chapter 3 The establishment of a local economic development agency

65 Promoting the idea A LEDA isn’t set up overnight; as much as a year or he impulse for creating a LEDA can come from two may be needed to turn a practicable idea for Tmany different actors. In the actual experiences establishing one in a given territory into a reality. described in this book the role of promoter was The initiative can come from local actors, from a played by international co-operation organisations, government or from international co-operation and so, for simplicity, our discussion will adopt organisations. However, the process of creating a that perspective. The first step in its creation is LEDA invariably comprises four methodological always to promote the idea with potentially inter- phases: promoting the idea, establishing it, ested parties, identify possible founding mem- starting-up and consolidating its impact bers, seek their consensus and encourage their in the territory and beyond. dialogue and participation in designing and implementing the project.

For systematic initial consultation it is always useful to survey and list the territory’s interlocutors. Such a list will include: • public authorities and local administrations • local offices of State or public-interest institutions • universities and vocational training institutes • trade associations (organisations of farmers, industrialists, merchants) • workers’ associations and trade unions • financial institutions based or with a branch in the territory (banks, credit and savings co-operatives, development finance corporations) • associations (NGOs, professional associations, Honduras women’s organisations, etc.) The Executive • co-operatives and businesses. Committee of the LEDA in Ocotepeque All of these potential members are contacted and (Adevas) at work

66 67 the idea is presented, usually in separate meetings in fact, the latter may have only a vague idea of committee will be distributed to potential mem- facilitate the entry of new members. so that each can express its own view. The what the others are doing even though they bers for discussion and amendment until a final Both during start-up and once the LEDA is in promoters describe the positive experiences of operate in the same territory. In wide-ranging version has been hammered out. full operation, its members are involved and par- existing LEDAs, possible local applications are discussions touching on many issues beside the This process is usually time-consuming and it ticipate in at least two distinct ways, both strate- discussed and, if the idea catches on, a pro- LEDA, the interested public institutions, associ- cannot be sped up artificially. After all, the gic and operational. gramme for planning is drawn up. It is easier to ations of civil society and economic organisations potential partners are not individuals but organ- Within the framework of negotiation promoted win the different parties over to the idea when review the territory’s economic development isations, possibly with hundreds of members, by it to further local economic development, the there are successful LEDAs up and running in needs, resources and prospects, presenting their and with rules and procedures of their own. members can compare strategies, agree on objec- other parts of the country. Where there are no respective points of view and priorities: lack of The public institutions must also consult others tives, seek new forms of collaboration for national precedents, presenting the idea can production infrastructure, such as irrigation sys- before they can make decisions. Signing up as a enhanced economic impact, and explore new require much more time and effort. tems, silos, communication networks, electricity; member of the LEDA therefore entails lengthy, approaches to problems whose solution is Distributing informational material should foster deficient technical, vocational and entrepreneur- wide-ranging discussions involving a host of beyond the reach of any one individually. Ideally, understanding of the purposes and functions of ial skills; lack of resources for financing enter- actors. this policy-making and strategic integration will the LEDAs and the impact they can have on prises; lack of pre-investment finance; absence of produce plans for economic development that local economies. initiatives to deliver economic support to the In some cases it may be necessary to slow down reflect specific local development needs and con- It is always useful in this phase to collect infor- most disadvantaged groups. The participants the timetable of a LEDA’s creation in order to straints, enjoy the broadest consensus and indi- mation on the international development organi- then zoom in, defining its prospects and priority ensure that it will have a broad-based manage- cate the role it can play in the territory. Such sations that operate in the territory and their activities. Forums are an opportunity to test the ment structure. plans can constitute a key reference point not activities. If other international co-operation method of work that must characterise the In countries where there is little tradition of peo- only for the LEDA and its members, but also for organisations agree to promote the LEDA, a LEDA, namely that of social negotiation. ple joining together to form associations, the other local actors, for the national authorities group of sponsors can be formed. scant presence of producers’ and grass-roots and for the international co-operation organisa- The main practical outcome of these meetings is organisations would bias its management struc- tions active in the area. Once an initial agreement is reached in bilateral an organising committee formed by the entities ture toward the public sector. And where there By contrast, operational integration is achieved consultations, the promoters can organise local most interested in the endeavour. The commit- are glaring disparities between an entrepreneur- via the technical functions. economic development forums, to bring together tee’s task is to draft an initial design, the essen- ial elite and a largely unorganised population liv- The resources and energies that the individual all the potential members of the LEDA to dis- tials of which are: ing in poverty, a rush to create the LEDA could members bring to it are transformed through the cuss the proposal and offer a first collective • a profile of the structure, setting out likewise negate its function by excluding, in technical structure into common projects and expression of interest and consent. objectives, organisation, functions, legal practice, most of the population. activities. Suggestions of other parties that might be inter- form, budget, projects and activities Such situations require diligent, extensive dis- These integrated efforts generally constitute an ested are likely to emerge, thus enriching the • a plan indicating the main operational semination of information and active efforts to important innovation for technical personnel, map of potential members. Forums always gen- stages foster the birth of local organisations and associ- creating a new culture of local economic devel- erate exchanges of information and experience, • draft by-laws ations. To guarantee broad social participation in opment analysis and planning. not only among national and international par- its management structures, the utmost attention Information is crucial during the promotional ticipants but among the local actors themselves; The documentation produced by the organising must also be paid to ensuring that the by-laws phase. The potential members need to receive a

Promoting the idea Promoting the idea 68 69 constant flow of information regarding the progress of LEDA planning and the procedures being readied to access its services. This will enable them to participate actively in formulating the strategic plan, identifying the first impact ini- tiatives and seeking solutions to all the problems involved in its creation.

While initial consultation and planning proceed at local level, it will be necessary to contact the competent national authorities and institutions in order to present the idea to them and define the Costa Rica relationship between the LEDA and national A young broadcaster policies. Although its sphere of action is local, co- in the territory of the Canton ordination with national services, legislation and of Perez Zeledon programmes is indispensable for its sustainability. regularly broadcasts information on the work Organising national seminars on local economic of the LEDA development strategies and tools has often proved very useful. Preparing such seminars pro- vides an opportunity to draw up a national map of significant interlocutors: the interested author- ities and the more receptive, academic institu- tions that can be mobilised, specialised opinion- making centres, significant voices in the private sector and civil society, trade unions. Having representatives of well-established LEDAs or their networks from the industrial countries participate in these meetings is very fruitful; the knowledge and experience they contribute to sem- inars is unmatched in its promotional value.

Proposals to international networks are also a powerful incentive for participants who normally

Promoting the idea Promoting the idea 70 71 labour under all the disadvantages of isolation. build in systematic links and exchanges with others. unemployment. Box 1 actors may well need to turn to legal consultants Arranging visits by the organising committee to Study tours normally include visits to LEDAs in Writing the by-laws is a crucial part of the work operating at national level. Sometimes it is neces- LEDAs operating in other developing countries has industrialised countries and meetings with the rep- of preparing a LEDA. sary to choose from among several possible often paid off. The chance to observe them at work resentatives of their networks. Contacts with these The by-laws broadly define its nature and lay forms. and discuss them with experienced actors produces organisations help drive home the message to the down the basic rules governing its operation. The These steps, which may be complex and time- knowledge, awareness and enthusiasm that theoreti- organising committee that the LEDAs are also used legal form adopted will instead depend on the consuming, usually create close bonds among its cal training and promotion can rarely match. Such in industrial countries and share the very same goals provisions of and options offered by national leg- members as they tackle emerging problems and study tours are another way for the nascent agency to of strengthening local development and combating islation. In deciding a LEDA’s legal form, local pool resources, knowledge, and even political

1 THE STUDY TOUR FROM MOZAMBIQUE In Mozambique, in the summer of The arrangements were complicated, the LEDAs of the Departments of and expand the coverage of their The last stop was Italy, for a visit to The visitors were told that local 1999, discussions for the not just logistically. To begin with, it Morazan and Chalatenango. credit services. SOPRIP, the LEDA of the Province of authorities cannot accomplish overall establishment of LEDAs in the was necessary to decide who would The country’s situation is very similar Significantly, the visitors were able to Parma. On this occasion the governor management of their territory with Provinces of Sofala, Manica and make the trip. to Mozambique’s, with society striving observe that the LEDAs had of the province of Manica joined the the limited technical and financial Maputo were already at an advanced A first round of negotiation to overcome the bitter legacy of established a solid reputation with Mozambique delegation. resources that they command. The stage. Meetings, seminars and determined that the delegation would protracted conflict. national and international institutions, In Parma the visitors were surprised to decision to form partnerships with the training courses had been held with include representatives of the three The delegation found that the two which, in their turn, award them cross paths with a 15-person private sector and participate in LEDAs the participation of representatives of poles of local economic life - public LEDAs, operating in territories that service contracts that assist their delegation from Croatia, where the has paid off with strategies that enjoy civil society and the provincial and administration, the private sector and had been the theatre of civil war, had further growth. ILO was promoting the creation of popular support and initiatives that district administrations, and a draft civil society. involved myriad actors, contributed to other LEDAs. are technically sound. organisational plan had been Since three provinces were involved reconciliation and made co-operation The second stop was Portugal, for In a seminar welcoming the two prepared. and because the national government and social dialogue the key to success visits to LEDAs in the areas of delegations, the director recounted At the end of its two-week tour the The LEDAs were clearly viewed as also had to be brought in, in the end in stimulating and organising local Alentejo and Montoito. In Portugal SOPRIP’s history and described the delegation reviewed the experience, tools for making the local the group numbered 25. enterprise development. Four years political issues came to the fore, as functions it performs in enhancing the and in its final report recommended communities protagonists of their For each province there were the after the conclusion of the co- the delegation sought to learn what value of local resources. SOPRIP gave that the Government of Mozambique own development process, but the human development programme operation programme that had had prompted the national the visitors a vision of the future of a speedily implement the LEDAs in the participants were still struggling to officer, the provincial directors of the promoted them, the LEDAs are not government to promote LEDAs in a LEDA. three Provinces. Ideas for common grasp how LEDAs actually worked; ministries of agriculture and fishing, only still operating but have expanded decentralised vision of public The director of EURADA followed with projects came up during the tour and the presentations of documents and industry, commerce and tourism, a considerably. administration. a presentation of European many people were invited to visit visual material and the discussions left district administrator and The Morazán LEDA, which in 1995 In fact, the government had acted to experiences that greatly encouraged Mozambique. areas of doubt and unanswered representatives of the private sector had a staff of six, now employs more create a LEDA in each Province, had the two delegations. The mission cost money, of course, questions. and civil society. The participants held than twenty and has quadrupled its enlisted the interest of local Meetings with representatives but the ILO was glad to cover the Accordingly, it was decided to give numerous preparatory meetings, credit fund. authorities and representatives of civil of the city and province of Parma costs. Among other things, the ILO participants a chance to learn first bought gifts for their hosts and finally The delegation was especially society, found ways of exploiting EU were also invaluable, clarifying the would have had incurred at least hand by seeing them in action with a set off. interested in efforts to involve small funds, and involved EURADA, so that reasons why modern administrations equal expenses if it had arranged two-week field trip to Central private financial organisations: each Portuguese province could be tend to delegate policy seminars in Mozambique and invited America, Portugal and Italy The first stop on the tour was El LEDAs assist these and even take twinned with a European LEDA implementation to specialised international experts to come and in September. Salvador, where the delegation visited stakes in them in order to improve already in operation. organisations. explain what was happening abroad.

