borrowers of FSP had already been graduated to the mainstream microcredit program, and another 60 percent of the 37,712 poorest borrowers are now qualified (ready to declare) for mainstream microcredit. Until now, PKSF was in charge of implementing six projects which came into existence because of the success of FSP, all of which have at least one component targeting the poorest. The UPP has already reached more than 828,000 ultra poor in 62 districts through PKSF’s 91 POs. Since a conservative approach was followed in calculating the NPV/IRR, not all of these indirect benefits were included in the calculation. Besides, FSP’s contribution to the development of the microfinance sector, the capacity building and increased productivity of beneficiaries, PKSF, and the POs and other spill-over effects of these activities on the economy have been difficult to quantify and have, therefore, not been included in the analysis.
Table: Changes Percentage in Household Income
Annual Household Income
(TK.) Before After
Up to 5,000 3.7 1.50 5,001 to 15,000 9.7 5 15,001-25,000 30.9 10.1 25,001-40,000 42.0 35.0 40,000+ 13.7 48.4 Total 100 100 N (Total households surveyed)
1,425 1,425
Mean amount in Tk. 28,966 42,864 Source: Final Impact Evaluation Study, 2007
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ANNEX 4. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES
(a) Task Team members
Names Title Unit Responsibility/ Specialty
Lending
Supervision/ICR
Kiatchai Sophastienphong Senior Financial Sector Specialist SASFP Project Team Leader
(Since 03/01/2007)
Shamsuddin Ahmad Senior Financial Sector Specialist SASFP Project Team Leader
(Until 01/31/2007) Simon C. Bell Sector Manager SASPF Sector Manager Sadruddin Muhammad Salman Operations Analyst SASFP Financial Sector Analyst
Shah Nur Quayyum Operations Analyst SASFP Financial Sector Analyst Arif Ahamed Project Analyst SASDU Project Analyst Ziaun Nahar Joya Program Assistant SACBD Program Assistant Bridget Rosalind Rosario Program Assistant SACBD Program Assistant Marjorie Penesa Espiritu Program Assistant SASFP Program Assistant
ANNEX 5. BENEFICIARY SURVEY RESULTS Three relevant studies were conducted under FSP to look into its impact on the lives of the poorest of the poor.
1. Financial Services to the Poorest: A Comparative Study of the Programs (2005). This study was intended as a comparative study of the impact of four microfinance programs (PKSF’s FSP, BRAC, Grameen Bank, and Plan Bangladesh) on and to suggest a desirable system of delivery of financial services to the poorest.
2. Impact Evaluation (2005). This midterm impact evaluation was conducted in 2005. Its main objectives were to assess (i) the impact of the interventions on the livelihood of the target groups in both social and economic terms, (ii) the changes in the organizational and financial capabilities of the POs involved in the project.
3. Final Impact Evaluation (2007): A final impact study, a sample survey of 1,900 borrowers, was conducted at the end of the project. The main objectives were to (i) assess the impact of the project interventions on the livelihoods of the poorest of the poor in both social and economic terms; (ii) measure the actual outcome and output indicators of FSP against its target; and (iii) compare the income, assets and quality of life of the target groups between midterm and final impact evaluations of the project.
Following is the summary of the final impact assessment conducted by PKSF through an independent consulting firm:
(i) Study Methodology. Methodology included a systematic procedure of collecting data from both primary and secondary sources. Primary data were collected through a survey using a quasi-experimental design incorporating project beneficiary and control groups, in-depth interviews with POs, six FGDs selected from six administrative divisions, and case studies comprising two successful and two unsuccessful beneficiaries identified by the field survey. A total of 1,900 respondents, 100 from the service area of each PO, were selected, of whom 75 percent were project beneficiaries and 25 percent were control group members. From each selected upazila (sub-district), three categories of villages were identified: inaccessible, typical, and easily accessible. From each category, one village was selected randomly to supply the required number of beneficiaries and control group members. . Beneficiaries and controls were selected from the same villages in each category.
(ii) Major achievements. The major tasks accomplished by the 19 POs were to
identify the potential beneficiaries, select them according to set criteria, organize and impart training on awareness building, skills development, IGAs selection, and savings and credit operations to bring them under the FSP credit umbrella so they could undertake desired and suitable IGAs. Monitoring,
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supervision, and follow-up of their activities were also the tasks and responsibility of the POs.
As of December 2007, there were 64,725 identified members, out of which 58,891 received awareness training, and 58,505 obtained loans. PKSF disbursed SDR2.52 million as a credit fund to 19 POs, which disbursed SDR6.28 million (cumulative) to the intended beneficiaries. The average recovery rate for the project is 99 percent.
Most of the beneficiaries obtained more than three loans, and a few of them were given five loans. Evidently, the POs were able to achieve a reasonable rate of return while also reaching the lending target. Most of the beneficiaries continued to borrow from the POs, even at the end of the project, indicating the sustainability of the program.
(iii) Occupation, employment and working hours. About 52,000 of the project
beneficiaries are women. Before the project, they were predominantly housewives engaged in domestic chores. Project interventions introduced significant occupational changes in favor of self-employment (livestock rearing; rickshaw/van and other small business ownership; farming through leasing, mortgaging, share cropping, and renting; etc) opportunities from which they are able to earn regular incomes.
FSP has made a significant impact on the employment position of the beneficiaries and their household members, both full time and part time. The average monthly working hours of the beneficiary households increased by about 23 hours compared to 14 hours for the control group because of the involvement of a larger number of IGAs. Moreover, earning members per household also increased from 1.4 to 1.7 persons.
(iv) Temporary migration. The incidence of migration in the beneficiary
households declined significantly as a result of the increased number of IGAs in the project area while the incidence increased slightly in the control group. For example, the proportion of households having migrants in the beneficiary households decreased from eight percent in 2002 to four percent in 2005 and declined further to three percent in 2007, while the proportion for the control group increased from 2.5 percent in 2002 to 5.3 percent in 2005. However, in 2007 the proportion dropped slightly to about 4.6 percent.
