1 PRESENTATION TO WORLD BANK-DSF GOVERNMENT COMMUNITY DEVELOPMENT OPERATIONS: MICROFINANCE / MICROCREDIT PROJECTS July 20, 2007
2 Introduction and Background
3 Background: 14 large government community development programs implemented by 10 different ministries - five with microfinance projects. GoI, through Bappenas, has commissioned an independent evaluation in cooperation with World Bank. Bappenas & WB-DSF appointed MICRA to conduct independent rapid evaluation Five microfinance projects evaluated are: P4K (Rural Income Generating Project for Small Farmers and Fishermen) MoA PEMP (Economic Empowerment for Coastal Communities Program) by MoMF KUBE (Joint Enterprise Group/Community Empowerment Program) by the MoSA P3-KUM (Revolving Fund for Conventional/Sharia Microenterprise Productive Activities) by the MoC BLM-KIP (Direct Community Financial Assistance for Agricultural Investment) by MoA
4 MICRA Business Structure MICRA Foundation was established April 2006 Ratings & Appraisals Technical Assistance Networking Offers comprehensive services to all microfinance industry stakeholders Financial Services MICRA Management Information Systems Research & Innovations Mission is to build the institutional strength and outreach of the Indonesian microfinance sector, promote innovations, transparency, increased outreach to the poor and ever-improving performance of the microfinance industry.
5 Nature of the Assignment Rapid evaluation was carried out from June 04 th to June 20 th, 2007 by a team of 13 MICRA analysts Evaluation conducted in Jakarta and three provinces: South Sumatera, East Java, South Sulawesi Provinces selected for evaluation based on the following criteria: 1. At least four projects being implemented 2. On and Off Java island 3. High population density 4. High levels of poverty Villages and groups selected by Dinas
6 Evaluation Objectives To provide independent assessments of the five micro-finance programs in order to: 1) assess if they are effective at meeting their stated objectives; and 2) learn ways to improve the programs and draw lessons and best practices for other community development and poverty reduction programs. Specific related objectives are to: (a) summarize the existing microfinance projects; (b) review field implementation in three locations, on and off-java, including clients and outreach to target population; (c) analyze preliminary impacts of project on current beneficiaries and their satisfaction; and (d) prepare detailed assessment of model/implementations and give recommendations regarding possibility for replication.
7 Methodology and Samples
8 Research Methodology/Approach: Full Team Impact Teams: 2 analysts Impact Teams: 2 analysts JAKARTA: PRELIMINARY MODEL REVIEW FIELD: INSTITUTIONAL PARTNERS FIELD: BENEFICIARY and NON BENEFICIARY Individual Interviews, Desk Review, Meta Evaluations GOALS: To gather and review relevant project documents and analyzing secondary data To gain thorough understanding of the program goals, objectives, design, structure and management at Directorate levels To review existing data on program performance To select appropriate field locations for further study Desk Review & Structured In-depth Interviews GOALS: To gather and review relevant project information at the district and village level, and to understand functional role the respective party To understand banking partner goals, role, functions and vision for future participation To understand MFI Partner s role, practical implementation, and institutional sustainability Individual Interviews, Focus Group Discussions, Desk Review GOALS: Meet with DINAS/Partners Bank/MFI to understand role, practical implementation, demand Conduct individual surveys with members of the project to assess impact, demand, access, implementation issues Focused Group Discussion with both project members and non-members to assess impact, demand, access, implementation issues
P4K Rural Income Generating Project for Small Farmers and Fishermen 9
