EVALUATION:

RURAL FINANCES INITIATIVE

Baseline Impact Evaluation: Executive Summary
February 2018

This publication was produced by Management Systems International, a Tetra Tech Company, for review by the United
States Agency for International Development.

. CENTRO NACIONAL DE CONSULTORÍA FOR USAID

EVALUATION:
RURAL FINANCES INITIATIVE
Baseline Impact Evaluation: Executive Summary

Management Systems International

A Tetra Tech Company
200 12th Street South
Suite 1200
Arlington, VA 22202, USA
www.msiworldwide.com

February 2018
Contract AID-514-C-13-00003
USAID/Colombia Evaluation and Analysis for Learning (EVAL)

DISCLAIMER

The views expressed by the authors in this publication do not necessarily reflect the opinions of the
United States Agency for International Development or the United States Government. The
contents of this study are the sole responsibility of Managemente Systems International/Tetra Tech.
SYNTHESIS
The baseline evaluation of the Rural Finance Initiative (RFI) has two purposes: (1) to serve as a point
of reference for measuring the changes derived from the intervention in the quality, access, efficiency
and cost of financial services; and (2) to analyze underlying variables that influence the effectiveness
of the Initiative.

The evaluation team selected five municipalities in which the Initiative intervened in the first months,
and five control municipalities whose function is to show what would have occurred in the treatment
municipalities without the intervention of the RFI. The team conducted 3,047 surveys and 56 in-
depth interviews.

The analysis produced the following conclusions and recommendations:

Conclusions
1. 45% of the population in treatment municipalities have financial products.
2. 25% of the population have access to cell phone and internet signals.
3. There is a high level of ignorance about the existence and operation of financial products.
4. The requirements for obtaining bank loans, such guarantees and co-signers, have a negative
relationship with the use of this product.
5. The population uses services in the informal financial sector, such as “gota a gota” (“drop by
drop”), because they are more flexible than services in the formal sector.
6. Compared to banks, cooperatives serve a larger percentage of the rural population and
micro-entrepreneurs because they are more flexible.
7. Cash is the most used means of payment for cultural reasons, and because most merchants
do not accept other means of payment.
8. Treatment municipality inhabitants mostly use traditional forms of savings, such as piggy
banks and animal purchases.
9. Existing insurance does not include crop protection. Users are distrustful of insurance,
because 65% of inhabitants who filed a claim received a rejection.
10. Women’s level of savings is similar to men’s, but they use a greater proportion of traditional
forms of saving. In addition, women receive smaller loan amounts than men, although they
report less default on their loans.
11. Transfer and remittance products are common, and are offered mainly by companies that
specialize in transfers.
12. The cost of travel from rural areas to financial institutions is high – $29,375 in treatment
municipalities.
13. For more than 45% of rural inhabitants in the treatment municipalities, it takes more than
one hour to travel to the nearest financial institution.

Recommendations
1. The RFI should work with partner banks to improve financial education programs.
2. The RFI should articulate its strategy for the use of information technologies in performing
electronic transactions.
3. The RFI should take advantage of the flexibility of cooperatives to facilitate the entry of
financial services in rural areas.
4. Together with its partner financial institutions, the RFI’s mission is to develop competitive
financial services in order to attract more people to the formal sector.
5. The RFI should promote greater use of financial services by women, with more manageable
savings accounts, shorter travel times, and less risky loan products.
EXECUTIVE SUMMARY
The objective of the Rural Finance Initiative (RFI), developed by USAID/Colombia and being
implemented by Chemonics International, is to improve financial services with an inclusive approach
for 197 municipalities that have been especially affected by the armed conflict over the last 60 years,
and that belong to seven economic corridors selected for intervention.

Following are the specific objectives of the Initiative:

• Improve the quality of the portfolio of financial services provided by financial institutions
• Improve access by the rural and/or vulnerable population to adequate financial services
• Implement innovative strategies to reduce the costs of financial services, for both banks and
customers
• Improve the efficiency, effectiveness and quality of financial services

In order to measure the impact of the RFI program in the areas of intervention, and the performance
of the indicators of success defined at the outset of the intervention, USAID selected the EVAL
project (Evaluation and Analysis for Learning), implemented by Management Systems International,
to carry out a baseline evaluation, the results of which are discussed in this report and will allow for
the performance of a rigorous midline evaluation or final measurement.

