I.   Basic Project Data

Type of Evaluation:	Mid-term
Project Number:	MOZ/98/CO2
Project Title:	Community Credit Fund of Nampula
Government Executing Agency:	INDER
UN Cooperating Agency:	UNOPS
Sector:	Sector:Economic Development
Sub-sector:	Microfinance
Project approval date:	7 August 1999
Project start date:	4 January 2000
Expected end date:	30 September 2003
Evaluation date:	1 February 2002
Project Budget
UNCDF:	US$   2,401,143
Swedish International Development Cooperation Agency (SIDA):	697,851
World Vision:	136,400
Total:	3,235,394
Actual Expenditures at Evaluation:	907,424

II.   Background

Mozambique was designated a “concentration country ”for UNCDF in 1997 in recognition of the Government of Mozambique ’s (GoM) commitment to decentralization, which dove-tailed with UNDP ’s Country Cooperation Framework focus areas of poverty elimination, and the promotion of local good governance. Following upon a review and re-orientation of UNCDF ’s microfinance portfolio, it was identified that the establishment of a sustainable microfinance programme within the Nampula area would be a useful tool for the elimination of poverty. Furthermore, it would encourage the decentralisation of decision-making down to the local level.

A project request for proposals was issued in August 1998 and the grant was awarded to World Relief (WR) . In February 1999, a project finalization mission was undertaken to fine-tune both the approach, and the project document. In December 1999 the formal agreements were signed, and the first tranche of funding was received soon thereafter. Staff hiring for the Nampula office commenced in April 2000, and the first loan was disbursed in July 2000. (ii)

III.   The Project

Development Objective

The development objective of the project was to decrease poverty in Nampula Province through increased access to financial services.

Immediate Objective

The immediate objective was to increase access to sustainable microfinance services in the Nampula province through the establishment of a profitable, autonomous and sustainable Mozambican microfinance institution, Fundo de Credito Communitario de Norte (FCCN) .

Expected Outputs

1. Access to basic financial services provided to 10, 000 poor clients in Nampula Province by year 4, half of whom had to be women.

2. A sustainable, autonomous and profitable Microfinance Institution, FCCN, set up.

The agreed strategy was that the project would focus on the Nampula-Nacala corridor in northern Mozambique, with the initial concentration on the urban and peri-urban areas. When economies of scale had been achieved, outreach would be extended into the more rural areas. The core credit product to be used was the Community Banking Methodology, building on lessons learned from a previous UNCDF piloted Fundo de Credito Communitario Sur (FCCS) project previously implemented in southern Mozambique.

The FCCN would provide small loans to groups of 15-20 individuals, and the loan maturity would be for 16 weeks, and repayment would be in eight equal instalments of principal and interest. Interest would be charged at a flat rate of 5% per month. Incremental increases in the loan amounts during the later loan cycles would be tied to the level of savings accumulated by the clients. The composition of management was to evolve over time, with the initial senior staff posts to be provided by WR. Over the life of the project (four years) , the initially, largely, expatriate staff would be progressively replaced by Mozambican nationals at all levels.

IV.   Evaluation Findings

Evaluation of Results

The findings of the evaluation mission are as follows:

• The adoption and use of the Community Bank methodology by FCCN was the appropriate strategy for the Northern regions of Mozambique. Furthermore, the approach of initially focusing on the urban and peri-urban areas in the region, and then building-out from these as economies of scale are achieved, is reasonable. The agricultural outreach scheme is an imaginative approach to provide financing, technical assistance and marketing support to rural producers. In the long term, it could be a creative way to make finance available to rural producers.

• The original projections, as detailed in the project document, were overly ambitious. This was due to an over-estimation of the potential demand for microfinance services, and the assumption that the approach used by FCCS in Southern Mozambique could be applied equally successfully, and more rapidly, in the North. These problems were exacerbated by the delays in the start-up of the project, many of which were beyond the control of management. The management of FCCN needs to gain a clearer picture of the underlying demand for microfinance in Northern Mozambique. This includes taking into account the effect potential competition will have on FCCN ’s projected level of penetration into this market. Also, the gender targets, as outlined in the project document, are probably unattainable and need to be revised downwards.

