Document of The World Bank

Report No: 37348-HO

IMPLEMENTATION COMPLETION REPORT(IDA-34430)

ON A

CREDIT

IN THE AMOUNT OF SDR 47.1 MILLION (US$63.6 MILLION equivalent)

TO THE

REPUBLIC OF HONDURAS

FOR A

FIFTH SOCIAL INVESTMENT FUND PROJECT

September 22, 2006

Human Development Sector Management UnitCountry Management Unit for Central AmericaLatin America and the Caribbean Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 2006)

Currency Unit = Honduran Lempiras HL 1.00 = US$ 0.05US$ 1.00 = HL 18.89

FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMS

CARE Cooperative for Assistance and Relief EverywhereCAS Country Assistance StrategyCDD Community-Driven DevelopmentCESAMO Health Center (with physician and dentist)CESAR Rural Health CenterCRS Catholic Relief ServiceESA Economía, Sociedad, Ambiente, Ingeniería, Consultancy FirmFHIS Honduran Social Investment Fund (Fondo Hondureño de Inversión Social )FIDAS Innovation Fund for Social Assistance (Fondo Innovador de Asistencia

Social)HD Human DevelopmentICR Implementation Completion ReportIDA Internacional Development AssociationIDB Inter-American Development BankIHNFA Honduran Institute for Child and Family WelfareINE National Institute of Statistics (Instituto Nacional de Estadísticas)KfW German Institute for Reconstruction and DevelopmentM&E Monitoring and EvaluationMIS Management Information SystemNGO Non-Governmental OrganizationsNR Nuestras Raíces ProgramOPCS Operations Policies and Country ServicesPAD Project Appraisal DocumentPEC Community executed projects (Proyectos Ejecutados por la Comunidad)PEDMs Strategic Municipal Development Planning (Planificación Estratégica de

Desarrollo Municipal)PEMAPS Strategic Program for Modernization of the Water Sector in HondurasPI Poverty IndexPIR Rural Infrastructure Project, The World BankPROGENIAL Program for Gender Innovation in Latin AmericaPRSP Poverty Reduction Strategy PaperQAE Quality At EntryRASHON Honduras Water and Sanitation NetworkRWS Rural Water and Sanitation

SANAA Nacional Water and Sanitation Agency (Servicio Autónomo Nacional de Acueductos y Alcantarillados)

SANIPLAN German Consulting Agency for Hygiene and MedicineSDR Special Drawing RightsSIF Social Investment FundUBN Unmet Basic NeedsUSAID United States Agency for International Development

Vice President: Pamela CoxCountry Director Jane ArmitageSector Manager Helena Ribe

Task Team Leader/Task Manager: Andrea Vermehren

HONDURASHN FIFTH SOCIAL INVESTMENT FUND PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 196. Sustainability 217. Bank and Borrower Performance 228. Lessons Learned 239. Partner Comments 2410. Additional Information 27Annex 1. Key Performance Indicators/Log Frame Matrix 28Annex 2. Project Costs and Financing 31Annex 3. Economic Costs and Benefits 33Annex 4. Bank Inputs 34Annex 5. Ratings for Achievement of Objectives/Outputs of Components 37Annex 6. Ratings of Bank and Borrower Performance 38Annex 7. List of Supporting Documents 39Annex 8. Ex-Post Evaluation of the Honduras Social Investment Fund (FHIS) - Third Phase

40

Annex 9. Pilot Social Assistance Program (FIDAS) 47Annex 10. "Nuestras Raíces" Pilot Program 50Annex 11. Pilot Program to Strengthen Rural Water and Sanitation Services 53Annex 12. Poverty Ranking by Municipality Category and Sector 57

Project ID: P064895 Project Name: HN FIFTH SOCIAL INVESTMENT FUND PROJECT

Team Leader: Andrea Vermehren TL Unit: LCSHSICR Type: Core ICR Report Date: September 29, 2006

1. Project DataName: HN FIFTH SOCIAL INVESTMENT FUND

PROJECTL/C/TF Number: IDA-34430

Country/Department: HONDURAS Region: Latin America and the Caribbean Region

Sector/subsector: Roads and highways (25%); General education sector (25%); General water, sanitation and flood protection sector (20%); Health (15%); Other social services (15%)

Theme: Other social protection and risk management (P); Rural services and infrastructure (P); Improving labor markets (P); Indigenous peoples (S); Participation and civic engagement (S)

KEY DATES Original Revised/ActualPCD: 10/15/1999 Effective: 01/04/2001

Appraisal: 02/11/2000 MTR:Approval: 12/14/2000 Closing: 06/30/2005 03/31/2006

Borrower/Implementing Agency: REPUBLIC OF HONDURAS/FONDO HONDUREÑO DE INVERSIÓN SOCIAL (FHIS)

Other Partners:

STAFF Current At AppraisalVice President: Pamela Cox David De FerrantiCountry Director: Jane Armitage D-M Dowsett-CoiroloSector Manager: Evangeline Javier Xavier CollTeam Leader at ICR: Andrea Vermehren David S. WarrenICR Primary Author: Luc Razafimandimby; Andrea

Vermehren; Willem Struben

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The Fifth Social Investment Fund (SIF V) project development objective was to (a) increase access among the poor to small-scale social and economic infrastructure, in accordance with local development priorities; (b) develop social assistance programs for disadvantaged groups; and (c) contribute to the prospects for sustainability of such investments. The project built on previous government, IDA and other donor support for FHIS investment in social and economic infrastructure and community-driven development (CDD) activities (particularly the FHIS IV project Cr-3418-HO which closed on June 1, 2001). Thus, it also continued FHIS’ contribution to help rebuild communities devastated by Hurricane Mitch, and to support the country’s nascent decentralization process by emphasizing and relying heavily upon the participation of community organizations and local governments.

Assessment of Objective. The project's objective was well-defined at project inception. It addressed the prevailing disparities of access to, and utilization and quality of, basic social and economic services, and put these in the context of decentralization and local development. Additionally, the project's objective reflected the country’s increasing need to protect the most disadvantaged and underserved groups including street children, women, the elderly and handicapped, and ethnic minorities. The project's objective was clearly aligned with the Government’s Poverty Reduction Strategy which focused on: (i) improving the delivery and quality of basic social services; (ii) improving the efficiency and targeting of safety net programs; and (iii) protecting vulnerable and disadvantaged groups. Similarly, the project responded directly to the Country Assistance Strategy's objectives (CAS): (i) improving living conditions and development opportunities among the poor by expanding and more efficiently distributing priority public sector services, particularly in education, health, water/sanitation, and economic infrastructure; and (ii) addressing priority social needs through programs for disadvantaged and underserved groups.

Although not explicitly mentioned in the objective, in practice the project strategically and significantly contributed to the country's decentralization and local development process as well as to Honduras’ first social protection strategy.

3.2 Revised Objective: No formal revisions were made to the original objectives

3.3 Original Components:3.3 Original Components. The total project cost was estimated at US$176 million, of which the equivalent US$60 million was to be funded by IDA under a SDR-credit approved, with the remainder financed by the Government, the Inter-american Development Bank (IDB), the German Development Bank (KfW), and unidentified bilateral agencies. The project components were as follows:

Component 1. Subproject Financing (US$112.92 million; IDA US$31.11 million equivalent). This component would constitute the core of the project, and continue the provision of financing for a wide range of small-scale social and economic infrastructure subprojects, as well as training to enhance sustainability. Subproject proposals would be identified by beneficiaries, prioritized through local participatory planning processes, and processed according to technical, financial, economic, social, and environmental criteria set out in the Operations Manual, complementary guidelines, and the Project Implementation Plan.

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Component 2. Pilot and Special Programs (US$43.14 million, IDA US$28.24 million equivalent) (a) Pilot Program for Local Institutional Strengthening (US$21.03 million; IDA US$6.89 million equivalent). This sub-component aimed to establish a set of structured experiments to develop, test, and draw lessons regarding innovative approaches and methodologies for encouraging and enabling communities and local governments to work together more effectively, and in better coordination with stakeholders at the local, regional, and national levels. It would cover three interrelated aspects in selected municipalities: (i) participatory municipal planning; (ii) preventive maintenance; and (iii) the gradual transfer of responsibilities for subproject management from FHIS to municipalities and communities. It would finance training, technical assistance, and investment subprojects in a small group of municipalities that would pilot the decentralization of subproject management functions .

(b) Pilot Program to Strengthen Rural Water and Sanitation (RWS) Services (US$3.40 million; IDA US$3.25 million equivalent). This sub-component aimed at providing technical assistance, training, and supplemental subproject financing to develop and test innovative methodologies and creative partnerships to improve attention to rural communities' needs for water systems and the sustainability of such investments, and to draw lessons for improved attention to, and coordination of, the water sector. Its design would emphasize demand-responsiveness, cost-recovery, and community control in subproject processing, and would rely significantly on the involvement of local governments, NGOs, and private service providers.

(c) Social Assistance Innovations Fund - Fondo Innovador para el Desarollo y la Asistencia Social - FIDAS (US$6.00 million; IDA US$6.00 million equivalent). This sub-component sought to foster the development of innovative approaches to address the needs of key vulnerable groups by providing financing for proposals (submitted by NGOs, community organizations, and the private sector) on the basis of a competition overseen by a Steering Committee of key stakeholders. It also included resources for training and technical assistance to improve the capacity of the relevant actors.

(d) Nuestras Raices (US$12.71 million; IDA US$12.10 million equivalent). This sub-component would improve the living conditions and promote the social capital of indigenous and Afro-Honduran communities by financing small-scale subprojects based on a workfare mechanism. Subprojects were identified by the communities, and selected according to eligibility criteria established by FHIS in collaboration with the indigenous peoples’ federations. After completion of each subproject, community members were encouraged to invest part of their earnings in follow-up subprojects (typically small-scale infrastructure or the establishment of a small community savings fund). Financial and institutional strengthening of ethnic federations and training of communities, coordinators, FHIS staff, and ethnic liaison officers were substantial elements of the program to help communities organize, administer, manage and monitor small-scale projects, and to improve their ability to preserve their cultural values and heritage.

Component 3. Project Management (US$19.98 million; IDA US$0.65 million equivalent). This sub-component would finance FHIS’ operating costs, institutional strengthening (including ex-post and impact evaluations), equipment and vehicles, as well as external auditing.

Assessment of components. All components contributed directly to the accomplishment of the project’s development objective and added up to a comprehensive set of poverty alleviation measures within one institution - which is rather unique in the Honduran and even Latin American context. Through this strategically selected set of components and pilot programs, not only did the project help develop FHIS’ strengths of efficiently delivering much needed small-scale infrastructure through local

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authorities and communities, but it also took FHIS beyond its traditional role by developing social protection activities for vulnerable groups which then informed the social protection strategy formulation process. In addition, the project was designed to strengthen FHIS, the Government’s principal and most experienced organization for dealing with poverty-targeted interventions, and the logical vehicle for achieving the project objective. Project design helped FHIS to evolve from its initial focus on infrastructure towards an institution that facilitates local development through knowledge sharing and capacity building (e.g. introducing local municipal planning and local/community-based subproject management). In addition, it fostered a more inclusive development through its programs for disadvantaged groups, making space for them at the local as well as national level.

Despite the rather comprehensive set of components and pilots, the project was well within FHIS’ capacity to implement. First, the institution had already acquired experience in building local capacity since it started to strengthen community participation in the mid-1990s, and introduced municipal investment planning in the late-1990s. Due to the disruptions caused by Hurricane Mitch in 1999, however, the local planning processes had been interrupted. Second, several factors strengthened FHIS’ readiness and capacity to implement the project: (i) FHIS created technical units in charge of each of the pilots; (ii) experienced FHIS staff helped prepare the main instruments for the pilot for municipality and community strengthening; (iii) the Nuestras Raices pilot built on an existing program and its institutional structures (through ethnic federations); and (iv) in all components, the project provided for training and technical assistance, not only for FHIS staff, but also for municipalities, communities, contractors, and other relevant actors to ensure the necessary capacity at all levels.

3.4 Revised Components: There were no revisions of the original components.

3.5 Quality at Entry:QAE was satisfactory. First, the project objective was relevant in its orientation toward supporting local development priorities and social protection, and clearly aligned with those of the CAS and the PRSP. Second, project design benefited from many years of experience with FHIS’ policies and implementation record under four earlier IDA-assisted projects, the availability of a major impact evaluation of FHIS’ investments, and experience in working with local government and communities. Furthermore, close cooperation with IDB and KfW helped establish a well-coordinated sector-wide approach, thereby aligning donors’ operations within FHIS, simplifying procedures, and enhancing the prospects for large-scale impact. A second FHIS impact evaluation was underway when the project started. It included a baseline and comparison groups, covering FHIS investments between 1998 and 2002, which was finalized in 2005. This evaluation provides a solid assessment of FHIS' performance at entry (note that due to these extensive impact assessments, no additional baseline survey or third impact evaluation was conducted from 2003 forward). Third, poverty targeting and gender issues were integrated in the project design and successfully implemented throughout the project. Fouth, innovative fiduciary mechanism were developed, e.g. for the implementation of FIDAS through a competitive innovation fund, and for the about 200 community executed projects (CDD - Proyectos Ejecutados por la Comunidad- PEC) – another innovation for the country and for FHIS. Fifth,the effectiveness conditions of the Credit addressed main elements of readiness, and risk-mitigation measures were adopted to address potential implementation bottlenecks.

The main risks identified at appraisal were: (i) the upcoming presidential election and the probability of changes in senior management, with major implications for changes in staff and management philosophy; and (ii) FHIS’ management information system (MIS), which experienced some capacity constraints following the large amount of subprojects processed during the quick response to Hurricane

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Mitch. The potential risks were rightly identified upfront which put the Bank team in a good position to follow up on these issues during project implementation. However, some of the agreed remedial actions were not all equally effective: the change in FHIS top management did indeed contribute to the implementation delays of some of the pilots - e.g., the delegation of the subproject cycle to municipalities and the FIDAS program, although these were corrected satisfactorily later on.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:The achievement of the project’s development objective is rated satisfactory. The main relevant achievements, as well as their ratings, are mostly based on data from the FHIS Management Information System (MIS) and findings from a comprehensive set of external evaluations carried out during the implementation of the project, including the second FHIS Impact Evaluation from 2005, the Nuestras Raices Ex-post Evaluation from 2003, and the FIDAS case study evaluation from 2006 (see Annex 7 for a full list of supporting documents). The achievement of the development objective was assessed along the following three elements:

(a) Improve access of the poor and vulnerable to basic social and economic infrastructure services in accordance with local development priorities. Satisfactory. This objective relates to three aspects: the number and sectoral distribution of new and rehabilitated infrastructure financed under the project; the extent to which allocations were poverty focused; and whether investments were in accordance with the needs expressed by the beneficiaries.

First, the project financed the construction and rehabilitation of a total of 2,888 subprojects, of which 1,446 were rehabilitated schools, almost 700 new schools or an addition, 163 new health centers, 347 small water/sanitation systems, and 461 latrines and overall, 47 percent of investment financing was allocated to the rehabilitation of facilities (reflecting the needs caused by Mitch), and 53 percent to new construction of social and economic infrastructure (data from FHIS information system). Almost 2.5 million people benefited from these FHIS investments. With such contribution, FHIS' investments have arguably worked against the declining trends of the national Unmet Basic Needs (UBN) between 1998 and 2003, subsequent to Hurricane Mitch, as reported in the FHIS Impact Evaluation (see Annex 8). According to the evaluation, it is much to the credit of FHIS investments that the UBN almost reached its pre-Mitch level again in 2003.

Second,according to FHIS management information system data, 52.5 percent of FHIS total investment (2001-2005) was allocated to rural areas. The distribution of resources to municipalities by poverty level was strongly progressive, thus particularly benefiting the population in poor and very poor municipalities. As shown in Table 1, per capita investment in the poorest municipalities was more than four times higher than in the less poor municipalities. The sectoral allocation was also progressive in general as evidenced by data at project completion (see Annex 12). An exception are the per capita water/sanitation investments which were lower in the very poor municipalities than in the poor ones. This was due to the need for significant water/sanitation investments nationwide in the aftermath of Hurricane Mitch, and to the relatively higher investments in marginal urban areas that are particularly vulnerable to diseases caused by contaminated water.

Table 1. Targeting of Project Funding by Level of Municipal Poverty (2001-06)Poverty ranking

Population

SIF V Total investment

(in US$ million) 1)

SIF V – Total investment per capita (in US$)

Investment per capita (in US$) for investments between 1998 and 2002 3)

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ACCEPTABLE 3,490,731 48.76 13.97 21.32REGULAR 1,114,749 27.84 24.98 22.14DEFICIENT 841,087 27.18 32.32 27.89POOR 227,385 13.60 59.84 41.34VERY POOR 20,374 1.24 61.20 46.45Various municipalities 2)

1,108,737 3.05 2.76 n.a

Total 6,803,063 121.71

Source: FHIS MIS. Note 1: The amounts include IDA, IDB, KfW, and government counterpart funding. They do not include community contributions, since those were only quantified in the last two years. Note 2: The term “various municipalities” refers to investment allocated to a group of two or three municipalities. Lack of intra-sectoral data did not allow FHIS to assess the precise amount assigned to each municipality. Note 3: FHIS 3 covers investments between 1998 and 2002.

