D_oom of The World Bank FOR OFFICIAL USE ONLY Report No. 6469 PROJECT COMPLETION REPORT COLOMBIA THIRD SMALL-SCALE INDUSTRY PROJECT (CFP) (LOAN 1834-CO) October 31, 1986 Industrial Development and Finance Division 2 Latin A.merica and Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. 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
D_oom of
The World BankFOR OFFICIAL USE ONLY
Report No. 6469
PROJECT COMPLETION REPORT
COLOMBIA
THIRD SMALL-SCALE INDUSTRY PROJECT (CFP)
(LOAN 1834-CO)
October 31, 1986
Industrial Development and Finance Division 2Latin A.merica and Caribbean Regional Office
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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ACRONYNS
ACOPI - Asociacion Colombiana Popular de Industriales(Colombian Association of Small Manufacturers)
BR - Banco de la Republica (Colombia's Central Bank)CAJA - Caja de Credito Agrario Industrial y Minero
(Agricultural, Industrial and Mining Bank)CYP - Corporacion Financiera PopularCOLCIENCIAS - Fondo Colombiano de Investigaciones Cientificos y
Proyectos EspecialesF"I - Fondo Financiero Industrial (Industrial Financing Fuad)FICITEC - Fundacion para el Fomento de la Investigacion Cientifica
y Tecnologica (Foundation for Development of Scientificand Technological Research)
FIP - Fondo de Inversiones Privadas (Private Investment Fund)IDB - Inter-American Development BankIFI - Instituto de Fomento Industrial
(Industrial Development Institute)INCOLDA - Instituto Colombiano de Administracion
(Colombian Institute of Administration)PROEXPO - F.ndo de Promocion de Exportaciones (Export Promotion
(Fund)SENA - Servicio Nacional de Aprendizaje
(National Vocational Training Organization)SNI - Small- and Medium-scale IndustrySSI - Small-scale IndustryUNDP - United Nations Development ProgrammeIUNIDO - United Nations Industrial Development Organization
MO OVICIA un ONLYTHE WORLD BANK
Washnton, DC 20433U.S.A.
Olhte n D""Itm.CauOpviw Ivlutite
October 31, 1986
MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT
SUBJECT: Project Completion Report on Colombia - Third Small-ScaleIndustry Project (CFP) (Loan 1834-CO)
Attached, for information, is a copy of a report entitled "ProjectCompletion Report on Colombia - Third Small-Scale Industry Project (Loan1834-CO)" prepared by the Latin America and Caribbean Regional Office.Further evaluation of this project by the Operations Evaluation Departmenthas not been made.
Attachment
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties Its contents may not otherwise be disclosed without World Bank authorization.
FOR OMCIAL US ONLY
PROJECT COJPLEION REPORT
COLOMDA - THIRD BRL-CALE INDUSTY PROJE? (C>)
(LOAN 1834-CO)
TABLE OF CONTENTS
Page No.
Preface ................. ........... iBasic Data Sheet ............. iiHighlights ............. ,.,,.,.,,. iv
I. INTRODUCTION ..................see.I1
II. PREPARATION AND APPRAISAL OBJECTIVES ......... 3
V. OPERATIONAL AND FINANCIAL PERFORMANCE ... ... e15
Operations o ..... 15Financial Position and Results 17Portfolio Quality .... ........ ... 18Administrative Costs 19Technical Assistance 20
VI. CONCLUSIONS ....ee. .. ...... .. 21
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
2AN 0 CONYU"B (Oootinnod)
Lrs! O0 AIENZPaa. No.
I Manufacturing Performance Indicators ...... ............. 24
2 Projected and Actual Cumulative Disbursements ..... ..... 25
3 Characteristics of Subprojects Financedunder Loan 1834-CO ................................... 26
4 Sources and Uses of Funds for SubprojectsFinanced under Loan 1834-CO .......................... 27
5 Average Subproject Impact .............................. 28
6 Employment Generation and Its Cost in an AverageSub-Borrower ......... 29
7 Sales and Productivity Growth in an AverageSub-Borrower 30
8 Current Status of Selected Subprojects Financedunder Loan ¶834-CO 31
9 CFP's Mobilization of Financial Resources: 1979-1983*.... 33
10 CFP's Projected vs. Actual Operations: 1979-1983 ....... 34
11 Actual and Projected Balance Sheets: 1978-1984 ......... 35
12 Actual and Projected Income Statements: 1978-1984 .o..... 36
1. This report reviews rhe performance of the Bank's Third Small-ScaleIndustry Project (Loan 1834-CO) made to the Banco de la Republica (BR) foronlending to the Corporacion Financiera Popular (CFP). The loan, in theamount of US$32.0 million, was intended to assist CFP's onlending andtechnical assistance operations with the small-scale industrial sector. Theproject was appraised in April/May 1979, approved by the Board of ExecutiveDirectors in April 1980, declared effective in July 1981; following anine-month extension, the final closing date was established as March 30,1984. Final disbursements were made on November 1, 1984, and the undisbursedbalance of US$1.3 million, resulting mainly from foreign exchange ratefluctuations, was canceled as of the same date.
2. This report is based upon the data obtained during the Bank missionto Colombia in December 1985. It reviews the progress made towardachievement of the loan's direct and sectoral objectives. Since muchinformation on CFP's operational and financial performance during 1979-1983is available in the Completion Report for the second loan (1451-CO) issued inApril 1983 and in the Appraisal Report of June 1984 for the fourth loan(2464-CO), this report concentrates mainly upon those aspects about which theBank expressed concern in the appraisal report or during the course ofproject implementation. This report also brings some institutional aspectsup to date, focusing upon CFP's Action Program for 1984-1987, aimed atstrengthening CFP's institutional and organizational aspects, which wasagreed upon with the Bank under the fourth loan (2464-CO).
3. In accordance with the re'rised project performance reportingprocedures this report has been read in the Operations Evaluation Department(OED) but the project was not audited by OED staff. The draft CompletionReport was sent to the Borrower for comments. A copy of their response isincluded as an Attachment.
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PROJEC CORPLUTION REIPORT
OOIONBIA - THIRD sxALL-SCALE INDUSTRY PROJECT (CFP)
(OUA 1834-CO)
BASIC DATA SHEET
Key Project Data
Appraisal Actual or CurrentItem Expectation Estimate
Loan
Original Amount US$32.OM US$ 32.OMDisbursed US$ 30.7MCanceled US$ 1.3MRepaid to 08/3 1/86 US$ 6.0MOutstanding to 08/31/86 US$ 24.7MFinancial Performance Overr.ll SatisfactoryInstitutional Performance Overall Satisfactory
Cumulative Loan Disbursement
FY80 FY81 FY82 FY83 FY84
(i) Planned _ 13.0 27.5 32.0 -
(ii) Actual - - 15.2 26.1 30.7
Other Project Data
Original Actual or EstimatedPlan/Revisions Actual
Negotiations 01/80Board Approval 04/17/80Loan Agreement Date 12/10/80Effectiveness Date 07/09/81Terminal Date for Subproject 12/31/82 / 09/30/83
Submission 06/30/83Closing Date 06/'30/83 / 12/31/83 03/30/84Borrower BRExecuting Agency CFPFiscal Year of Borrower December 31
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MISSION DATA
No. of No. of Staff- Date ofItem MontfL/Year Weeks Persons weeks Report
Supervision I 02/82 1 2 2 03/30/82Supervision II 03/83 1 1 1 04/20/83Supervision III 08/83 1.5 4 6 10/06/83Completion 12/85 2 2 4_ 04/30/86
Total 13
Follow-on Project
Name Fourth Small-scaleIndustry Project
Loan Number 2464-COAmount US$40.OMBoard Approval 07/10/84Loan Agreement Date 09/21/84Effectiveness Date 02/01/85Borrower BRExecuting Agency CFP
Country Exchan&e Rate
Name of Currency (abbreviation) Colombian Pesos (Col$)Year: Exchange Rate:Appraisal Year (1979) Average US$1 * Col$ 42.6Intervening Years (1980-84) Average UJS$1 * Col$ 74.4Completion Year (1985) Average US$1 - Col$ 145.5
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PROJICT COMEl,TION REPORT
COLOMBIA - TIIRD SMALL-SCALE INDUSTRY PROJICT (ClP)
(LOAN 1834-CO)
HIGHLIGHTS
1. Given the relatively favorable experience under the first twosmall-scale industry (SSI) projects (Loans 1071-CO and 1451-CO), the Bankcontinued to support CFP through a third SSI project (Loan 1834-CO) forUS$32.0 million in 1980. This report not only deals with the results of theloan under review but also examines the developments that have taken place inCFP's operations and the Bank's strategy during project implementation.
2. Building upon the achievements of the previous loans, the thirdloan was designed to carry out five main objectives: (a) improve SSI's accessto credit by providing funds on reasonable conditions for the establishment,expansion, or relocation of privately controlled small industrial firms;(b) assist CFP in building up a sounder resource base for its operationsthrough 1982; (c) further build up CFP's technical and operational capabilityfor allocating scarce development funds efficiently and for coordinatingtechnical assistance to SSI; (d) continue to support, through a widedistribution of CFP's onlending, the Government's industrial diversificationand regional development policies; and (e) help to promote Governmentpolicies that are responsive to SSI's financial and technical assistanceneeds (paras. 2.03-2.05).
3. Overall, the loan achieved most of its objectives. The third loancontinued the success of the twi. prior loans 4n efficiently transferringresou,ces to the intended target group of smaller enterprises. Of the 1,270subprojects financed with the loan proceeds, only 36 subloans were over theUS$100,000 free limit establishe.d under the loan (para. 3.07). The averagesubloan size of US$24,000 was slightly above the appraisal estimate ofUS$22,000. The geographical dispersion of Bank-assisted enterprises was inline with expectations, with 851 (67.2% of the total) accounting for firmslocated outside of Colombia's r.ost indu3trialized departments, andrepresenting 60% of total financing (para. 3.13). The loan assisted 248 newfirms (i.e., about 20% of the total), accounting for 24% of the total loanamount, and exceeding the results achieved under the first two SSI loans(para. 3.11).
4. The economic impact of subprojects financed was overall satisfactory.The estimated employment generation was 6,i00, with an average investmentcost per job created of US$11,800, as compared to the US$11,000 appraisalestimate and the average of US$13,500 under the second loan (1451-CO). Theex-post financial rates of return (FRRs) calculated for alx randomly-selectedsubprojects (out of the 36 exceeding the free limit) averaged 29% versus theex-ante FRRs, averaging 34%, and the overall range of 15% and 20% estimatedduring project appraisal (paras. 3.14-3.16).
5. During the period under review, while CFP's institutional. developmentefforts were adequate, certain institutional aspects needed to bestrerigthened, particularly its appraisal and supervision work and itsportfolio management. Notwithstanding the generalized nature of the arrearsprobl6m in Colombia, inadequacies of these three institutior,al aspectsundoubtedly also contributed to the deterioration in the quality of CFP'sportfolio. CFP's overall arrears position (20%), which is high in absoluteterms, is in line with that of the private DFCs (22%) and substantially lowerthan that of' Colombia's whole banking system (29%)~ Throughout projectimplementation, CFP has maintained its debt/equity ratio well below theestablished ceiling of 6.0:1, averaging 4.08:1. CFP's leverage ratio is alsowell below that of the private DFCs (10:1) and the commercial banks (32:1).Except for one year, CFP exceeded the targets set for administrative costsunder the loan, averaging 6.7% of average total assets over 1979-1983 (para5.12). The higher-than-anticipated administrative costs/assets ratio hasbeen due in part to (a) slower-than-expected growth in CFP's portfolio and(b) the high relative share of administrative costs of headquarters staff(44% of total staff and 49% of total administrative costs during 1979-1983),as compared to costs in regional offices where CFP's income and profits aregenerated, and (c) the high cost of operating special programs (e.g.,micro-enterprises and assistance to amnestied political activists). Inabsolute terms, administrative costs grew at an average rate of 27% p.a.during 1979-1983, mainly accounted for by salaries and other personalexpenses, which represented about 77% of total administrative costs.Administrative expenses continued to grow in relation to average totalassets, from 6.7% in 1983 to 7.6% in 1985 (para. 5.12).
