Completion Report. Project Number: Loan Number: 1583 November Indonesia: Rural Income Generation Project

Transcription

1 Completion Report Project Number: Loan Number: 1583 November 2008 Indonesia: Rural Income Generation Project

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3 CURRENCY EQUIVALENTS Currency Unit Rupiah At Appraisal At Project Completion (14 October 1997) ( June 2008) Rp1.00 = $ $ $1.00 = Rp 3,520 Rp 9,234 ABBREVIATIONS AAET Agency for Agricultural Education and Training AAHRD Agency for Agricultural Human Resources Development ADB Asian Development Bank AO account officer BAPPENAS Badan Perencanaan Pembangunan Nasional (National Development Planning Agency) BPS Badan Pusat Statistik (Bureau of Statistics) BRI Bank Rakyat Indonesia FEW field extension worker GBP group business plan IFAD International Fund for Agricultural Development MIS management information system M&E monitoring and evaluation MOA Ministry of Agriculture MOF Ministry of Finance MTR midterm review NAD Nanggroe Aceh Darussalam province NGO nongovernment organization OCR ordinary capital resources O&M operation and management P4K Proyek Peningkatan Pendapatan Petani Kecil ((Income Generating Project for Marginal Farmers and the Landless) PCR project completion report PIU project implementation unit PRA participatory rural appraisal PSC project steering committee RIGP rural income generation project SDR special drawing rights SHG self-help group SUSENAS Survei Sosial Ekonomi Nasional (National Socioeconomic Survey TOR terms of reference TOT training of trainers UNOPS United Nations Office of Project Services

4 (i) (ii) NOTES Until 2000, the fiscal year (FY) of the Government ended on 31 March. Since 2001, the fiscal year has been the same as the calendar year. In this report, "$" refers to US dollars. Vice President C. Lawrence Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director U. Malik, Agriculture, Environment, and Natural Resources Division, SERD Team leader Team member M. Drilon, Natural Resources Economist, SERD L. Enjaynes, Associate Operations Analyst, SERD

5 CONTENTS Page BASIC DATA i MAP vii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 5 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 6 I. Performance of Consultants, Contractors and Suppliers 7 J. Performance of the Borrower and the Executing Agency 8 K. Performance of the Asian Development Bank 9 III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 12 E. Impact 12 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons Learned 14 C. Recommendations 15 APPENDIXES 1. Design and Monitoring Framework Status of Physical Accomplishment of Project Outputs SHG Formation by Classification Credit Disbursement and Repayment, Original 12 Provinces Amount of Grants Disbursed to SHGs, Tsunami-Affected Areas Summary of Training Programs Conducted Summary of Project Costs Project Organizational Chart Status of Compliance with Loan Covenants Summary of Consulting Services List of Equipment and Vehicles Procured Financial and Economic Analyses Replication of RIGP/P4K Methodology by District Governments Number of SHGs by Type of Group Business as of December Number of SHGs That Were Merged as Associations or Cooperatives 84 as of December Project Overall Assessment 85

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7 i BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agencies 6. Amount of Loan 7. Project Completion Report Number INO 1583 and 8172 Rural Income Generation Ministry of Finance Agency for Agricultural Human Resource Development Bank Rakyat Indonesia US$ million (ADB Loan) SDR million($ million) (IFAD Loan) PCR: INO 1080 B. Loan Data 1. Appraisal Date Started Date Completed 2. Loan Negotiations Date Started Date Completed 3. Date of Approval ADB Loan IFAD Loan 4. Date of Loan Agreement Between ADB & Borrower Between IFAD & Borrower 5. Date of Cofinancing Agreement 6. Date of Loan Effectiveness In ADB Loan Agreement Actual Number of Extensions In IFAD Loan Agreement Actual Number of Extensions 7. Closing Date In Loan Agreement (ADB Loan) Actual Number of Extensions In Loan Agreement (IFAD Loan) Actual Number of Extensions 19 June July October October November January December January July March June April July September November September

8 ii 8. Terms of Loan ADB Loan Interest Rate Maturity Grace Period IFAD Loan (458-ID) Interest Rate Maturity Grace Period IFAD Loan (675-ID) Service Fee Maturity Grace Period Pool-based variable lending rate for US$ 25 years 7 years SDR million ½ of the variable reference rate 2 years - SDR5.075 million 0.75% years 1 year 9. Terms of Relending Interest Rate Maturity Grace Period Second-Step Borrower 20 years 5 years Bank Rakyat Indonesia 10. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval Loan August May months Loan September August months Effective Date Original Closing Date Time Interval Loan June 1998 September months Loan July 1998 September months b. Amount ($ 000) Loan 1583 Category Original Allocation Last Revised Allocation Amount Cancelled (Reallocated) a Amount Disbursed Undisbursed Balance b 1 Microfinance Services,400 20,065 10,335 19, Equipment and Materials 2, , Training and Studies 12,700 8,340 4,360 7,016 1,324 4A International Consultants () B Local Consultants 1, , A Salaries and Wages 2, , B Operations and Maintenance 3,800 3, ,083 (323) 6 Vehicles 4,200 2,400 1,800 2, Interest During Construction 18,000 12,110 5,890 12,110 0