EVAL aims to respond to the following four questions:

1. To what extent has the Initiative improved the efficiency, effectiveness and quality of
the portfolio of financial services provided to municipal inhabitants?
2. How has the rural and vulnerable populations’ access to appropriate finance services
changed as a result of the Initiative’s intervention?
3. To what extent has the Initiative reduced the costs of financial services for both banks and
customers, and what innovative strategies (if any) has the Initiative used to achieve these
cost reductions?
4. What underlying variables potentially mitigate or enhance the impact of the Initiative on
the inhabitants of the target municipalities? 1

The baseline was developed from the survey of inhabitants of five municipalities selected by the
Initiative. The baseline has two purposes: (1) to serve as a point of reference for measuring the
changes derived from the Initiative’s intervention in the quality, access, efficiency and cost of financial
services; and (2) to analyze underlying variables that influence the effectiveness of the Initiative.

According to the Initiative’s officials, after information had been collected from July to December
2017 these five targeted municipalities had been the subject of an intervention of at most three
months, and so it was expected that the Initiative had made only incipient progress. These
municipalities also meet the condition of being “central” for the operation of the Initiative, because
they have a high potential for energizing their respective corridors. 2

EVAL also selected a group of five control municipalities, whose function is to show what would
have occurred in the treatment municipalities without the RFI intervention. These municipalities
were selected based on a matching model using a group of relevant variables. The control
municipalities are defined as municipalities with characteristics that are similar to those of the

1
This question addresses all aspects of the evaluation. Therefore, the evaluation team will incorporate the relevant underlying variables
in the three thematic questions, when appropriate, and it will not include a section dedicated exclusively to the underlying variables.
2
The definition of centrality is as follows: a high potential for the municipality to play a dynamic role within its respective corridors.
treatment municipalities, but that were not selected for the RFI intervention. They are important in
the evaluation because they serve as a comparison to isolate the impact of the Initiative on the
selected dimensions.

Table 1. Treatment and Control Municipalities of the Evaluation

TREATMENT TREATMENT CONTROL CONTROL

MUNICIPALITY DEPARTMENT MUNICIPALITY DEPARTMENT
Villa Rica Cauca El Cerrito Valle del Cauca
Corozal Sucre El Santuario Antioquia
Arboletes Antioquia San Martín Cesar
Uribe Meta Trinidad Casanare
Cartagena del Chairá Caquetá Paz de Ariporo Casanare

In order to create this baseline, a total of 3,047 surveys were conducted, 1,519 of inhabitants in
treatment municipalities and 1,528 in control municipalities; 41% of the surveys were conducted of
inhabitants in rural areas, and the remaining 59% were conducted of inhabitants in municipal centers.

The study also had a complementary qualitative component, which was designed to capture relevant
information from the main actors involved. In particular, 56 in-depth interviews were conducted, 22
with micro-entrepreneur inhabitants of the municipalities (in both the municipal centers and rural
towns), and 34 with municipal authorities, officials of the Initiative’s partner financial institutions in
the municipalities or their central offices, and key RFI personnel.

Following are the results of the baseline analysis:

EFFICIENCY, EFFECTIVENESS AND QUALITY OF FINANCIAL SERVICES

1. The efficiency and effectiveness of the financial services are linked to the regulation and
control system implemented by the Financial Superintendence, which frames the conditions
under which regulated financial institutions must operate, which in turn must apply the
regulations in a rigorous manner. This creates barriers that affect access to, and reduce the
efficiency of, bank portfolios in areas that are difficult to access or in which the population
is highly dispersed.
2. The effectiveness of the provision of financial services is conditioned on financial institutions’
presence in, or absence from, the municipalities, which affects the economic dynamics of
the municipalities and their inhabitants. Financial services are provided in the control
municipalities through bank offices, non-banking correspondents, ATMs, mobile advisors
and cooperatives. The presence of financial institutions in the treatment municipalities is
poor. For example, two of the study’s municipalities, Villa Rica in Cauca and Uribe in Meta,
only have banking correspondents or mobile advisors, which offer limited financial services
to the population. 3
3. Forty-five percent (45%) of the population in treatment municipalities and 56% of the
population in control municipalities have financial products. This difference can be explained
mainly by 1) the difficulty that rural inhabitants have in accessing financial institutions (the
treatment municipalities are more rural than the control municipalities, at 46% rural v. 37%
rural); and 2) the perception by financial institutions that the costs of expanding to rural
areas are high.