Project Brief P4K 10 Project Name, Ministry Objectives Participating Institutions Project Implementation Proyek Peningkatan Pendapatan Petani Nelayan Kecil (P4K) / The Income Generating Project for Small Farmers and Fishermen. Ministry of Agriculture (MoA) Development of a sustainable and participatory system to help poor rural households improve their livelihoods and standard of living through the creation of community-basedself-help groups (SHGs). Institute for the Agricultural Human Resource Development (Balai PSDM Pertanian) Local office of MoA incl. Field Extension Agents Bank BRI - Phase I: 1979 1988 - Phase II: 1989 1998 - Phase III: 1999 2005 Source of Funding IFAD, UNDP, Bank BRI Target Beneficiaries Project Components Locations Details of Funding Poor households with income equivalent to 320 kg of rice (+ Rp.320,000) in Agricultural sector, including small scale farmers, share croppers, farm laborers, small scale fishermen, small home industry operators and other poor villagers. Use PRA to target poor Self Help Groups Development FEA linking groups to BRI funding Group Capacity Building Phase I: 6 provinces Phase II: 12 provinces Phase III: 12 provinces 126 Districts 1,973 Sub-districts (Kecamatan) / 10,720 Villages Phase III: US$118 million Outreach - 58,118 SHGs (+ 600,000 poor people)
Implementation Mechanism P4K 11 BRI Non-Collateral Credit Facilities Mainstreamed Into Financial Services BRI, etc. Capital, training, information, technology, marketing, etc Group is formed First 6 months capacity building Capacity building toward self-reliance Graduation MoA: FEA Intensive guidance a least within first 6 months, especially on: -group dynamic -Micro business planning preparation -Understanding micro enterprise development MoA: FEA MoA: FEA
Key Findings P4K 12 Overall Assessment: GOOD PROJECT with excellent outreach to the poor and good results in poverty alleviation due to long delivery period, but mixed results in overall sustainability Recommend further investment, with modifications Specific Findings: PRA helps program effective in targeting the poor; FEAs served an important role, but some conflicts in role as TA provider and collection agent, as well as time constraints; but over-reliance on FEAs to fulfill BRI requirements was not sustainable; Long term program implementation and access to repeat loans gives better chance to move out of poverty and build bankability; Growing NPLs over time may be linked to effects of decentralization and weakening group formation Banks prefer to rollout own products, rather than specialized government product; BRI lack of interest due to insufficient income to cover project costs.
PEMP ECONOMIC EMPOWERMENT PROGRAM FOR COASTAL COMMUNITIES 13
Project Brief PEMP 14 Project Name, Ministry Objectives Participating Institutions Project Implementation Pemberdayaan Ekonomi Masyarakat Pesisir (Economic empowerment for coastal communities program). Ministry of Marine and Fisheries (MoMF) To improve the welfare of coastal communities by strengthening MFIs, encouraging entrepreneurship, stimulating peoples participation in community-based capacity building and diversifying local resource-based microenterprises in a sustainable way. Local office of MoMF, incl. Field Extension Agents. Bank Bukopin and other banks Swamitra Mina Coops. 2001 2009 Source of Funding National State Budget, Fuel Subsidy Funds Details of Funding Target Beneficiaries People who have microbusinesses that are directly or indirectly related to fishery and located along coastal areas in fisheries sector, including fishermen. Project Components Works with MFI/cooperatives Link cooperatives with banks, with government guarantee/cash collateral Technical assistance to MFIs and beneficiaries Locations 33 provinces 291 coastal districts 8090 villages Rp.1.2 trillion (Rp.616.9 billion for loans, the rest for TA) Outreach Number of clients serves: 5.473.333 294 MFIs
Implementation Mechanism PEMP 15 National HQ of Appointed Banks Ministry of Maritime & Fishery (MoMF) coordi nation Provincial MoMF Branch Offices of Appointed Banks Joint Agreement Memorandum of Agreement coordination District MoMF Manag. Consultants LEPP M3 Cooperatives/ Koperasi Perikanan/ Other Cooperatives Technical advice F E A Coastal Communities
Key Findings PEMP 16 Overall Assessment: GOOD PROJECT with strong sustainability component, but limited specific poverty outreach Recommend further investment Specific Findings: 1) Higher project sustainability when banks are actively interested and engaged in lending to MFIs and take some risk (Bukopin); 2) Government loan guarantees may be more effective than direct channeling of funds, but 100% guarantee may be disincentive for active bank participation; 3) Incentives were well designed, providing sufficient income to banks and use of grant to MFIs to encourage repayment; 4) Program was successful in responding to early failure and adapting new approach (formation of coops vs. working with existing coops); 5) TA appears important in controlling NPL and improving financial management; and 6) MFIs should be selected based on sustainability and clear performance criteria.