(v) Household Income and expenditure: From all components of the study,
such as surveys, FGDs, case studies and PO interviews, it appears that the incomes of the beneficiary households have increased sizably, according to the Final Impact Survey, compared to both the pre-project situation and the midterm study. Household income is also found to have grown appreciably in the project households compared to that of control group members. The average household income increased by more than 48 percent during the
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project period. On the other hand, increase in the incomes of control group members was 34 percent. The major sources of household income for the beneficiary women, according to the survey, were IGAs undertaken through credit provided by the FSP project. These IGAs were based on on-farm and off-farm activities.
During the project period, not only household income, but also household expenditures increased by 40 percent, from Taka 25,360 to 35,530, on average. For the control group, the average expenditures increased by 22 percent. The major expenditure categories, such as food consumption, remained the same, but the relative share of food as a portion of household expenditure declined. From FGD and case studies, it appears that the quality of food also improved.
(vi) Savings mobilization. At the time of the FSP launch, the poorest did not have
any saving for themselves or their families. The flexible saving system allowed by the project encouraged them to save in various forms and in different amounts. Savings increased from Tk.1 per week to Tk.12 over five years. The average household saving generated by beneficiary group in 2007 was Tk.7,335, compared to Tk.6,441 for the control group. During the five-year period of the project, Tk.50.76 million (US$ 0.75 million) was mobilized, building financial strength and promoting capital formation at the grass roots level.
(viii) Human Assets. At the household level, human capital formation has been taking place in the form of schooling children, attending group meetings where individuals learn about quality of life and crisis management skills, idea generation and sharing, and other skills and awareness training; and access to health care services and facilities, etc. Data show that project interventions have enabled beneficiaries to gain and improve their perceptions, knowledge, attitudes, and practices in relation to important aspects of life.
(ix) Land usage. The study shows a remarkable improvement in the beneficiaries’ usage of land, in the form of renting (khaikhalashi), mortgaging, sharecropping, and leasing, which largely has contributed to their income enhancement. They grow crops and vegetables according to season and choice. Thus, the FSP project has created for them opportunities to access to land for production activities.
(x) Livestock and other Productive Assets. More than half of the beneficiaries own livestock resources, namely cows, goats, chickens, and ducks. These assets supplement their household income, as well as fulfill nutritional requirements to a great extent. Many of the beneficiary women purchased rickshaws, vans, boats, fishing nets, etc. with the loans they obtained from FSP. These are used by their household members or rented to others. Some of them are also engaged in small businesses in which they maintained/ purchased grocery goods and items through FSP credit support. Thus micro-enterprises enabled them to enhance their incomes and create employment for others.
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(xi) Quality of Houses and Sanitation: Beneficiaries have been able to improve the quality of their dwellings either by virtue of investments of their loans or by savings mobilized under FSP. Instead of thatch roofs, they have installed tin roofs, increased the number of rooms, and expanded the homestead areas where they plant kitchen gardens. About 20% of the beneficiary households were successful in improving sanitation at the household level by installing ring slab latrines that the POs and the Department of Public Health Engineering (DPHE) support at subsidized rates. In the case of control households, the comparable figure was only 10 percent. Moreover, in the training they learned about sanitation and safe drinking water.
(xii) Food Intake. Because of the enhanced income resulting from FSP interventions, the poorest were able to increase their food budget and consumption in terms of increasing the numbers meals per day and improving the quality of food items contained in their meals. Study reveals that they switched from one or two meals to three meals per day throughout the year. Thus, FSP was successful in reducing vulnerability of the poorest that resulted from poor nutrition.
(xiii) Female Empowerment. Because of FSP interventions, the female beneficiaries were able to raise their status in their families, their communities, and society in general. This has enabled them to participate in decision-making at the family, the group, and the community levels on important issues. This empowerment stems from their ability to earn income arising from IGAs initiated with FSP support. This empowerment has allowed them to attend group meetings, purchase and sell assets/output in the market, and gain access to services and facilities that have improved mobility.
(xiv) Financial Sustainability. Through the FSP, the POs have been able to generate an income of about Tk. 20 million during the project period. In addition, they obtained a part of their operational cost from PKSF, thus gaining an opportunity to attain financial viability. The project is also viable for PKSF, with FIRR at 53 percent and NPV at Tk.8.16 million. If cost would be increased by 10 percent, the FIRR would remain robust.
a) Income of the POs. The income of the POs comes from two main sources, namely, interest earned on the disbursed amount and the share of interest earned from fixed deposits of group savings funds. The interest income from the disbursed amount, as of December 2007, stands at Taka 17.96 million at 12.50 percent per annum; that from the share of fixed deposits of group savings funds has been estimated at Taka 2.27 million at 6 percent per annum. In total, the POs have earned Taka 20.23 million, with an average of Taka 1.06 million for each PO. b) Expenditures. The end of operational support for POs by PKSF, has seen a reduction in their operational costs for FSP execution. The cost reduction varied among the POs, principally with regard to including a percentage of
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FSP beneficiaries in the normal microcredit program, adjustment of field workers through staff reductions, increases in the number of beneficiary coverage ratios including FSP members, and budget curtailments in reference to the related cost of logistics provided by the project. Given these factors, it appears that, on an average, the POs have reduced their costs by 40 percent compared to their previous cost reimbursement from PKSF in first three years of the project. When considering this average rate, the estimated expenditure incurred by the POs stands at Tk. 26.75 million and the average for each PO is Tk. 1.41 million for the five years of the project period. Compared to those identified during the Mid Term Impact Study, the loan operating costs of POs increased by 41 percent in the last two years of FSP.
(xv) Social Development Services. The selected POs are found to have become highly experienced in rendering social services to the poor people. This was, however, a challenging task in terms of time spent and methods used to render the needed social services, that is, identifying, motivating, counseling, and advising individuals to join and form groups, build their organizations, and raise awareness through general training, skills development, and IGA training, as well as instruction on mother and child health care and family planning, water and sanitation safety, savings and credit, organizing and conducting regular weekly meetings, disaster management, distribution of VGD/VGF cards, vote casting, etc. However, because of the groups’ short stabilization period, not all of these sessions could be organized and imparted in time, and there has been a strong demand from the beneficiaries for needs-based IGA training, management and leadership training, training on human rights and law, etc. Therefore, during execution of the project, the POs conducted training on some subjects and while continuing field operation on savings and credit. In all, these added to the aggregate of awareness-building of the beneficiaries, which has achieved 93 percent of the targeted coverage during a five year period. Intuitively therefore, it is a highly significant accomplishment rate for an important task in terms of serving the poorest attained by the POs.
