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Document of The World Bank

Report No: ICR00001023

IMPLEMENTATION COMPLETION AND RESULTS REPORT (COFN-04430 IDA-33740 IDA-3374A)

ON A

IDA CREDIT

IN THE AMOUNT OF SDR3.9 MILLION (US$5.13 MILLION EQUIVALENT)

AND

IFAD LOAN

IN THE AMOUNT OF SDR8.2 MILLION (US$11.01 MILLION EQUIVALENT)

TO THE

REPUBLIC OF GHANA

FOR A

RURAL FINANCIAL SERVICES PROJECT

MARCH 30, 2009

Agriculture and Rural Development Sustainable Development Department Country Department 1, Ghana Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective: March 5, 2009)

Currency Unit = New Ghana Cedi 1.00 = US$ 0.7170 US$ 1.00 = 1.3947

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Agricultural Development Bank AfDB African Development Bank AFSAP Agricultural Finance Strategy and Action Plan ARB Association of rural and community banks BoG Bank of Ghana BSD Banking Supervision Department CAS Country Assistance Strategy CBO Community-based organization CGAP Consultative Group to Assist the Poor COSOP Country Strategic Opportunities Paper CU Credit union Danida Danish development agency DO Development Objective FA Facilitating Agency FM Financial management FNGO Financial non-governmental organization FSS Financial self-sufficiency GCC Ghana Cooperative Council GCSCA Ghana Cooperative Susu Collectors Association GCUA Ghana Credit Union Association GDP Gross Domestic Product GHAMFIN Ghana Microfinance Institutions Network GHAMP Ghana Microfinance Policy GLSS Ghana Living Standards Survey GoG Government of Ghana GTZ German technical cooperation agency ICT Information and communication technology IDA International Development Agency IFAD International Fund for Agricultural Development ISR Implementation Status and Results Report M&E Monitoring and evaluation MASLOC Microfinance and Small Loans Center

MCA Millennium Challenge Account MCC Millennium Challenge Corporation MIS Management information systems MIX Microfinance Information Data Exchange MFI Microfinance institution MFU Microfinance Unit MoFEP Ministry of Finance and Economic Planning MPAT Microfinance Poverty Assessment Tool MSI Microfinance Support Initiative MTR Mid-term review NAMFIC National Microfinance Center NBFI Non-Bank Financial Institutions NGO Non-governmental organization OSS Operating self-sufficiency PAD Project appraisal document RCB rural and community bank PDO Project development objective PMU Project management unit PSC Project steering committee RAFiP Rural and Agricultural Finance Program RFID Rural Finance Inspection Department RFP Rural Finance Project RFSP Rural Financial Services Project S&Ls Savings and loans companies SHG Self help group SME Small and medium-sized enterprise

Vice President: Obiageli Katryn Ezekwesili

Country Director: Ishac Diwan

Sector Manager: Karen Mcconnell Brooks

Project Team Leader: Christopher Paul Jackson

ICR Team Leader: Christopher Paul Jackson

GHANA Rural Financial Services project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 53. Assessment of Outcomes .......................................................................................... 104. Assessment of Risk to Development Outcome ......................................................... 155. Assessment of Bank and Borrower Performance ..................................................... 166. Lessons Learned ....................................................................................................... 187. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 19Annex 1. Project Costs and Financing .......................................................................... 20Annex 2. Outputs by Component ................................................................................. 21Annex 3. Economic and Financial Analysis ................................................................. 24Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 25Annex 5. Beneficiary Survey Results ........................................................................... 27Annex 6. Stakeholder Workshop Report and Results ................................................... 33Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 34Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 39Annex 9. List of Supporting Documents ...................................................................... 40

MAP

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A. Basic Information

Country: Ghana Project Name: RURAL FINANCIAL SERVICES PROJECT

Project ID: P069465 L/C/TF Number(s): COFN-04430,IDA-33740,IDA-3374A

ICR Date: 03/30/2009 ICR Type: Core ICR

Lending Instrument: FIL Borrower: GOVERNMENT OF GHANA

Original Total Commitment:

XDR 3.9M Disbursed Amount: XDR 3.9M

Environmental Category: F

Implementing Agencies: Bank of Ghana Cofinanciers and Other External Partners: International Fund for Agricultural Development (IFAD) B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 10/21/1999 Effectiveness: 12/04/2001

Appraisal: 03/20/2000 Restructuring(s):

Approval: 06/08/2000 Mid-term Review: 02/23/2005 02/23/2005

Closing: 12/31/2006 12/31/2007 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Satisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Moderately SatisfactoryOverall Borrower Performance:

Moderately Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

Yes Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Banking 64 64

Central government administration 4 4

Micro- and SME finance 32 32

Theme Code (Primary/Secondary)

Legal institutions for a market economy Secondary Secondary

Rural markets Primary Primary

Small and medium enterprise support Primary Secondary E. Bank Staff

Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo

Country Director: Ishac Diwan Peter C. Harrold

Sector Manager: Karen Mcconnell Brooks Jean-Paul Chausse

Project Team Leader: Christopher Paul Jackson Rudolph A. Polson

ICR Team Leader: Christopher Paul Jackson

ICR Primary Author: Christopher Paul Jackson F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) RFSP seeks to strengthen rural financial institutions in order to deepen services and enhance the efficiency of rural financial intermediation leading to accelerated growth and poverty reduction. (The PAD includes two formulations of the PDO: a longer wording in the text and this, shorter, formulation taken from Annex 1 of the PAD.) Key indicators at the PDO level were:

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# Total annual savings mobilized by rural banks; # Total number of clients of rural banks; and # Total annual loans and advances of rural banks. Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : 20% annual increase in number of new clients (depositors and borrowers) Value quantitative or Qualitative)

1,268,641 3,900,000 3,260,779

Date achieved 12/31/2001 12/31/2007 12/31/2007 Comments (incl. % achievement)

The actual value implies an average annual increase in the number of clients of 17% per annum which is marginally below the target growth rate. Growth rates for borrowers and savers are 27% and 15% respectively.

Indicator 2 : 30% annual increase in deposits in rural banking system Value quantitative or Qualitative)

38.13 million new Ghana cedis




The actual value implies an average annual rate of increase of 40% per annum, in excess of the target.

Indicator 3 : Annual loan advances in rural banking system 50% or more of annual deposits Value quantitative or Qualitative)





Loans from RCBs were equivalent to 59% of desposits, above the target of 50%.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Enhanced capacity of increasing number of MFIs Value (quantitative or Qualitative)

0 500 MFIs trained 465 MFIs receieved training and 348 received repeat

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training. Date achieved 12/31/2000 12/31/2007 12/31/2007 Comments (incl. % achievement)

465 MFIs received training from the project (93% of target) comprising 10,687 end users. 17 Good Practice manuals were deployed which have been used by other training providers.

Indicator 2 : Improved capacity of network of RCBs Value (quantitative or Qualitative)

48% RCBs rated 'satisfactory'




At the end of the project only 15 of 127 (12%) RCBs were rated unsatisfactory. Moreover, only 80% meet full capital adequacy ratio (CAR) requirements.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 12/18/2000 Satisfactory Satisfactory 0.00 2 06/28/2001 Satisfactory Satisfactory 0.00 3 12/18/2001 Satisfactory Satisfactory 0.00 4 05/09/2002 Satisfactory Satisfactory 0.25 5 11/27/2002 Satisfactory Satisfactory 0.33 6 05/20/2003 Satisfactory Satisfactory 0.62 7 07/09/2003 Satisfactory Satisfactory 0.71 8 01/30/2004 Satisfactory Satisfactory 1.10 9 06/18/2004 Satisfactory Satisfactory 1.49

10 06/30/2004 Satisfactory Satisfactory 1.66 11 12/15/2004 Satisfactory Satisfactory 2.39 12 05/12/2005 Satisfactory Satisfactory 2.95 13 12/03/2005 Satisfactory Satisfactory 4.00 14 06/30/2006 Satisfactory Satisfactory 4.79 15 01/04/2007 Satisfactory Satisfactory 5.42 16 06/15/2007 Satisfactory Satisfactory 5.42 17 12/20/2007 Satisfactory Satisfactory 5.55

H. Restructuring (if any) Not Applicable

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal The Rural Financial Services Project (RFSP) was consistent with the Bank’s Country Assistance Strategy (CAS) of March 2000 which supported overall economic growth and sustainable poverty reduction through macroeconomic stability, fostering an enabling environment for broader private sector participation in economic development, and ensuring broad-based socioeconomic development through decentralization of core services. It was also consistent with the 1998 IFAD Country Strategic Opportunities Paper (COSOP) which aim was to enhance food security and increase incomes of rural poor households through improvements in small-scale farming and rural enterprises including better access to financial services. Rural financial institutions were perceived as primary vehicles for providing critically-needed financial services to rural people including the poorer and more vulnerable groups. By helping to better integrate the informal and formal financial sectors, strengthen capacity of participant institutions, empower rural groups and associations, and provide the institutional framework for addressing generic constraints, the proposed investment program would help to unleash rural economic growth. It would also help to broaden and deepen coverage of rural financial services to a larger number of rural dwellers and improve overall efficiency of financial service delivery. The evidence for these presumptions was compelling: According to a national living standards survey undertaken in the year immediately prior to appraisal (GLSS IV, 1998/99) two-thirds of Ghana’s population (of 18.5 million) resided in rural areas. Of these, 63% were employed primarily in agriculture, with 12% in manufacturing and a further 15% on trading. Agricultural GDP accounted for one-third of the national economy. Only 0.3% of households were employed in financial services. Moreover, poverty was broader and deeper in rural areas compared to urban areas: headcount poverty rate among rural households was 50% against 19% for urban households (with the national average being 40%). Thus efforts to improve the competitiveness and productivity of the rural economy remained crucial for sustained growth and poverty reduction. With small farming households dominating the landscape, rural economic development was largely synonymous with improved agricultural growth, which in turn required improvements in competitiveness and productivity. Progress on these dimensions was severely constrained by limited use of improved inputs (high yielding seeds and fertilizers) and modern production processes and methods as a result of poor agricultural services and inadequate access to financial services. The lack of access to credit to purchase inputs (fertilizer, seeds and hired labor) and basic processing equipment, as well as for working capital for farm-based trading not only constrained agricultural productivity and value-addition, but simultaneously stymied

