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  • Closed Compact Report:  Closed Compact Report: El Salvador Compact
  • April 2018

Productive Development Project

  • $87,470,000Original Compact Project Amount
  • $66,571,244Total Disbursed

Estimated Benefits

Estimated benefits correspond to $62.7 million of project funds, where cost-benefit analysis was conducted.

Estimated Benefits for Activities
Activity Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
Financial Services Activity At the time of signing No ERR done N/A N/A
Investment Support Activity At the time of signing No ERR done N/A N/A
At compact closure 15.3 percent Not done $2,378,831
Production and Business Services Activity At the time of signing 12.6 percent Not done $88,309,168
At compact closure 26.0 percent 61,729 $38,126,800

The Investment Support Activity had no ERR at signing because it was a loan program – the projects it would support were not yet selected, as the projects that qualified for loans were identified during the implementation phase. However, each individual loan recipient was required to have an internal rate of return that exceeded 12 percent. The closeout ERR was calculated using evidence provided by loan recipients on employment generated due to expanded business as a result of access to investments through loans.

Project Description

Approximately 40 percent of the population in the Northern Zone was engaged in low-productivity activities at the start of the compact, including the production of traditional crops such as maize, beans, and forage. Limited technical and business knowledge and limited access to financial resources slowed regional economic growth. Only two percent of loans in El Salvador had been extended to inhabitants of the Northern Zone, of which only four percent were extended to the agriculture sector.

The Productive Development Project sought to increase the incomes of Northern Zone residents by providing technical assistance, training, and financial support to alleviate constraints to high-quality production, increased productivity and access to investment capital. The project intended to help the region jump-start investment, particularly in activities that would benefit the poor and disadvantaged (with a special focus on women and youth). Banking institutions in the Northern Zone were also strengthened by the project, which included three activities:

  • The Financial Services Activity: The Financial Services Activity sought to increase lending, access to credit, and other financial services to improve the risk profile of micro-, small- and medium-sized producers and rural entrepreneurs in the Northern Zone. The activity supported two guarantee programs – one, called Progara Norte, that facilitated access to credit for farmers and reduced credit risk for the participating financial institutions, and another, called SGR, that provided bank or commercial loan guarantees for micro-, small- and medium-sized enterprises. Another component of the activity funded a crop insurance program, which was terminated during a mid-term review due to lack of uptake. Finally, the Financial Services Activity provided technical assistance to banks and other financial institutions in the Northern Zone to expand rural finance and improve credit analysis, introduce new technologies into service delivery, and develop specialized products that increase beneficiary access to financial services such as leasing, savings, and specialized agricultural credit products.
  • The Investment Support Activity: The goal of the Investment Support Activity was to make investment capital available to poor individuals and organizations that benefit poor inhabitants of the Northern Zone, who, due to insufficient collateral and lack of liquid assets, were not able to finance their investments. This activity supported the administration and funding of an investment support program, called FIDENORTE, providing investment capital for the development of competitively selected business proposals.
  • The Production and Business Services Activity: This activity aimed to help poor farmers, organizations and micro-, small-, and medium-sized enterprises that benefit poor inhabitants of the Northern Zone successfully transition to higher-profit activities. This transition was expected to generate new investment, expand markets and sales, and create new jobs to support sustainable economic growth and poverty reduction. It provided technical assistance to poor farmers to shift to high-value agricultural production and forestry strategies, and provided pre-investment studies and technical assistance to develop and implement business plans for Northern Zone residents. There were three sub-activities: investment planning, assistance to small farm enterprises, and business development services.Through the Investment Planning Sub-Activity, assessments of high-return investments, primarily in the agriculture, tourism and handicraft sectors, were completed and used to guide business plan development and technical assistance. The Assistance to Small Farm Enterprises Sub-Activity included delivery of on-farm technical assistance and small in-kind grants to farmers with the objective of shifting poor farmers to higher-value crops and animal products. The Business Development Services Sub-Activity undertook outreach and technical assistance and training to support the development of efficient, sustainable commercial activities in agribusiness, tourism, handicrafts, and other niche markets. Assistance was also provided to other enterprises to develop valuable market linkages and networks.

    MCC and FOMILENIO modified the design of the Production and Business Services Activity during the compact. Phase I of assistance focused on technical assistance with productive activities—particularly milk production in the dairy chain, vegetable production in the horticulture chain, and wood- and clay-based handicraft production in the handicraft chain. After the mid-term review of the compact, the activity was modified in response to lessons learned during Phase I—namely, that increased and more diversified production was not sufficient to guarantee higher sales and income among participating producers. As such, Phase II of assistance featured more explicit marketing and business development components, including the establishment of two new producer-owned enterprises in the horticulture and dairy chains, and the strengthening of three pre-existing producer-owned enterprises in the handicraft and dairy chains.

These three activities were designed to work together – a portion of the Production and Business Services Activity participants would have access to business planning services, investment capital or guaranteed loans through the Investment Support Activity or the Financial Services Activity. The capital and loans would help producers transition to high-value crops and finance new production technologies such as greenhouses and irrigation systems.