(xvi) POs’ Experiences of FSP and Attitudes. POs expressed the opinion that serving as an implementing partner of such an innovative scheme for the poorest has been a period of learning for them during which they have been able to enrich their perceptions, knowledge, attitudes, and commitment in reference to serving the hitherto ignored poorest of the poor. It was observed during the impact assessment that the POs, inspired by the success of the project in terms of mobilizing savings and disbursing innovative microcredit packages with social services, have included a certain percentage of FSP beneficiaries in their normal microcredit programs. This is, indeed, an implicit internalization of the pilot testing. Most of the POs, however, voiced the opinion that a project such as FSP needs continued technical and financial support in order for it to render value and social services, in particular.
(xvii) Focus Group Discussion. The quantitative data obtained through field surveys yielded information that was used to measure project development
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objectives and output/performance indicators. To validate the findings of impact assessment, qualitative information gained through focus group discussions (FGD) and selected case studies indicates that the FSP interventions have made it possible for the poorest to begin the gradual process of elimination of extreme poverty and vulnerability.
(xviii) Conclusions. The final impact evaluation concluded as follows:
a. The project was able to significantly increase the income and expenditure of beneficiary households.
b. There was a significant improvement in the quality of living conditions of the beneficiaries in terms of dwellings, sanitation, and food intake.
c. There was an increase in awareness of group formation, health, water and sanitation, savings and credit, skills development, IGA selection, building group solidarity and leadership, management, and building quality of life.
d. The beneficiaries were made creditworthy and bankable for access to financial services in the long run.
e. A significant achievement is the realization of savings mobilization and enhancement of the savings rate from Taka 1 per week to Taka 12 per week, indicating the urge for capital formation and growth potential of savings at the poorest level.
f. In terms of the experiences gained by FSP, the project should be replicated in other areas of Bangladesh.
(xix) Lessons Learned. The lessons learned from FSP intervention have been (a) the poorest have been made bankable; (b) the poorest have obtained an identity as customers of banks; (c) the safety net arrangements included in the project have paved the way for beneficiaries to adopt the strategy of gradually eliminating extreme poverty and vulnerability; (d) the POs have gained significant knowledge that can enrich their attitudes toward working for the poorest; (e) FSP has been a capital- intensive project; hence, external finance and technical supports are imperative for such projects to address the needs of the poorest; (f) through savings and credit operations, the project has opened for the first time the scope of capital formation and/or access to resources, services, and facilities for the poorest;
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ANNEX 6. STAKEHOLDER WORKSHOP REPORT AND RESULTS A stakeholder workshop took place during the ICR mission, attended by all of the 19 implementing POs and by PKSF staff. POs shared experiences and lessons learned with the implementation of the FSP project. The key points were as follows:
(i) FSP came into existence as a catalyst to build the confidence of microfinance practitioners of Bangladesh to work with the bottom 10 percent of the poor. There was a great deal of confusion, and skepticism among POs about the poorest of the poor. Through experience with FSP, POs are now much more confident in terms of extending micro-financial services to the poorest. As a result, all 19 of the POs are now also implementing the Ultra Poor Program of PKSF. The capacity- building component is well appreciated by all participants.
(ii) The magnitude of borrowers’ development was very high compared to what can be achieved in conventional microcredit programs.
(iii) One of initial challenges involved relying on the repayment capacity of the poorest borrowers. Thus, the initial loan was set at around Tk. 500. The initial challenge was overcome by everyday experience. At the later stages of FSP, on average, the POs, without any hesitation, were able to raise the loan size to Tk. 6,500.
(iv) If guided properly, the ultra poor are even more regular payers than mainstream microcredit borrowers.
(v) Although members of the target group were encouraged and were used to saving out of their incomes, one of the major challenges was that they had used up all their savings during times of sudden disaster/bad times (e.g., diseases) and they, thus, ended up with no savings for the future.
(vi) The social development services that were provided were tied with FSP (through PO cross-subsidies) and other programs used as catalysts for making the LIL successful. Some of the children of the borrowers are now studying in college, the cost of which is being borne by the UPP.
(vii) Sustainability of such programs can be ensured through continuous training of the poorest.
(viii) Life pattern changes, such as dressing appropriately, changed a lot; even beggars could transform themselves into micro-enterprise owners at the end of FSP.
(ix) POs reiterated that, in order to reduce poverty, all of those involved should concentrate on the bottom-end people;
(x) Initially, lack of confidence in credit utilization and fear of not being able to pay on time caused groups to break up. Learning from the experience, mandatory orientation programs were arranged to build up the confidence of the mobilized members, who later ,succeeded in the mission;
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(xi) Another lesson learned was the importance of health support through existing government programs as well as POs’ own health support facilities. This support acted as a catalyst for building members’ interest in the program. The participants thought that health services should be linked in some way with the micro-financial services to the poorest.
(xii) Flexibility in repayment did not affect discipline. If targeting of beneficiaries is done properly, it will not affect other programs.
(xiii) Only credit could not make a difference; it had to be linked to available safety-net programs.
(xiv) Even though there was flexibility in terms of the ability to withdraw deposits, the loans were recovered in due time.
(xv) To cover migration costs of the poorest, consumption loans under FSP were allowed in a limited number of cases on a pilot basis. Previously, there had been no source of financing available for the consumption needs of the poorest. Based on the FSP experience, a new product, consumption loans, has been introduced under PKSF’s PRIME program.
(xvi) POs believe that GOB or donors should consult and work collaboratively with them at the project’s preparation stage. An example cited in this regard was that FSP initially did not take into consideration the fact that free health service and other social development services (awareness training, sanitation, family planning, education, etc.) should be included to give beneficiaries the initial feeling that they were being taken care of by the project intervention. POs’ suggestions about this issue, made in stakeholders’ workshops in 2002, were discussed during project appraisals and onward, significantly decreasing the possibility of failure of the project upfront. POs also mentioned that GO–NGO integration is needed in this regard.
(xvii) Project failed to envisage the risk of manmade disasters that might affect the poorest; for example, a portion of the target population were affected by the drive by army-led joint forces of the government to demolish illegal structures (including slums and small businesses occupying vacant government land). Although this was a macro issue and the project had little to do with it, the developers, in the beginning should have thought about how the project would mitigate such risks.