3
The Congente Cooperative (an entity that is not supervised by the Financial Superintendence) opened a branch in Uribe, Meta in June
2017.
4. In terms of product, one major difference between the treatment and control municipalities
involves savings accounts (a 10 percentage point difference). Also, there is a 12 point
difference in favor of the control municipalities with regard to the process of receiving and
sending remittances through a financial institution.
5. A fundamental aspect of efficiency in the use of mobile devices for the provision of financial
services is the level of connectivity, which depends on the implementation of government
policies. A recurring complaint of inhabitants and financial institution officials is the poor
quality of cell phone signals outside the municipal center, and the almost non-existent
internet signal.
6. Complementing the above is the challenge of increasing the offer of services in response to
the low internet and data plan usage by the inhabitants of these municipalities, especially the
treatment municipalities, in which only 25% of the population use one of these two
subscriber services.
7. Because of ignorance about financial products and their benefits, coverage, characteristics,
management and access, the population does not use them adequately or at all. It is
necessary to focus efforts on strengthening financial education programs, with the subjects
of greatest interest being savings options, alternatives to traditional savings accounts, the
cost of credit, financial planning, insurance and microinsurance, and the use of electronic
devices to perform financial transactions.
8. One of the factors that affects the efficiency of financial services are the procedures required
by banks for obtaining loans. This is one of the reasons why 38% of the population of the
treatment municipalities do not apply for them.
9. The documentation required for processing a transaction, and the long response times in
loan approval and disbursement processes have caused the population to move away from
the formal sector and resort to the use of alternative sources of financing. This has occurred
despite the higher costs of such loans and the high security risks posed by default on these
obligations.
10. The use of these informal credit sources, such as “gota a gota” or informal lenders, are
common ways for obtaining flexible and timely resources for leveraging business and
meeting primary needs. In the sample, the amount of these loans are less than 500,000 pesos
in 80% of the cases.
11. The principal reasons for the denial of formal credit applications in the treatment
municipalities are: the lack of guarantees and, especially, the requirement of having a co-
signer or surety (41%); negative credit agency reports (19%); lack of a credit history (11%);
and low ability to pay (14%).
12. The loans are usually invested in productive uses by 59% of the population of the treatment
municipalities, especially in working capital and/or machinery.
13. The cooperatives have a more social and communitarian service orientation compared to
the banks. They serve a larger percentage of the rural population and micro-entrepreneurs,
their placement policies are more flexible, and they are better suited to low-profile
customers. This approach is well regarded by customers who feel that cooperatives work
with them and will give back part of the cost of credit through other benefits. On the hand,
they feel that banks only seek to generate profits with their money.
14. Cash is the most used means of payment in both the treatment and control municipalities,
due to several factors. In the treatment municipalities, the presence of dataphones is scarce,
44% of inhabitants believe that no stores in the area receive cards, and the few ATMs that
exist are insufficient to handle the volume of transactions performed. In the control
municipalities, there is a lack of trust and safety in the use of ATMs, and a very small part of
the population uses checks or debit cards.
 15. The use of cards (credit or debit) is associated with indebtedness, which has a negative
connotation. As a result, magnetic cards are not widely used in the treatment municipalities.
16. Traditional forms of saving (piggy banks, savings circles, the purchase of animals, and
investment in real estate) are chosen by 88% of the population in treatment municipalities
and 72% in control municipalities. Micro-entrepreneurs understand savings as an investment,
usually in livestock with which they can generate profits for a specific purpose (their
children’s education, debt payments, etc.), and not necessarily as money in a savings account.
17. Informal savings modalities, such as savings circles and “natilleras,” which consist of leaving
money in the care of a relative, or lending it with interest, are used by approximately 10%
of the population in both treatment and control municipalities.
18. The opening of savings accounts is linked mainly to loan disbursements. This is seen more
in the control municipalities than the treatment municipalities.
19. The high costs and low yields of savings accounts discourage their use as a financial product.
Four percent of those surveyed in the treatment municipalities and six percent in the control
municipalities say that they do not have a savings account because of the low profitability,
and 10% and 17% in the treatment and control municipalities, respectively, say that do not
have have one because the bank will keep part of their savings.
20. Savings accounts are used very little as transactional means in the treatment municipalities.
Around 10% of inhabitants use savings accounts for the payment of public services, rent,
shopping or credit installments, which indicates that transactions are performed mainly with
cash in these populations. Only 3% of those surveyed in the treatment municipalities say
that stores accept checks, 9% say that they accept credit cards, 11% say that they accept
debit cards, and 4% say that they accept transactions by electronic means. Furthermore,
according to the in-depth interviews, cash is the usual means of payment for cultural events,
and inhabitants do not ask about alternative payment methods.
21. The offer of insurance is limited. There is little information about it, and existing insurance
policies do not cover the real needs of the population, such as the protection of crops and
livestock. Users of insurance do not trust it, among other reasons because those who have
had to make a claim have not received the expected response in around 65% of cases, in
both treatment and control municipalities.
22. In the treatment and control municipalities, life insurance is linked to credit, and so it is the
most used type of insurance. The second most used type of insurance is funeral insurance.
23. The dispersed rural population segment is not attractive to financial institutions due to their
lack of knowledge about this population’s behavior, and because of the high costs associated
with the provision of services in rural areas.
24. The survey found that, contrary to conventional wisdom, women’s level of saving is very
similar to that of men. Women use a larger proportion of traditional forms of saving outside
the financial system, such as natilleras. In addition, women receive lower amounts of credit
than men (65% of women in the municipal center and 72% of women in the rural area
receive less than five million pesos of credit, compared to only 56% of men in both
locations), but they report less default on their credit obligations than men (13% versus 11%
in the municipal center, and 7% versus 6% in the rural area).
25. Transfer and remittance services are common in both treatment and control municipalities,
and are provided mainly by specialized transfer companies (89% of which receive money and
94% of which send transfers in treatment municipalities). According to the surveys, the
average cost of receiving and sending money is 3,000 and 7,200 pesos, respectively. 4 This
product has the potential to be managed through electronic transfers, and to be offered to