Third, subprojects were financed in accordance with local development priorities. Investments were prioritized through a structured participatory municipal planning process (see also 4.2, component 2) led by local governments and involving communities, sector representatives, and local civil society organizations. Approximately three quarters of the beneficiaries declared that they were consulted on the need and relevance of the subprojects, compared to only half of beneficiaries for FHIS investments implemented before 1998 (1).

The 2005 FHIS impact evaluation concluded that:

• In terms of targeting, FHIS achieved between 1998 and 2002 important progress in terms of how progressive the investments were and in terms of the participation of the community in the selection and execution of projects;

• In terms of impact, FHIS has been an important actor in the national expansion of social infrastructure, with works of acceptable quality and function. A positive impact of the program on the beneficiary population is found in the areas of health, education, and sanitary conditions;

• The efforts of FHIS, supported under the project, during the emergency situation caused by Hurricane Mitch were efficient, but suffered from the limitations of centralized administration of the institution. This experience, however, laid the foundation of FHIS' later engagement and leadership in the decentralization of management responsibility (and capacity) to local governments and communities.

(b) Develop social assistance programs for disadvantaged groups. Satisfactory. This part of the project objective was mainly achieved through the FIDAS and the Nuestras Raices programs.

FIDAS spurred the implementation of over one hundred subprojects, thus extending social assistance coverage to over 153,000 beneficiaries, including children and youth at risk (68% of beneficiaries), the disabled (14%), and extreme poor elderly (18%) in 17 of the country’s 18 departments. Beyond subproject implementation, the program encouraged the participation of a great number of service providers, including churches, community organizations, and beneficiary associations. This collaboration not only created a new relationship between a public (FHIS) and private (NGOs, community organizations) entities, but it also allowed for the development of innovative subproject proposals based on local knowledge. For instance, some of the activities implemented under the program addressed problems that had not been addressed in the past (e.g., services to improve the

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livelihoods of the disabled and to increase access to healthcare of the elderly). FIDAS was also innovative in that it sought to increase the scope of activities from pure social assistance to revenue-generating activities, e.g. for the elderly and for disabled. The FIDAS evaluation notes that its effects went beyond the subprojects it financed. FIDAS’ methodology improved the understanding of special needs groups among the stakeholders and policy makers in Honduras. The program also established a methodology for fostering local volunteers and developed and disseminated innovative and high-quality training material for micro enterprises targeting special groups. Finally, it provided much needed training for service providers aimed at strengthening their ability to prepare and carry out subprojects, in a transparent and results oriented way. All these factors contribute to the sustainability of FIDAS subprojects and the country’s capacity to better serve disadvanted groups.

The Nuestras Raices program was highly effective in targeting its resources to extremely poor communities and households, with 73 percent of the beneficiary households in the minority ethnic groups belonging to the bottom three income categories (see Annex 10). About 4,168 activities financed under the program were executed by about 125,000 heads of households, who received in total a cash transfer of about US$8.5 million. It also continued promoting and reinforcing a “culture of savings” among community members, with new community banks being established in 56 percent of the work groups with part of the income earned by community members during the project implementation. To strengthen capacity at the level of the ethnic groups and to ensure that the project outcomes and approaches were understood and eventually sustained by local actors, a total of 3,351 group coordinators were trained to organize, administer, manage and monitor small-scale projects; 817 group coordinators were trained in rural banking; 310 FHIS ethnic liaisons were trained in prioritization, formulation, and sustainability of micro-projects, and 420 ethnic liaisons were trained to orient and support beneficiary groups on micro-projects of community interest and productive activities.

Both of the FIDAS and Nuestras Raices programs contributed substantially to the social protection policy dialogue, and resulted in a considerable strengthening of the country’s social assistance activities targeted to vulnerable groups. FIDAS experience and results are presently used for the national discussion on social protection policy led by the Presidency. In addition, FIDAS continues to be supported by a Japanese Social Development Grant solicited by the Bank. Based on the encouraging results of the Nuestras Raices evaluation and the urgent need to improve the living conditions of ethnic communities, the Government requested in 2004 a follow up financing for Nuestras Raices of US$ 15 million which seeks to improve and expand the program (Nuestras Raices Project, Cr. 3892-HO).

(c) Contribute to prospects for sustainability of investments. Satisfactory. The FHIS impact evaluation report states that the works implemented between 1998 and 2002 were generally found to have a higher percentage of acceptable quality compared with those for earlier years (see Annex 8): 97 percent of education, 93 percent of health, 79 percent of water, and 82 percent of sanitation works received an “excellent” or “regular” rating by communities. In turn, better quality of subprojects, with the effort of social mobilization, ensured a sense of local ownership of investments among communities, and spurred mobilization of community contributions to subproject operation and maintenance. Such contributions took various forms, including labor, cash, and the provision of materials by the community or municipality.

Several elements have further contributed to improving the quality of subprojects in later years: First, FHIS significantly improved supervision through intensive training and working with local supervisors, as well as the appointment of local supervisors/trainers from communities. Second, social audit committees of community members were established to ensure consistency between community ideas

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and the technical subproject design. Third, particularly in water/sanitation sub-projects, a strengthened process for “ex-ante” evaluation of all investments, with different criteria for rural and urban zones and for types of sub-projects, was implemented to obtain sustainable sub-project designs (in terms of subsidy levels, costs, and technical solutions). In addition to the ex-ante evaluation method, FHIS also established a strengthened ex-post evaluation process for all sub-projects to identify required corrective actions and ensure sustainability and quality of construction through a feedback curve.

Another important contribution to the prospects of sustainability of infrastructure was made through the decentralization process that FHIS increasingly engaged in since early 2000. Both the implementation of small scale infrastructure through local governments as well as communities (CDD) has proven invaluable for the local development processes as well as for the operation and maintenance of the social services. As shown by the FHIS pilot for municipal strengthening (see 4.2, component 2) as well as the experience with community implemented subprojects, local actors are much more willing and capable to maintain services when they were actively involved in their establishment. Another favorable factor during this period was that Government gradually increased the fiscal transfers to municipalities from around 2 percent of the national budget (in the early 2000s) to about 5 percent (in 2005). Many local governments have used this substantial increase of their budgets to strengthen their administrative and technical capacity, and to invest in the operation and maintenance of basic services.

Regarding preventive maintenance of FHIS investments, the situation was generally acceptable for investments implemented between 1998 and 2002: 80 percent of the schools and health centers were reported to have regular and good maintenance. The remaining 20 percent of facilities had problems in particular with electricity and sanitation. These evaluation findings were taken into account in the design of the preventive maintenance pilot (see also 4.2, component 2). Key lessons were drawn from the pilot and led to the revision of FHIS’ manual for maintenance including lessons in the institutional arrangements to carry out preventive maintenance, the cost of preventive maintenance and possible fundraising ideas for communities, etc. This experience has indeed contributed to the prospects for sustainability of investments.

Sustainability of social assistance investments through FIDAS was enhanced by a careful selection of proposals which had to include a plan for the subproject’s financial, institutional and social sustainability (see Annex 9). Capacity building provided to service providers also contributed to the prospects for sustainability of investments under FIDAS. The Nuestras Raices evaluation reports that the program had important positive and sustainable effects on community organization, women’s participation, and creation of savings groups, but had some weaknesses in the sustainability of works because only labor was paid for, but neither materials nor technical assistance was provided. This effected the quality and therefore sustainability of the physical investments (see Annex 10). Finally, an assessment of the Water and Sanitation Pilot states that FHIS successfully developed a set of best practice measures that are expected to ensure operational and financial sustainability of the subprojects (see Annex 11). A formal impact evaluation of FHIS’ latest investments in water/sanitation (including the pilot subprojects) is presently being prepared by FHIS.

On balance, the described measures and approaches implemented by FHIS substantially contributed to the overall prospects of sustainability of investments - equally through improvements in FHIS’ traditional investments as under the pilot programs which built on FHIS long term experience. Achievement of Social Objective. Satisfactory. Human development outcomes. As indicated by the FHIS impact evaluation, based on a comparison between 1998 and 2004, the beneficiaries of FHIS’ subprojects had better human capital development

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outcomes than those who did not benefit from FHIS’ investment:

(i) 100 percent of children in communities with a FHIS project attended primary school in 2004 versus 93 percent in control group communities (from a 1998 baseline of 89 percent in both types of communities); (ii) the percentage of people seeking assistance from a health center was 6 percent higher in FHIS communities than in communities not covered by the program (but equally with health services); (iii) in FHIS communities, 92 percent of households had running water, compared to only 36 percent of households in control communities.

An ex-ante and ex-post analysis of communities with FHIS subprojects also shows improved social indicators for beneficiaries:

(i) in education, school assistance of students between 6 and 12 years old increased by 9 percent between 1998 and 2004. At the same time, the number of children enrolled in the grade corresponding to their age increased by 19 percent; (ii) in health, the percentage of people facing a severe health problem who sought assistance from a health center increased by 14 percent; and the percentage of pregnant women who had made control visits to a health center increased by 11 percent; (iii) the percentage of households with running water increased by 4 percent and the percentage of households that consumed water more safely (in terms of adequate treatment) increased by 11 percent.

The ICR team concluded that the outcomes of later FHIS subprojects (implemented between 2003-2005 after the data collection for the impact evaluation) could be even more favorable due to: (i) a change in the targeting formula benefiting even more the poorer municipalities and their population; (ii) the intensification of community involvement through community implementation of subprojects; and (iii) a stronger focus on interventions aimed at providing economic opportunities to minority ethnic and vulnerable groups, who belong to the poorest segments of the population.

Gender Focus. Based on the technical assistance that FHIS received through the World Bank’s PROGENIAL project (Program for Gender Innovation in Latin America), FHIS introduced a variety of measures designed to give men and women equal participation in subproject decision and benefits. For example, of the two representatives of communities in the municipal meetings for the selection and prioritization of subprojects, at least one had to be a woman. As a result, 46 percent of the participants in municipal planning meetings were women. Furthermore, about 56 percent of FIDAS’ beneficiaries were women. In the Nuestras Raices program, men and women participated about equally as leaders of community groups with regard to the number of days of work, revenue generated by labor-intensive work, as well as the average loan amount received from community banks. Finally, the project’s health facilities benefited women in particular; according to the FHIS evaluation report, the percentage of pregnant women visiting health centers increased by 11 percent between 1998 and 2004.

Environmental Objective. This was achieved. FHIS continued to work in close coordination with the Ministry of Environment, and carried out its operations in accordance with its environmental guidelines. Its environmental unit was properly staffed, and active in reviewing all project cycle activities. It did train FHIS inspectors and supervisors, as well as staff of municipal environmental units, thus having an impact going well beyond the project as such.

Private Sector Development Objective. This was achieved. Construction companies and individual contractors, consulting firms, and service providers in software and computerized systems all took

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advantage of FHIS’ vast program in infrastructure construction, the provision of training, and installation of equipment in municipalities. Service providers of social assistance activities, too benefited from training, and were strengthened under the FIDAS program.

4.2 Outputs by components:Output by Components. The project’s overall output is rated satisfactory. The ratings of the components are explained below:

Component 1. Subproject financing (US$90.64 million, IDA US$34.06 million equivalent). The output of this component is rated satisfactory. To allow for a demand-driven approach, there was no ex-ante allocation by sector, and therefore no targeted number of beneficiaries and infrastructure subprojects. At the start of the project, and as agreed with the Government, FHIS financed a large number of subprojects based on the 1998 municipal investment plans, and, in parallel, initiated participatory municipal planning in 27 municipalities to test a new methodology for broader participatory planning (see below). This allowed for a quick start of the project and, as detailed in Table 2, as early as 2001, FHIS had approved subprojects amounting to 36 percent of total investment funding. Subsequently, FHIS maintained a reasonable pace of subproject approval with the implementation of new longer-term municipal development plans (based on the new round of participatory planning in all municipalities).

Table 2. Number and Amount of Subprojects funded by IDA, IDB, KfW and Government (2001-06)Gov. Contribution Total External Financing

( IDA, IDB, KfW 3)Share of Total Funding

Year Number of subprojects 1)

Amount (in US$ million) 2)

Amount (in $US million)

%

2001 3,980 2.83 41.11 36.102002 2,809 1.99 24.32 21.622003 1,370 2.22 24.50 21.952004 653 0.73 13.91 12.032005 541 0.39 7.58 6.552006 303 0.05 2.06 1.73

Subtotal 9,656 8.23 113.48 100.00Source: FHIS-July 2006. Note 1. The number of subprojects takes into account the total number of investments, including investments under the pilots. Note 2: Government Contribution is only for investments and excludes FHIS operational costs, a significant part of which was also covered by the Government budget.Note 3: Given that IDB and KfW also used the poverty map and targeting and that their projects contributed to the same development objective, the ICR includes IDB and KfW disbursements between 2001 and 2006.

Both in terms of number and amount of subprojects, education and social assistance were most important, as shown in Table 3.

Table 3. Subprojects by Sector over the Period 2001-2006 (IDA, IDB, KfW and Government)Areas Beneficiaries Number of

sub-projectsAmount

(in $US million) (3)Social Assistance 1) 278,836 4,270 17.14

Education 487,031 3,368 65.20Health 642,797 661 13.69Water 158,406 378 8.22Informal Sector 3,922 28 0.32

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Other 2) 913,787 951 17.14Total 2,484,779 9,656 121.71Source: FHIS – July 2006. Note 1: Social assistance includes Nuestras Raices and FIDAS. The number of beneficiaries of the NR program is in terms of heads of households. Note 2: The category “Other” includes among others environment, small economic infrastructure, multi-sectoral subprojects, and municipal investments. Note 3: The amounts include government counterpart funding. They do not include community contributions, since those only got quantified in the last two years.

The investments included 4,270 social assistance subprojects aimed at improving the livelihoods of minority ethnic groups through Nuestras Raices, and children and youth at risk, the elderly, the disabled through FIDAS; in education, they included construction, extension, and rehabilitation of 3,368 schools. In terms of financing, education represented the bulk of FHIS’ subprojects with 54 percent of total investment funding, followed by social assistance (14 percent), and, to a lesser extent, health, municipal investment, and water/sanitation investments.

Component 2. Pilot and Special Programs:

(a) Pilot Program for Local Institutional Strengthening (US$8.70 million, IDA US$6.92 million equivalent). This sub-component is rated satisfactory. Its achievements are measured along three dimensions which are described below:

(i) Participatory municipal planning.The objective of this sub-component was to improve identification and prioritization of social infrastructure needs through a systematized, participatory, and transparent municipal planning process to improve its allocative efficiency. The planning process was based on an open menu to encourage diversity of investments according to local needs. The planning process was intended to plan for any investment in the respective municipalities, not only for FHIS investments. The pilot started in late-2001 in 27 municipalities. The participatory planning was conducted in a transparent manner with the participation of all relevant actors (communities, representatives of community assemblies, sector ministries, and mayors), and was endorsed by community leaders, laying the ground for a legitimate planning mechanism. The pilot also allowed for strengthening the planning capacity of communities and the working relationship between communities, municipalities, FHIS, and other entities involved with the training for municipal staff and community leaders aimed at promoting the use of the guidelines produced by FHIS in collaboration with the Ministry of Governance and Justice. The methodology used under the pilot was validated in October 2003.

Probably most significantly, the participatory municipal planning methodology developed by FHIS was then used by the Ministry of Governance and Justice to define a national methodology for 'Strategic Municipal Development Planning' (Planificación Estratégica de Desarrollo Municipal – PEDMs) that was approved by the Social Cabinet in late and 2003, and is now implemented regularly nationwide.

(ii) Transfer of functions and responsibilities for subproject management to municipalities and communities. A second goal of the pilot was to test whether efficiency and accountability of investments improve when FHIS delegates to local governments the responsibility for project design and implementation. The pilot was to start with a group of 20 capable municipalities and, after the first two years, an evaluation would determine whether to include a second batch of municipalities to

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continue with the same group, or to discontinue the pilot.

The target of 20 municipalities was exceeded. FHIS developed criteria for the selection of pilot municipalities which included the technical, managerial and financial capacity of municipalities to manage investments. Twenty-one municipalities

participated in the pilot, including a group of seven municipalities with weak capacity regrouped as a single entity in a “mancomunidad”. The first phase started only in August 2002 due to the need to train municipal staff and develop appropriate manuals and guidelines. In addition, subsequent to changes in FHIS’ top management, disbursement related to the first phase of this component was slowed-down until 2003, which further delayed the implementation of the municipal strengthening pilot. Nevertheless, the outcomes of pilot provided sufficient evidence that municipally-managed subprojects met the quality standards of centrally managed subprojects while their costs were similar or below centrally managed subprojects, FHIS decided to expand this experience more rapidly than originally planned. By the end of the project, FHIS had decentralized the management of subprojects to 150 of the 298 municipalities in the country, leaving out those that did not have the administrative and financial capacity to manage funds appropriately. FHIS also encouraged the creation of several “mancomunidades” which were a particularly appropriate way for smaller municipalities to join the effort. Overall, the pilot benefited from the Government’s emphasis and support for decentralization and local government, and, in turn, it provided valuable experience and capacity building to support an organized decentralization process.