KUBE JOINT ENTERPRISE GROUP/ COMMUNITY EMPOWERMENT PROGRAM 17
Project Brief KUBE 18 Project Name, Ministry Objectives Participating Institutions Project Implementation Kelompok Usaha Bersama (Joint Enterprise Group/Community Empowerment Program) Ministry of Social Affairs (MoSA) to provide business loans to poor households both in rural and urban areas and to empower them through community-based joint enterprise groups and MFIs. The project is integrated into the financial management improvement of MFIs in order to strengthen their organizations. Local office of MoSA, incl. Field Extension Agents. Bank BRI BMT Sejahtera. 1997 2010 Source of Funding National State Budget, Bank BRI Details of Funding Target Beneficiaries Project Components Locations Rp.300 billion People who live in: forest areas, poor rural areas (incl. agriculture and mountain areas), poor sub-urban areas (incl. industry areas), urban areas, coastal areas, small and remote islands, border areas, areas of natural disaster and conflict areas. Poverty targeting KUBE group formation MFI formation Matching grant for KUBE through banks Technical assistance 33 provinces 143 districts Outreach KUBE Groups: 58.163 LKM BMT Sejahtera KS : 40 units LKM in 9 provinces
Implementation Mechanism KUBE 19 Ministry of Finance (1) Joint Agreement Dept. of Social Affairs (2) Bank BRI s HQ District Bank BRI s Branch Offices (3) Open an account (5) Open an account (6) BRI transfers grant Director General for Social Assistance & Security (4) KUBE/MFIs (6) Beneficiaries
Key Findings KUBE 20 Overall Assessment: AVERAGE PROJECT with strong outreach to the poor and excellent targeting with good potential for poverty alleviation, but weak field implementation through start-up MFIs Recommend possible investment, only with modifications Specific Findings: 1) Targeting is very good, group formation can be excellent if rules are followed, but lack of effective supervision allows for inconsistent implementation; 2) Project quality, like P4K, depends heavily on FEA; 3) Cannot form new MFIs without significant investment in TA and long-term support; 4) Weak collection in some MFIs linked to low capacity; 5) Savings led approach is important to build savings experience among poor, build assets and encourage them to leverage loan on savings; 6) Group lending is more effective in reaching poor borrowers, but labor intensive; 7) Annual changes to project design and implementation have impacted results and led to highly varied models at the local level; and 8) Funding through KUBE groups appears to successfully free poor from loan sharks.
P3KUM REVOLVING FUND FOR CONVENTIONAL / SHARIA-BASED MICROENTERPRISE PRODUCTIVE ACTIVITIES 21
Project Brief P3KUM 22 Project Name, Ministry Objectives Participating Institutions Project Implementation Program pembinaan dan pengembangan melalui kredit usaha mikro (Revolving fund facility for conventional / sharia-based microenterprise productive activities) Ministry of Cooperatives & SMEs (MoCS) To broaden employment opportunity and to alleviate poverty by empowering the micro-enterprises. The project focused on selected KSP/USP cooperatives as an instrument to empower the micro-enterprises. Local office of MoCS, incl. Field Extension Agents. Bank Muamalat Indonesia Bank Sharia Mandiri Provincial Development Bank (BPDs) 2006 2008 Source of Funding National State Budget Details of Funding Target Beneficiaries Project Components Locations Rp.200 billion for FY 2007 Primary cooperatives with following criteria: -legal license for a minimum of one year and a savings and loans unit separate from their business activities; - at least 25 members who own micro-business never received loans from previous MoCS projects; and -has an internal rules and regulations, including regular members meeting. Selection of partner cooperative in each district using scoring model 10 year loans to MFIs channeled thru bank Subsidized interest covers TA costs and bank fees Fund revolves to other MFIs All provinces, nationwide Outreach - 840 conventional coops. - 760 sharia-based coops. (incl. 200 women coops.)
Conventional MFIs Implementation Mechanism P3KUM 23 Central Government Ministry of Cooperatives and SMEs (MoC) & Other Technical Dept. s P3-KUM Revolving Funds The Steering Committee MoU KPPN (State of Services & Treasury Office) Kantor Pelayanan Perbendaharaan Negara The Executing Team Central Office Province The Executing Team Province Local Government & other Institutions Province level Regional Banks (BPD) (Province) The Executing Bank District (Kabupaten/Kota) The Executing Team District Local Government & other Institutions District level (Kabupaten/Kota) Regional Banks (BPD) Branch Office (District) Regional Banks MFI s (KSP/USP) Target P3-KUM (empowerment instrument of micro enterprises Beneficiarie s Micro Enterpris e Micro Enterpris e Micro Enterpris e : Program Implementation Organization
Sharia-based MFIs Implementation Mechanism P3KUM 24 Central Government Ministry of Cooperatives and SMEs (MoC) & Other Technical Dept. s P3-KUM Revolving Funds The Steering Committee The Executing Team Central Office MoU Shariah Banks: Bank Muamalat Indonesia Bank Syariah Mandiri KPPN (State of Services & Treasury Office) Kantor Pelayanan Perbendaharaan Negara The Executing Bank Province The Executing Team Province Local Government & other Institutions Province level District (Kabupaten/Kota) The Executing Team District Local Government & other Institutions District level (Kabupaten/Kota) Shariah Banks Regional Branch Office Banks (District) Shariah MFI s (KJKS/UJKS ) Target P3-KUM (empowerment instrument of micro enterprises ) Beneficiarie s Micro Enterpris e Micro Enterpris e Micro Enterpris e : Program Implementation Organization
Key Findings P3KUM 25 Overall Assessment: AVERAGE PROJECT with good selection of MFI partners for sustainability, but limited targeting or poverty outreach, but strong outreach to women Recommend possible investment, only with modifications Specific Findings: 1) Good use of scoring for MFI selection; 2) Lack of sufficient monitoring/supervision budget and coordination between province and district can lead to fraud; 3) Clear ability to meet objectives by financing existing MFIs, rather than creating new MFIs; 4) Need proper incentives to promote strong role of bank in reporting; 5) Loan sizes/tenor should be matched to MFI needs to promote real growth; 6) Poverty alleviation objectives must be paired with poverty outreach measures to ensure cooperatives reach the poor; 7) Missed the opportunity to leverage government funds by building bank/mfi relationship; and 8) MFIs need sustainable (not one time) access to expanding (not reducing) sources of financing.