4
The surveys did not inquire about the amounts received or sent.
 financial institution customers who have savings accounts, with the possibility of making and
receiving transfers directly to and from those accounts.

RURAL AND VULNERABLE PEOPLE’S ACCESS TO FINANCIAL SERVICES

1. Low levels of access to financial services, precarious living conditions, and the situation of
vulnerability of the population of the intervention’s target municipalities are some of the
main restrictions on efforts by the RFI and its partner financial institutions to provide this
population with at least the levels of access that currently exist in other rural municipalities.
2. The armed conflict had a considerable impact on the scarce presence of the financial sector
in both the treatment and control municipalities. The intensity of the conflict was greater in
the treatment municipalities.
3. Peasants are less likely to have access to financial services mainly because of their inability
to provide the required guarantees and because of their geographic location, but also
because of cultural issues or customs, lack of knowledge, and the lack of presence of the
financial sector in rural areas.
4. The treatment municipality inhabitants who were interviewed recognize the increased
presence of banks, cooperatives and micro-financiers over the last 10 years, which is
reflected in the greater use of financial services by the population in the municipal centers.
5. The presence of the financial sector in the control municipalities has resulted in the
development of mobile banking products, interinstitutional agreements aimed at generating
greater service coverage, financial training, and the development of commercial mechanisms
for serving rural areas.
6. In the urban centers of the treatment municipalities, women are involved in a greater
proportion of micro-entrepreneurial activities and the use of micro-financing, while in the
rural towns, men access credit services in greater proportion.
7. The cooperatives offer greater access to credit due to their nature and way of operating.
They have more flexible requirements and greater rural coverage, and they encourage
savings, which serve as the basis for obtaining loans.
8. The level of use of electronic devices for carrying out financial transactions is low in the
treatment and control municipalities. More than 80% of the population has never used their
cell phones to perform financial transactions. However, 6% more customers in the
treatment municipalities than the control municipalities use these devices, perhaps
compelled to do so by the scarce presence of financial institutions.
9. While the financial institutions maintain that they offer services that meet the needs of the
population, from the population’s point of view, the financial products are not accessible
because of guarantee and other requirements, their low profitability, and their high costs.

COSTS OF FINANCIAL SERVICES FOR BANKS AND CUSTOMERS

1. Inhabitants of the treatment municipalities take more time and incur more costs in going to
the nearest financial institution than inhabitants of the control municipalities. In general, the
treatment population is more rural than the control population. Forty-six percent of the
treatment population is rural, compared to 37% of the control population. The average cost
of traveling to a financial institution is $29,375 in treatment municipalities and $10,848 in
control municipalities. Also, the financial institutions consider the costs of providing mobile
services to peasants to be high. The scarcity or poor condition of tertiary roads that connect
the rural sector to the municipal centers has become a barrier to access to financial services,
and generates high costs for both rural inhabitants and financial institutions.
2. For more than 45% of rural inhabitants in the treatment municipalities, it takes more than
one hour to travel to the nearest financial institution. If one also considers the time involved
 in performing the transaction and returning home, the total time amounts to approximately
half a workday.
3. The interviewed population believes that the financial costs that are deducted directly from
their accounts are high. For this reason, few new savings accounts are opened. This situation
is similar in the treatment and control municipalities, and is one of the main reasons why
this population prefers to invest or keep their savings in more traditional ways.
4. The high financial and administrative costs associated with the use of debit and credit cards
in both the treatment and control municipalities have a negative impact on their acceptance.
5. The population uses informal modalities to avoid the costs of remittances and transfers.
People frequently send cash with friends and truck drivers, which entails the risk of loss due
to the lack of guarantees. However, as mentioned above, remittances and transfers are made
predominantly through specialized transfer companies, despite their high costs.