9 iii 8 Unallocated 2, , Tsunami Assistance 0 2,950 (2,950) 2, Total 78,600 52,804 25,797 49,281 3,522 a There were three partial cancellations: $6,350,000 in 1998; $10,000,000 in 2000; $9,446,900 in b Cancelled in May Loan 8172 (IFAD 458/679-ID) Category Original Allocation Last Revised Allocation Amount Cancelled (Reallocated) Amount Disbursed (SDR 000) Undisbursed Balance 1 Microfinance Services 11,070 11,142 (72) 11,075 ( 67) 2 Equipment and Materials Training and Studies 2,340 1, , A International Consultants 1,200 1, B Local Consultants 270 2,350 (2,080) 408 1,942 5A Salaries and Wages B Operations and Maintenance 670 1,0 (6) 1, Unallocated 1, , Total 18,250 18, ,403 2,847 Loan 8172 (IFAD 458/679-ID) Category Original Allocation Last Revised Allocation Amount Cancelled (Reallocated) Amount Disbursed ($ 000) Undisbursed Balance 1 Microfinance Services 15,113 14, , Equipment and Materials Training and Studies 3,180 2, , A International Consultants 1,638 1, , B Local Consultants 369 3,684 (3,315) 549 3,135 5A Salaries and Wages B Operations and Maintenance 915 1,888 (973) 1, Unallocated 2, , Total 24,900 24,938 (38) 20,283 4, Local Costs (Financed) Loan 1583: - Amount $ million - Percent of Local Costs 24.26% - Percent of Total Cost 40.1%

10 iv Loan 8172 (IFAD 458/679-ID): - Amount $ million - Percent of Local Costs 28.68% - Percent of Total Cost 94.43% C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 28,900 18,990 Local Currency Cost 108,000 66,795 Total 136,900 85, Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 25,100 14,3 ADB Financed 60,600 37,171 IFAD Financed 24,900 20,283 BRI Financed 8,0 1,891 Subtotal 119,000 73,675 IDC Costs Borrower Financed 0 0 ADB Financed 18,000 12,110 IFAD Financed 0 0 BRI Financed 0 0 Subtotal 18,000 12,110 Total 136,900 85,785 ADB = Asian Development Bank, BRI = Bank Rakyat Indonesia, IFAD = International Fund for Agricultural Development, IDC = interest during construction. 3. Cost Breakdown by Project Component ($ 000) Component Appraisal Estimate Actual Self-Help Group Development 40,100 23,600 Microfinance Services 55,200 35,681 Institutionalization and Building Management Capacity 13,900 12,253 Contingencies 9,700 0 Interest During Construction 18,000 12,110 Tsunami Assistance 0 2,141 Total 136,900 85,785

11 v 4. Project Schedule Item Actual Consulting Services Contract with National Consultants (First) 12 Apr 1999 Contract with International Consultants 7 Oct 1999 Contract with National Consultants (Last) 28 Aug 2000 Equipment and Supplies First Procurement 4 Jan 1999 Last Procurement 27 Mar 2007 Vehicles First Procurement 12 Feb 1999 Last Procurement 12 Oct 2004 Other Milestones (1) First Release of Funds (Microfinance Services) 1 Nov 1998 (2) Loan Disbursement & Contract Award Suspension 16 Mar 2001 (3) Lifting of Loan Disbursement Suspension 21 Apr 2001 (4) Start of Government Decentralization Jan 2000 (5) Completion of Government Decentralization Dec 2000 (6) Reallocation of ADB Loan for Tsunami Assistance 11 Apr 2005 (7) First Extension of Loan Closing Date 11 Apr 2005 (8) Partial Loan Cancellations (ADB Loan) First 16 Jul 1998 Second 31 Oct 2008 Third Jan 2004 Fourth 5 May 2008 (9) Final Cancellation of Undisbursed Balance 5 May Project Performance Report Ratings Implementation Period Development Objectives Ratings Implementation Progress From 1 January to 31 December 1998 S S From 1 January to 31 December 1999 S S From 1 January to 31 December 2000 S S From 1 January to 31 December 2001 S S From 1 January to 31 December 2002 S S From 1 January to 31 December 2003 S S From 1 January to 31 December 2004 S S From 1 January to 31 December 2005 S S From 1 January to 31 December 2006 S S

12 vi D. Data on Asian Development Bank Missions Name of Mission Date No. of Persons No. of Person-Days Specialization of Members a Fact-Finding* 17 Mar 4 Apr a, d, e Appraisal* 19 Jun 10 Jul a, b, g, i Consultation 2 28 Sep a, g Inception Apr a, c,h Special Loan Administration* Jun 16 Jul a Review 1* 7 23 Apr a, h Review 2* 7 24 August a, h Mid-term* 6 22 Nov c, f, h Review Apr a Review 4* 1 15 Dec a c, k, h Review 5 29 Nov 10 Dec a, h Review 6* 5 26 Jan a Review 7 18 Jan 2 Feb a, h Review Jul a Project Completion Review *, b 22 May 3 Jun a, h, j, k a a = economist, b = counsel, c = engineer, d = programs officer, e = credit specialist, f = project specialist, g = economist (social sectors) h = project analyst, i = finance specialist (staff consultant), j = economist (staff consultant), k = social development specialist (staff consultant). b The Mission comprised Maria Lourdes Drilon, natural resources specialist and mission leader; Lorna Enjaynes, associate operations analyst; and staff consultants Corazon Aragon (economist/financial specialist) and Ma. Linnea Tanchuling, (social development specialist). * with IFAD representative/s

