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ASIAN DEVELOPMENT BANK PCR: PHI 24250

T COMPLETION REPORT

ON THE

30 MECROCREDIT PROJECTan No. 1137-PHI[SF])

IN THE

PHILIPPINES

November 1999

CURRENCY EQUIVALENTS(as of 30 November 1999)

Currency Unit - Philippine Peso (P)

At Appraisal At Project CompletionP1.00 = $0.037 $0025$1.00 = P27.00 P40.15

ABBREVIATIONS

ADBACPCARMMBMEBSMBDCARCBUDBPDIIPAFMCFSGBAIFADKT ModelMFIMPPPNCRNGOPCRPMOSORSEDCTST/SE LA

Asian Development BankAgricultural Credit Policy CouncilAutonomous Region for Muslim Mindanaobenefit monitoring and evaluationBureau of Small and Medium Business DevelopmentCord illera Administrative Regioncapital buildup sthemeDevelopment Bank of the PhilippinesDepartment of Trade and Industryfinancial analystFund Management Committeefinancial specialistGrameen Bank approachInternational Fund for Agricultural DevelopmentKepner Tregoe Modelmicrofinance institutionMicrocredit Program for the Poorest of the PoorNational Capital Regionnongovernment organizationproject completion reportproject management officeSpecial Drawing RightsSmall Enterprise Development CourseTulong .sa Tao Self-Employment Loan Assistance Program

NOTES

(i) The fiscal year of the Government ends on 31 December.(ii) In this report, "$" refers to US dollars.

CONTENTS

Page

ii

vi

1

2

2566677899

91010

11

1111

12

121314

15

BASIC DATA

MAP

I. PROJECT DESCRIPTION

II. EVALUATION OF IMPLEMENTATION

A. Project ComponentsB. Implementation ArrangementsC. Project Costs and FinancingD. Project ScheduleE. Performance of Consultants, Contractors, and SuppliersF. Conditions and CovenantsG. DisbursementsH. Collection PerformanceI. Benefit Monitoring and EvaluationJ. Environmental and Social ImpactsK. Performance of the Borrower, and the Executing

and Implementing AgenciesL. Performance of NGOs and SubborrowersM. Performance of ADB

Ill. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

A. Economic/Financial PerformanceB. Attainment of Benefits

IV. CONCLUSIONS AND RECOMMENDATIONS

A. ConclusionsB. Lessons LearnedC. Recommendations

APPENDIXES

BASIC DATA

A. Loan Identification

1. Country2. Loan Number3. Loan Title4. Borrower5. Executing Agency

6. Loan Amount7. PCR Number

B. Loan Data

1. Appraisal- Date Started- Date Completed

2. Loan Negotiations- Date Started- Date Completed

3. Date of Board Approval

4. Date of Loan Agreement

5. Date of Loan Effectiveness- In Loan Agreement- Actual- No. of Extensions

The Philippines1137-PHI(SF)Second NGO Microcredit ProjectRepublic of the PhilippinesBureau of Small and Medium Business DevelopmentDepartment of Trade and IndustrySDR22.028 million ($30.0 million equivalent)PCR:PHI 551

01 Apr 199119 Apr 1991

14 Oct 199129 Oct 1991

28 Nov 1991

28 Nov 1991

26 Feb 199219 Feb 1992None

6. Terminal Date for Commitments- In Loan Agreement : 19 Feb 1996- Actual : 31 Dec 1996- No. of Extensions : One

7. Closing Date- lnLoanAgreement 19 Feb 1996- Actual 30 May 1997- No. of Extensions : One1

8. Terms of Loan- Interest Rate- Service Charge- Maturity- Grace Period- Repayment Terms

Not applicable1 percent per annum35 years (inclusive of grace period)10 yearssemiannual

1 One extension, up to 31 December 1996, was approved by the Asian Development Bank in October 1996. The loanaccount was kept open up to 30 May 1997 to allow liquidation of advances made to the Project's imprest account.

9. Terms of Relending

- Interest Rate 12 percent per annum- Maturity Five years maximum

10. Terms of Onlending- Individual Subborrowers

Subloan AmountFirst-Time P25,000 maximumRepeat Loans P35,000 minimumSubsequent Loans P50,000 maximum

Maturity Three years maximum

- Group-Based SubborrowersSubloari Amount : P200,000 maximum

Maturity : Five years maximum

11. Disbursement

a. Dates- Initial Disbursement 26 May 1992- Final Disbursement : 25 Nov 1996- Time Interval 54 months

- Effective Date 19 Feb 1992- Closing Date 3OMay 1997- Time Interval 63 months

- Subsidiary Loan Amount : P50,000 (minimum); P2,000,000 (maximum)

- Grace Period Two years maximum depending on nature ofsubloans

Interest Rate Not exceeding the commercial bank interest rateprevailing in the area of nongovernmentorganization (NGO) operation

Interest Rate : Not exceeding the commercial bank interest rateprevailing in the area of NGO operation

b. Amounts ($) Tranche 1 - 7,500,000 - 26 May 1992

Total - 31,631,3752

Value Dates

2 - 2,743,289 - 27Ju119933 - 1,300,000 - 10Nov19934 - 1,700,000 - 10Dec19935 - 1,740,000 - l4Jan 19946 - 979,685 - 28Jun 19947 - 1,773,372 - O3Oct 19948 - 1,651,352 - 23 Dec19949 - 1,992,308 - l9Apr 199510 - 2,646,848 - 22Aug 199511 - 2,386,839 - 22 Nov199512 - 1,611,779 - 01 Jul199613 - 1,414,034 - 09JuI199614 - 469,767 - 09 Oct 199615 - 1,722,100 - 25Nov1996

2 This amount differs from that indicated in item A(6) because of the appreciation of the Special Drawing Rights (SDR)vis-à-vis the US dollar. The loan was denominated in SOR.

30.0003.000

3

0.44510.38843.833

( 68%)( 7%)

( 1%){ 24%)(100%)

31.6313.0001.797

10.54446.972

( 68%)( 6%)( 4%)

( 22%)(100%)

Fact-Finding 12 Nov-13 Dec 1990

E

Appraisal 03-18 Apr 1991 5

InceptionReviewReviewReviewReviewReviewProjectCompletion

Report

26 Mar 199227 Oct-6 Nov 199216-31 May 199316 May-22 Jun 199420 Sep-3 Oct 199510-25 Oct 199612 Apr-13 May 1999

1111113

Total

C. Project Data

1. Project Cost ($ million)a. Foreignb. Localc. Total

iv

Appraisal Estimate

8.145 ( 19%)

35.688 ( 81%)

43.833 (100%)

Actual Cost

10.266 ( 22%)36.706 ( 78%)46.972 (100%)

2. Financing Plan ($ million)a. Bankb. Government of Norwayc. Government of the Netherlandsd. Government of the Philippinese. NGOs/Subborrowersf. Total

D. Data on Bank Missions

Type of Dates No. of No. of

Specialization of MembersMission

Persons Person

62 Project EconomistStaff Consultant/Credit Specialist

80 Project EconomistProject Specialist/Women in DevelopmentCounselPrograms OfficerStaff Consultant/Credit Specialist

1 Project Specialist

10 Project Engineer



14 Project Engineer

16 Project Engineer

75 Sr. AgronomistStaff Consultant/Credit SpecialistAssistant Project Analyst

312

3 About $1.8 million was committed by the Government of the Netherlands to finance the NGO and Department ofTrade and Industry (DTI) Programs under the Project. However, agreement to this effect had not yet been finalizedas at appraisal. It was, therefore, agreed that in case the cofinancing by the Government of the Netherlands wouldnot materialize, the Government of the Philippines would contribute up to $0.445 million for the training of the NGOs,while the Government of Norway had agreed to the use of its funds as follows: $1.8 million for the NGO and DTIPrograms and $1.2 million for the Microcredit Program for the Poorest of the Poor.

V

E. Related Loans

AmountLoan No./Project Name Date of Approval SDR million $million

940-P 1-1 l(SF)NGO Microcredit Project

1216-PHISmall Farmers Credit Project

I 435-PHI(SF)Rural Microenterprise Finance Project

22 Dec 1988

5.9 8.0

22 Dec 1992 - 75.0

23 Apr 1996

13.6 20.0

'HL1

16°00N

NCR - National Capital RegionARMM - Autonomous Region for Muslim MindanacCAR - Cordiltera Administrative RegionCARAGA - a newly created Region under R.A. 7901

dated 23 February 1995.SOCSARGEN - South Cotabato, Sultan Kudarat,

Saranggani, Oeneal Santos

119000E

vi

1 19°00E

IL00000DRTE

7 -' KA'Nu> /CAR (

REGION IIlocos .

OcN

__E._,j_ VZDF4flE1R'Ni,

N" ',, 'PJEE TZAO11L{F5 '

PHILIPPINESSECOND NGO

MICROCREDIT PROJECT(as completed)

REGION IICagayan Valley

REGION IIICentral Luzon

OATOAF

REGION IVSouthern Tagalog

PALAWA'

40 50 10(1 150

8°00N - - - -Kilometers

® National Capital

Provincial Boundary

Regional Boundary

fltltJlUll All flUl Ill l.#UldUdlO

Region XVI Agusaii del Sur, Surigao del Sur,l I ARMM Maguindarso, Sulu, TawkTawi

/ [ NCR -

-

REGION VBicol

\ AA'INL

YD'DU€ •OL4M !'.•\:H11

1ICCD lE.-I

D4ERN

CftNLON\

REGION VIIIEastern Vlsayas

,v .4 vNELn---

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• -:---1--'r (/ L

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C.4)ETNLj

7" / ,E0u

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.7 ' REGION VI / I------

/ Western visayas • REGION VII 7

• Central Visayss . .: -

/ ,oGUlN 1JFJ£ . .7

,/ REGION X '\ OPTF /

,/ T1$orthernMindanaq (/ . \ MIE,AFLN --" CARAGA

\ EETAL .'-3AEFGA v,AM.S \.. ANSAN

flEL NORTh ------- O,__

'/ 2l,rEOANG 1WE,.

/ DO ouR i DEL UP .' o•uc,DEL RORTE

• \/

REGION IX ,/•1C1r1' -

Weslern Mindanao / . ,LcoMo; - •,-" DAVIO0OItUTL

/)L )Boundaries are not necessarily authoritative. / c:,:: •'-

.7' •'•,'-,,,•• -.,- -4RANAN .7 . CARPE D0000000NLFR

flSCUT.' ''

/ 'REGION XI

AR MM / Southern MindansoSon 1,/NAtO /

7 SOCSARGEN 7.7

Tm (. ...... fl 4

125°00'E

99-1538 HP

PROJECT DESCRIPTION

1. In 1992, the Asian Development Bank (ADB) approved a loan of $30.0 million equivalentto the Government of the Philippines for the Second NGO Microcredit Project (Second Project)to support and strengthen the Government's ongoing Tulong sa Tao' Self-Employment LoanAssistance (TST-SELA) Program. 2 The objective of the Project was to reduce poverty by (i)increasing employment and income opportunities for low-income groups (including the landless,subsistence farmers, poor women, and the unemployed) through the provision of credit to thosesegments of the population falling below the Government-defined poverty line, and who have noaccess to credit provided by the formal banking systems; (ii) mobilizing savings among the targetgroups; and (iii) increasing the production of goods and services by members of the targetgroups, and thus stimulating the economy.

2. The rationale for the Project was based on the need to (i) provide microfinance servicesto the rural areas nationwide following the success of the NGO Microcredit Project 3 (FirstProject), which was piloted in six regions4 and was completed successfully with the fulldisbursement of the loan funds two years ahead of schedule; (ii) expand savings mobilizationthrough the introduction of capital buildup (CBU) schemes among the beneficiaries; and (iii)strengthen Department of Trade and Industry (DII) and nongovemment organizations (NGOs),the latter as financial intermediaries, to enable them to successfully provide credit fomicroenterprises. The Project was to finance the economic activities of microenterprisesoperated by the targets groups in such sectors as agroprocessing, manufacturing, handicraft,trade, transport, tourism, and services. The microenterprises were labor intensive, and requiredmodest capital infusion, low technology, and local raw materials. The Project was to cover all theregions of the Philippines, 5 in areas selected by the Borrower and ADB on the basis of theincidence of poverty, geographical distribution, and existence of viable NGOs. Emphasis was onsupport to microenterprises in rural areas and small cities to encourage decentralization ofeconomic activities.

3. The Second Project had the following components

(i) Microcredit program for low-income target groups. The component was to providecredit, with NGOs as conduits nationwide, using $30.0 million equivalent financedby the ADB. The program was to provide support to about 55,000-60,000 newand existing microenterprises, and targeted about 60 percent of the subborrowersas women participants; and

(ii) Microcredit program for the poorest of the poor (MPPP). 6 The component, whichcovered 26 selected provinces, was financed by grant funds of $3.0 million fromthe Government of Norway. The MPPP aimed to provide financial services to thepoorest of the poor, particularly the tribal groups, victims of natural disasters,marginal fishermen, forestry workers, and various groups of urban poor (sidewalk

Means help for the masses.2

The TST-SELA Program, which was created by Executive Order No.158, directly addressed the problems of povertyand employment, particularly in the nonagriculture rural sector, by making available small-scale credit for incomegeneration and livelihood projects to those ineligible for conventional loans.Loan 940-PHI(SF): A/GO Microcredit Project, for $8.0 million, approved on 22 December 1988.

The pilot areas were Regions Ill (Central Luzon, V (Bicol), VII (Central Visayas), VIII (Eastern Visayas), X (NorthernMindanao), and Xl (Southern Mindanao).The Project covered all the regions of the country: Regions Ito XIII, CAR (Cordillera Autonomous Region), ARMM(Autonomous Region for Muslim Mindanao), and NCR (National Capital Region).