(xviii) Social intervention costs by POs should be known. This requires deeper study.
(xix) Flexibility combined with discipline is the key to success.
(xx) More efforts had to be made in FSP for its poorest borrowers compared to regular clients under the RMC (rural microcredit) product/program.
(xxi) Technical knowledge developed in respect to imparting IGA training, marketing/promoting of IGA products, etc. The expenses for the IGA promotional part were not captured in the project design. .
(xxii) Not mere credit—Credit Plus is needed for the poorest.
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(xxiii) Another challenge was the borrowers’ temporary migration from one place to another and settling in dispersed locations, unlike regular microcredit clients; this wandering involved encroaching government khas (vacant) land and living with uncertainty, for example. All of these challenges were overcome by putting extra effort into the project and undertaking a credit plus philosophy. Emphasis was given to imparting IGA training on demand; IGAs of different types involved sweets-making, carpentry, mechanical works etc., which are unconventional but useful and very much in demand in the communities in which the project was in effect.
(xxiv) Creating linkages with the market is crucial. Providing the poorest with information on possible employers or markets for their products helps them to succeed.
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ANNEX 7. SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR
Palli Karma Sahayak Foundation (PKSF), Bangladesh
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Financial Services for the Poorest (FSP) Project Implementation Completion and Results Report (ICR)
1.0 Background
PKSF, an apex intermediary, has been making significant contributions to the reduction of poverty by providing microcredit and other services to the poor. PKSF implements microcredit programs through its Partner Organizations (POs). PKSF also provides institutional development and capacity-building supports to the POs to help them achieve sustainability. Various studies show that the poorest, approximately 12 million individuals in 2.5 million households in Bangladesh, are yet to be reached by microcredit programs. The reasons include the stringency of the rules of micro-finance institutions (MFIs), peer screening and self-exclusion of the poorest, and the lack of suitable microcredit products and the credit-plus services that they need at first. A brave and innovative approach was needed to meet their needs. PKSF, with the financial assistance of the International Development Agency (IDA)/ World Bank, piloted a project titled ‘Financial Services for the Poorest’ between 2003 and 2007 (primarily stipulated for three years). The aim of the project was to find models of sustainable interventions for reducing the number of the poorest by providing microcredit and other services to create, enhance, and diversify their income and livelihoods. 2.0 Components of FSP The project included four components: 2.1 Microcredit: The main component of the FSP project is the revolving fund for microcredit. This fund was given to PKSF to forward to the POs for on-lending to the individual poorest. 2.2 Capacity-Building of PKSF, POs, and Borrowers: This component is critical for building capacity of PKSF, its POs, and the poorest beneficiaries of the project to ensure successful implementation. Based on training needs assessment, the poorest people received general orientation and income-generating training. The income-generation training was of two kinds: for self-employment and for wage employment. 2.3 Disaster Fund for the Poor: PKSF was to retain a fund for each PO as a Disaster Fund. It was to be kept in an interest-bearing account and used to compensate clients for losses resulting from natural disasters and other industry- or sector-wide losses. The fund was to be run under strict guidelines. 2.4 Monitoring and Evaluation: In order to test the basic hypothesis of the project – if microcredit is given with needed flexibility, it can improve the welfare of the poor - five basic issues were set to be monitored: (i) whether the program actually targeted the poorest, (ii) why they joined the project, (iii) the types of social mobilization and non-credit interventions provided, (iv) the costs and loan recovery rate, and (v) the socioeconomic benefits for the participants.
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Borrowing from the Bank can be seen at a glance from the following table (As of 2 March 2008: Up to withdrawal Application No. PKSF 38):
* $1= Tk. 68.58, 1 SDR=$ 1.58305) ** Availability of microcredit fund from the government (GOB) and needs of fund for capacity-building of the beneficiaries under Microfinance for the Ultra Poor (Ultra Poor) Program, PKSF requested GOB and IDA to transfer the rest of the amount to the capacity-building component. Later, GOB and IDA agreed to permit the diversion of this portion of the fund to the Ultra Poor Program for capacity-building of its beneficiaries. 3.0 Outcome/Achievement of Components:
3.1 Microcredit Since the beginning of the project, PKSF has disbursed SDR 2.52 million to the POs, and the POs have disbursed SDR 6.28 million to the beneficiaries. 3.1.1 Increase of Members: In 2002-2003, total members were 9,954; in 2003-2004, 39,998; in 2004-2005, 59,983; and in 2005-2006, 64,725. As of December 2007, there were 37,712 members. 3.1.2 Increase of Borrowers: In 2002-2003, the project provided loans to 3,504 of the poorest borrowers; in 2003-2004, 30,086; in 2004-2005, 49,317, in 2005-2006, 51,718. As of December 2007, there were 28,965 borrowers. 3.2 Capacity-Building 3.2.1 Capacity-Building of PKSF: 3.2.1.1 PKSF set up a separate FSP unit for the overall implementation of the project and for internal and external liaison. 3.2.1.2 Training, Project Management, MIS for Monitoring and Evaluation, Supervision and Research Techniques, all FSP staff members; Identifying Beneficiaries through Wealth-ranking Techniques, four FSP staff members; Research Methodology, Evaluation Techniques, MIS, and Process Monitoring System, three mainstream staff members.