6. On the whole, CFP succeeded in mobilizing adequate funds but was notable to diversify its resourre base. and it remains unduly dependent uponGovernment and other public sector support. The Bsnk has consistently beenthe major--and at times--the only source of long-term external funds,representing about 935 of CFP's total foreign resources.Recognizing the adverse impacts of short-term, widely fluctuating resourceavailability, the Bank recommended that CFP should seek non-traditionalpermanent sources of local funds to complement the funds obtained from FFI *
and PROEXPO, which are still the principal sources of local borrowing forCFP's lending programs. As a first step to a possible mobiliza-;on ofdomestic resources by CFP, the Bank introduced, under the fourth SS3 loan, anonlending interest rate svstem, involving two components, one at a fixed rateand the other with a floating rate (paras. 4.08-4.09).
7. The project's contribution in inducing the Government to establish acoordinated policy framework for the SSI subsector development was limited;however, the Government has started to take a more active approach towardsSSI. In 1981, the Government established the Fondo Nacional de Garantia toguarantee loans to small manufacturing and mining firms (para. 5.02), and theAdvisory Council for Small and Medium Industry (CA) to coordinate the effortsof different institutions in designing specific policies for SMIs(para. 6.09).
8. An 4nnovative feature introduced under the loan was the shift in CFP'sapproach in providing technlcal assistance (TA) services to SSIs. Under theloan, CFP adopted the strategy cf helping to diagnose TA needs of individualSSI clients and coordlnating the provision of required services byspecialized institutions, such as SENA and FICITEC. While CFP's newtechnical assistance approach was vi-ewed as a positive step toward futuredevelopment of the 7S1i sulsectsr, the results were rather limited, partly due
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to CFP's lim'-ed institutional ability to coordinate, at the national level,the technical assistance activities of specialized institutions providing TAservices to SSIs (para. 5.15). However, under its TA programs, at bothregional and national leveis, which are included in its 1984-1987 Action
Plan, CFP has considerably improved its capacity to coordinate technicalaseistance to SSIs with specialized TA institutions (para 5.16).
9. Tre following events and policies are also noteworthy:
- Introduction of an interest rate review mechanism (para. 4.10);
- CFP's exemption from Resolution 65, requiring all Colombian
"financieras" to use no less than 10% of their assets in equityinvestments or in FFI bonds, which could have seriously endangeredCFP's financial structure and operations (para. 5.07);
- CFI"s increased involvement in micro-enterprises, in line with
the Government's national plan for micro-enterprise development(para. 5.06);
- Special programs of the Government administered by C.FI1, to help
micro-enterprises in several secondary cities and amnestiedpolitical activists (para. 5.05);
- Change in CFP's operational policies on construction financing,
emphasizing financing of buildings and facilities intended forproduction activities, and lending with own resources and tho'4e of
FF'l (para. 5.01); and
- CFP's Plan of Action for 1984-1987 for its organizational andinstittutional development, dealing with areas that needstrengthening, which have been identified mainly by the PCR for the
second SSI loan and during supervision of the third loan (para.4.01).
10. Summing up, appraisal estimates of subproject performanceconcerning the loan impact and risks involved in CFP's institutionaldevelopment were overall realistic. For the most part, loan objectives were
achieved. CFP's operational and financial performance, which has beenaffected by the economic recession that hit -he country during project
implementation, was satisfactory in comparison with that of the overallColombian banking system and the private development finance companies.
Notwithstanding certain institutional and organizational areas which needstrengthening, CFP has matured into a sound lending institution through the
successive SSI loans. It is expected that, with CFP's reorganization study,which forms part of its 1984-1987 Action Plan, the institutional and
organizational aspects of CFP would continue to improve. Through its
technical assistance programs at regional level, CFP has considerablyimproved its capacity to coordinate technical assistance to SSI's with a
number of institutions, including Servicio Nacional de AprendizaJe (SENA),Asociacion Colombiana Popular de Industriales (AC(F'l) and Fundacion para el
Fomento de la Investigacion Cientifica y Tecnologica (FICTThC). While CFP
has been able to support the credit demand of SMIs, there exists an evident
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need to complement its domestic resources. The introduction of an onlendinginterest rate system, involving fixed and floating interest rate components,was a first step toward the mobilization of domestic resources by CFP(possibly via public savings). In addition, the possible role of otherfinancial intermediaries, and the possibility of naving a two-tier mechanismfor SSI financing are being explored in the context of a possible fifth SSIproject (paras. 6.02-6.09).
PROJECT COMPLETION REPORT
COLOMBIA - THIRD SMALL SCALE INDUSTRY PROJECT (CFP)
(LOAN 1834-CO)
I. INTRODUCTION
1.01 Industrial Sector Lending Activity. Bank lending to support the
Colombian industrial sector has been well diversified, encompassing nineloans, totaling US$583.0 million, to finance industry through privatedevelopment finance companies; an agro-industrial loan component of US$19.0million, mainly for medium-sized and small enterprises; a loan of US$15.0
million for an export processing zone in Cartagena; a loan component ofUS$2.0 million for very small enterprises in target areas of the IntermediateCities Urban Project; a loan of US$80.0 million for the Cerromatoso NickelProject; and the four loans, totaling US$92.5 million, to finance small-scaleindustry (SSI) through Corporacion Financiera Popular (CFP). While theBank's SSI loans are still small in comparison to total industrial lending,
they have become a significant factor in the development of SSI in Colombia.
1.02 SSI Subsector Lending. CFP was founded in 1967 by Banco Popular, aGovernment-owned commercial bank, partly in response to a study by theStanford Research Institute on the prospects and needs of Colombiansmall-scale industry. CFP's main institutional objective, as broadly definedin its statutes, is to assist in the promotion and development of small- andmedium-scale industrial, agro-industrial and mining enterprises(SSIs) by providing medium- and long-term financing. Since commercial banksand private tinancieras focus mainly upon medium and large firms, CFP's ro].eis to develop and help put into effect a broad tange of services tailored sothe characteristics and needs of SSIs.
1.03 The Batik has been associated with CFP since 1973, and the Bank'sfirst sotall-scale industry (SSl) operation in Latin America was approved in
1975. This completion report reviews the third loan (1834-CO) of US$32.0million, approved in April 1980. Because the impact and effectiveness ofCFP's operations have been influenced by the first two loans (1071-CO for
US$5.5 million, approved in January 1975; cn'd 1451-CO for US$15.0 million,approved in June 1977), this report not only deals with the results of the
loan under review but also examines the developments that have taken place inCFP's operations and the Bank's strategy during project implementation.
1.04 The OED Performance Audit Report for the first CFP loan, producedin 1979, examined the operations of CFP in more detail. It concluded thatthe economic benefits expected from the investment financed under the loanwere fully realized and that CFF's organization had been substantiallystreamlined. It recommended upgrading the quality and coverage of technicalassistance to SSIs, which was addressed under the second loan. The
Completion Report for the second loan, prepared in 1983, similarly found thatthe Bank had been successful in transferring resources for Colombia'sindustrial growth, but less successful in encouraging domestic resourcemobilization and in promoting Government policies of particular relevance forSSI sector delelopment. These points were addressed further under the third
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loan. Complementary measures were also taken under the third and fourthloans for CFP to coordinate technical assistance to SSIs.1/
1.05 Macroeconomic Setting and Sectoral Performance.2 / Althoughincreased investment efforts by the public and private sectors provided astimulus for improved growth performance in the period 1980-1981, duringwhich the loan was approved, signed and declared effective, the industrialsector still faced a series of constraints. The low level of manufacturedexports, the accelerated increment in imports due to export receiptsaccumulated during the coffee boom and the persistent slow growth in domesticand international demand were the principal factors that led the industrialsector to a negative growth rate in the period 1980-1983. During the early1980s, when commitments and disbursements were made under the loan, thegrowth rate for the sector decelerated to an average of only 1% in 1978-1982,from an average of 8.6% in 1967-1974 and 5.2% in 1974-1978. Competition fromcontraband and substantial devaluation of the currencies of Colombia'sforemost Latin American trading partners led to a decline in manufacturingproduction and exports (Annex 1).
1.06 In the second half of 1983, the Government started to stimulate theeconomy and designed a national program ("El Plan Cambio con Equidad"), underwhich i.t set up and applied some economic measures to halt the recession andto stimulate the productive sectors. Based upon this program, the Governmenttook some specific measures in favor of industrial activity. A reversal ofthe deteriorating trend had begun to take place beginning in 1984 with theresumption of growth in manufacturing and expansion in imports.
1.07 Against the above-described environment, the SMI subsector hascontinued to play a significant role in Colombia's industrial developmentprocess, employing about 50% of the industrial labor force and representingclose to 36% and to 30% of manufacturing production and its value added,respectively.3/4/ Compared with large-scale manufacturing, SMIs havegenerated tup to about three times as many jobs per Colombian peso of investedcapital; they also absorb a higher share of unskilled workers than do large
1/ CFP's Plan of Action fir 1984-1987, which was agreed with the Bank underthe fourth loan, included technical assistance programs at regional andnational levels.
3! Source: "Realidades y Obstaculos del Financiamiento de la Pequena yMediana Industria," Gerencia al Dia, Marzo de 1985.
4/ In 1984, the Government changed the parameters to define small- andmedium-scale enterprises, bringing them up to Col$ 100.0 million in totalassets, with no more than 150 workers and no more than Col$ 150.0 millionin sales, which would increase the SMI subsector's participation In theabove economic ratios. Under Loan 1834-CO, SSIs are defined asmanufacturing enterprises with total assets below USS650,000 equivalent;this amount was raised to US$750,000 equivalent under the fourth SSI,loan,
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enterprises. At the same time, they seem to use capital as effectively aslarger firms, and they are self-financed to a much greater degree than largeindustry, partly because of their more limited access to funds from theorganized financial system.
It PREPARATION AND APPRAISAL OBJECTIVES
Loan Preparation
2.01 A Bank identification missicn visi,'d Colombia in January 1979 forinitial discussions on the third SSI project. The first two SSI projects hadbeen successful, and Bank funds continued to be vital in providing fixedasset financing to the SSI subsector, being the major, and at times the only,source of SSI lending. CFP expected to commit the second Bank SSI loan fullyby year-end 1979, and the Bank and CFP both felt that it was important toestablish continuity in the latter's access to Bank loans. To improve thegeographic scope of Bank lending to SSI, the Bank, during project preparationin January 1979, considered the possible participation of other financialintermediaries in a third SS1 project. While Caja de Credito AgrarioIndustrial y Minero (CAJA) was expected to compliment CFP's operations byfocusing more on SSls in rural areas, its participation in the third loan wasnot feasible as it would involve a very substantial and time-consuming effortto rebuild CAJA's industrial lending capacity.5 / The third project wasappraised in April/May 1979. Several issues were identified duringappraisal, including the introduction of an interest rate review mechanismand "free standing" working capital financing. These issuies were dealt withproperly, and the project advanced smoothly through the Loan Committee stageand negotiations.
2.02 The Bank loan of US$32.0 million was made to Banco de la Republica(BR), Colombia's Central Bank, on April 17, 1980, for onlending to CFP inlocal currency. The loan had two components, consisting of USS 31.4 millionfor SSI subloans, including US$9.0 million for working capital investments,and US$0.6 million for technical assistance to CFP and its clients. Underthe lending component, to help insure financing on reasonable terms, allfixed investment subloans were subject to a minimum four-year maturity, andworking capital subloans to a minimum of three years, with one-year graceperiod in both cases. The nominal interest rate (paid in advance) forsub-borrowers was originally 26% p.a. (about 30% p.a. effective), with CFP'sspread of 4.75% per subloan to enterprises located in Bogota, Medellin andCali, and 5.25% elsewhere. This interest rate was kept positive in relation
to inflation rate, averaging about 22%, throughout the loan's commitmentperiod (para 4.13). Technical assistance subloans carried an interest rateof 15% p.a., (about 17% effective) and CFP's spread was 3%. Maturity and
5/ During the appraisal of the fourth SSI project, the Bank explored againthe possible role of other financial intermediaries in the loan, andhaving the loan structured as a two-tier mechanism for SSI financing.However, given the then recently initiated financial sector reform whichappeared to suggest the specialization of commercial hanks intoshort-term lending institutions and development finance companies (DFCs)into medium- to long-term lenders, the Bank approved the loan with CFP as
a first-tier lender.