In addition to the systematic strengthening of municipal capacity for managing local investments, FHIS also started working more intensively with communities, introducing a new methodology for community execution of subprojects (CDD). As a result, over 200 subprojects were implemented entirely by communities who contracted the technical and organization assistance they needed to properly comply with FHIS standards and accounting rules. Anecdotal evidence shows that many communities saved money in implementing subprojects since they provided unskilled and skilled labor free of charge, as well as materials (sand, stones, etc.) and tools. These savings were often invested in complementary works (e.g. a fence for a day care center, an outdoor water fountain for a school, etc.) which made the investments more valuable and sustainable. This experience with community implemented subprojects was the first of its kind in Honduras and is now being used as an example in other programs.

The institutional strengthening of FHIS, municipalities and communities played a key role in achieving the described results. A Municipal Assistance Unit was established in FHIS in 2002, responsible for implementing the pilot and coordinating technical assistance, equipment and the transfer of funds to ensure proper capacity of municipalities and communities, to hire technical staff, and to provide equipment, especially for small municipalities at the start of the pilot. FHIS used the method of a special account to transfer funds to the decentralized municipalities for which FHIS Financial Department was responsible. At the municipal level, technical units (2) in charge of the subproject management cycle were either strengthened or established, and were given the mandate to execute subprojects in accordance with FHIS guidelines. Community implementation included a strong component of technical assistance (through local technical experts and community workers contracted by the community), training (based on newly developed materials), and intensive accompaniment of FHIS field staff and contracted supervisors.

The pilot and its subsequent expansion also influenced the country’s decentralization policy. Important progress was made during project implementation regarding the division of labor between FHIS and the Ministry of Governance and Justice which previously had not been well defined. The division of labor

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was established in the following way: FHIS’ mandate was defined to assist municipalities with the establishment of systems and procedures for investment management, the Ministry of Governance, in turn, is in charge of strengthening the financial and administrative capacities of municipalities. While this was an important clarification of institutional responsibilities at the policy level (supported by the IDA), the institutions have not yet succeeded in getting management to implement these complementary mandates in a coordinated way at the local level despite constant encouragement to do so (e.g. through the joint development of annual operations plans) by the Bank.

(iii) Preventive Maintenance. A third aim was to formalize and strengthen systems for planning, financing, and implementing preventive maintenance at both municipal and community levels. Specifically, the pilot sought to improve the maintenance system designed by FHIS for standard works, and to prepare a plan to expand this system to all investments. The pilot was to include three aspects of preventive maintenance: technical applications, organizational responsibilities, and financing of activities. It was planned to start in 2001, and to operate in the 30 municipalities, including those particparting in the participatory planning pilot. An evaluation was planned from the beginning to determine the expansion of the tested procedures to the rest of the municipalities.

As planned, the pilot took place over the 2001-2003 period in 30 municipalities. It sought to achieve its objective through the execution of preventive maintenance focused on health and education infrastructure built since 1998 in the participating municipalities. NGOs trained by FHIS provided technical assistance to municipal staff and local organizations to promote the use of maintenance manuals, including: (i) Manual del Fondo Muncipal de Mantenimiento Preventivo, describing preventive maintenance budget management, and establishing rules for the contribution by both municipalities and communities to preventive maintenance costs. The budget for the pilot came from a transfer from the Ministry of Governance and Justice

(3) to FHIS (US$ 4,000) and an estimated contribution by municipalities and communities of US$ 2,000, the total amount being the estimates for standard cost for preventive maintenance. An agreement was signed between FHIS and the respective line ministries to define and agree on the contribution of the latter entities, and (ii) Manual de Procedimiento de la Prueba Piloto de Mantenemiento Preventivo which defined the roles of the different relevant actors.

The pilot was completed with the results that municipalities as well as communities were more familiar with annual maintenance planning and the technical, fianncial and organizational tasks. In particular, it provided all relevant actors with key insights into how to improve the country’s preventive maintenance system in the following areas: (a) Committee in charge of the execution of maintenance.The existing community maintenance organizations had proven not to be sufficiently well-organized, sustainable, and effective in addressing preventive maintenance over the medium-term. Preventive maintenance could be more sustainable when managed by existing community organizations with a particular interest in the respective facility, such as parents’ associations in education and local beneficiaries committees in health; and (b) Financing mechanisms.The mechanism to generate budget for preventive maintenance needs to be strengthened: subprojects in both education and health sectors did not have a proper mechanism to generate sufficient resources at the community level to cover their estimated contribution to standard cost for preventive maintenance, and line ministries did not secure budgets for preventive maintenance in the National Budget. In addition, some municipalities did not use the totality of funds allocated for preventive maintenance as required by law.

Thus, effective preventive maintenance and its expansion to a larger scale requires more successful efforts to achieve national consensus with the view to refine institutional rules/arrangements that would

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ensure a regular flow of funds, clarify the roles of the entities involved in preventive maintenance, and improve budget enforcement. A first step was taken with the increase of tranfers to muncipalities under the new municipal law of 2005 (4). However, commitment of line ministries and municipalities needs to be enforced, since communities alone could not be expected to secure enough funding for preventive maintenance. These recommendations were reflected in FHIS’ new maintenance manual finalized in July 2005.

Overall, the impacts of the Pilot Program for Local Institutional Strengthening are probably among the most important the project has developed for the country. The pilot program strategically coincided with the time when decentralization and local development were high on the government agenda so that lessons and newly developed instruments fed into policy making and enhanced institutional coordination horizontally as well as vertically. Furthermore, the program provided a big push for the capacity of local governments and communities to manage local planning processes and investments, which in turn empowered these local organizations and strengthened their collaboration, thus contributing importantly to the local development process and gains in governance.

b) Pilot for Rural Water and Sanitation (RWS) (US$5.40 million, IDA US$5.15 million equivalent). This sub-component is rated highly satisfactory. The objective of the pilot project was to establish and test an intervention approach and institutional arrangements that would later be applied to mainstream FHIS water and sanitation investments in rural dispersed areas. Three institutional arrangements key to supporting the pilot were identified in a consultative process that included FHIS and key players in the sector: (i) delegation of project cycle to municipalities; (ii) contracting of NGOs or firms to work in partnership with communities from the beginning to the end of the project cycle; and (iii) contracting of the communities themselves (CDD) which, in turn, can subcontract service providers of their choice to support them in the implementation of the subprojects. As a basic policy, all water/sanitation subprojects were to include provisions for community organization, sanitation, and training in operation, maintenance, and hygiene.

Training subjects included the promotion of the pilot’s objectives and strategies, the presentation of the Operations Manual, the guidelines detailing each of the three possible institutional arrangements, and the corresponding financial policy. Funding of the subprojects was similar for all implementation models: communities contributed 30 percent (including community labor and local building materials), municipalities 5 percent (in cash or in kind), and FHIS 65 percent of the total cost. Cooperation with NGOs resulted in additional contributions of at least 15 percent of the total cost. All communities were able to contribute their agreed shares.

Despite a slow start of the pilot due to necessary preparatory work, the projected outcomes of the pilot were exceeded. The program financed 156

(5)

water/sanitation subprojects benefiting more than 55,000 users, compared to the projected 100 subprojects for 30,000 users at appraisal. In addition, FHIS had 150 system designs ready for implementation subject to further financial support. Subprojects under the pilot used an ex-ante/ ex-post evaluation method which is regarded as “best practice”. Due to the employment of new technologies and decentralized implementation, the cost-effectiveness of water/sanitation subprojects was improved, from an average per capita investment cost of US$150 under central FHIS implementation, to US$121 per capita cost for gravity systems, US$134 for electric pumping, US$153 for distance pumping, and US$172 for rain catchments (previously not implemented by FHIS). In addition to the three decentralized arrangements that were tested, FHIS implemented 30 water subprojects at the request of municipalities with insufficient management capacity. Based on the results of the pilot study, and following the new Law of Potable Water and

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Sanitation enacted in September 2003, which delegated the responsibility for Rural Water and Sanitation (RWS) service provision to municipalities, FHIS selected a modified model of delegating the subproject cycle to municipalities. Under this model, communities manage the full subproject cycle, and municipalities provide technical assistance and transfer funds to communities. This implementation model proved to be an efficient and appropriate way to reach poor and dispersed rural communities with quality, sustainable RWS services. The above experience was documented by FHIS in association with the national water/sanitation network, and disseminated to all agencies involved in the RWS sector.

c) Social Assistance Innovations Fund (FIDAS) (US$ 5.35 million, IDA US$5.35 million equivalent). This pilot is rated satisfactory. It was meant to foster the development of innovative approaches to address the needs of key vulnerable groups, by providing financing for proposals (submitted by NGOs, community organizations, and the private sector) on the basis of a competition overseen by a Steering Committee of key stakeholders. Selection criteria included the defined target groups and target themes. Two annual competitive funding cycles were planned, each targeting one or two specific target groups. FIDAS also included an institutional training component designed to strengthen the design and execution capacity of the service providers.

As described in more detail in the evaluation report summarized in Annex 9, prior to launching the program, and at the beginning of each funding cycle, promotion activities were carried out through the media to provide information about the program to service providers and targeted beneficiaries. Despite a late start due to the need for intensive training for service providers, and a reduced number of funding cycles (three instead of five), the promotion of the program resulted in a great number of service providers competing for the funding, pointing to the transparency and success of the promotion of FIDAS. A Steering Committee

(6) was created to select the subprojects. Innovation under FIDAS consisted of the participation of community groups as service providers and the involvement of groups of volunteers. NGOs accounted for most of the subprojects for each target group (7).

The institutional impact of FIDAS is significant. It developed several manuals

(8)

to help service providers improve their administrative systems as well as their strategic and operational planning tools including the establishment of targets and a baseline for monitoring and evaluation. In addition, each of the subprojects had to develop a sustainability plan with different levels of implementation, including alternative and complementary actions to continue the promotion of the objectives and operations of the service providers. Statements from participants at all levels indicate that the outcome of the capacity building led to the creation of sustainable networks and improved management capacity of service providers. Furthermore, the conceptual framework introduced by FIDAS changed the line of action of NGOs and other service providers, and succeeded in creating a better common understanding of different concepts, methodologies, techniques, and tools.

As reported in the case study evaluation report (see Annex 9), monitoring and supervision of subproject implementation were particularly challenging. Service providers complied with all of the required reports by FIDAS’ management, but FIDAS did not develop an MIS to allow for systematic monitoring/supervision. As a result, although the beneficiaries from different special needs and vulnerable groups praised the positive impact that FIDAS financing had on their lives, in particular through training and capacity building, it was difficult to measure the declared impact (9).

d) Nuestras Raices (US$11.79 million, IDA US$11.27 million equivalent). The outcome of this pilot is rated satisfactory. It aimed to improve the living conditions and promote social capital in indigenous

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and Afro-Honduran communities by financing small-scale subprojects (identified by the communities, and selected according to eligibility criteria established by FHIS and the indigenous peoples’ federations), using paid labor of community members. After completion of each subproject, community members could invest their earnings in follow-up subprojects (typically small-scale infrastructure or the establishment of a small community bank). Financial and institutional strengthening of ethnic federations and training of communities, coordinators, FHIS staff, and ethnic liaisons were to be substantial elements of the program to help them organize, administer, manage and monitor small-scale projects, and to improve their ability to preserve their cultural values and heritage

As described in more detail in the Nuestras Raices(NR) ex-post evaluation report summarized in Annex 10, the program was the fourth phase of the 1994 established NR program. It was initially planned to be executed within three years, but its execution was accelerated and it finished sooner. Despite the short duration of the program, all of the planned activities were completed, and the outcome was generally positive. First, NR/FHIS strengthened the ethnic federations’ offices to build their management capacity in order to allow them to perform their role as leaders and increase their legitimacy during project implementation. Second, group coordinators and ethnic liaisons were formed and trained to mobilize communities and to organize, administer, and monitor subprojects. Subprojects were selected in a participatory way according to eligibility criteria established by the federations of ethnic groups and FHIS. Community members were fully involved, with 92 percent of the beneficiaries participating in the selection and ratification of the subprojects, and 76 percent of the beneficiary community population benefiting or expecting to benefit from the subprojects. Beneficiaries were provided with tools and with cash equal to 15 days worth of pay per household to execute the selected subprojects. Third, beneficiaries saved on average six (6) percent of their revenues in community banks, although this is lower than what was initially planned (50%). A total of 3,668 community banks were operational, of which 2,127 were established under the program and 1,541 previously established groups were strengthened. Group coordinators in community banks were trained to ensure rural banks functioned adequately.

The evaluation report also identified room for improvement in this program. First, training of community members could have been strengthened in order to improve communities’ understanding of some aspects of the program concept, strengthen their organization and motivation, and deepen the intended results. Second, follow-up training and quality control could be strengthened to improve subproject sustainability since financing was only provided for labor, but not for materials, equipment, and technical assistance. Third, the administration of the community could be strengthened through a better regulatory and supervisory framework and training of community members responsible for their management. It should be noted that all of these aspects were addressed in the follow-up, self-standing Nuestras Raícesproject.

Component 3. Project Management (US$ 15.60 million, IDA US$0.89 million equivalent). This component is rated marginally satisfactory. It includes (i) FHIS operating costs; (ii) institutional strengthening (training, technical assistance, study tours, and workshops to improve FHIS operations); (iii) equipment and vehicles; and (iv) external auditing.

As evidenced by the creation of the units in charge of the different pilots, the project and the relating objectives, as well as the funding of the related subproject activities put emphasison the strengthening of FHIS’ capacity. Out of the total project management cost, FHIS operating costs amounted to US$13 million or 9.5 percent of the total project costs, slightly lower than the rate projected at appraisal, and were in line with the average rate of operating cost for FHIS’ total investment (10).

Approximately

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US$2.6 million financed various items such as equipment, vehicles, technical assistance for monitoring and impact evaluation and for municipalities, and other project management related expenditures.

The project itself was satisfactorily implemented with a nine-month extension of the closing date of the Credit. Most of its pilots quite successful and immediately replicated by FHIS and, for example in the case of water/sanitation, even beyond the institution. However, financial management and the MIS were relatively weak, which affected the performance of the executing agency (see section 5.4).

4.3 Net Present Value/Economic rate of return:Because the project was expected to be fully community demand-driven, and was basically a line of credit, no cost-benefit analysis was carried out at appraisal.

4.4 Financial rate of return:Not applicable.

4.5 Institutional development impact:The project’ institutional development impact on central and local government agencies, NGOs and communities, as well as the private sector, was substantial.

(a) Decentralization and Local Development. FHIS has had an important influence on the Honduran Government and on its relationship with the municipalities. The legitimization of participatory planning as a mechanism to empower communities and promote their participation in decision-making processes that affect their lives, and to identify and prioritize local investment was a major achievement under the project, as it was established nationally through Social Cabinet approval. Equally important was the step taken in delegating subproject management (including preparation, implementation and maintenance) to municipalities and communities (depending on the complexity of the investment and the capacity at the local level) - accompanied by technical assistance from FHIS - which resulted in the strengthening of municipalities’ and communities' technical capacity. Both approaches resulted in stronger collaboration between municipalities and communities, thus fostering the local development process. These innovations were initiated by FHIS and they are now firmly anchored at the national level. Finally, important processes for social accountability were introduced, as much through the participatory municipal planning process as through newly developed procedures and responsibilities of communities in the execution of subprojects (e.g. controls of contractors, supervisors, etc.). (b) FIDAS. The establishment of the Steering Committee to oversee the transparency and the efficiency of subproject selection in social assistance was a key step to improving coordination in social assistance programs, and starting a social protection policy dialogue. Currently, the Steering Committee is actively participating in the PRSP committee at the national level. Training provided to service providers strengthened their capacity to administer and execute subprojects, including preparation of proposals for funding, establishment of a baseline, and monitoring and evaluation, and therefore improved the prospects for sustaining improved service delivery system.

(c) Rural Water and Sanitation Sector. The RWS pilot was of crucial importance in promoting national reform aimed at strengthening the roles and capacities of municipalities to plan, manage, and maintain local infrastructure investments by using participatory and transparent methods. The Technical Cooperation Agreement, signed in April 2005 by the main water sector normative agency (Servicio Autónomo Nacional de Acueductos y Alcantarillados - SANAA), and FHIS, to adopt and promote the institutional models recommended by FHIS at the national level, provides the legal and institutional platform to apply the pilot’s lessons learned. The resulting "Strategic Program for

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Modernization of the Water Sector" was finalized, approved by the Government, and is now under implementation. It is the only sector strategy that survived the administrative transition of 2005, which is testemony to the way all stakeholders were involved in its design and formulation. In addition, the by-law documents were developed to establish Rural Water Associations, providing the delegation of the subproject cycle to municipalities an instrument to improve the coverage of rural communities with quality RWS services. The agreement signed in 2003 by FHIS with the Alliance of Leading NGOs in Honduras (CARE, Save the Children, Vision Mundial, Plan International, Catholic Relief Services, and Aldea Global) contributed to promoting the adoption of a community-based strategy and ensuring the ongoing presence of those NGOs in strengthening technical assistance for operation and maintenance after the conclusion of the subproject cycle, while greatly improving community implementation capacity.

(d) FHIS’ Institutional Capacity. FHIS’ capacity as a vehicle for community empowerment and for pushing the decentralization agenda was strengthened and enriched by the pilot for institutional strengthening. The project markedly shifted FHIS’ role towards a facilitator for local development processes and capacity building. In addition, it opened a dialogue in the country on the protection of the most vulnerable groups which had not received similar appropriate attention before. Thus, FHIS chose the right direction and the project provided the institutions with the opportunity to develop the strategic agenda of decentralization and local development, as well as social protection for the most vulnerable.