6 TA 1633-PHI: Credit Program for the Poorest of the Poor, for $3.0 million, approved on 28 November 1991.

2

dwellers, Street vendors, garbage collectors and Street children) whose incomefell below 50 percent of the poverty line

(iii) NGO development and DTI institutional strengthening program. The componentwas financed by grant funds of $1.8 million from the Government of theNetherlands. 7 The objective was to develop the skills and capabilities of theparticipating NGOs in identifying and qualifying microentrepreneurs, and assistthem in value formation and improvement of financial services and administration.The program was to train DII staff and qualified microentrepreneurs. DTI staffwere to be provided with computers and motorcycles to increase theireffectiveness in monitoring and supervising implementation.

ADB also provided a separate TA, designed to prepare a detailed analysis of the rural creditsector and a rural credit project to provide the rural areas in the Philippines with better access toinstitutional credit for (i) agricultural production and agro-industrial development, and (ii)institutional credit for expansion of microenterprises, which benefited from the two ADB-assistedNGO microcredit projects and the TST-SELA Program.

II. EVALUATION OF IMPLEMENTATION

A. Project Components

1. Microcredit Program for Low-Income Groups

4. Under this component, the accredited NGOs were provided credit for onlending tobeneficiaries for microenterprse development. Achievements under the component at the end ofthe Project are shown in Appendix 1. A total of 1579 NGOs 9 were accredited for participation inthe Project based on their capability and experience to provide financial services to the targetclientele in a viable and sustainable manner (accreditation criteria are in Appendix 2). A largemajority of the participating NGOs were cooperatives accounting for 77 percent of the total,followed by associations (14 percent), foundations (7 percent), and others (1 percent) (Appendix3). Depending on the assessed capability, each of the qualified NGOs was provided withsubsidiary loans ranging from a minimum of P50,000 to a maximum of P2.0 million at a givenperiod. The subsidiary loans relent by DTI to NGOs amounted to P1.16 billion, of which theaverage size was P734,000. About 68 percent of the accredited NGOs borrowed loans belowP500,000, 16 percent borrowed between P500,001 and P1 million, 5 percent borrowed betweenP1 million and P1.5 million, and 11 percent borrowed more than P1.5 million (Appendix 4).

5. The NGOs onlent a total of P1.54 billion to 111,103 subborrowers, with loans rangingfrom P2,000 to P50,000, or an average of P13,900 per subborrower. The number ofsubborrowers benefiting from the Project exceeded by 85 percent the target of 60,000. Theamount onlent by NGOs was about 133 percent of the total subsidiary loans they received.

TA 1842-PHI: NGQ Development Program and the Institutional Strengthening of OTI, for $1.8 million, approved on29 May 1992.

TA 1617-PHI: Rural Credit Study, for $640,000, approved on 28 November 1991.NGOs include nonstock, nonprofit foundations; cooperatives (including cooperative rural banks); associations; andcivic groups organized purposely for community development, such as community organizing and lending forincome-generating activities.

3

6. The maximum subloan for individuals was P25,000 for the first loan, P35,000 for thesecond, and P50,000 for the third and succeeding loans. Groups with commonly owned ormanaged subprojects were able to avail of loans up to P200,000. The repayment period was upto three years for individual subloans, and up to five years for group subloans.

2. Microcredit Program for the Poorest of the Poor

7. The MPPP basically adhered to the implementation guidelines of the Project, except thatit only partially complied with the specific targeting of the poorest of the poor clientele, 10 and it didnot restrict lending to groups (requiring the formation of subborrowers into groups with 4-10members) but also lent to individual borrowers. The members of a group were required tooperate the subprojects collectively and were jointly liable for their group's subloan.

8. A total of 147 NGOs were accredited to participate in the Program on the basis of theagreed-upon criteria (Appendix 5). Funds relent to the NGOs amounted to P63.5 million, whilefunds onlent to the subborrowers amounted to P70.0 million. The difference came from therevolved funds (Appendix 6). Funds relent to NGOs range from P50,000 to P2.0 million, with anaverage of about P387,000 per NGO (Appendix 7). The maximum loan availed of by a groupwas P40,000. The funds from the NGOs were used to finance 3,671 microenterprises, whichgenerated employment for about 11,665 persons. The two types of NGO intermediaries thatwere top borrowers were cooperatives (68 percent) and associations (16 percent); the rest werefoundations (1 percent), and others such as rural banks (15 percent) (Appendix 8).

9. The Project Completion Review (PCR) Mission survey of the provinces that were theheaviest users of the MPPP funds revealed mixed results. The MPPP was implemented in theidentified provinces; however, of at least 12 NGOs interviewed that were recipients of the low-cost fund (only 5 percent interest per annum), only two were known to have made an attempt toseek out and lend to the target clientele. One NGO did so because of its existing outreachprogram for this type of clientele. The other NGO did it under a Grameen Bank Approach (GBA)replication program supported by the Agricultural Credit Policy Council (ACPC). ACPCsubsidized the salary of a community worker specifically assigned to the NGO to do GBAreplication. After two years, the NGO terminated the GBA project since ACPC stopped itssubsidy.

10. The same survey by the PCR Mission suggested that a majority of the recipient NGOsdid not use the funds for the intended market. They merely followed the suggested group lending(4-10 subborrowers) with the group uniformly granted P40,000. Among the reasons why theNGOs did not strictly lend the funds only to the poorest of the poor beneficiaries are (i) theiraversion to lending to a perceived high-risk clientele; (ii) lack of trained personnel to conduct theneeded social intervention; and (iii) unwillingness or inability to assume the costs of socialintervention which can be intense and expensive with a long gestation period. A number ofNGOs in the country specialize in this task, and they usually enjoy substantial rant assistancefrom local programs or bilateral aid agencies for institutional capacity building. 1 However, theyare far too few and are not necessarily found in the identified poorest provinces; thus they couldnot be readily tapped for the program.

° As per Report and Recommendation of the President (RRP), the beneficiaries would include tribal groups, victimsof natural disasters, marginal fisherfolk, forestry workers, and various urban poor with family incomes at least 50percent below the poverty line.An example is the GBA Replication Program supported by PHILNET, a network of GBA-replicating NGOs thatreceive support from bilateral agencies and foreign NGOs.

4

3. NGO Development Program and DTI Institutional Strengthening

11. The NGO development program consisted of three phases, which were implemented bythree domestic consulting firms engaged by DTL 12 Phase I implemented basic courses for theNGO staff to address the problems of weak and ineffective NGO organization management andweak credit and finance management, and to train NGO trainers for the continuing education ofNGOs and their members. The consultants conducted 119 training sessions (the target was 130)and trained 3,080 participants from 1,016 NGOs (the target was 2,830 participants from 808NGOs). In phase II, follow-up advisory services were provided during two visits to each NGO.The consultants determined whether the NGOs had applied the principles learned in phase Itraining, analyzed their operations, made recommendations to improve operations, andevaluated the NGOs progress based on agreed-upon action plans. A total of 422 NGOsbenefited from phase II, while 644 benefited from phase Ill. In phase Ill, both basic courses andadvanced courses in financial and credit system management and strategic planning wereconducted for selected NGOs. A total of 3,939 participants representing 1,660 NGOs, distributedby region, benefited from the phase I and phase Ill basic training courses. In phase ill, about 757participants from 428 NGOs benefited from the 28 advanced training courses, which coveredcredit and financial system management and strategic planning (Appendix 9, Tables A9.1-A9.6).

12. The full impact of the NGO program may not be readily known as yet. However,significant improvements among NGO beneficiaries were already noted by DTI and the Missionin terms of better loan record keeping, loan monitoring, higher collection rates, clearer directions,and more responsive management. The PCR Mission interviews with NGO officials consistentlyconfirmed the latter's appreciation of the technical assistance and institutional interventionsprovided by the Project, which as they claimed vastly improved their operations. The NGOdevelopment program also benefited the subborrowers through their participation in the manyfollow-up training courses provided by the NGOs, based on the training-of-trainors trainingmodules developed under the program.

13. Under the DTI program, 114 staff from all 16 regions and the TST-Project ManagementOffice (PMO) office benefited from three types of workshops aimed at strengthening projectmanagement and extension skills (Appendix 9, Table A9.7). Two five-day workshops on projectmanagement using the Kepner Tregoe (KT) Model strengthened the staff's mental discipline todeal more effectively and more efficiently with on-the-job situations. The second workshop,involving six days of training, dealt with project impact assessment and evaluation, whichstrengthened the staff's ability to conduct project impact assessment. The third workshop,involving 14 days of training, featured the small enterprise development course (SEDC) usingthe experiential learning philosophy underlying the Competency- Based Economies throughFormation of Entrepreneurs [CEFEJ Approach. The SEDC developed the skills of project staff inassisting NGO and microentrepreneurs in small enterprise development, including thepreparation of business plans, and diagnosing the problems of beneficiaries. Three regionalecho seminars were also conducted for those unable to attend the earlier sessions. The trainingprogram greatly benefited the DTI field assistants and field supervisors and enhanced theirperformance under the Project.

14. The Project provided vital equipment and facilities, which helped DTl improve Projectsupervision and monitoring. A total of 181 computers, 65 motorcycles, and one boat wereacquired (Appendix 10). The computers were used to generate operational and management

12 The three firms and their area of coverage are (I) Innovative Consultancy Corps. of the Philippines (ICON), forRegions I-Il! and CAR; (ii) Small Enterprise Research and Development Foundation (SERDEF), for Regions IV -VIIIand NCR; and (iii) Associated Resources and Management Development (ARMDEV) for Regions X-XII and ARMM.

information, and in implementing the benefit monitoring and evaluation (BME) system. Thetransport equipment proved invaluable to the mobility of DTI staff, especially in the nonurbanproject areas where transportation was a constraint.

15. As a result of the ADB-assisted technical assistance, a detailed analysis of the ruralcredit sector was completed and a loan for the Rural Microenterprise Finance Project for theGovernment of the Philippines, with cofinancing from the International Fund for AgriculturalDevelopment (IFAD), ensued.13

B. Implementation Arrangements

16. DTI implemented the Project through the Bureau of Small and Medium BusinessDevelopment (BSMBD), which exercised national authority over the Project. Although it is a non-financial government agency, DTI had the authority to implement a credit program through theTulong sa Tao Program created under Executive Order 158 issued in April 1987.14 Theimplementing guidelines, policies, and systems of the Project followed those of the First Project.Implementation was decentralized through DTI's regional and provincial offices, using NGOs ascredit conduits to onlend to subborrowers.

17. DTI regional and provincial offices engaged the services of domestic financial specialists(FS5) and financial analysts (FA5), on a contractual basis, 15 specificafly to perform projectmonitoring and related functions. The FAs and FSs were the direct link of OTI with the NGOsand the subborrowers. They were responsible for project promotion, and initial screening ofNGOs, and assisted in loan application preparation, subloan monitoring, and collection. NGOsand subborrowers who were interviewed consistently expressed their high regard for the FSsand FAs as dedicated workers, honest, hardworking, and genuinely concerned with the Projectand its constituents. Initially, there were two FAs per province and one FS per region.' 6 Theyeffectively monitored and supervised the Project while providing technical and institutionalstrengthening inputs to NGOs, directly or indirectly through networking. The rapport of the FSsand FAs with NGOs and the subborrowers was seen to be a major factor that led to the successof the Project. Toward the conclusion of the Project, however, the increasing budget constraintsand the strict imposition of government regulations by the Commission on Audit (COA) forcedmany FSs and FA5 to seek better paying and more stable jobs elsewhere. The termination ofemployment of many FSs and FAs put a serious strain on DTI's organic staff who had to doubleup and perform the job supposed to be performed by the FAs and FSs originally deployed solelyfor the Project.

18. DTI designated the Development Bank of the Philippines (DBP) as the Trustee Bank forthe Project. DBP performed cashiering and fund investment functions (i.e., loan disbursementand collection). DTI also used the existing fund management committees (FMCs), which wereset up under the TST Program, at provincial, regional, and national levels. The FMCs comprisedrepresentatives from the banking, and business sectors, academe, and NGOs, with the DTI

13 ADB Loan 1435-PP-Il (SF): Rural Microenterprise Finance, for $20.0 million, approved on 8 May 1996 with lEADcofinancing of $14.7 million.

14 Existing laws and regulations limited the implementation of financing programs to government banks and financtalinstitutions. Executive Order (EO) 158 signed under the emergency powers of the President under the transitiongovernment of 1986 - 1992 in effect amended such laws and allowed DTI to implement the TST Program withauthorized seed money of P100 million (of which one half as disbursed in 1988 and the balance in 1989). EO 158was OTIs authority to be the executing agency for the First Project and the Second Project

15 The contract of each FS and FA is coterminus with project implementation.16 A few provinces had three while others had only one FA, depending on the number of NGOs and the volume of

loans granted.

6

secretary, and the regional and provincial directors as chairpersons at the national, regional, andprovincial levels, respectively. The national FMC was the highest policy-making and governingbody of the Project, while the local FMCs had the powers and autonomy to act on local issues atcertain levels of authority: the provincial FMC could approve loans from P50,000 to P150,000;the regional FMC, from P150,001 to P500,000; and the national FMC, from P500,001 to P3.0million. The assistance and composition of the FMCs (i) allowed valuable insights from manypeople with varying perspectives, as well as transparency and objectivity in the lending process;and (ii) decentralized the loan process with adequate approval powers at various levels - a vitaladvantage because it allowed greater contacts with the target groups and convenience inaddressing location-specific issues involving the Project.

C. Project Costs and Financing

19. At appraisal, the total cost of the Project was estimated at $43.83 million equivalentcomprising $30.00 million financed by ADB for the microcredit component; $3.00 millionequivalent from the Government of Norway for the NGO development and DTI institutionalstrengthening and the MPPP; and $10.83 million equivalent from the Government of thePhilippines, NGOs, and beneficiaries.17

20. The actual cost of the Project amounted to $46.97 million equivalent, which was financedas follows: $31.63 million equivalent loan from ADB; $3.00 million equivalent grant from theGovernment of Norway; $1.80 million equivalent grant from the Government of the Netherlands,and $10.54 million equivalent from the participating NGOs and beneficiaries. The changes in theProject costs and financing plan are shown in Appendix 11. The loan was denominated inSpecial Drawing Rights (SOR), while the expenditures were incurred in Philippine pesos. In viewof the appreciation of the SDR vis-â-vis the US dollar and that of the US dollar vis-à-vis thePhilippine peso during implementation, the amount of the ADB loan increased to $31.63 million,which was fully utilized for the microcredit program.