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15 I. PROJECT DESCRIPTION 1. On 25 November 1997, the Asian Development Bank (ADB) approved a $78.6 million loan to the Government of Indonesia from its ordinary capital resources (OCR) to finance the the Project. 1 On 21 January 1998, the International Fund for Agricultural Development (IFAD) provided SDR18.25 million ($24.9 million) for the same Project. Both loans were administered by ADB, in accordance with a memorandum of agreement signed on 13 July The Project s main objective was to develop sustainable and participatory systems to help about 800,000 poor families improve their livelihoods and well-being, become self-reliant, and lift themselves above the poverty line. This was to be achieved by forming and training self-help groups (SHGs), leading to the formulation of group business plans (GBPs). After approval, the business plans were to provide the basis for small loans. 2. To attain its objectives, the Project had three interlinked components, namely: (i) SHG development, (ii) microfinance services, and (iii) building and institutionalizing management capacity. The Project covered 126 districts in 12 provinces West Java, Central Java, East Java, Bali, West Nusa Tenggara, Yogyakarta, Bengkulu, Riau, Lampung, South Sumatra, South Sulawesi, and South Kalimantan. In March and April 2005, ADB and IFAD approved the expansion of the Project s geographical coverage to include six districts in two tsunami-affected provinces, Nanggroe Aceh Darussalam (NAD) and North Sumatra. 2 The non-credit components in items (i) and (iii) were implemented by the Agency for Agricultural Human Resource Development (AAHRD) of the Ministry of Agriculture (MOA). 3 The credit component in item (ii) was implemented by Bank Rakyat Indonesia (BRI). II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. The Project was relevant at appraisal and remains consistent with ADB s strategic development objectives of generating employment opportunities, raising per capita incomes, improving living standards, and reducing the number of people living below the poverty line. 4 The Project had the same objective of poverty reduction through the creation of new incomegenerating activities with the use of microfinance services. The Project s basic philosophy that people can be helped to rise from poverty through education and training that is supported by access to microfinance reflects ADB s emphasis on the key factor of human development in raising Indonesia s productivity and overall economic efficiency. The Project remains relevant to the Government s current programs and strategies, which aim to reduce poverty by creating income-generating projects through the use of microcredit. 1 The Project refers to the Rural Income Generation/P4K Phase III Project. P4K is the acronym of Proyek Peningkatan Pendapatan Petani Kechil (Income Generating Project for Marginal Farmers and the Landless), a poverty reduction project financed by IFAD, United Nations Development Programme, and the Netherlands, on which ADB s proposed project was based. 2 The earthquake measuring 9.0 magnitude of the Richter scale struck the western end of Sumatra on 26 December The epicenter was 155 miles southeast of the provincial capital of Banda Aceh and 200 miles west of Medan, Sumatra. This earthquake triggered a series of devastating tsunamis along the coasts of the Indian Ocean, killing more than 225,000 people in 11 countries and inundating coastal communities with waves up to meters high. It was one of the deadliest natural disasters in history. Indonesia, Sri Lanka, India, and Thailand were hardest hit. 3 New name of Agency for Agricultural Agency and Training (AAET) after the government reorganization in ADB Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Indonesia for the Rural Income Generation Project. Manila (RRP: INO 29456).

16 2 4. Options for financial intermediation were carefully reviewed during project formulation and interviews conducted with several banks and other financial institutions, particularly in preparation of the feasibility study. 5 Extensive discussions were held between BRI, the Ministry of Finance (MOF), AAHRD, and ADB to improve BRI s procedures for appraising loan requests and delivering credit. The project design also gave special consideration to the needs of women borrowers and to measures that would enhance their participation. The Project s relationship to other antipoverty projects and programs was also considered. During the selection of lessdeveloped villages in the districts, various government agencies at the district level participated for the purpose of coordination. 5. The major weakness of the Project s design framework was the failure to set baseline data for poverty incidence and mean household income in the SHGs in the 12 provinces. The resulting lack of quantitative targets at project appraisal for impact indicators like percentage of poverty reduction and changes in household incomes made it difficult to realistically assess whether the project goals and objectives were met. 6. During the implementation period, changes were made to enhance the relevance of the project design by (i) increasing the number of SHG members per group to support a more rapid accumulation of group savings and formation of a group common fund; (ii) conducting a validation and evaluation exercise in 2002 to determine the number of active SHGs benefiting from the Project, prune inactive SHGs without outstanding credit, and focus on the strengthening of the remaining groups instead of forming new ones; and (iii) adopting the use of the participatory rural appraisal (PRA) methodology in 2003 in targeting poor project beneficiaries. To help the Government respond to the tsunami disaster, the project area was expanded to include parts of the affected provinces of NAD and North Sumatra. B. Project Outputs 7. A project framework comparing the target outputs at the time of appraisal with actual achievements is shown in Appendix Self-Help Group Development Component 8. This SHG component aimed to strengthen targeting procedures to reach poor households and enhance the formation of beneficiaries into mutually compatible and relatively homogeneous social and income groups. This was achieved through an improved community selection procedure, rigorous application of a revised eligibility survey, and participatory group formation procedures. The Project formed 66,500 SHGs, including groups from the earlier P4K project in the original 12 provinces. The total number of SHGs formed accounted for 90% of the 74,000 target groups (Appendix 2). 9. As of December 2005, 58,118 SHGs had been formed since the validation exercise in 2002 (Appendix 3). Of this total, 44,945, or 77%, were active including 814 in category A, or active; 12,369 in category B, or sufficient, and 31,762 in category C, or less active. Another 9,131, or 15.7%, were inactive. About 18,197 SHGs (31.3%) consisted wholly of women, 32,705 (56.3%) had mixed gender membership, while the remaining 7,216 (12.4%) consisted of men only. The total SHG membership was 646, ,709 men (39.54%) and 390,972 women 5 ADB Technical Assistance to Indonesia for the Rural Income Generation Project. Manila. This technical assistance, co-financed by ADB and the Food and Agriculture Organization Investment Center led to the initiating of a policy dialogue for the P4K.

