Document of The World Bank ReportNo.: 48760 PROJECTPERFORMANCEASSESSMENT REPORT MOLDOVA RURALINVESTMENT AND SERVICESPROJECT(APL) (CREDITS36680 and 36681) June 22,2009 IEGSE IndependentEvaluation Group (World Bank) Currency Equivalents (annual averages) Currency Unit = Moldovan Lei (MDL) 1999 US$l.OOMDLlO.S 2004 US$1.00MDL12.3 2000 US$l.OOMDL12.4 2001 US$l.OOMDL12.9 2002 US$I.OOMDL13.6 2003 US$ .OOMDL13.9 2005 US$l.OOMDL12.6 2006 US$ .00MDL13.1 2007 US$l.OOMDL12.1 2008 US$ .OOMDL10.4 Abbreviations and Acronyms ACSA Agency for Consultancyand Training in Agriculture APC AdaptableProgramCredit CAPMU ConsolidatedAgriculturalProjects Management Unit CAS Country Assistance Strategy CIS Commonwealthof IndependentStates DA DevelopmentAgency DLC Credit Line Directorate of MOF ESW Economic and Sector Work GCL GeneralCredit Line GEF GlobalEnvironmentFacility GOM Government of Moldova ICR ImplementationCompletionReport IEG IndependentEvaluationGroup IEGWB IndependentEvaluationGroup (World Bank) LC Local Consultant LSDP Letterof Sector DevelopmentPolicy MAIB MoldovaAgroIndBank M&E Monitoring andEvaluation MAFI Ministry of Agriculture& FoodIndustries MOF Ministry of Finance MOU MemorandumofUnderstanding NBM National Bank of Moldova NCFM NationalCommissionfor FinancialIntermediaries NFSCA NationalFederationof Savings and Credit Associations NGO Non-Governmental Organization PAR Portfolio at Risk PFI ParticipatingFinancialInstitutions PPAR Project PerformanceAssessment Report PSC ProjectSteeringCommittee QAG Quality Assurance Group RFC RuralFinanceCorporation RBD RuralBusiness Development[Component] SCA Savingsand CreditAssociation SCL Special Credit Line SIDA SwedishDevelopmentAgency SP Service Provider SSB State Supervisory Body TACIS Technical Assistance to Commonwealthof IndependentStates Fiscal Year Government: January 1-December 3 1 Director-General,Evaluation : Mr.VinodThomas Director, IndependentEvaluationGroup (World Bank) : Ms.CherylGray Manager, IEGSE : Ms.Monika Huppi Task Manager : Mr. JohnR. Heath i IEGWB Mission: Enhancing development effectiveness through excellence and independence in evaluation. About this Report The Independent EvaluationGroup assesses the programs and activities of the World Bank for two purposes: first, to ensure the integrityof the Banks self-evaluationprocess and to verify that the Bank's work is producingthe expected results, and second,to help develop improved directions, policies, and procedures through the dissemination of lessonsdrawn from experience.As part of this work, IEGWB annually assesses about 25 percent of the Banks lending operationsthrough field work. In selecting operations for assessment, preference is given to those that are innovative, large, or complex; those that are relevantto upcomingstudies or country evaluations;those for which Executive Directorsor Bank management have requested assessments; and those that are likely to generate important lessons. To prepare a Project Performance Assessment Report (PPAR), IEGWBstaff examine project files and other documents, interview operational staff, visit the borrowing country to discuss the operation with the government, and other in-country stakeholders, and interview Bank staff and other donor agency staff both at headquarters and in local offices as appropriate. Each PPAR is subject to internal IEGWB peer review, Panel review, and management approval. Once cleared internally, the PPAR is commented on by the responsible Bank department. IEGWB incorporates the comments as relevant. The completed PPAR is then sent to the borrower for review; the borrowers' comments are attached to the document that is sent to the Bank's Board of Executive Directors. After an assessment report has been sent to the Board, it is disclosed to the public. About the IEGWB Rating System IEGWB's use of multiple evaluation methods offers both rigor and a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach. IEGWB evaluators all apply the same basic method to arrive at their project ratings. Following is the definition and rating scale used for each evaluation criterion (additional information is available on the IEGWB website: http://worldbank.org/ieg). Outcome: The extent to which the operation's major relevant objectives were achieved, or are expected to be achieved, efficiently. The rating has three dimensions: relevance, efficacy, and efficiency. Relevance includes relevance of objectives and relevance of design. Relevance of objectives is the extent to which the project's objectives are consistent with the country's current development priorities and with current Bank country and sectoral assistance strategies and corporate goals (expressed in Poverty Reduction Strategy Papers, Country Assistance Strategies, Sector Strategy Papers, Operational Policies).Relevance of design is the extent to which the project's design is consistent with the stated objectives. Efficacy is the extent to which the project's objectives were achieved, or are expected to be achieved, taking into account their relative importance. Efficiency is the extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefits at least cost compared to alternatives. The efficiency dimension generally is not applied to adjustment operations. Possible ratings for Outcome: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory. Riskto Development Outcome: The risk, at the time of evaluation, that development outcomes (or expected outcomes) will not be maintained (or realized). Possible ratings for Risk to Development Outcome: High Significant, Moderate, Negligible to Low, Not Evaluable. Bank Performance: The extent to which services provided by the Bank ensured quality at entry of the operation and supported effective implementation through appropriate supervision (including ensuring adequate transition arrangements for regular operation of supported activities after loanlcredit closing, toward the achievement of development outcomes. The rating has two dimensions: quality at entry and quality of supervision. Possible ratings for Bank Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory. Borrower Performance: The extent to which the borrower (including the government and implementing agency or agencies) ensured quality of preparation and implementation, and complied with covenants and agreements, toward the achievement of development outcomes. The rating has two dimensions: government performance and implementing agency(ies) performance. Possible ratings for Borrower Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory. iii Contents PRlNClPAL RATINGS ........,...........................................................................................................V KEY STAFF RESPONSIBLE .......................................................................................................... V PREFACE...................................................................................................................................... VI1 SUMMARY ..................................... ...................... ...........................................................................IX 1. BACKGROUND .............................................................................................. ....................1 2. PROJECT OBJECTIVESAND DESIGN ........................................ ...................................1 3. OUTCOME .......................................................................................................................... 2 4. MONITORING& EVALUATION ...................................................................................... 10 M & E Design ............................................................................................ ..................10 ..................10 M & E Utilization ....................................................................................................................... M & E Implementation ........................................................................... .. 10 5. RISK TO DEVELOPMENTOUTCOME .................................................... .......................11 6. BANK PERFORMANCE ..................................................................................................12 Quality at Entry........ 7. BORROWER PERFORMANCE ..................................................... .................................. I 3 Government Performance ........................................................................................................ 13 13 Overall Rating........................................................................................................................... Implementing Agency Performance ......................................................................................... 14 8. LESSONS LEARNED .............................................................................. ........................14 This report was preparedby Richard Burcroff(Consultant), with guidancefrom John R.Heath and Nalini Kumar (Task Team Leaders). Mr.Burcroff visited Moldovato assess the project in February2009. Marie Charles provided administrative support. iv 9. REFERENCES ................................................................................................................. 