FHIS arguably operated efficiently through the application of adequate methodologies and processes for all phases of the subproject management cycle - including resource allocation, subproject identification, formulation, evaluation, contracting, and supervision. This could have been institutionally better capitalized if the changes in FHIS senior management, subsequent to the presidential elections in 2001 and 2005, and followed by changes in middle management and staff and approaches, did not affect progress in key areas in FHIS functioning. For instance, the MIS could have been kept up-to-date so that many innovations could be processed through a unified system; the much needed strengthening of FHIS’ Finance/Administration Department was significantly delayed although it had had an increasingly dominant role, which caused frequent problems as repeatedly pointed out by Bank supervision missions. FHIS’ procurement was carried out satisfactorily, albeit some administrative weaknesses that appeared over time (organization of files, archiving, etc.) which also seem to be affected by staff rotation. However, the contracting department managed the progressive introduction of oversight and technical assistance to municipalities successfully. The need for substantial training to improve knowledge of procurement procedures of participating municipalities did initially result in contracting delays, but this was well addressed by FHIS. Corrective action included the hiring of supervisors who reviewed sub-projects as well as advised municipalities on procurement processes and procedures, leading to satisfactory administration and quality of the works.

In 2003/04, a national discussion on the future role of FHIS in the country's development was initiated by the Presidency with participation of the development partners. The question was put forth if FHIS was still needed in the country, and which role and responsibilities it should have in the future given the increased fiscal transfers to municipalities, improved health and schooling indicators, and the Ministry of Governance and Justices’ stronger appearance and political responsibility for local governments. The Bank contributed to this debate with a discussion paper (see Annex 7) confirming FHIS’ important role in the decentralization and local development process, but also outlining the need for FHIS to change and develop into a second tier financing institution. As a consequence, several Bank investment operations (Urban Development Project Barrios Ciudad, and Rural Infrastructure Project – PIR) were placed in FHIS for their implementation.

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5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:None.

5.2 Factors generally subject to government control:Government commitment and counterpart funding. The Government continued to be fully committed to the crucial role of FHIS in its poverty alleviation efforts as shown by the generally sufficient budgetary support for FHIS (US$21.3 million in funding for both investment and operations, representing 15.5 percent of total project funding).

Changes in FHIS’ management and staff. During project implementation, the FHIS' Executive Director was twice replaced following presidential elections. This also resulted in major turnovers in the other managers and staff and, thus, in a loss of institutional memory, and the persistence of MIS and Financial Management problems.

Deficient coordination with Ministries of Education and Health through Social Cabinet. Despite the existence of detailed agreements between FHIS and the ministries, actual cooperation was limited. The ministries officially endorsed the design and location of facilities selected by the municipalities and communities, but did not always deliver on promised support for maintenance of completed facilities. The Social Cabinet did little to remedie these limitations.

Implementation of decentralization policy. FHIS’ focus on municipal and community management for subproject implementation and maintenance was greatly facilitated by the new Municipal Law of 2002, providing the municipal governments with increased resources for investment (co-) financing and maintenance.

Uncertainties about FHIS’ role and mandate. FHIS faced various challenges with regard to central government’s policy toward the institution. First, the Ministry of the Presidency and others embarked on a discussion about the future role of FHIS which required FHIS attention and responses, thus diverting capacity which was much needed in the field. Second, FHIS was given more and more responsibilities for the implementation of different programs. Some of these programs, like the “Healthy School” program (Escuelas Saludables), which was previously managed by the Presidency but then passed on to FHIS, helped FHIS develop, for example, a more integrated community development approach as opposed to isolated subproject interventions. Other programs, however, such as the “Manos a la Obra” program, an infrastructure program financed by Congress during the last year of President Maduro’s administration, was clearly motivated politically and stretched FHIS' institutional capacity and moral. Without clear targeting criteria and not following FHIS' regular project cycle (including procurement guidelines), this program rather diverted attention and staff from FHIS’ regular operations thus causing delays. It also brought in a lot of new staff that seemed to be selected based on political affiliation rather than professional merit. In addition, it confused communities and municipalities about the different “hats” and procedures of FHIS staff. These developments rather weakened the institution during the final phase of the previous administration, and took away some of its credibility which it worked to hard to gain over years. The new administration seems to have a clearer view of the role and mandate of FHIS for the country's development. However, it will take time to re-build some of the institutionality that was destroyed.

5.3 Factors generally subject to implementing agency control:Good coordination of FHIS with Ministry of Governance and Justice, and the Honduran Water

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Authority. FHIS’ coordination and cooperation with these agencies was excellent, with all parties benefiting from the results of the pilots carried out under the project. The Ministry of Governance and Justice elaborated with FHIS the manual for the pilots for institutional strengthening, and provided support to municipalities, especially regarding contracting issues. The excellent cooperation between FHIS, SANAA, and the NGOs involved in RWS projects, under the umbrella of the Honduras Water and Sanitation Network, allowed for agreements between all actors concerned on the most appropriate policies and methodologies.

Management issues. Apart from the general management issues related to frequent staff turnover, financial management was relatively weak and uncooperative within the institution, and the MIS should have received more attention from senior management interest (see also section 4.5).

5.4 Costs and financing:Project cost at appraisal was projected at US$176.0 million, to be funded by US$60.0 million from IDA, US$60.0 million from the IDB, US$7.5 million from KfW, US$28.5 million from the Government, and US$21.0 million from unidentified bilateral sources. Actual total project cost was US$137.5 million equivalent, or 78 percent of the originally planned funding, of which IDA financed US$63.6 million equivalent (the US$3.6 million increase can be ascribed to exchange rate fluctuations), IDB US$43.8 million, KfW US$8.7 million, and the Government US$21.3 million (11). The amount of IDB funding was reduced by the decision to split a new US$ 30 million loan, prepared in 2003, between the Ministry of Governance and Justice (US$ 10 million), and FHIS ($20 million) in accordance with the consensus reached regarding the division of labor between these two institutions. Government funding, too, was slightly less than projected.

As for the originally projected US$21 million from “unidentified bilateral donors”, it should be noted that FHIS has always received, and continues to receive, substantial funding from a great number of additional sources, including key bilateral agencies (USAID, Spain, Taiwan, and Japan) and multilateral agencies (European Union). These contributions are not reflected in the actual project funding mentioned above, since they did not fully fit the project objectives and methodologies. Still, total funding outside the project amounted to US$106 million

(12)

giving the project a major impact on FHIS’ policies and methodologies. Table 4: Actual and Projected Project Financing in US$ million (2001-2006)

(13)Appraisal Actual 1)

IDA 60.00 63.64IDB 60.00 43.85KfW 7.50 8.68Government 28.04 21.31Unidentified bilateral donors 21.00 -Total 176.04 137.48Source: FHIS. Note 1: These amounts do not include the community contributions, since those only got quantified during the last two years of project implementation. Strengthening of financial management was much needed but was delayed as mentioned previously, and FHIS only started to implement an action plan intended to address the identified weaknesses at the end of the project. Over the life of the project, FHIS used four different systems to manage financial information, with each system containing partial information, creating difficulty in harmonization of information (for example, with respect to sub-project implementation, the MIS often had different information regarding sub-project expenditures than the accounting system). Additionally, the charts of

- 20 -

accounts were not able to capture financial information by project component or sources of financing. The rating given for FHIS’ financial management performance is thus moderately unsatisfactory.

6. Sustainability

6.1 Rationale for sustainability rating:Sustainability is likely, and this rating relates to three aspects: (i) the physical sustainability of subproject investments, (ii) institutional strengthening at the local level, and (iii) the sustainability of FHIS as an organization aiming to increase access of the poor to social and economic infrastructure according to local development priorities. Regarding subproject sustainability important progress was made at several levels: (i) the participatory municipal planning process was strengthened and introduced nationwide to ensure priorization of investments in accordance with community needs; (ii) supervision was strengthened, and social auditing became common practice; (iii) communities were empowered to identify, select and implement subprojects, and there was more intensive involvement of communities in all phases, which proved effective in improving the quality of subprojects, and increasing communities’ contribution to operation and maintenance costs; (iv) a stronger coordination between municipalities and communities was encouraged which fomented social cohesion and governance; (v) municipalities and communities were trained and equipped with manuals to carry out preventive maintenance; (vi) in education and health, key lessons learned from the pilot for preventive maintenance regarding financial contributions at the level of communities were reflected in FHIS’ manual; and (vii) in water, a financial policy of establishing a fee covering at least operation and maintenance costs (including chlorination, payments for local operators, tools and spare parts) was adopted at the national level. In addition, it is expected that the implementation of recommended practices in water basin protection will have a positive impact on improving the continuity and quality of the water source.

However, communities and municipalities are usually limited to financing and carrying out of preventive maintenance. More would need to be done in clarifying and setting institutional rules through a “maintenance contract” at the central government level to ensure that adequate funds are secured and clear responsibilities are agreed among relevant actors. The effectiveness of the agreements with line ministries needs to be addressed if curative maintenance is to be improved.

Another aspect contributing to the sustainability of the impacts of subprojects on health and education relates to improved staffing (doctors and teachers) and related ratios. In facilities constructed between 1998 and 2002, staffing of health centers and teacher/student, teacher/classroom ratios improved considerably compared to earlier periods. Additionally, a comparison between FHIS- and non-FHIS communities shows that the former group has higher/better percentages for these indicators (see Annex 8).

In terms of the sustainability of the project’s institutional building efforts, the outcome of the transfer of implementation responsibilities to municipalities proved successful in improving FHIS’ investment efficiency. Still, to roll out the delegation of the project cycle to the remaining 50 percent of municipalities will be a challenge since their capacities are even weaker than those municipalities that have been included so far. New mechanisms must be developed to address these weaknesses, including the promotion of mancomunidades. In the area of social assistance, the establishment of the Steering Committee, and the participation as well as the strengthening of a wide range of service providers under the FIDAS program, provided opportunities to enlarge the range of interventions and strengthen the coordination among actors. Several lessons were drawn from that experience to improve the

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prospects for better targeting, inclusiveness, and coordination of social assistance activities. As reported in the evaluation report of FIDAS, the service providers’ capacity was strengthened. The Nuestras Raices program has shifted to a more ambitious approach, which aims to establish a more inclusive mechanism, culminating in ethnic community development plans which would prepare ethnic communities to better participate in the municipal development planning process; this is pursued under the follow-up project mentioned above.

FHIS’ sustainability as an institution is also likely. FHIS is receiving significant funding from both the Government and donor agencies, and will continue to be a key player in the provision of small-scale infrastructure and local development. The pace at which decentralization could be achieved depends on several factors, most of which are systemic, and/or out of the control of FHIS. Whether FHIS will also continue to finance social assistance programs, or merely serve as an incubator for innovative programs a la FOSIS in Chile remains to be seen.

6.2 Transition arrangement to regular operations:FHIS’ future role in the country’s poverty alleviation efforts is expected to focus increasingly on decentralized operations, empowering local governments as well as communities in carrying out their local investment needs. The line ministries continue to show considerable capacity constraints in efficiently implementing small scale investments, and FHIS’ experience in building the capacity of municipalities, communities, and NGOs is well recognized. It is also recognized by donors which continue to charge FHIS with the processing of projects dealing with social infrastructure and local/regional development processes. With several initiatives being prepared (including the establishment of a fund to provide loans to municipalities for key investments and the establishment of a national database of contractors and consultants to support municipalities and communities in their subproject cycle management), the decentralization process including FHIS’ key role in it, is expected to move forward gradually as part of the general agenda of the Government.

7. Bank and Borrower Performance

Bank7.1 Lending:

Satisfactory. The project was well-designed, and appraisal covered all relevant organizational and social issues. The Bank's team included all necessary expertise. Risks were properly identified but some of the actions agreed at appraisal to deal with them did not fully work since they were beyond the Bank’s and FHIS influence (e.g. FHIS management changes after elections, see section 3.5). However, it should be noted that, by initiating pilots and by providing substantial resources to FHIS, IDA continued much needed support to finance crucial investment and institutional development, both of which contributed to critically important orientation changes. These in turn, helped advance key development aspects, which sustained efforts aimed at increasing the access of the poor to social and economic infrastructure, and at strengthening local participation.

7.2 Supervision:Satisfactory. Supervision was adequate, and again provided for the necessary expertise. To provide for close and immediate contact with FHIS during the early years of the project, IDA appointed a coordinator in its Tegucigalpa office to monitor and facilitate project processing. Supervision missions provided guidance and technical assistance in strategic areas such as the decentralization process, participatory planning, and community execution of subprojects, as well as on operational aspects, with much success in accompanying the pilot programs, but much less success in reforming and improving key administrative areas. There was exemplary collaboration among donors, particularly KfW, IDB and World Bank, who regularly carried out joint missions, provided consistent advice and

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harmonized fiduciary requirements as far as possible.

7.3 Overall Bank performance:Based on the above inputs, this is rated Satisfactory

Borrower7.4 Preparation:

Satisfactory. FHIS’ management and staff were very much involved in, and dedicated to, preparing a project with activities and pilots designed primarily to improve FHIS impacts on the country’s much needed basic social services. Lessons from previous experience and evaluation results, were incorporated into project design to strengthen FHIS’ processes and methodologies, and to push the limits and evolve FHIS into an incubator for innovations.

7.5 Government implementation performance:Marginally Satisfactory. For some of the expected outcomes of the project, an effective collaboration between FHIS and relevant line ministries was required. Overall, the quality and effectiveness of this planned collaboration is mixed. The Ministries of Education and Health did not contribute to necessary preventive and curative maintenance although their active participation was key in ensuring regular flows of funds for preventive maintenace. On the positive side, however, the Ministry of Governance and Justice endorsed, and contributed to, the decentralization efforts initiated by FHIS, and the Water Authority, too, worked closely with FHIS technical staff in agreeing upon the most appropriate rural water and sanitation models.

7.6 Implementing Agency:Marginally Satisfactory. While strategically strong, FHIS’ implementing capacity was affected by the frequent changes in managers and staff, with further implications for financial management and the information system over the lifetime of the project (see section 5.4). However, as mentioned above, FHIS’ contracting management was quite satisfactory. In addition, FHIS showed the necessary capacity to process a substantial investment program, as well as the completion and follow-up of four crucially-important pilot programs which laid the ground for major progress in decentralization, social protection, and the country’s water/sanitation sector.

7.7 Overall Borrower performance:Based on the above inputs, this is rated marginally satisfactory.

8. Lessons Learned

a) Limited, although increasing, municipal processing capacity. Major studies on municipal capacity and pilots covering an increasing number of the most capable municipalities provided substantial information on the type of mechanisms to be used to delegate responsibility to the municipal level. However, it is also evident that such delegation can only be gradual, since it should be implemented in parallel with substantial and ongoing capacity building efforts both in investment management and general municipal administration.

b) Importance of community participation. Community participation in all phases of the project cycle in a leading position as social auditors, managers, and responsible for operation and maintenance is essential, not only because of the need to ensure consistency of subprojects with community priorities, but also because subproject execution by the final beneficiaries themselves leads to more commitment, lower costs and thus sustainability.

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c) Community execution of subprojects is key to empowerment. Local development needs to balance the interests of local governments and communities. Community execution of investments, when financed through and supervised by local governments, is an excellent vehicle to strengthen local collaboration, local economic development, and last but not least governance and transparency at the local level which is crucial for a democracy. Community execution of project could also be a vehicle for stronger gender equality and solidarity with other vulnerable groups.

d) Importance of pilots and lessons learned. Because of the complexity of so many critically important local development issues, a substantial initial investment in pilot efforts can provide considerable pay-offs. Social funds can be vehicles for innovation and a risk-taking approach, which can provide useful insights for the larger government policy.

e) Maintenance of infrastructure. To be successful, maintenance needs a clear institutional arrangement and an established financing mechanism involving several entities, ranging from line ministries to municipalities and communities. Preventive maintenance is absolutely necessary but not sufficient. Ideally, maintenance would be addressed within a broader national policy, and be part of a general budgetary allocation. In some cases, lack of resources at different levels hampers effective maintenance arrangements to be operational, emphasizing the crucial importance of establishing alternative mechanisms to handle the operation and maintenance of completed facilities.

f) Importance of donors' alliance. The parallel financing of the FHIS program by several donors (mainly KfW and IDB) who collaborate intensively and work together on policy and operational issues, has been highly beneficial to the implementing agency (FHIS) as well as to the implementation of each project. In particular, the water/sanitation pilot project benefitted from the alliance with KfW, resulting in intensive technical collaboration, speeding up its implementation, and scaling up positive experience.

g) Importance of close cooperation with NGOs. NGOs’ experience with community development is of crucial importance, and NGO management should be considered where beneficial. For example, the relationship and cross-fertilization with NGOs through the Honduras Water and Sanitation Network enriched the pilot RWS strategy, and became a channel to quickly disseminate results, as well as to mainstream new investments. Similarly, NGOs’ involvement in FIDAS’ program helped reach a considerable number of beneficiaries and achieve better coordination of social assistance activities.

h) Importance of political process. The likelihood of the political process - for example its implications for staff turnover at the central and local levels and on management philosophy – impacting adversely on project implementation is often high. To the extent this can be foreseen, this needs to be taken into account, and sustained dialogue is needed to avoid disruption in project implementation, as it is often difficult to expect mitigation measures of such risks to be effective.

i) Importance of capacity building. Training is a key component of any project involving communities. To ensure high quality of project proposals and sufficient understanding of the project objectives, and thereby increasing the likelihood of achieving the projected outcomes, training needs to benefit both community leaders and community members.

