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Implementation Completion Report (ICR) Review - Microenterprise Project

1. Project Data:   
Project ID:
Project Name:
Microenterprise Project
Small Scale Enterprise, Private Sector Development
L/C Number:
Partners Involved:
Government of Netherlands
Prepared By:
Elliott Hurwitz, OEDCR
Reviewed By:
Laurie Effron
Group Manager:
Ruben Lamdany
Date Posted:

2. Project Objectives, Financing, Costs, and Components:

Objectives: Objectives of this pilot microenterprise finance project were to: (1) strengthen capacity of participating institutions to deliver services to microenterprises, and assist these institutions to serve a larger number of customers; (2) broaden range of instruments available to upper-stratum microenterprises by promoting leasing to sub-contractors of small businesses; (3) catalyze NGO support for lower-stratum microenterprises, and demonstrate replicability of NGOs and leasing initiatives to other institutions, including commercial banks; and (4) demonstrate creditworthiness of microentrepreneurs--particularly women, and promote development of women-owned businesses. Costs and Financing: IBRD loan was for US$26 million, cofinanced by US$2.8 million from the Netherlands and US$3.5 million (of an original commitment of US$7.8 million) from the private sector. IBRD funding was used as credit line for participating leasing companies, while Netherlands grant funds were provided as seed capital to NGOs for on-lending to the smallest firms, and for TA. Only US$0.33 million of planned US$1.1 million in technical assistance was utilized, with balance reallocated into the grant program. Project was approved April 23, 1991, made effective April 30, 1991, and closed as scheduled June 30, 1998, with last disbursement May 5, 1998.

3. Achievement of Relevant Objectives:

Strengthen institutions’ capacity and broaden market: Participating leasing organizations considerably increased their capabilities and business with microenterprises as a result of the project, to the extent that lending in the small scale sector increased to 20% of their total portfolio; while only one leasing company was eligible at appraisal, 3 others began participation later (which facilitated disbursement). Promote leasing: Leasing as an alternative to purchase of capital assets was promoted, as additional leasing companies were established and total volume of leasing business increased substantially. Catalyze NGO support and demonstrate replicability: The project catalyzed NGO support by providing them with grant funding which they on-lent to microenterprises; loan demand was high. However, there is no evidence that the project persuaded commercial banks or other institutions to enter this market. Demonstrate microenterprise creditworthiness and promote women-owned businesses: Creditworthiness was shown by a recovery rate of over 95% for 3 of 4 leasing companies (comprising 91% of funds on-lent) under IBRD microenterprise loans, and a rate of 90% for sub-loans under the Dutch grant. NGOs disbursed around 7,000 loans to microentrepreneurs, of which 1,500, or 21% were to women (there were no quantitative criteria against which to judge this performance). Seven percent of the total leases financed by IBRD benefited women.

4. Significant Outcomes/Impacts:

The project substantially increased the access of small-scale enterprises to lease financing
  • Leasing companies which participated in the project strengthened their financing and credit operations, established a unit to collaborate with NGOs on microenterprises, and increased their focus on the microenterprise sector

5. Significant Shortcomings (include non-compliance with safeguard features):

Around 75% of the loan was disbursed to small scale industrial firms, and 25% to microenterprises, with 7% of the total leases financed benefiting women.
  • The Project was a pilot project, but there is no evidence that commercial banks or other institutions were persuaded to enter the market--as intended in the original project design--and provide private funding to SMEs as a result of successes under the project.
  • The GOP unnecessarily required participating leasing companies to obtain a third-party guarantee from a public sector institution, delaying participation of additional firms in the project.
  • 6. Ratings:ICROED ReviewReason for Disagreement/Comments
    Institutional Dev.:
      Inadequate evidence is provided to demonstrate likely sustainability of lending to SMEs and microenterprises without special government programs or incentives (mentioned in ICR). ICR notes GOP request for "follow up" project, which suggests a lack of private funding despite the "success" of this pilot project.
    Bank Performance:
    Borrower Perf.:
    Quality of ICR:

    7. Lessons of Broad Applicablity:

    Financing of microenterprises is viable, with a satisfactory recovery rate
    • The role of women in microenterprises can be enhanced if credit is made available

    8. Audit Recommended?  No


    9. Comments on Quality of ICR:

    ICR is satisfactory, and presents an impressive amount of data on project performance. Annex IV, which reviews examples of project impact on microenterprises, provides a welcome human dimension. However, the ICR does not explain why a new Bank project is needed to provide funds to leasing companies if financing of microenterprises is "sustainable," their repayment rate is high, and lending to established micro and small enterprises is "viable."

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