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approval conditions were similar to those applied under the fixed investmentlending component. All subloans were in Colombian pesos, with BR bearing theforeign exchange risk.
Appraisal Objectives
2.03 The first two SSI projects aimed at assisting CFP to expand itscredit aid technical assistance to SMI in order to support the Government'sobjecti.ie of increasing employment and promoting more balanced regionalgrowth. Similar objectives were pursued under the third SSI project, whichhad five specific objectives: (a) to improve SSI's access to credit by
providing funds, on reasonable conditions, for the establishment, expansion,or relocation of privately controlled small industrial firms; (b) to assistCFP in building up a sounder resource base for its operations through 1982;(c) to further build up CFP's technical and operational capability forefficiently allocating scarce development funds and for coordinatingtechnical assistance to SSI; (d) to continue to support, through a widedistribution of CFP's onlending, the Government's industrial diversificationand regional development policies; and (e) to help to promote policiesresponsive to SSI's financial and technical assistance needs.
2.04 In connection with the third objective, agreement was reachedduring negotiations on a statement of CFP's technical assistance strategv. tobe implemented through annual technical assistance plans, which '.;ould, interalia, emphasize cooperation at the regional level between CFP and SENA(para. 5.13).
2.05 To further promote industrial decentralization, it was agreedduring negotiations that CFP shotuld present to the Bank a draft policy for
financing construction which should concentrate subloans more in areasoutside major cities and should emphasize the financing of productionfacilities. Permanent working capital expenditures were also financed underthe third loan, a feature which had been expressly excluded from the firstand second loans (para. 3.04). Of the aggregate amount of US$9.0 millionallocated for working capital financing, US$5.0 million was made availablefor production facilities located outside Bogota, Medellin or Cali and forSSIs with total assets not exceeding the equivalent of US$100,000 as of thesub-borrower's fiscal year immediately preceding its subloan application.
2.06 The socio-economic benefits resulting from the project wereexpected to be substantial.. It was estitrated that the project would provIde
financing to some 1,500 SMI enterprises for carrying out productiveinvestments and that it would create some 6,000 to 7,500 new direct jobs,with another 2,000 jobs created indirectly through forward and backwardlinkages. The average investment cost per job created as a result of theproJect was expected to be around US$11,000 (in 1976 prices). The financialrates of return on the investment projects financed under the third loan wereexpected to average between 15% and 20%, with the economic rates of returnestimated to be higher since the project was expected to generate substantialadditional employment.
2.07 The extent to which the appraisa ohjectti.es, inciuding thespecific institution-building objectives, were ech.eved is described andreviewed in Chapters 1V and V.
III. UTILIZATION OF LOAN PROCEEDS
Resource Transfer
3.01 Rate of Utilization. After a considerable delay in thecongressional approval of the loan, it became effective on July 9, 1981, 15months after Bonrd approval. The first Bank disbursement was made inSeptember 1981. Originally, the commitment and closing dates were December31, 1982 and June 30, 1983, respectively. However, partly as a result offoreign exchange rate fluctuations, some US$1.4 million equivalent remainedundisbursed, and it was necessary to extend both the commitment and closingdates twice to September 30, 1983 and March 30, 1984, respectively. Thisextension also reflected the banking system's additional liquid resourcesduring that time resulting from the freeing, by Banco de la Republica, of 10%of the commercial banks' "Encaje Marginal," thuis affecting the use of theloan proceeds.
3.02 After the initiial delay in declaring the loan effective,commitments and disbursements proceeded at a fast pace. As of March 30,1984, dishursenments were completed, except for the US$288,367 that wasfinally disbursed on November 1, 1984, and tie amount of US$1.3 million thatwas canceled, as of the same date. At this point, UIS$30.7 million had beendisbursed by the Hank, representinlg 96/- ot the original loan amrount (Annex 2),
3.03 CFP's credit operations in 1982 considerably suirpassed those of1981, with 3,153 subloans, totaling CoIS 4,341 million, approved in 1982, ascompared to 2,322 operations for ColS 3,074 million in 1981. However, durinlgthe first ser,ester of 1983, the trend was reversed; at this point, only 1,052subloans were approved for a total amount of Col$ 1,482 million, down to 3.2%and 0.bY, respectivelv, from the first semester of 1982. As of year-end1983, the loan procQteds were committed at CFP level, and the Bank was at thattime co,isidering a new loan. Meanwhile, the Bank agreed with BR for CFP toparticipate in the Eighth Development Finanice Companies Project (Loan1857-CO), applying to CFP the dishursement percentages set up for small-scaleenterprise financing under the third SSI project. Out of the proceeds ofLoan 1857-Co, CFP used a total of LUS$846,000 to finance 15 subprojects.
3.()4 Loan Components. The loan p,roceeds were intended to assist CFP infinancing investment credits and technical assistance subloans, as follows:(a) USS13.2 million for lending to firms with less than US$300,000 equivalentin total assets, with Up to US$2.0 million of this amount available tofinance permanent working capital; (b) USS13.2 million for lending toenterprises with less than UIS$650,000( equivalent in total assets, with up toLUS$2.0 million of this amournt available to finance permanent working capital;(c) US$5.0 million to finance the permanent working capital requirements ofinvestment enterprises with production facilities located outside themetropolitan areas of Bogota, Cali and Medellin, and with less than,USSiOn,('0 equiivalent in total assets; and (d) !'SS600,(')000 for technicalassistance, in( liding USS12i() for (FP to help finance consulting servicesrelated to institutional development and continuation of the ongoingcomputerizatio,n of th,-e information ~;vstem.
1. 5 4 i gina I li , the r,im of 11 ci edit (-uonfn t s represented 98Y' of theloan. ' artjcnt. However, ;cme adjcistmenets were ma,l; cinder the various loan
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components during implementation of the project. The total allocation forthe credit component for firms with less than US$300,000 equivalent in totalassets was increased from US$13.2 million to US$23.5 million. The additionalresources came from the corresponding reductions in the credit components forfirms with total assets between US$300,000 and US$650,000 equivalent and the"free-standing" permanent working capital, from US$13.2 million to US$6.2million and from US$5.0 million to US$1.7 million, respectively. Thetechnical assistance component was also adjusted to increase the allocationfor CFP's computer equipment from US$100,000 to US$360,000, leavingUS$24O,000 for technical assistance subloans. The reallocation of a total ofUSS10.3 million to the credit component for smaller enterprises shows agreater-than-expected impact of the project, reaching the intended targetgroup of smaller enterprises. The above reallocations were authorized by the
Bank at the request of BR and CFP.
Characteristics of Lending
3.C)6 CFP financed, through the Bank's three SS loans, ahout 2,30(subprojects, of whlich 1,270 (55%) represent the share of the loan underreview. This reflects the incremental trend in CFP's SMI financing withBlank sulpport, as well, as the favorable impact of the project within the SMI
stuhsecrtor. The 1,270) suhprojects financed under the loan for a total ofColS 2,174 milliorn represented abotut 12% of the 10,494 subprojects approvedby CFP durinig project execution, arnd 22% of the Co1$ I U,04() milliorn CFP'stotal lending. In general terms, the original loan targets were almostreached since the Bank subloaris provicied term financing for 1,27(0suhprojects, as compared with the appraisal estimate of around 1,500(Annex 3).
3.X7 Stiblnan Size and Maturities. The average subloan size of aro,lt
U'5'24,( ()h,! slightly exceeded the appraisal estimate of US$22, 000. Oit oithe I ,270 subloanis approved, only 36 were over the US$100,000 free limitestablished tinder the loan. About 66.67 of the subloans were helowl' 5i S .", 00()
3.08 One of the project objectives was to provide credit to help a groupthat genera11v has inadequate access to term financing. In this regard, ofthe 1,27(0 suibprojects financed, only 1.4% were approved under the maturityrange (of one to two vears. On the other hand, only 5% of the subprojects
benefited from longer periods of over six years. The bulk of subprojects(71(%) have maturity terms mostly concentrated within a period of three tofive years, which, for small credits, could be considered adequate. However,1.5;% of the subloans were provided with less than three years of maturity,which contributed to difficulties in subloan repayment (paras. 4.04 and
5.10). CFP claimed that there is a reluctance on the part of small-scaleentrepreneurs to incur long-term debt. The results are basically similar tothose obtained under the two previous Bank loans. In response to the Bank's
recommnendation, CFP is paying more attention to stubprojects' repaymentcapacity analsis. Improvements in the adequacy of the maturities and graceperiods o, CFP credits are expected under the ongoing Bank loan (2464-CO).
E sEtimated at (colS 71.!9 per 1sS, representing the a'verage exchange rste
tor the periocd 1d9ur-io8 , do rIng which thet hulk lof subloan commitmnen tswere made.
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3.09 Subproject Characteristics. The total cost of the third SSIproject amounted to Col$ 4,218 million or US$72.2 million,7 / as compared tothe US$83.0 million estimated at appraisal (Annex 4). The average total costper project amounted to US$56,850 equivalent, which is in line with theappraisal estimate. The Bank's participation in total project cost amountedto 42.6%, as compared to the original forecast of 38.60, because of domesticcurrency resource constraints experienced during the project execution(para. 4.09). With the exception of CFP, the contribution of other localsources of funds was less than expected. Such other local lending sources,including institutions and extra-bank market, contributed only about 15.6% ofthe total project cost, as compared to 22.9% expected; sub-borrowerscontrihuted 27.6% versus the estimated 28.9%; and CFP contributed 14.2%, asopposed to the 9.6% estimated. Of the total project cost, 56.1% was forfixed asset investments, which is higher compared to the 49.9% appraisalestimate; on the other hand, for the working capital needs, it was 42.2%versus 49.4% appraisal estimate.
3.10 Subloans approved for machinery and equipment represented 47.6% oftotal subloans and 65.8% of total financing. In terms of subproject number,the working capital category comes second in importance, with 429subprojects, equivalent to 33.8% of the tota'. In monetary terms, however,it represented only 15% of the loan proceeds versus 28% appraisal estimate.About US$0.15 million were used to finance 26 technical assistancesubprojects, accotinting for (.5% of total loan amount. About 50% of thetechnical assistance subprojects were for accounting and administrativeassistance, 25% for assistance related to prodtuction processes and thebalance for technical assistance regarding marketing, financial managemnenltand organization. Industrial constrtuction expen(ditures accouinted for 16.8,/of the total financing under the loan, as compared to 37% under the secondloan. This decrease in construction financing resulted partly from CFP's newpolicy for industrial construction financing, which was started under thethird loan (para 5.Ofl.8/
3.11 The project appraisal recognized the limited export capacity o, thezColombian SMI subsector, and estimated 10% of the financed subprojects toproduce for the external market. However, the hutlk of the subprojectsapproved gear their production toward the local market, while only sixenterprises are producing for exports. SSIs need to be encoturaged to makesome efforts to orient their output toward foreiga markets. Out of the 1,27t0enterprises assisted with Bank f,,nds, 801.5% were existing firms and theremaining 19.5% (representing 24% of total loan amount) were newlyestablished firms, which exceeded the 10% appraisal estimate. It alsoexceeded considerably the results achieved regarding the number of firms andthe amount of funds channeled to those enterprises under the two previouis S'Slloans. Since the first SSI loan, CFP has increased its focus on newenterprises, assisting 70 new firms, i.e. over 10% of the total population,
7/ At prices and exchange rates of the corresponding years for subpro'je,approva I.
U/ Up to 9 0% of co nstrlc t i on costs tor pro(du ctive pitrposes andi n n more than20% of the constructi on costs for off ce constric tion. c a- he f i rianc edwith CFF fu,nds. In subpro,ects tc be estahIisohed In R, io Ncgr,, Indulstria1park, the raxitrnumur financing is 7% of the s u pro ect (ost.
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accounting for 7.5% of the total loan amount, from less than 4% and a littleover 5%, respectively, under the first SSI loan.