Promoting the idea Promoting the idea 72 73 Building the LEDA contacts. nce the local actors have reached all-round Oagreement on the project, the by-laws are signed and the executive board is elected. From now on the LEDA is no longer just a project but a real organisation. The executive board, which takes over the functions of the organising com- mittee, will be responsible for the further steps needed for implementation.

It is now a question of equipping the LEDA with the necessary instruments for it to operate, namely: • a short-term plan of operations Salvador • a formal budget Inside the stock • procedures for managing the credit fund and coffee roasting building, supported • operating procedures by the LEDA • personnel selection procedures in Morazán and the co-operative • offices and equipment of small local • initial external visibility producers • legal personality.

The executive board’s first task is to draft the short-term plan of operations covering: • the steps needed to establish procedures, find offices, obtain legal personality and equip the LEDA with all the other instruments required • the activities for training its members and future technical staff • the first impact activities and action to promote the LEDA in the territory.

Briefly an initial investment covering start-up costs is needed. This seed money contributed by

Building the LEDA Building the LEDA 74 75 international development co-operation will en- fund and of the financial aspects are detailed in able it to generate or attract the resources it needs chapter 4. Briefly, the LEDA enters into co-oper- to pay its own way costs and covers the following ation agreements with local banks or financial costs items: institutions with local branches. It is essential that • capital and formation expenses (facilities, it sets up the lending programme from the very office equipment, promotional initiatives, start, to be able to provide financial support to staff training, internal organisation) local productive activities. • operating expenses (wages, rent, supplies, utilities and current expenses) The formulation of operating procedures is nor- Guatemala • programme expenses (credit fund for mally entrusted to the general manager, who is Among the impact projects of the Ixcan business loans, costs of research and surveys, the first person hired. It is impossible to outline a LEDA, one of training, technical standard set of operating procedures. the most important is the one dedicated assistance). For one thing, the operational to improving arrangements need to adapt to dif- communication The operations of the ferent circumstances and have the credit maximum flexibility. Also, LEDAs also usually entrusted to the general manager. The LEDA’s headquarters are the first concrete perform manifold functions and They too can vary appreciably according to the sign of its presence in the territory. Whether may decide to emphasise certain situation. Personnel are either hired from the out- small or large, they must be recognisably activities rather than others, side or made available by its members. Clear and autonomous. LEDA headquarters are always according to priorities and oppor- transparent procedures are indispensable. A located in the territorial capital, so that local tunities. However, two important good technical team and a good working environ- public institutions can participate and because general points hold true in all sit- ment are essential to success. the capital is normally more easily accessible for uations: first, the operating rules the population. In many cases premises are made are an essential reference for all available by local public institutions. The endow- members and must therefore ment of office equipment will naturally vary be clearly defined and adopted according to budget. Up-to-date computers and from the outset; second, the Internet connection, where possible, greatly procedures must reflect and facilitate domestic and international communica- ensure qualitative standards, tions and give access to better opportunities. such as transparency and democracy. Outside visibility is extremely important, enabling it to expand its political and operational The procedures for select- sphere; it is indispensable for a LEDA to make ing technical personnel are itself known, promoting its presence both with

Building the LEDA Building the LEDA 76 77 Start-up 2 TERRITORIAL NEEDS AND A LEDA’S ROLE IN MOZAMBIQUE The role a LEDA has to perform in the territory is defined One example is from Mozambique, where the Agencies of the activity by analysing local needs and resources together with all provinces of Maputo, Sofala and Manica are working. interested actors. the population and with institutions and organi- NEEDS LEDA’S ROLE sations that can become part of its network. IN THE DISTRICTS Promotional activity can take any number of Basic infrastructure • SILOS AND PRODUCT Investment projects to obtain forms, depending on local circumstances: adver- DISTRIBUTION SYSTEMS national or international co-operation financing. tising campaigns in the local media, brochures, • ELECTRICITY Local capacity to design and manage projects leaflets and posters, an appropriate logo, public • WATER in an effective and efficient manner meetings Farming • IMPROVEMENT OF SEEDS Technical assistance. Training. (if possible, attended by AND TECHNIQUES Promotion of farmers’ associations. Credit. central authorities), participation in all local • CROP DIVERSIFICATION • MARKETING events in order to publicise its activities. Livestock • INCREASE IN HERDS AND FLOCKS: Support for livestock purchases. As to recognition of legal personality, its legal COWS, POULTRY, ETC. Technical assistance. Training. Credit. form will be consistent with the options allowed • VETERINARY SERVICES by national legislation. Securing legal personality Craft industry • NEW ACTIVITIES FOR LOCAL DEMAND Support for investment. Technical assistance. normally requires the assistance of legal consul- • BUILDING AND Training. Credit. CONSTRUCTION FIRMS tants and support from central government • MAINTENANCE SERVICES authorities. The process can be very complex (INFRASTRUCTURE, MACHINERY, and cumbersome, sometimes taking more than a TOOLS AND EQUIPMENT) year, but it instils in the LEDA’s members a new Forestry • COMMUNITY MANAGEMENT Design and execution of projects. awareness of the value of the endeavour and a FOR RESOURCE PROTECTION Support for investment. sense of ownership. • ECONOMIC ACTIVITIES Technical assistance. Training. IN THE WOOD CYCLE Promotion of associations. (CRAFTS, INDUSTRY) While the steps described above are under way, Tourism the technical team will be hard at work consult- • AIRSTRIPS Investment plans. Local capacity • HOTELS AND RESTAURANTS to design and carry out projects. ing with members in order to identify the first • RELATED SERVICES Support for investment. local economic impact projects. Priority should (FISHING, HUNTING, HIKING, ETC.) Technical assistance. Training. go to initiatives that maximise visibility or respond to emerging needs; for instance, the IN THE PROVINCES reconstruction of a road of strategic importance • TERRITORIAL MARKETING Studies, monitoring.Investment projects • PROVINCIAL DEVELOPMENT with the support of international co-operation. for marketing local crops, improvement of trans- PROJECTS Local capacity to design and manage projects. portation systems or the opening of a credit line • ZAMBESI VALLEY DEVELOPMENT Liaison with national and international PROJECT economic organisations.Support for investment. for agricultural commodities. These initiatives • FOOD-PROCESSING Technical assistance.Training. are plainly designed to make the LEDA known • MARKETING OUTSIDE THE PROVINCE and establish its credibility in the eyes of the • COMMUNICATION SYSTEMS FOR PLANNING AND MONITORING Mozambique Outlined are the three provinces where the Development Agencies operate

Start-up activity Start-up activity 78 79 population. Crop calendars are implacable and this, consideration is given both to the most will not often wait for bureaucracy to act. Winter promising and most dynamic sectors and to the or the rainy season may be on the way, threaten- most widespread needs of the population, which ing to paralyse all work on infrastructure for are generally also indicative of the weaknesses and months. shortcomings of local development. These first initiatives also give its management an opportunity to adjust and fine-tune its mode By preparing the development plan, the LEDA of operation. In any case, it is important early on begins to build its own working experience. The for the LEDA to show that it is not just one job of the technical staff is to analyse the local more bureaucratic institution, out of touch with economy’s constraints and potential, designing the people, but an organisation responding to strategies and activities suitable for its revitalisa- concrete local needs. tion. That of its policy-setting and management ith the LEDA established and endowed bodies - the general meeting and the executive Wwith the necessary instruments, the techni- board - is to realise concertation among all the cal team begins to operate in the territory. It actors, to ensure that the plan answers local needs works on two fronts. While using impact projects and has the broadest possible consensus. The as a calling card and a means of mapping the development plan is shaped through the interplay territory’s problems and potential from a new, of technical choices and policy decisions and will integrated perspective, it proceeds to prepare a be updated and adjusted as the quality of its tech- strategy of territorial economic development, nical work and member participation steadily taking account of strengths and weaknesses, improve. potential and constraints. The most promising, high-priority sectors and lines of economic activ- Development strategy-making also leads to the ity are identified and business plans for their identification of business plans that exploit the plan drafted by the LEDA should take it into unlikely to be found at a local level in developing Costa Rica The Brunca Region: development are drafted. Together, strategy and area’s potential and respond to the needs of the account. But it must not lose sight of its main countries. Mechanically applying methodologies construction work business plans constitute the concerted local eco- population. Business plans must also satisfy such objectivess, namely the expansion of the local ill-suited to the context would inevitably result in on a production site for palm oil, nomic development plan. Box 2 important predetermined criteria as market economy to the benefit of the entire population, the replication of forms of economic discrimina- which is supported demand, profitability, ecological and environ- promoting all the human and material resources tion that LEDAs mean to combat. by the Perez The chief strategic aim is to identify the local mental compatibility and innovation. present in the territory and not discriminating Zeledon LEDA economy’s most promising sectors and the main against the groups living in poverty. In fact, the The LEDA can take either an active or a passive impediments to the unfolding of its potential. It’s now the vogue to speak of forming “clusters” successful clusters that have been catalogued and approach to identifying appropriate business Since the LEDA does not have unlimited resources, of homogeneous enterprises that will enable the analysed arose spontaneously in regions already plans. In an active approach, it uses its informa- it must set priorities for action aimed at augment- territory to compete. This methodology is no well-endowed with a network of basic economic tion network and external relations to spot invest- ing the value added of the entire local economy. In doubt interesting and the economic development activities and services. Such conditions are ment opportunities, design business plans and