16 ANNEX A BASIC DATA SHEET . .................................................................................................. 17 ANNEX B .LOGFRAME MATRIX (KEY PERFORMANCE INDICATORS) .................................. 21 ANNEX C .APC PROGRAMTRIGGERS FOR RlSP2 ................................................................. 23 ANNEX D .LOANS DISBURSED FROM RISP CREDIT LINES ................................................... 25 ANNEX E .COMMERCIAL BANKS IN THE PROJECT: BASIC INDICATORS .......................... 27 ANNEX F RESULTS OF THE RURAL BUSINESS DEVELOPMENT . ........................................ 29 ANNEX G .ACTIVITIES OF THE ACSA NElWORK .................................................................... 31 ANNEX H BORROWER'SCOMMENTS . ..................................................................................... 33 Tables Table 1. Amounts disbursed -including reflows . reimbursed under RlSP Iand REP II projects as of December and 31. 2008............................................................................................................................................................................ 8 Table 2. Sector Distribution of PFI Lending. 2008............................................................................................................ 8 V PrincipalRatings /CR* /CR Review* PPAR - ~ - - Outcome Satisfactory Satisfactory Satisfactory Institutional Development Impact** Substantial Substantial Risk to Significant Development Outcome Sustainability*** Likely Non-evaluable Bank Satisfactory Satisfactory Satisfactory Performance Borrower Satisfactory Satisfactory Satisfactory Performance * The ImplementationCompletion Report (ICR) is a self-evaluationby the responsible Bank department.The ICR Review is an intermediateIEGWBproductthat seeks to independentlyverify the findings of the ICR. **AS of July 1, 2006, InstitutionalDevelopmentImpact is assessed as part of the Outcome rating. ***As of July 1, 2006, Sustainabilityhas been replaced by Risk to DevelopmentOutcome.As the scales are different,the ratingsare not directly comparable. Key StaffResponsible Project Task Manager/Leader Division Chief/ Country Director Sector Director Appraisal Hoonae Kim Laura Tuck Roger Grawe Completion Pierre-Olivier Colleye Benoit Blare1 Luca Barbone vii Preface This is a Project PerformanceAssessment Report(PPAR) for the RuralInvestmentand Services ProjectinMoldova.The Project (Credit 36680) was the first stage ofanAPL for US$10.5 million equivalent, approved on June 20, 2002. A supplementalcredit (C36681) for US$ 5.0 millionwas approvedinApril 2004 to provideadditionalfunds for the project'scredit component, whichwere inhighdemand.Co-financinginthe amount ofUS$ 1.36millionwas furnished by the UK'sDepartmentfor InternationalDevelopment(DfID) to support rural business development inthe project, US$O.88 million fromthe SwedishDevelopmentAgency (SIDA) for matchinggrant resourcesandtechnicalassistancesfor projectfinancial intermediaries, andUS$0.70 millionfromthe EU's former TACIS facility (TechnicalAssistance to Commonwealthof IndependentStates) for the ruraladvisory services component. Beneficiarieswere also able to secureUS$0.20 million in matching grant fundingunderthe GEF financedAgriculturalPollutionControlProject. Bothcredits were closed onDecember 31,2005, the date establishedat appraisal. An ImplementationCompletionReportwas submittedonApril 14, 2005. This reportwas preparedby the IndependentEvaluationGroup (IEG) basedonthe ImplementationCompletionReports, StaffAppraisalReports, LoanAgreements, as well as a reviewofBank files. An IEGmissionwas in MoldovainFebruary 2009, andheldinterviews with a number of stakeholders, includingrepresentativesofGovernmentandthe implementing agencies, includinglocal staff, direct beneficiaries andother donors inMoldova.The cooperation and assistanceof all stakeholders and governmentofficialsis gratefullyacknowledged. The assessment is part of a cluster of four PPARsbeing carriedout to provideinputto IEG's ongoing Agriculture andAgribusiness Evaluation. FollowingstandardIEGprocedures, a copy ofthis Annex report was sent to governmentofficials and agenciesfor their reviewandcomments.The Borrower'sresponseis attachedat Annex H. ix Summary The Moldova Rural Investmentand Services Project (RISPl) was the Bank's first attempt inthis country to consolidate informationand financial services targeted at the rural population. The project was intendedto be the first phase o f an Adaptable Program Credit (APC). The designtook account o f lessons learned from previous Bank-supported operations-the lStCadastre Project and the Rural Finance Project-and from dialog with the government and donors. RISPl helpedto keep ontrack the earlier reforms to agricultural pricing and marketing and the agricultural trade regime; and to consolidate gains from landprivatization inthe face o f resistance from the recently displaced managers o f Moldova's privatized collective farms and others. The project also showcased ECA's new regional strategy for agriculture-which sought to promote farm productivity and rural enterprise developmentthrough complex investment projects rather than through renewed sector adjustment lending. RISP1 supported a first phase o f reform to Moldova's agricultural technology systemand business development services, and its rural financial markets. The project introduced private contracting for farmer information services; and organized business development services. Buildingon the recommendations made by these services, the project offered credit lines to existing and newly-registered rural enterprises and to farm households.An initial credit o f US$10.5 million equivalent was approved on June 20,2002. A supplemental credit for US$ 5.0 million was approved inApril 2004, to provide additional funds for the project's credit component. Both credits closed, as expected, on December 31,2005. The APC's second phase, known as the Second Rural Investment and Services Project, was approved February 2,2006. REP2 was designedto scale up parts o f the first project. Project outcome i s ratedSatisfactory. Under a competitively-bid contract, the non-profit Agency for Consultancy and Training inAgriculture established a network o f private extension consultants throughout Moldova, providing service to 384,000 agricultural producers (over one-half o f all farmers). The project's final beneficiary survey indicated a substantial shift to higher value-added production by project beneficiaries compared with non-participants, and a considerable increase incrop yields and animal productivity. By the credit closing date, 761 enterprises were implementingbusiness plans financed by project subloans; 384 ofthese were first-time borrowers. Agribusiness (especially processing) was the main activity o f most enterprises assisted by the project. Sales went up by 12percent and employee incomes rose by 23 percent. The RISPl credit component was a success. Under the subsidiary lendingagreements, it was left entirely up to project financial intermediaries (PFIs) to select borrowers, approve subprojects, and set lendingterms. PFIs bore the lending risks and were free to establish on-lending interest rates sufficiently above the costs o f capital to offer a reasonable return.PFIs offered a fullrange of banking services to rural clients, andtheir rural lendingportfolios grew by 40 percent. Inparts o fthe country where cash and in-kind exchanges hadbeenthe norm, a credit culture developed. The project's credit lines benefited4,500 people, and 33,700 members o f savings and credit cooperatives X participating inthe project. Repayment rates were around 96 percent and losses were minimal. Despite the project's positive results, the risk to development outcome i s rated Significant owing to the effect o f the global financial crisis-particularlythe collapse in remittances, which once made up 36 percent o f Moldova's GDP. The fall inexport earnings and the growing reluctance o f partnerbanks to renewcredit lines to Moldovan intermediaries will leadto a weakening o f the Moldovancurrency and i s likely to put pressure on the budget as well as harming the financial sector. Bankperformance is ratedSatisfactory. The Bank made a critical contribution duringthe two-year design phase. It then led an intensive supervision effort, which had to contend with government backtracking on reform. The supervisionteam remainedlargely the same throughout-although the task team leader changed once. Borrower performance i s also rated Satisfactory. The relevant government departments remained actively involved inpreparation and implementation. Counterpart funding commitments were honored. The project management unit was well staffed and competently led, suffering