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Five staff members of FSP and 19 from the mainstream of PKSF received training in project management at AIT, Thailand, and DCCAP, Philippines. Also, one mainstream staff member went on a site visit to the Philippines. 3.2.2 Capacity-Building of POs: Institutional capacity was enhanced on two fronts. POs received subsidies in human resources and their staffs received training in strengthening reporting, managing MIS and AIS systems, and sharpening the monitoring system. 3.2.2.1 Every PO implementing the project, received a subsidy to employ five field workers in 2002-2003 (or in the first year of the project), ten field workers in 2003-2004 (in the second year), and fifteen field workers and one supervisor in 2004-2005 (in the third year). With one or two exceptions, these positions were filled. As there was no further allocation, PKSF stopped the subsidy. But the POs retained all the staff members recruited under the project; in some cases, they recruited more. 3.2.2.2 Until 31 December 2007, the reimbursed amount to the POs from PKSF was SDR 254,179 for subsidies in human resources. 3.2.2.3 Training was arranged for 19 supervisor-trainers, 19 accountant/ computer operators, and 19 MIS officers in monitoring and supervision, maintaining accounts, and MIS of FSP. A total of 267 fieldworkers in 19 POs were given foundation training. 3.2.2.4 Seventy coordinators, 789 branch managers, and 1,961 field workers of Microcredit for the Ultra Poor Program in 85 POs received training. 3.2.2.5 FSP also sent eight PO staff for study tours to the Philippines to share microfinance experiences. As logistic support, the POs were given motorcycles, bicycles, computers, and furniture. SDR 60,885.77 was reimbursed to 19 implementing POs of the project. 3.2.3 Capacity-Building of Borrowers: The borrowers were given capacity-building support in two aspects: awareness and income-generating training and emergency/disaster management. 3.2.3.1 As there was no major disaster, the fund established at the PO level was sufficient to meet the needs. The fund allocated by the IDA/World Bank was redirected to capacity-building because of the building of a separate Disaster Fund in PKSF and its POs under the Livelihood Restoration Program (LRP) supported by IDA. 3.2.3.2 Three kinds of training were given to the borrowers: general orientation, income-generating for self-employment, and income-generating for wage employment. A total of 10,276 borrowers received training for self-employment and 2,743 borrowers received training for wage employment. More than 63,000 of the poorest people received general orientation/social development training. 3.2.3.3 FSP also provided skills development training to 175,809 of the poorest people under the UPP.
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3.3 Monitoring and Evaluation: To monitor the five issues determined at the outset the project and to strengthen over all research capability of PKSF, it was required to set up a separate research cell. 3.3.1 One researcher having a background in qualitative research and another researcher with a quantitative background were appointed, along with a research associate. They conducted periodic mini-studies. 3.3.2 A Research Working Group consisting of academics and experts in the microfinance field was formed to guide the research activities of the project. The research activities in PKSF, strengthened by the support provided to PKSF under the FSP project, are still in effect. The research cell worked throughout the project. Beginning in 2003, PKSF thought seriously about conceiving an independent think tank in the field of microfinance that would conduct research and studies in that sector, particularly that of PKSF. In early 2007, PKSF established its Institute of Microfinance (InM) on its own campus. 3.3.3 Researchers from independent consulting firms conducted the main evaluation studies. Eusuf & Associates conducted the midterm evaluation study. Narayan Chandra Nath conducted a comparative study on financial services to the poorest offered by various MFIs. The final evaluation study was conducted by BETS Consultancy Services Ltd. 3.3.4 A total of SDR 40,194.76 has been partially spent on monitoring and evaluation studies of the impact of the project. 3.3.5 The studies done by the internal resources of mainstream and FSP projects include, among others, “Experience of Financial Services for the Poorest (FSP) Project” in the first year of implementation, “Financial Services Program: Lessons Learned on Process Management”, “Selection Process of Area & Beneficiary Under Financial Services for the Poorest Project”, and a study on how to make the package of financial services for the poorest a comprehensive one. 4.0 Project Objectives: The broad purpose of the project was to make further contributions to poverty alleviation. To achieve this goal, the specific objectives were: (i) To increase outreach to the poorest. (ii) To diversify the coverage of both loans and clients by extending financial services to the poorest of the poor. (iii) To enhance the capacity of PKSF and its POs through ID programs. (iv) To achieve operational, financial, and institutional sustainability of PKSF and the POs while serving the poorest. (v) To piloting different delivery models to identify those that best suit the credit needs of the poorest.
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(vi) To devise a credit model for the poorest that can be replicated. 5.0 Achievement of Objectives 5.1 Increase outreach to the poorest 5.1.1 During the project implementation, the POs achieved two significant landmarks — extending financial services to the people who had previously never been deemed creditworthy and accessing the remotest areas with the services where none before dared. 5.1.2 Of the total number of villages brought into the project, 923 were covered for the first time by any microcredit program, whether of a PO, of PKSF, or of any MFIs. 5.2 Diversifying loans and clients while extending financial services to the poorest of the poor. The successful implementation of FSP has inspired PKSF to move to the forefront in terms of diversifying its products for the poorest. Within two years and, most important, before completion of the pilot, PKSF launched a more advanced product in the UPP. Since then, PKSF has implemented more than half a dozen projects, completely or fully, having to do with services for the poorest. The Microfinance Support Intervention for Food Security for Vulnerable Group Development (FSVGD) and the Ultra Poor (UP) Beneficiary Project, Programmed Initiatives for Monga Eradication (PRIME), and PRIME-2 are full projects of this kind, whereas a portion of members in MFTS and PLDP-II are included from the poorest segment of the population. 5.2.1 The Ultra Poor Program (Up-scaling): The Ultra Poor Program (UPP) introduced more flexibility.
(i) As of December 2007, 91 POs were implementing the program in 421 upazilas in 62 districts of the country.
(ii) The landmarks were reducing the cost of funds at both tracks – PKSF to PO and PO to borrowers, waiving all charges, and enhanced training activities.
(iii)This program is now the largest targeted program in the country for the ultra poor. Through December 2007, 828,121 ultra poor had received credit support with SDR 71,858,218.41.
(iv) The average loan size stands at SDR 49.16, with a loan repayment rate of 98.82 percent.
(v) A total of 175,834 beneficiaries have received training under the program. A total of 85 POs are implementing the program 62 in districts.
(vi) Through this project, PKSF has attempted to address most aspects of the lives of the poorest; for example, education, housing assistance, etc. A pledge has been made to support the education of children of the ultra poor households.
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(vii) Moreover, an initiative has been undertaken to provide housing loans with flexible and longer amortization periods and repayment schedules.