17 3 (60.46%). After the midterm review (MTR), each field extension worker (FEW) covered an average of 12 SHGs, compared with the target of 40 SHGS at project appraisal. With a lower FEW SHG ratio, the FEWs were able to devote more time to providing skills development training to SHGs and helping them prepare group business plans. 10. Assessment of SHG financial activities showed that 23,557 SHGs (41%) had group savings but only 8,386 (14%) had utilized their savings, compared with the target of 90%. Only 13,962 SHGs (24%) had graduated, meaning that these groups either (i) have shown strong self-reliance or (ii) have already availed of six or more consecutive and increasing group loans from BRI (Appendix 3). 11. The Project met the target of forming and providing assistance to 552 SHGs in six districts in the two tsunami-affected provinces as of December 2006 (Appendix 2). Of this total, 373 SHGs (67.6%) were in NAD and 179 (32.4%) in North Sumatra. Only 183 SHGs (33.2%) were formed using the PRA approach (Appendix 3). 2. Component 12. This microfinance services component was envisaged to provide microfinance services to SHGs to mobilize their savings and improve their access to credit and complement other group activities supporting their livelihoods and microenterprises. As of December 2005, the Project facilitated the preparation of 161,529 GBPs in the original 12 provinces, against a target of 120,680, or an achievement of 133.8% (Appendix 2). The total credit received by the SHGs amounted to Rp1.326 trillion for 161,529 GBPs approved, against a target of Rp360 billion. The total loans outstanding amounted to Rp billion for 33,409 GBPs and total loan principal payments reached approximately Rp1.108 trillion (128,120 GBPs). Compared with the overall credit disbursed from the start of the Project, the total amount of credit arrears as of December 2005 was 5.24%, representing approximately 13% of the total approved GBPs (Appendix 4). As of March 2008, the total credit arrears rose to Rp89.71 billion (5.52%). Of this amount, BRI had written off bad debts of Rp59.60 billion. The remaining Rp.11 billion is scheduled for write-off in As of December 2006, the total grants disbursed to tsunami-affected areas, covering 552 SHGs in the four districts of Kota Bandah Aceh, Pidie, Aceh Barat, and Aceh Besar in Nanggroe Aceh Darussalam province and the two districts of Nias and Nias Selatan in North Sumatra, amounted to Rp billion (Appendix 5). 3. Building and Institutionalizing Management Capacity 14. The Project conducted courses for SHGs beginning in 1998 on group business planning, group business management, organization and management, participatory rapid appraisal, loan and savings mobilization, microenterprise development, entrepreneurship, and household management. Project personnel, such as the FEWS and FEW coordinators, were given basic and refresher training on P4K training and RIGP methodology, the PRA method in SHG formation, and strengthening the capacity of SHGs. Seven training of trainers (TOTs) sessions on microfinance institutions and on management information system (MIS) were also conducted for 250 participants (Appendix 6). The Project facilitated the conduct of one TOT session for a refresher course on RIGP methodology for 24 participants, as well as 13 TOT sessions on the formation of SHGs using the PRA methodology for 56 provincial and field project personnel. In addition, 149 BRI account officers (AOs) also underwent refresher training on the RIGP

