Improving project monitoring and controlling case of rural finance project funded by world bank

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Le Thi Thu Trang IMPROVING PROJECT MONITORING AND CONTROLLING: CASE OF RURAL FINANCE PROJECT FUNDED BY WORLD BANK Major: Business Administration Code: 60 34 05 Master of business administration thesis Supervisor: Dr Ta Ngoc Cau Hanoi – 2011 TABLE OF CONTENT ACKNOWLEDGEMENT i ABSTRACT ii TÓM TẮT v TABLE OF CONTENT viii LIST OF TABLES x LIST OF FIGURES xi LIST OF ABBREVIATIONS xii INTRODUCTION .1 The thesis necessity Objectives of the thesis: .3 Scopes of the thesis: 4 Research methodology and approaches: Data sources: Significance: .6 Expected results: The thesis structure CHAPTER 1: LITERATURE REVIEW AND THEORETICAL FRAMEWORK 1.1 Literature review 1.2 Theoretical framework .13 1.2.1 The concept of project monitoring and controlling 14 1.2.2 Key parts and tasks of M&C system during the project cycle .20 viii 1.2.3 Process M&C system: 21 1.2.4 Necessary conditions and capacities for M&C successs 28 CHAPTER 2: CASE STUDY AND FINDINGS 33 2.1 Case study 33 2.1.1 Overview of "Rural Finance Project" funded by WB and its performance 33 2.1.2 M&C system of RFPII: Real situation and Problems 47 2.1.3 M&C system of RFPII: Causes of M&C problems .67 2.2 Limitations 79 CHAPTER 3: CONCLUSIONS AND RECOMMENDATIONS .80 FOR M&C SYSTEM OF RURAL FINANCE PROJECT 80 3.1 Conclusions 80 3.2 Recommendations for developing necessary conditions and capacities M&C improvement of RFPIII 81 3.2.1 Building human capacity for M&C: .82 3.2.2 Introducing incentives for implementation of M&C 84 3.2.3 Revising a clear organizational structure 85 3.2.4 Adopting an integrated Project Management Information System 86 3.2.5 Allocating adequate budget for M&C 89 REFERENCES 90 APPENDIX 93 ix LIST OF TABLES Tab 1.1 Monitoring and Controlling comparison 16 Tab 2.2 Credit lines to PFIs (As of 31st Dec., 2008) 40 Tab 2.3 Compliance of PFIs with accreditation criteria at Project Completion 41 Tab 2.4 Key Performance Indicators and Results of RDFI .43 Tab 2.5 Disbursement of RDF through PFIs 45 Tab 2.6: Key Performance Indicators and Baselines of RFPII 52 Tab 2.7: Main causes of M&C system's problems under RFPII 78 x LIST OF FIGURES Fig 1.1 Key M&C tasks 22 Fig 2: Process of M&C system .25 Fig 2.1: Participating partners under Rural Finance Project 37 Fig 2.2 for the implementation structure and stakeholders of RFPII .39 Fig 2.3 Cumulative Planned and actual disbursement progress .47 Fig 2.4: Cumulative disbursement lags in Vietnam, regional and global scale47 Fig 2.5 M&C organization under RFPII (2003-Sep2009) 55 Fig 2.6: Fishbone diagram of possible causes leading to problems of project performance under RFPII 69 xi LIST OF ABBREVIATIONS ACB Asia Joint Stock Commercial Bank AGRIBANK /VBARD Vietnam Bank for Agriculture and Rural Development BIDV Bank for Investment and Development of Vietnam EAB East Asia Joint Stock Commercial Bank GD General Director IAS International Accounting System IDA International Development Association IDP Institutional Development Plan IT/IS Information Technology/Information System JSCB Joint Stock Commercial Bank LAN Local Area Network M&C Monitoring and Controlling MFIS Micro-finance Institutions MIS Management Information System MLF Micro Lending Fund MOF Ministry of Finance MOU Memorandum of Understanding MPI Ministry of Planning and Investment NAB North Asia Joint Stock Commercial Bank OECD Organization for Economic Cooperation and Development PFIs Participating Financial Institutions PMIS Project Management Information System PMU Project Management Unit PhNB Southern Joint Stock Commercial Bank RDF Rural Development Fund RFP Rural Finance Project SAR Staff Appraisal Report SBV State