5.2.2 PRIME: In order to eradicate monga (seasonal food shortages concentrated in the northern area) permanently, PKSF has launched PRIME. After a pilot in FY 2005-2006 in the Lamonirhat District of the Greater Ranpur, the program is being run in all five districts of the Greater Rangpur. 5.2.2.1 Of 35 upazilas in the five districts, the program is now being implemented in 23 upazilas. 5.2.2.2 In the five districts of Greater Rangpur, 550,585 households were detected as monga-affected (as per the survey in 2006 and 2007). 5.2.2.3 In terms of wealth-ranking and food security measures, 126,000 households have been found to be severely affected. 5.2.2.4 A total of 115,000 of households have been covered by the Cash for Work program, an attempt to ensure their subsistence by increasing purchasing power. In a single day, as many as 86,000 families have been engaged in such works. 5.2.2.5 In two FYs, 2005-2006 and 2006-2007 , SDR 126,660.78 was disbursed as disaster/emergency loans designed to meet immediate consumption needs of the ultra poor to 10,078 households, and as flexible loans (from the UPP) SDR 2,166,432.71 was given to 46,404 households. 5.2.2.6 Moreover, the member households were provided with support services important for running their income-generating activities or transferring and diversifying their technologies. 5.2.2.7 This program has a budget of Tk.15 million for skills enhancement of the ultra poor who have been affected by monga. 5.2.3 PRIME-2: Toward rehabilitating the people most affected by the cyclone Sidr in the southern five districts, PKSF has started this program, similar to the PRIME, which is being implemented successfully in the north. 5.2.3.1 The specific objective is to give people subsistence funds by restoring their purchasing power by involving them in ‘Cash for Work’. 5.2.3.2 On completion of the primary survey, 74 unions in 11 upazilas in five districts have been identified for the program. With a budget of SDR 2,100,959.36, PKSF has targeted bringing 38,551 households under this program. After rehabilitation, PKSF will provide them with flexible microcredit for running IGAs.
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5.2.4 FSVGD and the Ultra Poor (UP) Beneficiary Project: With the assistance of the European Union for the capacity-building of ultra poor beneficiaries, this three-year project (2007 to 2010) has been started with a budget of SDR 80,380. 5.2.4.1 The project has identified 109,000 former FSVGD members, of whom 71,000 have been enrolled in the UPP implemented by the POs of PKSF. 5.2.4.2 As of December 31, 2007, 9,453 former FSVGD members have received microcredit and savings management training and 8,127 have been given skills training. 5.2.5 PLDP-II: This project is aimed at integrating poor people in livestock-related IGAs. 5.2.5.1 Under the project, 25 percent of the target beneficiaries are supposed to come from the ultra poor segment of the population. 5.2.5.2 At present, the POs are implementing the project activities in 20 districts of the country. SDR 162,109.41 has been disbursed to 364,614 borrowers. Among them 3,286 borrowers are ultra poor. 5.2.6 MFTS: With a similar objective to that of PLDP-II, this second project for integrating the poor in the livestock sector with IFAD funds is being implemented. 5.2.6.1 The project provides for including 15 percent of the beneficiaries from the ultra poor. 5.2.6.2 At present, 24 POs are working in 13 districts of the country. As of December 2007, 41,892 (cumulative) ultra poor have been included in the project. 5.2.7 Extension of services to the poorest of the poor 7.2.7.1 The project covers large groups of the poorest, particularly the disadvantaged ones. When the project was fully mature in 2005-2006, the occupational/demographic coverage of the project was 0.38 percent beggars, 25.51 percent daily laborers, .47 percent sex workers, 9.34 percent members of child-laborers’ families, 6.60 percent widows, 4.82 percent indigenous people, 5.68 percent separated women, 1.27 percent domestic helpers, 1.76 percent divorcees, and 44.07 percent others. 5.2.7.2 The most fascinating aspect was that the percentage of loans of total disbursement to the beggars was 4.46 percent during the inception year. 5.2.7.3 This trend of inclusion was aimed at increasing the outreach of clients in at least three ways: bringing in the so far un-creditworthy people under the coverage of microcredit, graduation of the poorest to mainstream microcredit programs, and an overall increase in the number of the clients involved in microcredit. 5.2.7.4 The most fascinating aspect was that a good number of beggars were integrated into productive income occupations.
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5.2.7.5 As per the final impact evaluation, 93.5 percent of the project’s beneficiaries reached incomes of more than 50 cents, while 83.4 percent earned more than a dollar a day. 5.3 Enhancing the capacity of PKSF and its POs 5.3.1 Enhancement of PKSF’s Capacity 5.3.1.1 The FSP unit, set up at PKSF with the support of the project, fulfilled its responsibility in of aptly coordinating the project’s implementation of the. The maturity was such that although most of the personnel of the unit, recruited at the inception of the project, moved to elsewhere later, the project performance was not damaged in any way. Rather, existing staff and new recruits have handled matters for five years. 5.3.1.2 The training imparted to the staff was also a great help. The officers who received training shone in their respective works. 5.3.1.3 The unit personnel performed all of the studies related to focus group discussions. The first coordinator of the project conducted the first year-end progress study, and a researcher who attended the research methodology sessions of the training later did a full study on what was learned and on the experiences of the project. 5.3.2 Enhancement of POs’ Capacity 7.3.2.1 The training given in Accounting Information System (AIS) and Management Information System (MIS), supervision, and monitoring of the staff immediately paid dividends. The program was innovative and flexible and targeted the poorest who were not dealt with under microcredit programs. The staff who, in most cases were fresh, did well, and overall activities were up to the mark. 5.3.2.2 The logistic support came as a great help in running the loan operations in comparatively remote areas. 5.3.2.3 Keeping their MIS and AIS in computers with appropriate software significantly helped the POs’ capacity-building. 5.3.2.4 Many POs strengthened their research activities in collaboration with PKSF. In some cases, they started research activities while implementing the FSP project. 5.4 Achieving operational, financial, and institutional sustainability of PKSF and the POs while serving the poorest 5.4.1 It is important to mention that 24,514 of the poorest borrowers were admitted to mainstream microcredit, and another 60 percent of 37,712 of the poorest borrowers are now qualified for mainstream microcredit from the FSP project.