18 4 methodology. Gender awareness was included in the project design for the training of management and project staff specifically to focus on the needs of women. C. Project Costs 15. The total cost, including contingencies and interest during construction, was estimated at the equivalent of $136.9 million at appraisal. The estimated cost consisted of $28.9 million in foreign exchange cost, representing 21% of the total cost, and $108 million in local currency cost, representing the other 79%. The actual project cost was $ million, or 63% of the appraised cost. The actual foreign exchange cost was $18.99 million, or 62% of the appraised cost. Appendix 7 compares appraised and actual project costs and financing plans. 16. The loans from both ADB and IFAD were used to finance the credit activities implemented by BRI and the non-credit activities implemented by AAHRD. The financing plan at appraisal consisted of an ADB loan of $78.6 million and an IFAD loan of SDR18.25 million, totaling an equivalent of $24.9 million, to finance 100% of the Project s foreign exchange costs and 76% of the total costs. The remaining local currency requirements were to be provided by BRI and the Government. Of the actual funding, $ million, or 81% of the total project cost, came from the ADB and IFAD loans, and $1.891 million, or 2%, came from BRI. The Government provided $14,3, or 17%. D. Disbursements 17. Disbursements under the ADB and IFAD loans began on 28 August 1998 and 11 September 1998, respectively, with initial advances of $2.0 million from ADB and $1.0 million from IFAD to the imprest fund account. Against this, payments for expenditures not exceeding $50,000 were drawn. The establishment of the imprest fund account helped AAHRD expedite payment of minor expenditures, since payments were made mainly through the imprest fund advances, although consulting services were paid directly by ADB. The fund was replenished and liquidated in accordance with ADB s Loan Disbursement Handbook and arrangements acceptable to the ADB. The auditor's report indicates that adequate supporting documentation was maintained with regard to the use of funds under the imprest account. Few weaknesses were noted in the internal control and they were immediately addressed by the executing agency. 18. Disbursement of funds and approval of new contracts were suspended in March 2001 upon reported allegations of corruption by project officials. 6 The suspension was temporarily lifted in March 2001 and disbursements resumed in April The case was closed and the suspension was permanently lifted in May 2002 after AAHRD clarified the issue and took actions satisfactory to ADB with regard to the irregularities. 19. The Project utilized $49.28 million of the total ADB loan after four progressive cancellations of $29.3 million from 1998 to May Hence, overall utilization of the ADB loan was only 63% of both the appraisal and actual costs. In January 2005, a loan reallocation of $2.95 million was made to support the tsunami victims in the provinces of NAD and North Sumatra. AAHRD has still an advance outstanding in the amount of US$5,986.31, and 6 The decision to suspend disbursements and award of new contracts was based on the admission of a consulting firm on making payments to some project officials administering the Project. 7 Includes the final cancellation of $3.5 million from the ADB funds in May Earlier cancellations amounting to $$ million were due to savings resulting from the devaluation of the Rupiah since 1997 and the consequent reduction in local currency costs in US dollar terms.

19 5 US$59, under Loan Nos INO and IFAD Loan 458/675-ID (8172-INO) must be refunded before ADB can close the Loan Account. E. Project Schedule 20. The ADB and IFAD loan agreements became effective on 18 June 1998 and 9 July 1998, respectively, with a loan closing of September In March 2005, following the December 2004 tsunami disaster, ADB approved the use of surplus loan proceeds for tsunami emergency assistance and the extension of the loan closing date to 31 December Likewise, in April 2005, IFAD extended the loan closing date to June 2007 due to the inclusion of the tsunamiaffected areas (para. 2). This allowed AAHRD to gradually phase out project activities and formulate and implement an exit strategy. Project activities in the original 12 provinces were completed on 31 December On 16 February 2005, the Government, ADB, and IFAD agreed to expand credit assistance to cover the tsunami-affected areas in NAD and North Sumatra. However, the release of grants to SHGs was delayed in these provinces because of a government transition in 2005 to a unified budgetary system. The 2005 budget became accessible only in October F. Implementation Arrangements 22. As mentioned in para. 2, the executing agencies for the Project were the AAHRD and the BRI. AAHRD was mainly responsible for (i) field and management staff training; (ii) beneficiary selection; (iii) SHG formation and capacity building; and (iii) monitoring, development, implementation, and maintenance of the management information, evaluation, and impact assessment systems. BRI was in charge of providing microfinance services to SHGs and supporting graduated households and groups in availing of other credit facilities. A national project steering committee composed of representatives from AAHRD, BRI, and MOF, and chaired by the National Development Planning Agency (BAPPENAS), was established 3.5 years after project startup to provide overall supervision of the Project. Appendix 8 shows the organizational setup of the Project. 23. The overall responsibility for project management rested with the project management office based in Jakarta and the project implementation units (PIUs) based in the provinces. Implementation activities were situated at the districts and subdistricts. This arrangement created several problems in terms of administrative workload because each PIU had to cover a wide area, ranging from 4 to 24 districts. Decision making was delayed due to the large wide project coverage and planning tended to be top-down, which resulted in a relatively low sense of ownership among the project beneficiaries. 24. This weakness was compounded by the effects of laws implementing the Government s decentralization and regional autonomy policy in mid Greater authority was given to the regions to determine their own needs and institutional structures. The most notable impact was the dissolution of the regional offices of the MOA, which prompted the shifting of the management responsibility of the Project to the provincial agricultural service. At the districts, most of the agricultural information and extension centers were also transformed. Because of these changes, there were movements of project staff, particularly in the districts. Many FEWs were transferred outside of the Project. This meant an expansion of the area coverage per remaining FEW and decreased the time each spent facilitating SHG activities. In 2001, with the exception of the central office in Jakarta, most of the project staff were spending only 40% of