D. Project Schedule

21. Implementation was delayed by about 10 months, which required the original terminaldate for commitments to be extended once to 31 December 1996 to complete the Project. Thedelay was caused by (i) delays in the release of loan funds from the Department of Budget andManagement to DII, (ii) delays in the disbursement of the loan funds from DBP to the NGO, and(iii) inadequate counterpart funds from the Government. Not only was the number of DTI fieldstaff limited during the initial years; those who were employed did not stay long because of thecontractual nature of their appointments.

E. Performance of Consultants, Contractors, and Suppliers

22. As agreed upon during appraisal, the consultants for the training of DTI staff under theNGO development and OTI strengthening program were locally selected in view of the type oftraining required, and the need for consultants with in-depth understanding of the local conditionsand the NGOs. Three consultants teams were recruited by the Government (footnote 12) inaccordance with Government procedures acceptable to ADB. The recruitment and performance

17 The Government of the Netherlands had expressed willingness to provide financing equivalent to $1 .80 million tofinance the NGO Development Program and the Institutional Strengthening of DII. However, agreement to thiseffect was not finalized. In the interim, the Government of Norway had agreed that in case the financing from theGovernment of the Netherlands would not materialize, funds from the Government of Norway could be utilized asfollows: $1.80 million for the NGO and DTI components, and $1.20 million for the MPPP.

7

of the consultants were found to be satisfactory. The procurement of goods and vehicles such ascomputers, motorcycles, and motorboat was undertaken according to ADB's Guidelines forProcurement. Considering the diverse nature of the goods and services to be procured under thesubloans and the many types of subborrowers, procurement was done through direct purchaseby the subborrowers at the local market based on prevailing commercial practices. Procurementwas undertaken satisfactorily.

F. Conditions and Covenants

23. All major loan covenants have been complied with, except the one involving the conductof a midterm review (Appendix 12). It appears that the vehicle accident involving the Governmentand ADB project officers during a regular project review, the interim transfer of responsibility tovarious staff, and lack of attention to compliance with the loan covenant were responsible for thislapse. Despite the lapse, however, the Project was successfully implemented.

G. Disbursements

1. Geographical and Sectoral Distribution of Fund Utilization

24. As of loan closing, ADB disbursement for the Project amounted to P836.7 millionequivalent ($31.6 million), which was relent by DTI to 1,579 NGO conduits. Among the 16regions of the country, the top three in releases were Region III (P155.8 million), Region II(P153.9 miflion), and Region IV (P152.7 milion). In terms of the number of NGO conduits, the topthree regions were Region IX (with 187 NGOs), Region IV (176), and Region III (168) (Appendix1). In terms of the number of microentrepreneurs assisted, the top three regions were Region IV(13,488), Region V (12,879), and Region III (12,642), while in employment generation, the topthree were Region III (25,751), Region IV (23,512), and Region V (19,489). From experiencegained in the First Project, the National Capital Region (NCR) had substantially higher capacityto absorb loan funds than the other regions. Because of an earlier agreement, loan releases toNCR did not exceed 10 percent of the total releases to NIGOs. The total funds disbursed to NCRamounted to P56.3 million equivalent, representing 5 percent of the total funds released toNGOs.

25. Under the microcredit program, and among the types of microenterprises assisted,trading had the largest share of the total loans: 65 percent representing 72,108 microenterprises.This is typical of most microfinancing programs where trading gets the highest share ofsubloans. Trading is the most common economic activity among the poor and newmicroenterpreneurs mainly due to (I) the ease of start-up (i.e., requiring less skills, capital orequipment), and (ii) daily cash inflows with relatively higher returns that can absorb the highercosts of money and can be managed by women with less disruption of house chores. Tradingwas followed by manufacturing (22 percent, representing 24,247 microenterprises), and by theprocessing and services sector (13 percent representing 14,748 microenterprises) (Appendix13). About 64 percent of the subborrowers were women, 34 percent were men, and 1 percentwere self-help groups (Appendix 14).

26. The full amount of the $3.0 million grant from the Government of Norway (equivalent toP73.7 million at the time of final drawdowns) was disbursed to finance the MPPP. The MPPPwas implemented in the poorest provinces of the country as identified by the Presidential Councilfor Countryside Development (PCCD) and the Presidential Commission to Fight Poverty (PCFP)on the basis of specific socioeconomic indicators. Thus, the MPPP was limited to 26 of the total86 provinces and 11 of 16 regions of the country. Releases by province and by loan size areshown in Appendixes 6 and 7. Of the types of microenteprises assisted, trading also had the

8

largest share at 80 percent, followed by manufacturing/processing at 11 percent, and services at9 percent (Appendix 15). The full $1.8 million grant financed by the Government of theNetherlands was disbursed to finance the NGO development and DTI strengthening program.

2. Relending Interest Rates and Subloan Maturities

27. Under the microcredit program, subsidiary loans were relent to the NGOs at 12 percentper annum, while the subsidiary loans under the MPPP were relent at 5 percent per annum. TheNGOs onlent the project funds, regardless of source, at interest rates of 12-42 percent perannum. The NGOs were given the option to set their own lending rates provided these did notexceed the prevailing commercial bank rates in their respective areas of operation. Some NGOscharged lower interest rates, but they imposed other charges and fees (e.g., service fees andCBU). Some NGOs deducted interest and other charges in advance, while others amortizedthem on a diminishing balance basis. Smaller NGOs were observed to charge higher interestrates and higher retention for CBUs, given their need to rapidly increase their meager resources.DTI generally relent at three to five years maturity, while the NGOs onlent for terms ranging fromone month to a maximum of two years.

3. Capital Buildup Scheme

28. To encourage savings mobilization among subborrowers, the Project introduced a CBUscheme, whereby at least 2 percent of the loan amount was deducted at the time of its release toa subborrower. The funds collected under this scheme were returned to the beneficiaries afterthey fully paid their subloans; or, at the option of the subborrowers, such funds were depositedinto their savings accounts. The survey at the completion of the Project recorded a 10 percentincrease in the number of NGOs that implemented the scheme compared with the baseline data.It should be noted that the majority of the conduit NGOs were cooperatives with their own CBUschemes, so that the incremental number of NGOs with CBU schemes was probably an impactof the Project.

H. Collection Performance

29. Repayment rates from the NGOs to DTI ranged from 43 to 99 percent, and averagedabout 85 percent (Appendixes I and 16), while collection rates from the subborrowers to theNGOs ranged from 42 to 95 percent, and averaged about 82 percent at loan closing(Appendixes 1 and 17). These repayment and collection rates are considered satisfactory in thelight of the nationwide coverage of the Project (86 provinces and 1,579 NGOs), DTI's limitationsas a nonfinancial institution, and the highly retail lending by NGOs to a market that wasperceived to be nonbankable. Some reasons for the relatively lower repayments in the SecondProject than in the First Project18 are (i) the increased geographical coverage and theparticipation of a much larger number of NGOs and subborrowers, requiring more supervisionand follow-up; and (ii) participation of new regions and provinces in which the concept of creditrepayment is new. The large number of traders also resulted in failures due to overcrowding andexcessive competition in small town markets. The high repayment rates of the NGOs to DTIindicate the NGOs' financial capability to pay or willingness to draw from their own funds to coverthe shortfalls in collection to maintain their good standing with DTI. This was apparent in thecase of NGOs in Regions X and XIII. At project completion, 12 regions out of 16 showed higherrepayment rates of DTI loans than the collection rate on the NGO subloans.

18 Under the First Project, collection rates from the NGOs to DII ranged between 97 and 99 percent, while repaymentrates from the subborrowers to NGOs ranged between 85 and 90 percent.

9

30. By the end of March 1999, more than two years after loan closing, the averagerepayment rate on the DTI subsidiary loans decreased further to 81 percent, compared with 85percent at the end of 1996. However, the collection rate from the subborrowers to NGOsremained at the same level of about 81 percent. The diminishing presence of DTI and the delayin providing a third project could explain in part the decline in the repayment rates. The NGOsare less reluctant now to cover the shortfalls in their repayments and did not want to draw fromtheir own funds to cover the shortfalls. The number of regions with higher repayment rates thancollection rates declined from 12 to 9.

31. Under the MPPP, repayment from the NGOs to DTI ranged from 30 percent (Tawi-Tawi)to 100 percent in 11 provinces (Antique, Apayao, Benguet, Capiz, Guimaras, Negros Oriental,and more), and averaged 89.7 percent (Appendix 6). Collection from the subborrowers to NGOsranged from 45 percent (Capiz) to 100 percent in four provinces (Apayao, Benguet, Biliran, andNegros Oriental), and averaged about 84 percent Four provinces did not show any paymentfrom NGOs to DII, while 10 provinces did not show any payment from subborrowers to theNGOs. The main reasons for the poor performance could be attributed to staff's weak creditadministration and supervision, coupled with poor accessibility and local security in some areas.

L Benefit Monitoring and Evaluation (BME)

32. The BME system was designed for the conduct of three surveys - baseline, midproject,and postproject - to assess the project impact on the NGOs and subborrowers. The FAs andFSs conducted the surveys of the NGOs, while the NGOs conducted the surveys of thesubborrowers, assisted by the FAs and FSs. The FAs and FSs were given training in how toconduct surveys, encode data, and generate data with the use of computers provided to allregional and provincial offices. Two surveys were completed. The baseline survey, which wasdone between September 1993 and July 1994, coincided with the halfway mark of projectimplementation. The second survey (June 1995-December 1996), covered the samerespondents as in the baseline survey and coincided with the end of the Project. The postprojectsurvey was started but could not be completed because of the termination of the contracts of theFAs and FSs and the Project. There is neither in-house capability nor funds available forconducting the survey as almost all DTI personnel trained for this task had left With the Projecton a phaseout mode, it is unlikely that DTI would be willing to conduct the postproject survey.

J. Environmental and Social Impacts

33. Since the Project involved small-scale economic activities in trading, manufacturing,services, etc., the environmental impact was minimal and generally favorable. The Projectbenefited about 71342 women or 64 percent of the total number of subborrowers. Most of thewomen engaged in petty trading (mostly in food and dry goods vending) in private and publicmarkets, but some engaged in manufacturing (small cottage industries, food vending, bakingbread and other products). A total of 38,192 men (34 percent) also obtained microfinance creditand were involved in small cottage industries and local transport (Appendix 14).

K. Performance of the Borrower, and the Executing and Implementing Agencies

34. Overall, the performance of the Government, DTJ, and DSP in executing the Project isconsidered satisfactory. Although there were initial delays in project implementation, those wereresolved and implementation proceeded efficiently. The delays were due to the slow release ofcounterpart funds to the Project, slow disbursement of subloans from the NGOs to thesubborrowers, and slow preparation and approval of subprojects by the FMCs (taking two to sixmonths). In addition, the number of DTI field staff was inadequate in the beginning, DII staff

10

turnover was fast due to the contractual nature of their employment, and there were initialdifficulties in identifying the qualified NGOs. On hindsight, the centralized structure of approval,release of funds, and record keeping agreed upon with DBP in releasing funds from the CentralBank to the NGOs at the regional and provincial levels also caused initial delays. Futuremicrofinance projects should closely examine the need for the services of a trustee bank whendeciding on the executing agency for the Project. Lessons learned from this Project wouldsupport the direct participation of government financial institutions (GFIs) in providing microcreditin the rural areas.

L Performance of NGOs and Subborrowers

35. Overall, the performance of the NGOs is considered satisfactory. The majority of theparticipating NGOs performed well as credit intermediaries. They reported continued increase inmembership, improved loan services to their members, and considerable growth in their assets.Considering the success in providing needed credit to the target groups through the NGOs, theProject has further confirmed the general belief that for this type of Project, NGOs have acomparative advantage over government aid agencies and the formal banking sector. TheProject also demonstrated that NGOs have the capability to act as implementing agencies forextending credit to the rural poor.19

36. Cooperatives comprised 77 percent of microfinance institutions (MFls), which participatedin the Project. As MFIs, cooperatives (especially credit cooperatives) have distinct advantagesover foundation-type NGOs. Among others, cooperatives have standardized systems for creditprocessing, accounting, and control, which many foundation-type NGOs lack. Cooperatives arealso self-policing since they are member-driven, unlike noncooperative NGOs. 2° Finally,cooperatives have the legal basis to mobilize savings deposits from members and thus have amore stable and relatively cheaper fund source not readily available to other NGOs that areprohibited by banking laws from mobilizing deposits. Deposit mobilization is a vital key to thesustainability of MFls and is a much-needed service for those who lack access to banks.

37. With the assistance of 1,579 NGOs, more than 111,100 microentrepreneurs located in 16regions of the country benefited from the Project. The performance of these subborrowers isconsidered satisfactory (para. 28).

M. Performance of ADB

38. ADB undertook six Loan Administration Missions between 1992 and 1996, including oneInception Mission at the start of the Project, during which time useful recommendations forovercoming delays in implementation were made and agreed upon with the Government. Therecommendations included faster release of the counterpart funds to the Project, reducing theperiod it takes for approval and disbursement of loans to NGOs, and accelerated accreditation oflarger number of NGOs. ADB also greatly facilitated the timely disbursement of ADB loans toDBP through the Central Bank. Overall, the performance of ADB in administering the Project isconsidered satisfactory, despite a lapse in conducting the midterm review of the Project asspecified in the loan covenants.

