The Agricultural Development Project (ADP), supported by Loan 3343-POL for US$100 million equivalent was approved in FY91. When the loan closed in FY96, after a one-month extension, US$74.78 million was canceled. The final project cost of US$81 million included cofinancing equivalent to US$21.3 million in grant funds by the European Union (EU); US$19.5 million in budgetary resources, primarily from external sources; and US$14.9 million from financial intermediaries and subborrowers. The Europe and Central Asia Regional Office prepared the ICR. The borrower’s contribution to the ICR is attached as an appendix. The cofinancier’s comments on the ICR were solicited but none were received.
The project objectives were to (i) support private farmers and promote other private sector activities in rural areas by transforming existing rural cooperatives from social sector organizations to member-controlled, market-oriented business enterprises; (ii) help develop rural commercial enterprises by improving access to credit; and (iii) provide investment funds for business and institutional development in rural communities. The project pursued these objectives through a grant-financed institutional development component and a credit program. The institutional development program sought to provide technical assistance to rural cooperatives and cooperative banks and to establish suitable apex structures at the regional and national levels. These efforts were complemented by a capital fund for cooperative banks established with a mix of grant and government resources. The credit program was to provide medium- and long-term loans for a wide range of emerging private rural enterprises.
The project was partially successful in meeting its objectives. It achieved most of its institutional objectives, albeit with delays, but failed to meet its financial objectives. It exceeded the appraisal target for transforming rural cooperatives and established the planned cooperative apex structures. An independent rural cooperative banking system with new apex structures was put in place. Delays in the revision of the law on cooperatives slowed the pace of restructuring of the rural cooperatives and the rural cooperative banking system. Changes in the Banking Law delayed the establishment of the capital fund, which was set up with the help of grant funds. The capital fund helped establish three of the anticipated six Regional Cooperative Banks (RCBs). These RCBs attracted 400 of the 1600 Local Cooperative Banks, accounting for 40 percent of the assets in the cooperative bank sector. With respect to the credit component, the project was able to achieve only 25 percent of its target. A rapidly changing economic situation, depressed agricultural markets and subsidized credit lines supported by the government and other donors, including one of ADP’s own cofinanciers, made IBRD funds unattractive to investors. Other problems included the lack of a strategy on the part of the government towards the development of the rural financial sector and the lack of a sense of ownership of the credit program by any of the three implementing agencies.
The Operations Evaluation Department agrees with the ICR ratings for project outcome as marginally satisfactory, institutional development impact as substantial, sustainability as uncertain and Bank performance as satisfactory. Although the Bank’s performance is rated as satisfactory, it must be qualified in that it could have been improved in two areas: donor coordination and covenant compliance. An apparent lack of donor coordination on credit policy resulted in a situation where ADP loans were priced at the market interest rate while the EU was simultaneously funding a subsidized line of credit under its Agroline program. This inconsistency is particularly significant since the EU was also a cofinancier in the ADP. During implementation the Bank could have more forcefully pursued, perhaps by suspending disbursements, timely compliance on two covenants. Both covenants, the revision of the cooperative law and the rural credit study, were important factors in the performance of the credit component.
The experience of the ADP offers three important lessons. First, there must be prior agreement on a sector or sub-sector development strategy, including its institutional development. Second, implementation arrangements should ensure that the government and all implementing agencies are committed to the projects, especially when implementation requires inter-agency coordination. Finally, donors must be actively consulted, and actions coordinated, on important policy issues during project preparation as well as during implementation.
The quality of the ICR is satisfactory. While the borrower’s contribution of to the ICR is attached as an appendix, neither the borrower nor the cofinanciers commented on the final ICR or its ratings. No audit is planned.