20 6 their time on the Project. After decentralization, AAHRD had limited influence over local governments. This resulted in difficulties exercising direct financial control and supervision over the FEWs at the districts. Moreover, BRI assigned only one AO to each district. The AOs were responsible at the same time for other BRI credit programs and services. The inadequate number and insufficient supervision of the FEWs and AOs were identified as the causes of the longer processing time for loan applications and the high number of arrears during the first three years of project implementation. 25. To address this matter, the MTR in 2002 recommended to AAHRD that it undertake the following measures: (i) assign domestic consultants at the districts; (ii) engage local nongovernment institutions (NGOs) and field liaison officers as AOs of BRI to sustain the SHGs and disseminate project information to local authorities; (iii) seek agreements from district governments to ensure that trained FEWs would not be moved out of the Project, (iv) devise an incentive structure for FEWs; (v) establish the provincial and district steering committees or revitalize the then existing forums on poverty alleviation as the steering committees to ensure integration of the Project with the overall provincial and district poverty reduction efforts and foster commitments to assume responsibility of local governments in sustaining the SHGs. At project completion, many of the provinces and districts had already established their steering committees but their authority and responsibilities varied considerably. 26. Overall, the measures adopted at the recommendation of the MTR and monitoring missions to address the issues on implementation arrangements enabled AAHRD and BRI to deliver their outputs satisfactorily. G. Conditions and Covenants 27. The conditions and covenants stipulated for the Project were realistic and relevant. The Government s compliance with the loan covenants was satisfactory (Appendix 9). In particular, the compliance with the submission of the audited project accounts and the establishment of the PIUs at the central office, provinces, and districts were satisfactory. Major compliance difficulties arose in the delayed establishment of an operating project monitoring and evaluation (M&E) system and a management information system (MIS). This was due to the early termination of the international M&E consultants and the delayed establishment of the project steering committee at the central office. In addition, the periodic review of the onlending interest rate of subloans from BRI to SHGs was not carried out because of government concerns about the added financial burden of a possible onlending rate increase on the final beneficiaries. H. Consultant Recruitment and Procurement 28. The services of consultants were utilized in project management, MIS, M&E, microenterprise development, and project impact assessment, training of field staff and SHGs, and training approaches to poverty reduction and rural credit. The ADB-financed individual local consultants were selected and engaged by AAHRD in accordance with the provisions of the Guidelines on the Use of Consultants by the Asian Development Bank (April 1979, as amended from time to time) and procedures outlined in the Loan Agreement. 8 The internationally recruited consultant financed from IFAD loan proceeds was selected by AAHRD and engaged in accordance with the Management Services Agreement entered into between AAHRD and the 8 A list of candidates, together with their qualifications and a draft contract, were furnished to ADB for approval before the selection of consultants. After the contract was signed, ADB was furnished a copy of the evaluation of the candidates and a brief justification for the selection, together with three copies of the contract. Any substantial amendment of the contract was submitted to ADB for prior approval before its execution.

21 7 United Nations Office for Project Services (UNOPS). NGOs were recruited through local competitive bidding procedure using two-envelope system. The volume of consultant recruitment created additional workload for AAHRD in terms of contracts administration, reporting, and monitoring and evaluation of consultants performance. 29. Only 78 person-months of international consulting services were utilized, compared with the appraisal estimate of 126 person-months (Appendix 10). This was due to the early termination of the services of the international consulting firm that provided the services of the MIS and M&E consultants. The services of these consultants were thus prematurely concluded, resulting in 34 person-months of unutilized budget under UNOPS, of which 18 person-months were used to engage an M&E specialist, empowerment specialist, and impact assessment specialist to fast-track the formulation and development of assessment and evaluation systems.. Out of 1,238 person-months of local consulting services allocated at appraisal, only 716 person-months were used. The utilization was also low because instead of hiring consultants for the position as business and credit specialists, majority of the provincial development managers working in local government offices assumed the responsibilities of business and credit specialists. Out of the remaining 622 person-months, 532 person-months were utilized for the district positions to adequately address the implications of the decentralization policies and improve assistance to SHGs. Appendix 10 shows a comparison of the appraised requirements for consulting services with actual utilization. 31. Twenty six NGOs were engaged in June 2003 on a short-term basis to assist in SHG capacity building in the original target provinces. However, the recruitment of NGOs to facilitate social empowerment and capacity building of tsunami-affected households in NAD and North Sumatra was cancelled due to the delayed availability of the 2005 budget. Moreover, given the number of assistance projects in the area funded by partner donors in coordination with other local NGOs, AAHRD had difficulty identifying suitable NGOs to implement the Project. To avoid further delays on the government proposal, the capacity-building and social support activities in these two provinces were carried out using existing administrative and delivery mechanisms, under the close supervision and support from AAHRD, reinforcing the administrative structures when needed. 32. Procurement of all equipment and vehicles was through limited international bidding, in accordance with the provisions of the Guidelines for Procurement under Asian Development Bank Loans (revised in January 1994, as amended from time to time). A summary of the equipment and vehicles procured is in Appendix 11. I. Performance of Consultants, Contractors, and Suppliers 33. The early termination of the contracts of the international consultants for MIS and M&E, compounded by the organizational concerns and limitations experienced by the executing agency, resulted in several project setbacks. Most notable was the delay in the development of the Project s impact measurement system, MIS, and the project benefit monitoring and evaluation system. The delay resulted in difficulty monitoring the qualitative changes that resulted from the project interventions from 1999 to During the first 4 years of project implementation, the quantitative achievements related to the first component the number of SHGs formed and the second component the number of loans disbursed, number of GDPs submitted and approved, and number of loans repaid were largely monitored.