19 In July 1987, ADB approved a policy that allows it to cooperate with NGOs as consultants, contractors, orexecuting/implementing agencies (Doc. R79-87: The Bank's Cooperation with Non-Governmental Organizations, 25June 1987).

20 Cooperatives are governed by the general assembly, composed of all members, which elect the Board of Directorsand other officers. Thus, all cooperatives officials are ultimately accountable to the general assembly. In contrast,foundation-type NGOs are governed by the founders or a board of trustees who are usually accountable to no onebut themselves and their conscience.

11

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

A. EconomiclFinancial Performance

39. Economic and financial analyses were not carried out during appraisal because of thenature of the Project: it involves (i) a multitude of subborrowers nationwide belonging to the low-income groups or the poorest households (with income below the poverty line as defined by theGovernment); and (ii) numerous small individual subloan amounts - i.e., starting with P40,000and increasing to a maximum of P75000 for the succeeding loans - for subprojects that theExecuting Agency and ADB considered to be economically viable.

40. In the BME survey, about 44 percent of the subborrowers reported increases in theirannual family or enterprise income, with 41 percent experiencing increased annual net incomeduring the project period. Of the latter group, 40 percent registered increases below 50 percent;18 percent, increases between 50 and 100 percent; and 42 percent, increases above 100percent.

41. In the same BME survey, almost 80 percent of the responding NGOs had increases intheir assets, with 32 percent reporting increases of less than 50 percent; 16 percent, increasesbetween 50 and 100 percent; and 31 percent, increases above 100 percent. About 68 percent ofthe NGOs reported increases in their net worth, with 38 percent experiencing growth of over 50percent from their baseline level. Likewise, 61 percent of the NGOs had increases in their annualrevenues, with at least 37 percent experiencing growth of more than 50 percent over thepreproject levels.

B. Attainment of Benefits

42. The Project achieved or exceeded the direct benefits targeted at appraisal: (i) the morethan 111,100 microenterprises that actually participated exceeded the target of 60,000, andcontributed to employment in the rural areas through the promotion of labor-intensiveinvestments using simple technologies and local raw materials; (ii) the BME survey found that,about 41 percent of the subborrowers experienced increased annual net income during theproject period: 60 percent registered increases between 50 and above 100 percent, comparedwith the target increase of 20-30 percent; (iii) by generating employment for more than 183,850workers at a cost per job of about P6,310 during the Project period compared with a target of170,000-180000 workers at a cost per job of P5,000-P10,000, the Project reduced the acuteunemployment and underemployment problems in the country; (iv) due to the built-in savingsscheme, the subborrowers mobilized savings estimated at P30.9 million, compared with thetarget of P25.0 million; (v) the participating NGOs and beneficiaries mobilized additionalcounterpart financing (133 percent of the amount of loans they received from DTI) amounting toP1.16 billion, compared with the PlO million estimated at appraisal; (vi) loans were relent to1,579 NGOs compared with the appraisal estimate of 700 NGOs; and (vii) the benefited 64percent women exceeded the target of 60 percent.

43. The other major benefits from the Project are the growth and development of NGOs asviable MFls and the strengthening of DTI staff that resulted in significant improvement in overallproject implementation. There were also considerable improvements in the operations of theNGOs: improved loan recording, improved monitoring of loans, higher collection rate, and moreresponsive management. According to the BME survey, almost 80 percent of the respondingNGOs had increases in assets: 16 percent reported increases of 50-100 percent and 31percent, increases above 100 percent. The NGOs also provided intensive training to the

12

participating microentrepreneurs, which strengthened the latter's entrepreneurial financial, andmarketing capabilities.

IV. CONCLUSIONS AND RECOMMENDATIONS

A. Conclusions

44. The Mission concludes that overall the Project is successful. All the specific objectivestargeted by the Project were achieved: (i) increased employment in the rural areas (183850 jobsgenerated at a cost per job of P6,310) and increased income of the participating low-incomemicroentrepreneurs, poor and disadvantaged women, the landless, and the unemployed; (ii)substantial savings (estimated to be P30.9 million) mobilized by the subborrowers; and (iii)increased production of goods (baked foods, preserved foods, home and office furniture), andservices (new housing, local transportation, and even funeral services). Other major direct andindirect benefits have been described in paras. 42-43 and Appendix 18.

45. The Mission believes that the Project has been implemented successfully. It exceededthe targets set at appraisal in terms of the number of microenterprises assisted, the number ofjobs created within the prescribed cost range, lending to 64 percent women, and generatingadditional counterpart financing by utilizing the revolved funds, including interest earned. TheNGOs also generated additional counterpart financing from its own interest earnings and theincreased savings deposited by the subborrowers, which they onlent to participants during theproject period. The Project was rated successful notwithstanding the findings that the MPPP didnot completely apply the criterion of lending to the poorest of the poor and the criterion of lendingto groups of 4-10 subborrowers. The MPPP involved a pilot effort to provide credit, equivalent toabout 6 percent of the total project cost, to the disadvantaged, such as tribal groups, victims ofnatural disasters, marginal fisherfoiks, forestry workers, and urban poor whose income fell below50 percent of the poverty line.

46. The positive impact of the NIGO development and DTI strengthening program on theimproved operations of the NGOs and improved performance of DTI staff was noted by theMission. The program greatly contributed to the sustainability of the majority of the participatingNGOs, as clearly demonstrated by their improved loan services and considerable growth in theirmemberships and assets, 21 and allowed their continued operations long after the completion ofthe Project. Some of the participating NGOs may have experienced some difficulties because ofthe slowdown of the economy due to the regional economic crisis and the weather disturbance,however, the difficulties did not threaten their viability in view of the following: (i) a large majorityof these NGOs (77 percent) were cooperatives, providing savings and credit facilities; (ii) theloan funds provided to NGOs under the Second Project comprised only a small percentage -about 2-25 percent - of their total loan portfolio since the maximum loan amount availed of underthe Project were only P2.0 million; and (iii) the effective rates of most NGOs ranged from 16 to42 percent (including service fees, other charges, and the common practice of collecting interestin advance). Overall, the Project has shown that the poor and the micro or small enterprisescomprise a viable niche of the financial market. It has also shown that there are a large numberof sustainable MFls in the country that can be nurtured and developed to serve the unique needsof this niche.

21 The surveys show that almost 80 percent of the NGOs registered an increase in asset size; 48 percent reported anincrease between 50 percent and 100 percent, and about 32 percent reported an increase of less than 50 percent.About 68 percent of the NGOs registered an increase in net worth; 38 percent reported an increase between 50percent and 100 percent, and about 29 percent reported an increase of less than 50 percent.

13

B. Lessons Learned

47. The experience gained in implementing the Project produced a number of importantlessons

(i) With effective supervision, the delivery of microfinance services to the rural areascan be made viable and sustainable. NGOs can be effective MFIs, and themicroentrepreneurs and the poor can be bankable clients;

(ii) Microfinance, both savings and credit, is a muth-needed service that can result insubstantial and even dramatic impact on the lives of the intended beneficiaries;

(iii) Among the major factors that contribute to the success of MF1s are

- enlightened and dedicated leaders contributing to a system of continuity,- capable and dedicated managers,- established accounting and control systems that are adhered to,- active and full participation of the members or clientele,- capability to generate internal resources with little dependence on external

borrowings or grants,- proper management or diversification of the loan portfolio, and- full cost recovery in the pricing of interest rates.

(iv) Among NGOs, cooperatives (especially credit and savings cooperatives) appearto have the comparative advantage as MFIs, given their standard organizationalsetup, established systems and procedures, self-policing manner of control, andcapability to legally mobilize savings from members;

(v) Access to financing is essential but is not the sole element for ensunng thesuccess of microenterprises. More often, it is access to markets andcompetitiveness that are vital to microentrepreneurs, considering their tendency toproliferate in an overcrowded market (eg., the majority are in trading and pettyvending);

(vi) It is difficult to implement a specialized program for the ultrapoor as add-on to anonspecialized project such as the Second Project. The MPPP could havereached the target beneficiaries if it had been combined with the ADB-assistedRural Microenterprise Finance Project (footnote 13) that has the same targetgroup and strictly adheres to a specialized approach precisely for this purpose;

(vii) Financial services should be delivered by entities organized to do so, be thesefrom the Government or NGO sector. Government nonbank line agencies arepoor choices even as wholesaling apex institutions since they are neitherorganized nor empowered to efficiently deliver financial services. Moreimportantly, the added burden encroaches on their normal operations to deliverthe much-needed support services they were organized for; and

(viii) An unintended adverse result of the success of the First Project and the SecondProject was the proliferation of credit programs implemented by almost allgovernment nonbank line agencies. From 1988 onward, the Governmentlaunched over a hundred directed credit programs that created confusion anddistortions in the rural and the microfinance sectors. The Government is now in

14

the process of rationalizing its credit program and has mandated once again thatonly government financial institutions may engage in such programs. Even so,many policy and program reforms still need to be undertaken.

C. Recommendations

48. Considering the lessons learned, the Mission makes the following recommendations:

(i) Even though the First Project and the Second Project successfully providedneeded substantial microfinance services to the rural areas, there is still a hugeand unmet demand for microfinance services (both credit and savings) amongpoor microentrepreneurs. The Mission recommends that the ADB considerfinancing a follow-up project. Such project should now graduate from merelysupporting or expanding a successful program; rather it should help theGovernment to pursue a more purposeful strategy of developing a viable andsustainable mircofinance system, consistent with the ADB's Interim Action Planon Microfinance. The Rural Microenterprise Finance Project had initiated some ofthe concepts espoused in the Action Plan.

(ii) Any future project to follow the completed Second Project should support thecurrent Government efforts aimed at rationalizing all directed credit programs,phasing out all credit programs implemented by nonfinancing government entities,and finally leaving the delivery of financial services to those organized for it. Thisis also consistent with the ADB's emerging microfinance strategy. TheGovernment and ADB should carefully choose the executing agency or apexinstitution that could effectively and viably pursue the proposed project, in line withcurrent strategies and objectives. As its major qualification criteria, the executingagency should possess (i) the needed mandate and objectives; (ii) the range ofservices, financial and nonfinancial (e.g., technical assistance such as capacitybuilding) it can offer to the participating credit conduits; (iii) outreach in terms ofbranthes and existing linkages; and (iv) the capability to mobilize resources otherthan borrowings or budgetary appropriations.

(iii) ADB should discuss with the Government, through the Small Business Guaranteeand Finance Corporation (SBGFC), 22 how a postproject survey could beconducted to measure project benefits and the sustainability of the NGOs.

(iv) The project performance audit review should be undertaken by mid-2000.

22 Which took over the responsibilities of the EA over the Project.

Cited on(page, para.)

2,4

2, 4

2,4

2, 4

3, 8

3,8

3, 8

3, 8

4. 11

4,14

6, 20

7, 23

7, 25

7, 25

8,26

8, 29

8, 29

12, 44

15

APPENDIXESNumber

Title

Page

I

Achievements, as of 31 December 1996 16

2

Criteria for Accreditation of NGOs and Subborrowers in 19the Second Project

3

Types of NGO Intermediaries, as of 31 December 1996 21

4

Loan Distribution by Amount, as of 31 December 1996 22

5

Criteria for Accreditation of NGOs and Subborrowers 23Under the Microcredit Program for the Poorest of the Poor

6

Achievement by Province Under the Microcredit Program 25for the Poorest of the Poor

7

Loan Distribution by Size Under the Microcredit Program 26for the Poorest of the Poor

8

Types of NGO Intermediaries Under the Microcredit Program 27for the Poorest of the Poor

9

Achievements of the NGO Development and DTI tnstitutional 28Strengthening Program

10

Procurement of Computers, Motorcycles and a Boat Under 31the DTI Strengthening Program

11

Changes in the Project Costs and Financing Plan 32

12

Compliance with Loan Covenants 35

13

Types of Microenterpnses Assisted 42

14

Types of Subborrowers Assisted 43

15

Types of Microenterprises Assisted Under the Microcredit 44Program for the Poorest of the Poor

16

Comparative Repayment Rates from NGOs to DTI 45

17

Comparative Collection Rates from Subborrowers to NGOs 46

18

Milestones of Project Accomplishments 47

95.2

85.0

1,618

6,484

1,613

1,664

807

456

12,642

199

2,896

250

2,467

127

1,228

68

429

4,054

1,530

240

13,488

84.1

93.2

80.4

82.7

100.0

95.8

90.7

98.2

86.0

100.0

83.6

99.6

71.1

45.5

49.2

99.1

98.457.7

86.0

2,680

12,945

1,629

6,882

1,343

27225,751

199

4,527

9434,482

127

1,726

208

429

7,152

3,380

337

23,512

16Appendix 1, page 1

ACHIEVEMENTS AS OF 31 DECEMBER 1996

Subsidiary Loans SubloansReleases No. of Releases to No. of Employment Repayment Collectionto NGOs NGOs Subborrowers Micro- Generated Rate Rate

Region Province (P) Benefited (P) enterprises (no.) (%) (%)

Ilocos Norte

Ilocos Sur

La Union

Pangasinan

Subtotal (Region I)

Cagayanlsabela

Nueva Vizcaya

Quinno

Batanes

Subtotal (Region II)

Bstaan

Bulacan

Nueva Ecila

Pampanga

Tarlac

Zambales

Subtotal (Region Ill)

IV Aurora

Batangas

Cavite

Laguna

Marinduque

Occidental Mindoro

Oriental Mindoro

Palawan

Quezon

Rizal

Romblon

Subtotal (Region IV)