UNDERLYING VARIABLES
1. There are no significant differences between the treatment and control municipalities with
respect to customers’ demographic characteristics. In general, the sample population is
young, married or living with a partner, and for the most part has a primary or secondary
education level.
2. There are some socioeconomic differences between the populations in these two groups
of municipalities, in particular with respect to the type, location and construction materials
(for walls and floors) of housing, access to basic public and complementary services in the
home, access to different national and local government subsidy and aid programs, and the
informality of household members’ jobs. Based on these differences, it can be concluded
that the socioeconomic conditions of inhabitants of the treatment municipalities are more
precarious than those of the control municipalities.
3. Forty-four percent of the population in treatment municipalities are recognized as victims,
displaced persons, or reintegrated persons or refugees of the armed conflict.
4. A significant percentage of the population of the treatment municipalities have the social and
economic characteristics described above, which causes them to believe that they cannot
access financial services and to self-exclude from their use.
5. There is optimism in the treatment municipalities about the future of individual activities,
while there is an atmosphere of pessimism and insecurity in the control municipalities with
regard to the sustainability of business, especially in the municipalities of Casanare.

RECOMMENDATIONS
1. The RFI should work with its partner banks to include, expand and improve
financial education programs within the banking services offered to the rural
population. The evaluators recommend that financial education programs be included in
the offer of banking services in order to improve the rural population’s knowledge about
the functioning of financial services, the cost of credit, the products’ benefits, coverage and
characteristics, the ways of accessing the financial system, and the use of devices to performs
electronic transactions. This will enable the population to make rational and informed
decisions in selecting financial products or services, and will enable the financial institutions
to offer sufficient services. The offer of these services is poor, especially in the treatment
municipalities.
2. The RFI should articulate a strategy for the use of information technologies in
performing electronic transactions, based on the connectivity services offered
in rural areas by the Ministry of Information Technologies and Communications
(MinTIC). The use of information technologies in performing electronic transactions is an
 attractive alternative for reducing the costs of services for the rural population. But this
requires having optimal levels of connectivity, something that is particularly critical in these
municipalities. Accordingly, coordination with MinTIC – which is responsible for the
expansion of internet access in rural areas – is essential in order to learn about its short-
and medium-term strategy for implementing connectivity in these regions. The RFI should
not encourage the use of electronic devices by the rural population until adequate internet
coverage can be guaranteed.
3. The RFI should take advantage of the flexibility of cooperatives and
organizations of the “unregulated” solidarity sector in order to facilitate the
entry of financial services in rural areas. Unregulated financial organizations assist the
population in the development of enterprises and the consolidation of income. As such, the
flexibility of organizations in the solidarity or foundation sector would appear to make them
the best option for supporting the rural population with adequate financial services.
Although the administrative costs of cooperatives are sometimes higher than the costs of
traditional banks, the rural population is more interested in accessing the services of
cooperatives than those of banks.
4. Together with its partner financial institutions, the RFI’s mission is to develop
competitive financial services in order to attract more people to the formal
sector. In order to encourage greater access to the financial sector, it is essential that
financial products or services be developed or adapted to meet the needs of the population
in conflict municipalities, and that transaction costs (in pesos and in time) be reduced. It is
especially critical that the RFI work with transfer and remittance services, due to the large
number of people in these municipalities who currently obtain these services from
specialized companies, and to improve loan approval processes in order to reduce the
influence of “gota a gota” lenders and loans.
5. In order to promote the greater use of financial services by women, the RFI
should take into account two fundamental characteristics of working with them:
First, the empowerment of women, especially in rural areas, to enable them to access and
understand the products and to choose those that best serve their needs or productive
activities. Second, the development of savings products should take into account the
characteristics that make women more likely to use informal traditional forms of savings,
and especially their low amounts of savings, their aversion to risk, and the difficulty they face
in traveling to financial institutions because of their childcare responsibilities or other
obligations (businesses with ongoing customer demands that require full-time attention). It
is also possible to take advantage of some of their characteristics in order to develop
products, especially the fact that they are more likely to form groups with their nearby
communities in order to engage in joint activities.