Start-up activity Start-up activity 80 81 Consolidating its impact identify entrepreneurial candidates. plans puts the LEDA in a position to activate the This method usually: services it is to deliver - technical assistance and • involves a limited risk of arousing credit. Start-up can last one or two years; the phase unsatisfied expectations can be said to be completed when it has achieved • makes it possible to identify projects its basic objectives. At the end of start-up it will which, owing to their innovative nature, have prepared a consolidated plan for local eco- scale or complexity, would probably nomic development that constitutes a reference not emerge in a spontaneous fashion point not only for its members but also for • identify projects’ quantity and quality national and international organisations interest- • does not allow the far-reaching ed in investing in the territory. It will have mobilisation of potential entrepreneurs. launched key lines of production for the territory, having created a significant number of new enter- In a passive approach the LEDA simply pro- prises and financed and reinfirced existing ones. Costa Rica motes its own services, activities and services and Central American LEDAs strongly waits for actual or would-be potential entrepre- support organic neurs to turn to it for help in creating or improv- coffee production. In this photo, ing a business. mountain coffee This approach: in the Brunca • can arouse many expectations, which will be Region satisfied only in part • allows it to create a large data bank of potential projects • involves a democratic and transparent procedure • mobilises the area’s entrepreneurial potential • is not likely to generate innovative or impact projects.

One can tell from the above that the two approaches serve different purposes but are not mutually exclusive. The LEDA should employ both in judicious combination.

A negotiated definition of strategy and business

Consolidating its impact Consolidating its impact 82 83 LEDA’s mode of operation is one of its This modus operandi is the hallmark of advanced A defining features and usually distinguishes organisations, in contrast both with private it from its individual members. It does not limit organisations, which necessarily tend to concen- itself to supplying services case by case, but pro- trate on their own survival, and decentralised ceeds by formulating articulated objectives public services, which are generally ruled by pro- whose impact is measured on a territory-wide grammes, standards and budgets decided else- basis. where. A corollary to the method is the achieve-

3 REACTIVATING THE MINES AND QUARRIES IN NUEVA SEGOVIA In the Department of Nueva Segovia, to draw up a second, more detailed The LEDA promoted the co-operative Nicaragua, there are substantial plan for verification of the size of as a means of increasing the strength deposits of gold and marble that were workable deposits, the quality of the of these independent miners and, to abandoned because of the long civil marble and the most suitable further protect their interests, Nicaragua war. In its first year of activity the quarrying techniques. The study found successfully petitioned the government In the Department Nueva Segovia Agency, with an that it would be economically feasible for a mining concession covering 127 of Nueva Segovia approach that involved all its members, to extract three varieties of marble - square kilometres in the townships of the LEDA helped set produced the Department’s local light grey, dark grey and black, and Murra and Jicaro. It also provided up a small business for the improvement economic development plan. dark grey and blue - in quantities that training and technical assistance to the and maintenance of The plan indicated mining and were not immense but significant for members, enabling them to advance the inter-municipal quarrying and the subsequent the Central American market. The from traditional mining techniques so road system processing of gold and marble as project was finalised and presented to as to make the initiative more important lines of production for the potential funders. The LEDA also profitable. With this initial assistance, local economy. invited other members of the Central “El Diamante” appreciably improved American network to take a stake in its performance. But the LEDA’s efforts The LEDA set to work and provided the project. No LEDA wanted to run did not end there. It pursued further funding for an initial geological survey the risk, but these contacts put the geological exploration to identify the in the three marble fields of Cerro Nueva Segovia LEDA in touch with an exploitable area more precisely; it Guansapo, Cerro Las Lajitas and Cerro experienced market analysis firm in found three national jewellery dealers La Jagua. The survey’s findings were Guatemala which it has commissioned interested in buying the gold; and in positive and an initial plan for to make a study of the regional market May 1996 it signed a technical and exploiting the deposits was drawn up. for marble. Sooner or later this financial assistance contract with ADC- In 1995 the LEDA obtained backing preliminary investment will bear fruit. Austria. In 1997 the initiative attracted from the decentralised co-operation the attention of ARCHON, a private committee of Massa Carrara, Italy, Meanwhile, the gold-mining project Canadian company. which mobilised the specialists of its has already found investors. “El During the year the LEDA signed a company “Marmi e Macchine”. Diamante”, a co-operative of 77 small mining co-operation agreement with The Carrara experts helped the LEDA miners, has been formed. the Canadians.

Consolidating its impact Consolidating its impact 84 85 4 A LEDA’S FUTURE ment of a permanent self-monitoring capability. technical assistance was inadequate, or two years This is not acquired in the classroom but through were not enough. An notable example of how a LEDA of revitalising the highlands as part provincial government. practice. Depending on the causes, this analysis can lead can evolve and how far it can go of provincial development. The same approach was used to comes from the Province of Parma It worked to secure the necessary create a business incubator, a LEDA A LEDA is mature when it is able to evaluate the the LEDA to adjust its aims and improve its in Italy. SOPRIP, the Province’s LEDA funding for the various development for tourist development of the results of its own work and its impact on the ter- methods of pursuing them. - backed by provincial and municipal projects on the strength of their highlands and one for the ritory in the light of its method of operation. This authorities, the chamber of commerce, quality, mobilising the municipal, computerisation of government exercise is easier when the strategic planning sets When a LEDA has reached a good level of oper- business associations and local banks - provincial and regional governments. administration. clear and measurable objectives. The Nueva ation, it needs to examine the results of its efforts, was formed as a limited company And it systematically supported in the 80s to manage the activities and initiatives aimed at By handing over going concerns Segovia LEDA, for example, decided to convert check for shortfalls in its objectives and verify establishment of industrial districts. overcoming the obstacles to to other actors, SOPRIP enriches the department’s entire coffee production to their causes at least once a year. Verification must Within a few years it concluded development: training, enterprise and diversifies the stock of local organic-farming methods within the span of two be conducted in terms of efficacy and efficiency. that it had to go beyond helping creation and self-enterprise, resources. Its strengths are its mandate years. Verification of efficacy means comparing results small businesses start up if these investment of emigrants’ remittances, to promote development, its role There are many good reasons for doing so: because with objectives; the difference between them were to become competitive. balanced and environmentally- of coordinating local actors and This new conviction was based, sustainable development of highland its expertise in innovating, planning the international market for non-organically-grown provides a substantial indication. among other things, on the deepening products and tourism, services for and managing complex, integrated coffee is rapidly drying up, because the organic Assessing efficiency involves examining costs and crisis of the poorest part of the small businesses and local processes. approach produces considerable employment, achievements and enables it to identify areas of province, the Apennine highlands, administrations, financial and because the environment is increasingly consid- waste. The latter analysis is also closely linked to abandoned, offering little chance investment planning for businesses. To be sure, SOPRIP does not operate ered an important resource to protect, and the problem of sustainability: an inefficient organ- of employment and inhabited in a poor area and can tap advanced by an ageing population. SOPRIP has continued to transform its skills and resources, but its experience because the activity has appreciable impact isation, yielding interesting and high-quality Creating a new equilibrium between functions in the light of results. points to paths that are valid for many locally and beyond, seeing that the department is results but at excessive cost is unlikely to be viable. the rich lowlands and the poor The LEDA has gradually replaced other contexts. one of Nicaragua’s leading producers of coffee. The degree of consolidation that a LEDA has highlands was a political and social direct support with stimulus The territory of the Province of Parma, To achieve an objective of this magnitude, a attained can also be gauged by the scale of local challenge of paramount importance and promotion, relying increasingly home to a population of 400,000 LEDA gears itself to a set of activities: in our productive ventures, including both newly-created for the local authorities. on the ability of local actors and no fewer than 40,000 businesses, to take over implementation. is now endowed with many example, allocating a credit line, taking a census businesses and existing enterprises that bene- SOPRIP was assigned to put together For example, to facilitate innovation specialised services and organisations of coffee-growers, enlisting and training them, fited from its technical and financial support. a strategy for capitalising in small businesses, the LEDA generated by SOPRIP. involving the national association of organic Once these nuclei of local entrepreneurs are on abandoned resources and devising planned and built the Science The local authorities strictly limit their farmers to take care of exports, providing techni- sufficiently strong, the LEDA can open up new new instruments of economic and and Technology Park, but at the same own role to setting policy and cal assistance to growers. prospects for territorial development, for employment growth. time it also sought out territorial surveying needs; the job of planning To this end the company was partners interested in backing and carrying out development projects If after two years the LEDA has achieved only example by introducing new production tech- transformed into a territorial the project. is delegated to technical organisations. 50% of its objectives (and here we are no longer niques on an experimental basis, seeking new development agency and assigned SOPRIP was initially the principal Above all, an awareness that referring to Nueva Segovia), it will have to con- domestic or foreign markets, or networking to coordinate a multiplicity of actors shareholder, but as soon as the Park partnership among all the local actors, sider why and study all the factors in play: per- with counterpart organisations in the industrial for harmonised, feasible and was a going concern public and private, produces haps the credit system was poorly designed, the countries. sustainable initiatives. it gradually sold off its shares to formidable results is now firmly growers weren’t won over to trust its experts, Box 3 The LEDA tackled the problem interested partners and to the embedded in the local culture.