9. Partner Comments

(a) Borrower/implementing agency:This section summarizes the key points of the Government of Honduras’ report. The report is more than 10 pages and per OPCS's instruction, was not incorporated in the ICR.

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Execution of FHIS sub-projects

Experience: The credit from the Bank allowed FHIS to include new elements into their execution of the program, including projects implemented by communities (CDD). An operational manual for the projects executed by the communities, PEC (Proyectos Ejecutados por la Comunidad), was also developed.

Lessons learned: it was shown that the inclusion of beneficiaries in the execution of their projects was feasible, safe and cost efficient. With training and support, communities are able to take on project administration responsibilities, obtaining very good results.

Impact: The quality of public works improved and experience was gained in decentralized project execution. This was achieved with the involvement of beneficiaries and municipalities.

Achievements: Projects were executed in time with high quality and at a lower cost than budgeted thanks to the efforts of the beneficiaries. Due to the decentralized project cycle, local administrative and technical capacities increased.

Execution of Special Programs

Pilot Program forLocal Institutional Strengthening: This program includes a range of initiatives designed to develop, test and learn from innovative ways of motivating and facilitating communities and governments to work together. Lessons learned from this program were, among others, that the participation of the local government is vital for the sustainability of the process, and that their participation also helped in: targeting the poorest sectors; obtaining transparency; and identifying concrete problems. Further, the application of community execution to the decentralization program allowed for the participation of municipalities with a low capacity to administer the decentralized process. The report also found that there is a need to implement incentives for municipalities that executed their maintenance plans in order to strengthen the population’s confidence in their own capacities, as well as the good faith of their authorities. There are few municipalities that do not comply with their share of the maintenance responsibilities. Key achievements and impacts of the pilot program are: (i) strengthened processes of decentralization and local self-management; (ii) communities and municipalities were empowered; (iii) a democratic and fair distribution of funds; (iv) improved quality and efficiency of projects; and (iv) an overall better working relationship between the program and the recipient municipalities and communities.

Programa Piloto para el Fortalecimiento de Servicios de Agua Rural y Saneamiento: The program began in 2003, with the objective of increasing the access of the poor to small-scale water and sanitation infrastructure. The program was implemented in communities with between 50 and 500 inhabitants and where the incidence of poverty was above 55 percent. The program was one of the first projects to implement communal execution of projects and thus helped institutionalize this approach. The project worked with, and created links to other agencies and organizations involved in water and sanitation (SANAA, NGOs and others). In order to ensure access to the water and sanitation systems, land holding rights and other legal aspects of the physical installations were established. A system to measure the quality of the water was also installed in all communities to ensure national standards were upheld. The achievements of the program were: (i) the development of a methodology for the inclusion and institutional coordination with communities in order to build cost-efficient and sustainable water and sanitation solutions; (ii) the provision of technical assistance, training, and financing of the

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sub-projects, using traditional and alternative technology and with the direct participation of local actors and NGOs.

Fondo Innovador de Desarrollo y Asistencia Social (FIDAS): This program component provides incentives for the development of innovative ideas to attend to special needs groups or vulnerable groups. It began in 2001 and ended in March 2006. Despite the successes and accomplishments of the program, it was not possible to create a dialogue that prioritizes greater investments in social inclusion in the country. Some key lessons learned from the program were that: (i) the need for a rights-based approach when aiming at developing opportunities for all; (ii) to achieve attitudinal changes in both individuals and businesses, a project should not last less than one year - preferably 18 months or more; (iii) not only the major NGOs, but also local churches and community associations can be efficient in reaching vulnerable groups; and (iv) despite lacking experience and often with lower educational levels, these smaller actors showed great initiative and capacity to execute projects and manage funds. The program also contributed to strengthening social networks.

Nuestras Raices: The program focuses on improving the living standards of the indigenous and black population in Honduras, through the implementation of community basic infrastructure projects. Local labor is used intensively in the projects. This is accompanied by incentives to save the money earned from this labor or to invest it in new productive activities. To assist with the latter, training and technical assistance was provided; 4,168 micro-projects have been executed, benefiting 125,040 heads of households, 42 percent of which were women. Capacity building has been provided for over 3,000 community leaders, over 400 ethnic liaisons, 310 FHIS liaisons and 50 leaders of ethnic federations. Throughout, efforts were made to include a gender equality perspective and to install solidarity with particularly vulnerable groups.

Target population

The target population that the program attempts to reach is:• The population in the poorest communities and urban and rural disadvantaged groups• Communities that currently do not have access to water and sanitation and who live in the poorest municipalities• Children and youth at risk• Disabled persons living in extreme poverty• Elderly living in extreme poverty• Ethnic groups

FHIS uses a ‘Poverty Index’ to steer resources to the poorest municipalities. In addition, FHIS uses a ‘project menu’ which includes the projects that tend to benefit the poor in particular.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):The German Development Bank (KfW) made the following comments regarding this ICR:

Thank you very much for sharing with us the Implementation Completion Report of the Fifth Honduras Social Investment Fund Project supported through the FHIS. We agree with the whole document. Additionally, we would like to highlight the following themes in the report:

1. The cooperation between World Bank and KfW has been an important factor for the success of both

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programs.

2. FHIS has had an important influence on the Honduran Government and on its relationship with the municipalities. This influence can be seen especially in the following themes: participative planning, project cycle's technical mechanism, municipal mechanisms for maintenance of projects and promotion of community participation on the decisions that affect them. These key issues were initialised by the programs financed through FHIS and they are now standard at a national level.

10. Additional Information

Notes(1) Source: Evaluación ex-post del Fondo Hondureño de Inversión Social (FHIS 3) – October 2005 - ESA Consultores. It should also be noted that although information about the targeting at the level of households is not available, the results from the second impact evaluation for the 1998-2002 period show a more progressive allocation than in earlier years (before 1998) with the index of progressivity increasing from 0.21 to 0.23. (2) Each unit consisted of at least an engineer and an administrative/MIS operator. (3) The amount equals five percent of the transfer from the Central Government (Municipal Law of 2000).(4) In the new municipal law of 2005, the maintenance share in the transfer to municipalities is 15 percent.(5) The 156 water and sanitation subprojects under the pilot are part of the total number of 378 subprojects in water and sanitation completed over the life of the project, including subprojects financed under the municipal investment plans.(6) The Steering Committee included representatives from FHIS, the Honduran Institute for Child and Family Welfare (IHNFA), and networks of NGOs involved in social assistance. (7) For the disabled and elderly, associations of beneficiaries accounted for the second highest share of subprojects, while churches were the second most important actor in dealing with children at risk.(8) Manual de Normas y Procedimientos, Plan de Implementación del Programa, Manual de Ejecutor y Guía del Supervisor, Estructura Organizativa del Programa y Plan de Adquisiciones. (9) Beneficiary surveys and case studies, suggest that the program: (i) provided education opportunities; (ii) reduced risks for children and youth; and (iii) created room for better livelihoods for the handicapped and the elderly living in extreme poverty. (10) The project operating cost was estimated at 11 percent of the project's total cost at appraisal. Between 2001 and 2005, FHIS' total operating costs fluctuated between a high of 17.0 percent in 2002 (during the first year of the incoming government) and 7.2 percent in 2005, with a satisfactory average rate of 11 percent.(11) These amounts include the SIF V Credit, as well as amounts disbursed by IDB and KfW during the 2001-2006 project implementation period. (12) Source: FHIS MIS.(13) About US$3.4 million in contributions from the beneficiaries is not included, since this type of contribution was not quantified by FHIS until two years ago. (14) Linking Community Empowerment, Decentralized Governance, and Public Service Provision through a Local Development Framework, SP Discussion Paper No. 0535. World Bank, 2005.

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

1. Increase in rates of access and utilization of social and economic infrastructure.

Rates of access to social and economic infrastructure:

Schools: 40%Water:40%Health: 90%

1/ - Rates of access to social and economic infrastructure:

Schools: 40%Water:40%Health: 90%

- 53% of subprojects are new infrastructure;

- Number of project beneficiaries: 2.4 million;

- Latest estimates of ex ante and ex post analysis in FHIS' communities show strong benefits to the beneficiaries (between 1998 and 2004):

(i) in education, school assistance of students between 6 and 12 years old increased by 9 percent between 1998 and 2004. Number of children enrolled in the grade corresponding to their age increased by 19 percent;

(ii) in health, percentage of people facing a severe health problem and seeking assistance from a health center increased by 14 percent; percentage of pregnant women making control visits to a health center increased by 11 percent;

(iii) the percentage of households with running water increased by 4 percent and the percentage of households that consumed water more safely (in terms of adequate treatment) increased by 11 percent.

2. Increased access among the disadvantaged / vulnerable to appropriate social assistance programs.

n.a 2/ - 153, 000 beneficiaries among the elderly, children and youth-at-risk, the disabled, in 17 of the 18 departments of Honduras through FIDAS;

- FIDAS subprojects selected through a transparent screening processed by a steering committee with networks of NGOs.

- 56 percent of FIDAS’ beneficiaries were women;

- 125,040 heads of households in the minority ethnic groups among the poorest communities direct beneficiaries of a cash transfer program of approximately US$8 million under Nuestras Raices;

- 42% of beneficiaries of the NR program were women;

3. Evidence that investments are targeted to the poor.

n.a 3/ - Per capita investment higher in the poorest municipalities (see Key performance n.6; Table of Output Indicator below); - Sectoral allocation in education, health, social assitance progressive highest in the poorest municipalities (annex 12). NB: Per capita water/sanitation investments lower in

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very poor municipalities than in poor ones, due to the need for significant water/sanitation investments in the aftermath of Hurrican Mitch, especially in larger cities particularly vulnerable to diseases caused by contaminated water.- Targeting at the household level not available yet at the end of the project.

4. Evidence that investments reflect the priorities of the targeted communities and beneficiaries.

n.a 4/ - Intensive and transparent bottom-up participatory planning adopted to select municipal investments.

5. Evidence that subprojects are in operation and maintained for a reasonable number of years, depending on subproject type.

n.a 5/ - Subprojects in operation due to better supervision, systematic social auditing. All subprojects included training on maintenance for communities.

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

1. Amount and number of subprojects; breakdown by type of subproject; evidence of quality of subprojects.

7,000 subprojects, amount n.a 1/ Amount of subprojects: US$121,7 million; number of subprojects: 9,656

Education: US$65,2 million; 3,368 subprojects.Social Assistance: US$17.1 million; 4,270 subprojects.Health: US$13.7 million; 661 subprojects.Water and Sanitation: US$ 8.2 million; 378 subprojetcs. Other categories: US$17.4 million; 979 subprojects.

- Projects of good quality as detailed in the 2005 impact evaluation report: works implemented between 1998 and 2002 have higher percentage of acceptable quality compared with those for earlier years: 97 percent of education, 93 percent of health, 79 percent of water, and 82 percent of sanitation rated “excellent” or “regular” ratings by communities.

2. (a) All municipalities carrying out participatory local planning exercises by project end; evidence of quality of such exercises;

(b) 20 municipalities managing subproject cycle;

(c) 30 municipalities with a coherent and working subproject maintenance plan.

n.a 2/ (a) Participatory planning used an intensive and a transparent bottom up approach. All municipalities are using this methodology to identify and select priority projects.

(b) Far exceeded. At the end of 2005, 150 municipalities, that is 50% of all existing municipalities, managed the subproject cycle.

(c) 30 municipalities participated in the pilot for maintenance; Municipalities’ staffs trained to use FHIS’ manual for maintenance and prepare maintenance annual plan; Communities trained during project implementation on maintenance practice.

3. (a) 100 sustainable RWS systems, benefiting 30,000 users, prepared and executed at cost levels close to national avg for comparable systems;

(b) Operational Manual, instruments, and

n.a 3/ (a) Far excedeed. 56 sustainable RWS benefiting approximately 55,816 users and executed at per capita cost levels close to $150 for water and sanitation systems.

(b) Operational Manual, instruments, and

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plan for scaling-up prepared in collaboration with Grupo Collaborativo.

plan for scaling-up prepared in collaboration with Grupo Collaborativo done.

4. Numbers / shares of beneficiaries reached by FIDAS. Evidence of srengthened capacity among smaller NGOs and other community organizations. Note: Additional indicators, baseline data, and specific targets would be best for each funded subproject.

n.a 4/ 153,000 beneficiaries were reached:- 68% among children and youth- 18% among the elderly- 14% among the disabled

- Capacity to establish baseline data and specific targets and manage project cycle management of the 103 service providers strengthened through training and technical assistance.

5. Number of community works projects, consistent with beneficiaries priorities, implemented and supported, as required, by technical assistance; evidence of strengthened organizational capacity at the various levels of program intervention.

n.a 5/ - 4,168 community works projects; - 92% of beneficiaries participated in the selection and ratification of community projects; - 76 percent of the beneficiary community population benefiting or expecting to benefit from the subprojects;- 3,351 group coordinators trained to organize, administer, manage, and monitor small-scale projects; - 817 group coordinators trained in rural banking; - 310 FHIS’ ethnic liaison officers trained on prioritization, formulation and sustainability of micro-projects in ethnic communities in Honduras;- 420 ethnic liaison officers enabled to orient beneficiaries groups on micro-projects of community interest and productive activities;- 10 Representing Federations of 9 ethnic towns financially strengthened;-50 Ethnic Federation Representatives, able to orient and motivate ethnic, communities in its own development management.

6. Key Performance Indicators, including FHIS operating expenses as a percentage of total expenses and evidence of application of FHIS's targeting criteria (amount invested by poverty category of municipality; amount invested rural vs. urban).

6/ - FHIS total operating expenses as a percentage of total expenses: 11% in line with estimates at appraisal.

Poverty level Per capita Amount invested US$

Acceptable 13.97 Regular 24.98Deficient 32.32 Poor 59.84Very Poor 61.20 Various 2.76

Amount invested in rural vs urban: 52.5% vs 47.5% of total investment funding

7. Description and analysis of lessons learned.

n.a 7/ See section 8 for lessons learned

1 End of project

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ million1. Subproject Financing 112.92 90.64 80.272. (a) Local Institutional Strengthening 21.03 8.70 41.37 (b) Strengthening Rural Water & Sanitation Services 3.40 5.40 158.82 (c) Social Assistance Innovations Fund 6.00 5.35 89.16 (d) "Our Roots" (Nuestras Raices) 12.71 11.79 92.763. Project Management 19.98 15.60 78.08

Total Baseline Cost 176.04 137.48Total Project Costs 176.04 137.48

Total Financing Required 176.04 137.48

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 4.60 36.91 77.12 118.63(0.00) (4.28) (34.33) (0.00) (38.61)

2. Goods 0.00 0.00 0.35 0.00 0.35(0.00) (0.00) (0.35) (0.00) (0.35)

3. Services 0.00 0.00 21.04 16.50 37.543A. CONS.A.1, B.1B, B.2B (0.00) (0.00) (21.04) (0.00) (21.04)3B. CONS. 3B 0.00 0.00 0.00 19.51 19.511 (0.00) (0.00) (0.00) (0.00) (0.00) 3C. CONS.B4 0.00

(0.00)0.00

(0.00)0.00

(0.00) (0.00)0.00

(0.00)3D. CONS OTHER PARTS 0.00

(0.00)0.00

(0.00)0.00

(0.00)0.00

(0.00)0.00

(0.00) Total 0.00 4.60 58.30 113.13 176.03

(0.00) (4.28) (55.72) (0.00) (60.00)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 7.17 43.14 53.48 103.79(0.00) (6.02) (42.59) (0.00) (48.61)

2. Goods 0.35 0.00 0.66 0.00 1.01(0.14) (0.00) (0.44) (0.00) (0.58)

3. Services 0.00 0.00 10.40 0.00 10.403A. CONS.A.1, B.1B, B.2B (0.00) (0.00) (6.52) (0.00) (6.52)

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3B. CONS. 3B 0.00 0.00 6.40 7.65 14.051 (0.00) (0.00) (4.86) (0.00) (4.86) 3C. CONS.B4 0.00

(0.00)0.00

(0.00)2.00

(1.82)1.60

(0.00)3.60

(1.82)3D. CONS OTHER PARTS 0.00

(0.00)0.00

(0.00)2.13

(1.25)2.50

(0.00)4.63

(1.25) Total 0.35 7.17 64.73 65.23 137.48

(0.14) (6.02) (57.48) (0.00) (63.64)Note: Numbers have been rounded up.

1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Components(Actual/Latest Estimates) 1)

Bank Financing

at Appraisal (in million US$

equivalent)

Bank Financing

Actual(in million

US$ equivalent)

Percent age of Appraisal

(%)

Govnt and co-financers' contributionat appraisal(in million US$)

Govnt co-fianncers' actual contribution (in millions US$)

Percentage of appraisal(%)

Subproject financing

31.11 34.06 109.48 81.81 56.58 69.16

Local Institutional Strengthening

6.89 6.92 100.44 14.11 1.78 12.62

Strengthening Rural Water & Sanitation Services

3.25 5.15 158.46 0.15 0..25 166.67

Social Assistance Innovation Fund

6.00 5.35 89.17 0.00 0.00 -

NUESTRAS RAICES

12.10 11.27 93.14 0.60 0.52 86.67

Project Management

0.65 0.89 136.92 19.33 14.71 76.10

Total Project Costs

60.00 63.64 106.07 116.00 73.84 63.66

Total Financing Required

60.00 63.64 106.07 116.00 73.84 63.66

Source: Project Appraisal Document; FHIS. 1) The Project Appraisal Document does not show a breakdown of the Government's contribution and donors' co-financing by component at appraisal.

