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Benin: Rural Savings and Loan Rehabilitation Project (Credit 2086-BE)

The Benin Rural Savings and Loan Rehabilitation project (Credit 2086-BE for US$2.5 million equivalent) was approved in FY90. The Credit was closed, fully disbursed, on December 31, 1995. The project was cofinanced to a total of US$6.1 million by five other donors (Caisse Francaise de Developpement, Fonds d'Aide et de Cooperation, European Development Fund, Deutsch Gesellschaft fuer Technische Zusammenheit and the Swiss Development Corporation). The Implementation Completion Report (ICR) was prepared by the Africa Regional Office. Appendices A & B of the ICR contain the Borrower's comments on the draft ICR, and a summary of its own completion report. They do not differ substantively from the Region's report.

The project objective was to promote a self-sustaining rural financial intermediation system by strengthening the local and regional branches of the state-administered rural cooperative savings and loan societies. Specific actions were to: (i) undertake an institutional rehabilitation program, including restructuring 64 local cooperatives and recasting the role of six regional cooperatives; (ii) institute a financial rehabilitation program, including reconstituting members' equity and savings and helping cooperatives move towards financial autonomy; and (iii) define and implement a credit development program. The credit program was to provide short and medium term finance for rural "investment" projects of less than US$1,000, and mobilize savings to meet part of that demand.

The project successfully executed all its components and achieved its stated objective. The legal status of the S&L cooperative system was changed, the boards of directors of individual cooperative societies were empowered to approve credit requests without political or administrative interference, ceilings on interest rates were removed, a federation of S&L Cooperatives was created, and most important, members' equity in the failing societies was reconstituted and confidence restored. Membership increased fourfold between 1989 and 1994, and the loan recovery rate exceeded 97 percent. Onlending rates remained strongly positive throughout. The spread between interest charged by the local societies on sub-loans to members, and interest paid to depositors, was ample, varying between 13 and 21 percent. The ICR provides no information on the terms of the sub-loans or the uses of funds by borrowing members.

The Operations Evaluation Department agrees with the ICR on the project's ratings. The project outcome is rated as highly satisfactory and institutional development as substantial. This is a case where a government restored the autonomy of local societies with outstanding results and where donor grants to rebuild the societies' equity provided the resources essential for renewed lending. The subsidy was fundamental to the S&L recovery and the successful project outcome. Although the CFAF devaluation at the beginning of 1994 initially reduced the capacity of the network to cover administrative and operational costs, membership and savings have continued to expand dramatically under a second project thereby establishing the system's sustainability, which is rated as likely. Bank performance was satisfactory throughout the project cycle.

There are positive lessons in this experience for planning rural financial operations elsewhere, lessons that contradict popular views on rural savings behavior: (i) poor rural families, usually considered to be outside the reach of the formal financial sector, will seek out and place their savings in formal deposit facilities they feel are secure; and (ii) high real rates of interest are not necessary to generate high rates of savings: the real rate paid by the cooperative societies under the first project was about zero.

The ICR is satisfactory, and the borrower's contributions support and complement the Bank's findings. The absence of any information on the uses of the funds is a notable omission in the light of assertions in the appraisal report. In fact, the cooperative societies lent on short terms and did not concern themselves with the use of funds by members. No audit is planned.



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