Bank of Vienam SDR Special Drawing Right xii SIDA Swedish International Development Cooperation Agency SMEs Small and Medium Enterprises SRV The Socialist Republic of Vietnam TA Technical Assistance TCIII Transaction Center III (BIDV) UNDP United Nations Development Program VAS Vietnam Accounting System VIB Vietnam International Bank WB World Bank WBO Wholesale Banking Operation xiii INTRODUCTION The thesis necessity In 2010, Vietnamese economy has continued to grow at an average rate of 6.7% although the global economy has been recovering more slowly The macroeconomic situation has improved especially public debt which, at about 56.7% of GDP, is at the safety level Facing with the demand of making use of different resources to boost socio-ecomomic development in whole country, Vietnam have broadened international relationship, focusing on attracting, receiving and managing well Official Development Assistance (ODA) projects funded by international financial organizations such as World Bank (WB), Asia Development Bank (ADB), Agence Franỗaise de Dộveloppement (AFD), International Fund for Agricultural Development (IFAD), European Investment Bank (EIB), Kreditanstalt für Wiederaufbau (KFW), etc., Actually, WB is the earliest donor; the World Bank‟s funded projects are by far the largest capital projects with high degree of influence and thus are most extensive in typical field of management of ODA projects in Vietnam Thanks to many open and incentive policies by the Government recent time, this growing economy with steadily increasing GDP is acquiring a great amount of investment capital In response to this demand, besides capital accumulated internally, an increasing flow of official development assistance capital (from US$ 1,810 million and US$ 410 million of committed and disbursed amount respectively in 1993 to more than US$ 8,0 million and US$ 3,5 million in 2010) [19] (see the ODA capital in Vietnam in Appendix No.5) has been pumped into various aspects of Vietnamese economy by international donors and non-governmental organizations through Development Agreements with the Government of Vietnam The Rural Finance Projects under Development Credit Agreements in 2003 and 2009 for Credit No 3648-VN (US$ mil 200 equivalent) and 3884-VN (US$ mil 200 equivalent) respectively entered into the Government of Socialist Republic of Vietnam (SRV) and International Development Association (IDA) with objective of assisting Vietnam in its efforts to improve living conditions in the rural areas are three of the most biggest projects of the same kind in Vietnam The two projects have been implemented in the form of wholesale banking operation (WBO) They have introduced the concept of WBO for the first time in Vietnam Because of this new nature, the project monitoring and controlling (M&C) have become a very essential factor to a successful project performance together with others factors ranging from objective to subjective ones It is project management unit (PMU) nominated by Bank for Investment and Development of Vietnam (BIDV) called Transaction Center III (TCIII) responsible for managing both Rural Finance Project II (RFPII) and Rural Finance Project III (RFPIII) In general, M&C is a task, which is so crucial but “is not performed well in most organizations” and “is one of the most neglected areas of project management” [10, p359] M&C is necessary because it possesses method to analyze how well a completed task has been performed This can also be used to evaluate progress on unfinished work if one examines data for a specific period and makes estimates of work completed to date More over, M&C provides managers and other stakeholders with continuous feedback on implementation and identifies actual or potential successes and problems