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5.4.2 Two large impact evaluation studies were conducted on the FSP project-- the midterm evaluation in 2005 and the final evaluation in 2007. Both showed that PKSF and the POs achieved operational and financial sustainability. With the increase in the number of borrowers and in its portfolio, the project took off at the end of the third year (end of 2004) and it achieved financial sustainability. Although the subsidy for the staff ended after three years, the POs were able to retain the staff with the project income. Again, as the project developed full momentum in the third year in terms of human resources, logistics, outreach, and, more important, in operational income, it worked with operational sustainability until the end. 5.4.2 The institutional development support also clicked well. The subsidy in human resources and logistics contributed to the healthy performance of the POs. 5.4.3 A total of SDR 31,504.24 was provided to the POs as logistics support. 5.4.4 The lowering of the cost of funds from 4.5 to 1 percent in the UPP has contributed to the attainment of sustainability. 5.5 Piloting different delivery models to identify those that suit the credit needs of the poorest 5.5.1 Some financial products were piloted under the project: a credit system with flexible grace periods and repayment frequency; a savings system with flexible amounts, frequencies and withdrawals, and flexible attendance requirements at the group meetings. 5.5.2 At the midway point, the cost of funds for the borrowers was reduced from 15 to 12.5 percent. 5.5.3 The flexibility attracted the borrowers in all aspects and it erased the risks perceived prior to launching the project. 5.5.4 Although the members were allowed to deposit even Tk. 1 (SDR 0.0092), they voluntarily deposited larger amounts, up to Tk. 10 (SDR 0.092) a week. 5.5.5 The MFIs gave beneficiaries ample flexibility about attendance. Even one attendance a month was allowed. 5.5.6 The most important achievement, although repayment in most cases was flexible, was 99 percent repayment rate from the borrowers to the POs, as shown in the final evaluation. 5.6 Devising a credit model for the poorest that can be replicated 5.6.1 The most important achievement of the pilot project was confirming the hypothesis that microcredit, if delivered appropriately, could improve the welfare of the extremely poor. The FSP proved that by introducing important flexibility to mainstream microcredit
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programs, the condition of the poorest could be improved and they could become creditworthy in a modified microcredit program. 5.6.2 The partner MFIs also have proved their capacity to deliver innovative and distinct microcredit products, a task that required a more careful approach in every aspect of implementation, ranging from selection to rehabilitating participants in appropriate enterprises and upgrading the matured participants toward mainstream programs like Rural Microcredit. In this way, they have proved wrong the apprehension of risk perceived when initiating the project. 5.6.3 The partner MFIs practiced most of the prescribed flexibility norms, introduced others, and invested their own resources in the social development of the poorest. The apprehension perceived before the launch about risks relating to ‘MFI’s readiness’ did not prevail. 5.6.4 The targeting was very accurate, as, in most cases, the income of the households, having an average 3.8 members, was less than SDR 32.23 a month. As a person having an income of 0.63 SDR a day is considered to be among the poorest, the FSP participants were the poorest of the poor. 5.6.5 People outside the target group who were erroneously included in the project were screened out and rehabilitated into other microcredit programs/projects. 5.6.6 The Nath study , which was conducted using data up to June 2004, reveals that on average, 83.19 percent of the poorest who received training could use it in their respective businesses. The utilization rate was greater in training for income generation through self-employment (85.60 percent). The utilization rate in training for wage employment was 80.78 percent. The same study revealed that 8.3 percent of the trained beneficiaries imparted training to their people, who undertook similar activities for income. 5.6.7 The last and perhaps the most important finding is the change in attitude, approach, and capacity of the poorest as they gained access to financial services: credit and savings. By taking advantage of credit, other things remaining the same, they improved not only their food security, housing condition, and asset base, but also developed the habit of saving and repayment (regular in more than 97 percent of the cases). Eusuf & Associates, in the same study, found that the rate of repayment of the poorest borrowers was 100 percent. This easily nullifies any apprehension about their “character.” 5.6.8 Two facts became clear in the total process: (i) the poorest are creditworthy, but still may not be bankable in the existing norms of formal financial institutions, although they have the potential to use the loans for income generation, and (ii) a microcredit program for the poorest can be institutionally and financially viable.
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6.0 Problems Faced During Implementation While the project implementation shows significant achievements, it nonetheless faced a few problems, which were as follows: 6.1 Dilemma in beneficiary selection There was a dilemma at the starting point to decide whether to adopt a holistic approach or an individualistic or area-specific approach in the selection of members. Ultimately, the moderate second option of an area-specific path prevailed. 6.2 Late start of training For some unavoidable reasons, including a lack of availability of resource persons to impart training in income generating activities and belated training needs assessments, training was delayed. 6.3 Conservative loan size About the size of loans, the project was a little conservative in the first year. It took a little time to overcome the inertia. In the second year, the loan size developed real momentum. 6.4 Three persistent problems The project was not able to resolve three problems: 1) full implementation of the disaster management fund, 2) micro-insurance, and 3) strengthening of the research cell of PKSF. Of these, the micro-insurance program could not be started, as no service-providing agency agreed to cover the services needed for the beneficiaries of the project. 6.5 Linking the beneficiaries to employers The MFIs faced problems in linking the trained beneficiaries to employment. The same thing happened even in the case of beneficiaries who had been trained while providing them in any micro enterprise run by microcredit capital. 6.6 No allocation for social development fund The POs provided social development services to the poorest. As there was no allocation for them from the apex organization (as there was no allocation in the project plan), so, in many cases, the supply could not keep pace with the demand. 6.7 Overloaded field workers Responding to demands from the field, in most cases the POs included more members than stipulated. This, in some cases, created anomalies. First, as the human resources subsidy was time-bound and limited, it created an extra burden on field level personnel. Second, in one or two cases, the POs employed more personnel than prescribed. Third, this tended to instigate discrimination in the labor market.
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6.8 Sustainability problems in the beginning In the starting years, as the POs were struggling to achieve financial and operational sustainability, they had to subsidize the project by diverting funds from other projects. This created problems for the smaller POs, as their surplus reserve-bases were not strong. 7.0 Lessons Learned 7.1 The poorest are creditworthy The poorest are creditworthy if the products are designed with due account taken of their socioeconomic and other conditions and if needed flexibility is brought into the existing microcredit products/programs. Eligibility criteria, savings, loans, repayment systems, training, social development and safety-net services, skills, enhancement, may be the main areas. 7.2 Poor capitalizes a small chance The income potential of the poorest can be tapped through motivation and by taking into consideration the realities of their lives. Flexibility that was brought into the project was operational, not financial, in nature. Even with that, most of the beneficiaries were able to increase their incomes by becoming integrated into income activities. 7.3 Inherited occupations suit the poor well The income activities with which the poorest have any sort of legacy or orientation are better suited for them. 7.4 The larger the MFIs, the better The larger the portfolio of the POs, the greater is their strength to provide services for the poorest. 7.5 Altruism is not sustainable Subsidy and charity cannot be long-term therapy for rescuing the poorest and the agencies working for them from the poverty trap. An area like social development services by the POs for the poorest deserves allocation. 7.6 As a long-term policy Allocation for social development services is essential if one considers the realities of life of the poorest and is keen toward offering them a comprehensive package of services to eradicate their poverty. 7.7 Insurance should be put in place Given that most of the poorest are vulnerable to disaster and emergencies in their ecological and other realities, disaster management funds and micro-insurance should be put in place with needed preparedness as soon as possible.