3.12 Sub-borrower Characteristics. A wide range of industries havebenefited from the project, but none of the industrial subsectors representmore than 20% of the subloans. Food and beverages is the most benefited,with 244 credits (19.2%) of the total subloans. The remaining 80-0% isdistributed to 12 subsectors: paper and printing, 10.6%; metallic products,10.5%; apparel and footwear, 9.7%; wood and furniture 9.4%;, and others withsmaller participation. With the exception of food and beverages whichreceived 20.4% of the total financing, none of the other subsectors receivedmore than 11.4%, which is well in line with expectaticns. About 70% of theassisted enterprises have less than three owners/shareholders, wY-le about65% have total assets below Col$ 5.0 million (around US$70,000); 79%employed fewer than 20 people, and only 10 firms have had more than 100employees. In terms of both size of firm and number of employees, the impactof the project is favorable since the figures are far below the nationalparameters established to define SMI enterprises (assets of no more than Col$100.0 million and workers numbering up to 150).
3.13 Industrial Decentralization. Given the expected wide geographicaldistribution of sub-borrowers, the prcject was also aimed at supportingGovernment policies to decentralize industrial growth. The geographicaldispersion of Bank-assisted enterprises has been in line with expectations,with 854 subprojects (67.21 of the total) accounting for firms locatedoutside the most industriailied departments of Cundinamarca, Antioquia, andValle. These subprojects represent 60 of total financing, as compared to501 appraisal estimate.
Impact of Subprojects
3.14 Emplcynent qeneraticn and Investment Cost per Jot. Bcth theemployment creaticn and the average ?apital, (cost per job created met theexpectations. 'he 1,270 subprojects financed under the loans were expectedto create about 6,100 new direct jobs, with an average expected 4.9 new ',bsper subproject and an average investment cost per job created ofUJS$11 ,800, as compared rs the GS$1 1 ,)00 estimated at aTpraisa! and theUJS$13,500 uinder the seeonid SSI project.
3.15 The results of a survey of 127 Bank-assisted enterprises (including32 new enterprises) conducted by rFP are shown ,n Annexes 5, 6 and 7. Thesurvey shows that employment grew by 71 .5t for Ire small sub-borrowers withtotal assets below 'US$300,000, and by v for firms with total assetsbetween US$300,000 and US$650,00. It also shows a relatively small increasein investment cost per job with the increasing size of the enterprise, from1TS$6,956 to US$7,q75, which, based on the two previous Bank's loans isnormal9 / (Annex 6). The increased capacity of the larger firms to createnew jobs, as compared to the results of the seccnd SSI loan, was due tc acincrement in productivity, usinR their current rr;duct.on capkzcity at hizherlevels with a small 5 finAnc1a' asistx3nce qand cr-Ati4ng a significant nrumber of
4l nnder the two revicus Uink cans, the c_3t ;er .- yeneate,d h the
small firms is wowec th f that F 'er eratei 'V 7acge: fi. . This vout ,^Is in ?re with the rds .ct tve nar t iWl. aIrnr,etecr.
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new jobs. Wide variations, however, can be observed across differentsubsectors. Basic metals show an Pmployment growth of a high 304.4%, whilenon-metallic minerals show a negative employment growth. High employmentgrowth is also evident in leather goods and textile industry, which was oneof the activities expected by the Government to help recover economicgrowth. The investment cost per job in these sectors averaged aboutUS$5,(00.
3.16 Sales Growth and Increase in Productivity Ba-ed upon the resultsof the above survey, the average sub-borrower's annual sales duringsubproject implementation grew by 53.0%10/ in real terms, and the relativelylarger enterprises (over US$300,000 in total assets) show an average salesgrowth of 55.6% (Annex 7). Both results compare favorably with the Bank'sexpectations. In this respect, the preceding loan (1451-CO) had 24% and15.2% in real terms, respectively. The above results were stimulated by theGovernment's measures enforced in early 1983 to halt the recessional period,showing a considerable increase in sales vis-a-vis the subprojects' originalestimates. However, there are wide differences among the various subsectors,with basic retals showing, the highest sales growth in real terms of 514.3%.Satisfactory sales performance is also evident for the average subptojects inleather goods and chemical products, while food and beverages as well astransport materials show a rather Modest sales performance. However, theseresults comrare favorably with the results under the second SSI loan, andreflect the reeovery of the Colombian economy during 1983 to 1985.
3.17 The average labor productivity (sales per worker) growthincreased bv 2().8,Z, which exceeded the labor productivity results (9%) underthe provi.ous project. The productivity growth is considerably higher forsiib-hurrower; with total assets between US$300,n00 and US$650,00() than forfirms with total assets not exceeding US$300,000 (24.9% and 3.4%respertivelv), Durinig the recession, some of the larger firnms reduced theirwoitz force and expanded their production through complementary equipment.11nder an improving investinent climate, these same enterprises keep the samelabor force and make new investments for plant modernization. On the otherhand, while capital productivity (sales per dollar value of assets) for smallsuh-borrowers increased by 7.9', it decreased by 14.4% for largersubprojects. Since our estimate for capital productivity is not adjusted forcapacity utilization, the overall decrease in capital productivity impliesthat the rate of capacity utilization may have decreased over the two-yearperiod. The entrepreneurs prohably huilt capacity ahead of demand or theexpected growth was not fully reali7ed withini the two-year period under
review. An increase in capital produictivity was achieved for only foursub-sectors. For the average sub-borrower in the electrical machinerysub-sector, sapital productivity increased by 3.2,,, in leather goodssubsector by 44.9%, in basic metals subsector by 68.3% and in non-electricalmachinery by 29.3%°. These subsectors also experienced tremendaus salesgrowth (25.li %, 127.6;., 514.3% and 62.52, respectively) and succeeded insubstantiallv !ncreaslna their employment (22.57, 92.h", 304.5% ani 11.7/,rospectivelv) at a low investertne cost per iob, averaging ahout US$5,100.
I/ Ba!e on t he difterenciv betweer. po-,t -suhprol( 1t ar-d pre-suhpro ie,trnTl saies in Co l omb ian pes(c' ,t an ych-anve rate uf. f I (
-io i t- e rre snt in, the PaeraF e f (r 1I 8-!98 .
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Current Status of Selected Subprojects
3.18 Based upon the above results of the survey of a sample of 127subprojects undertaken by CFP, the overall performance of the subprojectsfinanced under the loan can be considered satisfactory. To further gauge theactual impact of the loan, the mission visited a randomly-selected sample of19 enterprises (Annex 8). Eight of these subprojects are now expariencingproduction/sales problems and/or working capital shortage. The 1984-1985financial statement3 of this sample of 19 subprojects indicate that 10 havetight liquidity position. CFP, which has identified these problems duringits latest supervision visits, has helped these enterprises by eitherrefinancing their subloans or providing working capital financing. Inaddition to financial assistance, over 10 of these enterprises requiretechnical assistance in various areas, including organization, production,marketing and accounting. Only one of these enterprises has received asubloan for technical assistance in production and four have receivedtechnical assistance in administration, project preparation, production andmarketing. This shows that, while CFP has continued to increase itstechnical assistance activities, greater focus is placed on the financialneeds of client enterprises. The recent coordinated efforts to identify thetechnical assistance needs of SMIs, under the Government's national technicalassistance plan for SMI, should complement CFP's efforts in this respect(para 5.16).
IV. INSTITUTIONAL DEVELOPNENT
4.01 As mentioned earlier, much of the data and analyses of CFP'sinstitutional development as well as operational and financial performanceduring most of the period covered by the loan under review (1979-1983) areavailable in the Completion Report on the second SSI loan and the AppraisalReport on the fourth SSI loan. This chapter and the one followingconcentrate mainly upon those aspects about which the Bank expressed concernin the appraisal report or during the course of project implementation,bringing some institutional aspects up to date in line with CFP's ActionProgram for 1984-1987, aimed at strengthening CFP's institutional andorganizational aspects, which was agreed upon with the Bank under the fourthSS1 loan.
Management, Staffing and Organization
4.02 In line with discussions between the Bank and CFP under previousBank loans, CFP's Board of Directors has continued to delegate increasingauthority to CFP's management in carrying out its lending operations, whilefocusi%g upon financial, trade, investment, technical assistance and otherpolicy matters. It was also the Bank's intention, under the loan, toconcentrate its efforts more upon external issues, and to have CFP continuethe internal development of the institution, with only occasional advisoryassistance from the Bank. Between July 1978 and March 1981, CFP was alsoassisted by a US$300,000, 30-month UNDP project in a wide range ofinstitutional aspects, including subproject appraisal and supervision as well
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as information system.ll/ However, CFP's top management underwent frequentchanges during 1979-1985, which affected the overall institutionaldevelopment of CFP. A general manager, who had been appointed in September1978, moved the institution toward greater cost-consciousness andprofitability, halted staff turnover and improved staff morale. However,because of differences of opinion with the Minister of Economic Development,he resigned in October 1981 and another manager was appointed in December ofthat year. Differences of opinion soon emerged between the new generalmanager, who espoused an ambitious program of CFP involvement in industrialparks, and staff at different levels, affecting the institutional performancein 1982.By early 1983, however, another general manager was appointed whosucceeded in maintaining a satisfactory institutional working environment andrelationship with CFP's staff.12/ He also agreed with the Bank on limitingconsiderably any CFP involvement in industrial parks.
4.03 Since 1975, CFP has maintained 14 regional offices to support theGovernmertt's industrialization policy, adding three promotional offices(Popayan, Florencia and Villavicencio) in 1983. During 1984, anotherpromotional office (Cundinamarca) was added, ai,d the Popayan promotionaloffice was upgraded to a regular regional office. During the same year,given CFP's increasing involvement with micro-enterprises, a new Departmentof Micro-Enterprises was established under the "Subgerencia de Operaciones."However, while CFP's total staff has been relatively stable during the periodunder review, there has been a continued concentration of staff in theheadquarters. During project implementation, the Bank continued insistingupon the need to achieve a better balance between headquarters and regionaloffice staffing in order to obtain a more rapid operational growth at lowerunit cost. CFP succeeded only in reducing the relative share of itsheadquarters staff from 45.5% in 1979 to 41.4% in 1983 and 39.5% in 1984.Agreement was reached between the Bank and CFP during negotiations of thefourth SSI loan on general guidelines for a CFP reorganization study and onan action plan to strengthen the operating capabilities of its regionaloffices as part of the overall 1984-1987 Action Program.13/ With theimplementation of the reorganization study, sonie regional-offices havestarted to improve their operating efficiency.
11/ The UNDP-financed and UNIDO-executed technical assistance program wasdesigned to strengthen its capabilities, providing experts incooperatives, marketing, subproject appraisal and supervision, financialsystems, industrial parks and information systems. However, because ofproblems during the implementation stage, the end result of the programwas modest compared to initial expectations.
12/ CFP's General Manager changed again as of October 1985. It is too earlyto predict the impact of this change.
13/ In line with the reorganization study included in the Action Program,CFP issued, in 1985, a "Manual de Funciones," based upon a review during1984 of the functions of all staff in the headquarters and the regionaloffices.
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Systems and Procedures
4.04 Loan Approval and Supervision. The Bank has continued toencourage CFP to make an important contribution to efficient resourceallocation through sound evaluation of investment proposals. As indicatedearlier, a UNDP-financed UNIDO-executed technical assistance program carriedout between July 1978 and March 1981 also assisted CFP in strengthening itsappraisal and supervision capabilities. The evaluation of subprojects hasbeen strengthened further by the preparation of a new credit manual andappraisal guidelines, which was a condition for effectiveness of the thirdSSI loan. The appraisal work of CHP has gained in depth and coverage;however, some deficiencies still remain in subproject appraisals,particularly in market and repayment capacity analysis of subprojects and/orenterprises, the latter contributing to CFP's arrears problems (para. 5.10).These deficiencies were identified under the third loan and further addressedunder the ongoing fourth SSI loan. The average subproject processing timewas about four to five months, from subproject preparation to firstdisbursement.14/
4.05 CFP's supervisioni capabilities have improved through thesuccesslve Bank loans. Under the third SSI loan, CFP introduced a moreeffective supervision and followup system: (a) control of investment,following the last disbursement of subloan; (b) followup on individualsubprojects at least once a year; and (c) supervision of subloans inarrears. However, the quality of supervision activities started todeteriorate in 1982, with a decline in the nuLmber of annual supervisionvisits from 52% of CFP's total. clients in 1981 to 33% in 1983 and 37% in1984. This situation was caused partly by CFP's focus, during 1982, onlending to industrial parks and partly because of staff constraints inregional offices and lack of headquarters' control over regional managers'supervisory activities. Inadequate supervision activities contributed toaccumulation of new arrears, and negate the efforts of CFP in debt recovery(para. 5.10). During the second half of 1983, CFP reassigned eightadditional staff to improve its supervision work, and established theRegional Supervision Committees, which have responsibility for m)nthly
reviews of supervision work and recommendation of action to be taken. Theimplementation of CFP's 1984-1987 Action Plan should further strengthen CFP'ssupervision procedures.