Consolidating its impact Consolidating its impact 86 87 Another interesting prospect TITLE 1: ESTABLISHMENT, gration of the most disadvan- plans, for starting up businesses for the LEDA is that of forging HEAD OFFICE, DURATION, taged population into the eco- and improving their special relationships with the PURPOSES, ACTIVITIES nomic and financial circuit. To performance, with priority given international co-operation this end, in conformity with the to small and medium-sized organisations that operate or many national programmes for ARTICLE 1 spheres of competence of the social enterprises, co-operatives intend to invest in the territory. small and medium-sized busi- The Bellavista Local Economic members and in coordination and collectively-owned This implies the preparation nesses have identified them as Development Agency (here- with them, the LEDA’s corpo- enterprises in general; and implementation of complex appropriate local instruments inafter “the LEDA”) has been rate purpose is the study, pro- • grant credit, possibly by means projects to consolidate the terri- for planning and implementa- duly established on ______motion and implementation of of agreements with local

A tory’s development. Project- tion. Box 4 ______(date) initiatives designed to foster the financial institutions and banks; development and implementa- at ______(place) development of economic activ- • promote and organise technical, D tion services also give it a fresh Finally, the solidity of a LEDA in accordance with National ities, with priority awarded to managerial and entrepreneurial

E source of income. can be gauged by the quantity Law ______. actions that combine the fight training services;

L and quality of the relationships (number and date). against poverty with sustainable • promote and carry out territorial Further consolidation can come it is able to establish interna- development. marketing; a RTICLE from the creation of specialist tionally. Besides offering it A 2 • foster and promote the

f service providers. These func- access to markets, such ties The LEDA’s head office is ARTICLE 5 formation of producers’

o tions are discussed in chapter 5. enable it to overcome isolation, located at ______To achieve its purposes, the organisations;

s What is involved, in short, is the which is the bane of depressed ______LEDA, in coordination with the • purchase goods and services creation by the LEDA of service areas, and plug into the interna- (full address). The LEDA may set members and with the competent useful to its corporate purposes w companies that satisfy local tional circuits of tools and up offices and branches else- public and private institutions, • prepare territorial development

a needs and gradually become knowledge. From this perspec- where with a resolution approved may use every permissible instru- plans; l

- stand-alone operations techni- tive, it has been of key impor- by the executive board and in ment and method. In particular, • make agreements and contracts

y cally and financially. Significant tance for LEDAs in developing conformity with the purposes the LEDA shall: with public and private entities.

b examples are the marketing countries to learn more about established in these by-laws. • identify opportunities for

companies of Nueva Segovia their counterparts in industrial creating new businesses and l and the credit co-operatives of countries and to discover that ARTICLE 3 expanding existing ones; e Chalatenango. the latter were formed for the The LEDA’s duration is until • prepare and contribute to the d very same purpose of fighting December 31 ______and may preparation of local economic o At this point, influence over poverty and unemployment. be extended by resolution of the development plans based on the national policies can usually be Knowing that the limits of the general meeting of members. harnessing of endogenous m

exerted. To achieve this more current models of economic resources; : readily, LEDAs in Latin America, development are generalised ARTICLE 4 • encourage the most x Bulgaria and Cambodia have set and that innovative efforts are The LEDA is non-profit. Its aim disadvantaged segments of the e up their own national networks. under way everywhere gives is to contribute to the implemen- population to undertake forms n No developing country as yet them valuable insight into their tation of the objectives of eco- of self-employment and

n has forged a national economic potential and uses. nomic development of ______enterprise, with particular

A development policy based on ______reference to social enterprises; local development and instru- and the enhancement of local • provide technical assistance in ments such as LEDAs, but resources by fostering the inte- the preparation of business

88 89 TITLE II: TITLE III: letter to the chairman of the MEMBERS ORGANISATION executive board. Sessions of the AND CAPITAL general assembly shall be called ARTICLE 6 by the chairman of the executive The social capital comprises the ARTICLE 12 board at least twenty days before contributions of the members, The LEDA’s governing bodies the date set for the meeting with and is equivalent to are the general assembly of mem- a letter to the members. ______. ARTICLE 10 bers, the executive board and the The meeting shall be duly con- New members may be admitted general management. stituted if at least 50% plus one ARTICLE 7 by majority vote of the general as- of those entitled participate. Every capital increase must be sembly, acting on a proposal from ARTICLE 13 Decisions shall generally be approved by the general assembly the executive board. GENERAL ASSEMBLY adopted by a majority of two- of members, acting on a proposal The general assembly is the thirds, except where the meet- from the executive board. ARTICLE 11 LEDA’s supreme body. The ing decides otherwise. Membership shall cease when: general assembly is entrusted The right to vote is not linked to ARTICLE 8 • a member submits a formal with the following tasks and the amount of social capital Membership of the LEDA is resignation and the latter is responsibilities: deposited. Each member has open to public and private asso- accepted by majority vote of the • developing the LEDA’s general equal voting rights. ciations, associations of individ- general assembly; strategy, setting general and uals or companies, and NGOs • a member fails to attend three specific objectives and verifying ARTICLE 14 that are genuinely engaged in consecutive sessions of the compliance therewith; EXECUTIVE BOARD promoting and implementing fair general assembly without good • establishing the electoral The executive board directs the and sustainable economic deve- reason; criteria and electing the execution of LEDA activities, in lopment of ______(name • proven and documented actions executive board and its accordance with the LEDA’s cor- of area) and subscribe to the contrary to the spirit of these chairman; porate purpose and the directives commitments and objectives of by-laws are found and the • approving the budget and of the general meeting. these by-laws. expulsion is approved by annual accounts; The executive board shall be two-thirds majority of the • approving amendments to the elected by the general assembly, ARTICLE 9 general assembly. by-laws; remain in office for two years and The founding members of the • approving, at the request of the be presided over by a chairman. LEDA are: executive board, the admission The executive board shall consist 1.______or expulsion of members; of seven members, representing 2.______• settling disputes among the different types of members 3.______members. comprising the general assembly 4.______The general assembly shall be (government institutions, town- 5.______convened at least once a year in ships, private associations, etc.), ordinary session. Special sessions and the general manager. may be convened at the request The executive board is entrusted of the executive board or of one with the following tasks and third of the members with a responsibilities:

90 91 chapter 4 Resources for local economic development and for Agency start-up and operations

92 93 Resources for local 1 THE SUCCESS OF ADEVAS IN ATTRACTING FUNDING economic development obilising resources for backward areas is a and ignores the fact that human and material M high priority for countries that are deter- resources are to be found everywhere. Proof of mined to democratise the development process this is the experience and success of the LEDAs and reduce poverty. There is increasing awareness operating in the disadvantaged, isolated, border nowadays that the traditional approach centred regions of Central America. Box 1 on “development poles” has not only performed less well than expected but has actually exacer- Unfortunately, their experience also shows that bated the problems of poverty, unemployment national measures targeted at a local level are not and exclusion, as the latest annual reports of the always conceived and carried out in ways likely to UNDP and the World Bank show. The impor- nurture the skills the absence of which is tance now attributed in international forums to bemoaned. A welfare mentality is very common, the reduction of poverty is a sign that renewed as in the case of public works projects to create action is now being taken to extend development temporary jobs or social compensation fund funds and remedy the failings of policy action spending. So too is the planning and management that concentrated investment in the areas with of local projects by national LEDAs. And when highest potential and neglected the remoter international co-operation resources are scattered regions, border areas, those less well endowed over abandoned territories, the dispersion is such with human and material resources. In devel- that they have no substantial impact. oping countries, the dramatic increase in poverty in the depressed and remote areas has moved Outside resources are necessary but will not suf- national institutions to take resolute action. Phe- fice to make local development processes sustain- nomena such as the sprawling growth of capital able; this can only be achieved by starting out cities, rising crime, the devastation of environ- from the assets that a territory has, in order to The Department of Ocotepeque but it also made use of credit to other strategic activities, such as mental resources in the countryside, and the turn them to account and improve their organisa- is located in the western region co-operatives and revolving services, infrastructure of Honduras, along the border with community funds to reach small and commerce. Five years on, in increase in conflicts stem directly from the aban- tion. LEDAs have demonstrated that they can El Salvador. Ocotepeque City, producers scattered throughout 1998, the guarantee fund created by donment of entire regions and are good reasons play a key role in overcoming the impediments to the capital of the Department, the Department. Producers were ADEVAS and Banco de Occidente for taking corrective action, for the security of the channelling funds and resources to the most dis- is more than ten hours travel from asked to form groups of at least ten turned over more than $430,000 a entire population. advantaged areas. They permit simultaneous Tegucigalpa, the national capital, people each to apply for credit, and a year in loans in the Department of action on such decisive factors as the mobilisation in good weather. This may help to form of collective guarantee was Ocotepeque. explain why, when ADEVAS came adopted. The first loans were In addition, the bank separately National authorities are apt to cite the lack of of local financial resources, the planning of credit into being in 1994, Ocotepeque City earmarked for agriculture, the directed another $1.1 million of local planning and management capability as a arrangements, the orientation of pubic invest- had only one branch of the Banco de mainstay of the Department’s credit to the productive economy. major obstacle to decentralised development ment funds, the provision of resources for pre- Occidente lending a mere $140,000 economy, and above all for coffee- Last but not least, this local success funding. This observation may be quite true in investment activities, and the channelling of a year. The LEDA began by signing growing and livestock. The LEDA story has induced six more banks to many cases, but it also perpetuates a vicious circle national and international funds. an agreement with the bank, then gradually extended its support open branches in Ocotepeque.