as early as possible to facilitate timely adjustment to project operation Despite the essential role of M&C, there still are some mistakes commonly made such as: having some prejudice before monitoring and controlling, lack of updated and necessary information for M&C, evaluating unreasonably, unclear objectives, unreasonable criteria, unreasonable monitoring and controlling organizing In addition, because RFPIII has been already become effective, one of the major tasks that implementing agency has had to undertake in performing its WBO as an apex bank is to implement this project successfully within agreed schedule According to annual Consultative Group Meeting 18th for Vietnam (Dec., 2010), the project M&E as well as project controlling in Vietnam in general have been concerned as one of the problem which needs to be improved in the coming time, especially for projects/program in agricultural and rural fields In addition, there are many essays or rearches about ODA project management or project monitoring and evaluating in Vietnam recently, specific research mentions to however there are no monitoring and controlling WB‟s loan projects particular those have been carried out through commercial banks aiming at supporting for agriculture and rural development For the above existing reasons, a research on M&C is very important to a successful performance of not only Rural Finance projects funded by World Bank but also for the alike, which have been getting increased in numbers recently Objectives of the thesis: This study aims at reviewing, analyzing M&C system of RFPII to find out its problems that have affected adversely to project performance and drawing lessons for improvement of the system contributing to better performance of RFPIII These objectives will be achieved by performing the following tasks:  Making clear the concept and fundamentals of M&C  Analyzing M&C system of RFPII to find out its obstacles and problems in project implementation  Proposing suggestions for improving M&C system in RFPIII To achieve objectives of the study, those tasks need to be done to answer the following questions:  What are the main tasks of project M&C?  How can M&C contribute to project performance?  How can a project be monitored and controlled?  What does the M&C system of the RFPII undertake as planned and what are its main obstacles and problems? 10 At Completion, the Project‟s outcome will be classified as Highly Satisfactory, “Satisfactory” or „Highly Unsatisfactory‟, depending upon the extent to which it has reached its objectives It is proposed to use criteria base on the most critical Key Performance Indicators (KPIs) as a major input in making this classification Consequently, 70% of the project‟s classification would be determined by achievement of the pre set indicators shown in Appendix A, and 30% based on the qualitative assessment of the Implementation Completion Reporting team This latter assessment will pay particular attention to the achievement of improved outreach of the Banking System to the private sector, increased confidence in the Banking System, the way in which BIDV has adapted to change over the project period and the overall management of the project 11 Calculation Details Calculation would be made by assigning a weighting of 70% to the actual KPI achievement and 30% to the qualitative assessment Assuming that the project were rated as Unsatisfactory on the qualitative assessment and that the achievement of KPIs were as in the example given in appendix A, the calculation would be as follows Weighting Numerical Score in Example 70% 3.04 Objective KPI Achievement (see Appendix A) Qualitative Assessment of ICR Mission on other factors Total Grade in Example Weight times Score of Grade 2.128 30% U=2.0 0.600 