4.06 Information Systems. The information requlred by the Bank in theform of periodic reports on CFP's financial and operational performance tinderthe successive SSI loans has been useful in improving the quality and scopeof statistical information on CFP's operations. While CFP has startedcomputerizing most of its accounting and statistical reports as early as1980, its electronic data processing system needs further strengthening toimprove, particularly, portfolio management anid appraisal capabilities ofregional offices. Tn this regard, the Bank, during the execution of theloan, insisted upon the introduction of a monitoring system to make the
14/ A recent analysis of CEP's suhprolect prc_.Fsing time undertaken hvACOPI shows that it takes, cn average, a total of 165 days t:, process asubloanl, as follows 52.5 for subproject preparation, another 92.5 daysto establish the guarantee, 37.5 for r7FP's subproject approval and .22.5days for BR tn effect disbursements.
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status and results of subprojects financed readily available. The lack ofdetailed information about a firm's financial position and viability, as wellas the absence of an effective client and loan monitoring system, wasidentified as one of the main reasons for the deteriorating quality of CFP'sportfolio (para. 5.10). As provided in its 1984-1987 Action Program, CFP, in1985, has started preparing a study of its el-eztronic data processingrequirements. The data processing equipment financed under the third SSIloan in 1984 would be complemented by computer terminals for regional officesto be finarnced undier the cechnical assistance component of the fourth SSTloan. These comptuter terminals are expected to strenRgthen and enhance CFP'sinfvrmation systerm with updated portfolio information and to expeditesubproject ap.)praisal process.
4.0r7 Accounting Svstem and Procedures. CFP has continued to mAintainsatisfactory records of its operational and finacncial situation, includingthe separate accounts kept for the loan, as well as the relevantdIocumentation supporting disb:irsement applicatioris processed under thestatement of e-xpenditure (SOE1) procedure. PTxce)t f'or its 1tAX financial3tatements, which were nudited by Deloitte liaskins 1 2ells, CFP's accountshave been audited over the past several years by Liborio ruellar & Asociados,ni reputahle Co Lombian suditi-ig ;'irrn. Notwithstanding qcsme two t.o threemonths' idlav in thelr submission, the quStality of' RFP' a auidit reports hiuoheen cons .;tua d . CEF' s accounting prucedures and auditingcrrangeme.t.s have been found satisfacto,ry. However, the audit report onC`'sP 1984 finhnc-ial asaternents expressed reservaticns on the adequacy of thep%rovisiQn fo2r l.o-Ases Oil lcans, but recugnized' that it waf in line with thene-w p;.ic y .F2lomi' u superintendency osf 9ririks *,n ouhbtful Sreo;unts with
rea-s,i%ui r e'oa~e 'teP enoUtron S
Tn liie with orne of the- lGar.s mai.n ;bj teriv es to assist CFP inDut liip nup a F.t slrndr reseource base for its cneraticrs through 19F, the'.;vernment 4 1.lfi lIed i ts crrmi tinent t.; make qavl 2. 1abT incremental a1sr
re so,u rceS to SEPP. During this three-vear period, PFP received domesticreoource.: for C'zIS 2,1 Ibillion, which was h gher tharn the col$ 1.? billiinre (uired, aas fol1vws: Ia Cw t. 1 ,'i; mi llin from c Fim : F b ) Colv$ 334 millionfrom IFT; ind (c 'e' (o.i ? million from the 5overnment, of which Pcl$ IPO.r?m-4illionI wa.s p;ai-i-n capital.
4.19 W';i ' F CP, throughout proet implmeientaticn, was able to
mnobilize adequate resources to support the credit demand of SMIs, the Bank,reoogni,isig the adverse impacts of short-tern, widely fluctuating resourceavailability, recommended that CFP should seek non-traditi3n,l, permanentso;urces cf lWcal funds to; ce,mplement th-e funlds (obtained fro;m FYFI and PROE.XP),which are still the principal sources of local borrowing f'or PEP's lendingprograms. 'hev represented albout Q(3 of otfta loScal financlial resourcesduring the period 1179-1933 (Annex '." ̀5 Y',ring the same period, the Bank
rontinual t he !-e naj,;r .se,3irce .f long 7-term. external funds, representinre'bont ~t of totaL foreign rpscuresa, 'f' providel t.he remainirqg ?" and )."'
c3v' liia finds. A' a -. t , O:icr tr e ;i> zatior of
T|L- rr;t - v r ,re i , rvrg e s t ii' 41t,l ;rn Pr ne- ,i
ru - F. -AV>' Sn Si Vw tb g .Ir ?i' ! ' W;ev s1'-4- _ ;.,-7 A.t>9r2ar
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domestic resources (possibly via passbook savings) by CFP, the Bankintroduced, under the fourth SSI loan, an onlending interest rate system,consisting of two components, one at a fixed rate and the other at a variablerate.eInterest Rates
4.10 CFP's onlending interest rates hAve differed among themselvesdepending on the source of funds used to finance a particular subproject(para. 4.12). The interest rate has been fixed more in line with lendingdevelopment purposes than with CFP's resource mobilization. Given thisvariation in CFP's onlending rates under its several credit lines, the Bankrecommended, during project preparation, a review of CFP's interest ratepolicy to make it more compatible with the effective interest rate structurein Colombia.
4.11 Through the second SSI loan, the 24% p.a. nominal interest rateon subloans (almost 27% p.a. effective), was above the inflation rate most ofthe time. During the negotiation of the third SSI loan, expectations werethat inflation could rise from 24% to 28%. CFP admitted that a situationcould occur wherein a rate of 24% would no longer be advisable, particularlyif rates on other lines would change, and acknowledged the advisability of aninterest rate review mechanism. It was, therefore, agreed to establish a 26%per annum nominal interest rate for fixed assets and working capital and 15%per annum for technical assistance subloans. The nominal 26% p.a. interestrate was collected quarterly In advance, resulting in an effective rate ofabout 30% p.a.. It was also agreed to review, twice a year, the adequacy ofthe annual nominal interest rate on subloans in order to maintain it at apositive level with regard to inflation in Colombia. The onlending interestrate of 26% was maintained throughout project implementation.
4.12 The following table shows the evolLtion of CFP's onlending ratesunder its most impo-tant credit lines vis-a-vis commercial banks' interestrates and inflation.
1982 1983 1984
Loan 1834-CO 26% 26% 26%
CrP's Other Lines:
(a) Production Credits N/A 26% 26%
(b) Artisan and Micro-enterprise Credits N/A 22% 22%
(c) Financial Industrial Fund (FFT)
(i) Enterprises in big cities 26% 26% 26%(ii) Enterprises in small cities 24% 24% 24%
(d) PROEXPO 17% 18% 18%
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Commercial Banks 39% 38% 35%
Inflation Rate 24.0% 16.6% 18.3%
Source: CFP
The interest rate under the loan was lower than the lending interest ratesapplied by commercial banks and was kept in line with CkP's irnterest ratesunder other credit lines. With inflation down to 16.6% in 1983 and 18.3% in1984, from 24% in 1982, the nominal onlending rate of 26% p.a. (about 30%p.a. effective due to payment of interest in advance) under the loan wasmaintained at a very positive level with regard to inflation. It is,however, below the commercial banks' rate.
4.13 The above interest rate review mechanism has been continued
through the subsequent loan, with some modification.16/
V. OPERATIONAL AND FINANCIAL PERFORIIANCE
Operations
5.01 Consistent with the ohJective of Lhe second SSI project, CFPreviewed its policies and operations under the third SSI project. At thetime of project appraisal and negotiations, the Bank felt that a clearerpolicy on CFP's construction subprojects was needed. In the past, severa]subloans financed mainly materials and 'Inventory storage space for theenterprise involved. While the construction was clearly justified in termsof improving the financial performance of the firm, the subloans, in some
cases, did not result directly in increases of output or employmelnt. As acondition for loan effectiveness, CFP proqented a policy statement onlconstruction financing which, inter alia, directed such financing into areasoutside Colombia's main cities and emphasized the financing of buildings andfacilities intended for production activities. During the period underreview, CFP also 'increased the maximum total assets of enterr.rises eligiblefor financing by CFP from Col$ 35.0 million to Col$ 60.0 million, which wouldbe applicable only to FFI and CFP's own funds. The Bank agreed to theincrease given that (a) the Col$ 35.0 million limit had been maintained since1973, while the average inflation rate over the period had been about 25% perannum; (b) CFP needed to compensate its higher operating costs for lending tothe very small-scale enterprises; (c) some entrenreneurs graduated from CFP
16/ Under the fourth SSI loan, the Bank introduced an onlending interestrate system, consisting of two parts: (a) 15% of the subloan bearsinterest at the rate for 90-day certificates of deposit (CDTs), at such
rates established through an index calculated and published by BR, plus3 percentage points during each 90-day interest payment period; and (b)85% of the principal financed bears interest rate at a fixed rate whichis reviewed semi-annually by the Bank with BR and CFP to maintain a ratethat is compatible with other local term interest rates and positive inreal terms.
- 16 -
were still toc small to be financed by commercial banks/financieras; and(d) FFI increased the limit of eligible enterprises' total assets to US$60.0million from 1977.
5.02 Another important development during the c:;urse of projectimplementation w&s the establishment in 1981 of a guarantee fund called"Fondo Nacicnal de Oarantias" (FNG), by IFi and CFP. FNG guarantees loans tosmall manufacturing and mining firms. In addition to IFI and CFP, the othershareholders are PROEXPO, CARBON0ORTE, CARBOCOI and ACOPI. FNG, which starterioperations in 1982, guarantees up to 1001 of the subloans approved by afinancial intermediary. As of October 1985, it had approved 839 guaranteecertificates, totaling Ccl$ 625.4 million for subprojects which were expectedto generate 2,875 new jobs and establish 418 new enterprises. CFP subloansrepresented more than two-thirds of all these operatiorns. CFP has received atotal of 117 payments, amounting to Ccl$ 38.0 million, on guaranteecertificates issued by FNG.
5.(7! v'easured against the projections made at the time of appraisal,CFP met the expectaticns regarding the growth of its lending operations, withcommitments and disbursements, during 1979-19P7, showing annrual orowth ratesof' ahuut ?6f and 25,9 in nominal terms, respectively (Annex 1(). CFP lendinpcorntinued tc be widely dispersel geographically and over industria]subsecto,rs, reaching the intended target of smaller enterprises. However,whi e the number of subpro aicts financed grew by 89T between 1Q71 arnid ;98?,when 3, i subloans were approve], it fell to 7,0091 in 1983. Notwithstandirvthis iecrea-s,Ing trenl in CFP's overall lendling in 1Q83, the share of worKioiacapitas lending in Cv 's total portfolio ir.creased frcm 61' in 1977 to 77t r;I '-. his sitUstion reisulte.i frcrm the ccuntr.v's detericrating economiccrl3.t o Thring the period.