Resources for local economic development Resources for local economic development 94 95 Mobilising local resources traditional, exceedingly cautious forms. The problem in this case is to transform these tradi- In El Salvador, the Department of Morazán, the tional forms of saving into arrangements whereby second-poorest in the country, put some $8 mil- surplus funds can be transferred to others in the lion of savings into bank deposits in 1992. That area who require resources for new investments. same year the banks made only $2 million of The poor will be naturally reluctant to hand over loans available in the Department. In other their savings to an organisation in which they do words, poor as Morazán was, it was a net not have absolute confidence. So what must be exporter of capital: a case in point of how the tra- done is to create a local system that enjoys social ditional approach of concentrating financial trust, protects small savers, promotes monetary resources can create or reinforce poverty condi- saving, and retains and reallocates the surplus tions. Small wonder, then, that in El Salvador, a locally through credit. country torn by strife, Morazán was one of the Salvador areas of bitterest civil conflict during the 80s. Finally, even the most disadvantaged area has The Department of Morazán: Clearly, democratising the development process some groups that are endowed with financial the agriculture necessarily also means democratising the oppor- resources. But when local conditions are co-operative centre for coffee harvesting. tunities for access to credit for the regions extremely backward these will tend to set up their The Morazán LEDA neglected by traditional forms of banking. establishments elsewhere, in the areas served by strongly supports roads and electricity and with skilled labour. this co-operative Accordingly, the first thing a LEDA must do is to Again, the point is to create incentives for these take stock of local resources. These are com- groups to invest within the territory, in product monly overlooked or written off as insignificant, lines that are to form part of the backbone of the but the example of El Salvador shows that even local economy. Box 2 the poorest regions can generate a surplus of cap- ital. The problem is to devise arrangements with This is the complex role that the LEDA performs: the banking system that will allow local financial guaranteeing the banks for the risks they run in resources to be reinvested locally, bearing in mind operating in disadvantaged areas, protecting the that banks will be disinclined to risk moving into interests of the population, especially those most a remote area and to incur the costs of handling a vulnerable to the consequences of poverty, and multitude of small loans. creating an economic environment more con- ducive to investment. LEDAs are the cornerstone A second important point is that not all of the of the mechanism for mobilising the funds for surplus capital reaches the banks. Even the poor- local economic development and ploughing them est of local inhabitants put some savings away in back into the territory.

Resources for local economic development Resources for local economic development 96 97 2 THE WORK OF THE MORAZAN LEDA The LEDA of the Department of • FUNDESYRAM – Foundation for Social- The repayment rate is 98%. Morazán, El Salvador, has channelled a Economic Development and The investment per job created runs to substantial volume of financing into its Environmental Rehabilitation $1,000 ($600 for credit and $400 in territory and manages an average of $1.4 CO-OPERATIVES training costs). It has created or million a year for credit activities and strengthened some 1,500 small and projects. Here are its main characteristics, • FECOAGRO – Federation medium-sized enterprises, creating updated to the year 2000. of Co-operative Farmers 3,500 permanent jobs; 59% of the • GILBERTO URRUTIA – Co-operative beneficiaries of credit are women and The LEDA was created in July 1993 to serve Association 66% of the total amount disbursed has the 180,000 inhabitants of the • TANGOLONA – Co-operative gone to borrowers in villages. Department of Morazán, which extends Association It has organised 24 training events, over 1,100 square kilometres. Its • SAN CARLOS 2 – Co-operative with the participation of 650 micro headquarters are located in the Association and small entrepreneurs (382 women departmental capital of San Francisco • CAPCYSA - Agriculture Co-operative and 268 men). Gotera. for Credit and Agricultural Services • ACAEM –Co-operative Association Projects under way The Department of Morazán comprises 26 for Electrical Services in Morazán • Technology transfer for the vegetable Municipalities: Arambala, Cacaopera, • ACATALP – Co-operative Association production involving 175 growers, Chilanga, Corinto, Delicias de Concepción, for Light Transport Enterprises of Perquin with UNDP-Japan and the Peace Corps • SOCSEMA – Co-operative Society for El Divisadero, El Rosario, Gualococti, • Reforestation and organic farming Agriculture Machinery Services Guatajiagua, Joateca, Jocoaitique, Jocoro, in the townships of Sociedad, Jocoro Together, these associations, foundations Lolotiquillo, Meanguera, Osicala, Perquin, and El Divisadero, with the Kellogg and co-operatives count 929 members. San Carlos, San Fernando, San Francisco Foundation Gotera, San Isidro, San Simon, Sensembra, INSTITUTIONS • Construction of 152 cisterns for water Sociedad, Torola, Yamabal and Yoloaiquin. The Governor of the Department, three storage in the townships of Jocoro, MEMBERS OF THE LEDA mayors representing all the Corinto and Chilanga, with Catholic Municipalities, and a representative of Relief Services ASSOCIATIONS the Ministry of agriculture and livestock • Environmental education, reforestation and soil and water • ACOLOCHI –Co-operative Association make up the LEDA’s advisory committee. conservation in the townships of El of ‘Lenca de Chilanga’ Rosario and Jocoaitique, with the • ADECOSAL – Association Services supplied National Environmental Fund for Co-operation and The LEDA provides credit, training, (FONAES) of El Salvador • Construction of a technical training • Catholic Relief Services • United Nations Development Development of El Salvador production assistance and counselling in • Construction of an installation for school for specialised workers in • US Agency for International Development • AMS – El Salvador Women’s Association formulating and running local Programme (UNDP) mechanics, carpentry, construction • Japanese Co-operation • PADECOMSM – Development development projects. drinking water in the communities • International Labour Organisation (ILO) and information technology Association of the communities of La Hacienda and El Junquillo, with • UK Co-operation • United Nations Office for Project of Morazán and San Miguel The priority sectors of intervention are Irish Technical Co-operation (APSO) • Chinese agricultural technical missions Services (UNOPS) • CODECA – Committee on Development commerce, industry, agriculture and • Ecological fertilisation of three soybean Relations with national and • Kellogg Foundation of Cacahuatique livestock. fields in El Rosario, with the Peace Corps international organisations • APS (Italian NGO) Address: • MCMM – Women’s Co-operative • Strengthening of the LEDA’s • National Environmental Fund of El • PRODOCS (Italian NGO) ADEL, Barrio Las Flores, San Francisco Movement of Morazán The credit fund amounts to $480,000. institutional capability, with APSO Salvador • UN Food and Agriculture Gotera, Morazán, El Salvador Between 1995 and 1998 the fund • Centre for Agrarian Technology of El Organisation (FAO) Telephone: ++503-65.40.412/65.40.582 FOUNDATIONS generated loans totalling $1,315,000, Projects under study Salvador • IICA/Holanda laderas Fax: ++503-65.40.703 • PROESA – Promotion of El Salvadorian with an average duration of 1 year. • Marketing of local handicrafts • Peace Corps • European Union E-mail:[email protected] Managers Loans for purchases of machinery and • Exploitation of mineral deposits (gold • National Reconstruction Secretariat – • United Nations Population Fund (UNPF) • REDES – Foundation for Reconstruction tools are repayable in 3 years and those and silver) SRN • Bank for Inter-American President: Oscar Chicas and Development of El Salvador for coffee production in 8. • Construction of a hotel • Irish Technical Co-operation – APSO Development (BID) General Manager: Wilson Salmeron

Resources for local economic development Resources for local economic development 98 99 Planning the local credit system It is therefore important for the LEDA to have a One of the first things a LEDA does when it sets facility targeted to small-scale basic needs and up shop is to plan the local credit system. Credit, production units. It is unrealistic to expect what combined with technical assistance, is a powerful is ordinarily called “micro-credit” to foster a tool for turning ideas, initiatives and skills into quantum jump in a marginal economic activity, concrete businesses and real life opportunities for but it can be crucial in supplementing household economic development. income among the groups most vulnerable to It must have its own credit fund to perform this poverty. task. Having resources of its own for action is Micro-credit facilities can be created directly or essential to gain the confidence of the population, in collaboration with services or co-operatives financial institutions and the private sector and with a widespread local presence. play an important role in locally channelling Salvador finance supplied by various sources: commercial This leaves the problem of how to attract finan- Counter of a credit, banks, intermediary institutions, rural and cial institutions to areas whose population is gen- savings and service co-operative mutual banks, national and international loans. erally considered to carry “high financial risk”. association for Of course, the point is not to appeal to banks’ agriculture promoted by the The LEDA must also be able to define the social conscience, but to convince them that development agency specific strategy of the credit system. If it is to small-scale lending can be profitable and attrac- in the Department of finance productive activities and services that will tive. This can be done if the territory is equipped Chalatenango have a real impact in the territory, the credit with an instrument that can get the banks inter- system must be accessible and sustainable, ested and gain their confidence, a go-between offering opportunities not just to sectors with with a solid knowledge of the population, the solid financial background but also to those in local economy and its potential and with the population who are excluded from the resources of its own to invest. regular circuit. Gaining the confidence of the banks enables a It must embrace a diversity of arrangements for LEDA to offer financing opportunities to small investments of different size: micro-credit, borrowers, most of whom have no business lending to small and medium-sized businesses, record history and are therefore not regarded by and finance for larger projects. banks as potential customers. Instruments such The aim is mobilise appropriate resources for as guarantee funds have proven to be effective investment projects designed by local actors means of obtaining banks’ confidence, expanding regardless of scale, both for existing enterprises the coverage of lending and increasing the return and for business creation. on small loans. Box 3