100% 2.728 Note: HS = 4; S = 3l U = 2; and Hu = With a weighted average score of 2.728 the project would be classified as Satisfactory overall (2.728 being closer to than to 2) Appendix A Key Performance Indicators at Mid Term Indicator Mid Term Completion Importance Benchmarks for Mid Teem Target Target Weighting If less than target End 2010 End 2014 Credit Component No of Active Participating PFIs/MFIs A B 45% 15 25 8% 11 Balance of RDFIII Loans Outstanding (VND Bil) 1.000 2.400 10% 700 400 Number of RDFIII Sub - Loans (Cumulative) 40.000 90.000 5% 20.000 10.000 3.0% 2.0% 5% 4.0% 6.0% Max % RDF Loans Past Due to PFIs Incremental Jobs Created - RDF (Cum) 25.000 50.000 7% 15000 5.000 Number of MLF Sub-Loans (Cumulative) 25.000 85.000 5% 15.000 8.000 2.0% 2.0% 5% 3.5% 7.0% Max % MLF Loans Past Due Loans Institutional Strengthening – BIDV IAS & Loan Classification System in Place 40% Y Y 5% Y Y Equity to Risk Assets (CAR) to exceed 6.5% 8% 10% 7.0% 5.0% Net Past Dues to Equity to be less than 1.5% 15% 5% 20% 255% 3% 5% 4% 1% 0% Real Net Profit as % Eaming Assets to Exceed 0.7% 0.9% 4% 0.3% 0.0% Proportion of State Planning Loans less than 13% 6% 4% 15% 20% Proportion Private Deposits above 40% 50% 4% 30% 20% Increase in % of yt+VHD Liabilities a 15% 25% 4% 20% 10% Profit in Real Terms (+ve ROE) Strengthening VBARD & PFIs/MFIs 15% VBARD Equity to RA (CAR) to exceed 7% 8% 3% 7.0% 5.0% VBARD Net PDs to Equity to be less than 15% 15% 3% 20% 25% VBARD Net Real Profit as % Equity (ROE) 3% 5% 3% 1% 0% All PFIs/MFIs Incr in % VHD Liabilities a 15% 35% 3% 20% 10% All PFIs increase in real volume of lending to non State Sector a 60% 150% 3% 40% 20% Appendix A Key Performance Indicators at Mid Term Indicator Benchmarks for Completion If less than target A B Example at Completion Actual Out-turn Bank Grade Number Grade Grade X Weight Credit Component No of Active Participating PFIs/MFIs 15 16% S 0.24 Balance of RDFIII Loans Outstanding (VND B) 2.000 1.500 2.400 HS 0.40 Number of RDFIII Sub - Loans (Cumulative) 60.000 30.000 70.000 S 0.15 2.0% 4.0% U 0.10 Incremental Jobs Created - RDF (Cum) 35.000 20.000 60.000 HS 0.28 Number of MLF Sub-Loans (Cumulative) 50.000 15.000 10.000 HU 0.05 3.5% 7.0% HU 0.05 Y Y Y HS 0.20 Equity to Risk Assets (CAR) to exceed 8% 6% HS 0.40 Net Past Dues to Equity to be less than 20% 25% 10 HS 0.20 Profit in Real Terms (+ve ROE) 3% 0% -0.1 HU 0.04 Real Net Profit as % Eaming Assets to Exceed 0.6% 0.0% -0.1 HU 0.04 Proportion of State Planning Loans less than 10% 15% HS 0.16 Proportion Private Deposits above 35% 25% 52 HS 0.16 Increase in % of yt+VHD Liabilities a 25% 15% 27 S 0.12 VBARD Equity to RA (CAR) to exceed 8% 6% 10 HS 0.12 VBARD Net PDs to Equity to be less than 20% 25% 10 HS 0.12 VBARD Net Real Profit as % Equity (ROE) 3% 0% -2 HU 0.03 All PFIs/MFIs Incr in % VHD Liabilities a 25% 15% 30 S 0.09 All PFIs increase in real volume of lending to non State Sector a 100% 50% 120 S 0.09 Max % RDF Loans Past Due to PFIs Max % MLF Loans Past Due Loans Institutional Strengthening - BIDV IAS & Loan Classification System in Place Strengthening VBARD & PFIs/MFIs a From a December 2012 benchmark level Weighter Average Equivalent nearest grade 3.04 Appendix no PROJECT SUPERVISION PLAN – RFPII Source: World Bank (2010) Staff Appraisal Report (SAR) Socialist Republic of Vietnam Rural Finance Projet Report No 0000357-VN (p69-70) Socialist REPUBLIC OF VIET NAM RURAL FINANCE PROJECT PROject sUPERVISION PLAn IDA's Supervision Inputs into Key Activities The staff inputs indicated in the table below are in addition to the regular supervision needs at headquarters for review of progress reports, procurement actions, and other requirements During the project implementation period, it is estimated that total IDA supervision