a minimumo f bureaucratic interference. Under RISP1,8 o f the 9 conditions for continuingthe APC program were met; and backing was secured for RISP2. Five lessons may be drawn: (1) Conditionsattachedto projects,particularlythose bearingon sector developmentpolicy,should be proportionateto projectscale; otherwise, they should be consignedto other operations.Government sent a policy letter to the Bank and signed a memorandum o f understanding, inthe hope that broader policy reforms would be supported by a 3'd Structural Adjustment Credit. But SAC111was dropped from the Moldova lending program after an unsuccessful 2"d Tranche Review, burdeningRISP1with the added responsibility ofaddressing the broader reform agenda. (2) Credit agreements and project budgets should be sufficientlyflexible to allow for changes inproject financial intermediariesduring implementation. RISP1allowed any pre-qualified financial intermediaryto apply to borrow project funds under subsidiary loan agreements (SLAs) with the Borrower. Eligibility criteria were established inthe preparation phase and a number o f PFIs were evaluated. However, the demand for project resources was greater thanthe available funds so that resources had to be rationed between the competing intermediaries. The rules neededto allow new intermediaries to take part inthe competition; and to include the option o f assigning funds by auction. (3) Grant elements in credit linesmay not havethe intendedeffect. A grant element was included inthe credit line for enterprise start-ups inorder to accommodate businesses with weaker collateral. But, inpractice, the xi same collateral requirementswere applied, whether or not a grant was attached to the loan. (4) Credit lines involvingmultiplesubloans requirea considerable delegationof fiduciary responsibility.InRISP1,delegation worked because: (i) from the start, banks and borrowers receivedclear advice about the available credit lines; (ii)the project management unitbuilt upthe expertise to conduct a major part o fthe screening process, leaving the Bank to prior-review larger loans and post-review smaller ones; and (iii) to thanks the technical assistancereceived from partners, banks were able to improve their subloan applications so that, whenneeded, prior reviewcouldbe conducted expeditiously. (5) Providingconsultingservices to help small entrepreneursprepare and implementbusiness plans is as criticalfor the success of rural finance programsas providinglong-termcredit. Combining financing with technical assistancehelpedto makeRISPl a success. Providing long- term fundingto rural businesses was vital. But without the Business Development Services component, it i s unlikely that the credit line would have disbursed. Vinod Thomas Director-General Evaluation 1 1. Background 1.1 The decollectivization that followed Moldova's Independence in 1991 led to a near collapse inagricultural production, productivity, and exports. In2000, when the project was mooted, agricultural GDP was less than one-half o f its 1990 level, having sufferedthe largest fall inthe ECA Region. At the project designphase, a poverty assessment identifiedlandless agricultural workers as among the poorest o f the poor inMoldova. On a more positive note, during the two to three years before project approval, there had been substantial progress in the key areas of landprivatization and farm restructuring. 1.2 Project preparation startedafter the Russianfinancial crisis (1997-98), a badtime for Moldova. Transition reforms were incomplete, the conditions o f an Extended FundFacility had not beenmet, and the country was heavily dependent on CIS markets, makingit vulnerable to the regional downturn. Russia made up 60 percent o f Moldova's export market. The private sector was underdeveloped, the country had little access to western markets, and foreign direct investment was limited. Moldova was not well placedto bounce back from the external shock and redirect exports to other markets. 1.3 The National Bank had weathered the onset o fthe crisis and the move to a floating- exchange rate. By 2000, liquidity was tight but the legal and regulatory framework for banking was sound, internationally accepted accounting standards were inplace and all former state banks had been privatized. However, the range o f financial services available was limited, especially inrural areas. Business developmentservices were rudimentaryand there were no specialized advisory services, either public or private, for farms and agribusinesses. 2. Project Objectives and Design 2.1 The project (RISPl) was the first o fa two-phase Adaptable Program Credit. The Project Appraisal Document indicates that the objective of the program was to provide long- term support to agricultural growth, thereby pushingup incomes and reducing poverty. 2.2 Inthe wake o flandprivatization, RISPl sought to bolster agricultural growth by giving newly-fledged private farmers and rural businesses ownership titles, knowledge, knowhow, and finance. Project objectives were not revisedduringimplementation. The specific objectives o f RISPl were: (i)Tosolidifyprivateownershipoflandandotherproductiveassets; (ii)Tocreateviableruralentrepreneurial, legalandorganizational structures; (iii) establishaprivateagriculturalsupportservicessystemincludingadvisory, To input and output supply, marketingand business development support; and 2 (iv) To establish a self-sustaining rural finance system to serve a large numberof dispersedrural clients throughout the country. 2.3 The project had four components: (i) RuralAdvisory Services (US$2.95 million at appraisal; $2.43 million actual) -- tofinance service contracts and training to establish a nationwide network of rural advisory service providers; (ii) BusinessDevelopment (US$2.49millionatappraisal; $1-47million Rural actual) -- tofinance technical assistance, training, and operational support for local development agencies to expand the basic advisory information under the first component by providing support for the preparationo f business strategies, business plans, and the preparationo f loan packages; (iii) Finance(US$13.75millionatappraisal; $19.61millionactual-r Rural $24.6 1 million, including the $5 million supplemental credit approved in April 2004) -- buildingon the successful pilot results inthe RuralFinance Project, to provide both a general commercial credit line and a special credit line with a matchinggrant component; and (iv) Project Management (US$0.5 million, $0.46 millionactual) -- to provide technical and financial support for project management with implementation o f responsibilityunder the Consolidated Agriculture Project Management Unit(CAPMU). 2.4 Inadditiona ProjectPreparation Facility (PPF) was providedto support pre-project activities, including the early start-up costs associated with the operation o f the CAPMU, which was established for the project and Service Providers, as well as initial training and preparations for implementing the credit lines. 3. Outcome RELEVANCE 3.1 Designofthe APC program and the first-phase project that i s the focus o fthis assessment (RISPl) was based on the findings and recommendations o f the World Bank's Agriculture Strategy for Moldova (World Bank 2001), the Government's Strategy for Agriculture and Agro-processing Development, and the Bank's FY99 Country Assistance Strategy (CAS). The design also reflected lessons fromthe earlier Rural Finance Project (FY98), which supported development of the RuralFinance Corporation and its network of (micro-) Savings and Credit Associations (SCAs). 3.2 The Letter o f Sector Development Policy (negotiated in2001,signed May 2002) and the associated Memorandum ofUnderstanding(December 2001) were negotiated as part of the preparationofRISPl andthe 3rdStructural Adjustment Credit (SACIII). At appraisal, it 3 was assumed that policy dialogue would be conducted under the aegis o f SACIII andthat the two-phase APC would provide complementary investment.The Program continues to be relevant and current inthe context o fthe final drafts o f the Government's Economic Growth and Poverty ReductionStrategy Paper and the Country Assistance Strategy for 2005-2008. Bothdocuments outline reforms which RISP1and RISP2 have addressed. 3.3 Donor coordination was effective. The project was co-financed by DFID, SIDA, and the EU's former TACIS facility; it also received support from GEF.The other donors each brought particular skills to bear. For example, DFID contributed expertise inbusiness development services. Inclusion o f "softer" elements inthe design(e.g. the grant element in the Special Credit Line)contributed to atimely draw-down o fdonor proceeds. Inparallel, USAID helped Governmentestablish one-stop shopping procedures for enterprise start-ups, reducing the time requiredto register a new enterprise and obtain the needed licensing and permissions. 