Resources for local economic development Resources for local economic development 100 101 3 THE MECHANISMS FOR MANAGING THE CREDIT FUND LEDAs have experimented with bank grants to borrowers, so that the The agreements with a bank back loans amounting to up to twice several different lending bank puts up resources of its own obviously call for the bank to its own value. arrangements, namely: without taking on the credit risk. disburse loans according to the Suppose that the fund amounts to • direct disbursement of credit Most arrangements provide for the priorities established by the LEDA. $100,000 and the agreement with by the LEDA guarantee fund to be leveraged. The For smooth operations and to the bank provides for double • indirect channelling through volume of loans granted by the bank ensure that the bank is fully involved disbursement: the bank can disburse member financial intermediaries; tends to increase over time, assuming in all phases of credit management, up to $200,000 and runs no risk of • indirect channelling through that the loan delinquency rate it is a good idea to set up a joint loss even if only half of the loans are non-member intermediaries. remains within predetermined limits. credit committee. repaid; the share in default will be In addition to expanding the volume The committee gives final approval covered in full by the guarantee Direct disbursement is the of credit that a LEDA can generate, to projects after verifying their fund. However, experience shows arrangement most likely to satisfy the the procedure fosters the feasibility. Joint management speeds that the recovery rate is always social dimension of development. establishment of direct relations up loan approval thanks to higher than two thirds, so that the The absence of intermediaries allows between beneficiaries and the bank co-ordination, obviating processing bank can readily accept a multiplier credit to be granted at moderate and nurtures a culture of credit delays due to requests for revisions of three. interest rates, better enabling the among the population. and red tape. The multiplier that will be specified LEDA to serve the neediest segments Naturally, this approach implies that The bank takes care of credit depends on three factors: of the population. On the other the LEDA is able to place its relations disbursement and recovery for a fee • the loan recovery rate hand, the combination of low with the bank on a firm and usually consisting of a fixed charge • the bank’s supply of liquidity interest charges and relatively high professional footing, keeping their plus a variable component based on • the resources to hand for operating expenses means that very different aims in mind. the record of loan performance. processing and monitoring loans. Guatemala LEDAs adopting this approach may For its part, the LEDA assists in the Counter of a private find it difficult to expand their credit Experience has shown that involving preparation of projects, establishes It’s not always easy to convince a bank that has signed fund. a financial institution is by far the their priority and proposes them to bank to set up a guarantee fund, agreements with the best solution. To begin with, it the credit committee. especially in countries where such Huehuetenango LEDA for the Routing of credit through financial enables LEDA clients to become arrangements are rare. A trial period management intermediaries that are members of ordinary users of bank services and It’s up to the LEDA to negotiate with is sometimes necessary, with the of loan funds the LEDA stresses the economic potential bank borrowers, once they the bank and establish the most multiplier set at one during the first dimension of development and has establish their creditworthiness by suitable procedures for collaboration. year and subsequently raised to several advantages. It allows the regular repayment. By contrast, Where practicable, the guarantee three if the recovery rate is good LEDA to widen the geographic where all credit arrangements are fund formula offers several enough. coverage of its credit activities, managed directly by the LEDA, the advantages. fosters local saving and enhances beneficiaries risk remaining trapped As mentioned, the fund consists of a Where it is impossible to set up a participation by the member in a marginal circuit with no prospect sum that it deposits with the bank guarantee fund, a LEDA can fall back intermediaries. for integration into the local as backing for loans to be made. on the classic form of guarantee or This procedure involves higher development process. Second, they The money in the guarantee fund simple current accounts. interest rates than direct can avail themselves of banks’ can be placed in higher-yielding Here, again, it negotiates the interest disbursement, but also lower specific skills and experience in medium and long-term deposits, rate on the credit fund, which will operating expenses. managing credit. earning an extra return for the necessarily be lower than in the Finally, separation between the LEDA. previous case. Indirect channelling through non- functions of technical assistance and Also, it can negotiate the The annex to the chapter contains a member financial intermediaries is those of financial assistance is an disbursement of a volume of credit standard agreement between a effected by such instruments as the extra safeguard, ensuring that it will representing a multiple of the money LEDA, the sponsoring organisations guarantee fund. In some respects this not divert the credit fund to other in the fund, without the bank taking and a bank for the management of approach combines the other two. uses, and permits the job of credit on any risk. the credit fund. The example comes The LEDA uses its funds as a recovery to be assigned to a For example, if the loan recovery rate from CeBEDA of Travnik, in Bosnia guarantee to back the loans that a competent institution. is 50%, the guarantee fund can Herzegovina.

Resources for local economic development Resources for local economic development 102 103 The fact that a LEDA simultaneously manages dif- local level. tional reasons. A significant example of how tap these funds for essential local development ferent lending arrangements, each calibrated to the Orienting public investment municipal investment funds can be oriented is projects, averting fragmentation and dispersion of needs of a particular category of economic agent, is of offered by the Department of Jinotega, Nicaragua, resources, disseminating information, producing vital importance to the fight against poverty. It enables If it is to develop, a territory must be endowed with whose agency has created a road construction and project documentation on behalf of townships, and producers with scant resources gradually to become essential infrastructure. It may lack roads and maintenance company. It has also produced the co-ordinating the temporary employment created “bankable”. Credit programmes and co-operative ini- bridges, or these may be in disrepair or impassable Departmental Development Plan in co-operation thanks to the social funds with their ongoing tiatives targeted solely to the most disadvantaged seg- during the rainy seasons. It may lack electricity or with all of the townships of the area. It is thus able efforts for permanent job creation. ments of the population often fail to lift their benefi- require capital spending on productive infrastruc- to ensure that each township manages the roads ciaries out of poverty. The help they provide is usual- ture in industry or agriculture. The capital for these within its jurisdiction, making use of the company In other cases, public investment funds derive from ly not enough to ensure the sustainability of projects. projects can come from a variety of local, national for the necessary operations, under a well- loans contracted by national governments with Precisely because they are designed exclusively for the and international sources. designed, rational plan that increases the benefits countries that are partners in co-operation or with poor, they tend to perpetuate the cycle of poverty. and positive impact for all. international financial institutions. These bring a LEDAs, by contrast, couple the fight against poverty A first source consists of public investment funds. flood of mammoth construction projects into with business development and employment growth. In many developing countries, under structural LEDAs can also help to channel national public remote areas that for one reason or other have been Producers who receive micro-loans can subsequently adjustment policies municipal governments have investment funds to their territories and ensure assigned high national policy priority. The possi- access a formal subsidised line of credit and find back- been assigned new responsibilities and funds for that these resources are put to rational and effec- bility of a LEDA acting as interface for initiatives of ing for co-operatives and associations that further en- public investment. Depending on the country, a tive use. For example, social investment funds were this kind depends directly on how representative it hance the return to producers. In this process of de- given percentage of the national budget is attrib- created when structural adjustment policies were is considered locally and at a national level. feating poverty, flexible credit strategies must go hand uted to municipalities for the creation of services, launched in the early 90s at the recommendation of Unfortunately, the habit of creating ad hoc national in hand with all the other programmes of assistance road construction and other essential public works. the international financial institutions. These funds structures to run these programmes is so deep- that it is able to offer. In a great many cases the activity of the LEDAs has were generally conceived as vehicles for targeted seated that the scope for local influence is quite made it possible to channel these funds to infra- investment in infrastructure and services, to limited. But even in these cases a LEDA can guar- structure projects serving region-wide economic compensate in part for the cutbacks in public antee a negotiated planning of projects consistent Finally, the credit systems implemented by LEDAs development, with an added positive impact at the capital spending. Normally, they do not provide with the local development plan, provide technical have made it practicable to apply national pro- municipal level. Lacking a credible actor willing to for reimbursement of the preliminary expenses planning of individual components, ensure that grammes and measures that previously failed to shoulder responsibility for regional development connected with producing the requisite documen- local businesses are involved and promote orderly reach the local level. Programmes for small and planning, the tendency is for municipal investment tation, and this is a hurdle for local institutions and job creation. medium-sized enterprise promotion, though funds to be used for projects whose scope is too associations, which are unlikely to have the neces- intended to be nation-wide in scope, often fail to narrowly local to benefit the territory’s economic sary project-development capability. Also, since the Resources for pre-investment activities have an impact beyond the outskirts of capital cities. development. A road repaired up to the town line, funds are managed by central structures located in At times this may be because news of their existence for example, will not improve the local marketing the national capitals, news of their existence and A crucial but almost always underrated matter is and information on application procedures does not of products if the neighbouring township fails to information on application procedures is unlikely the need for resources in the phase preparatory to filter down, at times because accessible services to repair its own stretch of road. A bridge joining two to reach remote areas. As in the case of municipal investment. “Resources” means more than just help businesses draw up solid plans are lacking at a townships may fall into utter disrepair for jurisdic- funds, LEDAs have made it possible everywhere to “funds”, as the technical ability to produce good

Resources for local economic development Resources for local economic development 104 105 investment projects is essential. In disadvantaged and development of the valley and presented it to areas, these resources are traditionally lacking. Yet the Central American Bank for Economic most national facilities, bank facilities for develop- Integration (CABEI) to obtain funding. ment, credit funds and international funds can only Naturally, the project developed by the LEDA be accessed if applicants submit well-designed sets the highest store on retaining added value in projects complying with the specific rules and stan- the area, in sharp contrast to the normal run of dards of each provider. In many countries, the projects developed by outside consultants who institutions that manage the social compensation would almost certainly have ignored this aspect. funds mentioned earlier require projects to be submitted in standard format. Often, these Pre-investment activities, consisting in feasibility resources go largely unutilised because there are no studies and project planning, make up for a struc- arrangements for pre-investment money and local tural deficiency in the arrangements for allocating organisations have neither the funds nor the skills development funds and thus tend to act as a multi- Salvador to draw up projects. The proliferation of plier of opportunity for the area. This service is Artificial lake formed by the Rio consulting companies offering planning services at useful for all parties; after all, a failure to disburse Lempa weir in the steep fees in developing countries is no accident. planned financing will damage the reputation of Department of Chalatenango the international banks and organisations and lead where most of the Since the functions of LEDAs include pre-investment to cuts in their funding. Obviously, LEDAs have to electrical supply of the country is activities, they fill a void that often has disastrous spend their pre-investment funds wisely. The generated consequences for local development opportuni- activity is costly and must be restricted to projects ties. They can carry out feasibility studies for pro- with potential for strong impact on the territory jects that they will then manage directly. and a good chance of interesting outside investors. They can also supply these services to local insti- Developing a large portfolio of projects is of little tutions and organisations as a group, thus per- use; its result may be only to disappoint and frus- forming a vital training function. An example of trate the population and tarnish the LEDA’s image. these functions comes from El Salvador, where the Chalatenango LEDA has taken the pioneering step Twinning with industrial-country LEDAs or local of calling together representatives of the Depart- communities committed to decentralised co- ments of the Lempa River Valley. operation can be an important source of The Lempa, one of the country’s principal specialised technical resources for formulating sources of electricity, risks becoming a typical complex projects. A significant example is the “expropriated resource”. With a joint collective Municipality of Massa Carrara, Italy, which has effort spanning many months, the LEDA has mobilised its top experts to support the Nueva produced a feasibility study for the exploitation Segovia agency in drawing up a project for