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Annex 3. Economic Costs and Benefits

Appraisal reports and ICRs for social investment fund (SIF) projects rarely provide cost-benefit analyses, because the demand-driven nature of those projects makes this difficult, if not impossible. The PAD for the SIF V project is no exception.

No cost-benefit analysis was carried out at appraisal, and the Ex-Post Evaluation of FHIS 3, covering subprojects implemented over the 1998-2002 period (the report is dated March 29, 2005), did not provide such analysis either. However, as far as FHIS as a delivery mechanism is concerned, the report provided detailed information on its satisfactory poverty targeting, beneficiary participation, and beneficiary satisfaction. It also provided detailed information on the comparative education, health, and sanitation benefits of FHIS investments (see Annex 8). Although these data and conclusions only covered the initial years of the SIF V project period, they certainly apply to later years too, since the FHIS process continued to improve. In addition, at the subproject level, FHIS used satisfactory technical and economic assessment criteria, in accordance with the agreed Operations Manual, leading to major improvements in the operations and maintenance arrangements, and thus to more likely sustainability of the completed works.

It also should be noted that the Impact Evaluation of the Honduran Social Investment Fund, covering subprojects for the 1994-1997 period, and completed by a local consulting firm in early-1999, did confirm that, at the macro-level, FHIS had been instrumental in attracting additional foreign resources (crowding in). It also stated that the likelihood that a FHIS investment would cause community members to switch from private to public services (crowding out) was slim (see also Memorandum and Recommendation of the President on the Supplementary Credit for the SIF 4 Project, dated July 14, 1998). Although the report for the 1998-2002 period did not pursue this, all indications are that these conclusions still stand.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation07/12/1999 1 TTL(1)05/17/1999 1 TTL(1)

Appraisal/Negotiation11/02/2000 1 TTL

Supervision06/30/2001 13 TTL (1); INFRASTR/W&S

(1); M&E (1); SF SPECIALIST (1); FIN'L MANAGEMENT (1); SOCIAL ASSISTANCE (1); MUNICIPAL DEVELOPMENT (1); INDIGENOUS PEOPLES (1); PROCUREMENT (1); WATER & SANITATION (2); MICROFINANCE (1); MIS (1)

S S

05/17/2002 12 TTL (1); INFRASTR / WTR&SNT (1); IMPL COORDINATOR (SFS) (1); SF SPECIALIST (2); PROCUREMENT SPECIALIST (1); PROCUREMENT ASSISTANT (1); MUNICIPAL DEVELOPMENT (1); INDIGENOUS PEOPLE (1); SOCIAL ASSTNC PROGRAMS (1); WATER AND SANITATION (1); FINANCIAL MANAGEMENT (1)

S S

04/04/2003 3 TEAM LEADER (1); SIF SPECIALIST (2)

S S

12/22/2003 6 TTL (1); CCT SPECIALIST (1); WATER/SANITATION (1); FM CONSULTANT (1); CONSULTANT CDD (1); SP SPECIALIST (1)

S S

11/18/2004 3 TTL (1); CDD SPECIALIST (1); FMS (1)

S S

08/29/2005 2 TTL(1); OPERATIONS SPECIALIST(1)

S S

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02/14/2006 3 TTL(1); ECONOMIST(1); CONSULTANT(1)

S S

Other Supervision Missions:02/12/2001 2 W&S SPECIALIST (1);

CONSULTANT (1)S S

04/06/2001 2 M&E SPECIALIST (1); INDIGENOUS PEOPLES (1)

S S

04/03/2002 1 SOCIAL POLICIES SPECIALIST (1)

S S

07/13/2002 7 TTL (1); CONSULTANT (1); CONSULTANT (1); M&E CONSULTANT (1); SP SPECIALIST (1); PROCUREMENT ASSISTANT (1); DECENTRALIZATION (1)

S S

08/05/2002 3 SOCIAL POLICIES SPECIALIST (1); CONSULTANT (1); CONSULTANT (1)

S S

11/06/2002 5 TTL (1); SP SPECIALIST (1); M&E CONSULTANT (1); M&E SPECIALIST (1); CONSULTANT (1)

S S

12/09/2002 6 TTL (1); SR. SOCIAL PROTECTION SPECIALIST (1); OPERATIONS SPECIALIST(1); SOCIAL FUNDS (1); INDIGENOUS PEOPLES (1); DECENTRALIZATION (1)

S S

03/07/2003 1 SOCIAL ASSISTANCE CONSULTANT (1)

S S

08/07/2003 1 SOCIAL ASSISTANCE CONSULTANT (1)

S S

08/19/2004 3 TTL (1); FINANCIAL MANAGEMENT (1); CDD CONSULTANT (1)

S S

11/16/2004 2 TTL (1); CDD CONSULTANT (1)

12/15/2004(Mid-Term Review)

3 TTL (1); W&S SPECIALIST (1); CDD CONSULTANT (1)

S S

ICR04/17/2006 5 TTL(1); PROCUREMENT

SPECIALIST (1); PROCUREMENT ASSISTANT(1); FM(1); CONSULTANT(1)

S S

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation N/A. N/A.Appraisal/Negotiation 54 233Supervision 116 661ICR 12 43Total 182 937

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

Divina Alvarenga, "Sistematización de FIDAS: Una Experiencia de Inclusión Social de Grupos Vulnerables”, March 28, 2006. ESA Consultores, "Evaluación del Programa Nuestras Raíces Etapa IV", (José Rafael del Cid, Ian Walker, Fidel Ordoñez, Fredy Velasquez, José Angel Lara), January 2003.

ESA Consultores, "Evaluación de la Fase I del Programa de Reducción de la Probreza y Desarrollo Local" (Marco Moncada, José Rafael del Cid, Max Velásquez), October 2003.

ESA Consultores," Evaluation Ex-post del Fondo Hondureño de Inversión Social (FHIS 3)", (José Rafael del Cid, Ian Walker, Fidel Ordoñez, Fredy Velásquez, José Angel Lara), Febrero 2005.

FHIS, "Implementation Summary Activity for the Fifth Social Investment Fund Credit to the Republic of Honduras" from 2001 to 2006.

SANIPLAN, "Programa Piloto para el Abastecimiento de Agua Potable y Saneamiento en el Marco del Programa FHIS-KfW 5" (Hugo Cobo), August 2004.

World Bank, "Honduras Local Development Paper" (Jennifer Sara, Jennifer Fitzgerald, Mila Freire and Jonas Frank), December 2004.

World Bank, "Honduras - Fourth Social Investment Project", Project Appraisal Document, No 17778-HO, June 19, 1998.

World Bank, "Honduras - Fifth Social Investment Fund Credit", Project Appraisal Document, No: 21355-HO, November 20, 2000.

World Bank, "Honduras - Fifth Social Investment Project" , Memorandum and Recomendation of the President of the IDA to the Executive Directors on a proposed Fifth Social Investment Credit to the Republic of Honduras, Document No - November 27, 2000.

World Bank, "Honduras - Fifth Social Investment Fund Project", Development Credit Agreement, Credit Number C3443, January 29, 2001.

World Bank, "Honduras - Fourth Social Investment Fund Project", Implementation Completion Report, No: 25481, December 17, 2003.

World Bank, "Linking Community Empowerment, Decentralized Governance, and Public Service Provision through a Local Development Framework" (Louis Helling; Rodrigo Serrano; David Warren), SP Discussion Paper, N0: 0535, September 2005 .

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Additional Annex 8. Ex-Post Evaluation of the Honduras Social Investment Fund (FHIS) - Third Phase

1. INTRODUCTION

FHIS passed through four different stages since its launch in 1990. Initially viewed as a compensatory social program to mitigate the effects of structural adjustment, it changed in 1994 to focus on reducing poverty by building social infrastructure and social capital. During the FHIS 2 period (1994-98), targeting of program resources to the poor improved noticeably, while the FHIS 3 period (1998-2002) focused on strengthening the commitment and participation of municipalities and communities.

This annex gives a summary of the report of March 29, 2005 on the ex-post evaluation of the FHIS 3 period, produced by a local consulting firm on the basis of a household survey, a project study, a qualitative study, and complementary data. It focuses on examining if program investments: (i) reflected the priorities of beneficiaries and communities; (ii) targeted the poorest; (iii) had the expected quality; (iv) facilitated the target population’s access and rate of use of services and infrastructure; and (v) facilitated ownership of the project by the community through training or the diffusion of information.

2. MAIN FINDINGS

Targeting – At the level of municipalities

During FHIS 2, resources were targeted to departments based on a combination of (i) a Poverty Index (PI), which components included key poverty indicators such as access to basic services and malnutrition; and (ii) the size of the population. In addition, the results of these two components were corrected to favor the poorest departments. Then, distribution within each department was again done using the PI and population size. The targeting was slightly changed during FHIS 3 due to changes in the way the PI was computed and how the population numbers were quantified. A minimum was also introduced to ensure that densely populated municipalities would be able to complete projects, as well as to give priority to two departments with particularly challenging conditions.

A first approach to measuring the efficiency of these targeting mechanisms was achieved by ranking municipalities according to their PI, and looking at the per capita investment by quintile. This analysis shows that between 1998 and 2002, the average per capita investment was 297 lempiras. However, per capita investment in the poorest quintile (e.g., the poorest 20 percent of municipalities) was 464 lempiras, while it was only 260 lempiras in the richest 20 percent of municipalities receiving FHIS investments.

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Table 1. Municipal distribution of FHIS resources, by quintiles of municipalities based on the PI FHIS

Approximated quintiles/1

Per capita Investment

L TOTAL Informal Sector

Social Assistance

Water & sanitation Education Environment Health

Share of quintile in total pop.

1 (poorest) 464 31.8% 29.1% 34.7% 19.4% 30.7% 8.9% 44.3% 20.4%

2 329 21.9% 15.6% 12.7% 22.6% 22.5% 18.6% 24.3% 19.8% 3 272 20.1% 46.2% 14.4% 30.0% 20.4% 27.0% 16.6% 21.9% 4 168 12.9% 8.6% 13.5% 12.2% 13.8% 7.5% 7.5% 22.8%

5 (least poor) 260 13.4% 0.5% 24.6% 15.7% 12.6% 38.1% 7.2% 15.2%

Total 297 100% 100% 100% 100% 100% 100% 100% 100%

Progressivity Index /2 0.26 0.31 0.09 0.10 0.21 -0.16 0.39

% of investments per sector: 100% 0.2% 7.2% 3.8% 75.7% 1.6% 11.4% Notas.1/ Due to the relative size of some municipalities - like the Distrito Central and San Pedro Sula- it was impossible to construct quintiles that have exactly 20% of the population in each. The share of each quintile presented above is presented in the last column of the table above. 2/ This index takes on a value between -1 and +1. A value of 0 indicates a neutral distributional impact. The higher the index, the more progressive is the distribution of resources (that is, the larger is the share of the resources that benefit the poorest quintiles). In extremis, if all resources were given to the poorest quintile, the index takes on the value of +1; and if all resources go to the least poor quintile the value is -1.

In addition, an index measures how progressive each type of intervention was. The index is 0 if it had no distributional effect, +1 if the entire investment benefited the poorest quintile, and -1 if the entire investment accrued to the least poor quintile. The overall index for FHIS is 0.26, indicating that the program was indeed progressive. This represented an improvement from FHIS 2, which obtained an index of 0.12 using the same methodology. However, the index varied according to type of intervention. The most progressive types of investment were those in health (0.39) and the informal sector (0.31); 41 percent of resources invested in health went to the population of the poorest 20 percent of municipalities. In contrast, environmental investments had a negative index score (-0.16), which indicated that these investments were in fact regressive. Less than 2 percent of total resources were, however, used on environmental projects. Educational investments, accounting for 76 percent of resources, were progressive (with an index of 0.21).

Targeting – At the level of households

While the above took a geographic approach to targeting (i.e., at the municipal level), the evaluation also looked at targeting at the household level. Table 2 shows the participation of each decile of the population in FHIS, disaggregated by type of intervention. As expected, there was a strong concentration of beneficiaries in the poorest deciles, while few households in the least poor deciles benefited from the investments.

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Table 2. Distribution of FHIS resources 1998-2002, household level – based on potential beneficiaries

Deciles: 1 2 3 4 5 6 7 8 9 10 Total Weight

/1

Progressivity Index

Weighted participation of the deciles in FHIS investments

Water 15.0 17.1 4.9 7.0 11.5 17.9 19.8 1.1 4.1 1.5 100.0 3.1% 0.19

Education 9.3 17.8 13.6 6.9 20.6 9.4 8.7 6.6 4.2 2.9 100.0 64.5% 0.19

Roads 20.1 12.3 6.6 11.5 15.2 13.3 9.1 5.0 4.9 2.0 100.0 18.6% 0.23

Pisos seg 16.9 12.6 12.2 10.8 23.5 9.8 7.2 4.3 2.3 0.4 100.0 1.6% 0.28

Latrines 32.5 19.1 15.5 9.8 7.1 5.9 3.5 4.0 2.0 0.6 100.0 6.7% 0.48

Health 24.2 23.7 14.3 7.8 10.1 7.0 2.1 6.3 2.4 2.1 100.0 5.5% 0.41

Total 14.0 17.1 12.2 8.1 17.9 10.0 8.4 5.9 4.0 2.5 100.0 100% 0.23 Sources: Household survey of the per capita income of FHIS beneficiaries, MIS of the FHIS for information on investments in each project and sub-sector; and data from INE to define the national distributional deciles of the population. Note: 1/ The weight used in this table is based on the participation in each sub-project of the sample used for the household survey. Because of this it differs from the % of resources by sector listed in the final row of table 1 above which reports the global distribution of all FHIS investments evaluated in this study, except reconstruction

This table also shows a progressivity index, which was also calculated for each type of investment, similar to the one used in the geographic analysis. For all investments, FHIS 3 had a progressivity index of 0.23, which, when compared to that of FHIS 2 (0.21), showed a slight improvement in the targeting of investments towards the poorest households. Overall, 31 percent of project investments benefited the poorest 20 percent of the population while 69 percent benefited the poorest half. The richest 10 percent benefited from only 6 percent of the FHIS 3 investments. The most progressive investments were those in latrines and health, while investments in water and education were the least progressive. For health projects, 48 percent of investments benefited the poorest 20 percent, while for education 27 percent of investments benefited the poorest 20 percent.

The relatively neutral distribution of investments in water and education suggests that projects were implemented in places where the population was not always among the poorest. One possible hypothesis is that local decision makers gave priority to larger communities, postponing projects in more isolated and smaller communities. Projects would also be more expensive in the latter. Consequently, the evaluation report recommends looking into local decision-making processes for water and education projects. A significant portion (20 percent) of beneficiaries of education projects was in the fifth decile. It should be noted that the education authorities already had decided that the dispersion of primary schools was surpassing what is efficient, and that future investments should rationalize and focus on creating educational centers, where the student body could reach a level that assures efficient teaching. Given this context, the report recommends that it might be worth looking into other interventions (roads) that could help connect poorer, more disperse communities to these centers. The report also expresses a concern about the fact that the beneficiaries of floor improvement projects were concentrated in the middle of the income distribution. It considered that this was probably because most beneficiaries of these types of projects lived in semi-urban or peri-urban communities, while the majority of households in the poorest deciles were located in rural areas. The report recommends promoting floor improvement projects in rural areas.

Changes in the “Unmet Basic Needs” Index

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The evaluation of FHIS 3 also looked at the evolution of an indicator of Unmet Basic Needs (UBN). The index is based on access to water, sewerage and primary schooling, ability for subsistence, and housing and living conditions.

The FHIS 2 evaluation showed a sustained tendency for the percentage of households without any UBN to rise - more strongly so in urban areas. During the FHIS 3 period, the rate of increase in the percentage of households with all basic needs met not only fell, but turned negative (-8 percent). Of course, Hurricane Mitch had an important effect, and the rate of change turned negative in 1999, the year after the hurricane hit. Still, this negative trend continued in the following years. A look at the trend for rural and urban areas separately shows that the negative trend mostly affected rural areas. When comparing 1997 with 2002, we see that the number of households that had no UBN fell by 3 percent in urban areas and by 21 percent in rural areas. Overall, this shows that the country had not yet recovered from the damage of Hurricane Mitch by 2002.

Expansion of Social Infrastructure Coverage

While the above section showed how Hurricane Mitch made the efforts of FHIS 3 ‘invisible’, this section provides more pertinent evidence of the impact of FHIS 3 on social infrastructure coverage. FHIS 3 consisted in reality of two sub-periods: the first one related to the national reconstruction after the hurricane and the second during which resources were being invested again as initially intended – to increase the coverage of social infrastructure.