staff and consultant resources would be 77 staff weeks, of which 57 staff weeks would be in the field and the balance at headquarters An indicative supervision plan is given in Table TABLE 1: INDICATIVE SUPERVISION PLAN Approximate Date Activity Skill Requirement July 2002 Launch Workshop Task Manager PFI Accreditation Review Banking Specialist Finalize Tors for Studies Micro-Finance Specialist Institutional Development Financial Institutions Review for PP Analyst Implementation Progress Task Manager October 2002 Staff Input Banking Specialist March 2003 Review Training Training Specialist PFI Accreditation Task Manager Banking Specialist Outreach Program Review Microfinance Expert Progress of Studies and Training Specialist Training August 2003 Overall Progress Task Manager Bank for the Poor Review Microfinance Specialist Accreditation Review Bank Specialist Approximate Date Activity Skill Requirement December 2004 Overall Progress Task Manager Progress of Studies and Training Expert Staff Input Training April 2005 September 2005 January 2006 Review Audit Quality Audit Specialist Overall Progress Task Manager Review Fund Projections Financial Analyst Data Collection and Analysis MIS Expert Overall Progress Task Manager Accreditation Review Banking Specialist Outreach Program Review Microfinance Specialist Overall Progress Task Manager Progress of Studies and Training Specialist 5 Training May 2007 October 2008 March 2009 Overall Progress Task manager Institutional Development Banking Specialist Overall Progress Task Manager Outreach Program Review Microfinance Specialist Overall Progress Task Manager ICR Banking Specialist 3 Appendix no REPORT FORMS UNDER RFPII A- REPORT FORM SUBMITTED TO PMU BY PFI’s Form 1: Lending and collecting RDF Sub-loans Form 2: Sub-loans Statement of Expenditures Form 3: Overdue Analysis (Form 2C) Source: World Bank (2002) RDF and MLF Policy Manuals B- REPORT FORM SUBmitteD TO WB BY PMU Quarterly progress form Quarterly progress Report No.TCIII-3648, Quarter IV Dec 2009 Source: TCIII (2009) Quarterly progress report No.TCIII-3648 by TCIII Form 1: Name of PFI LENDING AND COLLECTING RDF SUB-LOANS (Quarter Year .) I Lending - collection result, up to: (specifies the date of report submission) Lending Unit: VND Mill Content Short Medium, long term term Short Medium, long term term Total Accrued from the project beginning to the Quarter beginning Development during the quarter Accrued to the quarter’s end Loan Collection Content Total Accrued from the project beginning to the Quarter beginning Development during the quarter Accrued to the quarter’s end II RDFIII’s lending mix 2.1 RDF’s lending mix during the quarter by loan duration RDF II total loans: VND Of which: - Short term: VND; ………% over the total - Medium & long term: VND; ………% over the total 2.2 By sub-loan size Development during the Quarter Sub-loan size Duration No of sub- Short Medium & Accrued from the Project beginning Total No of amount sub- Total Short Medium & amount loans term long term loans term long term Up to 20 Mill VND From 20 to 50 Mill VND From 50 to 500 Mill VND Over 500 VND Total: 2.3 By nature of sub-projects (form 2a); 2.4 By sectors (form 2b); 2.5 By nature of investment; Unit: VND Mill I Content Short term No of subloans Amount Medium term No of sub- Amount loans Total No of subloans Amount New investment Expansion Total 2.6 Overdue (form 2c) 2.7 Obstacles during the RDFII lending 2.8 Summarize the lending – collection result during the quarter 2.9 Proposals recommendations: (toward PMU) ………, date……….month…….year………… Originator General Director Director (sign, full name) (sign, full name and seal) Form 2: PFI: Address: Sub-loans statement of expenditures (Applicable for RDF Date of origination: From date /…/ to…/… /….) No, of SOE: Loan duration:………………… Unit: General information Cost and disbursement Name of subAddress of sub- No of sub- Purpose of sub- Total project Amount released Duration PFI additional borrower borrower loan project cost by PFI financing Province: A… I Cultivation N Van A N Van B Total II Animal husbandry N Van A N Van B Total III Aquaculture N Van A N Van B Total IV Processing N Van A N Van B Total Date of PFI’ s releasing 10 Request for RDF II 11 Name of subborrower Province: A… V Service N Van A N Van B Total VI Other N Van A N Van B Total other Total province A Province ….B … … General information Cost and disbursement Address of sub- No of sub- Purpose of sub- Total project Amount released Duration PFI additional borrower loan project cost by PFI financing Date of PFI’ s releasing 10 Total province B Grand total Note: Original documents maintained at: Originator Supervisor Data…….month……… year General Director (Director) PFI (sign & seal) Request for RDF II 11 Form 3: Form 2c Name of PFI: Overdue analysis Quarter… year… Unit: VND 1.000 USD: 1.00 Analysis Name of project (1) (2) Total overdure (3) Recoverable (4) Total Business losses (5) (6) Cease production (7) Wind-up Other reasons (8) Data……month…… year II Originator III Supervisor General Director (Director) PFI (sign, full name) (sign, full name) (sign, full name and seal) (9) b- report form submitted to wb by TCIII SOCIALIST REPUBLIC OF VIETNAM BANK FOR INVESTMANT AND DEVELOPMENT OF VIETNAM TRANSACTION CENTRE III Rural FINANCE PROJECT IDA Credit No 3648-VN Quarterly Progress Report No.TCIII-3648 Hanoi, Dec 2009 TABLE OF CONTENT Physical Progress 1.1 Rural Development Fund 1.1.1 Accreditation - Credit Line 1.1.2 On-lending interest rate 1.1.3 Accounting- Auditing 1.2 Monitoring and Supervision 1.3 Micro finance Loan Fund 1.4 Technical Assistance and Procurement Financial Progress - Sub-loans classification Evaluation and remaining activities 3.1 Evaluation 3.2 Remaining Activities Tables Table l PFIs‟ Credit Lines Table Interest Rates Table PFI's Financial indicators Table RDF's and MLF' s Disbursement Table PFIs' Borrowings and Repayments Table Summary of sub-loans Table 6a Sub-loans by lending terms Table 6b Financing Mix of Sub-loans by PFIs Table 6c Sub-loan by PFIs and Economic Sectors MAP OF RFPII PARTICIPATING PROVINCES Appendix no LIST OF INTERVIWEES No Name Bank Division I Central level Mr Quach Hung Hiep Ms Xiaolan Wang II Senior level Ms Pham Thi Mai Arccreditation Division Ms Nguyen Hoa Mai Accounting Division Ms Pham Minh Hue Mr Nguyen Manh Hung M&E Division Ms Dao Thu Thuy Environment Division III WB BIDV – TCIII - PMU Director of TCIII RFP Manager-WB Hanoi Appraisal Division Middle level Mrs Le Thi Thanh Hang Mr Do Ngoc Quynh IV BIDV Agribank BIDV Head Office Chiep of PMU Agribank Vice Manager of Manetary Business Department Operating level Mr Nguyen Truong Son Agribank Bac Giang In charged of RFP managing unit Mr Phan Van Thuong Agribank Thai Binh In charged of RFP managing unit Mr Duong Hong Diep Agribank Daklak In charged of RFP managing unit Mrs Le Thi Hoa TCB Nam Dinh Credit Management Mrs Nguyen Thi Lai PhNB Phu Tho Captal Source Departmet ... the unsatisfactory project performance 2.1 Case study 2.1.1 Overview of "Rural Finance Project" funded by WB and its performance 2.1.1.1 Brief of ideas and objective of RFPII and RFPIII Aiming... concept of project monitoring and controlling with separate definition of monitoring and controlling, they are actually interactive and should be seen as an integrated system of reflection and communication... parts of this chapter Chapter will examine M&C and its problems in case of Rural Finance Project II (RFPII) funded by WB The overview of RFPII will provide information on ideas and objectives of