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ancillary services in rural-based agricultural and non-agricultural sectors. Moreover, parallel Government interventions were undermined by the absence of institutional credit upon which such programs were predicated, thereby limiting their development impact. With less than 10% of formal sector credit going to the rural sector, informal sources gained greater prominence. The existing small community-owned rural banks and small informal microfinance organizations (including non-governmental organizations [NGOs]) that could potentially fill this void were weak, fragmented and operated with out-dated technologies. These factors led to a strong rural financial sector – or, more accurately, the absence thereof – being perceived as the critical ‘missing link’ of an integrated rural development strategy. Strengthening the rural financial system would therefore put into place the third pillar needed for rural economic growth and poverty reduction. The rural financial sector featured the following typology of actors: (i) the rural and community banks (RCBs); (ii) financial NGOs (FNGOs) and other NGOs not explicitly to be MFIs but with micro-finance ancillary activities; (iii) credit unions (CUs); (iv) saving and loans companies (S&Ls); and (v) the susu collectors who accumulate daily savings from members. Individual entities were affiliated to umbrella organizations, including the Association of Rural and Community Banks (ARB), Ghana Cooperative Susu Collectors Association (GCSCA), Ghana Cooperative Council (GCC), Ghana Microfinance Institutions Network (GHAMFIN), Ghana Credit Union Association (GCUA). Government Strategy The Government of Ghana (GoG) had a number of policies and strategies in pursuit of economic growth and poverty reduction, many of which included elements pertaining to rural finance. Rural finance constituted an outcome for some strategies, while for others it provided an instrument for achieving separate goals; other strategies presumed a functioning rural finance sector as a necessary but secondary precondition for achieving objectives but did nothing to ensure such a condition came about. Similarly, Government sponsored a number of credit programs, although there was no central coordinating body or established procedures for implementation. This fragmentation was reflected in the policy arena too: while many sector policies included reference to rural- and micro-finance, there was not single overarching policy framework or strategic approach. Relevant policies applicable at appraisal included Vision 2020 (from 1996), the Accelerated Agriculture Growth and Development Strategy (draft at time of appraisal) among others. There was no sector strategy or policy for the rural or microfinance, although the precursor to the Ghana Microfinance Policy (GHAMP) was under preparation. Sector Issues to be addressed by the Project and Strategic Choices Strong macroeconomic performance and burgeoning micro-finance initiatives: economic growth combined with political and macroeconomic stability in years immediately preceding the project were seen as conducive to a large expansion of the

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rural finance sector. Similar conditions encouraged a plethora of microfinance interventions. Absent a coherent framework within which to operate, there was a risk of fragmented and divergent rural finance and microfinance sectors emerging. A strategy of supporting the rural microfinance within the wider framework of rural finance while simultaneously fostering linkages between mainstream microfinance and rural finance would mitigate this risk. Presence of apex organizations: Most front-line actors in rural- and micro-finance were members of apex organizations, although many of these umbrella associations were yet to define or fulfill their potential role in providing coordination and oversight. Nevertheless, the presence of a nascent hierarchical structure presented a strategic opportunity to avoid create new institutions by building on existing frameworks. Weak Rural Banks: Many RCBs were financially weak, with limited skilled staff and outmoded technologies to adequately deliver financial services to rural clientele. Of the 134 rural banks in existence as at December 31, 1998, 23 were classified distressed and subsequently closed by Bank of Ghana (BoG). Fifty-six of the remaining 111 RCBs were rated as mediocre, defined as rural banks with capital adequacy between 1 % and 6%. Thin and over-extended oversight capacity: BoG had the statutory mandate to monitor rural bank operations (as is the case for other, mostly urban based commercial banks). However, this task was made very difficult by the large number of RCBs spread over a large geographical area. As a result, poorly performing banks that needed oversight did not often receive the intense supervision required and some banks might not have been supervised in a given financial year. Poor integration of informal and formal sectors: There was little real formalized relationship between formal and informal financial sector entities. Since formal financial institutions prevailed in the urban areas, and vice versa, this relative isolation of the two sectors impeded effective integration of the rural and urban economies necessary to attain sustainable impact on rural poverty reduction. Uncoordinated nature of past donor efforts: Past donor assistance to the rural financial sector had often been piece-meal, driven by each donor’s narrow interests. IFAD had in the past focused largely on grassroots microfinance institutions; IDA on the larger financial sector and some rural banks; and AfDB on lines of credit channeled largely through the Agricultural Development Bank (ADB).

1.2 Original Project Development Objectives (PDO) and Key Indicators RFSP seeks to strengthen rural financial institutions in order to deepen services and enhance the efficiency of rural financial intermediation leading to accelerated growth and poverty reduction. (The PAD includes two formulations of the PDO: a longer wording in the text and this, shorter, formulation taken from Annex 1 of the PAD.) Key indicators at the PDO level were:

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Total annual savings mobilized by rural banks; Total number of clients of rural banks; and Total annual loans and advances of rural banks.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not revised.

1.4 Main Beneficiaries, Project beneficiaries were identified as rural households who would avail themselves of new employment opportunities and income-generating investments resulting from enhanced rural financial services. More specifically, 330,000 rural clients would benefit directly as clients of RCBs or through membership of 8,000 self help groups (SHGs) or susu groups. Women would benefit disproportionately since they were reckoned to constitute 60% of SHGs and 70% of susu clients. The PAD also identified the target population as including officials working within the 111 RCBs including 220 accountants, 500 – 800 managers and directors, as well as their shareholders.

1.5 Original Components Component (i): Capacity-building – Informal Sector was to focus on strengthening informal and microfinance entities by developing, organizing, and training community groups and associations; training and capacity-building for microfinance institutions, developing and testing various instruments and products that would foster stronger linkages between formal RCBs and informal financial sector entities; and removing any administrative and/or regulatory impediments to achieving effective integration. Activities under this component were to build upon existing initiatives such as the GHAMFIN, susu groups, women’s banking initiatives, cooperatives and credit unions. Component (ii): Capacity-building – Rural and Community Banks was to focus on: (i) restructuring weak RCBs and strengthening their operational effectiveness; (ii) strengthening internal controls of all rural banks including provision of new information technologies, logistics and training of key staff; (iii) rationalizing the approach to agency banking by improving communication and logistics and better defining criteria for setting up such centers that are linked to individual RCB capacity; (iv) updating rural banks operational procedures and policies; (v) providing support for information technologies for more efficient electronic reporting to the apex and BoG; (vi) developing an overall staff development plan for all categories of rural bank staff; (vii) strengthening rural bank-to rural bank communication to facilitate greater operational linkages; and (viii) reviewing and removing residual policies that may impede rural bank efficiency.

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Component (iii): Institution-building – Apex was to: (i) finance technical assistance needed to set up, train and operationalize an Apex Bank for the network of then 111 rural and community banks, including the key units/departments of the apex; (ii) provide support for initial capacity building activities, logistics (facilities, communications, etc.) and other start-up activities; (iii) support development of operational procedures and policies for the apex consistent with the requirements of Banking Law; and (iv) finance short-term technical assistance of trained and experienced international experts to assist the RCBs in establishing and operating the apex initiative. Component (iv): Institutional Support was to provide support to upgrade staff skills and improve technologies. This support would be critical in enabling the Banking Supervision Department (BSD) to modify its current approach to supervision of the rural banks and shifting to greater standardization and electronic reporting, retrieval and analysis of returns, and more targeted supervision of banks based on assessment of the returns submitted prior to going to the field. Support was also to be provided to Rural Finance Inspection Department (RFID) to strengthen its capacity for rural finance policy and strategy formulation, as well as for program implementation and monitoring. Support to the MoFEP would ensure continuity in ongoing microfinance initiatives such as coordination of various programs and donor initiatives and development of training programs and funds being supported under the NBFI project.

1.6 Revised Components Component (i) was revised at mid-term in order to focus on training and capacity building proven most likely to achieve results in improving performance and outreach of rural MFIs and linking them to CBOs and SHGs. This revised component would:

Improve and expand training for rural MFIs; Restrict training of CBOs to those directly concerned with micro-finance; Launch a microfinance support initiative (MSI) to build the capacity of 10 – 15

RCBs and apex MFIs to deliver and sustain microfinance services to the rural poor in their catchment area; and

Update the feasibility for capacity building fund to draw lessons from the pilot.

1.7 Other significant changes None.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Project preparation and design was moderately satisfactory. Project design originally focused on the rural banks (see below) and incorporated the lessons learnt by BoG, other local stakeholders and from earlier donor supported projects, including prior Bank experience (e.g. IDA-financed RFP and NBFI, AfDB’s four successive lines of credit to the ADB, as well as Danida’s rural bank capacity building project). The inclusion of

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other development partners who had been active in the rural finance sector (IFAD as co-financier; AfDB as parallel financier and GTZ’s technical assistance) served as an excellent basis to address donor coordination as well as ensure divergent technical inputs during preparation. In general, the concept was well thought out and based on international best practice available at the time, as reflected in the following design elements (inter alia): (i) a holistic approach that encompassed the spectrum of rural finance actors from the central bank, apex bodies down to SHGs and other MFIs; and (ii) explicitly fostering linkages between these actors. However, the microfinance component (i) was added after the design of the project was essentially completed and was not well integrated into the overall project, and this was reflected during implementation. This omission was also mirrored in the composition of the design team which could have benefitted from inputs from social development specialist. As well as being somewhat of an afterthought, component (i) required the organizing and training a large number of CBOs, NGOs and FNGOs and then linking them to rural banks. As such, it was based on experience in India where such SHGs are indeed quite successful in several Indian States. However, conditions and local traditions in Ghana are quite different and this was not sufficiently considered nor was local input being incorporated for that aspect of the design of the microfinance component. In addition, the concept to link existing rural microfinance institutions (credit unions, susu collectors, etc.) to rural banks was flawed in that these institutions are operating in the same markets as RCBs and see themselves as competitors rather than being in a complementary position. So there was no demand for such linkages. The decision to locate the project implementation within the BoG proved to be a good one. BoG was committed to the transformation of the rural finance system and proved to be a strong supporter of the network of rural banks and the Apex Bank throughout implementation. Support to the microfinance component was less forthcoming as this component was implemented by the Microfinance Unit (MFU) in MoFEP. The use of a Facilitating Agency (FA) to manage implementation of this component could not offset the limited capacity and experience of the MFU. As discussed below, monitoring and evaluation (M&E) was poorly designed, with no quantifiable targets either for Output and Impact indicators. There was no formal Quality at Entry review.