At the end of the compact, the Productive Development Project assisted approximately 17,500 producers through the provision of training, seeds, equipment, and technical assistance. The project also supported work to improve almost 23,500 hectares of land on which producers planted short-season vegetables and fruits and improved pasture lands. The Investment Support Activity provided 30 loans to small- and medium-sized businesses in the Northern Zone to develop new investments or expand existing investments in the agriculture, tourism and handicraft value chains. These loans totaled $4.6 million, about 20 percent of which went to women-owned businesses.

Evaluation Findings

Investment Support and Financial Services Activities

The performance evaluation of the Investment Support and Financial Services Activities used available administrative data to analyze the characteristics of FIDENORTE loans, applicants and borrowers, and uses of FIDENORTE credit and technical assistance; the level of investment, employment and income after receiving FIDENORTE credit; effects of FIDENORTE at the organizational and systemic level; and the financial sustainability of the Financial Services Activity’s guarantee funds.

Although the Investment Support Activity fell short of its original lending targets, interviews suggest credit recipients experienced higher levels of investment, employment, production and sales than non-credit recipients.

Under the Financial Services Activity, the two guarantee programs together surpassed program targets for the number of guarantees provided and the value of guarantees. Most recipients were microenterprises and defaults for both programs were around three percent. According to implementing staff, these programs expanded their services to clientele that likely could not have found credit elsewhere. Technical assistance to financial institutions appeared to have mixed results and lacked clear performance metrics. Cultural issues and the complexity of insurance policies are believed to be the main reasons behind the lack of uptake and resulting termination of the crop insurance program.

Status of the Evaluation
Component Status
Interim Report Completed in March 2012
Final Report Completed in December 2015

Production and Business Services Activity

Results from the evaluations of the Production and Business Services Activity are mixed and inconclusive. The independent interim impact evaluation of the activity, covering the 2009-2010 phase of implementation, found varied results for the three value chains examined: positive impacts on employment for program participants, but no impacts on productive income in handicrafts; positive impacts on adoption of improved techniques, but no impacts on farm income in horticulture; and positive impacts on adoption of improved techniques and farm income in dairy. Additional follow-up on the handicrafts sector showed that by the end of 2012, the increase in employment detected in the 2009-2010 phase of implementation had disappeared; no impacts were detected on net handicraft income, net annual household income, or household consumption; and negative impacts were detected on salaried income compared to the artisans that did not receive assistance. Analysis showed that artisans who received assistance from the program were likely to continue producing and selling handicrafts afterward, while those who did not benefit from the program were more likely to transition out of handicraft production. It is likely that artisans that did not receive assistance were earning more income from other work outside the handicraft sector, accounting for the negative impacts on salaried income for those who continued to produce and sell handicrafts.

The final evaluation of the dairy and horticulture sectors relied on administrative data collected by the implementer instead of a household survey due to changes in program implementation. The changes included modified eligibility criteria for participants and a shift in the focus of the project from production to marketing. While the administrative data indicated that the activity’s assistance surpassed performance targets for increased production, employment, and sales, because administrative data do not take into account what would have happened without the project, and the interim impact findings are not generalizable, it is impossible to make a definitive conclusion regarding the impact of the full assistance package from 2008 to 2012.

Status of the evaluation
Component Status
Baseline Report (Impact) Completed in June 2010
Interim Report (Impact) Completed in August 2012
Final Report (Performance) Completed in May 2013
Final Report (Impact Handicrafts) Completed in June 2014

Key performance indicators and outputs at compact end date

Key performance indicators and outputs at compact end date
Activity/Outcome Key Performance Indicator Baseline End of Compact Target Quarter 1 through Quarter 20 Actuals (as of Dec 2012) Percent Compact Target Satisfied (as of Dec 2012)
All Activities Employment created
  • Employment was measured as the number of full-time equivalent jobs created by various components of the project.
0 11,000 15,247 139%
Investment in productive chains by selected beneficiaries 0 $65,500,000 $63,219,218 97%
Financial Services Activity Guarantees granted 0 5,109 5,540 108%
Value of loans guaranteed 0 $9,680,000 $12,573,984 130%
Investment Support Activity Amount of Investment Support Fund (FIDENORTE) approved 0 $8,500,000 $7,505,299 88%
Loans granted by the Investment Support Fund (FIDENORTE) 0 35 44 126%
Production and Business Services Activity Beneficiaries of technical assistance and training 0 13,500 17,467 129%
Hectares under production with MCC support 0 15,000 23,475 157%

The closeout ERR for the Production and Business Services Activity was based on a different methodology than the original ERR, which used a weighted average of potential uses of agricultural land to estimate the economic impact of the activity. The closeout ERR used interim evaluation data from 2010-2011 to determine benefits, which was largely driven by a dramatic impact for participants in the dairy training component. The results from the final performance evaluation are more inconclusive than the closeout ERR suggests due to changes in project implementation mid-project, which invalidated parts of the original impact evaluation design. Additionally, early effects identified by the interim evaluation for handicrafts disappeared in the follow-up study; however, there was no final impact evaluation of the dairy training, therefore, it is inconclusive as to whether benefits remained.