Primary Schools: Both primary schools and available classrooms increased over the 1998-2002 period. The number of schools increased by 20 percent (compared to an increase of 11 percent during the 1994-98 period) and the number of classrooms increased by 30 percent (compared to 15 percent during1994-98). It is important to note, however, that estimates of educational facilities in 1998 are not entirely reliable. The number of teachers grew at a slower pace – 3 percent over the 1998-2002 period. These trends resulted in higher teacher-student ratios (up by 12 percent, whereas the ratios fell by 16 percent during FHIS 2), but lower student-classroom ratios (down by 12 percent). The achievements of FHIS 3 were even more impressive when taking into account the damage done to educational facilities by Hurricane Mitch in 1998 and the resources dedicated to the reconstruction.

Rural Health Centers: From 1998 to 2002, FHIS built 128 CESAR and 35 CESAMO health centers. This represents 81 percent of all new CESAR centers and 97 percent of all new CESAMO centers built during this period.

Potable Water: Hurricane Mitch had a particularly negative effect on rural water systems, as shown by the increase in households which did not have access to potable water, which increased from 8 percent in 1997 to 20 percent in 2002. During the period 1998-2002, 125,132 households were given access to potable water, and FHIS contributed to about 40 percent of this increase. FHIS 3 was particularly important in urban areas, where it financed 63 out of 103 water projects. The water projects included both the construction of new systems and the rehabilitation of old systems. In terms of connecting new households, FHIS was responsible for 11 percent of new connections in rural areas and 100 percent of new connections in urban areas.

Latrines and sanitation: The impact of Mitch was less noticeable in this sector, as the number of households with unmet needs increased by only 2 percent (from 17 percent to 19 percent) over the 1997-2000 period. Again, the impact of FHIS was stronger in urban areas than rural ones, where the program SANAA-USAID was heavily involved. The number of households benefiting from FHIS 3

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projects is shown in Table 4.

Table 4. Beneficiaries of FHIS 3 Sewerage Projects: 1999-2002

Total 1999

Total 2000

Total 2001

Total 2002

Total all years

Estimate of households connected

Rural 900 0 900 180

Urban 18,070 7,430 2,300 0 27,800 6,950

New sewerage systems constructed Total 18,070 7,430 3,200 0 28,700 7,130

Rural 600 0 600 40

Urban 14,520 13,400 2,434 0 30,354 2,530 Rehabilitation / expansion of access to sewerage Total 14,520 13,400 3,034 0 30,954 2,570

Rural 0 0 1,500 0 1,500 220

Urban 32,590 20,830 4,734 0 58,154 9,480 Both types of projects Total 32,590 20,830 6,234 0 59,654 9,700

Source: SIG-FHIS

During the FHIS 3 period, 71 percent of the population felt they were consulted during the participatory process consisting in selecting the projects of community interest versus 50 percent during the FHIS 2 phase. As a result, not only did the access to infrastructure increase but it also responded to the needs expressed by the population

Quality Dimensions of Interventions and Facilities

The quality of works from FHIS 3 was compared with that found for FHIS 2, and facilities built under the former were generally found to have a higher percentage of acceptable quality. Education and potable water facilities built under FHIS 3 scored high in terms of the quality of construction. The percentage of works that had an acceptable quality increased for health centers and latrines, and only in a few cases (health centers) was found to be poor. In terms of maintenance, the situation was generally acceptable; however, one-fifth of schools and health centers reported deficient maintenance, in particular in terms of electricity and sanitation. Supervision of projects is an area in which the FHIS has been struggling. A comparison of project managers’ opinions of the quality of supervision during FHIS 3 with those reported for FHIS 2 suggests that the quality of supervision in health and education projects had improved, while it needed to be improved for water and sanitation. Under FHIS 2, the majority of projects reported having deficient supervision, while under FHIS 3, 41 percent reported having received good supervision.

FHIS was instrumental both in the reconstruction and in the building of new schools. According to FHIS’ MIS, the program contributed to the improvement of about one-fourth of classrooms between 2001 and 2002. Health centers were also built, in addition to the reconstruction of damaged ones – an effort in which FHIS was practically the sole contributor. In terms of water, indicators show coverage regressed to levels of the 1980s; however, with only 4 percent of its total investments, FHIS contributed to nearly half of connections and installations built – principally in urban areas. The damage caused by hurricane Mitch needs to be taken into account to give a just evaluation of the impact of FHIS 3. The above information shows that the number of schools recovered and slightly improved during the 1998-2002 period.

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FHIS and Indicators of Social Development

Social development means positive outcomes in terms of education, health, and sanitation that came about as a result of social infrastructure improvements. The hypothesis tested was that FHIS contributed to improving the social development indicators related to the areas in which it intervened.

Comparison of “ex-ante” and “ex-post”

The comparison of the situation in communities with FHIS projects before and after project implication confirms the hypothesis that FHIS positively affects indicators of social development.

Education: The hypotheses tested were that (i) FHIS’ intervention in the primary school of a community will result in an increase in school attendance of children ages 6-12; and (ii) the age-to-grade percentage improves (i.e., the percentage of children enrolled in the grade corresponding to their age increases). Evidence showed that school assistance increased by 9 percent by 2004, while the children enrolled in the grade corresponding to their age increased by 19 percent.

Health: With respect to health, the hypotheses tested were: (i) the construction or improvement of the health center results in an increase in the rate of use of health services; and (ii) as part of this increase in rate of use, health services will reach a particularly important group – pregnant women. Also in this case, evidence showed that the percentage of people facing a severe health problem who sought assistance from a health center increased by 14 percent, while the percentage of pregnant women who had made control visits to a health center increased by 11 percent. Staffing of health centers built by FHIS during the 1998-2002 period improved considerably compared to the earlier periods: all health centers built between 1998 and 2002 in the sample survey had at least one doctor, in most cases with nurses, while this was not the case before 1998.

Water: When evaluating the impact of projects in the area of water, two hypotheses were tested: (i) the project improves coverage and quality of water services; and (ii) an increase in the percentage of households that uses some form of cleaning the water (by boiling, filtering or other). Again, this was the case. The percentage of households with running water increased by 4 percent. However, this resulted in fewer households resorting to risky water sources, as well as savings for households that no longer do so. The quality/reliability of the services also improved. The percentage of households that consumed water more safely (in terms of treating it) also increased by 11 percent.

Sanitation: For latrines and sewerage, the hypotheses tested were that the coverage, quality, and use of services would increase, and that the percentage of people who had suffered from diarrhea the month before the survey was reduced. Again, this was the case. For instance, the percentage of households reporting problems with the functioning of latrines fell from 92 percent to 65 percent. Evidence of a reduction in the incidence of diarrhea proved more complicated to interpret, both because of the relationship with access to water and because the incidence was already low at the beginning of the period (1998).

Comparisons of communities “with and without program”

This analysis is based on the comparison of communities that received FHIS projects and communities that did not, and further strengthens the above described hypotheses.

Education: The hypothesis is that communities with FHIS show better coverage and results for primary education. While 100 percent of children in communities with a FHIS project attended primary school in

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2004, the number for communities that did not was 93 percent. During FHIS 2, the same comparison showed that 89 percent of children in both types of communities attended school. This indicates that while school attendance was increasing in general, it was increasing faster in FHIS communities. In other words, the findings suggest that FHIS increased the probability that a child attends school. In terms of improved age-to-grade, a smaller percentage of children in FHIS communities attend a grade different than the one corresponding to their age (41 percent compared to 49 percent). This indicates reduced repetition and a higher ability to keep children in school. Due to the increase in the number of classrooms, indicators in FHIS-communities improved compared to the national averages in terms of teacher/student, teachers/classrooms, and student/classrooms. An important problem in the education sector continues to be the lack of didactic materials and scholastic furniture. The FHIS impact evaluation showed, however, that the lack is much lower in FHIS than in non-FHIS communities: (30% vs 46% for the didactic materials, and 20% vs 46% for the furniture).

Health: Again, the hypothesis tested is that FHIS increases the use of health services, and that this is true in particular among pregnant women. The study shows that the percentage of people facing serious health problems, and that seeks assistance from a health center, was 6 percent higher in FHIS communities than in communities not covered by the program. The percentage of pregnant women attending health centers was high in both control and treatment communities, but slightly higher in FHIS communities. Also, local health clinics attracted more of the women attending health visits throughout their pregnancy than local health centers in communities without FHIS (73 percent compared to 63 percent). Additionally, the comparison between FHIS- and non-FHIS health facilities shows that, in general, FHIS communities are better off in terms of staffing (adequacy of staffing is the main problem in 23% of the health centers in FHIS communities vs 40% in non-FHIS communities), quality of the facilities (17% in FHIS communities vs 33% in non-FHIS communities), availability of potable water, etc.

Water: In FHIS communities, 92 percent of households had running water, compared to only 36 percent of households in control communities. Of the 8 percent without access to water in communities with FHIS, only 28 percent reported this being due to lack of service offered. The cost of water is, however, higher among the treatment group (more than twice as high), which is related to differences in the alternative water sources the two groups resort to. Findings are not clear on the quality of the water. Households in the treatment group tended to consume more untreated water then households in the control group, but the reasons for this are uncertain. Given the problems of testing the hypothesis that FHIS’ water projects reduce the incidence of diarrhea (low incidence of diarrhea and no apparent effect of FHIS), a regression analysis for this was not carried out.

3. CONCLUSIONS

The main conclusions of the evaluation are: (i) ιn terms of targeting, FHIS 3 achieved important progress in terms of how progressive the investments were and in terms of the participation of the community in the selection and execution of projects; (ii) ιn terms of impact, FHIS 3 has been an important actor in the national expansion of social infrastructure, with works of acceptable quality and function. A positive impact of the program on the beneficiary population is found in the areas of health, education, and sanitary conditions; (iii) the magnitude of the impact of Hurricane Mitch has hindered a more efficient intervention.

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Additional Annex 9. Pilot Social Assistance Program (FIDAS)

This annex summarizes the findings from an evaluation of the pilot FIDAS program, carried out by a local consultant in 2005/06. FIDAS is a program that aims at reaching special needs groups and vulnerable groups, managed by the Fondo Hondureño de Inversión Social (FHIS).

1. Scope and Methodology of the Evaluation

The evaluation reviewed the program and its operation during the period 2001-2005 and applied an ex-post evaluation of 18 out of a total of 102 projects funded. The methodology applied was that of case studies. The ability to conduct any kind of rigid evaluation exercise was constrained by limited program documentation and the absence of an efficient monitoring and evaluation (M&E) system. It was thus difficult to make relevant comparisons. However, the systematic collection and registration of information carried out for the study helped answer some of the important questions regarding the efficiency and outcomes of FIDAS.

2. FIDAS Projects and Executing Agencies

FIDAS intervened at the national, departmental, municipal and community levels through 4 different types of executing agencies: NGOs, community organizations, associations of beneficiaries, and churches. The most common agencies were NGOs, followed by associations of beneficiaries and community organizations (see fig. 1). Churches executed only 5 percent of FIDAS’ projects.

In terms of the target groups, NGOs also accounted for the majority of projects for each group (see fig. 2). For the disabled and elderly, associations of beneficiaries accounted for the second higher share of projects, while churches were the second most important actor in dealing with children at risk.

Fig.1 Types of executing agencies, by level of participation (% of projects executed)

64.0%16.0%

15.1% 4.9% NGOs

Associations of beneficiaries

Communitarianorganizations

Churches

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Fig. 2 Executing Agencies by Groups Attended (share of projects within each group)

0%

20%

40%

60%

80%

100%

Disabled Children at risk Elderly

Churches

Communitarian organizations

Associations of beneficiaries

NGOs

3. Innovative Solutions for the Inclusion of Special Needs Groups

The report highlights how FIDAS contributed to institutional strengthening via capacity building and training. According to representatives of the executing agencies, the requirements of FIDAS helped them create administrative systems that were much better than the ones they had used earlier. Also, the introduction of a gender perspective helped the agencies advance in terms of their conceptual and methodological thinking. One of the achievements of the program was to create an institutional platform conducive to new and innovative approaches such as: (i) the ‘discovery’ of the inclusion/exclusion paradigm, which improves the understanding of special needs groups; (ii) a methodology for fostering local volunteers that includes a system of capacity building; (iii) inovative and high-quality training material for micro-enterprises, especially targeting special needs groups; (iv) a system of capacity building that includes modules on self-esteem, obligations and rights, gender issues, technical training, and rehabilitation; (v) a methodology for articulating community organization in education, focusing on the contribution of parents to their children’s school achievement, – especially for children with special needs.

The beneficiaries from different special needs and vulnerable groups also noted the positive impact FIDAS had on their lives, in particular through training and capacity building. Opinions voiced by beneficiaries in individual interviews and focus groups showed that these capacity building exercises had led to better self-esteem. With respect to gender, the interviews also revealed a change within families as children, husbands and partners showed more respect for women. Extensive training in the area of personal improvement (e.g., self-esteem, personal achievement, and leadership) was provided to help participants discover their potential. However, only limited resources were put into vocational or technical training to increase employability. The few that did were for instance those carried out by NGOs that later offered micro credit.

4. The Sustainability of the FIDAS Strategy and Projects

The report reviews two different ‘kinds’ of sustainability. First, sustainability in terms of the institutionalization and continued diffusion of the FIDAS concept, i.e., to specifically target vulnerable and special needs groups, which depends on the ability to finance projects aimed at these groups. Second, sustainability of the individual projects financed under FIDAS; 95 percent of the executing agencies maintained that they will face problems of sustainability due to lack of resources, but that they would seek

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ways and strategic alliances to continue their operations. During FIDAS’ capacity building, the executing agencies were introduced to strategic and operational planning tools and administrative systems. Each of the projects had developed a sustainability plan with different levels of implementation, which included alternative and complementary actions to continue the promotion of the objectives and operations of the associations.

5. Can the Experience of FIDAS Be Replicated?

The report concludes that the FIDAS model could be applied elsewhere due to its innovative approach, methodology, and positive outcome – above all in terms of institutional strengthening. However, it would need a more systematized collection and presentation of information regarding the tools and methodologies developed by the program. The report suggests creating an ‘Information, Communication and Education’ component within FIDAS, responsible for gathering this information and making it public.

6. Summary and Lessons Learned

The main strengths of the program were its conceptual framework and the positive outcomes of capacity building. The conceptual framework introduced by FIDAS changed the line of action of NGOs and other groups. While the concepts of special needs groups and social inclusion/exclusion were not new, FIDAS managed to operationalize the different ‘loose threads’, i.e., the different concepts, methodologies, techniques, and tools. Furthermore, the program brought together diverse institutions working towards the same objectives, and increased their ability to create opportunities for their target populations. The way in which projects were selected and executed assured the continued development of skills in the executing agencies and personnel/volunteers. The process began with a call for applications made public through a massive communication campaign. Associations that responded immediately entered into the learning process as short-listed candidates received assistance in preparing their project proposals. Later in the process, capacity building continued with the need to write implementation and final reports and to provide diagnostics of the projects’ target populations. More importantly, the professionals and volunteers of the executing agencies were taught how to work with and adopt new concepts and tools, applying these to provide opportunities to people formerly excluded. Statements from participants at all levels indicate that the outcome of this capacity building goes beyond the benefit of each individual or any specific project. The report finds that it resulted in a ‘collective’ transformation which leads to the creation of social capital. Furthermore, working with local teams increased the effectiveness and the sustainability of interventions, as local people felt they had a stake in the projects.

The main weaknesses of FIDAS were its lack of supervision, monitoring and evaluation (M&E); as well as the limited number of projects that provided technical training and labor insertion programs. Implementing a more rigid M&E system and stepping up efforts in terms of labor market programs are key challenges for the program’s future. Executing agencies also met with a series of difficulties or limitations, mostly because of external factors. These included: (i) delays in receiving project funds from the Government; (ii) the national and international bureaucracy involved in the disbursement of funds; (iii) short-term financing, which led to difficulties in consolidation initiatives; (iv) lack of sufficient time to plan, evaluate, and consolidate the most innovative proposals or changes (including the follow-up of projects aimed at labor market insertion and the creation of micro-enterprises); and (v) lack of documentation on the projects by the executive agencies.

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Additional Annex 10. “Nuestras Raíces” Pilot Program

This annex provides a summary of the report Evaluación del Programa “Nuestras Raíces” ETAPA – IV, which was carried out by a local consultant over the period June 2001 to May 2002.

1. INTRODUCTION

The pilot program promoted the productive, social, and cultural capital of the indigenous and black population groups in Honduras. During the fourth stage, the program approved a total of 4,168 micro-projects proposed by the communities, benefiting about 125,040 families, of which half were Lenca, 18 percent were Misquitos, 17 percent Garífunas, 5 percent Tolupanes; the remaining 9 percent was divided between the Chortis, Nahhuas, English-speaking blacks, Pech, and Tawahkas.

The program was implemented as follows:• A work group from the community was in charge of the project, and the daily wages of members of

the group were financed by the program. Each project had an average cost of 27,000 lempiras, and the entire amount went to pay the labor force employed for the project.

• The ethnic federations played an important role. Supervision groups were made up of one individual assigned by FHIS (FHIS liaison) and another assigned by the Ethnic Federations (ethnic liaison). The Supervision groups were hired for two months, and each group supervised 10 micro projects. The ethnic liaison was hired for another month to help establish sustainability measures.

• Training was provided to group coordinators, FHIS liaisons, ethnic liaisons, and the ethnic federations.

The expected outcomes of the program were: (i) benefits to the communities from investments in small-scale infrastructure, selected in accordance with the communities’ priorities; (ii) the creation and strengthening of rural credit and savings associations; and (iii) improved social capital in the communities.