2.2 Implementation Project start-up was hampered by the electoral cycle. A new Government was sworn-in in early 2000, and they naturally wanted to re-evaluate all donor-funded projects agreed by its predecessor. The result was that conditions for project effectiveness (for IFAD and IDA) were met only after significant delays. For the IDA financing, this meant a lag of 16 months between approval and effectiveness. A second consequence was that what started out as joint financing ended up being somewhat out-of-step (see Table 1), a situation

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compounded by different approaches to project duration that meant IFAD and IDA projects closed at different times. Table 1 Key Dates

Board Approval

Signed Credit Agreement

Declared Effective

Original Completion

Original Closing

Actual Closing

IDA 8 June 00 23 Oct 01 4 Dec 01 30 Jun 06 31 Dec 06 31 Dec 07 IFAD 5 Mar 00 25 Oct 01 29 Jan 01 31 Mar 08 30 Sept 08 31 Dec 08 AfDB 8 June 00 8 Mar 01 27 Mar 02 30 Sept 04 31 Dec 04 31 Dec 07 Recognizing design weaknesses, particular viz. Component (i) and the M&E arrangements, the supervision team initiated remedial efforts soon after the project became effective. Their efforts were inhibited by initial confusion amongst the Apex bodies regarding who was responsible for collecting specific financial data and this hindered agreement on a revised M&E framework (concluded in 2004, albeit in advance of mid-term review [MTR]) The Bank and IFAD conducted a MTR in early 2005, justifiably two years later than scheduled because of the slow start. A key task was to address weaknesses in the component (i) Capacity Building – Informal Financial Sector. Based on positive experience to date, the use of a FA was continued. Prior to MTR, the selection of beneficiaries to be trained was insufficiently focused on CBOs with existing links to formal financial institutions and training was inefficient and excessively supply driven. The MTR made recommendations to refocus this component by (i) establishing qualifying criteria for client selection including the need for them to be linked to RMFIs; and (ii) recruiting additional facilitating agencies to screen the requests for training and technical support and by launching the MSI. This bolstered the linkages between the formal and informal actors by working with a smaller group of RCBs in developing profitable business products to expand into the microfinance arena Establishing financial discipline to rural finance was consistently undermined by the GoG’s continued use of ad hoc micro-credit programs employing subsidized interest rates that undermined profitable lending by RCBs and MFIs. Some schemes were administered by RCBs and MFIs who were unable to select their own clients based on robust risk profiling, leading to suspicions that such schemes were politically directed. This added to public perceptions in which government credit was seen as a grant not a loan; attitudes borne out by extremely low repayment rates. The project supported studies to investigate this phenomenon and used the results strategically as a basis for policy dialogue with Government. Spurred by this operation, GoG established a unit in the President’s Office to oversee these schemes (initially known as National Microfinance Centre [NAMFIC] and later the Microfinance and Small Loans Center [MASLOC]) and the project sought to build linkages with the apex body for micro finance, even proposing co-location at one point. However, GoG ultimately decided against such a move and MASLOC remained divorced from the rural finance infrastructure. Project at Risk and other Performance Ratings

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At no stage was the project DO at risk. Implementation performance scores were mainly satisfactory. Episodes of components rated marginally unsatisfactory relate to the M&E and micro-finance component (i) and were addressed expeditiously through normal supervision arrangements including the MTR.

2.3 Monitoring and Evaluation Design, Implementation and Utilization Monitoring and evaluation arrangements were considered moderately satisfactory overall. There were significant design weaknesses in M&E arrangements. Quantitative targets were omitted from the logframe and the inclusion of some targets in the text proved confusing. Baseline data was not available until two years into the project. Supervision missions highlighted these issues early on and initiated an intensive dialogue with stakeholders resulting in a dramatic improvement in the range and quality of indicators as well as structure and design of data collection (including the monitoring and information system [MIS] modules) in mid-2004. These were quickly formalized in all subsequent supervision reports. Thereafter collection of appropriate data was reasonably effective. The project strengthened the MIS by adjusting the key modules, rendering the MIS fully operational covering project process and results ranging from input, output, outcomes and results. This MIS should form the foundation of on-going monitoring. The core implementing agencies including the Apex Bank, GCSCA, CUA and GHAMFIN were adequately collecting and monitoring data related to their respective component activities. Trained M&E focal persons were assigned to these agencies to coordinate data collection and monitoring with the Project M&E office. The Apex Bank and BSD actively monitored portfolio performance of RCBs and timely information has facilitated early remedial measures in distressed RCBs. The M&E system provided important inputs to: (i) cleaning the share registers of rural banks; (ii) preparation of a code of conduct for directors and staff of RCBs; and (iii) the design of a financial literacy program for women clients of MFIs. The extent of data evaluation and in-depth analysis of the data generated by the M&E system has been weak, however, in part because of the inability of PCU M&E office to lead and commission profound data evaluation. Project reporting has been good, with regular periodic progress reports submitted to the Bank and GoG in a timely manner. Other qualitative evaluation reports have been prepared, including a beneficiary assessment and end-of-project reports of capacity building of RCBs and the MFIs and the institutional building of the ARB Apex Bank. The introduction of the Microfinance Information Data Exchange (MIX) in collaboration with GHAMFIN established a national performance monitoring system for MFIs; that the MIX methodology is internationally recognized allows for regional and global comparisons. Three factors mean these achievements are likely to be sustained: First, delegating responsibility to the various apex bodies was fully consistent with their role as associations. Second, these responsibilities have been integrated into their respective

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supervision functions (even if these supervision functions have evolved de facto as in CUA and GCSCA rather than de jure as is the case for the Apex Bank). Third, by adopting internationally recognized methodologies, there is a demand for credible data from analysts thereby generating opportunities for cost-recovery. On the negative side, comprehensive data often was available only after substantial lag.

2.4 Safeguard and Fiduciary Compliance

The project did not trigger any of the Bank’s safeguard policies.

Fiduciary Issues The Project Steering Committee (PSC) acting through the RFSP Project Management Unit (PMU) was responsible for the implementation of the project. Financial management (FM) arrangements were handled by the Finance Director of the PMU supported by a Finance Manager attached to BoG. The PMU was responsible for all aspects of financial management and operated the Designated Account for IDA, AfDB and IFAD funding. At inception the project’s FM assessment noted that the RFID lacked the requisite capacity for implementation. An action plan was developed to address these weaknesses, which was successfully implemented. The projects FM rating has consistently been ‘satisfactory’ including ISRs for the last two years of the project (December 2006 and 2007). BoG ensured a sound control environment and all financial covenants were complied with. All project audits were submitted within the deadline of six months following the end of the fiscal year.

2.5 Post-completion Operation/Next Phase The Bank decided not to proceed with a second phase operation. IFAD, on the other hand, has recently approved its Rural and Agricultural Finance Program (RAFiP) to continue support to the sector. RAFiP builds on RFSP and in particular the institutions strengthened under the project. However, RAFiP embodies an important evolution in several ways:

It is based on the Agricultural Finance Strategy and Action Plan (AFSAP) which has emerged organically from stakeholders as the defining strategy for rural finance in the future;

The underlying paradigm is of value chain financing, thereby recognizing the mutual benefits from linking improved finance with investment decisions and technical support; and

RAFiP is a costed program extending beyond IFAD’s own resources, thereby representing something akin to a sector wide approach to which others can contribute.

Other donors currently considering contributing to RAFiP either through pooled or parallel funding include the Government of Italy, AfDB and Danida. The Bank will

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contribute to AFSAP objectives through two concurrent operations supporting SME development and financial sector reform.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The objective was highly relevant. As essentially an institutional strengthening operation, the operation focused on existing front-line organizations and established apex bodies, thereby avoiding the difficulty of creating new institutions. Contemporary approaches to value chain financing to improve access to agricultural credit – as exemplified in RAFiP – depend on the existence of robust and well-tooled rural finance institutions such as RCBs; if not for RFSP these would now have to be developed. The operation remained consistent with Bank and IFAD strategies as evidenced by subsequent CASs and COSOP. Bank CASs indeed highlight private-sector led economic growth, agricultural development and the need to address lagging regions in particular the Northern areas of Ghana, while IFAD COSOP focuses on achieving improved, diversified and sustainable livelihoods for the rural poor, including inter alia the development of pro-poor rural enterprise and rural finance in the context of an inclusive private sector.

3.2 Achievement of Project Development Objectives The RFSP has contributed significantly to the expansion of rural financial services and a more robust rural finance sector. According to the PDO indicators:

Savings mobilized by RCBs increased from Gh¢39.13m in 2001 to Gh¢314.51m in June 2008;

The total number of clients (borrowers and savers) of RCBs increased from 1.3 million in 2001 to 3.3 million at the end-2007;

Total annual loans and advances of RCBs increased from Gh¢14.49m in 2001 to Gh¢172.12m at the end-2007.

In the absence of target values in the PAD, these were eventually specified and agreed at an M&E workshop held in October 2004. Indicators were specified as proportionate increases (in the case of the first two) and as a proportion of savings (in the third). Absolute targets were also set in advance of baselines being known and have been rendered inappropriate (see Table 2).