BLM - KIP DIRECT COMMUNITY FINANCIAL ASSISTANCE FOR AGRICULTURAL INVESTMENT 26
Project Brief BLM KIP 27 Project Name, Ministry Objectives Participating Institutions Project Implementation Bantuan langsung masyarakat keringanan investasi pertanian (Direct community financial assistance for agricultural investment) Ministry of Agriculture (MoA) to improve access of small farmers to various agricultural-based financial services to facilitate increased productivity. Local office of MoA, incl. Field Extension Agents. Bank Mandiri Bank Bukopin Bank Sharia Mandiri Bank Jatim 2007 2008 Source of Funding National State Budget Bank NTB. Details of Funding Target Beneficiaries farmers, groups of farmers, association of farmers groups, agricultural-based cooperatives and small and micro agro-enterprises who already have access to formal loans. Poultry, plantations and agricultural products processing businesses are also qualified. Project Components Supplemental 10% grant on top of existing loans to agro-borrowers through partner banks Beneficiaries must be preexisting borrowers Beneficiaries must apply for grant to Dinas Locations 10 provinces Note: This is a new project that has not yet been implemented. - Rp.400 billion for FY 2007 - Rp.300 billion for FY 2008 Outreach - None to date (not yet implemented).
Implementation Mechanism BLM KIP 28
Key Findings BLM KIP 29 Overall Assessment: More of a cash grant, rather than a microfinance project. Concerns about lack of sustainability and poverty targeting. Not recommended Specific Findings: 1) Concern about pressure to disburse huge amounts of funding to ill defined target group through entire country may lead to fraud; 2) Concern that this represents huge transfer of cash to individuals and groups which have already demonstrated their bankability in the formal banking system (displaces commercial investment); 3) Lack of any sustainable component or community development component that leaves lasting, positive impact; 4) Creates an unfair competitive advantage for participating banks; and 5) Small amount of subsidy may not have any real impact on each borrower's business.
30 Conclusions and Overall Recommendations
Program Scoring 31 NO Evaluation Criteria P4K PEMP KUBE P3KUM BLM-KIP 1 Achieving Result 2 3 2 2 0 2 Evaluation & quality control 2 2 1 1 0 3 Poverty targeting/site selection 4 2 4 2 0 4 Cost effectiviness/budget structure 0 3 0 0 0 5 Fund flow/leakages 3 3 0 3 0 6 Collection performance 2 3 3 0 0 Rate of repayment 2 3 2 0 0 7 Community Organization 2 2 3 1 0 8 Capacity building 3 2 1 1 0 9 Beneficiaries Satisfaction 2 3 4 2 0 10 Sustainability 2 3 2 1 1 SCORE 24 29 22 13 1 Score: 0: Information Unavailable 3: Good Performance 1: Performed Poorly 4: Excellent Performance 2: Average Performance
Achieving Objectives 32 Project objectives and performance in meeting those objectives highly varied PEMP has strongest performance in meeting its objectives, due to clear objectives and relatively simple implementation strategy, but with no implicit directive to target poor P3 KUM does explicitly target the poor, but has limited success and does not provide sustainable support to cooperatives P4K project objectives extremely broad, with clear indicators of success in poverty alleviation, but some failings in sustainability KUBE meets its community empowerment goals, while missing its MFI development goals BLM-KIP may not increase access to finance, since grant provided only to those already approved for loan Decentralization has impacted some projects performance
Poverty Targeting / Site Selection 33 Generally strong performance among projects which actively aim to serve the poor P4K and KUBE were the best projects in terms of poverty targeting using Participatory Rural Appraisal (PRA) and comprehensive BPS data to select priority areas and individuals. PEMP does not explicitly target the poor, but takes a more wholistic approach to supporting fishing communities P3-KUM objectives do specifically include poverty alleviation, but cooperative performance in this area is limited. Proactive outreach to women s cooperatives does effectively impact service to this group. BLM-KIP does not specifically target the poor, but focuses on agrobusinesses of varying size.