Resources for local economic development Resources for local economic development 106 107 4 ON FINANCING marble quarrying. Partnership with qualified, An original approach to financing resource-rich bodies is a wise strategy for a LEDA a LEDA’s credit fund consists in and, if the projects are interesting, can result in utilising counterpart funds fresh financing and even the promotion of joint deriving from food aid or other ventures. Box 4 aid in kind. This has been tried, with success, in Central America

Channelling domestic and foreign investment Many international aid programmes enter into LEDAs help to create the conditions for attracting agreements with beneficiary fresh investment, including international capital. governments for specific The record, everywhere, shows that they have suc- contributions of aid, especially food aid, to generate ceeded in establishing their credentials with co- counterpart funds. Feasible when operation programmes and in channelling substan- the governments intend to sell tial sums to their territories. the goods in the domestic markets, such arrangements But what are the prospects for a systematic, allow the parties to establish Nicaragua how the proceeds are to be Rice cultivation planned utilisation of international funds in sup- distributed. It is possible for a supported by the port of local economic development? Department of Leòn part to be allocated to LEDA LEDA credit funds. The governments of developing countries often state that investments can be brought to the most By this procedure, Italian co-operation created the first disadvantaged areas only by mobilising the Central American LEDA, in resources of international co-operation. Such a Granada, Nicaragua, and choice involves a host of risks if it is not accompa- endowed its credit fund. The nied by consistent domestic investments and poli- European Union has earmarked cies. Not only can it consolidate discrimination, but counterpart funds to financing a rice production project carried it can spawn a confusing plethora of local measures out by the LEDA of the and projects having no real impact, artificially Department of Leon, Nicaragua. favour minority components of local society and, in Also Japanese co-operation, for the worst of cases, breed conflict and corruption. its part, has also oriented its counterpart funds (deriving from the sale of tyres) to The potential of LEDAs could be tapped if strengthening the credit fund of national decentralisation policies were to adopt the LEDA of the Department of them as instruments. A determined stance on the Ocotepeque in Honduras.

Resources for local economic development Resources for local economic development 108 109 5 ON FINANCING part of governments would make it possible to financing and technical assistance. Box 5 direct international resources to LEDAs in system- Another original way of financing a LEDA is to feed atic rather than haphazard fashion. An example is its credit fund with beneficiaries’ repayments of financial assistance from international co-operation. offered by two European industrial countries, the United Kingdom and Portugal, which have made it In El Salvador, in Apopa, in the northern zone of their policy to promote LEDAs and to channel the national capital, Italian Co-operation built 1,500 national and EU structural funds systematically to houses in the early 90s for as many families them. Not only is this possible but it is necessary in that had been victims of earthquake and war and were living in makeshift communities on developing countries too, guaranteeing access to the southern outskirts. opportunities and structural channels of financing The houses were donated outright by Italian now precluded to them. For example, national Co-operation, but the land on which they were guarantee funds reserved for the credit activities of built, made available by the National housing national networks of LEDAs could be created. The institute of El Salvador, had to be paid for over time by the beneficiary families. cost of such policies would certainly not exceed The matter was far from simple, but Italian those now incurred in every country to finance a Co-operation and the Government of El Salvador multitude of projects. decided that the payments by the families would Salvador be set aside for the community and used Artisan activity supported by the With strong national backing, the LEDAs’ tech- to strengthen local economic activities. credit fund of the The arrangement aimed at increasing the chances Apopa LEDA nical teams could concentrate more on their own of integrating the new families into the social and operations and produce results with greater economic life of Apopa. In addition, it heightened impact on the local economy. The never-ending the incentive for prompt repayment. quest for funding is a heavy burden on those now It was decided to create a LEDA for the northern in operation. It might have helped train operators zone of the city as beneficiary of the payments. The LEDA came into being with $10 million in the difficult art of “getting by”, but it has also of capital, which was gradually paid in. absorbed abundant energy to the detriment of Once the houses were built and the families moved the technical work necessary for development. in, the LEDA began to work, and it continues to recover payments for the land of Apopa, International co-operation could also play an transforming them into credit for local productive activities. Since the LEDA’s lending and services important role by resolutely promoting local eco- cover the entire Department, the communities that nomic development strategies and LEDAs as were moved to Apopa, originally considered tools for their realisation. This could reinforce outsiders, are now well accepted by the local governments’ determination to move ahead with people. decentralisation and simultaneously enhance the Interestingly enough, 80% of those who received deeds to the houses of Apopa are women. local impact of individual structures through

Resources for local economic development Resources for local economic development 110 111 The resources for Agency start-up and operations

ust how much does it cost to set up and open the reach of any international co-operation In summary, the following items will have to be Specialised technical assistance J a LEDA in a developing or transition country? project. purchased or otherwise acquired: Judging by the experiences to date in different The resources required for agency start-up and • 2 or 3 computers (with essential peripherals, This important expenditure refers to all the activ- countries, an investment of $450,000 is more than operations essentially have to cover fixed capital, software and modems) ities enabling the LEDA to acquire the requisite sufficient. Naturally, a larger investment - say, $1 start-up operating expenses, technical assistance • 1 printer know-how to operate on its own. Technical assis- million - can widen the scope of credit activities costs, internal training costs and, naturally, the • 1 photocopy machine tance permanently on call will be necessary and allow it to have greater impact on the local credit fund’s capital. • 1 fax telephone during promotion, establishment and start-up, economy and employment. • desks, conference tables, chairs, office spanning at least two years. Its cost is set out in The resources needed to set it up and for its oper- Fixed capital furniture and fittings, panels, cabinets the following table: ating costs do not vary greatly with the size of • a 4-wheel drive vehicle ($15,000-$20,000) RESOURCES MAN-MONTHS MINIMUM MAXIMUM credit fund. A golden rule, followed everywhere For a LEDA with a permanent staff of five tech- where necessary. COST COST to date, is to start small. nicians, start-up capital spending is moderate. SENIOR This serves as an antidote to the notion that The minimum investment is between $10,000 EXPERTS 4 MONTHS$30,000 $40,000 Start-up operating expenses JUNIOR nothing can be accomplished without immense and $15,000. Of course, its endowment can be EXPERTS 24 MONTHS$36,000 $72,000 resources; it also helps to limit operating costs further enriched with assets and instruments A LEDA usually begins to break even after its TOTAL 28 MONTHS $66,000 $112,000 and ensures that its operating structure expands made available by the members or by specific first year of operations. Its principal source of rev- along with its activities and according to specific donations. Ordinarily, its main office is made enue will be the interest accrued on the initial Alongside expert technical assistance for acti- needs as they arise. available by local public institutions, but even stock of capital in its credit fund, so during the first vating the LEDA and organising its day-to-day then the office will have to be functionally year its operating expenses need to be covered operations, it will probably also need specific Quite often, before a LEDA is activated, meet- autonomous to ensure its visibility and to guar- with an ad hoc investment of between $50,000 advice on several activities. These advisory ings and contacts with locally active international antee its operational needs. Whatever the and $120,000, depending on the circumstances. services can be provided by international experts co-operation organisations will have taken place. arrangement, the office must be clean and attrac- This includes wages (some 50-60% of the total), or by qualified technical personnel available For example, in Mozambique, the LEDA of tive, with notice boards and panels displaying its depreciation, utilities and supplies, and expenses nationally. The most frequent consulting needs in Manica Province will be activated by a human functions and current projects. It should also for initial activities. the start-up period concern: development programme with the technical and have a service desk for contacts with the public It is worth stressing that the LEDA needs to • study of national legislation to define the financial participation of German and Finnish right from the start. equip itself with modern communication tech- LEDA’s legal personality Co-operation. In Santo Domingo, in Valverde A small library is also important, with collections nologies in order to be able to link up with • drafting the organisational model, by-laws Province, the LEDA will be activated by a human of national laws and regulations, rules of domestic and international networks from the and rules development programme with the technical and commerce, relevant periodicals, and training and start. Using Internet technology is cheaper than • preparation of local development plans financial participation of the EU. informational texts. In LEDAs operating in vast communicating by telephone or fax, speeds up • detailed planning and testing of models of This strategy of collaboration increases the funds territories where travel is difficult, its technicians the search for new local development opportuni- economic animation available and reduces the investment of each of will need motor vehicles for technical assistance ties and is indispensable for the training of per- • arrangements for the disbursement of credit the promoters. in the field. This adds another $15,000 to $20,000 sonnel. The activities financed under the heading • preparation of business plans for the In any event, the investment required is within to the initial budget. “start-up” are described in chapter 3. enterprises to be financed

The resources for Agency start-up and operations The resources for Agency start-up and operations 112 113 Internal training given here are purely indicative. The cost of running seven courses for 15-20 This refers to all the training activities required to participants each on the topics listed above can provide basic skills and know-how to agency staff range from a minimum of $30,000 to a maximum and to representatives of member institutions and of $45,000. This covers around 30 instruction associations. Training courses and study tours days, room and board for around 600 student- will have to be organised and documents and days and instructional material. operations’ manuals produced. The training material and operations manuals are Training mainly concerns the innovative aspects essential for consolidating the in-house assets. of the work: Ordinarily, they cover the economic animation, pro- • local development models ject screening and selection procedures, credit man- • economic development planning agement and control procedures, and internal man- • administrative, financial and operational agement procedures. Between $10,000 and $15,000 management should be budgeted to produce this material. • credit management • product marketing Field trips to well-established LEDAs are • networking and institutional relationships extremely useful, giving their personnel a chance • use of information and communications tech- to see and analyse the various aspects of its opera- nology. tions in real life - an experience that no amount of theoretical training can match. A two-week trip is Salvador • setting up the internal and external centres on the fundamentals of its operations; often sufficient. If money permits, the trip can Development activity designed for information system subsequently, it will most often concern more It is advisable to use local experts for training include different experiences, covering, for the technicians of the • formulation of projects. complex matters, such as formulating projects in activities whenever possible, bringing in experts example, both developing countries and industrial- Department of Chalatenango specialised sectors or setting up and installing from abroad only when strictly necessary. This countries. LEDA and Specialised technical assistance provides specific innovative technologies. When LEDAs have helps to limit training costs and, more important, When this is not possible, it is better to seek com- representatives of local institutions and items that are indispensable (by-laws, develop- attained a good level of operation, they are taps domestic resources. In many cases collabora- parison with the working methods operating in associations ment plans, credit arrangements, etc.). But it also usually networked with specialist organisations tive relationships have been established with the similar local conditions. The costs of study tours increasingly becomes a vehicle for learning by providing qualified technical assistance at a relevant faculties of national universities. This too vary enormously with distance. Transportation is doing. In fact, all the related activities must be moderate cost. helps to tap national resources, spread the the largest single item. carried out in support of LEDA personnel, Nevertheless, it is essential for them to set aside a message and methods of local development and A five-day trip in the same continent for five per- enabling them gradually to stand on their own. small fund for outside consulting services when ensure sustainability. sons will cost around $10,000; the cost can rise to The need for outside advice and assistance is the need arises, so as not to miss out on inter- $20,000 for intercontinental travel. The relatively permanent. During start-up it is sharpest and esting opportunities. Training costs can vary widely, so the estimates high expense can be justified by the great returns