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Table 2 Original and Updated Outcome Indicators

PDO indicator PAD Revised Indicators

Proportionate target Target value* Total annual savings mobilized by RCBs

Increase achieved

30% annual increase achieved

Gh¢300m achieved

Total no. of clients of RCBs

Increase achieved

20% annual increase almost achieved

3.9 million not achieved

Total annual loans and advances of RCBs

Increase achieved

50% of deposits achieved

Gh¢200m not achieved

Note:.(*) nominal target set without reference to a baseline. Table 3 reports annual performance of key indicators over the period 2001 – 2007. Compared with the PDO indicators, the total annual savings mobilized by RCBs increased by an annual average of 40% per annum (p.a.) which is in excess of the target of 30% per annum [p.a.]) while the total number of clients increased overall by 17% p.a. (against a target of 20% p.a.) with figures for borrowers and savers of 27% and 15% respectively. Similarly total annual loans amounted to 59% of deposits, above the 50% target. Table 3 Key Performance Indicators 2001 – 2007 (nominal figures)

Under Component (i) capacity building for the informal financial sector, only 10,687 end users were trained – about one-quarter of the revised target set at MTR – due to the exhaustion of the training fund. A total of 465 MFIs benefited from training under the project, of which 348 received repeat training. A total of 17 good practice manuals have been developed. Nevertheless, the number of clients of rural MFIs, excluding clients of

2001 2002 2003 2004 2005 2006 2007 Total No. of RCBs 115 115 117 119 121 122 125 Total No. of Agencies

228 317 400 425 460 463 455

Total Assets (Gh¢'M)

51.82 86.38 127.54 179.86 226.08 298.75 385.96

Total Deposits (Gh¢'M)

38.13 66.7 94.92 136.33 168.8 226.46 293.23

Total Loans (Gh¢'M) 14.49 22.56 34.84 56.77 77.52 115.1 172.12 Short-term investments (Gh¢'M)

24.73 38.32 52.47 71.96 83.06 84.63 91.94

Networth (Gh¢'M) 7.33 10.77 12.04 24.09 32.09 38.43 48.33 Paid-up capital (Gh¢'M)

0.96 1.41 2.23 3.52 5.41 9.35 11.35

Total Profit (Gh¢'M) 3.63 3.75 6.78 7.74 9.2 8.87 12.69 Total No. of Depositors

1,129,316 1,187,366 1,456,987 1,720,731 2,182,559 2,493,004 2,670,618

Total No. of Borrowers

139,325 148,271 194,804 234,159 280,280 358,092 590,161

Non Performing Loans (%)

19.81 15.92 14.65 10.43 12.29 11.34 11.18

Memo: GDP Deflator 2000 = 100

134.82 165.58 213.11 243.69 280.16 315.81 362.62

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susu collectors, increased from 1.3 million in 2001 to 1.5 million in 2003 and then rapidly to 3.2 million in 2006. Estimates suggest rural MFIs now reach 15% of the population; 45% are women and 30% in the lower two poverty quintiles. Total savings and number of clients of susu collectors increased 410% and 261% respectively from 2002 – 2007. Similarly, total assets of CUs increased by 248% and membership rose by 60%, while loans (624%) and deposits (307%) also increased. Average loan and deposit size also increased. The MIX tool was adopted to allow international comparisons, and shows that MFIs in Ghana have deeper outreach in lending than their neighbors. ICR background assessments report that stakeholders attribute both to the project activities. Nevertheless, MFIs still depend on external financial support. The MIX methodology for operational self-sufficiency (OSS) reveals an index of 98% for the CUs compared to 118% for comparator MFIs in the region. Consequently, this component is judged moderately satisfactory. Component (ii) provided capacity building of RCBs, and aimed to increase outreach of RCBs. The number of RCBs increased from 115 to 125 and there are now 564 networked business points across Ghana. Training was provided in customer care, treasury and credit management, anti-money laundering, internal controls, and check clearing. In all, over 8,000 staff were trained. In addition, the AfDB project provided hardware support in the form of computers, safes etc. In addition to the PDO-level indicators already reported, project achievements include: the reduction in check clearing from two weeks to five days, and the approval of advances to salaried workers from 14 days to 3 days. An over-the-counter withdrawal now takes less than 9 minutes compared to almost 20 minutes previously. Non-performing loans are less than 12% of total lending portfolio (down from 20% at the start of the RFSP) and 99% of RCBs are profitable. The MSI aimed to improve links between formal and informal financial institutions by training RCBs to expand their microfinance portfolios. Strategic business plans were developed for the 15 selected RCBs and three training manuals developed. Ten RCBs reported putting their plans into action with a resultant increase in the number of microfinance clients and size of microfinance portfolios. All participating RCBs are operationally self sufficient, with 12 exhibiting an OSS score in excess of international norms; similarly all RCBs are financially self-sufficient (FSS) and all in excess of the international norm, suggesting that extending product lines into microfinance does not undermine financial stability. Based on the outcomes of the RCBs and the results of the MSI launched at MTR, this component is judged satisfactory. Component (iii) established the Apex Bank to provide the institutional framework and facilitate the provision of common services. The Apex Bank was established and offices constructed (two offices were refurbished at its own expense). It provides specie to all 127 RCBs and has introduced a system of money transfers between members. The passing of the necessary legislation by Parliament provides a secure legal basis for RCBs. A tension exists between the desire to support the members and the need for a financially sustainable Apex Bank: services to RCBs are yet to be delivered at full cost-recovery, reflected in a steady decline of the OSS index over 2004 – 2007. RFSP initiated a computerization program which has subsequently been picked up by Millennium

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Challenge Account (MCA). Experience this far suggests that while this has generated labor-saving efficiencies and makes oversight by the Apex Bank easier, the full management potential has yet to be realized by RCB managers. BoG is expecting the Apex Bank to be responsible for inspection of RCBs and it remains unclear who will bear the costs of this function: estimated costs are too high for individual RCBs to bear from current profit margins. This component is judged satisfactory, given the achievements in establishing a professional and functioning Apex Bank; the remaining uncertainties are captured in risk to DO. Institutional support to MoFEP and BoG under component (iv) has improved the ability of the MFU and BSD to oversee the microfinance sector. BSD staff have been trained. Supervision of the Apex Bank and associated RCBs has improved, with 16 unsatisfactory (in terms of capital adequacy) RCBs (of 127 total) at project-end compared to 28 (of 105) in 2001. Remedial measures have been taken to address distressed RCBs (including the closure of some failed RCBs) which would have taken longer to put in to place prior to project interventions. The FA effectively supported the MFU in setting down procedures, standards and best-practice techniques for MFIs (as discussed under Component (i)). Policy coordination has lagged, with GHAMP still not approved by Government. However, at the technical level, the MFU has nevertheless driven forward the microfinance agenda by providing leadership to the AFSAP process and has constituted the Microfinance Forum as an effective stakeholder consultation mechanism. Overall, this component is judged satisfactory.

3.3 Efficiency The economic justification at appraisal adopted a cost effectiveness approach, positing that project resources will result in large increase in deposits (of 100%), an increase in the share of credit in RCB assets (rising from 33% to 40% on average and to 50% among satisfactory-rated RCBs), and an increase in the cost-recovery of training provision from 25% to 75%. With the exception of the cost-recovery ratio, which remains somewhat of a concern, these parameters have all been surpassed by project-end.

3.4 Justification of Overall Outcome Rating The overall rating for the project is satisfactory. It was not surprising that difficulties were encountered in linking formal and informal rural finance sectors, but the project responded pragmatically by narrowing focus. The same pragmatism ensured results were attained among MFIs despite poor design. Improvements have been recorded across all dimensions including client base, deposits and lending, financial governance, and efficiencies in service provision. Notwithstanding the initial flaws in the results monitoring, achievements against indicators is substantial.

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3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development It is not possible to accurately discern the poverty impacts of RFSP. No baseline study that linked financial services and rural poverty was undertaken, although such links are well known from empirical studies elsewhere. However, the project commissioned the Poverty Assessment Report which applied the Microfinance Poverty Assessment Tool (MPAT) developed by the Consultative Group to Assist the Poor (CGAP) to assess the poverty reach of project interventions and found that 30% of clients of a sample of rural MFIs were in the lowest two quintiles according to the national poverty line. While attribution is difficult, it can be noted that living standards surveys undertaken around the start and end of the project period (GLSS IV in 1998/99 and GLSS V in 2005/06) report a reduction in the rural poverty rate of 50% to 39%. Gender issues did not feature prominently in the PAD – only one output indicator had a gender dimension – but these were expanded upon early during implementation. First, a concerted effort was made to disaggregate data by gender, with results reported below. Second, the poverty outreach study (above) and the assessment of financial performance of rural MFIs included gender aspects. Third, following the recommendation at MTR, the Bank secured trust fund resources to develop a methodology for capacity building in financial literacy for women which was subsequently adopted by the Facilitating Agency under the MSI. M&E data shows that women consistently accounted for 45% of depositors and about 40% of borrowers of RCBs. By the end of the project, women accounted for 40% of members of CUs and 60% of clients of susu collectors. The 2006 Beneficiary Assessment sought to elicit views from stakeholders on project outputs, reporting for instance a much higher satisfaction rate among female clients of RCBs. Moreover, by assessing qualitative dimensions of client services it captured a number of socio-cultural factors that, unchecked, could inhibit access to financial services. (An example is the quicker service provided to the elderly, and the general positive attitude of RCB staff to the poorest clients.) (b) Institutional Change/ Strengthening Institutional strengthening was the main focus of RFSP and thus is covered extensively elsewhere. Two additional points are worth noting: First, the patterns observed in the rapid expansion of commercial banks in recent years suggests that successful RCBs are demonstrating the commercial viability of banking services in rural areas (although facing competition by doing so). (c) Other Unintended Outcomes and Impacts (positive or negative) It is doubtful whether the redenomination of the cedis in July 2007 would have been such a smooth process without the contribution of the Apex Bank. The facilities for specie movement established under RFSP allowed rapid and safe substitution of old currency for the new across the wide network of RCBs (at no cost to the RCBs). In addition, existing

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training capacity (venues and staff) was fully deployed to train RCB staff in the new currency and the ARB Apex Bank’s ICT department assisted the RCBs in converting their accounting systems to the new denomination, a Herculean task that subsequently resulted in delays in the ambitious plan to computerize the RCB network.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops A Beneficiary Assessment was commissioned by the project in 2006 and concluded that RFSP had resulted in a significant improvement in performance of RCBs, although this remained fragile and that the outreach and quality of services provided by RCBs had improved substantially to the general satisfaction of RCB clients. It also noted that membership of credit unions expanded particularly amongst women, although members remain frustrated at the small loans available and interest rates charged but that susu collectors remained outside regulatory structures rendering vulnerable clients open to fraud and cheating. This beneficiary survey resulted in a number of recommendations and lessons learned that were applied during the remainder of the project period. The most pertinent included:

RCBs need to continue to improve their services and efficiency to ensure financial sustainability and to cope with competition from other commercial banks.