4.;/ 'pecial Prcgrams. n ai3diticrn to its regular lending programs,'?-FP aS engaged .n somre speciaelize , lendine operations during the course ofpro,je-n -LmTlemeritation. 5FF estbr-lishei, in 1 7'8, the Special Artisan 'redi t7r;9,oram c, finance mostlv wocrking capItal. requirements of very smail firmsoocated outside the areas of influence of Bogcota, Medellin snd rali. i FP
earmarked ru-bloari funds under previous Bank lcans and some specific localresouirces I: r the -rogran. '!nder the thir' SIL loan, a working capitRlcompoinent of U"$).Oc million was allccated for the program. However, of thisenmcint, nirly a total of "S$1.7 milllicr was u.sed since CFP used mostly its owr,and FFI fund,s for this purpose. During the periol 19"q-1984, Ccl$ 149-.m,illicn was lent under the projgram, about 74% o which made irn 1Q837-19tl4,reflecting the financ stl difficulties f;a c ' lients. In 198Q9, CFPintro%duced arnotXther special program to; rsaist thcse SIL clients with liquidity
trorl ems.
'wc cther sreciI prcrgams financedl ty the 3ovErnment are beincd,r.inistew'd V OF. They ' " recn .vely, rii nrt- tnre"'' p'es : se vera.
9eco,rIda r, I ie..t an d arnestie p'c it ica a Ptivi enss r ,v t.ng tire smen:(!;-.dit.. '.i: Sl rrn :nj r:.i'.~r . ti-se r_rr!:.S iS eXr'er '?V
7 r -i?rA t%lt}; ip i . xwer.,.-e ; 'ro P i tv . ?tPI' i e. . t. -.f
g jts nw r *W ' r, m srI ,, '.i:" t 'nlnng for the. t. t ,Fr' +,
*:><l e. .ff l-n%.^ , ., ir4rr an f r m a''jn "rrir P. n 1 '. :
% .,J *1W ;t-o..1* ;:¢i..: -- vs e .!'+i
- 17 -
5.06 Micro-Enterprise Financing. An important new development duringthe implementation of the project was CFP's financial involvement withprivate foundations and micro-enterprises (MEs), representing very smallfirms in the informal sector of the economy. CFP's credit lines for thispurpose, introduced in 1982 with some Bank financing, included workingcapital and fixed asset financing to firms with less than 15 employees andIJS$25,000 equivalent in total assets. CFP's lending to MEs under its variouslines of credit increased considerably from Col$ 40.7 million in 1979 to Col$259.9 million in 1983 and Col$ 436.5 million in 1985.18/ Between 1979 and1985, it approved 7,670 ME subprojects, totaling US$1,089.5 million. In1984, a revolving fund ("Fondo Rotatorio") was established in CFP (theNaticnal Planning Department (NPD) and CFP contributed equial amountsof Col$40.0 million) to provide financial assistance to the foundations for theirtechnicql. assistance programs for MEs. The fund has benefited 8,635 MEswhich have received training in accounting and project preparation.
Financial Position and Results
5.07 During the appraisal of the project, the Bank had expressedconcern about the effect of the Monetary Board's Resolution 65 upon CFP'sfinancisl soundness. Resolution 65 required all Colombian "financieras",including CFP, to use no less than 10% of their assets in equity investmentsor in FF' bGnds. The Bank had intimated to the Government its desire toprotett ('FP from the undesirable effects of Resolution 65. Given CFPI9 low:r,;fitability (due in part to its specialization in SSI), the revenue losses
,ind capital loss risks resulting from Resolution 65 requirements seriouslyendarn.erei 2FPs9 f.inancial structure and operations. Tn December 1979, theMonetriry Pcqrd modified Resolution 6f5 in a wav that virtually exempts CFP
nehrefr-m tfr the foreseeabJe future.
.71. The 19Th-1984 financial staterLentg, with key finaneial-. ~cnl o rat(, CI' CFP are shown in Annexes 11-13. At the time of projectpr+ra.s, ̂FP's dect'eq-uity ratio was projecte(d to be well. within the 5.5:1
c>iling over the nexn five vears, which was the debt/equity limit agreed uporbetweei tine Bank alnd CFP since 1977. The Bank, hcwerer, recognizing the4ncreasing proportion of long-term bcrrowing by CFP and in order to allowsomo flexibility, relaxed CFP's debt/equity iimit to 6:1 under the thirdjoan. 'he same ratio has been maintained under the fourth SSI loan. TheGoverVment equ.ty contribution, as iequired under the loan, kept CFP's4eit'equity ratio substantially below the maxinum ceiling of 6.0:1 during theimplementation cf the loan (being at all times below 5.5:1). The ceiling onshcrt-term loarns of two times equity, which was required under the seccnd S3Ilcan to oheck a possible rapid growth in short-term lending, was notcor.sdered necessary under the third SSI loan, and CFP has since8'e-ernplhasie: i.ts rcle as a term-lerning institution.
n n '. ct ,,e iin ctF st ef Lendi;ng t. sRs rnd the satisfa tory-erf)rrlarce of private fouindations, the Bank, uin(der the fourth SSI loan,
Ai:ereeiment e:tn the 'overrnmpnt Rnd 'FP, limited CFP7r's 1irect lendingtC -n . thrPn 27 f r1' anrioa lending dluring l cqP4-1' 97
-xra:>;ng 2Fp * cF n Pent-atr st ma:- ORO1.stnince ui-cn 4nst'.tutions wh`-Y.c Iss'L':P tF.e cred1it rLsk qri/'or aiminietrativr cAst. of len1ine
v i st ie, ,r n q .i anagemer)t en 4 .serv sinr .
- 18 -
5.09 As projected during appraisal of the third SSI project. thegrowth rate of income started to decline after 1979 as CFP's debt/equityratio and its average cost of funds gradually rose. The cost of borrowingsshowed an increasing trend since 1979 when the financial margin as apercentage of portfolio was decreasing. During project preparation andappraisal, the Bank asked CFP to review its interest rate policy, taking intoaccount increases in its cost of borrowing and the overall interest ratestructure in Colombia. Profits also did not compensate for the erosion ofCFP's equity by inflation during 1979-1983, and the net income/equity ratiodeclined from 7.4% in 1979 to 2.7% in 1983. However, low leverage, expensesof other programs and CFP's inability to maintain the value of its equity inreal terms through profits are made up, to some extent, by periodic increasesin equity by the Government.
Portfolio Quality
5.10 Notwithstanding iEs dynamic growth, the quality of CFP'sportfolio improved consistently through 1982, with portfolio affected byarrears amounting to 12% of the total loan portfolio, compared with 20% whenthe Bank made its first loan in 1975. However, a serious reversal occurredin 1983, with arrears affecting 17.3% of the total portfolio by the end ofthe year (Annex 14). Concerned with the increasing arrears, CFP, in thatyear, prepared a detailed analysis of its portfolio based upon a survey of1,611 clients who were in arrears, indicating the main causes for thedeterioration and making some recommendations to reverse the unfavorabletrend. The main reasons for this situation, in addition to the economicrecession and financial difficulties affecting sub-borrowers, were inadequatesubproject repayment analysis and portfolio supervision by CFP and laxcollection procedures. As initial steps to solve the problem, CFP, duringthe second half of 1983, (a) established a special credit program (US$2.5million equivalent) to assist those enterprises with liquidity problems whoseoperations are financially sound and viable; (b) started to strengthen itssubproject supervision activities by increasing the number of supervisionvisits, intensifying their scope and setting up regional supervisioncommittees; and (c) gave specific responsibilities to regional managers toimprove their respective portfolios.
5.11 As the economy improved and as a result of CFP'S above efforts,CFP's arresrs position started to improve during the last quarter of 1984.At the end of August 1984, total portfolio affected by arrears representedabout 24.4% of lending portfolio; this ratio dropped to 20.9% by year-end
1984. By year-end 1985, the overall portfolio affected by arrears amountedto 20.3% of CFP's lending portfolio. Arrears for over 360 days representedabout 9.2% of CFP's total lending portfolio as of December 31, 1985 (aboutthe same level as in 1984). Out of 1,270 subloans financed under the thirdloan, 228 have arrears problem as of December 31, 1985, which amounts toCol$ 195.3 million, representing 22.7% of the loan, or about 2.4% of CFPtotal lending portfolio and 12% of total portfolio affected by arrears. Someof the decrease in the percentage of portfolio affected by arrears was due toCFP's increased supervision and collection efforts. The improving situationalso resulted from an increase in CFP's operation and the favorableperformance of some regional offices. Although CFP's overall arrearsposition (20%) is high in absoltite terns, it reflects the credit problemsafflicting Colombia's overall financial sector, and is in line with that ofthe private DFCs (22/) and substantially lower than that of Colomhia's whole
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banking system (29X).19/ Moreover, CFP's exposure is also protected sinceabout 80% of its portTilio has real guarantees. CFP continues to intensifyits portfolio recuperation activities in line with its 1984-1987 ActionProgram.20 / As part of the Action Plan, CFP now establishes debt recoverytargets TWr both existing and new loans.2 1/ Also, with the furtherimprovement of it's electronic data processing system, its debt recoveryefforts should improve.
Administrative Costs
5.12 The level of CFP's administrative costs has been a major concernof the Bank and of CFP. At the time of project appraisal, CFP expectedrelatively higher administrative cost ratioE in 1980-81 because of thestart-up cost of its new technical assistance programs (para. 5.15), andlower-than-expected growth in total assets in 1979. It was, therefore,agreed during loan negotiations that CFP would maintain administrative costsat 7.5% of average total assets in 1980, 6.9% in 1981 and 6.0% in 1982, andonwards. Although CFP managed to reduce its administrative costs/averagetotal assets ratio from 7.1% in 1981 to 6.5% in 1983, it exceeded the targetsset under the loan from 1981 onwards. In absolute terms, administrativecosts grew at an annual rate of 27% during 1979-1983, with salaries and otherpersonnel expenses accounting for 77% of total administrative costs.CFP's ability to control salary increases is, however, restricted, as theyare determined by agreement with staff union, using as parameter theGovernment's salarv policy which has provided substantial increases over thepast years. Administrative expenses also grew in relation to average totalassets, from 6.7% in 1983 to 7.3% in 1984 and 7.6% in 1985. This situation
19/ Source: Balances del Sector Financiero, Asociacion Bancaria deColombia, Junio de 1985.
2(9/ During the negotiations for the fourth SSI project, the Bank asked CFPto prepare a portfolio recovery plan whiich would include: (a) recoverytargets; (b) collection policies and procedures; (c) a supervisionsystem, including use of the regional supervision committees; (d) clearand concrete assignments of nortfolio administration responsibilitles;(e) the corresponding operating/organizational adjustments; and (f) areview of the special credit program for SSIs having liquidity problems,with regard to expected duration, funding requirements, access terms andresults obtained. CFP was also asked to review its lending practices toallow a longer repayment and grace period for subprojects.
21/ In this regard, during 1985, it intensified its efforts to improve theeffectiveness of its portfolio recuperation activities. In July 1985,CFP established a portfolio executive committee, comprising CFP'sGeneral Manager, Deputy Managers of Operations and Finance, Director ofPortfolio, Auditor General and Legal Counsel. Its primary objective isto formulate measures that would facilitate debt recovery and improvethe administration and control of CFP's portfolio. Starting in 1986,CFP would also require its regional offices to prepare not onlyindividual lending programs, but also debt recovery targets, and torecommend appropriate action for the disposition of foreclosedguarantees received for delinquent accounts, subject to periodicreviews.
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resulted partly from the slower-than-expected growth in CFP's portfolio andthe high relative share of administrative costs of headquarters staff (43.8%of total staff and 48.5% of total administrative costs during 1979-1983), ascompared to costs in regional offices where CFP's income and profits aregenerated.22/. Also, the higher administrative costs can be considered asthe price O operating an institution supporting only SSIs, and, at the sametime, using adequate standards of subproject appraisal, supervision andtechnical assistance. This does not, however justify the above concentrationof staff in the headquarters, and CFP should continue to achieve a betterbalance between operational and support staff.23/
Technical Assistance
5.13 CFP's strategy of helping to diagnose TA needs and facilitatingthe provision of services to clients and prospective clients by publicagencies and private consultants, in coordination with specialized technicalassistance institutions, like SENA and FICITEC, was adopted tinder the loan.It required CFP to establish detailed annual programs for technicalassistance and monitor the implementation of the program closely. SENA hasimproved its technical assistance capability and agreed to cooperate moreclosely with CFP, offering its integrated technical assistance program to CFPclients. Agreements were also made with other instituitions, includingFICITEC and INCOLDA, and several universities to carry its technicalassistance plans. During the period tinder review, CFP continued to implementits technical assistance programs with a small technical assistancedepartment in the headquarters and the 17 advisors attached to its regionaloffices.26/
5.14 Under the new technical assistance approach, CFP, frorr 1979 to1983, carried out 9,747 supervision visits (Annex 15), througn whic1 most ofthe technical assistance needs were identified. The areas with ttie inostpressing need for technical assistance were production and quality control.marketing, financial and management capabilities; there was also a nee6 forTA assistance in the application of new techniologies and aevelopment of newmarkets, mainly for exports. Duritng the same period, CFP has promoted 91seminars, which were sponsored by SENA, FIcITFC, PROEXPO and other
22/ During the negotiations for the fourth SSI project, agreement betweenthe Bank and CFP on the Action Plan and target levels for CFP'sadministrative costs/average total assets ratio, which form part ofCFP's overall 1984-1987 Action Plan, was reached. This Action Planinclude a program aimed at strengthening the rol- of CFP's regionaloffices, with the ultimate objective of transforming them into ptofitcenters and lowering CFP's unit costs.
