End Project Review of RAKUB – Small Enterprise Development Credit Project (SECP)

The Project

Small Enterprise Credit Programme (SECP) was planned to start in January 2002, with support from Norad, and to be implemented as a project of Rajshahi Krishi Unnayan Bank (RAKUB) - a government bank specialized on agriculture. Several initial delays resulted in the first loans not being given until mid-2003, and the agreed 5 year project period was thus prolonged to June 2008. Norway then stopped funding SECP. SECP will now be transferred into a public liability company to be owned 100% by RAKUB.

There were great plans for SECP. The project was to expand to 51 Upazilas of 8 Districts from Rajshahi Division, and would offer training and credit to all eligible Small and Medium Enterprises (SMEs). Norway would pay all operating costs, while RAKUB and Norway would contribute about equal parts of the funds to be onlent to entrepreneurs.

In the periode 2003-2008 Norway supported the programme with a total of about NOK 25 million.

Interesting Findings

• A number of targets were set for SECP, focused on quantitative indicators, like employment, disbursements, loans etc. Unfortunately, there was less emphasis on qualitative aspects as financial results and loan portfolio quality.

• Several targets for outreach were not met. Fewer SMEs were given loans than planned and fewer upazillas were covered. One the other hand, it is likely that SECP met the target for employment generation, and did very well in having as many as 28% women clients. (Target was 20%). Results for training targets were close, but not fully in line with expectations. The recovery target of 95% was clearly not met, with actuals estimated closer to 80-85%.

• The direct reason for non-achievements of the quantitative targets was persistent delays in implementation, with staff shortages being a recurrent theme. Low recovery has a number of reasons, with limited focus on financial issues being central.

• A key design flaw is that SECP was not conceived as a private sector operation. There was too little business and too much grants. While the social objective is the ultimate rationale for the intervention, the tool - SECP - that was employed to reach this social target requires a business approach to be effective.

• Using RAKUB as an implementer had positives and negatives. It ensured a home for SECP, as well as providing basic infrastructure. But RAKUB is a government bank influenced by politics, and is highly bureaucratized. It could not be expected that SECP would be immune to the inefficiencies of RAKUB.

• A vital design error was that Norway paid all operational costs, with SECP not even recording the interest they collected as income. This design feature actually played up to RAKUBs main weaknesses, namely operational inefficiency and bureaucratic decision making.

• The hiring of staff has been a key choke point. The plan was for 115 employees at full capacity, but SECP still has only 66 employed. It took 6-12 months for a typical appointment of any officer. For the monitoring position it took 3 years. Slow execution has in general hampered SECP in several areas.

• Training appears in general to have been well received by clients. There are in fact very few alternatives in the region. For the future, all courses should be charged a fee that covers direct costs, and borrowers could then themselves choose which course to attend.