The Apex Bank could extend some of its core functions such as specie movement to other financial institutions such as MFIs, CUs and S&Ls.

The costs of training need to be reduced by consolidating courses/ training audiences to increase efficiencies. Cost recovery in training provision needs to be reconciled with the fact that many RCBs and other institutions are in remote locations and face higher costs in accessing training opportunities.

4. Assessment of Risk to Development Outcome The risk to development outcome is rated as moderate. Factors that contribute to this risk rating include:

The uncertain future of the Apex Bank which is seeking to reconcile its role as an association of RCBs with a degree of social function on the one hand with an ambitious commercial aspirations comparable to those of commercial banks on the other;

The transfer of responsibility without commensurate resources from BoG to Apex Bank for the supervisory functions of RCBs;

The continued financial viability of the apex associations which lack core funding;

Continued deployment of government credit schemes that distort incentives undermine financial discipline amongst borrowers; and

The absence, still, of a comprehensive policy for microfinance passed by Government.

Factors which militate against these risks include:

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Strong apex organizations have been established among MFIs, susu collectors and credit unions with clear roles and mandates and strongly supportive constituencies;

Similarly, the production of 17 good practice training manuals to be utilized by future private- or public sector training providers will sustain best practice principles developed under RFSP;

The exact nature of formal financial services in rural areas will continue to evolve, with new commercial banks likely to ‘cherry pick’ more profitable rural locations at the expense of existing RCBs. While this poses a threat to the specific RCBs it constitutes a further deepening of rural financial services;

Ongoing computerization of RCBs facilitates real-time off-site inspection and regulation thereby strengthening financial performance and facilitating early response to distressed RCBs; and

Ongoing support from the Millennium Challenge Corporation (MCC) and RAFiP will continue the capacity building agenda started under RFSP.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry The quality at entry of the Bank’s performance is rated moderately satisfactory. In the main the project was well designed, and reflected international best practice as well as experience with prior Bank operations. Appraisal was done jointly with co-financers (IFAD) and parallel financers (AfDB). On the other hand, inappropriate design and lack of integration of the component supporting the informal financial sector was a serious flaw. The delays associated with the change of government might have been foreseen. (b) Quality of Supervision The quality of supervision is rated satisfactory. The Bank task team was appropriately skilled and extremely highly regarded by project partners. The team undertook regular supervision missions, was pro-active in identifying and addressing challenges at an early stage and provided comprehensive and action-oriented aide memoires. The Bank effectively supervised both IDA and IFAD financing (it was designated cooperating institution by the latter). In addition, the majority of supervision missions included either IFAD-appointed consultants and/or the Country Program Manager, which contributed significantly to implementation support and helped build a strong unity of purpose between partners. Cooperation with AfDB supervision missions was difficult due to their lack of country presence and ad hoc timing of supervision missions. A strong rapport was established with GoG, BoG and other counterparts and sensitive institutional concerns affecting project performance were raised with authorities with tact and diplomacy, resulting in the necessary changes being made. By pro-actively addressing the weaknesses of design, remedial measures were put in place early and project outcomes secured. From the revision of the M&E and preparation of the MTR onwards, supervision

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standards were exemplary and judged to be best practice within the , Bank. (RFSP was nominated for the 2006 ARD “Golden Plough” Award for good practice in project supervision.) (c) Justification of Rating for Overall Bank Performance Overall Bank performance is rated moderately satisfactory. This takes into account weaknesses in quality at entry despite integration of internationally recognized best practice, but compensated by strong supervision and donor coordination efforts as well as achievement of PDOs and the continued role of the Bank in the sector.

5.2 Borrower Performance (a) Government Performance Government performance is rated moderately satisfactory. On the positive side, overall commitment to the operation remained strong. Second, once problems with the MFU were raised with MoFEP, appropriate action was taken resulting in marked improvements in that component. Third, once this change occurred, the MFU quickly broadened its role from a narrow project-related unit to one which took the initiative for policy dialogue with stakeholders on rural and microfinance issues. Three factors militate against a higher rating: First, the substantial delays from approval to effectiveness following the inauguration of the new government. No doubt it could be argued that these were due to legitimate due diligence functions to ensure commitments of the previous regime are consistent with the agenda, although the 16 months delay appears more than sufficient. Second, presumably for its own political reasons, GoG chose not to fully integrate NAMFIC (and its successor MASLOC) into the apex structures, while at the same time continuing to implement credit programs that distort the finance sector and undermine the sustainability of project outcomes. Third, Government failed to approve the GHAMP and the microfinance sector still lacks a clear policy framework. The absence of a policy framework adds to risk to sustainability of outcomes more than the achievement of projects per se. (b) Implementing Agency or Agencies Performance Implementing agency performances is rated satisfactory. BoG remained committed to project objectives throughout implementation, although its role was primarily one of oversight rather than active leadership. The BSD effectively hosted the PCU and assigned necessary staff early on. Coordinating the co-financing from IFAD and IDA with the parallel financing from AfDB was a particular challenge. Although strictly an output of RFSP rather than an implementing agency, the Apex Bank deserves a mention because of the crucial role it played as a conduit for project activities directed at its members (i.e. the RCBs) without which project objectives would not have

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been achieved. Similarly, the other apex bodies in the microfinance sectors were instrumental in coordinating project activities with their members. (c) Justification of Rating for Overall Borrower Performance In projects that set out to achieve systemic improvements in national institutions, strong performance in project implementation cannot compensate for lack of progress in the policy environment, since the latter is critical for sustainability of project outcomes. Therefore, overall borrower performance is rated moderately satisfactory.

6. Lessons Learned RFSP was recognized as a pioneering intervention to improve access to rural financial services and has hosted international study tours to allow others to learn from its experience. The following key lessons emerge from project experience: (Note that these are also reflected in the RAFiP design documentation.)

Improving financial services to the poor requires substantial effort to strengthen rural MFIs including RCBs in order to expand their outreach. A comprehensive competency profile is required to understand their capacity building needs, and to tailor training appropriately;

RCBs operate in an increasingly competitive environment, and do not have a

hallowed right of existence. Building their long-term sustainability requires them to become more efficient, commercially oriented and able to provide an increasing range of financial products to their clients. Support needs to build this dynamic capacity to allow RCBs to continue to innovate; building capacity to deliver a certain set of services at one point in time is insufficient and ineffective;

There is a tension in the appropriate role of the Apex Bank. It has an important

role to play in monitoring the performance of its member RCBs, and in promoting deepening of links between the RCBs with other MFIs to expand access of the poor to financial services. At the same time, it needs to enhance commercial viability and move away from its reliance on government and donor funding;

Apex organizations have a crucial role to play in expanding various segments of

the financial sector, monitoring and evaluation of performance, and providing advocacy services on behalf of their constituencies and their clients. However, funding these ‘public good’ elements remains problematic and needs to be addressed to ensure long term viability. They also need to improve their strategic planning and member services and to become more results-oriented;

Given Ghana’s experience and public attitude to credit programs, rural MFIs and

NGO- and donor-sponsored programs have a better record of reaching the poor as well as recovering loans, compared to government programs. Moreover,

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subsidized credit programs do not reach the poor and undermine the sustainability of the financial sector in the medium to long-run.

The quality of training providers and business development services for rural

MFIs cannot be assumed. Development of curricula and the constant screening of capable training providers is required and must be constantly updated to reflect evolving best practice and the dynamic needs of the sector;

Where markets for technical and business services are weak and the capability of

apex organizations is constrained, contracting independent agencies or firms to oversee these activities is an effective mechanism of achieving project objectives and obtaining feedback for mid-course corrections. Done well, this need not retard the development of capacity within the primary implementing institutions. Clear performance based contracts with these agencies is critical to success.

Robust and efficient project management is more likely with strong state

institutions that have an existing compliance ethos. This can be further supported by ensuring internal control systems for the project are based on those prevailing in the implementing institution, thereby being familiar to project staff.

In addition, the operation provides two contrasting experiences of donor collaboration, with the IDA/ IFAD cooperation proving exemplary. The Bank enjoyed a strong and highly competent field presence, and was able to bring in other highly experienced staff for scheduled supervision assignments (supplemented by IFAD staff in most supervision missions and especially at MTR). This allowed the Bank to leverage substantial additional resources – over twice the IDA contribution – while IFAD benefited from a successful project despite not having a local presence in Ghana. This contrasts with the anticipated collaboration with AfDB parallel financing, which was implemented separately and managed from Tunis because AfDB lacked a country presence. Finally, there is clearly a lesson reiterating the importance of well thought-out M&E systems, with clear, well defined quantitative targets.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower and Implementing Agency contributed to the Borrower’s ICR. Both were invited to comment on a draft ICR and confirmed no additional comments. (b) Cofinanciers Comments from IFAD are reported in Annex 8. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society)

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) (total project costs)

Components Appraisal

Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

CAPACITY BUILDING FOR THE INFORMAL FINANCIAL SECTOR

5.43 23.6%

CAPACITY BUILDING - RURAL AND COMMUNITY BANKS

4.31 18.8%

TECHNICAL ASSISTANCE FOR THE APEX BANK

8.69 37.8%

INSTITUTIONAL SUPPORT TO BANK OF GHANA AND MINISTRY OF FINANCE

1.40 6.1%

Total Baseline Cost 19.83

Physical Contingencies 1.86 8.1% Price Contingencies 1.27 5.5%

Total Project Costs 22.96 100% Front-end fee PPF 0.00 0.0% Front-end fee IBRD 0.00 0.0%

Total Financing Required 22.96 100%

(b) Financing

Source of Funds Type of Co-

financing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of

Appraisal

African Development Bank 5.01 21.8% International Development Association (IDA)

5.13 22.3%

International Fund for Agriculture Development

10.12 44.1%

Local Govts. (Prov., District, City) of Borrowing Country

1.95 8.5%

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Annex 2. Outputs by Component Objectives and outputs Outcome/ Impact

indicators. Baseline Status as project end

PDO Strengthen rural financial institutions in order to broaden and deepen services and enhance the efficiency of rural financial intermediation leading to accelerated growth and poverty alleviation.