3.4 Between 2000 and 2004, Moldova inched from 16thto 14' inECA's rural reform matrix, which ranks the 27 transition countries o f Central and Eastern Europe and the CIS. Inbothyears Moldova placedinthe middleofthe matrix, as a "moderate" reformer. RISPl helpedMoldova to preserve this status. With the early removal o f SACIII from the lending program following the Bank's decision not to release the second tranche, the RISPl became the main vehicle for monitoring compliance with the agricultural sector commitments inthe Policy Letter-the only part o f SACIII to be carried out satisfactorily. Relevance of Objectives 3.5 The relevance o fproject objectives is ratedsubstantial. Overall, the project's four development objectives were consistent with the FY1999 Country Assistance Strategy and Moldova's Strategy for Agriculture and Agro-processing Development. 3.6 The RISPl's first objective, to solidijjprivate ownership of land and other productive assets, built on foundations laid by a US AID-supported landprivatization project and the Bank's 1'` Cadastre Project, which developed an automated land recording and land registration system country-wide. These interventions were indispensable for the working o f a land market.However many land reform beneficiaries were not aware o f their new land rights; anddid not know how to protect them from incursionby local authorities. The RISP1 was intended to help Government address these challenges. 3.7 Theproject's second objective, to create viable rural entrepreneurial, legal and organizational structures, was also relevant. Underthe rural investment climate prevailing before the project was launched, there was little technical and financial information available; and no business development services for enterprise start-ups. Rural entrepreneurs relied on their personal networks for advice on how to register, finance and operate a business; these contacts were often limitedand poorly informed. There was little training available on basics such as market assessments,businessplanning, accounting, licensing, taxation, and personnel management. The project sought to fillthese gaps. 1 World Bank (200 1;2005). 4 3.8 The third objective, which aimed to establish aprivate agricultural support services system including advisory, input and output supply, marketing and business development support, made sense. The breakup o f collective enterprises and the disappearance o f centralized production, marketing and input supply services left the new landowners with little support. The extent o f this vacuum was documented by a Rural Gap Assessment (1999) and a Baseline Survey (2001), both conducted duringproject preparation. The project addressedthe agriculture service gaps that made it harder for small farmers to make the transition from subsistence to commercial farming. 3.9 Objective four sought to establish a self-sustaining ruralJinance system to serve a large number of dispersed rural clients throughout the country. Landprivatization and rural decollectivization was accompanied by the disappearance o f state-owned rural finance institutions. Fledglingprivate farmers lackedthe cash and the other assetsrequiredby commercial banks as equity contributions and collateral. Land i s a legitimate source o f collateral; but banks are disinclined to accept it. At project inception, only the larger commercial farms were able to obtain loans from commercial banks. It was therefore valid for the project to seek to broaden access to financial services. Relevance of Design 3.10 Design relevance i s also ratedsubstantial. With respect to the first objective, the RISP1 preparation team correctly identifiedthe need for post-privatization legal services covering the leasing, buyingor selling o f land, the urgency of educating new landowners about their legal rights, and the demand for information about available properties and prices. 3.11 To help achieve the second and third objectives the project included specific components for developing private business and rural advisory services and providing information on prices, technologies, inputmarkets and agronomic and business practices. 3.12 Insupport o fthe fourth objective project design includedinitiatives: (i) prequalify to financial intermediaries under subsidiary loan agreements signed with the Ministry o f Finance; (ii) to train banks to take on rural operations; and (iii) allow non-bank financial to intermediaries to offer parallel services. EFFICACY Objective1-Solidify private ownership of land and otherproductive assets (Rating: Modest) 3.13 This objective was not directly addressedby the project, the expectation beingthat the policy dialog associated with the Policy Letter would be carried out inthe main during discussions and the tranche reviews o fthe ill-fated SAC 111. DuringRISP1 supervision missions Government did engage inlively sector policy discussions about the protectionof property rights inrural assets, fixed and movable, as well as a continued liberalization o f sector policies. But commitmentwas not as great as it might have been ifthe incentives had beenproperly aligned-that is, ifthe Bank had linked performance under the policy letter to the SAC111tranche release (whichultimately never took place). 5 3.14 Ultimately, discussions broke down over the degree o f voluntarism that would be associated with implementation o f Moldova's landprivatization program. These differences were swept aside when the 2"dphase RISP2 was beingprepared, and Government accepted the Bank's recommendations. Thereafter, a separate and focused component was designed for the RISP2, which is beingimplemented smoothly.2 3.15 By linkingthe policy and investment operations, the project helped defend, inan unstable policy environment, the steps already taken to liberalize agriculture. Inits dialogue with the authorities, the project team focused on agricultural trade, rationalizationo f subsidies, regulation and land tenure. The dialog had mixedresults but, overall, helped Moldovan farmers conduct their business without undue interference. By providing them with the requisite information, the project gave farmers a keener sense o ftheir legal rights. Objective 2 - Create viable rural entrepreneurial,legal and organizationalstructures (Rating: Substantial) 3.16 Approximately 385 legally registered, self-owned and sustainable rural businesses were created and developed duringproject implementation. (This component was mainly fundedby DFID.)Rural entrepreneursreceived, for the first time, advice on how to develop projects, register new businesses, secure bank financing, and marketproducts. 3.17 Business development support was offered to a range o f farm and rural non-farm businesses. Four local NGOs were engaged to provide enterprise advisory and business development services, to already established rural enterprises and to new start-ups.The NGOs also linked up would-be borrowers with the institutions that were intermediating project funds-commercial banks, the Rural InvestmentCorporation, and Moldova's network o f Savings and Credit Cooperatives (SCAs). As part o f their loan origination service, the NGOs identifiedand vettedprospective clients, helpedthem to prepare business plansand loan applications, andmonitoredperformance-whether backed by borrowing or not. 3.18 For a small country like Moldova, the results were impressive.By the end ofthe project, 1,136 final business plans had been prepared and 761 enterprises were operating under NGO-approved businessplans. These enterprises enjoyed an average increase in sales o f 12 percent, with a 23 percent increase inemployee income. Participating NGOs built up expertise, enablingthem to provide rural business development services to more advanced clients, for a payment. Objective3 -Establish aprivate agricultural support services system including advisory, input and output supply, marketing and business development support (Rating: Substantial) 3.19 The quality and outreach o fthe advisory and extension services for farmers have been significantly improved (Annex H). Before the project, the breakupo f collectives andthe disappearance o f centralized services had left newly privatized landowners without key 2 Private communicationfrom the TTL. 6 support services. Advice and extension were offered by dispersedprovider groups, mostly donor-fundedNGOs, butwith limited outreach and little coordination or sharing o f information. Thematic coverage (largely donor-driven) was patchy. Followingthe project, the institutions exist for transferringknowledgeto farmers and runningnational campaigns of vaccination, artificial insemination, and other farm services. 3.20 The advisory services sponsored by the project are decentralized and privately owned. Service providers were contracted through competitive tenderingand trained to provide knowledge and knowhow to fledgling private farmers and rural entrepreneurs. Services covered a range o f topics, including economics, law, finance, marketing,and agronomy; and promoted the adoption o f new technologies, to improve farmer competitiveness. 