20,250,000

26,115,000

13,245,000

20,110,000

79,120,000

42,800,000

52,085,000

35,092,000

20,800,000

3,150,000

153,921,000

12,600,000

88,700,000

12,200,000

24,700,000

9,950,000

7,600,000

155,750,000

2.985,000

51,180,000

12,937,500

12,340,000

1,600,000

14,818,000

4,475,000

3,860,000

21,700,000

23,000,000

3,800,000

152,695,500

28 18,562,725 1,123

21 27,195,497 1,273

24 11,470,000 1,120

29 22,480,124 1,455

102 79,708,348 4,971

29 47,080,000 1,307

50 59,164,000 1,018

50 64,069,000 2,873

23 27,768,000 1,050

6 3,465,000 300

158 201,546,000 8,548

20

22,042,000

76

255,615,000

24

24,412,000

22

27,580,000

14

11,340,000

12

16933,000

168

351,922,000

10

3,432,750

44

58,857,000

17

14,878,125

17

14,191,000

2,375,000

23

17,040,700

11

5,146,250

19

4,439,000

16

24,955,000

14

26,450,000

4

4,496,200

176

176,261,025

2,387 76.1

2,544 91.7

1,483 97.8

2,292 82.4

8,706 88.2 81.8

3,617 50.1

3,360 78.6

5,496 79.6

1,688 89.0

149 62.1

14,310 68.9 89.0

V Albay 12,470,000 26 55,000,000 2,244 2,457 89.3

Camannee Norte 10,150,000 13 10,150,000 840 2,023 91.0

Camarines Sur 18,070,000 18 9,713,000 2,066 4,040 81.0

Catanduanes 20,230,000 46 8,422,000 3,353 4858 73.0

Masbate 12,125,000 30 29,978,000 2,889 4,139 83.3

Sorsogon 11,150,000 20 21,491,000 1,497 1,972 76.3

Subtotal (Region V) 84,195,000 153 134,754,000 12,879 19,489 81.3 84.6

88.0

76.4

90.899.3

86.0

85.0

17

Appendix 1, page 2


Region Province (P) Benefited (P) enterprises (no.) 1%) (%)

VI Aklan 5,361.220 8 8,185,292 1,176 2,051 100.0Antique 8.980,000 13 12,160,130 513 1,715 100.0Capiz 7,210,000 10 9,616,526 447 1,753 98.0Guimaras 3,330,000 6 3,502,500 135 345 90.0hello 10,117,000 12 8,177,900 417 2,229 95.0NegrosOccidenta! 10,250,000 10 13,692,444 1,145 2,438 100.0

Subtotal (Region VI) 45,248220 59 55,934,792 3,833 10,531 98.1 94.5

VII Bohol

Cebu

Negros Oriental

Siquijor

Subtotal (Region VII)

VIII Eastern Samar

Leyte

Northern Samar

Samar

Southern Leyte

Bibran

Subtotal (Region VIII)

IX Basilan

Zamboanga city

Zamboanga del Norte

Zamboanga del Sur

Subtotal (Region IX)

X Bukidnon

Camiguin

Misamis Occidental

Misamis Oriental

Subtotal (Region X)

31737,000

33,535,000

28,42 7,633

6,953,000

100,652,633

7,160,000

26,511,000

9,018,000

9,430,000

14,390,000

2,100,000

68,629,000

2,625,000

18,800,000

14,345,560

39,600,000

75,370,560

5,100,000

2,200,000

11,355,000

9,450,000

28,105,000

27

31737,00047

33,535,00018

28,427,6336

6,953,00098

100,652,633

17

6,700,000

15

17,613,00017

8,500,00014

7,850,00020

11,071 ,7024

2,000,00087

53,734,702

13 2,625,000 233

36 16,168,000 1,383

56 9,339450 1,633

82 38,325.000 3,835

187 66,457,450 7,084

8 1,950,000 1,026

6 2050,000 292

14 11,650,000 2,753

10 12,629,000 3,611

38 28,279,000 7,682

61.4

95.0

63.485.0

83.0

100.0

86.2 86.0

315

29.2

2,352

80.0

2,216

87.8

6,300

87.8

11,183

83.7 83.0

921 100.0

367 100.0

1,796 98.0

1,584 96.0

4,668 99.0 89.0

2,008

3,072

3,257

5,480

1,195

1,886

362

672

6.822

11,110

538

1,113

1,465

3,687

372

772

403

1,063

605

1,899

98

342

3,481

8,816

Xl South Cotabato 7,800,000 15 7,585000 1,072 1,201 32.0Sarangani 150,000 2 150,000 137 136 aDavao del Sur 13,660,000 30 13.160,000 3,039 2.228 90.2Davao City 5,550,000 16 4,300,000 797 819 100.0Davaodel Norte 14,180,000 18 12,680,000 1,298 1,841 94.6Davao Oriental 2,710,000 19 2,710,000 430 683 35.0

Subtotal (Region XI) 44,050,000 100 40,585,000 6,773 6,908 79.7 75.3

Oata not available.

77.5

83.0

7,0981.598

1,846

744

11,286

446

53

455

271

74

295

73

1,667

94.9

98.0

79.7

86.9

91.5

70.834.8

88.8

901

100.0

100.0

61.2

82.6

7,837

1,323

1,856

1,062

12,078

1,157

111

640

947

265

565

2554,140

404

1 24

108

70.7

0

68.2

123

0.0

635

43.0

42.0

18

Appendix 1, page 3


Region Province (P) Benefited (P) enterprises (no.) (%) (%)

XII Cotabato City 6,150000 10 20,940,000 298 670 98.0Cotabato Province 15,260,000 13 8,890,000 2,506 4,331 82.0Lanao dcl Norte 3,450,000 6 4,560,000 308 513 100.0Iligan City 6,850,000 7 2,380,000 951 1020 100.0Marawi City 1,500,000 1 7260,000 71 209 100.0Sultan Kudarat 850,000 6 970,000 58 140 100.0

Subtotal (Region XII) 34,060,000 43 45,000,000 4,192 6.883 93.0 86.0

XIII Agusan del Norte

Agusan del Sur

Sungao del Norte

Surigao del Sur

Subtotal (Region Xiii)

CAR Abra

Apayao

Baguio

Benguet

ifugao

Kalinga

Mt. Province

Subtotal (CAR)

NCR Area I

Area II

Area III

Area iv

Subtotal (NCR)

ARMM Sulu

Tawl-twi

Maguindanao

Lanao del Sur

Subtotal (ARMM)

18,700,000

7,200,000

7,440,000

5,550,000

38,890,000

8,086,000

475,000

7,615,000

7,060,000

4,906,090

4,900,000

3,380,000

36,422,090

19,300,000

10,250,000

13,550,000

13,250,000

56,350,000

900,000

2,150,000

900,000

1,050,000

5,000,000

17

18,844,5008

7,500,00018

7,324,00013

5,850,00056

39,518,500

13

9,188,0003

2,256,35914

7,083,441

13

4,802,0404

2,910,91412

4,129,00013

1,130,00072

31,499,754

13 31,023,775 1,7299 28,178,365 2,025

13 52,328,997 2,64913 15,603,977 1,02448 127,135,114 7,427

17 1,020,000 805 466,000 436 900,000 916 - 114

34 2,386,000 328

4.497 84.0

2,622 89.0

6,268 99.0

1,686 98.0

15,073 93.0 91.0

Grand Total 1,159065,003 1,579 1,541,374,316 111,103 183,853 84.9 82.4

ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, NCR = National Capital Region, NGO = nongovernmentorganization.

19 Appendix2pagel

CRITERIA FOR ACCREDITATION OF NGOs AND SUBBORROWERSIN THE SECOND PROJECT

I. Nongovemment Organizations (NGOs)

A. Institutional

The NGO must have

(I) a legal personality,(ii) an operating experience of at least 3 years in the areas of social mobilization and

value formation,(iii) a management board with members of high standing in the local community,(iv) at least one (1) permanent staff handling the lending project,(v) periodic staff training, and(vi) a permanent office and adequate office space.

B. Financial

The NGO must have

(I) an annual externally audited financial statement,(ii) a minimum net worth of P100,000, 1 and(iii) a net worth to risk-asset ratio of not less than 1:5 and a current ratio of at least

1:1.

C. Lending Performance

The NGO must have

(i) a continuous and successful oniending operation for at least one year,(ii) a collection rate of 80 percent or higher, and(iii) a record of cost per job created of not more than P15,000 per job.

II. Subborrowers

A. Qualifications of Beneficiaries

(i) Beneficiaries should below to low-income groups.(ii) Beneficiaries who do not meet criterion (i) should enhance labor employment by

creating jobs with investment cost not exceeding P15,000 per job.(iii) Beneficiaries should have no effective access to credit from the formal banking

institutions.(iv) Beneficiaries should be residents of the municipality where the subproject is to

be implemented, or members of an economic activity group in the saidmunicipality.

with net worth below P100,000 may still borrow up to three times its net worth.

20Appendix 2. page 2

B. Subloan Guidelines

Single Beneficiaries

(I) Maximum loan amount of P25,000/beneficiary for the first loan, P35,000for the second loan, and P50,000 for succeeding loans.

(ii) Interest rate should not exceed commercial bank interest rate within thearea of operation of the NGO.

(iii) Repayment period of 3 years maximum.

2. Group Beneficiaries

(I) Maximum loan amount of P200,000/group.(ii) Interest rate should not exceed commercial bank interest rate within the

area of operation of the NGO.(iii) Repayment period of up to 5 years.

21

Appendix 3

TYPES OF NGO INTERMEDIARIES(as of 31 December 1996)

Region Cooperative Foundation Association Others Total

95 2 5 0 102

II 143 4 11 0 158

III 114 18 25 10 167

IV 159 10 7 0 176

V 110 5 32 6 153

VI 38 13 8 0 59

VII 76 8 14 0 98

VIll 72 8 9 0 87

IX 114 19 54 0 187

X 35 3 0 0 38

Xl 79 10 11 0 100

XII 33 5 1 4 43

XIII 39 4 13 0 56

CAR 55 0 17 0 72

NCR 43 3 2 0 48

ARMM 13 4 17 0 34

Total 1,218 114 226 20 1,578Percent 77 7 14 1 100

ARMM Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, NCR = NationalCapital Region, NGO = nongovernment organization.

lncludes civic groups organized purposely for community development such as community organizingand lending for income-generating activities.

LOAN DISTRIBUTION BY AMOUNT(as of 31 December1996)

P50,000 - P500,000 P500,001 - P1,000,000 P1,000,001 - P1,500,000 P1,500,001 - P2,000,000 Total ReleasesRegion No. of No. of No. of No. of No. of

NGOs Amount NGOs Amount NGOs Amount NGOs Amount NGOs Amount

81 43193,787 8 8,920,517 5 9,353,996 8 18,251 699 102 79,719,999

II 88 37,224,697 30 31,547,821 12 18,531,756 28 66,622,727 458 153,927,000

III 70 27,061,110 58 55,802,232 7 8,787,753 33 64,098,905 168 155,750,000

IV 99 33,478,020 35 40,342,049 12 18,073,573 30 60,801,858 176 152,695,500

V 136 55,599,515 11 15,280,514 3 5,706,416 3 7,608,555 153 84,195,000

Vi 31 8,750,986 11 10,665,288 4 4,192,137 13 24,639,809 59 45,248,220

VII 81 33.543,739 18 21,788.496 10 18,181,755 9 27,138,643 98 100,652,633 I'.)

VIII 56 19,279,116 14 13,953,758 7 9,222,343 10 26,173,783 87 68,629,000

IX 155 39,538,471 lB 13,269,071 3 3,359,258 11 19,203,760 187 75,370,560

X 31 14,180,250 2 2,427,250 2 3,832,500 3 7,665,000 38 28,105,000

XI 82 20,566,554 12 9,640,572 0 0 6 13,842,873 100 44,050,000

XII 30 11,000,476 4 3,342,857 4 5,138,095 5 14,578,571 43 34,060,000

XIII 47 19,138,881 5 8,328,797 1 1,803,525 3 9,618,797 56 38,890,000

NCR 19 9,848,659 16 19,193,694 3 4,924,330 10 22,383,317 48 56,350,000

CAR 55 14,074,074 10 10,013,273 6 9,827,379 1 2,507,365 72 36,422,090

ARMM 33 4,230,769 1 769,231 0 0 0 0 34 5,000,000-o

Total 1,014 390,709,105 253 265,285,420 79 120,934,817 173 382,135,661 1,579 1,159,065,002Percent 68.0 33.7 16.0 22.9 5.0 10.4 11.0 33.0 100 100 0.

ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, NCR National Capital Region, NGO = nongovernment organization.


CRITERIA FOR ACCREDITATiON OE NGOs AND SUBBORROWERSUNDER THE MICROCREDIT PROGRAM FOR THE POOREST OF THE POOR

I. Criteria for Accreditation of NGOs

A. Institutional

The NGO must have

(I) a legal personality,(ii) been in existence for 3 years,(iii) a management board with members of high standing in the local community,(iv) been providing assistance to the poorest of the poor,(v) at least one permanent staff handling the program,(vi) periodic training programs, and(vii) a permanent office space (owned/rented).

B. Financial

The NGO must have

(i) an annual externally audited financial statement,(ii) a minimum net worth of P100000, 1 and(iii) a net worth to risk-asset ratio of not less than 1:5 and a current ratio of at least

1:1.

C. Lending Performance

The NGO must have

(I) carried out continuous and successful onlending operation for at least one year,(ii) a collection rate of 85 percent or higher, and(iii) a record of cost per job created of not more than P1 5,000 per job.

U. Criteria for Accreditation of Beneficiaries

A. Qualifications of Beneficiaries

(i) Beneficiaries should belong to the poorest households with income within thelowest 75 percent of the poverty line as defined by the Government.

(ii) Lending will be on a group basis involving 4 to 10 individuals who will be jointlyresponsible for repayment of the onlent fund.

(iii) Beneficiaries will agree to a compulsary built-in savings scheme of at least 2percent.

1 NGOs with net worth below P100000 may still borrow up to three times its net worth.


B. Subloan Guidelines

(i) Maximum loan amount of P40,000/group beneficiary for the first loan, P60,000for the second loan, and P75000 for succeeding loans.

(ii) Interest rate should not exceed commercial bank interest rate within the area ofoperation of the NGO.

(iii) Repayment period of 3 years maximum.