Total annual savings mobilized by RCBs; Total no. of clients of RCBs; Total annual loans and advances of RCBs;

38.13 GH¢ (2001) 1,268,641 (2001) GH¢14.49m (2001)

GH¢314.51m (June 2008) 3,260,779 (Dec 2007) GH¢172.12m (Dec 2007)

Outputs from each component

Output indicators Baseline Status at project end

Component 1. Empower rural informal financial institutions to expand services to rural clients, including the disadvantaged and women.

No. of informal groups organized and trained (by gender) No. of clients reached by rural MFIs. Total deposits mobilized by rural MFIs No. of rural MFIs groups accessing credit from RCBs; No. of clients and % of women as total borrowers;

N/A N/A GCSCA: GH¢75,614 (2002) CUA: GH¢15.02m (2002) N/A N/A

10,687 end users trained (46 % female & 54 % male) Number of clients of the major MFIs namely Susu collectors association (GCSCA) and Ghana Cooperative Union (CUA) reached to 525,000 of which 242,890 were CUA members and 281, 197 Susu clients. GCSCA: GH¢38.54m (Dec 2007) CUA: GH¢61.24m (Dec 2007) 33 MFIs accessing credit from RCBs 59% of clients were women (Dec 2007)

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Component 2. Restructure and strengthen the network of rural banks with effective internal control and management.

No. of RCBs successfully restructured; No. of clients and % of women as total borrowers No. of RCBs operating profitably; Percentage increase in annual profitability of RCBs Percent increase in loan recovery rates among RCBs;

N/A No of depositors 1,129,316 (2001) No. of borrowers 139,325 (2001) of which 40% were women. N/A N/A N/A

N/A No. depositors 2,670,618 (2007) No. of borrowers 590,161 (2007) of which 41% were women. 99% operating profitably (June 2008) N/A Loan repayment rate of 30 days overdue averaged 88.82% (Dec 2007)

Component 3. Establish the Apex Bank as a broad institutional framework for provision of common services to RCBs.

Percent increase in rural savings and deposit of member RCBs; No. of RCBs meeting capital adequacy ratios (CAR); Level of profitability of Apex Bank; No. of RCBs with full share subscription in the apex; No. of RCBs receiving specie from Apex;

Deposits: GH¢66.7m (2002) Loans: GH¢22.56m (2002) 87 (of 121) Net profits of GH¢272,669 (2006) N/A N/A

Deposits: GH¢324.3m (Sept 2008) – increase of 286% Loans: GH¢202.2m (Sept 2008) – increase of 796% 109 RCBs (80%) out of the total of 127 meet 10% CAR requirement (Dec 2008) Net profits of GH¢621,242 (2007) 116 RCBs out of the total of 127 have fully subscribed (Dec 2007) All 127 RCBs.

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Component 4. Support specialized department of the BoG for timely supervision and oversight Support MoFEP for more effective coordination of microfinance initiatives, including GHAMFIN

No. of RCBs supervised annually; No. of BSD staff trained in use of IT based monitoring program. No. of microfinance entities assisted by GHMFIN; No. of members of rural MFI’s trained

N/A N/A N/A N/A

All 127 RCBs. Not done Network members, including GCSCA, CUA, Apex Bank, Saving and loans companies and FNGOs. About 460 members benefited from various training topics.

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Annex 3. Economic and Financial Analysis The economic justification at appraisal adopted cost effectiveness approach, positing that project resources will result in large increase in deposits (of 100%), an increase in the share of credit in RCB assets (rising from 33% to 40% on average and to 50% among satisfactory-rated RCBs), and an increase in the cost-recovery of training provision form 25% to 75%. Regarding deposits and the share of credit in RCB assets, the assumptions in the economic analysis have been exceeded. The cost-recovery ratio assumed in the cost effectiveness analysis of 75% is being met in some instances, and the Apex Bank in particular is seeking to increase the cost recovery element. However, there is a resistance among RCBs to accept the principle of differential pricing based on the ability of each RCB to bear the cost of training. Given the fragile financial status of some RCBs – who often constitute the priority target audience for training – universal pricing with a significant element of cost recovery is not acceptable. The financial analysis in the PAD simulated incomes for the Apex Bank as well as RCB performance. The relevance of these simulations for ex poste comparison has been undermined because of the rapid transformation of the cost structures and revenue streams of RCBs and the Apex Bank. This is due to several factors, including inter alia: (i) the dramatic decline in treasury bills (see below); and (ii) the expansion of commercial banks into more prosperous rural areas that has led to allegations of ‘cherry picking’ of more profitable away from RCBs. The return on treasury bills was hypothesized as being an important source of income for RCBs and the Apex Bank in particular. In fact, successful macroeconomic stabilization led to a dramatic fall in Treasury bill rates far below those assumed in the PAD. This undermined revenues and forced the Apex Bank and RCBs to seek alternative sources of revenues, thereby encouraging them to increase lending to clients. Table 3 Trends in Treasury Bill Rates and Project Assumptions Year Project Financial Analysis 182 day Treasury Bill

2001 25.0 -- 2002 24.0 27.2 2003 23.0 20.3 2004 22.0 17.9 2005 20.0 12.8 2006 19.0 10.7 2007 -- 10.8 2008 -- 26.2

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Annex 4. Bank Lending and Implementation Support/ Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending

Supervision/ICR Beatrix Allah-Mensah Social Development Spec. AFTCS Rose Abena Ampadu Program Assistant AFCW1 Ferdinand Tsri Apronti Procurement Specialist AFTPC Benedictus Kwame Atitsogbui Information Analyst AFCW1 Henry K Bagazonzya Sr Financial Sector Spec. SASFP Samuel Bruce-Smith Consultant AFTFM Christopher Paul Jackson Economist AFTAR Renate Kloeppinger-Todd Rural Finance Adviser ARD Anthony Mensa-Bonsu Consultant AFTPC Lydia Sam Procurement Asst. AFCW1 William F. Steel Consultant AFTEG Huong-Giang Lucie Tran Operations Officer MNSSD Frederick Yankey Sr Financial Management Spec. AFTFM Azeb Fissha Consultant AFTAR Renée Chao-Beroff Consultant, IFAD IFAD Mohamed Manssouri Country Programme Manger IFAD

(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY00 18 54.09 FY01 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 18 54.09 Supervision/ICR

FY00 0.00 FY01 20 23.62

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FY02 16 32.16 FY03 22 41.07 FY04 18 88.15 FY05 20 45.05 FY06 35 85.08 FY07 31 66.86 FY08 16 40.18

Total: 178 422.17

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Annex 5. Beneficiary Survey Results

Executive Summary of 2006 Beneficiary Assessment

EXECUTIVE SUMMARY INTRODUCTION In June 2006, GIMPA Consultancy Services was contracted to undertake a beneficiary assessment of the Rural Financial Services Project (RFSP). The overall objective of the assignment was to obtain the views of the project beneficiaries on the values and impact (effectiveness) of the activities and any concerns they had with regards to project design and implementation. The general approach adopted in undertaking the assignment was participatory, using the process consulting methodology. Consequently, there was active engagement of various stakeholders in critical discussions and reflection at all stages of the assignment. Within the participatory framework, specific methods and techniques that were employed included review of relevant documents and interviewing various beneficiaries in all the ten regions of the country, using a semi-structured questionnaire. In all, the interview covered 31 Rural and Community Banks (RCBs), 218 clients of the RCBs, 12 Credit Unions, 8 Co-operatives, 7 susu collectors and 10 self-help groups. FINDINGS The following were the major findings in relation to the perspectives of the major beneficiaries interviewed. (a) Rural and Community Banks (RCBs)

RFSP has resulted in a rapid expansion of the RCBs over the period 2001 to 2005, with growth rates around 300% of assets. The provision for bad debt was generally high for many of RCBs interviewed.

RCBs gave good rating for the equipment support in general, but below average marks for cash counting machines, safes and radio communication equipment. Remote banks had generally the least support, which may negatively impact on their ability to catch up.

Generally, RCBs were very satisfied with the training courses provided to staff and management. However, there was a grave concern that the high cost of training could prevent smaller banks from participating.

There was good rating of the manuals and handbooks provided, with the exception of those on financial management and cash flow projections.

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RCBs gave very good ratings to the new products introduced during the course of the project, with the exception of “Home Cash”, which was generally seen as a failure at this point of time.

There was generally an improved outreach to clients, in terms of loans, but bank managers were reluctant to give loans to farmers due to the high default of loan repayment by farmers.

RCBs were not happy with the compulsory transfer of 5% of deposits to the ARB Apex Bank at no interest to the RCBS.

RCBs were concerned that the loan approval ceiling of ¢20million was low.

(b) Clients of RCBs

Clients of RCBs generally showed a very high degree of satisfaction with the RCB services, in particular salary advances and fund transfer, and a slightly lower satisfaction with current account, savings account, loans and salary payment services received.

The vast majority of clients found that the services had significantly improved over the past four years; the rate was even higher for women and illiterate clients.

A majority found that access to loans had improved over the past four years. The rate was higher for men and illiterate clients than for women. Most of the clients interviewed had received a loan from their rural banks.

Client confidence in their banks had significantly improved over the past four years, in particular in the case of women.

Time required for transactions had been cut down by about half as regards: (i) Cheque clearing; (ii) Withdrawal of small amount from savings accounts; (iii) Approval of salary advances; (iv) Approval of micro loans below 3 million cedis; and (v) Approval of loans above 20 million cedis.

Clients gave their RCB good marks as regards: (i) Friendliness of staff; (ii) Willingness of staff to address issues and concerns raised by clients; (iii) Patience; and (iv) Equal attention to all clients.

(c) Apex Institutions

All the Apex institutions interviewed (CUA, GCC, GCSCA and GHAMFIN) were very satisfied with the equipment received from RFSP except the motor bikes.

The equipment and budgetary support enabled these apex institutions to deliver improved services to their primary societies or members

In nominal terms, the credit unions have shown good progress during the past 3 years: the number of societies grew by 11% to 273, deposits by 231% and loans outstanding by 193%.

Due to the membership of GCSCA sponsored by RFSP, membership has increased by 23% and the Association is better organized than before.

There is growing public confidence in susu collectors as evidenced by the growth of their clients by 440% over the last three years.

With the support from RFSP, GHAMFIN was able to organize training for its

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members and also established benchmarks to ensure high professional standards among members.