23/ In connection with the proposed split of the Bogota Regio n - )ffice Irtctwo branches, six headquarters staff have recently been reassigned tohandle part of the area covered by the Bogota Regional office. Til sshould lend to better supervision of loans in crltical areas andsigtlitlcantlI contrihbite to the necessary shift of personnel fromadrministrative to operational activities.
'! ,Durlig 198.-1985, thc- advisots in the Regiconal fff Ies were in orr-id t-
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institutions. A total of 1,586 entrepreneurs participated in these seminarswhich dealt with accounting, financial, marketing and management aspects, aswell as technological matters. CFP also provided financial support to 59enterprises requiring consultancy services, which amounted to aboutUS$16.8 million. In accordance with its agreement with CFP, SENA hasprovided direct and integrated assistance to 561 artisans and 180 SSIs durilng1979 to 1983. Although CFP has maintained adequate records of its technicalassistance programs with regard to activity volume and number ofparticipants, it did riot carry out a comprehensive review thereof to assesstheir appropriateness, the clients' receptivity and practical adoption of theTA received.
5.15 Notwithstanding the positive results of its new technicalassistance approach, CFP's technical assistance activities were hampered byits limited institutional ability to coordinate, at the national level, thetechnical assistance activities of specialized institutions providing TAservices to SSIs. The limited results of CFP's new technical assistanceapproach also partly stemmed from the rather little focus placed on thetechnical assistance needs of client enterprises during regular supervisionvisits. Given this experience under the third loan, CFP is carrying outtechnical assistance program at the regional and national levels inaccordance with the Plan of Action for 1984-1987 agreed upon with theBank.25/
5.16 CFP's overall 1984-1987 Action Program includes three TA programsat the regional level (Bucaramanga, Medellin and Cali) and a TA program atthe national level, aimed at coordinating technical assistance to SSIs.Under these programs, several courses, seminars, conferences, etc. were heldduring 1984 and 1985 in coordination with TA institutions, including SENA,ACOPI and FICITEC. In terms of activity volume and number of participants,the programs provided a promising start for the 1984-1987 comprehensiveprogram. The above coordination has also been initiated in several otherregions where CFP is operating. It is expected that these TA programs wouldbe extended to the rest of the regions during 1986.
VI. CONCLUSIONS
6.01 With the third SSI loan, the Bank built upon the institutionaldevelopment efforts of Lhe prior loans and channeled resources at arelatively rapid rate to the Colombian SSI subsector. Disbursements, whichstarted after a considerable delay in declaring the loan effective, were
25/ The technical assistance programs developed by CFP in 1984 and 1985served as a model for designing the National Technical AssistanceProgram for SMI. The Government also created in 1985 the TechnicalAssistance Executive Committee for SMI, consisting of SENA, Ministry ofEconomic Development, National Planning Depa.Fment, PROEXPO, CFP,National Guarantee Fund, Chamber of Commerce and Industry, COLCIENCIAS,ACOPI, etc. The Committee's cocrdinator is SENA. Operating committees,with representatives from the same institutions, were also establishedin various major Colombian cities to identify the technical assistanceneeds of SMIs.
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completed about four years from Board approval, as compared to the LACregional disbursement profile for SSI of 5.5 years.
6.02 The project was well geared to the Government's major industrialsectoral goals to generate employment and stimulate geographicaldecentralization. With the third SSI loan, CFP provided effective support toSSI, particularly at the regional level, reaching the intended target groupof smaller enterprises, and achieving a satisfactory geographic andsubsectoral dispersion. The economic impact of subprojects financed wasoverall satisfactory.
6.03 For the most part, CFP's performance in achieving the objectivesof Loan 1834-CO was satisfactory. However, project implementation identifiedsome aspects that required strengthening as well as lessons to be learned forfuture operations. Notwithstanding the institutional development effortsunder the previous projects and the loan, CFP's efficiency and effectivenessare still hampered by some problem areas in which there is ample room forimprovement or in which CFP did not evolve significantly during theimplementation of Loan 1834-Co. In addition to the overall difficulteconomic situation and the financial weakness of the SSI subsector, CFP'sinadequate appraisal and supervision procedures, as well as its portfoliomanagement;, have contribtuted to the deterioration of its portfolio.
6.04 The overall operational financial performance of CFP during projectImplementation caIn he considered satisfactory taking into account CFP's focuson the smaller SSIs and its development activities in support of thesubsector for whicih it does not get renumerated. CFP met the expectationsregarding the growth of its lending operations, and maintained itsdebt/equitv ratio within the level provided in the Project Agreement.However, with the increase in its debt equity ratio and its average cost ofborrowing, CFP's income growth rate declined since 1979. Profits also didnot compensate for erosion of CFP's equity by inflation during 1979-1983.CFP was also unable to meet the targets set for administrative costs.Further strengthening of the role of the regional offices, transforming theminto profit centers and lowering CFP's unit costs remains an essential goalfor CFP. However, the higher administrative costs can be considered as theprice of operating an institution supporting only SSIs, and, at the sametime, using adequiate standards of subproject appraisal, supervision andtechnical assistance. This does not, however, justify the continuedconcentration of staff in the headquarters, and CFP should continue toachieve a better balance between operational and support staff.
6.(0t The interest rate review mechanism introduced under the loan was awelcome development. The revision and adjustment procedures provided theBans', withi adequate safeguards to ensure that, without unreasonably disruptingCEP's lending activities, the Bank funds were onlent at positive interestrates. This mechanism achieved a general objective of placing greaterresponsibility for project management upon the Borrower.
e . (?6 'CFP has been able to mohilize adequate resources to support thecredit demand of SMIs. However, it has continued to be excessively dependentupon a few sources of term funds. The Bank has also continued to be themajor source of long-term external funds. Building up a diversified andsound resource base to adequately finance its operations continue to be animportant ohiective of CFP. The introduction of an onlending interest ratesystem, tinder the fourth SSI loan, involving fixed and floating rate
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components, was a first step toward the mobilization of domestic resources(possibly via passbook savings) by CFP. Also, in the context of a possiblefifth SSI loan, the Bank is exploring the possible role of other financialintermediaries, and the possibility of having a two-tier mechanism for SSIfinancing.
6.07 While CFP's new technical assistance approach was viewed as apositive step toward future development of the SSI subsector, the resultswere rather modest, partly due to CFP's limited institutional ability tocoordinate, at the national level, the technical assistance activities ofspecialized institutions providing TA services to SSIs. Given thisexperience under the loan, CFP is now carrying out technical assistanceprograms at the national and regional levels in accordance with its 1984-1987Action Program agreed upon with the Bank under the fourth SSI Loan.
6.08 An important element affecting the institutional and organizationaldevelopment of CFP has been the lack of continuity of leadership of CFP's topmanagement, which involved frequent changes during project implementation.Also, while it was the intention of the Bank to focus its efforts uponexternal issues and to have CFP continue the internal development of theinstitution, with the Bank's advisory assistance, CFP could have benefitedfrom more regular visits by the Bank, especially during 1981, the first yearafter loan effectiveness.26/
6.09 The project's contribution in inducing the Government to establisha policy framework for the SSI subsector development, has been limited.However, the overall policy framework has not discriminated against SSIs, andi.n the context of the difficult economic and financial situation of thecountry during project implementation, the SSI subsector has continued toplay a significant role in the industrial development process. Partially, asa result of Bank dialogue over the past years, coordinated efforts are nowbeing made by the Government to design specific policies for SMI. Agreementwas reached, during negotiations for the fourth SSI project, for theGovernment to maintain and provide continuous support to the Advisory Councilfor Small and Medium Industry (CA), which was established in 1981 as amechanism to coordinate, recommend and revise policies affecting the SSIsubsector development. The Fondo Nacional de Garantia started operations in1982-1983, providing loan guarantees for small manufacturing and miningfirms. The Government created in 1985 the Technical Assistance ExecutiveCommittee, with SENA as Coordinatot, to identify the technical assistanceneeds of SMIs. The Government has also initiated a nationwidemicro-enterprise program. The Bank should pursue, in its dialogue with theGovernment, the identification of policies relevant for SSI development and areview of their impact on SSIs.
26/ The first Bank supervision visit was made In 1982, about seven monthsafter the loan had been declared effective, followed by two othermissions in 1983, when the loan was about 75%-85% disbursed by the Bank,and made in conjunction with the preparation of the fourth SSI loan.
1/ Original :erminal dace for subnission o. sub-orojects.72/ Original closing 1are.3/ Terminal late ror su nission or suD-,rD,ects.4/' Closing Cace.3i USS1.3 million cancelled or. Nr:en,er , 198-,
LC-.?- 'L-
.enruary 1986
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C21IA - D 94AUj6A1 DoUm PFIam
(UWN 1S34-M)
Oucteriltica of 9abprojecz t Firz d UAder lom 183'.(in tkm a o 1S)
lnbr S t S br 2 Nt X
By Size of Apwrval 1 Dd Um
Up to 200.0 156 12.28 18,816 0.87 Mwh1inry nd FqLuipvut 605 47.64 1,429,689 65.762w.1 to 30.0 102 8.03 27,812 1.28 Corstructin 182 14.33 365,721 16.8230U.1 to 500.0 172 13.54 72,683 3.34 Thckcncal msistaxe 26 2.05 10,933 f n.5ns5Cj.1 to 700.0 107 8.43 65,672 3.02 1,rku* Capital 429 33.78 328,814 15.12702.1 to 1,000.0 157 12.36 139,695 6.42 Servie. 28 2.2n 39,055 1W.)1,CUJ.1 to 1,500.0 154 12.13 200,660 9.23 1,500.1 to 2,000.0 117 9.21 214,260 9.85 Total 1,270 113.0n 2,174,214 Im.nn2,U00.1 to 3,000.0 131 10.31 338,951 15.59 - -3,O0).1 to 5,C0).0 112 8.81 465,403 21.41 By Dstination of nxhuction5,X)00.1 to 7,000.0 31 2.45 183,650 8.45aw 7,000.0 31 2.45 446,612 20.54 Eports 3 .24 13,077 o.6(
Loc1 !arkats 1,261 99.29 2,146,142 98.71Total 1,270 100.00 2,174,214 100.00 ExterTal ad IDa 'arkIets 6 0.47 14,995 O.6q
ie to ineprie Total 1,270 1no,02 2,174,214 mnn.nm
By l4vter of Enplovee.Up to 300.0 83 6.s4 19,880 0.91300.1 to 600.0 82 6.46 48,069 2.20 Lo to 9 758 59.68 954,299 43.9600.1 to 1,0.0.0 110 8.66 58,614 2.71 10 to 19 25( 14.69 447,419 20.611,001.1 to 2,000.0 211 16.61 178,943 8.23 20 tO 49 197 15.51 541,187 2'.892,U10.1 to 3,000.0 155 12.21 179,739 8.27 50 ro 99 55 4.33 197,903 9.103,000.1 to 4,0C0.0 117 9.21 171,588 7.89 Above 1l0 10 n,79 32,40C 1.494,(XE.1 to 5,(M0.0 74 5.83 141,050 6.49 -5,J01.1 to 10,000.U 220 17.32 495,916 2'.81 Total 1.270 l1ox.0 2,174,?14 Imn.no10,000.1 to 15,000.0 69 5.43 256,594 11.80 - - -15,LW12.1 to 25,0021.U 92 7.24 368,684 16.%Above 25,000.00 57 4.49 255,137 11.73 By Msturity
Total 1,270 100.00 2,174,214 100.00 UP to 2 mars 18 1.42 13,953 %642 to 3 yeers 171 11.62 96,159 !I.423 to 4 Years 550 -.. 31 W6),924 V,
by Nture of Enterpriws 4 to 5 years 7 26.77 PW7,368 36.515 to 6 vears 120 4.45 326,2% l5.n
Bank 0.6 0.7 0.4 0.6CFP - - 0.8 1.1Other Financing
Institutions - - -
Beneficiaries - -
Subtotal 0.6 0.7 1.2 1.7
TOTAL 83.0 100.0 72.2 100.0
1/ Appraisal total project cost was US$83.0 million, at project prices and exchange ratefor the period 1980-1982. 91.4% of the above lending project was committed through
1982, while the remaining 9.5% was in 1983. Based on these ratios, and the exchangerate for those years, the total project cost is estimated at US$72.2 million.