Cost Effectiveness / Budget Structure & Funds Flow 34 Difficult to measure due to lack of information and general transparency in budgets and performance. In general, flow of funds appears positive PEMP is the best project with a clear budget structure (20-40% for TA; 60-80% for capital) and the most efficient flow of funding among all projects. The Bank Bukopin online MIS is very useful KUBE s budget structure is the most difficult to evaluate, because project budget, design and implementation changes yearly Some irregularities in funding at the local level found Some projects rely on local funding, which is not sufficient for full implementation
Collection Performance & Rate of Repayment 35 Collection performance generally mixed, with rate of repayment is just average for all projects. P4K included BRI cash incentives to FEA for repayment, but had increasing problems with NPL FEA quality is directly linked to repayments for P4K and KUBE sometimes they are not fully available At KUBE, MFIs capacity in collections are better than other projects due partly to well-functioning joint-liability groups PEMP MFI repayment to the bank is high, although client repayment to MFIs is often weak P3 KUM still at early stage, some problems with MFI payment Best practices: (i) lending through SHGs; (i) targeting economically productive poor women; and (iii) well-trained FEA with a good incentive system.
Community Organization & Capacity Building 36 Community organization and capacity building varies depending on design of TA provision, budget allocation and capacity of FEAs. KUBE and P4K projects have strongest performance community organization through the forming of SHGs with adequate technical assistance from FEAs. PEMP and P3 KUM are generally weak in the provision of capacity building either to MFIs or end-beneficiaries. This is due to: (i) limited or insufficient budget allocation for TA, and (ii) lack of clarity on TA provider.
Beneficiaries Satisfaction 37 Most beneficiaries are generally satisfied with the government microfinance projects. Factors behind good satisfaction level: (i) access for the poor; (ii) ease of loan terms; (iii) lack of collateral requirements and longterm loan tenor; and (iv) affordable interest rates. KUBE projects recorded the highest level of clients satisfaction, mainly due to: (i) beneficiaries previously lacked access, (ii) strong evidence of improvement in standard of living, and (iii) strong community bond/group formation. P4K clients have the lowest satisfaction levels because of small loan size and lack of follow-up after the project closed.
Financial Sustainability / Profitability 38 In general, most projects have weak financial sustainability, mainly because. Lack of planned exit strategies that gradually build commercial partners to assume all government necessary program activities; PEMP project has strong financial sustainability component due active participation of Bank Bukopin and option for long term financing, post-program KUBE savings-led funding mechanism is also an important step toward sustainable development and poverty alleviation Evidence with P4K of lack of BRI interest in continuation, due to insufficient revenue flow to cover costs
Overall Recommendations 39 In order to increase program quality and outreach. 1. Best-practice rules should be respected and implemented to ensure success of joint-liability group guarantees and performance; 2. Selection of MFIs for participation should be standardized, objective and performance based (use ratings); 3. More transparency in project funding, budgets and performance reporting would be important for overall quality improvement; 4. TA to participating MFIs is important in increasing outreach and performance; and 5. A micro-insurance product could be incorporated into overall program design to protect borrowers and MFIs.
Overall Recommendations 40 In order to focus and improve the role of Government 1. Following decentralization, projects need to be developed in a way that increases local government buy-in and capacity to implement 2. Government can play an important role as an enabler, not a direct provider, of financial services, by ensuring sound legal & supervisory systems & capacity building mechanism for MFIs; 3. A centralized body to set standards and coordinate microfinance programming between ministries and support development of microfinance programming at the provincial and district level could play a positive role in sector development and poverty alleviation; and 4. At the regional and local level, the government should build the capacity of key staff in ministries in best-practice microfinance standards, to allow them to provide competent oversight.
Thank You 41