CONCLUSIONS The following conclusions may be drawn from the study:

i. RFSP has resulted in improved performance of RCBs as reflected in growth in their key financial indicators. However, it is worth noting that these gains achieved over the past four years remain quite fragile. The recent decline of yields of TBs has led to a decline of revenues since TBs was a major source of revenue to many RCBs.

ii. RCBs have very much enhanced outreach and improved the range and quality of

their services. Bank clients were very much satisfied with the services they received, in virtually all dimensions. The areas considered critical by clients were mainly the delays experienced during peak periods, like end of month when many workers flock the banks for their salaries, as well as the high interest rates on loans, but low interest payment by bank on savings.

iii. The credit union movement has also done well over the past four years. The

system has substantially expanded its membership. It is quite interesting that much of the numerical growth came from the participation of women, who were practically the drivers of growth.

iv. There can be little doubt that most of the credit union members want more and

bigger loans at reasonable interest rate, which is a source of dissatisfaction with CUA. The viability of CUA depends on its ability to satisfy its members with loans, since primary societies are likely to turn to other institutions that are able to offer them quicker and cheaper loans.

v. Susu Collectors have a critical role in making micro financial services accessible

to the very poor and difficult to reach clients by traditional banks. However, most of these susu collectors operate informally without proper regulation which can lead to fraud and cheating of these vulnerable clients.

LESSONS LEARNED Some lessons distilled from the findings include the following:

i. Given the state of rural finance before the RFSP, capacity building measures were certainly the appropriate activities in order to build viable rural financial institutions, which are capable of expanding their services to the rural poor and financing their expansion from the profits earned. Targeting all relevant institutions and actors in rural financial services in the capacity building process greatly enhanced project success.

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ii. Active consultation and joint decision making with key stakeholders at all stages

of project design and implementation is critical for effectiveness. This is even more needed in a project, whose effectiveness and efficiency of reaching the set goals depends heavily on other collaborating institutions.

iii. The survival of apex bodies such as GCSCA and CUA depends ultimately on their

ability to attract a sufficient membership that also pays dues and pays for the provision of relevant services. Apex bodies can only accomplish this when they offer services that are considered relevant and beneficial to their members.

iv. The capacity of rural banks to survive in the market and stand the competition

from other financial institutions depends on a functional apex financial institution that provides relevant services.

v. Although the promotional efforts under the RFSP has made the network of RCBs

more alert and active, many banks have remained somewhat complacent as regards lending, and have relied heavily on the zero-risk investment opportunity in TBs. The drastic fall of yields of TBs has more than any other single factor woken up bank managers and owners, and currently drives them to find new investment opportunities for the surplus funds.

vi. Subsidised loans emanating from government to disadvantaged groups, such as

farmers, tend to undermine the stability of the financial sector and make the disadvantaged groups assume that loan repayment is not really needed and thereby contribute to corruption in the system.

vii. With over 60% of the people in rural areas engaged in agriculture, investment in

this sector is indispensable to fuel the rural economy and bridge the gap between the poor and the better-off.

RECOMMENDATIONS Based on the findings, the following recommendations are made:

i. In a rapidly changing environment with increasing competition, there will be need for RCBs to continuously improve their services and efficiency, and price products according to costs. It would therefore be appropriate to commission client surveys more regularly as a means of gauging the satisfaction of clients and seeking ways for improvements.

ii. In response to the outcry of clients interviewed on the high interest rates on

loans, there will be need for RCBs to review their conditions of loans to reflect the general improvements in the money market as well as ensure that the savings made from improved operational efficiency due to RFSP are passed on to clients.

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iii. Speed up the computerization process of RCBs and ensure that there is accessible follow-up support. This may imply the need to decentralize and outsource ICT installation and maintenance services with overall supervision and guidance from the Apex Bank.

iv. To ensure synergy and take advantage of economies of scale, the Apex Bank

should explore the possibility of extending some of its services such as specie supply and refinance to other MFIs, like Credit Unions as well as Savings and Loans Companies.

v. Due to low capitalization of many credit union societies, there will be a need

for CUA to find ways and means to help these societies have access to loanable funds at a reasonable interest rate. Access to such facilities should however be dependent on the financial performance of the primary societies, in particular their recovery rates. Improvements of the loan management by primary societies is therefore one of the critical issues that the network has to address.

vi. The loan sanctioning limit of ¢20million across board for all RCBs is

inappropriate as the RCBs have different sizes, capabilities, resources, scale of operation and needs. The operating environments are also not the same for all of them. It is therefore advisable for BOG to fix sanctioning limits to each RCB based on an evaluation of various factors including portfolio quality, networth and economic potential in a respective catchment area of the bank.

vii. Some apex institutions were supplied with items without their prior request.

The result is that institutions have equipment and machines which are not in use and lying idle or have been over subscribed. To avoid such a situation in future, it is recommended that an effective needs assessment be done before the procurement of such items. There should also be follow-up checks from the project to ensure that the items supplied are effectively deployed.

viii. The need to prepare a Training Needs Assessment (TNA) with every training

event can be expensive and unduly drive up the cost of delivering training. It may be better for organizations with the necessary capacity, like CUA, to undertake a comprehensive Training Needs Assessment (TNA) of their members, based on which a composite training plan is developed which RFSP could buy into. In the situation where participating organizations do not have the requisite capacity to develop their own composite training plans, a one-off training workshop on how to conduct TNA of their members should be conducted for all such organizations. Subsequently, they would then undertake their own TNAs and shop around for the right Training Provider (TP) to offer the training to them. This will make it possible to contextualise the TNA within the overall staff training needs for the year and not treat TNA with respect to the specific training being offered by the TP.

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ix. The current practice of training individual MFIs may not be cost effective in some situations. It would be more suitable to offer training on call up basis whereby staff from various RCBs can sign to a programme if relevant to their needs in accordance with the training needs assessment. Such an approach will ensure that the trainer is able to reach larger numbers at the same time.

x. The Apex Bank should discuss with RCBs on ways of reducing cost of training

so as to make it possible for many RCBs to participate.

xi. There is a strong need for the generation of accurate and reliable data that can give a total picture of the performance of micro-finance indicators over the years in the country. To this end, it is recommended that GHAMFIN, as an umbrella body of apex microfinance institutions, be supported financially to effectively operationalize the data aggregation methodology which is being finalized.

xii. Best practice manuals have been developed under the project. These would

have been very useful for the beneficiary institutions in their own in-house staff training activities. Unfortunately, although the institutions were aware of the existence of these manuals, not many of them had received copies or knew where to get them. We recommend that these manuals be made available to all institutions to promote in-house staff training as a cost effective way of staff performance improvement.

xiii. The Credit Union Bill has been in discussion for far too long. Absence of a

bill specific to the operations of the credit unions is adversely affecting their operations. It is recommended that the PMU assists in the process to the extent possible.

xiv. The negative effects of subsidised loan funds with different terms and conditions and operational methodologies has been noted throughout this report. We recommend that the project should take a deeper look at this and find appropriate ways to assist MFIs, especially RCBs, to deal with this situation. For example, loanable funds from some government agency could be given to RCBs at, say 10% interest, but the participating RCB should be allowed to appraise the loan applications and also offer the credit at the prevailing interest rate at the participating bank.

xv. In view of the critical role of susu collectors in micro finance, it is desirable to

assist them access loanable funds for their clients. This may be done through linkage banking between MFIs and susu collectors.

xvi. Since remote RCBs have a lower capacity for savings mobilization, they are

often not in a position to pay for some of the training and equipment supplied under the project. To ensure some equity, it may be appropriate to offer concessions to such RCBs located in remote areas.

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Annex 6. Stakeholder Workshop Report and Results The project organized a workshop of key stakeholders to discuss the borrowers ICR. Feedback was incorporated into a revised draft of the document.

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Executive Summary of the Borrower’s ICR

EXECUTIVE SUMMARY 1. The RFSP was IFAD's 12th loan to the GOG while that of IDA was one of the

various projects approved since the eighties. It aimed at promoting growth, reducing poverty and deepening rural financial intermediation. The specific objectives of RFSP were to: (i) strengthen operational linkages between informal and semi-formal MFIs and RCBs to enable them expand their services to a large number of rural clients; (ii) build capacity of the RCBs in order to enhance the effectiveness and quality of services to rural clients; (iii) support the establishment of an Apex structure for the rural banking network to provide them with common services; and (iv) strengthen the institutional and policy framework of the BOG and MOFEP for improved oversight of the rural financial sector. This report describes the experiences of the RFSP from design to completion. It is backed by the results of a participatory project evaluation workshop held on 9-10 October 2008. The objective of the workshop was to assess the achievements of project development objectives (PDO) and to chart a path for the future operation of similar projects/ programmes.

2. The RFSP’s goal was to be achieved through the following instruments: i)

institutional capacity building largely through training, ii) adoption of best practices, and iii) providing technical and logistic support. The project design took into full account the experiences of previous projects funded by the IDA and IFAD in Ghana and elsewhere, particularly, in the WCA region. The implementation arrangements assured that project management within the BSD of BOG was autonomous within the limits of its approved AWPBs.

3. Resources were devoted to the M&E during project implementation for training

of staff, equipment, etc. TA was also provided to establish the M&E and MIS. As a result of the support, the M&E did achieve the primary objective of such a system: the collection and analysis of the information necessary for tracking progress and impact, enabling decision–makers to diagnose and resolve problems.

4. The following evidence suggests that RFSP did impact positively on the

operations of key beneficiaries: i) RCBs: a) Total assets showed a change of about 715.6% while Net-worth % change was about 631.1%,. b) the change in loans and advances (gross) was 1257.4%, c) deposits registered a change of about 722.6% compared with a change of 291.1% for short term investments ,ii) Apex Bank: a) a total of 436,507 cheques cleared with a cumulative value of ¢13,548 billion by end 2007, b) specie supply to RCBs amounted to ¢ 5.606 billion, c) about 1,800 staff of the RCBs of various categories trained from 2003 to June 2006, and d) a total of about ¢135.92 billion channeled through the Apex Bank to RCBs for on lending to their clients

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5. Through capacity building support to CUA and its affiliates under the project, the

CUs have shown good progress during the past 6 years as follows: i) membership has increased by 59.37%ii) deposits increased by 307%iii) loans increased by 624%and iv) total assets of all credit unions increased by 248%Similarly, the impact of RFSP on Susus included: i) the number of susu collectors increased from 828 in 2002 to 1259 in 2007, representing an increase of about 52%ii) their clients increased from 50,386 to 181835, an increase of about 261%% within the same period, and iii) short-term deposits mobilized by susus increased by about 174% from Ghc7.56million to Ghc 38.54million (equivalent to about USD 19.28 million).