22 8 34. One problem identified during the MTR with regard to the design of the M&E system was the setting of targets at project start-up without a great deal of participation of the districts. This situation was rectified by conducting a new target-setting exercise aimed at the districts. 35. The MTR also noted that, in general, consulting services were utilized effectively since most of the actual activities in SHG capacity building and microfinance development were implemented at the district level. The performance of international and local consultants was assessed as less than satisfactory since the consultants either did not give importance to their terms of reference (TOR). Thus, the MTR recommended recruitment of a local consulting firm to be based at the district level, using local competitive bidding procedures acceptable to ADB and IFAD and in accordance with the loan agreements. 36. With the modifications made in the staffing of domestic and international consultants and the timely adjustments in project methodology, the performance of the new consultants hired by the Project was generally acceptable since most of the physical targets were accomplished satisfactorily and a majority of the district governments had sustained the Project after completion. The AAHRD was able to implement an improved project impact assessment design to include non-income indicators. It was undertaken in As of the project completion date, the MIS and M&E systems were operational in 126 districts. However, the economic and social empowerment and the income-generating capacity of the SHGs livelihood activities could have been optimized if a majority of the consultants had been deployed in the districts where most of the activities took place as soon as implementation began. 37. The performance of the contractors and suppliers was satisfactory. No major problems were experienced with the supply, delivery, or performance of any of the equipment, materials, or vehicles procured under the Project. J. Performance of the Borrower and the Executing Agencies 38. The overall performance of the executing agencies was satisfactory in achieving project targets, albeit with some delays during the initial years due to a host of factors, some of which were beyond their control. These factors included the transition from a centralized to regional autonomy and devolution of responsibilities to district governments, the inadequacy of trained field personnel to cover the wide project areas, and the early termination of the services of the international consultants, as discussed in para. 29. The executing agencies were able to make timely adjustments to adequately address these issues. In the case of project implementation in NAD and North Sumatra, the Government was quick in addressing the issue on NGOs, as discussed in para When implementation began, the methodology was largely determined by the executing agencies, with little or no participation from the direct beneficiaries. But the PRA methodology introduced midstream enabled the executing agencies to develop skills in participatory strategies and bottom-up approaches in project planning and implementation. The AAHRD was able to strengthen its focus on SHG development and capacity building when it implemented the validation exercise in 2002, in response to the MTR recommendations explained in paras. 6 and BRI, on the other hand, was able to achieve 100% of its physical target in providing microfinance services. It was able to fully utilize the project credit line and used the repayment reflows for financing new loans. This indicates an efficient use of project funds whereby the allocation for credit had been revolved more than three times. From 1999 to 2005, 17% of the

23 9 58,118 SHGs were able to avail of loans at least three times from BRI under the Project s credit facility (Appendix 2). At project completion, a memorandum of understanding between BRI and 27 district governments was signed under which the former would continue lending to SHGs until the end of 2007, utilizing the project repayments. A separate memorandum of understanding was also being finalized for 36 district governments. 41. Overall, the performance of the Government and the executing agencies is rated as satisfactory. K. Performance of the Asian Development Bank 42. ADB s performance on project monitoring was satisfactory despite the frequent changes in ADB administration units. Project implementation was monitored through regular review missions and frequent consultations and briefings with MOF, MOA, and BRI. ADB staff spent adequate time reviewing physical progress and resolving implementation issues with AHHRD and BRI staff. The recommendations of review missions were implemented by the Government and proved effective in resolving implementation issues. ADB loan review missions continually tracked potential loan savings, which, after consultation with MOF, were cancelled, providing substantial savings to the executing agencies. ADB approved ADB- and IFAD-financed contracts and fund disbursements promptly. ADB and IFAD also showed flexibility and quick response in providing assistance to tsunami victims by promptly reallocating funds and revising the terms of the loan agreement with regard to the IFAD loan. Training opportunities on project implementation were also provided by ADB to MOF and the executing agencies. The trainees found these effective and timely. 43. As IFAD s cooperating institution, ADB effectively implemented the IFAD loan according to the memorandum of agreement between ADB and IFAD. Likewise, IFAD released funds to MOF as soon as ADB approved the relevant withdrawal applications. However, towards the end of the Project, coordination between ADB and IFAD weakened, as demonstrated by IFAD s delay in providing ADB with the revised Loan Agreement between IFAD and MOF. This resulted in ADB s delay in processing withdrawal applications. Apparently, there was no continuity between the successive IFAD officers who handled the financial aspects of the loan. This has caused ADB and IFAD difficulties in the reconciliation of accounts, including the amount to be refunded by MOF to IFAD. While IFAD had finally confirmed ADB s calculation, the administrative burden could have been avoided had there been a prompt sharing of information and documents with ADB and no change in the IFAD officer administering the IFAD loan. 44. Overall, the executing agency expressed satisfaction with the performance of ADB. III. EVALUATION OF PERFORMANCE A. Relevance 45. The Project is rated relevant during appraisal and at the time of completion in terms of its alignment with the Government s strategies and programs aimed at reducing poverty through such efforts as the creation of income-generating projects through the use of microfinance 9. With its objective of reducing poverty through the creation of new income-generating projects, the Project was also in line with ADB s sectoral strategy for the agriculture sector in Indonesia at 9 Government of Indonesia. 1993/ /9. Sixth Five-Year Development Plan or REPELITA VI; , Medium-term Development Plan.