2. EVALUATION RESULTS

Targeting the poorest communities and households: The program effectively targeted the poorest households and communities. This was tested in the report by using income and unmet basic needs (UBN) indicators. Good targeting was to be expected as the program focused on indigenous communities – characterized by their isolation, lack of institutional support, and historically high levels of extreme poverty. The evaluation found that 73 percent of the beneficiary population of the program was in the three lowest deciles of the income distribution, while only about 50 percent of Honduras’ rural population was. In terms of poverty definitions based on UBN, while 41 percent of the Honduran population is considered poor (i.e., has at least one UBN), the percentage increases to 58 percent for the rural population and 68 percent for the beneficiaries of the program. When separating findings by ethnic groups, the report shows that targeting was most efficient for the Lencas and Misquitos, and least efficient among the Garífunas.

Financing projects prioritized by the communities themselves: The report mentions that the projects do indeed correspond to the needs expressed by the communities. Indicators show that the majority of households participated in the selection of projects. In 92 percent of the projects, the community or the communal authorities were the principal protagonists in the project selection. The qualitative study did however indicate that in some cases the ethnic federations were the most active agents in the identification and selection of projects, while communal assemblies were limited to ratifying these. Further, the number of households directly benefiting from the projects, i.e., who worked and received daily wages for their

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labor on the projects, was high (about 82 percent of households in beneficiary communities). The average number of days worked per community was 22, while average income varied between 985 lempiras for the Garífunas and 2,886 for the Misquitos. Misquitos and English-speaking blacks received double the daily pay of others due to the high cost of living that characterizes the areas where they live. The qualitative study showed that some community members suggested that the entire labor force in the communities should have been involved. There were also some problems identified in the formation of work groups, including: problems of notification, conflicts with other work or agricultural schedules, absent husbands who needed to be consulted for their wives to participate, lack of identification papers, and, to a lesser degree, favoritism of group coordinators towards certain households. Still, 76 percent of the population in beneficiary communities benefited or hoped to benefit from the physical infrastructure installations. In addition, the direct benefit of the wages received during the project phase was important. The majority of this additional income was used for subsistence, but 6 percent – 106 lempiras on average per households – was saved.

Generating effective mechanisms for strengthening social capital in the communities and providing appropriate training: The communities’ trust in participating organizations increased, benefiting not only FHIS but also NGOs, ethnic federations and others. However, the demand for projects to reinforce the ethnic identity of the communities was low and there was no evidence of communities engaging actively in negotiating new projects. The communities expected program resources to be renewed to continue executing mini-projects. The majority of the project coordinators received training, which they qualified as ‘excellent’. Once trained, the coordinators held assemblies in their communities to explain projects and the functioning of the Cajas Rurales (savings associations).

Establish and reinforce savings associations that will function as effective mechanisms for the promotion of a ‘culture of saving’: With the income earned by community members during the project implementation, Cajas Rurales were set up in 56 percent of the work groups. Adding to this, in 22 percent of the groups a savings association was already in place. In 69 percent of the cases, the savings services were open to the entire community, while in 19 percent access was extended to nearby communities. The resources used to establish new savings associations came primarily from income earned from work in micro-projects. The administration of the Cajas Rurales was affected by the lack of documentation and the absence of a regulatory framework. While a review of the operations of the Cajas Rurales showed that there were areas of improvement, people thought differently: 50 percent of the people interviewed qualified them as excellent.

Gender equality in the implementation of the program: In general, the participation of men and women in the micro-project was equal in terms of the selection of projects, number of days worked, and wages earned. People also perceived that women had been given the same opportunity to participate in the projects as men. Women also participated heavily in the leadership positions of the work groups (60 percent), and were over-represented in the leadership of the Cajas Rurales. Still, some problems were identified in a more detailed analysis of the savings and credit functions. Most alarming among these was the fact that only 10 percent of female members of Cajas Rurales reported having received credit, compared to 32 percent of the men. 3. CONCLUSIONS

The program proposed several diverse objectives in terms of impact and some were difficult to achieve through the two central components of the program: the financing of micro-projects and training. The program operated in essence as a cash-transfer program, targeting indigenous communities in which benefits are delivered through the financing of labor-intensive infrastructure projects. The program was

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well targeted and implemented, according to its design. But the evaluation report also points to room for improvement.

The strengths of the program were in its capacity to: (i) target populations in extreme poverty; (ii) coordinate with federal indigenous associations, which contributed to legitimizing these and developing their ability to administer development projects; (iii) identify micro-projects in accordance with the priority of the communities; (iv) organize and mobilize communities in the execution of projects, while strengthening gender equality and solidarity with other vulnerable groups; (v) execute the construction of basic infrastructure and communication links that satisfied the needs of the communities; (vi) οrganize Cajas Rurales and/or other productive initiatives.

Rooms for improvement were: (i) limited resources for the labor costs, which diminished the probability of communities selecting more durable projects; (ii) insufficient training, which affected in particular the communal organization for maintenance purposes and the operation and management of the Cajas Rurales, as well as community members’ understanding of their functioning; (iii) the model of combining micro-projects with Cajas Rurales created confusion among the populations, as they interpreted the sustainability of the savings associations as a function of the continuance and renewal of micro-projects.

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Additional Annex 11. Pilot Program to Strengthen Rural Water and Sanitation Services

Description

The subcomponent was expected to provide technical assistance, training, and supplemental subproject financing to develop and test innovative methodologies and creative partnerships aimed at improving attention to rural communities’ needs for water systems and the sustainability of such investments, and at drawing lessons for improved attention to, and sectoral coordination in, the water sector. It aimed at demand-responsiveness, cost recovery, and community control in the subproject cycle, relying significantly on the involvement of local governments, NGOs, and private service providers. To achieve this, it was to: (i) finance the needs expressed by communities through the 1998 municipal plans, and ensure quality of subprojects by applying ex-ante and ex-post evaluation with different criteria for urban and rural projects; and (ii) support a pilot in dispersed rural areas, using different methodologies and options for institutional arrangements and a demand-driven approach, in association with the sector coordination body (Grupo Colaborativo). A consultative process between FHIS and key players in the sector decided upon three types of possible institutional arrangements: (a) delegation of the subproject cycle to municipalities; (b) contracting of NGOs or firms to work in partnership with communities from the beginning to the end of the subproject cycle; and (c) contracting of the communities themselves, which, in turn, could subcontract service providers of their choice to execute the subprojects. The implementation of the program consisted of three phases: (i) capacity building; (ii) implementation of a first group of subprojects; and (iii) implementation of a second group of subprojects.

Implementation Results

The subcomponent needed two years to prepare the instruments involved in the first part of the project, including the development of effective approaches and institutional arrangements for sustainable and cost effective solutions in the rural water and sanitation sector for disperse communities. To support implementation, FHIS also obtained a Euro 9.0 million grant from KfW, of which Euro 1.6 million was allocated for full-time consulting support. This support helped to accelerate implementation, and to exceed the outcomes projected at appraisal, including:

a) constructing 156 sustainable RWS systems, compared to 100 projected at appraisal, benefiting 55,816 users, 86 percent more than the 30,000 initially projected. Furthermore, at the completion of the project, FHIS had 150 system designs ready for implementation subject to further financial support. Per capita costs of implemented technology options were for: gravity systems $121, electric pumping $134, distance pumping $154, rain catchments $172, latrines $47, and household reservoirs (pilas) $5, which were close to national averages for comparable systems (other projects funded by FHIS use a per capita cost of $150 for water and sanitation systems), and

b) applying tools for quality control at each step of the subproject cycle. These tools included a new Operations Manual and guidelines detailing each of the three institutional arrangements, as well as the corresponding financial policy. The adoption of ex-ante and ex-post evaluation tools increased the efficiency of selecting feasible subprojects (from 242 subprojects submitted to FHIS, only 180 passed the ex-ante evaluation on qualification for financing). The ex-post evaluation was applied for each system before the end of the quality guaranty included in the construction contracts.

Of the three institutional arrangements, the implementation of 36 subprojects was delegated to

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municipalities; 32 subprojects were managed by NGOs or firms to work in partnership with communities from the beginning to the end of the project cycle; and 58 subprojects were managed by the communities directly. In addition, 30 subprojects were implemented by FHIS at the request of municipalities with no institutional management capacity. Participating communities were selected on the basis of: i) the 1998 PISMs priorities, ii) lists submitted by NGOs, and c) FHIS’ list of outstanding requests.

Based on the results of the pilot study and following the new Law of Potable Water and Sanitation enacted in September 2003, which delegates the responsibility for water and sanitation service provision to municipalities, FHIS adopted the model of delegating the subproject cycle to municipalities. Under this model, communities manage the full subproject cycle, and municipalities provide technical assistance and transfer funds to communities (community-implemented projects – PEC in Spanish). This implementation model proved to be the most efficient and appropriate to reach poor, dispersed rural communities with quality, sustainable water and sanitation services, aided by the high level of community empowerment

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and ownership sense, financial contribution, and commitment to operation and maintenance. However, the PEC strategy can only be used for subprojects with a cost of less that $50,000, since subprojects with costs higher than $50,000 have to go through a bidding process.

As a basic policy, all water subprojects were to include provisions for sanitation, plus training in operation and maintenance and hygiene promotion. Thus, 71 subprojects adopted conventional technologies for water supply, including gravity feed systems and deep wells; 71 subprojects included non-conventional technologies, such as rain water catchments, and long distance pumping with handpumps. In addition, 11 subprojects supported the provision of small house water reservoirs (pilas), and 3 subprojects financed only latrines. Options in sanitation were ventilated improved latrines and water flush latrines.

From June 2003 to August 2004, 37 training activities were organized for the major stakeholders, including FHIS staff, NGO representatives, mayors, RASHON members, social and technical water sector professionals, and local masons. Training subjects included the promotion of the pilot subcomponent objectives and strategies, as well as the presentation of the Operations Manual and ex-ante and ex-post evaluation tools. Social and technological issues were a core component of training activities.

Funding of the subprojects was similar for all implementation models: communities contributed 30 percent (including community labor and local building materials), municipalities 5 percent (mostly building materials), and FHIS 65 percent of the total costs. Cooperation with NGOs resulted in additional contributions of at least 15 percent of the total cost. These arrangements strengthened FHIS financial capacity to increase water and sanitation coverage, as well as community participation. All communities were able to contribute their agreed shares.

FHIS was and is an active member of the Honduras Water and Sanitation Network – RASHON (formerly Grupo Colaborativo). The experience with PEC projects was discussed and documented by FHIS in association RASHON, and disseminated to all agencies involved in the water sector in March 2004. Therefore, most members of RASHON are now aware of the benefits of each of the models tested under this pilot.

Cross-fertilization of FHIS with other sector agencies was a regular practice, and FHIS staff joined a field trip of sector institutions to Colombia, Ecuador and Peru, where relevant projects were visited. As a result, innovative experiences with low-cost technology were brought to Honduras, and adopted as standard options.

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Impact on Sustainability

The institutionalized use of the ex-ante and ex-post instruments allowed FHIS to adopt the full PEC strategy, thus improving community participation, empowerment and ownership, as well as the quality of the water and sanitation infrastructure, all key elements for achieving sustainability.

The financial policy of establishing a fee that covers at least operation and maintenance costs, including chlorination, payments to technicians, tools and spare parts, improved the chance to achieve sustainability.

The responsibility of managing the service by Water User Associations, which are democratically elected and trained with emphasis on the inclusion of women in relevant positions, strengthened the social auditing capacity and local capabilities for a sustained service operation and enabled a quick response during emergencies.

Although it is still too early to assess the impact of training the Water Users Associations in basin protection, including water catchments, it is expected that the implementation of the recommended practices will have a positive impact on improving the continuity and quality of the water source.

The promotion of hygiene and health practices, added to the policy to support sanitation with water, increased the chances for achieving sustainability and impact of the water and sanitation services. The intermediate evaluation of the project in June 2004 reported that 77 percent of household heads expressed a willingness to replace latrines at their own expense, indicating that the pilot subcomponent was effective in promoting the importance of sanitation.

Institutional Impact

The Bank’s Social Funds Team of Social Protection (HD) confirmed that not only did the pilot subcomponent results promot the change of FHIS’ systems, but it also changed the national reforms aimed at strengthening the roles and capacities of municipalities to plan, manage, and maintain local infrastructure investments by using participatory and transparent methods.

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The agreement signed in 2003 by FHIS with the Alliance of leading NGOs in Honduras (CARE, Save the Children, Vision Mundial, Plan International, CRS, and Aldea Global) added value to the intervention models by promoting the adoption of the PEC strategy and ensuring the continued presence of the NGOs in the strengthening of technical assistance in the field for operation and maintenance after the project cycle has concluded.

The Technical Cooperation Agreement signed in April 2005 by SANAA, the main water sector normative agency, and FHIS, to adopt and promote the institutional models recommended by FHIS at the national level, provides the legal and institutional platform to apply the pilot subcomponent’s lessons learned.

The Strategic Program for Modernization of the Water Sector in Honduras (PEMAPS) and the by-law documents to establish Rural Water Associations were finalized, approved, and are now under implementation.

The Rural Infrastructure Project launched in February 2006, implemented by FHIS and funded by IDA, includes water and sanitation subprojects built on the experience of the SIF V Project, scaling up the work with municipalities and lessons learned in innovative technologies for dispersed rural households, cost

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recovery, and community contracting of subprojects.

Lessons Learned

Poor rural dispersed communities have the will, and are able, to significantly share costs for water and sanitation services, if they have the chance to participate in the full process of subproject implementation in leading positions such as social auditors, managers, and representatives responsible for operation and maintenance.

The relationship and cross-fertilization with public water sector institutions and NGOs, through RASHON, enriched the pilot subcomponent strategy, and became a channel to quickly disseminate the pilot results in the sector, as well as, the scaling up of new investments.

The adoption of the ex-ante and ex-post evaluation tools significantly contributed to improve the implementation of water services and quality of infrastructure, including the revision and reduction of the per capita cost of the technical options proposed.

The financing of the subproject in close cooperation with KfW made it possible to share comparative advantages, increase the number of communities participating in the pilot, and speed up the implementation and scaling up of the pilot findings.

The concept paper for evaluating and documenting a pilot project or component needs to be prepared early in the project, including the pilot design and the physical, economic, and social indicators to be studied. The Operations Manual should include not only the description of models to be implemented, but also scientific methodologies to evaluate the performance of each model. Since FHIS is strongly focused on the implementation of subprojects, it would have been advisable to contract, at the start, the services of an external consultant or firm trained in monitoring and evaluation to process the information generated by the project and to document the implementation and results of the pilot.

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Additional Annex 12. Poverty Ranking by Municipality Category and Sector

This Table shows the breakdown of sectoral and per capita investments by municipal category relative to their poverty level and using the amount actually disbursed.

Poverty Ranking Sector Population Amount Disbursed (US$)

Per capita Investment relative to

amount disbursed

(US$)Acceptable

(Poverty index less than 25)

Water and Sanitation 3,490,731 2,097,052.37 0.60

Support to the informal sector 180,669.02 0.05Social Assistance 8,111,871.75 2.32Goods and Consultancy work 139,430.46 0.04Education 27,321,030.01 7.83Environment 99,112.82 0.03Multisectoral 57,086.93 0.02Municipal 4,543,916.71 1.30Others 376,986.73 0.11Health 5,837,279.09 1.67

SubTotal 48,764,435.88 13.97Regular (Poverty

index between 25 y 35)

Water and Sanitation 1,114,749 2,690,018.56 2.41

Support to the informal sector 58,109.07 0.05Social Assistance 2,769,550.29 2.48Goods and Consultancy work 0.00 0.00Education 14,650,148.63 13.14Multisectoral 95,722.45 0.83Municipal 2,627,451.20 2.36Others 2,037,825 2.21Health 2,917,739.31 2.62

SubTotal 27,846,564.51 24.98Deficient

(Poverty Index between 35 and

45)

Water and Sanitation 841,087 2,298,890.88 2.73

Support to the informal sector 36,664.59 0.04Social Assistance 5,167,602.59 6.14Education 15,270,440.90 18.55Multisectoral 39,608.09 0.05Municipal 764,038.80 0.90Others 455,224.61 0.54Health 3,321,593.98 3.94

SubTotal 27,188,066.44 32.32Poor (Poverty Index between

45 and 55)

Water and Sanitation 227,385 1,005,704.07 4.42

Support to the informal sector 44557.03 0.19Social Assistance 703,841.33 3.09Education 5,579,525.26 24.54Multisectoral 710,797.33 3.12Municipal 1,182,540 5.20Others 2,992,758.40 13.16Health 1,387,819.94 6.10

SubTotal 13,607,543.80 59.84Extremely Poor Water and Sanitation 20,374 29,111.78 1.43

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(Poverty Index above 55)

Social Assistance 231,996.99 11.39Education 800,722.50 39.30Multisectoral 2,008.13 0.10Municipal 18,238.73 0.90Others 39,289.46 1.93Health 125,566.76 6.16

SubTotal 1,246,934.34 61.20Various

MunicipalitiesWater and Sanitation 1,108,737 107,522.80 0.10

Social Assistance 425,137.05 0.38Goods and consultancy work 150,027.32 0.14Education 1,598,292.19 1.44Municipal 102,657.92 0.09Others 673,490.83 0.61

SubTotal 3,057,128.11 2.76Grand Total 121,710,673.47

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