25

Appendix 6

ACHIEVEMENT BY PROVINCE UNDER THE MICROCREDIT PROGRAMFOR THE POOREST OF THE POOR

(as of 31 December 1996)

No. of Releases No. of Employ- Repay- Collection

Loan Releases NGOs to Sub- Micro- ment ment Rate Rate from

Approvals to NGOs borrowers enterprises Generated of NGOs Subborrowers

Province (P) (P) (P) Assisted (no.) to DTI to NGOs

(%) (%)

Benguet 4,020,000 3,500000 8 3,595,000 188 366 100.0 100.0

Apayao 1,375,000 950,000 4 950,000 72 159 100.0 100.0

Kalinga 5,170,000 4,670,000 8 4,969,000 148 687 86.6 98.4

lfugao 6,115000 6,115,000 8 5,569,000 559 559 81.7 709.6

Mt. Province 4,925,000 4,925,000 29 4,785000 195 722 78.5 80.0

Abra 5,000,000 5,000,000 8 5,030,000 111 783 75.5 75.5

Batanes 770,000 620,000 2 620,000 26 100 a a

Romblon 3560,000 3,560,000 2 1,702,000 104 270 80.9 a

Aurora 1,980,000 1,480,000 1 4,094,000 37 148 66.0 a

Masbate 4,650,000 4,650,000 17 7,930,000 838 1,590 60.0 80.0

Antique 2,010,000 2,010,000 4 1,958,000 68 243 100.0 52.1

Guimaras 1,870,000 1,670,000 4 1,720,000 23 94 100.0 68.7

Capiz 1,720,000 1,720,000 7 1,880,000 178 350 100.0 45.3

Negros Oriental 1,320,000 1,320,000 1 1,550,000 109 332 100.0 100.0

Biliran 2,080,000 2,080,000 2 2,080,000 30 150 100.0 100.0

Southern Leyte 3,960000 3,960,000 4 3,460,000 121 1,473 100.0 92.0

Eastern Samar 600,000 0 0 0 0 0 0.0 0.0

Leyte 4,136,000 4,136,000 4 4,136,000 42 139 100.0 97.8

Basilan 3,500,000 3500,000 3 3,500,000 44 949 16.8 a

Zamboanga del Su 2500,000 1,500,000 1 2,000,000 39 543 100.0 a

Agusan del Sur 1,500,000 0 0 0 0 0 0.0 0.0

Surigao del Sur 6,825,000 2,000,000 26 2,140,000 206 1,443 80.8 75.0

North Cotabato 4,000,000 4,000,000 2 6,130,000 502 497 100.0 94.0

Sulu 150,000 150,000 1 150,000 15 60 71.0 a

Tawi-Tawi 56,000 56,000 1 56,000 16 8 30.2 a

Maguindanao 0 0 0 0 0 0 0 0

Total 73,592,000 63,572,000 147 70,004,000 3,671 11,665 89.7 84.0

OTI = Department of Trade and Industry, NGO nongovemment organization.

'Data not available.

LOAN DISTRIBUTION BY SIZE UNDER THE MICROCREDIT PROGRAM FOR THE POOREST OF THE POOR(as of 31 December 1996)

Up to P50,000 P50,001 - P500,000 P500,001 -P1,000,000 P1,000,001 - P1,500,000 P1,500,001 - P2,000,000 Total Releases

Province No. of No. of No. of No. of No. of No. of

NOOs Amount NGOs Amount NGOs Amount NGOs Amount NGOs Amount NGOs Amount

Benguet 6 1,500,000 2 2,000000 8 3,500,000

Apayao 4 950,000 4 950,000

Kalinga 1 40,000 5 1,030,000 2 3,600000 8 4,670,000

lfugao 3 860,000 3 2208,000 1 1,047,000 1 2,000000 8 6,115,000

Mt. Province 30 4,925,000 30 4,925,000

Abra 8 2,000000 1 1,000,000 1 2,000,000 10 5,000,000

Batanes 2 620,000 2 620,000

Romblon 2 3,560,000 2 3,560,000

Aurora 1 1,480000 1 1,480,000

Masbate 25 4,650,000 25 4,650,000

Antique 3 450,000 1 1560,000 4 2,010,000

Guimaras 3 670,000 1 1,000,000 4 1,670,000

Capiz 7 1,720,000 7 1,720,000

Negros Oriental 1 1,320,000 1 1,320,000

Biliran 1 80,000 2 2,000,000 3 2,080,000

Southern Leyte 2 1,000,000 1 1,000,000 1 1,960,000 4 3,960,000

Eastern SamarLeyte 1 136,000 2 2,000,000 1 2,000,000 4 4,136,000

Basilan 1 500,000 1 1,000000 1 2000,000 3 3,500,000

Zamboanga del Sur 1 1,500,000 1 1,500,000

Agusan del SurSurigao del Sur 29 1,000,000 1 1,000,000 30 2,000,000

North Cotabato 2 2,000,000 1 2,000,000 3 4,000,000

SuIu 1 150,000 1 150,000

Tawi-Tawi 1 56,000 1 56,000

Maguindanao

Total 1 40,000 132 22,297,000 16 15,208,000 4 5,347,000 11 20,680,000 164 63,572,000

0.

27Appendix 8

TYPES OF NGO INTERMEDIARIESUNDER THE MICROCREDIT PROGRAM FOR THE POOREST OF THE POOR

Province Cooperative Association Foundation Others Total

Benguet 5 2 1 8Apayao 4 4Kalinga 7 1 8Ifugao 8 8Mt. Province 11 10 8 29Abra 4 3 1 8Batanes 1 1 2Romblon 2 2Aurora 1 1Masbate 13 2 2 17Antique 4 4Guimaras 4 4Capiz 5 1 1 7Negros Oriental 1 1Biliran 2 2Southern Leyte 3 1 4Eastern SamarLeyte 4 4Basilan 1 2 3Zamboanga del Sur 1 1Agusan del SurSungaodelSur 17 1 6 26North Cotabato 2 2Sulu 1 1Tawi-Tawi 1 1Maguindanao

Total 99 24 2 22 147Percent 88 16 1 15 100

aperiod between 1994 and 1999.

SubtotalTotal

Consultant

ICON

Subtotal

SERDEF

Subtotal

ARMDEV

egion

CAR

Ill

NCRIVVVIVIIVIII

xXlXII

ARMM

No. of NGOS

14272633

110

222650205020

195

34391826

117422

28

Appendix 9, page 1

ACHIEVEMENTS OF THE NGO DEVELOPMENT ANDDII INSTITUTtONAL STRENGTHENING PROGRAM

Table A9.1: Actual Versus Target Number of Beneficiaries and NGOs in Phase I

Target No. of Actual No. ofBasic Course

Runs Trainees NGOs Runs Trainees NGOs

Organization Development 47 1023 292 42 1.108 365Financial Credit System 47 1023 292 43 1,136 375Training of Trainers 26 784 224 34 836 276

Total 130 2,830 808 119 3,080 1,018

NGO = nongovernment organization.

Table A9.2: Actual Number of NGOs Assisted in Phase II,by Region and Consultant

ARMM = Autonomous Region for Muslim Mindanao, ARMDEV = Associated Resources and ManagementDevelopment, CAR = Cordillera Autonomous Region, ICON = Innovative Consultancy Corps of the Philippines, NCR

National Capital Region, SERDEF = Small Enterprise Research and Development Foundation.

p


Table A9.3: Actual Versus Target Number of Beneficiaries and NGOsBy Type of Basic Course in Phase Ill

Target No. of Actual No. ofBasic Course

___________________ Runs Trainees NGOs Runs Trainees NGOs

Organization Development 15 375 335 15 305 242Financial Credit System 15 375 335 15 347 248Training of Trainers 8 225 225 9 206 156

Total 38 975 895 39 859 644

NGO = nongovernment organization.

Table A9.4: Actual Versus Target Number of Beneficiaries byRegion in Phases I and hid

Target No. of Actual No. ofRegion

Runs Trainees NGOs Runs Trainees NGOs

CAR

9

185

73

9

183

90

10

241

75

10

239

108

13

295

109

13

302

123

III

12

295

109

12

284

121

NCR

10

210

100

9

204

89

IV

13

266

152

8

215

90

V

14

163

157

11

258

117

VI

7

207

105

7

208

98

VII

13

285

101

11

304

125

VIII

12

275

101

10

232

90

IX

9

198

107

9

239

96

x

16

365

175

17

446

162

Xl

13

312

150

14

401

157

XII

10

225

95

10

255

126

ARMM

7

175

95

8

171

68

Total 168 3,805 1,703 158 3,939 1,660

Total of Tables A9.1 and A9.3.ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, NCR = NationalCapital Region, NGO = nongovernment organization.

Table A9.5: Actual Versus Target Number of Beneficiaries for the Advanced Coursesin Phase Ill

Target No. of Actual No. ofAdvanced Course

-. Runs Trainees NGOs Runs Trainees NGOs

Advanced Financial Credit

15 424

212 14

342 202Strategic Planning 15 424

212 14

415 226

Total

30 848

424 28

757 428

111111I11III

CAR

IIIII

NCRIVVVIVIIVIIIIxxxlXII

3142615126317843903025897585

2220282815203126461514535852

1820272312193118451213312746

11I111I1I1I11I

1322342814124725451812584839

Appendix 9, page 3

Table A9.6: NGOs and Participants Provided With Advanced Training inCredit, Financial System Management, and Strategic

Planning by Region in Phase Ill

Advanced FinancialRegion Total No. of Total No. of Credit System Strategic Planning

NGOs Participants(Run) Trainees (no.) Run Trainees (no.)

Total 428 757 14 342 14 415CAR = Cordillera Autonomous Region, NCR = National Capital Region, NGO = nongovernment organization.

Table A9.7: Number of DII Staff Trained in Kepner Tregoe Modeland the Small Enterprise Development Course, by Region

Project Impact Small EnterpriseRegion Kepner Tregoe Model Assessment Development Total

I 3 2 2 7

II 3 2 2 7

III 4 2 1 7

IV 6 4 1 11

V 5 2 0 7

VI 2 2 1 5

VII 4 2 1 7

VIII 3 2 0 5

IX 3 2 2 7

X 3 2 1 6

XI 2 2 1 5

XII 2 3 0 5

XIII 0 2 1 3

CAR 2 2 0 4

NCR 2 2 2 6

ARMM 2 2 0 4

TST-PMO 2 13 2 17

Total 48 48 18 114

ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region. DTI = Department ofTrade and Industry, NCR National Capital Region, TST-PMO Tulong sa Tao-Project Management Office.

31

Appendix 10

PROCUREMENT OF COMPUTERS, MOTORCYCLES, AND A BOATUNDER THE DTI STRENGTHENING PROGRAM

No. ofProvinces Number of Units Procured

Region Benefitted Total Cost (P) Computers Motorcycles Boat

I 4 553204 5 4

II 5 683600 9 2

III 8 802,125 15 0

IV 11 1,469,860 15 9

V 6 709,455 9 5

VI 7 845,000 15 3

VII 4 569,159 7 5

VIII 6 765,940 8 6

IX 4 578,335 6 3

X 7 1,050,200 13 8

Xl 7 1,049,530 19 9

XII 5 714,965 10 5

XIII

CAR 5 839,015 8 6

NCR 4 594,700 6 0

ARMM 4 941,400 13 0

TST-PMO 219,555 1 0

Regional Offices 676,200 24 0

Total 13,062,243 181 65 1

ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, OTI =Department of Trade and Industry, NCR National Capital Region, TST-PMO = Tulong sa Tao ProjectManagement Office.

6,800,746

645,000

31,631,375

3,000,000

1,797,043

- 10,543,792

67

6

4

0

22

CHANGES IN THE PROJECT COSTS AND FINANCING PLAN

($)Table A11.1: Project Costs and Financing Plan

Appraisal Estimates Actual CostLocal Foreign Total Local Foreign Total

Currency Exchange Amount Percent Currency Exchange Amount PercentItem (1) (2) (3) (A) (4) (5) (6) (B)

A. Project Cost

1. Subproject COsta 32,500,000 7,500,000 40,000,000

2. Credit Program for Poorest of the Poor 1262,000 291,000 1.553,000

3. Strengthening of DII - 354,000 354.0004. NGO Development Program 1,926,000 - 1,926,000

Total (A)

35,688,000 8,145,000 43,833,000 100

B. Financing Planb

1. ADB

2. Government of Norway3. Government of Netherlandsb

4. Government of Philippinesc

5. NGOs/Beneticiaries

91 34,267,323

4 2,439,000

4 -

36,706,323

68 24,830,629

7 2,355,000

24 10,543,792

7,907,844 42,175,166 90

561,000 3,000,000 6

1,797,043 1,791,043 4

10,265,887 46,972,209 100c)

22,500,000 7,500,000 30,000,000

2,355,000 645,000 3,000000

445,000 - 445,000

10,388,000 - 10,388,000

Total (B) 35,688,000 8,145,000 43,833,000 100 37,729,421 7,445,748 46,972,210 100

a ADB - 75%; NGOs - 15%; beneficiaries - 10% in cash or kind.b At appraisal, coflnancing for the NGO Development Program and the Institutional Strengthening of DII from the Government of the Netherlands was still under consideration.

Agreement was, therefore, reached that in case this cofinancing would materialize, funds from the Norway grant would be fully utilized for the Microcredit for the Poorest of the Poor Program. >For training of NGOs.

CD

a.x.