6. Impact on GHAMFIN’s activities included: i) enhanced national capacity to

provide and or supervise training of its members and others, ii) enhanced capacity for information dissemination by establishing resource centres both in Accra and Tamale, and iii) the establishment of benchmarks to ensure high professional standards and best practices among members. While the impact on BSD was an enhanced capacity to make more frequent on-site visits to RCBs, the preparation of the GHAMP was coordinated by the MFU.

7. The rating of Component 1 is moderately satisfactory based on: i) training of 10,687 clients, and ii) substantial deposits mobilized by CUs and Susus. Other outputs achieved under the component were: i) the preparation of 17 good practice manuals, ii) training for selected TPs, iii) the preparation of the GHAMP, and iv) technical support to Apexes. These achievements albeit outside the original objectives of the component were made thanks to the collective ingenuity of project implementers and funding agencies.

8. The overall rating of Component 2 is highly satisfactory, based on: i) the total

number of RCB deposit accounts has grown from 1,129,316 in 2001 to 2,670,618 as of December 31, 2007, ii) the number of borrowers though significantly less grew from 139,325 in 2001 to 590,161, iii) total deposits grew from Ghc64.1million in 2002 to Ghc 291.6 million, iv) on average, cheque clearing, that took about two weeks in 2001, had been reduced to about five days, v) RCBs have deeper outreach to the poor, reaching the two bottom quintiles, vi) profitability/or sustainability of RCBs indicated that only 17 of the 120 RCBs reporting could not cover their expenses at the end of 2007. The main identified weaknesses for the component that need to be addressed to ensure sustainability are: i) poor loan quality assets reflected in higher Loans Loss Provision (LLP) of about 5.5%, and ii) high operating costs

9. The output of component 3 is ranked satisfactory based on the following: i) the

RCBs really appreciate the services provided by the Apex Bank; ii) the completion of the Apex Bank’s Headquarters on time, and iii) refurbishing of Wa and Tamale regional branches from its own resources. The main weakness identified in delivery of outputs is some occasional delays concerning Apex Link fund transfers that do not seem to reach the retail end-customers. However, the outcome of

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component 3 is rated moderately satisfactory in view of the declining trend of the OSSs for the Apex Bank. This puts the Apex Bank’s sustainability in jeopardy. In view of the satisfactory rating for output and moderately satisfactory rating for outcome, the overall rating of component 3 is moderately satisfactory.

10. The output of component 4 regarding BSD is satisfactory on the following basis:

i) the training received under the Project has enhanced the knowledge and skills of the supervisory staff, .ii) the logistics supplied have facilitated on-site and off-site examination of the RCBs. The output of the MFU is also rated satisfactory largely based on: i) the development of 17 good practice manuals for use by various MFIs even beyond the RFSP, ii) the coordination and the preparation of the GHAMP document. However, the outcome of the MFU is highly unsatisfactory since the GHAMP is yet to be approved by GOG for implementation despite all the efforts. The outcome of the BSD is rated satisfactory, since the number of RCBs being rated satisfactory has substantially increased due to enhanced supervision.. While in 2001 there were 87 satisfactory and 28 unsatisfactory RCBs, the satisfactory RCBs numbered 112 with 15 unsatisfactory at the end of June 2008. In view of the above expose, the overall rating of Component 4 is moderately satisfactory. The main weakness for the component is the Government’s inability to approve the GHAMP for implementation.

11. The performances of BOG-BSD and the PSC are rated satisfactory based on: i,

they did not micro-manage the project, ii) the approval of AWPBs in November/December enabled the project to operate with approved budgets at the beginning of each Project Year (PY). The PCU's performance including the M&E is also rated satisfactory on the following basis: i) high outputs by the highly qualified staff, and ii) availability and quality of data on the project was satisfactory.

12. The performance of the FA for the RMFI component is satisfactory based on : (i)

over 10,000 RMFIs clients trained (ii) capacity of 19 microfinance service providers out of initial 70 selected built,. (iii) 17 “Good Practice” manuals to harmonize training activities and reduce cost developed. (iv) refocused component implementation from entrepreneurship training to MFIs training. (v) the development of the GHAMP Document. Similarly, the performance of the FA that managed the Microfinance Support Initiatives (MSI) for 15 selected RCBs is also satisfactory based on increased deposits, growth in loans and clientele outreach during September 2006-June 2007.

13. Main design assumptions found to be faulty were i) the appraisal target of

training of 300 000 RMFIs’ clients was without strong basis, ii) the non-recognition of TSPs lacking capacity to achieve training target without compromising quality of training, iii) the unambiguous definition of RMFIs’ clientele in the PAD opened the floodgates of training artisans, self-help groups, etc with no focus in microfinance, iv) the non-clear cut design of the component in

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the PAD culminated in some ‘try and error’ methods in the implementation of the Pilot Training Fund(PTF).

14. The main instruments for enhancing replicability of the RFSP include: i) using the

RMFIs to enhance the rural poor access to financial services in breadth and depth; ii) using Apex bodies of RMFIs to provide common services such as capacity building through training, products development, specie movement, etc iii) engaging private sector entities and or NGOs to provide technical services to project implementing partners in areas where the latter lack capacities, and iv) building capacity at all levels: macro; meso, and micro. On the other hand, factors for non-replicability include: i) developing products that are urban biased and therefore do not meet the needs of rural clients, and ii) pricing of common services below cost recovery does undermine financial sustainability of apex bodies such as the Apex Bank.

15. The potential for sustainability of RFSP’s achievements is high, in view of the

following i) majority of RCBs, in particular, have achieved OSS and are striving to achieve FSS, ii) outreach levels for deposits and loans are being grown continuously with a view to enhancing profitability, iii) capacities of the staff of RMFIs are being built in credit management to minimize default rates and loan failures, iv) financial products are being developed to meet the needs of rural clients, and v) development of financial infrastructure (e.g. credit reference bureaus, e-zwich smart card,) to minimize transaction costs in delivering rural financial services as well as reducing loans default risk. Meanwhile, the constraining factors militating against sustainability and or replicability would be addressed under the upcoming Rural and Agricultural Finance Programme (RAFiP).

16. The performances of IDA and IFAD are rated satisfactory since the IDA facility was fully disbursed while that of IFAD was about 99.14% disbursed both as of 05-November-2008. The performance of GOG as Borrower of the loan funds is rated satisfactory on the following grounds :i) counterpart funding was provided as anticipated in terms both of amounts and timing, ii) GOG did not interfere in the implementation of the project by the BOG. The only sore point is the inability of the Government to approve the GHAMP for implementation.

17. On the basis of the high outputs, outcomes and substantial impacts attributable to

the project, its overall rating is satisfactory. 18. The main lessons learned include: i) project completion dates of co-financiers

need to be harmonized in order to minimize the revision of completion dates. ii) capacity building of RMFIs, especially the RCBs, should be based on a comprehensive competency profile to make it more effective, iii) building the long-term sustainability of RCBs requires that they become more efficient, commercially oriented, and able to provide a broader range of financial products and services demanded by their clientele, iv) assistance to RCBs should be

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holistic and well integrated with support to other segments of the system, iv) for the ARB Apex Bank to continue to play its important role in the rural banking sector, it too, must focus increasingly on becoming a commercially viable entity and moving away from reliance on the government and donor funding that supported its creation and capitalization,

19. Other lessons learned are: i) funding of the “public goods” aspects of Apex

bodies remains problematic and need to be addressed to make them more viable in the long term; ii) RMFIs and NGO- and donor-sponsored programmes are better performers than Government in reaching the poor, as well as recovering loans; iii) subsidized credit does not really reach the rural poor, and tends to undermine the sustainability of the financial sector. iv) targeting is most successful when products are designed to fit the needs and circumstances of the groups concerned. v) the quality of training and BDS for RMFIs and their clients cannot be assumed. vi) for effective project implementation in a situation of weak markets for technical and business services and lack of capacity in apex organizations, contracting independent agencies or firms to oversee these activities has proved to be an effective strategy, and vii) the exhaustion of the PTF about two years before project closure needs to addressed in future projections for similar funds.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders IFAD IFAD considers that this operation has made a critical contribution in terms of building sustainable rural financial institutions, improving their outreach to the rural poor people and especially to rural women and other vulnerable groups, as evidenced by the Poverty Outreach Study. Key to these achievements were the very strong unity of purpose and sense of commitment among the Bank-IFAD team, which supported GoG and the rural finance community in building a strong momentum for growth and development. IFAD has built on these achievements in preparing the RAFiP to support rural and agricultural finance within the framework of AFSAP. It is hoped that the Bank and IFAD pursue their successful partnership to scale up their support within the scope of RAFiP and AFSAP.

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Annex 9. List of Supporting Documents

1. Report on RFSP Beneficiary Assessment, GIMPA Consultancy Services, October 2006

2. Performance Evaluation of the Microfinance Products of RMFIs and

Government Credit Program in Ghana, Asamoah and Williams Consulting, December 2004

3. Spatio-temporal Dimensions of Clients of Microfinance Institutions in Ghana,

K. Awusabo-Asare, S. K. Anim and D. Asare-Mintah, mimeo, n.d.

4. Microfinance Poverty Outreach and Performance Assessment: A Study of Rural Microfinance Institutions and Government Programs in Ghana, CGAP and CERISE, 2005

5. Project Completion Report/ Implementation Completion Report of the Rural

Financial Services Project, Asamoah and Williams Consulting, November, 2008 [the borrower’s ICR]

6. IFAD Project Document, May 2000

7. AfDB Project Completion report, July 2008

8. Computer Automation in the Rural Banking Network in Ghana: A Status

Assessment, World Bank, 2008

9. Implementation Status and Results Reports, various years

10. Aide memoires from supervision missions, various years

11. Interim Project Reports submitted by Facilitating Agency

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This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.