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7.8 Access to Information and Technology Access to information and technology for the poorest should be increased. Information will help them obtain needed production inputs, job opportunities, and markets for their products. 7.9 A Project should be supported by an appropriate knowledge base As the realities of the lives of the poorest are not the same as those of the people who are integrated into the mainstream of society, so their needs are not the same. Solving these problems, in most cases, involves a case-specific approach. It entails innovation and diversification while a product or project is being designed to serve the poorest. Thus, a sound knowledge base is needed in order to effectively address their problems. Only good support in terms of research and development can help this and a host of similar others. 7.10 Coordination at all levels is needed The eradication of poverty of the poorest people who basically have to rely on a welfare system needs the concerted efforts of all. Cooperation and collaboration among the interventions and all stakeholders, including the government, NGOs, private organizations, development partners, civil society, and others, is essential. 8.0 Bank and Borrower Performance 8.1 Bank’s performance The Bank, which refers to World Bank, the sponsor of the project, has a global strategy to finance various experimental/pilot projects under the LIL program. 8.1.1 As far as the FSP is concerned, the Bank aptly identified a gross area of the project for the poorest. After PKSF’s exposing of the idea of such a project in the curtain raiser workshop in Dhaka in 2002, the Bank contributed immensely, both directly and indirectly to formulating and designing the project in a matured form. 8.1.2 The various appraisal missions from the Bank midway during the course of implementation gave the project needed guidelines and inputs to allow it to succeed. 8.1.3 The Bank’s enthusiasm for the project was proved as it extended its tenure, seeing its efficacy and giving PKSF ample liberty to divert the money from surpluses to deficit areas. 8.1.4 The Bank’s supervision and monitoring activities unquestioningly accrued credit in the aspect of streamlining the constraints which stood in the way at one point. A true partnership arose. The Bank showed a collaborative attitude, even in the areas that were not feasible to achieve in the given situation. 8.2 Overall Bank performance The overall performance was highly satisfactory.
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8.3 Borrower’s performance The performance of the Borrower, which mainly refers to PKSF for this project, can be termed simply excellent. Through its prudence in designing and formulating the project and its effective implementation, PKSF proved wrong all the apprehensions that had been perceived before launching the project.
8.3.1 PKSF proved its worth by acting in a timely manner in forwarding the on-lending funds to the POs for delivery to the individual poorest to help them create or enhance income.
8.3.2 The recovery rate in the credit operation of the project in both tracks—PKSF to POs and POs to individual borrowing poorest people—was more than 99 percent.
8.3.3 PKSF also proved its worth as a borrower by disbursing the money in appropriate areas. It did not hesitate to declare surplus funds in particular areas and identify the areas where more funds were necessary in a forward-looking attitude.
8.3.4 PKSF was prompt to convince the Bank about extending the tenure of the project, conceding to the demands of the poorest for financial resources and contingent services from such a project.
8.4 Borrower’s overall performance The overall performance of the Borrower can be rated highly satisfactory.
9.0 Achievement of development objectives The project had, overall, there development objectives, which it attained successfully. We can elaborate on these in brief in the following: 9.1 Delivery models Pilot delivery models for reaching services to the poorest. The FSP proper and about half a dozen projects (initiated in the last six years), which can be termed new generation projects, are testimonies to having achieved this objective. 9.2 Credit model By bringing some operational flexibility to the mainstream microcredit programs, the project reached the lowest income group of the population and proved that the poorest can also be worthy clients of financial services.
9.3 Contributing to the lives of the poorest The three terminal evaluation studies conducted on the project showed positive changes in the lives of the poorest borrowers. They showed in two broad dimensions. The first was the difference made in the lives of the poorest through the interventions. The second was the change in the lives of the poorest in given periods through interventions and without interventions. Borrower’s Comments on draft ICR: Borrower had no comments on The draft ICR prepared by the Bank.
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ANNEX 8. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS There were no cofinanciers in the project other than PKSF and POs whose comments are already reflected in above chapters/annexes.
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ANNEX 9. LIST OF SUPPORTING DOCUMENTS
1. Project Appraisal Document (PAD) of June 1, 2002, Negotiation Documents, Development Credit Agreement between GoB and IDA.
2. Aide Memoires, Back-to-Office Reports, Financial Management Reports, Project Status and Results Reports.
3. PKSF: FSP ICR, Comments on Draft ICR, and Project Database.
4. Financial Services for the Poorest Project: Impact Evaluation, by Eusuf and Associates, 2005
5. Financial Services for the Poorest Project: Final Impact Evaluation, by BETS Consultancy Services, 2007
6. Selection Process of Area & Beneficiary under Financial Services for the poorest project, PKSF, March 2003
7. Financial Services for the poorest: A Brief Resume – Implementation Status, Problems and Potentialities, by FSP Cell, PKSF, May 2005
8. Financial Services to the Poorest: A Comparative Study of the Programs, by Narayan Chandra Nath, Research Fellow, Bangladesh Institute of Development Studies (BIDS), August 28, 2005 (A Comparative Study of Micro Finance Programs of PKSF (FSP), BRAC, Plan International and Grameen Bank for the Poorest)
9. Financial Services for the Poorest Project: Experience and Learning, by FSP cell, PKSF, January 2006
10. PKSF’s Financial Services Program, Lessons Learned on Process Management, by project consultant, 15 May, 2006
11. Microcredit for Ultra Poor: PKSF Initiative, by PKSF, November 2006
12. FSP News Letter: A Quarterly Bulletin of FSP project, by PKSF
13. A video documentary (DVD) of PKSF’s initiatives for the Poorest of the Poor, prepared by PKSF