24 10 the time of appraisal and continued to conform to ADB strategies for poverty reduction at completion. 46. The Project was envisaged during appraisal as being different from others involving credit schemes because it would adopt participatory approaches and emphasize the provision of direct support to build and institutionalize the capacities of the poor to engage in sustainable livelihoods and attain self-reliance. However, during the first half of project implementation, SHGs were established based primarily on credit demand rather than on affinity and common interests of the members. As a result, many of these SHGs became inactive when they were no longer eligible to avail of a second loan after failing to repay their initial loans to BRI. To address this weakness, a moratorium in the formation of new SHGs was implemented while a validation exercise was conducted to determine the actual number of active SHGs. A considerable number of inactive SHGs were pruned from the Project. The PRA methodology adopted in 2003 was used to identify more appropriate poor household beneficiaries. The project focus was placed on improving the quality of the validated SHGs through the implementation of an empowerment plan. Membership in SHGs was also expanded to increase the members capital fund. Consultants were fielded in the districts themselves to supervise the socialization and mobilization work of FEWs and AOs and promptly address problems encountered during project implementation. With these measures, the performance of the executing agencies in achieving both the quantitative and qualitative targets improved significantly. Despite the shortcomings, the Government considers the Project one of the successful national projects using the participatory approach. B. Effectiveness in Achieving Outcome 47. The Project is assessed as effective in meeting most of its objectives and outcomes. The project framework called for the Project to enable participating households to achieve sustainable incomes above the poverty line and thereby reduce poverty in 12 provinces. However, performance targets after project completion could not be assessed due to lack of baseline data. An impact assessment survey was conducted by Bureau of Statistics (BPS) in 2002 without the benefit of a baseline data. In 2005, BPS conducted another survey to track the changes in the income and socioeconomic welfare of participating households for comparison against the 2002 midterm project survey results. The findings are presented in the project framework in Appendix 1. It is difficult to ascertain the extent to which the Project succeeded in contributing to poverty reduction because the original project framework did not clearly state targets relating to this goal e.g., by how much poverty incidence was expected to be reduced and how many poor households would benefit. Nonetheless, the executing agencies reports and the BPS 2005 project completion survey (before loan extension) indicated the following: (i) (ii) (iii) The Project directly benefited about 650,000 poor families or 3 million people 81% of 800,000 target poor families through capacity building, savings mobilization, and access to credit from BRI. Reduction in poverty incidence was evident in 10 of 12 target provinces. In these provinces, the proportion of poor SHG members households decreased from 22.5% in 2002 to 15.7% in The number of SHG members with monthly incomes of less than Rp500,000 decreased sharply from 13.9% in 2002 to 1.5% in 2005, while those with monthly incomes greater than Rp500,000 increased from.1% to 43.1%. 48. The Project did not achieve its target of forming 74,000 SHGs. By 2002, about 66,500 SHGs had been formed. This included groups from the earlier P4K project in the original 12

25 11 provinces. These groups accounted for 90% of the 74,000 target groups. As described in para. 9, the number dropped significantly to only 58,118 in 2005, or 79% of the target, after inactive SHGs were weeded out in the 2002 validation exercise. However, the Project succeeded in facilitating economic and social empowerment of poor women through the provision of access to financial capital from formal credit institutions, group formation, and capacity building in livelihood development. Women made up 60.46% of the total membership of the SHGs, compared with the target of 60%. C. Efficiency in Achieving Outcome and Outputs 49. The Project is assessed overall as cost-efficient because it attained most of the target outputs without exceeding the total project cost. The financial and economic internal rates of return for the whole Project, however, could not be carried out due to the following reasons: (i) financial data on the status of all SHG microenterprises and their members was lacking because AAHRD only gathered financial data on a selective basis; (ii) district governments did not monitor the financial performance of all SHGs business investments; and (iii) a realistic forecast on the number of microenterprises and the composition by business type was not possible because these are determined by market forces. Information on the number of SHGs that failed or succeeded in their business enterprises was therefore lacking at completion and continues to be insufficient now. 50. In view of these data limitations, the PCR team merely conducted a profitability analysis of 10 sample microenterprises of SHGs monitored by AAHRD, using the methodology adopted at project appraisal. Based on monthly net income, a small restaurant business (Rp3,766,500) was the most profitable, followed by a banana chips enterprise (Rp1,459,183), a crispy chips business (Rp1,071,918), and a catering business (RP801,500) (Appendix Table A12.1). However, the highest returns to family labor per person-day were generated by lontar leaf mat weaving (Rp0,236), followed by a sweet snack food business (Rp162,579), the catering business (Rp78,767), and the banana chips enterprise (Rp74,770). It should be noted that the evaluation of these 10 microenterprises does not provide a representative sample by which to measure the financial viability of the whole project. 51. The team also undertook a benefit-cost analysis of the 10 microenterprises, using the methodology adopted at project appraisal. As shown in Appendix Table A12.2, all the microenterprise models exhibit attractive benefit-cost ratios i.e., greater than1.00. The microenterprise projects that yielded very high benefit-cost ratios are a horticulture business (3.), the sweet snack food business (2.72), a small restaurant business (2.02), the crispy chips business (1.94), and the banana chips business (1.83). Considering that the production cycles of these microenterprise models are short, the total impact of these investments is expected to be high. 52. Except for the catering business, results of the sensitivity analysis show that all the microenterprise models evaluated remain economically viable even with a 10% decrease in gross benefits or a 10% increase in total cost (Appendix Table A12.3). The decrease in gross revenues is the most important factor affecting the economic viability of the microenterprises, as evident from lower benefit-cost ratios obtained from a 10% decrease in gross benefits as compared with the ratio resulting from the same percentage increase in total cost. 53. The analysis above does not mean that all the microenterprises were financially and economically viable in all the project areas. Several factors can affect financial performance, including lack of available market outlets, high prices of inputs, adverse weather, input supply shortages, local economic difficulties, and a lack of business acumen among the SHG members