VCD

CD

-

Releases to Subborrowers

Philippine

Peso

$

SDR

30,000,000

22,028,000

31,631.375 a

Tab'e All .2: Fund Releases Under the Loan

Loan Amount At appraisal

At loan closing

Releases to OTI

Philippine

Peso $ SDR

Releases to NGOS

Philippine

Peso $ SDR

Tranche 1 26 May1992

2 27Jr. 1993

3 10 Nov 1993

4 lODec 1993

5 l4Jan 1994

6 28Jun 1994

7 03 Oct1993

8 23 Dec 1994

9 19Apr1995

10 22Aug 1995

11 22Nov1995

12 01 Jul 1996

13 O9Jul 1996

14 O9Oct 1996

15 26 Nov 1996

196,875,000

75,577,623

36.530,000

47,430,000

48,285,000

26,451,486

46,482,358

39,880,164

51,899,623

67,891.662

62,582,919

42,218,945

37,040,627

12,339,837

45,236,119

7,500,000

2,743,289

1.300.000

1 .700, 000

1.740,000

979,685

1,773,372

1,651,353

1992,308

2,646,848

2,386,839

1,611,779

1,414,034

469,767

1722.100

5,381.591

1,981,258

933,285

1.228,421

1,266,781

668,588

1.208,530

1,137, 750

1.268,727

1743,987

1,598,537

1,116,701

964,855

326,370

1,182,623

196,875,000

75,577,623

36,530,000

47,430.000

48,285,000

26,451,486

46,462,358

39,880,164

51,899,623

87,891,662

62,582,919

42.218,945

37,040,627

12,339,838

45,236,119

7,500,000

2.743,289

1.300,000

1700,000

1,740,000

979,685

1773,372

1,651,353

1,992,308

2,6.46,848

2,386,839

1,611,779

1,414,034

469,767

1,722,100

5,381,591

1,981,258

933,285

1228,421

1,266,781

688,586

1.208,530

1,137,750

1268,727

1.743,987

1,598,537

1,116,701

964,855

326,370

1,182,623

196,875,000

75,577,623

36,530,000

47,430,000

48,285,000

26,451,486

46, 462 .358

39,880,164

51899,623

67,891,662

62,582,919

42,218,945

37,040,627

12,339,838

45,236,119

7,500,000

2,743.289

1,300,000

1.700,000

1,740,000

979,685

1,773,372

1,651353

1.992,308

2,846,848

2,386,839

1,611,779

1,414,034

469,767

1,722,100

5,381,591

1,981,258

933,285

1,228,421

1,266,781

688,5860,1,208,5300)

1,137,750

1268,727

1,743.987

1,598,537

1,116,701

964,855

326,370

1,182,623

Total 836,701,362 31,631,375 22O28,000 836,701,383 31,831,375 22,028,000 836,701,363 31,631,375 22,028,000

DTI Department of Trade arid Industry, NGO nongovernment organization. SDR = special drawing rights. -b Increase was caused by the appreciation of the SDR vis-â-vis the US dollar.

Q.

--

a)

CDrs.)

1,000,000

24,550,969

1,000,000

24,550,969

1,000,000

24,550,969

3,000,000

73,652,907

2,000,000

47,502,907 b1,000,000

26,150,000 b

3,000,000

73,652,907 b

$

PesoEquivalent

EquivalentC

1,797,043

47,543,286

5,067

'134,055

1,802,110

47,677,340

1,797,043

47,543,286

34

Appendix 11, page 3

Table Al 1.3: UtilIzation of Grant Funds

A. Norwegian Technical Assistance Grant

NorwegianKroner

Amount committed

Drawdowns1st -24Dec1991 5992,4002nd -22 Dec 1992 6,7420003rd -24 Jan 1996 6,049,500

Total 18,783,900

Releases for the Project

30 Jul '1993 12,734,40002 Feb 1996 6,449,500

Total 19,183,900

B. Netherlands Technical Assistance Grant

NetherlandsGuilder

Amount committed 3,137,850

Amount drawn 3,137,850

Interest income 10,083

Total 3,147,933

Disbursements made for the Project 3,137,850

$

PesoEquivalent

Equivalenta

3,000,000

....UnutilIze tund balance" 10,083 5,067 134,055

a Based on exchange rate of $1.00 = P24.55. unless othevwise specified.

b Based on actual rates used in disbursing grant funds.

c Based on exchange rate of $1.00 = P26.45.

d The unutiIzed balance of Netherlands guilder 10,083 ($5,076) was remitted to the Netherlands Government on

5 Nov 1997 and the Grant account was closed.


STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Status of Compliance

Complied with. The DevelopmentThe Borrower will enter into a Trustee Agreement with a Trustee Bank, Bank of the Philippines (including itsproviding for the powers and responsibilities of the Trustee Bank in regional/provincial branches)carrying out the Project (Article lll,Section 3.01 laD.

served as the Trustee Bank for theProject, under Trustee Agreement

_______________________________________________________ dated 18 March 1994.

The Borrower will relend the proceeds of the roan to the NGOs under Complied withcontracts executed by the Trustee Bank on behalf of DTI and the NGOs.The NGOs will ensure that the proceeds of the loan through the subloansare applied to the financing of expenditures for the subprojects inaccordance with the provisions of the Loan Agreement and the contracts(Article Ill, Section 3.01[bl).

The proceeds of each part of the loan will be used only for making Complied withsubloans to the beneficiaries in respect of which part of the loan waswithdrawn from the loan account (Article Ill, Section 3.02(b]). _______________________________

The Borrower will, for the purposes of the Project, open and maintain an Complied with. Imprest account wasimprest account with the Central Bank of the Philippines in accordance established and the initial depositwith para. 4, Schedule 3 of the Loan Agreement (Article Ill, Section 3.04). was made by ADB in May 1992.

Complied with. However, reviewThe Borrower will make available, funds, facilities, services, land, and missions fielded during the earlyother resources required, in addition to the proceeds of the loan, for years of implementationcarrying out the Project and for the operation and maintenance of DTI's emphasized the inadequacy ofProject facilities (Article IV, Section 4.02). staffing and budgetary appropriation

by the national Government for theProject. The issue was addressed

____________________________________________________________ by the Government.

The Borrower will required DTI and each NGO maintain records and Complied withaccounts adequate to record the progress of the Project and to reflect theoperations and financial condition of each NGO (Article IV, Section 4.03).

The Borrower will require DTI to submit to ADB reports and information Complied withas ADB will reasonably request (Article IV, Section 4.04).

The Borrower will require DTI to submit to ADB quarterly reports on the Complied withexecution of the Project and, if requested by ADB, the subprojects andthe performance of each NGO (Article IV, Section 4.04[bJ).



After the closing date for withdrawals from the loan account, but not later Complied with. The loan accountthan six months after the closing date or such later date as may be was closed on 30 May 1997, andagreed upon for this purpose, the Borrower will require DTI to prepare DTI's project completion report wasand submit to ADB a report on the utilization of the loan, the execution of submitted to ADB on 1 Octoberthe subprojects, their costs, the Borrower's performance of its obligations 1997.under the Loan Agreement and the accomplishment of the purposes ofthe loan (Article IV, Section 4.04[cl).

The Borrower will (i) require DTI and the NGOs to maintain separate Complied withaccounts for the Project, (ii) require such accounts and related financialstatements to be audited annually by auditors acceptable to ADB, (iii)require that certified copies of such audited accounts and financialstatements of DTI and the report of the auditors relating thereto, all inEnglish language, be submitted to ADB, not later than nine months afterthe end of each related fiscal year, and (iv) require such other informationconcerning such accounts and financial statements and the audit thereofbe submitted to ADB (Article IV, Section 4.O5IaD. ______________________________

The Borrower will allow ADB to discuss DTI's and each NGO's financial Complied withstatements for the Project and its financial affairs relating to the Projectfrom time to time, with DTI and each NGO's auditors (Article IV, Section4 .05[bj), _____________________________

The Borrower will allow ADB's representatives to inspect any NGO, any Complied withsubproject, the goods financed Out of the proceeds of the loan, and anyrelevant records and documents maintained by DTI and each NGO(Article IV, Section 4.06).

The Borrower will exercise its rights under the Trustee Agreement and Complied withcontracts in such a manner as to protect the interests of the Borrower andADB and to accomplish the purposes of the loan (Article IV, Section4.07[a]). _____________________________

No rights or obligations under the Trustee Agreement and contracts will Complied withbe assigned, amended, abrogated or waived without the pnorconcurrence of the Borrower and ADB (Article IV, Section 4.07[b]). _____________________________

The Borrower, through DTI, will require each NGO to take all action within Complied withits powers to maintain its legal existence, to carry on its operations, andto acquire, maintain and renew all rights, properties, powers, privilegesand franchises necessary in carrying out the Project or in the conduct ofits business (Article 1V, Section 4.08(afl.

The Borrower, through DTI, will require each NGO at all times to conduct Complied with. The Project staffits business in accordance with sound administrative, financial, conducted monitoring activities andenvironmental and business practices, and supervision of competent and provided counseling to NGOs onexperienced management and personnel (Article IV, Section 4.08[bl). their business operations.



The proceeds of the loan will be used for financing 75 percent of the Provision for retroactive financingestimated foreign and local currency costs of the subprojecls incurred was not availed of by the Project.since 30 October 1991 (Schedule 3, para. 3). Funds from repayment of subloans

under the First Project were utilized__________________________________________________________________ instead.

The Borrower will establish, within two months of the effective date, the Complied withimprest account with the Central Bank of the Philippines to facilitatetimely disbursement of loan proceeds to meet expenditures under thesubprojects (Schedule 3, para. 4 [a').

The Borrower will cause the proceeds of the loan deposited in the imprest Complied with. In the early years ofaccount to be redeposited in a timely manner in a separate Project implementation, however, delaysaccount in the name of DTI with the Trustee Bank for the purposes of were experienced in the release ofrelending the proceeds of the loan to the NGOs (Schedule 3, para. 4[bI). funds by MDF to the Project.

To minimize delays in disbursements from the Trustee Bank to NGOs, Complied withthe Borrower will endeavor to facilitate implementation of decentralizedapproval procedures for such disbursements so that disbursements canbe made to an NGO within three (3) weeks alter a subsidiary loan hasbeen approved. The Borrower will require DTI to include in the quarterlyprogress reports information on the Borrower's efforts to facilitate suchprocedures (Schedule 3, para. 4[c]).

The Borrower will require DII 10 submit to the ADB quarterly certifications Complied withof liquidation of each advance deposit from the loan account to theimprest account, each certification to be supported by two statements ofexpenditures (SOE). The first SOE will cover disbursements of loanproceeds for subsidiary loans and the second SOE will coverdisbursements of the subsidiary loans for subloans (Schedule 3, para. 5).

The Borrower shall cause the proceeds of the Joan to be disbursed no Final disbursement was made ninelater than four years from the effective date (Schedule 3, para. 6). months after the deadline specified

__________________________________________________________________ in this schedule.

Withdrawals from the loan account up to a maximum of the equivalent of This provision was not availed of.one million dollars ($1,000,000) may be made on account of payments Funds from repayments from NGOsmade prior to the effective date, but not earlier than 30 October 1991 were used instead for the Project.(Schedule 3, para. 8).

No withdrawal will be made from the loan account and no commitment Complied withwill be entered into by ADB to pay amounts to the Borrower in respect ofexpenditures to be financed out of the proceeds of the loan after theaggregate of the proceeds of the loan withdrawn reaches the equivalentof SDR 7,100,000, unless the Government of Norway Grant Agreement isduly executed and delivered, and all conditions precedent to itseffectiveness are fulfilled; or other arrangements satisfactory to ADB aremade within a period of time satisfactory to ADB (Schedule 3, para. 9).


Covenant Status of compliance

The Borrower will ensure the equitable distribution of loan proceeds Complied with.among regions such that an amount equivalent to one million dollars($1,000,000) is disbursed to each region by the completion of the Project.The Borrower will ensure that the maximum amount provided throughsubsidiary loans to NGOs in the National Capital Region does not exceed10 percent of the proceeds disbursed to the Borrower. Such regionaldistribution of loan proceeds will be subject to adjustment during themidterm review of the Project (Schedule 4, para. 1[a]).

A subsidiary loan to an NGO will be made in an amount of at least Complied withP50,000 but normally not exceeding P2.0 million at an annual fixedinterest rate of 12 percent. Each subsidiary loan will be repaid over aperiod not exceeding five years inclusive of a grace period of two years,the same to be decided upon based on the nature of the subloans andsuch other criteria agreed upon by the Borrower and the ADB. TheBorrower will bear both the foreign exchange risk under the loan and thecredit risk in respect of the NGOs (Schedule 4, para. 1[b])

The interest rate charged by the Borrower on subsidiary loans will be Complied with. Interest rate onsubject to review at least once a year by the Borrower and the ADB to subsidiary loans were monitoredadjust such rates to a level comparable with the range of rates charged during implementation andby agencies to the Borrower and the banks undertaking similar like adjustment was not consideredprograms (Schedule 4, para. 1[c]). necessary.

The Borrower through DTI will select the Trustee Banks, which will be Complied with. DTI entered into anacceptable to ADB to provide the subsidiary loans to the NGOs and to agreement with the Developmentreceive payment of the subsidiary loan on behalf of DTI (Schedule 4, Bank of the Philippines.para. 2[a]).

Subject to loan principal payments to ADB and, if determined by the Complied with.Borrower, payment of service charges to ADB, repayments of theprincipal of subsidiary loans by NGOs to DTI will be used by DTI to makefurther loans in accordance with the provisions of the Executive Order. Allfunds accruing to each NGO from repayment of the principal of subloansby beneficiaries will, subject to subsidiary loan payments to DTI forprincipal and interest, be used by such NGO to make further loans tobeneficiaries in accordance with agreed-upon terms and conditions(Schedule 4, para. 2[b1).

The NGOs will onlend the proceeds of the subsidiary loans, together with Complied withtheir own funds, to the beneficiaries by subloans under onlendingagreements satisfactory to ADB (Schedule 4, para. 3[a]).