1/ Based on a survey of 127 sub-borrowers conducted by CFP.2/ In real terms over a two-year period.3/ Percentage change over a two-year period in (real) sales per worker._/ Percentage change over a two-year period in (real) sales per dollar value of assets.
Source: CFP
LCPI2February 1986
PRcanWr C Yff-lkT(]N *7Vr
aIllA - IHw 9WI-S1AWE IN nT IWUFrT
(LAN 183&40D)
Qiywt ratuu of Selected lmjta_FSnrd Uhkr l 41)
sU&40M CFPS'S tAt Tadwde*l AetUwe5Frxucmh Ativity - t lkillzatio tmtirity 9 (rifriti mdoject Se tmatT
1. d1 Rulette LAda. Apeel am cloti" 25,176 IbKhinery am 4 pay j5 The mdnimect wm carded omt satisfactorily.e tLdF-. Administrative MA firmeaib coirolse are 84r.-1Ue. It
does nt how elor penhtm.
2. bds.tri_ btalteAu etallic products 26.854 Pbrhire-y ad 4 Ort. I19P The au*iwrut wmt implemnted - mcfodiled. 11' NNWbiker Ltit enpiipwrit etetpriee . fawwal by the (bween t twxrt
reatrictic, policy. It I sw TA
4. (tLzdo (ma Ltd.. ter.1i goods X0,2 I weryd .4 hAly 19RS 1hw mudpnject w nem.wtd m -sibileA. %A, A Wi Pduequipeaut qie 1983, the nterprise kw 1n factj amIs prubwtaun pfoce.
rohlem. kumirE 4az of Its wasrt. It hm alsoportfolio ad _nuprlni prolem. Imnt acjphltlity 1' deterortd since the retir-t of raof the partnet.
5. PLastico. Jter L1da. Plitic 81,92n bddiwry ad 4 Sept. 19R4 l hebapeojet mm ca..ed cot atisfectorily. It dnm NNWin'sf-tsml.E ritjwot not low mijor prhlei. Orxnixeticn of Win edzm
syste inS alequnte.
6. Mimse Lmitad Foed proc ti md 312,510 Hirwnery ml 4 SI*t. 1984 lhe m6tvrotet - car-ted aut - adw*let. It dees NNWbe-ras eapent not haw sny majr probleea. lhe ners hew good
eiperlence in wtothictin aid aIndstrative mpecta.
7. Tlopoight Ahdin. S.A. Pqwr ad pdntti 80,563 lKbinery alr 4 Apri1 19815 71w aiprolect _ n cmsletad ati factnrily. With the 1A In poutttein Maleulpint wblon. pInwtlen critd, cranltdatirw its maret usltty awtral.
in Antiowdia. 1w enterprtise li ma rtet wilth aU.S. ecterpriie. It . well nCwaiml lntkadtnistratively mad finvwtally.
S. Irwuiclo Farfa tether n3ods 27,526 C.trnatitm 4 Nwv. 1q82 It too rw swterial prohl relAted to ueplilesa ad MwCGstande ad equtnt pric". its orjwdzttms ml ecMmtIsr "Stan ia
deficient. TA 1 da in themare .
9. talurgicn del riente btellf pIudrte 68.815 l'etdwry ad 8 Aug. 9RS It has mow prtodution poblems with stahle prie of bnNWLL- eqLdpnt rm i terilm . Its orpalzatkmn is .ttmfrctoy.
10. k1 Sadin AlvarAdob We and fhnaolturi 20.9RD (Cbatnrtt.n 4 Mov. 1964 1ew .l'pntect NM iqinented satiafa-todrly let 1 4neAd equipment thete re quelity pructitcn proMblem reeuitiq in
deceed r prct darid. Its wdniatrat1veorizmtien very peor. lFe muntirg svt tSdeficient. T ia I dr In the r 8m in rw tndelr ad styles.
I/ bead ra the fire of the vidlta amsle by 1m& awilon in iDeca6er 1985.
911-,111 (CTPSh IAst Techcal AssistBitesprt8e t o /tiiy 7hOivt Uftltzatifn Fhtlarlty Supervision Status -
11. Aludindoa dp (blo,bia "ftAli I proJiwts 893,207 Plchiery a-al II R kw 1q.4 Ih saprnlecft w- biplerited satisfactorily. 11w Niltd. eqaiLn P-nt enterprrlse is welt- ,rsmiinl rmintratively 1fi rwxia lv.
1. fupo PrecooWpratlvo de Auus] fooi 10.919 Phctdnery kta. fk. 19St5 TIe sLdwolect m iqlea-nted satisfartorily. It Ao0R A&tenrA CtFP'x ansirnarArIcidturs de OIpwa nnt have maor pnbles. It n.els %irktr: capttal on prniet pwatlon
hidch to het'r reolved with 01P. lhp bIdntstration MAi fiuwcial Sctg.aid xnitbt system am adis te.
t1. La-tis Auir,ms Ltrda. 't^lllc prodwts 419,603 t.d wry aid n.a. (Ct. 1983 hwlm te sorkid capital forct thp enterprive to NNWequipmrct tAle now ia-rrA l I *s sthort-tern (mitts dihe
termi ma tntititr are not adequate. Itsartntnistrative orgsmdvation is satisfactory, hbt ttappaimrs thst Its top .mvment nepds m-T.A. assistane tn fir1w-ial aspects. (VP should alsoprovide sow' firnmctn aststaty to comol idate itsshrrt-term debt Into a lnqtern crerdt.
14. 1alrtliiera It Pl1.ht iav pri,ct. for A),V 4.' th tI.' , (Irt. 19t4i Pre i.fptrject Inslenwntatlon wa deJlayed for stix T.A. In the area ufls. mb nrt tionnrn wnth:. llr plant is no we,rl,W satlrfactorily. Its adntnistration ailnecslIlc ntineraLn ales uware, hr*pver, affected by the ecrm.c recAion aurbetter.
of l 82-Rl.
I',. Pwwrfi .- Iarilli tb.-tnat ,Iw ?i,,'h oaIt-tt jo lm'p 198 It hw sales prohlemi sine thIe' ecrainc rewressin of Niney Thia wv"fa pro'dtu alul 'rdipw'r't 1 2-$3. It lw a satisfactory orariation, hit has
(Iogn-etalli- fi;wwtal problers duie to Its hgh rshort-ternn debt.,dnerain) T.A. ts nrrsded in ftirrial atem.
Ih,i. ALMvr. &wa Ia t~iRlI ;irsidLil-e al t.l 1?9.r1J, dch4i,uy ai1 (X-t. :9HS The itihrrriect v;r cArrted ltit after a twv-.Month t neeryd pnn t delay. 'lM plant hac been facirw 'ww' Problems,
Inc-1irw par ctItn roets, Siiich are hieher thIn those of Its rcuuetitors. Giver, this situation, the criniardvrwed its warkering poitcy aai provided iscmmts.Ilkwever, fInally, the rwiy awe pille
1oxit of the
nari,et. In I98a, the Plant started operatirv, wsini.yler a t" arudnistration. fNt CP hnd to resttnxtureItc wrhloan. In 1195. the Plant wP still facirvEroriticticn problem. T.A is obvtraisly nrwa in thtser,oblem areas.
17. Aurn- YrPIy -xrev P de tal s-hshlf I11.,77 A-hinrry ard s. hily 1'.4 1ntwe Viherniert m Iplemuented rn ti1. T1na dqei forli ton'- .agqul *-nt its proyacts initially thr mitn ,rnwhln. huit. withthe recovery of the crmstnrtion sector. the siviatinun !srhFs iprover. It has, howver. aerlous problemrelated to acotI,tir aprects. T.A s eeded to setwr at least a hasic rer systes for the rvxtstratton
of Its operatirns.
1?. t11 ro- '.IlaaLd C;.r,!a , Ihx praa-tst Itoys) 6,713 54dpwefwt 4 5ept. 1984 The mraprolfet vw Iqplwnted an time. The enterprise NOWFl-mao douA', not haFe ia-br prnblem. Tne ac mtirt system,tArwr, L: jxuor. T.A. ts rrfded in umamenat arda-countirw mrtters.
19. 3*rwUJ4ts Lzaym's l.-ther 56,784 ibrkilv CA'tAl 4 NW. 1w2 la suphPmiect Wm cartlel aut natisf&tnrftly. The tbne NFer.uwviLt m.jfaturtrE erter7wise does rktt haw major prohlem.
(tarstury)
PRaJECr an'rCzN REPdTC
WISBIA - IIIRD ISMIrSCALE NISTLh fPRIEI7
(If4N 1834-{0)
(yap's )bblizatim of Finan.ial Resources: 1979-1983 I,'in nrdlLioLs of (biS)
_APpraTha AcSsWt< _ Appratsal ActualCA-* -.'e C^L "S.". a inst Z -SALrce Ar.xnt ut
]JIMOCIIIII'm IM.311 138 I S" IW,311 217.2X 256.311 326,246 2%.31 I 2%.319 247,(r.3
0 M AMM )),130 Ift.oft ).6.036 3111.4" 1A.333 35^6 ?7.3(0 3SAA IlItl 36.6116 W AII IM. Y*
bm?l )).?I' 1). W :,535 Y). IM U'Alt 30. Im ",49D 3n,10? "J" I?b,-Al
i I I 16"ll 19.�13 15,7W 23.41) 19.171 .1,11 Z3"019 34,1113 24.070 %..WiN Z31 -131. Z34 N �u 11433 :3d- I.S13 I,$[)
UmIll M IQQ m IM) 1,533 I" 1.533 1.533"m Acm.,Jacw mptWUMIM. ft) f 413.W l t (14.4m) �22,416) -( 3r). Vb, I (20.837) A. U31.�UOCIZAL,(ffi 5u. 524 6.ZD bv.A 1, J.h:3 192 v 7flD I 1,011 26.,&S2 1 77.624
1! General administrative and technical aspects, and motivation courses, accountingmanagement, motivation courses.
2/ Administrative and technical aspects.3/ Enterprises financed by CFP. 1980 and onwards is integrated technical assistance.
Source: CFP
LCP12March 1986
- 41 -
COMMENTS RECEIVED FROM BORROWER
E-307/87 October 8, 1986Spanish (Colombia)OED TS:mec
Translation of Incoming Telex
Corporaci6n Financiera Popular S.A.Bogota, Colombia
October 1, 1986
Mr. David ThomasActing Division ChiefOperations Evaluation DepartmentIBRD, Washington
We have carefully studied the Completion Report on the ThirdSmall-Scale Industry Project (1834-CO) and concur with its evaluation of theeconomic impact of the subprojects financed, accomplishment of the loan'sobjectives and development of CFP's operating and financial results.
We are also aware of the need to continue improving small and mediumindustry services and certain institutional and organic aspects, as proposedin our plan of action for 1984-87 during appraisal of the Fourth Loan(2464-CO).
In general the report is comprehensive, objective and highlysatisfactory, and forms a useful tool for CFP.