The resources for Agency start-up and operations The resources for Agency start-up and operations 114 115 6 SOME CALCULATIONS ON THE ECONOMIC SUSTAINABILITY OF A LEDA in terms of participants’ training. activities The credit fund A synthesis of the investment needed to establish a A LEDA achieves economic sustainability when its If E is equal to $100,000. Interest rates also vary greatly, LEDA is summarised in the following table: operating budget breaks even, with revenues equalling but they are generally close to those charged by local costs. Cost items are wages (generally between 50% and banks. In our case let us suppose the interest rate is 15% The initial fund for credit activities can range SET-UP AND START-UP COSTS MINIMUM MAXIMUM 60% of the total), depreciation, utilities and supplies, and (that is: I = 0.15), a figure in line with the experience we from $250,000 to $700,000, as shown in the table expenditure for activities. Revenues consist of interest on are discussing. below detailing formation and start-up costs. START-UP OPERATING CAPITAL $ 50,000 $ 120,000 the credit fund and income from service contracts. CAPITAL FOR CREDIT FUND 250,000 700,000 Again, the figures are purely indicative; the actual FIXED CAPITAL 10,000 30,000 A well-run LEDA tries to decrease the risk of loan default. requirements will vary with local conditions. The TECHNICAL ASSISTANCE 70,000 115,000 It should be emphasised that the interest contributions, The actual record shows the repayment rate ranges TRAINING 50,000 80,000 which represent a revenue for the LEDA, are only a part between 80% and 95%. In this example we shall assume TRAVEL AND SUNDRY 10,000 35,000 fund’s size helps to determine its potential of the sum paid by the clients. it is 85% (that is: R = 0.85). economic and employment impact on its territory TOTAL $440,000 $1,080,000 The total interest paid by the client covers capital A LEDA that has just opened its doors will probably not and depends on the objectives that its promoters devaluation due to inflation (generally it is the same as yet be able to win service contracts from other and founding members have set. However, it is the inflation rate), the remaining portion covers the organisations, but it will gradually develop this capacity as advisable not to plan too large a fund during the administrative costs of the bank. its reputation grows and its results become visible. running-in period, so as to avoid swamping the The equation on which the budget is based is the If proceeds from contracts cover 10% of total expenses, LEDA and give it time to set up a credit system following: then all the terms are known except FC, which is simple adequate to specific local conditions. Box 6 to calculate: FC x R x I + P = E The fund’s size also affects the economic sustain- where E - 0.10E = 90,000 FC is the financial capital for credit ability of the LEDA as an organisation. As we R is the repayment rate FC = 90,000 / R x I = 90,000 / 0.85 x 0.15 have seen, during the LEDA’s running-in period I is the interest rate, net inflation rate and bank charges = 90,000 / 0.1275 = 705,802 its chief source of income is the interest earned on P is proceeds from service contracts the initial stock of capital in the credit fund. E is annual operating expenses. Let’s take another example, this time setting better Bearing this in mind, the minimum of $250,000 conditions. The LEDA’s financial balance depends on its financial If the interest rate is unchanged at 10%, applies in the following circumstances: capital multiplied by the interest rate. P = 0.20E and R = 1, we have: • limited target population Clearly, if its financial capital declines because loans are (numbering less than 80,000 and not repaid, the balance will decline. FC = 80,000 / 0.15 = 533,333. not dispersed over the territory, thus precluding the need for branch offices, Some examples can be used to illustrate the equation and Bear in mind that if a LEDA’s service contracts exceed a will serve to determine how large the stock of financial given threshold, it will have to take on more fixed staff. which involve an increase in permanent staff) capital needs to be to ensure economic sustainability. Thus, E is likely to rise when P is greater than 0.20E. • low national wage level Of course, conditions vary from country to country, so the (to avoid exceeding $50,000 a year examples are purely indicative. If we repeat the above examples, this time, however, in operating expenses) setting E equal to $50,000, which can be deemed the • minimum outlays for international experts First, it is necessary to determine the level of annual minimum for operating expenses, the values of FC work operating expenses, the variable E. out at 352,941 and 266,333 respectively. • availability of local experts for training

The resources for Agency start-up and operations The resources for Agency start-up and operations 116 117 An integral part of the promotion THE PRINCIPLE CLAUSES operating rules. financial resources (initially THE OPERATING RULES ferent ethnic groups. of CeBEDA, the LEDA of CONCERN: CONCERN: Travnik Canton in Bosnia, was the endowment of a $300,000 fund for credit operations. To OBJECTIVES BENEFICIARIES $300,000) from the Human ADMINISTRATION OF THE FUND CONDITIONS FOR THE LOAN ensure efficient and effective OF THE AGREEMENT Small and medium-sized entre- Development Programme, pro- The bank opens three sub- They cover projects requiring lending, an agreement was signed Formation of a financial assis- preneurs, with priority to vulner- vides technical assistance for man- accounts. The funds necessary for short-term finance (up to 20,000 by the United Nations LEDAs tance programme for access to able groups: refugees, displaced aging the credit fund and partici- the first loans are deposited in the marka for 1 year, with a 3-month involved, CeBEDA and Auro credit on the part of specific persons, women, unemployed pates in the credit committee. first. The second sub-account is grace period and 18% interest to Bank, selected as the most reli- beneficiaries creating or strength- youths, the disabled DURATION OF THE AGREEMENT used for loans disbursed between be deducted) and long-term loans able and best-suited bank in ening small and medium-sized CREDIT COMMITTEE The agreement ceases upon the third and the sixth month of (up to 50,000 marka for 2 years,

t Travnik for small loan business. businesses. Formed by representatives of the written notification of such inten- operations and bears interest of with a 6-month grace period and i The agreement is divided into FINANCIAL RESOURCES UN LEDAs involved, CeBEDA tion by one of the parties. At the 4% a year. The third sub-account 15% interest to be deducted). d three parts. Contributions from the Human and Auro Bank, charged with ap- termination of the agreement, the is earmarked for loans disbursed DISBURSEMENT e

r Development Programme and proving loan applications, acting fund is returned to the ILO. subsequently and bears interest of By crediting of a current account

c any additional funds deposited on proposals from CeBEDA, and 5%. The programme’s operating or, in exceptional cases, in cash. The premises specify the charac- in a special current account. If approving the bank’s financial costs are managed on a separate RECOVERY r teristics of the Human Develop- after the first year the default analyses. current account, to which the Handled by CeBEDA together o

f ment Programme that promoted rate does not exceed 8%, the OBLIGATIONS OF THE PARTIES interest accrued on the sub- with the bank, according to

t the LEDA, the role of UNDP/ deposit is to be automatically UNOPS gives technical and accounts is credited, being drawn normal banking procedures. UNOPS, the provenance of the transformed into a guarantee financial assistance to the LEDA, on to cover the costs of banking When the LEDA considers that n t e funds (the Italian Government), fund. participates in the credit commit- services, to maintain the real value the beneficiary is not entirely the nature of the LEDA and its ob- USE OF THE FUND tee, and transfers the methodol- of the fund and for CeBEDA’s responsible for the default, the n m

e jectives, the role of the ILO and Credit to manufacturing activi- ogy for selection and evaluation of budget. bank may be asked to reschedule

e the rationale for the involvement of ties, agriculture and forestry, projects for financing. QUALIFICATION AND LOAN repayment. e

m Auro Bank. small and medium-sized non- The bank participates in the APPROVAL OTHER BANKING SERVICES r

e farm businesses, and services credit committee, activates loans Based on the business plan evalu- Keeping of loan accounts, infor- g g (excluding restaurants, bars and to beneficiaries and keeps the ated by CeBEDA and the determi- mation on recoveries, preparation a a

the like) loan accounts, does not substitute nation of beneficiary qualification, of a four-monthly report, updating RESTRICTIONS funds paid to cover its own credit which the LEDA reaches by means of CeBEDA staff on the techniques n n Credit is not granted for schemes, monitors the progress of of consultations with the village and procedures used by the bank. a a

purchases of used machinery that the programme and acts to councils. Loans also require the REMUNERATION OF BANKING : has not been reconditioned, to recover loans. presentation of personal guaran- SERVICES m x finance beneficiaries’ debts, for CeBEDA assists applicants for tees (by at least two entrepreneurs 1% of the total amount of cred- e

d the rental or purchase of land, for credit, including the preparation in support of the proposal) and it approved, plus 0.2% of un- n

n recovery of past investments. of business plans, participates in approval of the credit committee. withdrawn credit (for monitor-

n CONDITIONS the credit committee, monitors Beneficiaries must be resident in ing and reporting), plus 0.4% of u f A Established by the Human loans and prepares a four- the townships of the Canton and total loan repayments. Development Programme and monthly report. the funds must be fairly distributed CeBEDA and specified in the The ILO endows the bank with among the townships and the dif-

118 119