39

Appendix 12, page 5


DTI, through its Bureau of Small and Medium Business Development, will Complied withbe the Executing Agency with overall responsibility for projectimplementation (Schedule 3, para. 4). _______________________________

DTI will facilitate the provision of the subsidiary loans to the NGOs and Complied withthe subloans to the beneficiaries. DTI will evaluate, select, and accreditNGQs to act as credit and technical assistance intermediaries under theProject and receive subsidiary loans; and will approve the subsidiaryloans based upon a review of a pipeline of subprojects submitted by theconcerned NGOs and evaluated by the appropriate Fund ManagementCommittee supported by summary feasibility studies (Schedule 4, para.5[a]). ________________________________

DTI will monitor (i) approval of subloans by NGOs, (ii) procurement of Complied withgoods and materials, and (iii) the marketing of products as appropriate;and assist the NGOs in carrying out items (ii) and (iii) as required(Schedule 4, para. 5[b]). ______________________________

DTI will increase the level of staff carrying out the TST Program to ensure Complied with. The staffingsuccessful Project implementation. To ensure close project supervision problems experienced during theand monitoring, DTI will appoint and assign within one year after the early years of implementation wereeffective date at least one financial specialist to each provincial office and addressed by the Government.within two years of the effective date appoint and assign an average of atleast two financial analysts or two financial specialists or one financialspecialist and one financial analyst to provincial offices. The Borrower willallocate from the earnings received from the loan and from otherresources of the Borrower, sufficient funds to hire additional staff and todefray other operating costs of DII as may be required for the Project(Schedule 4, para. 6).

DIP will select and accredit NGOs as financial intermediaries under the Complied withProject in accordance with the institutional, financial and lendingperformance criteria as agreed upon by DTI and ADB (Schedule 4, para.8). ______________________________

Each NGO will submit to DTI information on organizational structure and Complied withfinancial and lending performance as well as a proposed pipeline ofsubloans to microenterprises, supported by summary feasibility studiesincluding socioeconomic indicators of individual beneficiaries, all inaccordance with guidelines agreed to by DTI and ADB (Schedule 4, para.9[aj).

DTI will continue to utilize a Provincial Fund Management Committee for Complied withapproving applications of NGOs for subsidiary loans up to P150,000 eachat the provincial level. The Committee will indude the concernedprovincial director of DTI as chair, a representative of the local bankingcommunity, and a representative of a local NGO network (Schedule 4,para. 9[bI).



Subsidiary loans to NGOs up to the amount of P500,000 will be approved Complied withby the Regional Fund Management Committee, whose members willinclude the concerned regional director of DTI as chair, a representativeof the regional banking community, and a representative of a regionalNGO network (Schedule 4, para. 9[c]).

Any subsidiary loans to NGOs exceeding P500,000 will be submitted for Complied withapproval to DTI's National Fund Management Committee, which willinclude a representative of a national NGO network (Schedule 4, para.9[d]).

Complied with. There were a fewThe Borrower through DTI will ensure that the concerned Fund cases, however, when the approvalManagement Committee acts to approve or disapprove any request for a process took a longer time thansubsidiary loan within four weeks of the submission of any such request intended.Schedule 4, para. 9 [e1).

The peso approval limits for the Provincial Fund Management Committee, Complied with. Approval limits werethe Regional Fund Management Committee, and DTI's National Fund reviewed, but adjustments were notManagement Committee will be reviewed by the Borrower and ADB at considered necessary.least once annually for possible adjustment depending on the individualperformance of the provincial and regional offices concerned (Schedule4, para.9

Upon approval of a subsidiary loan, a contract will be executed by the Complied withTrustee Bank on behalf of DTI and the NGO. The contract will includeprovisions for relending terms and conditions, and such other provisionsas may be agreed upon by DTI and ADB (Schedule 4, para. 10[a]).

The Borrower may provide to an NGO a repeat subsidiary loan only after Complied withthat NGO has disbursed 75 percent of its immediately precedingsubsidiary loan Schedule 4, para. 10 b .

ADB may review post facto any approved subsidiary loan. If ADB Complied withdetermines that a subsidiary loan was not made in accordance with theOperations Manual or consistent with the purposes of the Project, theBorrower will, upon notice from ADB, deposit into the imprest account orrefund to ADB an amount equal to the amount of the subsidiary loanSchedule 4, para. 10101).

The NGOs will make subloans to beneficiaries according to criteria Complied withagreed upon by DTI and ADB Schedule 4, para. 11[a]).

Each beneficiary will satisfy the criteria for each subproject proposal Complied withsubmitted (Schedule 4, para. 11[b]).

To ensure sustainabiiity of the microenterprises, NGOs will be allowed to Complied withgrant repeat loans up to the ceilings specified in para. 11 b(i) above. TheNGO will, in collaboration with DTI, actively support beneficiaries whohave received repeat loans to obtain loans from the Borrower's bankingsector (Schedule 4, para. 11[cj).

41

Appendix 12, page 7


Upon approval of the subloan, an onlending agreement will be executed Complied withby the NGO and the beneficiary. The onlending agreement will includeprovisions for onlending terms and conditions, repayment period, purposefor which the subloan is made, capital buildup fee, obligation formaintaining savings by the beneficiary, right of the NGO to initiate legalaction to enforce compliance with the terms of the onlending agreement,and such other provisions as may be agreed upon by DTI, the NGO, andADB(Schedule 4, para. 12). ____________________________

DII will be responsible for monitoring project implementation and Complied with, but with delaysevaluation of benefits in accordance with arrangements satisfactory toADB. DTJ will undertake with the participating NGOs a socioeconomicsurvey of beneficiaries under the First Project. The survey shall includeinformation about the income, employment and asset situation of thebeneficiaries. Thereafter, DTI shall undertake in cooperation with theparticipating NGOs socioeconomic surveys of the beneficiaries in theProject areas on a regular basis in order to monitor their socioeconomicdevelopment. Information from such surveys will be submitted by theNGOs in their subloan approval documents and subsequently placed intoDTI's management information system established under the First Project

chedule4, para. 13). _____________________________

The Borrower through DII will require NGOs to comply with the Complied withrequirements of the Borrower's environmental rules and regulations. Ifwarranted, the Borrower will conduct, prior to the provision of a subloan,an initial environmental examination and environmental impactassessment according to environmental rules and regulations (Schedule4, para. 14). ______________________________

The Borrower and ADB will conduct a midterm review two years after It appears that a fatal vehiclecommencement of project implementation or after disbursement of the accident during a regular projectequivalent of Special Drawing Rights 11,014,000 of loan proceeds to the review, the interim transfer ofbeneficiaries, whichever event occurs first. Such review will assess, responsibility to various staff, andamong others, the changes and impact made by the Project on the lack of attention to compliance withbeneficiaries and NGOs, and the regional distribution of loan proceeds the loan covenant were the reasonswith a view to adjusting such distribution if considered desirable by DII for not conducting a midtermand ADB (Schedule 4, para. 15). review. Despite this lapse, however,

the Project was successfullycompleted.

ADB = Asian Development Bank, DTI Department of Trade and Industry, MDF Municipal Development Fund,NGO = nongovernment organization, PCR = project completion report, TST Tulong sa Tao.

42

Appendix 13

TYPES OF MICROENTERPRISES ASSISTED(as of 31 December 1996)

Microenterprises (no.)Manufacturing!

Region Processing Trading Services Total

I 1,438 2846 687 4,971

II 2,806 2,756 986 6,548

III 4,008 6,905 1,729 12,642

IV 1,703 10,510 1,275 13,488

V 1,977 9,248 1,654 12,879

VI 686 2.777 370 3,833

VII 1,919 3,602 1,301 6,822

VIII 595 2,459 427 3,481

IX 1,655 4,485 944 7,084

X 1,111 5,637 934 7,682

Xl 1,740 4,230 803 6,773

XII 306 3,503 383 4,192

XIII 1,257 8,548 1,481 11286

CAR 275 1,138 254 1,667

NCR 2,599 3,343 1,485 7,427

ARMM 172 121 35 328

Total 24,247 72,108 14,748 111,103Percent 22 65 13 100

ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, NCR NationalCapital Region.

43

Appendix 14

TYPES OF SUBBORROWERS ASSISTED(as of 31 December 1996)

Subborrowers no.Individual Self-Help

Region Male Female Group? Total

1,618 3,285 68 4,971

Ii 2,870 3,241 437 6,548

III 4,626 7,921 95 12,642

IV 3,683 9,719 86 13,488

V 4,293 8,566 20 12,879

VI 635 3,076 122 2

VII 2,470 4,287 65 6,822

VIII 206 2,937 338 3,481

IX 2,330 4,695 59 7,084

X 1,585 6,037 60 7,682

XI 2,858 3,865 50 6,773

XI I 1,674 2,488 30 4,192

XI I I 5,293 5,918 75 11,286

CAR 962 677 28 1,667

NCR 2,970 4,456 1 7,427

ARMM 119 174 35 328

Total 38,192 71,342 1,569 111,103

Percent 34 64 1 100

ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region,NCR = National Capital Region.

° Composed of at least four individuals operating a microenterprise.

44

Appendix 15

TYPES OF MICROENTERPRISES ASSISTED UNDER THEMICROCREDIT PROGRAM FOR THE POOREST OF THE POOR

(as of 31 December 1996)

Microenterprises (no.)Manufacturing/

Province Processing Trading Services Total

Benguet

24

149

15

188

Apayao

17

52

3

72

Kalinga

17

97

34

148

lfugao

28

503

28

559

Mt. Province

37

96

62

195

Abra

31

71

9

111

Batanes

18

7

I

26

Romblon

0

104

0

104

Aurora

0

37

0

37

Masbate

87

649

102

838

Antique

20

41

7

68

G ulmaras

9

8

6

23

Capiz

22

148

8

178

Negros Oriental

12

86

11

109

Bi liran

0

30

0

30

Southern Leyte

0

121

0

121

Eastern Samar

0

0

0

0

Leyte

0

42

0

42

Basllan 10

19

15

44

Zamboanga del Sur

23

8

8

39

Agusan del Sur

0

0

0

0

Sungao del Sur 29

171

6

206

North Cotabato

3

472

27

502

Sulu

4

8

3

15

Tawi-Tawi

4

8

4

16

Maguindanao

0

0

0

0

Total 395 2927 349 3,671Percent 11 80 10 100

45

Appendix 16

COMPARATIVE REPAYMENT RATES FROM NONGOVERNMENT ORGANIZATIONSTO DEPARTMENT OF TRADE AND INDUSTRY

(%)

December December December MarchRegion 1996 1997 1998 1999

I 86.15 81.33 81.76 81.16

II 68.92 72.42 75.06 68.72

III 90.73 90.02 84.17 87.69

IV 85.95 86.02 87.91 84.41

V 81.34 74.10 73.84 73.29

VI 98.13 82.38 78.88 78.88

VII 85.99 83.53 83.53 83.53

VIII 86.16 87.91 87.91 87.91

IX 83.74 79.04 78.13 79.26

X 99.00 91.23 90.79 90.79

XI 79.65 90.41 90.01 90.01

XII 93.00 81.27 80.23 80.88

XIII 91.50 84.50 78.41 76.07

CAR 82.59 77.79 77.89 77.89

NCR 93.00 95.29 93.90 93.90

ARMM 42.95 30.45 30.45 30.45

Average 84.92 83.15 81.56 81.47

ARMM Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, NCR =National Capital Region.aLoan closing date was 30 May 1997.

46Appendix 17

COMPARATIVE COLLECTION RATES FROM SUBBORROWERSTO NONGOVERNMENT ORGANIZATIONS

(%)

December December December March

Region 1996 1997 1998 1999

I 81.76 81.76 81.76 81.76

II 69.00 75.06 75.06 75.06

III 95.20 84.17 84.17 84.17

IV 85.00 87.91 87.91 87.91

V 84.58 76.39 73.84 73.84

VI 94.49 83.84 71.44 71.44

Vii 85.00 80.87 80.87 80.87

VIII 86.00 76.02 76.08 76.08

IX 83.00 78.46 78.46 78.46

X 89.00 82.38 81.80 81.80

XI 75.32 83.76 83.76 83.76

XII 86.00 84.08 84.06 80.88

Xiii 77.45 80.63 73.01 74.00

CAR 83.00 75.97 75.97 75.97

NCR 91.00 92.12 92.12 92.12

ARMM 42.00 56.13 56.13 56.13

Average 82.35 83.82 82.13 80.71

ARMM = Autonomous Region for Muslim Mindanao, CAR = Cordillera Autonomous Region, NCR National

Capital Region.Loan closing date was 30 May 1997.

47

Appendix 18

MILESTONES OF PROJECT ACCOMPLISHMENTS(as of 31 December 1996)

AppralsalaActualb DifferenceC

1. Loan funds available $ 30.00 million 31.63 million + 1.63 million d

P 810.00 mfluion 83670 million + 26.70 million

2. Number of NGO Subsidiary Loans 700 1,579 + 879

3. Revolved funds available (B) $ 0.93 million 12.19 million + 11.29 million

P 25.000 million 322.36 million + 297.36 million

4 Total funds disbursed to NGOs $ 30.93 miflion 43.82 million + 12.89 million

P 835.00 million 1.16 billion + 325.00 million

5 Average size of NGO subsidiary loan $ 0.038 million 0.027 million (-) 0.011 million

P 1.500 million 0.734 million (-) 0.77 million

6 Number otmicroenterprises 60,000 111,103 + 51103

9. Average size of microenterprise subloans $ 556 - $741 $25.00 (-) lower than

P 15,000 - P20,000 13,873 projection

10 Cost per employment generation $ 185 - 370 239.00 within

P P5,000-P10,000 6,314 projection

11 Total employment generation 170,000-180,000 183,853 + higher than

projection

14. Number of women beneficiaries % 60 64 + 4

15. NumbercfNGOsaccredited 700 1,579 + 879

16. Average number of clients served per NGO 80 70 + 10

Based on the appraisal exchange rate of $1 .0=P27.0.

bBased on exchange rate of $1 .0=P26.5.

C+inCrease; (-) decrease.

Difference was caused by the appreciation o(the SOR vis-à-vis the US doflar.

eReleases to NGOs from the loan funds amounted to P836,701,360; actual releases to NGOs amounted to P1,159,065,000.

Source: PCR Mission.

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