• The projected caseload per promoter is low by international standards. Currently, growth is being achieved by the hiring of incremental promoters, rather than by increased productivity per promoter. To be operationally self- sufficient on a sustainable basis, FCCN has to increase the productivity of its promoters. The difficulty in recruiting trained staff remains a major constraint to the development of any MFI in the Nampula region. This constraint applies across all levels of staff, and is a contributing factor to the relatively low productivity of the FCCN staff. FCCN needs to find creative solutions to this problem, otherwise productivity will remain low and the project will continue to be reliant on expatriates.

• The evaluation team has certain reservations about the current business plan as presented to them. These include: a) the continued high projected level of demand and b) the issue of loan sizes. Furthermore, there are technical shortcomings with the projections as presented. Based on the projections presented, the identified shortcomings of these projections, and sensitivity analysis, it is unlikely that operational sustainability will be achieved within the next five years. 100% operational sustainability is more likely to be achieved during FY 2007 or FY 2008. Furthermore, the adjusted returns on equity, and on assets, likely will not turn positive until FY 2008. Clearly, a new business plan needs to be prepared.

V.   Recommendations

Recommendations to FCCN:

In order to better assess the future prospects of the project, and enhance negotiations with current and potential donors, FCC should undertake the following:

1. Strategies:

   1. Re-assess the potential demand for microfinance services in the Northern region. This review should include the current and future demand for microfinance services, as well as assessing the impact of current and future competition. This study could be part of Micro-Save-Africa ’s training programme.

   2. Initiate discussions with Nampula Council about the sustainability and scope of their microfinance programme.

   3. Continue discussions with other interested parties such as GAPI and CARE regarding establishing partnerships for the development of a viable microfinance programme in Northern Mozambique.

2. Business Plan:

   1. Based on the above studies, revise the Microfinance projections for the next five years.

   2. Review the projected loan sizes for the proposed loan products to ensure that they are large enough to cover the costs of delivering them to the potential clients.

   3. Review the feasibility of the outreach targets for women.

   4. Ensure that no overlap develops between the Agricultural Outreach program and the microfinance activities.

Recommendations to UNCDF:

The project document notes that should WR falls short of the mutually agreed minimal targets, the continuation of the grant will be evaluated. At this point in time, UNCDF has amongst other options, the choice of stopping any additional funding and writing- off its current investment to date (US$907, 000) , or continuing its support but under revised terms and conditions. In order to permit a consideration of all options, it is recommended that:

1. UNCDF should consider requesting FCCN to further revise their business plan so that it better reflects the realities of the local marketplace and ensure that it is technically correct.

2. If the revised business plan is realistic, as indicated by sensitivity analysis, and includes a clear exit strategy for UNCDF, UNCDF should consider revising the terms and conditions of its funding as an alternative to withdrawing from the project. This should not necessitate any additional funding.

3. If the revised business plan cannot indicate that a sustainable microfinance programme will be established within the next five years, UNCDF should consider withdrawing from the project.

VI.   Lessons Learned

Based on the progress to date, the following lessons can be learnt from the design and implementation of the project.

1. There is a clear need to undertake a detailed market survey before entering into a new microfinance market. This survey should take into account the political, social and economic forces operating within that market and the impact these forces have on potential clients.

2. Given the relatively high salary costs and the low per capita incomes, achieving a high level of productivity is essential to establishing a sustainable MFI in Mozambique. FCCN has to create innovative ways to increase the productivity of

3. Considerable effort and imagination needs to be focused on the recruitment, training and retention of qualified staff.

4. A careful review of the role played by social, religious and cultural customs regarding the status of women in society needs to be undertaken before establishing gender outreach goals.

5. The importance of preparing business plans that reflect the realities of the market place where the MFI is undertaking activities and ensuring that the accompanying projections are technically sound.

VII.   Composition of Evaluation Mission

• G. D. Perrett, Team Leader, Microfinance Specialist
• B. J. Murambire Jr. , Microfinance Specialist