3.21 The project set up the Agency for Consultancy and Training inAgriculture (ACSA) to provide technical services to farmers. Operating as a partly self-financed agency and providing outreach through carefully supervisedsubcontractors, ACSA exceeded project expectation^.^ Surveys show that by the project's closing date, 70 percent of the rural population hadbeen informed about the availability o f local consultancy services inthe villages, and 300,000 beneficiaries (one-half o f Moldova's farmers) had been served. Yields rose by between3 percent and 43 percent, dependingon crop and location. A final beneficiary survey indicated overall satisfaction with ACSA network services (which scored 4.5 points on a scale o f 0-5); and confidence inthe professionalismo f ACSA's local consultants. 3.22 Progress toward this objective lagged inone respect. The appraisal target o f recovering 50 percent o f advisory service costs was not met. Additional budgetary support was needed inthe follow-on project to assure continuation o f ACSA's services. Objective4 -Establish a self-sustaining ruralfinance system toserve a large number of dispersedrural clientsthroughout the country (Rating: Substantial) 3.23 Fivecommercial banks and one investment company, the Rural Finance Corporation (RFC), were selected to intermediate project funds to rural enterprises and farmers. The banks dealt directly with creditworthy clients while RFC channeled its funds through a large network o f savings and credit cooperatives, some o f which were created by the project. 3-24 The project offered a general credit line to existing farm andnon-farm rural borrowers (GCL). For first time borrowers it extended a special credit line (SCL), which includeda SIDA-fundedmatchinggrant to top up the borrower's equity contribution. For small farmers the project relied on the network o f savings and credit associations (SCAs). There was great demand for these services and disbursements were considerable. The initial project designcalled for an IDA credit o f US$15.5 million. Because IDA funds were short, this amount was reduced at appraisal to US$10.5 million. Inresponse to rapid implementation progress and the fast pace o f disbursement, the Board agreed to "restore" the original US$5 million inApril 2004, inthe form o f a Supplemental Credit. This was intended 3 See ICR and Annex B o f this report. 7 to provide bridgingfinance until the second phase o fAPC became effective; and to allow more time for lessons to be learned before second phase preparations were finalized. 3.25 The project helpedto fillthe vacuum inrural investmentcredit andworking capital. Participating banks expanded their rural branch network. RFC added to the savings and credit associations under its nationwide umbrella, providing training and monitoring their financial health inthe absence o f effective supervisionby the National Federationo f Savings and Credit Associations. NFSCA was replaced in2007 by the National Commission for Financial Intermediaries. On April 30,2008, this new "mega-regulator" unveiled a set o fprudential norms for all non-bank financial intermediaries, norms patterned on those applied by the National Bank o f Moldovato the bankingsector. 3.26 The results matrix (see Annex A below) shows that 768 loanproposals from first- time borrowers were submittedfor financing, o f which 658 were approved and 384 were financed. Repayment performance for project funds exceeded the appraisal target of 90 percent: 96 percent o f the funds initially on-lent inthe project had beenrecovered when the project was c10sed.~The approach taken managed to balance the objectives o f reaching the rural poor and maintaining sound portfolio quality. 3.27 There was a highvolume o f reflows. By the end o f 2008, the reflows on-lent under RISPl had already reached 75 percent o f total on-lending (Table l), reflecting well on the relevance and efficacy o f the project's credit component. 4 Figures for portfolio at risk for the entire bankingsystem were providedby the NBM's Supervision Department,however similar figures for the five participatingbankswere not provided. 8 Table 1. Amounts disbursed including reflows and reimbursed under RlSP I and RlSP II projects as of - - December 31,2008 (`000 MDL or US$). Project Currency Total Total Allocated Total PFls Grant Nr. of sub- Of Sub- amount of amount of grant amount of balance, balance loans loans sub-loans sub-loans sub-loans principal financed approved disbursed reimbursed by PFls, principal MDL 179,874 179,874 16,012 42,669 137,205 2, 149 1,387 RlSP I- direct $ 50 50 50 1 resources RlSP I- MDL 138 136,759 5,087 131,671 298 reflows MDL 134,539 106,313 3,674 102,638 241 RlSP II- direct $ 2 ,176 1,711 107 1,604 23 resources MDL 16,910 16,910 123 16,787 17 RlSP II- reflows $ 80,066 85,066 85,066 2 Agriculture and food industry 53.8% Services 17.8% Trade 14.6% Industry 13.8% 3.28 The agriculture sector and agro-industrial enterprises absorbed most o fthe lending and advisory assistance offered by the project, a trendthat has continued under RISP2 (Table 2). 3.29 Direct lendingby commercial banksto agriculture andthe food industryaccounted for more thanone-half o f loans approved; ifloans to SCAs are added, the sector share rises to about 75 p e r ~ e n t .Among SCA members, the project's final beneficiary survey showed ~ there were over 4,500 people with individual credit lines. Lending to agriculture increased by 40 percent. Commercial banks are now more willing to lendto small-scale rural clients, 5 Private communication from RFC. 9 including new borrowersS6The surge inrural demand for bank credit on commercial terms- which began under RISPl-helped increase the number o f banks that participated inthe follow-on project, including all five banksfrom the RISPl Project. 3.30 Achievement o f RISPl objectives was consistent with the Bank's OP 8.30 mandate for financial intermediary lending.The project sought to promote competition among the signatories o f subsidiaryloan agreements. It defendedthe autonomy o f intermediaries with respect to selection o fborrowers, approval o f subprojects, setting o f lending terms, and the bearing o f lendingrisk.Intermediaries were free to establish on-lending interestrates sufficiently above the cost o f capital to ensure a reasonable return. Fiduciary responsibilities were fully spelledout and were enforced by the central bank Departmentof Banking Regulation & Supervision. The requirementsfor inspection and periodic reporting were observed ina timely way, inline with central bank prudential norms. 3.31 Capital adequacy and ST liquidity ratios are well inexcess o f central bank requirements (see Annex F) and, under normal conditions, would be sufficient to sustain credit reflow under APC. At project closing the financial position o f the Rural Finance Corporation was reviewedand declared healthy. However, 20 percent o f Moldova's savings and credit associations will probably be closed as a result o f the audit now underway; others will be con~olidated.~ global financial crisis may also break some banks (see Risk The section below). 3.32 Overall, efficacy i s ratedsubstarztial. EFFICIENCY 3.33 At project closing no attempt was made to compute an economic rate o freturnfor the RISPl project, partly because of "the diversity o f activities undertaken inthe project". Nor was a financial rate o f returnestimated. But the annual monitoring surveys show that economic benefits from the project were substantial. Advisory services boostedyields and incomes, business development services helped clients prepare bankable proposals, and the requirementthat intermediaries bear the full lending risk encouraged them to finance only the most viable proposals.8The project also strengthenedthe risk assessment capacity of loan officers. 3.34 With respect to the advisory service component, yields were higher inlocalities where local consultants were present; and, inthese localities, there was an associated diversificationtowards higher-value horticulture and viticulture. The assistance provided by 6 Confirmed inIEG discussions with the Central Bank and project financial intermediaries. 7 Few are associatedwith RFC. Among the country's 500+ RCAs, 100had already ceased operationsbefore the Mega-regulator'saudit was initiated, but remainedonthe national registry as there hadbeenno legal provisions for SCAs to formally liquidate prior to enactment in2007 ofthe law which also establishedthe functions and authority ofthe Mega-regulator. Now that legal provisions exist, these defunct operationsmake up the largebulk ofthe RCAs to be formally closed. Among the healthy and surviving 400 RCAs, 75 percent are affiliated with the RFC and benefit from access to the loanablefunds andtechnical training offered within the RFC umbrella. None are expectedto be closed, and only a few might be consolidated...inpart because the areas they are permitted to service (often only a single village) are consideredto be too small. 8 ICR, Annex 11. 