Evaluation of the Sida-USAID/DCA Guarantee to Zanaco

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The purpose of the evaluation was to inform key stakeholders, i.e. the Embassy of Sweden, the Loans and Guarantee Unit of Sida, the Development Credit Authority (DCA) of USAID, USAID Zambia and the Zambia National Commercial Bank (Zanaco), about results on activity, output, and outcome levels.  The intended use of the evaluation was for Sida and USAID to get more insights in the effectiveness of using the guarantee instrument in Zambia and to provide Zanaco with guidance on their future endeavors in providing loans to small scale farmers in Zambia.

The evaluation included both a summative and a formative element.

The summative component aimed to assess and provide a comprehensive account of the achievements of the programme results in accordance with the five OECD/DAC standard criteria; effectiveness, relevance, efficiency, impact and sustainability.

The formative part of the evaluation provided evidence-based learning and advice – lessons learned and recommendations allowing for a better understanding of cause and effect relationships between pursued results, and facilitate evidence-based discussion on the way forward by all the stakeholders.

The overarching objective was to determine to what extent the guarantee has contributed to:

  • Changes in the bank’s loan appraisal methodology, assessment of risk, capacity to interact effectively with rural clients, etc. Thereby, better enabling the bank to provide loans to people that are not its traditional customers.
  • Systemic change in the financial market as it pertains to the banking sector’s risk assessment of agricultural lending, including lending to female farmers and to more remote geographic areas.

The evaluation applied the DAC criteria for evaluating development assistance: relevance, efficiency, effectiveness, impact and sustainability. This evaluation was oriented towards a participatory approach with methods focusing on both the learning and improvements parts of the evaluation process to maximize utilization.

The evaluation showed limited evidence that the guarantee had significantly altered this Bank’s behaviour or the banking sector’s risk assessment regarding agricultural lending. Some limited success was achieved with a small number of the best performing borrowers of ‘Lima’ Loans obtaining inputs with 70% deposit paid in advance and the remainder paid post-harvest. However, Zanaco need to assess whether they have the infrastructure to support smallholder farmers. It is very challenging for a large commercial bank to develop the right operational structure to be able to ensure that a lending programme targeting many thousands of smallholders can really be monitored adequately. Given the complex requirements of lending to the smallholder sector it is questionable whether a large commercial bank can develop the levels of client interface and transparency required to ensure that such lending is transparent and fair. This Portfolio Loan Guarantee did not provide any other training or technical support to any of the stakeholders and was not offered to any other financial institution, so there is little to suggest that it will have altered the bank’s strategic behaviour.

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