10 the project to new ruralbusinesses-about 760 inall-created jobs, increased rural incomes and generated tax receipt^.^ 3.35 With respect to the credit line component, the overall recovery rate was 96 percent. The enterprises that borrowedexperienced a number o f improvements between2002 and 2003. Sales increased on average by 12 percent. Profits rose by 42 percent. The value o f fixed assets increased 1.4 times. Fundsto cover working capital grew by 35 percent." 3.36 Inlight ofthese considerations, efficiency is ratedsubstantial. OUTCOME RATING 3.37 Addingup the ratings for relevance, efficacy and efficiency (each "substantial") outcome i s ratedsatisfactory. 4. Monitoring & Evaluation M&EDESIGN 4.1 Responsibility for M&Ewas vested inthe project management unit. A survey o f intendedbeneficiaries was carried out before appraisal; with annual repeat surveys throughout project implementation. Monitoring was also informed by routine reports from participating financial intermediaries. The indicators developed for the baseline survey were also usedto justify approval o f the APC second phase. M&EIMPLEMENTATION 4.2 Surveys were carried out in2002 and 2004, usingthe same local firm (AGREX)that had conducted the baseline survey. The sampling was statistically sound. In2003 an interim assessmentwas satisfactorily conducted by foreign consultants (Landell-Mills). M&EUTILIZATION 4.3 The project management unit drewonthe survey results to fine-tunethe ACSA advisory service and NGO business development services, as well as the trainingprograms for the savings and credit associations. With the help o f routine reports from participating intermediaries the project management unit kept a close watch on the pace o f lendingand the overall health o fthe rural portfolio. As a tribute to their efficacy, the project management team was invitedto participate inthe parliamentary discussions that led, in2008, to legislation creating a financial "mega-regulator". This tighteningup o f regulatory procedures played a vital role inimproving oversight o f the savings and credit associations. 4.4 Overall, M&E i s ratedhigh 9 ICR, Annex 3, Chart 2. 10 ICR, Annex 3. This informationwas confirmedinIEG interviewswith the Government's mega-regulator for NBFIs andthe RuralFinance Corporation. 11 5. Riskto DevelopmentOutcome 5.1 There are three risks to development outcome: (i) the difficulties the RISPl and follow-on project have faced inpassing along a fair share o fthe costs o f the advisory services to beneficiaries: rural households as well as financial intermediaries; (ii) the impact o f the global financial crisis on the financial health o f project financial intermediaries and savings and credit associations, as well as rural borrowers; and (iii) uncertainties regardingthe sustainability o f the project management unit as Bankfinancing winds down. 5.2 At appraisal it was estimatedthat user fees from the project's advisory services to rural households would, by credit closing, cover at least 50 percent o f the cost o f delivering these services. This proved to be over optimistic. The follow-on project similarly faces problems with cost recovery. ACSA believes it can survive financially when Bank funds are no longer available; but it will have to scale back its operations inthe poorer areas o f Moldova, focusing on better-off clients-including the larger commercial farms.l1 5.3 Insufficient cost recovery also threatens rural business development services. NGOs have worked well as loan originators for the participating intermediaries, delivering clients andproperly documentedloan applications to banks andto the RFC for appraisal and approval. But as project financing winds down NGOs must now charge for their loan origination services. So far, the intermediaries have refused to pay, which may ultimately put the NGOsout ofbusiness.Most o ftheNGOswho worked with the project say they intendto continue working inrural areas, aiming to build self-sustaining consulting businesses. But to survive they may have to limit their services to larger andbetter established clients, steering clear o fthe groups most inneedo f their services (the start-upenterprises with limitedmeans to pay for advice). 5.4 The current global financial crisis is hittingMoldova hard.Pressureis coming from two directions. First, the growth o f export earnings from trade with Russia, the CIS and Europeanniche marketsplummetedinthe last quarter of2008. Moldova's trade deficit was almost 55 percent o f GDP in2008. Second, remittances are dryingup-at a faster rate in 2009 thanin2008. In2006, remittances accounted for 36 percent o f GDP, the highest per capita level inthe world. l2 The fall inremittances will lead to depreciation o f the Moldovan currency, leading to further deterioration o f the current account. This has been accompanied by the involuntary repatriationo fMoldova's foreign guest workers, laidoff inRussia and in 11 Private communication from ACSA's GeneralManager. 12 World Bank2008. 12 Europe. Many of these workers came from the very same ruralhouseholds that borrowed underthe two RISPs.These householdsare now finding it hardto service their debts. 5.5 Although the banking sector at large andthe commercial banks participating inRISPl all demonstratedcapital adequacy ratios andprovisioning against liquidity shortfalls well in excess of central bank norms, their position now looks less secure. The global crisis has reducedthe liquidity ofthese intermediaries and may lead to banking failures and forced mergers. 5.6 The project managementunit can draw on funds from severalnon-Bank sources and i s likely to keep operating through 2010. After that its survival i s less guaranteed. The unit has becomethe main link betweengovernment and the donor community for rural operations and investment programs. It is also the government's most important rural service agency, with akey role to play inpromoting growth inthe Moldovancountryside. The unithas already beenabsorbedby the government's structure of development administration. Butthe managementunit may not survive ifit is brought fully on-budget and requiredto operate using civil service pay scales. 5.7 Underthese circumstances, the risk to development outcomeis rated significant. 6. BankPerformance QUALITY AT ENTRY 6.1 Quality at entry was not assessedby QAG but IEGendorses the satisfactory rating assigned by the ICR. This is based on: (i) the consistency ofproject objectives with the priorities for agricultural development andrural poverty reduction that are highlighted inthe World Bank Agriculture Strategy andthe Country Assistance Strategy; and (ii) carefulthe assessment of institutional capacity that i s factored into project design. PROJECT SUPERVISION 6.2 The Bank task team that was involvedinpreparation remained, for the most part, engagedduring implementation. At midway the team leader changedbutto no adverse effect. The Rural Finance Component was fully disbursed 18 months before the original closing date. Supervision was carried out at least every six months and more frequently when the needarose (see Annex D). Bank supervision performance i s ratedsatisfactory. OVERALL RATING 6.3 Overall, the performance of the Bank i s ratedsatisfactory. 13 7. Borrower Performance GOVERNMENTPERFORMANCE 7.1 The government was fully engaged duringthe preparation and implementation o f the project and performance i s rated satisfactory. Throughout this period staff from the Ministries o f Finance and Agriculture, and the National Bank o f Moldova, worked closely withthe Bankteam. 7.2 Government delegated responsibility for the day-to-day runningo f the Project to the project management unit (CAPMU); but kept a close eye on the project from the vantage point o f its seat on the Project Steering Committee. The PSC providedguidance to CAPMU on matters o f strategy and substance, following up effectively on the steps that were agreed. All ofthe key ministrieswere represented on the PSC. Inaddition, the government contributed to successful implementation o f the project by honoring its co-financing commitments; and by respecting the autonomy o f financial intermediaries inmatters o f in loan appraisal and approval. IMPLEMENTING AGENCYPERFORMANCE 7.3 The performance o f the project management unit (CAPMU) i s ratedsatisfactory. The unit has beenstaffed with well-qualified and experienced professionals who know the sector well; and are versed inthe intricacies o f Bank policies and procedures. The staff dealt well with a range o f complex tasks, including financial management, accounts and audits, procurement, M&E and safeguards. The unit served as an effective interlocutor for stakeholders, beneficiaries and donors on all aspects o fproject preparation and implementation. Duringproject implementation CAPMU became the focus o f a series o f thoughtful and innovative approaches to rural development, including micro-finance, environmentally-friendly agriculture, and advisory services. 7.4 The Rural Finance Corporation (RFC) was the most active o f the participating financial intermediaries and played a key role insetting up the microfinance system. RFC, a non-bank, credit-only financial institution, was the biggestlender under the Special Credit LineofRISP. Whenthe credit closed, the total number of subloans from RFCto the savings and credit associations-including loans made from reflows-stood at 500, representing about US$6.7 million. While initially the RFC served as an apex institutionfor the many savings and credit associations, it eventually added a niche role as a maker of direct, individual loans. 7.5 Taken together, the performance o f the project financial intermediaries-not just RFC but also ACSA, the NGOs and others-warrants a satisfactory rating. All these institutions were well staffed, trained, and equippedto implement the project. Participants were highly committedto project objectives and performed the tasks they were responsible for ina timely and efficient manner.Duringproject preparation each o fthese institutions made a number of designcontributions that helpedto contribute to the overall effectiveness o fproject implementation. 14 OVERALLRATING 7.6 The borrower's overall performance i s ratedsatisfactory. 8. Lessons Learned Five lessons may be drawn: (1) Conditionsattachedto projects,particularlythose bearingon sector developmentpolicy,should be proportionateto projectscale; otherwise, they should be consignedto other operations.Government sent a policy letter to the Bank and signeda memorandum o funderstanding, inthe hope that broader policy reforms would be supported by a 3rdStructural Adjustment Credit. But SAC111was dropped from the Moldova lending program after an unsuccessfwl 2ndTranche Review, burdeningRISP1with the added responsibility o f addressing the broader reform agenda. (2) Credit agreements and projectbudgetsshould be sufficientlyflexibleto allow for changes inproject financialintermediariesduring implementation. RISP1allowed any pre-qualified financial intermediary to apply to borrowproject funds under subsidiaryloan agreements (SLAs) with the Borrower. Eligibility criteria were established inthe preparationphase and a number of PFIswere evaluated. However, the demand for project resources was greater than the available funds so that resources had to be rationedbetweenthe competing intermediaries. The rules neededto allow new intermediaries to take part inthe competition; and to include the option o f assigning funds by auction. (3) Grant elements in credit linesmay not havethe intendedeffect. A grant element was included inthe credit line for enterprise start-ups inorder to accommodate businesses with weaker collateral. But, inpractice, the same collateral requirements were applied, whether or not a grant was attached to the loan. (4) Credit linesinvolvingmultiplesubloans require a considerable delegationof fiduciary responsibility.InRISP1, delegation worked because: (i) thestart,banksandborrowersreceivedclearadviceabouttheavailable from credit lines; (ii)the project management unit built up the expertise to conduct a major part of the screening process, leaving the Bank to prior-review larger loans and post-review smaller ones; and (iii) thanks to the technical assistance received from partners, banks were able to improve their subloan applications so that, when needed, prior review, could be conducted expeditiously. (5) Providing consulting services to help small entrepreneurs prepare and implementbusinessplansis as criticalfor the success ofruralfinanceprogramsas providinglong-termcredit. Combining financing with technical assistancehelpedto make RISPl a success. Providing long-term funding to rural businesses was vital. But 15 withouttheBusinessDevelopmentServicescomponent,itis unlikelythatthecreditline would havedisbursed. 16 9. References Economist Intelligence Unit; Moldova Country Profile - 2008 (annual), London: 2008 Economist Intelligence Unit; Moldova Country Reports - 2008-2009 ((monthly), London Government of Moldova: Strategy for Agriculture and Agro-processing Development (Chisinau - 1999) International Monetary Fund (2009): International Financial Statistics (Washington, DC - IMF monthly) World Bank (1996). Moldova: Agriculture Policy Update. EC4NR Agriculture Policy Note No. 5. Europe and Central Asia Region. World Bank, Washington, D.C. World Bank (1998): OP 8.30 -Financial Intermediary Lending World Bank (2001): Agricultural Strategy for Moldova - Accelerating Recovery and Growth (ECSSD: June 29,2001 [(Revised June 20021) World Bank -ARD (2003): Rural Financial Services -Implementingthe Bank's Strategy to Reach the RuralPoor, Report No. 26030 World Bank (2004): Republic of Moldova-Trade Diagnostics Study (Report No. 30998-MD) World Bank (2005): Rural Finance Innovations -Topics & Case Studies, Report No. 32726-GLB World Bank -ECSSD (2006): Moldova Agricultural Policy Notes-Public Expenditures for Agricultural Development (Report No. 42142 datedJune 2006) World Bank (2008); Migration and RemittancesFactbook World Bank -ECSSD (2005): The Agrarian Economies of Central and Eastern Europe and the Commonwealth of Independent States -An Update on Status and Progress in 2005 (ESSD Working Paper No. 40, June 30,2005 -preparedby Csaba Csaki and Holger Kray) CountryAssistanceStrategies and Related: 0 1999- Country Assistance Strategy for Moldova (Report No. 18896-MD) 0 2001 -"Moldova PSD StrategyNote June 12,2001) Rural FinanceProjectDocumentation PAD (Report No. P7540-MD) 0 ICRReport (Report No. ICR0000514, dtd May 22,2008) IEG: ICR Review posted May 13,2008 SAC I11Documentation 0 PR(Report No. Report P-7113-RO) 0 ICR Report (Report No. 28320 0 IEG: ICR Review posted June 16,2004 17 Annex A AnnexA. Basic Data Sheet MOLDOVA: RuralInvestmentand ServicesProject (Credit No. 3668) 'roject Cost & Financing Project Cost by Conipoxieiit (mUS%imllioii equisaleiit) IDA 15.50 DflD 1.36 SIDA 0.88 EU-TACIS 0.70 Government of Moldova 2.98 Annex A 18 Project Dates Original Actual Concept Review 04/11/2000 04/11/2000 Begin Appraisal 04/26/2002 04/26/2002 Board approval 06/20/2002 06/20/2002 Signing 06/26/2002 06/26/2002 Effectiveness 08/30/2002 08/30/2002 Mid-term Review 09/15/2003 09/15/2003 Closing date 12/31/2005 12/31/2005 Mission Data BankLendingand ImplementationSupport/SupervisionProcesses No. of Personsand Specialty PerformanceRating Stage of ProjectCycle (e.g. 2 Economists, 1FMS, etc.) Implementation Development MontWYear Count Specialty Progress Objective Identification/Preparation 09/04/1998 2 TTL (1) ;OTHER(1) TTL (1) ;AG ECON. (1); OPER. ANALYST (1); 10/09/1999 4 OTHER (1) TTL (1); RFADV. (1); AG ECON. (1); OPER. ANALYST (1); 10/20/1999I 6 IICONSULTANTS(2) TTL (1); CONS. (1); 04/27/2000 3 OPER.ANALYST (1) TTL (1); AG ECON.(2); SECT. SPEC. (5); FMS (1); SOCIOLOGIST(1); OPER. OFFICER(1); 0512000 12 TEAMASST. (1) TTL (1); 09/23/2000 3 CONSULTANTS (2) TTL (1); AG ECON. (1); FIN. SPEC. (1); CONS. 12/01/2001 5 (2) TTL (1); AG ECON.(2); FIN. SPEC. (2); CONS. . . 03/02/2001 7 (2) TTL (1); AG ECON. (1); 06/08/2001 9 FMS (1); CONS. (6) TTL (1); CONS. (2); 09/26/2001 4 OPER. ANALYST (1) 12/14/2001 3 TTL (1); AG ECON.(2) 19 Annex A Appraisal/Negotiation TTL (1); LEGAL (1); PROCUREMENT(1); DISBURSMENT (1); OPERATIONS OFFICER(1); OPER. ANALYST (1); OPER. ASST. (1); OTHER (1) TTL FSu ervision TEAM LEADER(1); AG. ECON.(1); F 12/20/2002 BANKING CONS. (1) S S NEW TTL (1); CONS. 0512412003 (1) S S TTL (1); SR. ECON. (1); FIN. SPEC. (2); OPER. OFFICER(1); CONS. 8 (3)s S S TTL (1); RURAL FIN. SPEC. (1); CREDIT UNION SPEC. (1); RURAL POLICY SPEC. 4 (1) S S TTL (1) ;FIN. SPEC. (1); RURAL ADV. SERVICE ICR (1); OPERATIONS(1); ~ 05I21l2004 J c SCA CONS. (1) S S Note: IdentificationPreparationmissions also took placeNovember 1998 [TTL; OPER.ANALYSTS (2) AND Staff InDuts(staff weeks) Stage of Project Cycle ActuallLatest Estimate No. Staff Weeks USD Thousands (including travel and consultant costs) Identification/Preparation 1,164 AppraisaI/Negotiation Supervision 406 ICR Total 1,570 Note: US$406,000 includes the ICRpreparation 21 Annex B Annex B. Logframe Matrix (Key Performance Indicators) Outcome I Impact Indicators: Indicator/Matrix IncreasedprodLCtion and productiviryin kej crop and livestock subsecton mthe regions Mere projectactivrtresare conducted Improvedmarket accessand nwrkeang igexportgrowthat GDPgrowthrate Ag expo& constituted68% of allexportsin practicesfor agro-foodproducers,measured ?gulvalent 2003, and 66 6% in 2002 by increasedvolme of exportsfrom the projectarea Increasednon-brniemployment inrural 3wersified ruraleconomy 55% (448) of all businessesthat started merr areas measured by the number of acbvities were non-agnwltural. non-agnculturaibusinesses Increasedrural incomein projectareas as U least 5% growth HI realincome Rased onthe surveys, the averageincome comparedto the baselate survey increaseinMebusinessesin pmjectareasIS Output Indicators: IndicatorMatrix 1 Projectedin last PSR I ActuaKatmt Estimate H@hawarenessamongfanners regarding dvisory sewices fully functioning 70%of Moldova's ruralpopulabonare Me availalirlityof rural adwsotysewices infwrred abut the availaIiWyof local consultantsewices invillages At least 2Q0,OM) farmers and rural 00,000 benefiaaries 300,000 beneficianes(halfof all farmers) entrepreneurswll havebenefitedfrwn the have beenreachedthroughvariws extensor advisory Services semces An increaseinthe numberof clientsper 5 SPsand growing 35 SPswdh 447 localconsultants advisorycenter Vanety of dflerent types of adviceservtces iivers&edsublects coveredkn contracts The SPs provideadvice mbaw subjects, providedbysewice providers suchastechnolagies,begal, marketrngand fmances, amwrth a wtde rangeof specializedservices underspecial contracts ViabMy of Sewice centersas measuredby 0% of cost recovery 50%cost recoverynotyet achieved, further cost recoveryof at least 50% support requiredto ensurefull sustainability Saabsfactionof clientswith the advtsorj final beneficiarysurveyas a pcutof ICR The averagerabng ofthe advrxrrjcenter service center network operatian network serviceswas 4 5pants (max 5 01, The professtonalismof the local consultants was ratedat 4 48 Wnts (max 5 0). Numberof rural busrnessandfarmer DO & 600 761 busmesses implemenbngtheir business organizationscreated - 9W indwdualand plans,including510 (67%)indiwdualand 600 group businesses 252 group busmesses Increasedproductivty and income for ownen lainsheanledrural lending 38.1first-time borrowing enterpriseshave / menlbenof newlycreatedbusinesses, kenfinanced, improvedaccessto credltfrom c0mmerual Averageincreasein salesof 12%. banks. Average increaseinemployeeincomeof 23% lmpnwedyieldsf&ween 3%and43%. Annex B 22 Number and quabiy of businessplans Over 1000businessplansprepared 1,136final business plans prepared, ofthose submittedto lianksfor financing 763subrniwd to PFlsfoc financing, and 658 &ready financed Number of bneficianes (ownershembers) Minimum2,000 lieneficiaries 4,504 henefiaariesunderthe lndividualcredit W o have receivedloansunderme GCUSCL - atleast2,000. knee, and 33,700 S W members lncreasedshare of bansto agricultureand Averageruralpom0llog m n by 50% Intwo years, lendingto agncultureinthe PFI ruralsectors in PFls loanporfollosby at portfolmshas increasedby40% least 5096 Repaynlentperformance at least 90% - At least 90% recovev rate on PFIloanportfolio 'Endofproject Source: ICRAnnex 1 23 Annex C Annex C.APC ProgramTriggers for RISP2 Trigger Status at ICR Coiitmuous adherence to the priority legal, regulatory U h l e generally the policy euwonment remains and apcultural policy refomis as articulated W the somewhat unstable, the project has helped with policies Lettex o f Sector Development Policy and the such as the landleasmg law or by rolling back poorly lfeniorruiduinofUnderstaiidmg designed reforms, contmuing monitoring is reqwed to ensure that the Government does not increase its admmstrative mteference m the sector through measures which are not consisteut withthe LSDP or the MOU. Creation o f fully developed legal statutes ofpnvate farms Over 80.000 rural entrepnses repstered since beglnning andm a l entrepreneiws as measured by iiicreasmg o f the project. numbers o f regtstered private farms and nual businesses Efficient operation o f Sewice Providers for adtrsory Thirtv-five Service Promden (SPs) mth447 local senices (minimum35 SPs uioperatioil and a ininimurn consultants operatmg inrural areas, providing services 100 general contracts and 300 special contracts to about 300,000 farmers (out o f an estimated inipleinetitect) . populabon o f 600,000 farmers) and nual mtrepreneun. with(1) 95 generalcontracts as ofNovember 2004 and an additional =expected by the end o fFebniary 2005 and {u)258special contracts implementedby December 3 1,2004 and xiother 100expected by December 31, 2005 Tneeer well undenilav to be met bv closingdate. Effective rural business development sen'ices (nlmunum D A s m opefatioil withfive mobile teams each with 900 legal rural busines5es created and regisrered and a total o f 1,605 service provision agreements on minm~unDevelopment Agencies (DA) operating with business development signed, 1,136 busmessplatis 3 5 mobile teams each) elaborated; 761 busmesses are implementing their business plans, mcluding 510 (67.02%) individual and 25 1group businesses (32.98%). Trigger well undenvay to be mct bv closme date Successfkl uitegration o f commercial banks into rural -PFIs, Six uiclwling five coniniercial banks and 1 financing a5 demonstrated by at least tlww fully non-bank financial mstitutioa, actively participating m fiuictioiruig wd active participattlig financial institutions the project with over 1,049 loans made (rncludmg 500 (PFIs). loans to Savings and Cre&t Associations and 381 loans to first-time borrowers) Sound portfolio as measured by a mmimrrrn W O Portfolio recovery rate rnthe PFIs: 96% i*eccovayrate under the nual fmance component. Adequate regulatory and supervisq capacity o f the Statc Portfolio at &SIC 30 days in SCAs - 1.2% Licensed Supervisory Body (SSB) as demonstrated by liceused SC& typically mcompliance with the prudential SUA5 bemg infull compliance with the prudentla1 regulations with default rates of less than 1.75?0. regulations with mnimumdefault rates (less tilai7 506). However, SSB supmnsory capacity requuues further strengtherung. Disbursement o f ~t kasr 75'0 o f the first-phase credit 6690 o f the credit lme allocation, ududmg the line operation. supplemental credit, disbursed: 100?0o f the origlnal allocation drsbursed. Disbursement o f at least at IQUSF7j?,o f the non-credrt 68O6 o f the non-credit Ime allocation disbursed linecoinyonents or evidence that anequivaknt quantity and quality o f techlucal assistmce has been yromded and has resulted inenhanced local instinitioiial cauacitv 25 Annex D Annex D.Loans DisbursedFrom RISPCredit Lines SpccralCndit Line Oeneral Credit Line GrandTotal Note as o fDecember 31, 2004 Source: ICRAnnex 10 w 29 Annex F Annex EResults of the RuralBusinessDevelopment Component Cumulative figures of RISP (Pilot) and SRISP as for 31/12/04 (exchange rate for report (1 USD) is 14.00 MDL) SI. Indicator Total to Total to 30,11J04 .*CA CCA Total 1.Numberofwtlagesvrhercinfumimoncampaignheld i4cB E6 416 364 272 1408 2 Nu+ d pople acredingthe public meeonqs 17753 3203 6 % 3374 4305 L7919 3. Numberof irpplmtionsfor DAsuppoct 3274 656 1183 613 916 3368 4. Lwthore r r ] dby DAuddrnt 1542 2212 850 180 238 1560 5 SUb-td(34) 1732 2% 333 433 678 l8Ds 6 of which applcaoonsinprqrrjs (+7) 190 1 40 82 80 203 7. SemceagrepmcntssiqHpned 1342 363 293 351 J98 1605 8. 4 1 ~mminatcdby D.kdknt m 462 96 57 n 216 $66 9 iwnamngS.ivice Agrormcna MV e (7-8) 1080 267 236 254 382 1139 obtho iciiue Saiviee i g ~ m (in 9 above): m 10. RBsstarted impkmentingtheir business/imestment plans 723 212 198 168 183 761 ii rrrprogtwpia) 357 55 38 86 199 378 Or those stad imp%mentngtheir buslmes plans (in 10 above): 12 IdiuPdualy owned busmessas 479 ( 663 '$1 115 145 144 106 510 13. Orwp owned busirwses 244 ( 33.- ''4 97 53 24 77 251 14. FSs generahngrevenue (of thase in I O have) 560 159 161 135 131 586 15.RBswith fiwlbusiws planswith DA assistance 1090 332 254 228 326 1136 16. RBr ragktffed as legal entitywith DA assishnca 514 124 104 ?6 225 529 17. Credit appliitionr bo FmndalInstitutions(!=Is) 938 294 217 199 274 983 18. lessmeUr q a d or d d r m m 212 88 27 22 78 215 19 Remain:rgme& applicabonsY t n e (17-18) 726 206 190 176 196 Orthe MM credltapptcationsi 20. bans drsbud to R8s 613 171 178 161 148 658 21 Loans appinvrd bur nm disbursed 25 4 4 G 6 22 22 Loh?awliatonr sb%lk n g lsr~rredky FIr (19-M-21) 88 31 8 7 42 88 cdthe lwnr p d e d {in 20 above): 23 LD)N pswidedhum REP Funds 452 116 139 140 92 487 24 LDans p d e d bornorher SOURIS 161 55 39 2 1 56 171 25. RBI receivingmatchinggrant L97 6 0 63 33 4 1 197 2 6 RBswithout aedt (of thosein 10ilbove) 125 44 23 16 40 123 Of those smted to mplmenrd w bffines plar. (in 10 a&) the aNv.ues area 27. Agncuknl 299 84 54 69 313 28. Noq.qncultunl 424 114 114 114 4-48 29,Jobscreated (at start-yt) 3WO 748 505 834 3182 1% Avwagepbs crearedperRB (arnur.vp.l 4 4 3 5 4 30. Total RBs costsof all RB (in 10a h ) 19 1817509 496 113 $2 166 534 $1428 673 $2 468 778 $9 564 099 3Qa AverageRB wst {in 10abvr) $12700 (16491 $10942 $8504 $13491 $12 563 31. TotalR L &r (dthoseRBr recejvmgaed8) 57 804 007$2 861 861 $2 05U 808 $1 546 058 $1968854 SD L7 582 dwhich 32, of whrh: - c 4 1 d $5 229 167 $1 949 868 $1296 644 $811 526 $1472 802 55 530 845 33. 5442 062 $168 388 5136825 e0360 $96488 $442062 34, --marchinggrantof hefcanes cuntributim $2 132779 $743 605 S617 333 $494 173 $399 SE4$2 234 675 35 m'ageloan(incl m d r r r a n d ~ ~ ~ r l ~ r R 6 ~ 1 n Z O a b5925Z v e ) $12387 #a053 #529l 510603 $907' Five R68 have received subsidies from SOI-OSFoundation in the total amount $S 668. Source: ICR Annex 9 31 Annex G Annex G.Activities of theACSA Network RlSPADVISORY SERVtCES COMPONENT NUFJBER OF SERVICES AND THE FORM OF ThEIR PROVISION. ACSA NETWORK Vethsl ccyisti!titiirlw Annex G 32 Source: ICR Annex 8 33 Annex H Annex H.Borrower's Comments