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LESSONS:

Second Aquaculture Development Project (Loan 821-BAN[SF])

sector: Agriculture, Natural Resources, and Rural Development | country: Bangladesh

Channeling a credit line through the banking system requires a rigorous examination of the capacity of the participating banks to act as effective financial intermediaries. The credit line should provide flexibility to participating banks in setting their lending interest rates to reflect credit risks of the respective clients. An assessment of credit demand should be rigorous, taking into account analyses of lending risks, risk averseness of banks, and requirements for secured lending including collateral coverage and its implications on the targeted potential clients. The credit demand assessment should not be simply based on the estimation of financing gap of projected investments and the expressed interest of participating banks.

Extension services for aquaculture development can be highly effective when supported with trained and adequately equipped staff to demonstrate improved aquaculture techniques to private farmers. Diffusion of information has been effective when the extension has relied on feasible, simple, and low-cost technology to improve aquaculture practices. Rather than compartmentalizing the funding for fisheries extension services through various project initiatives, the government should support the role and functions of the executing agency in such services by providing the necessary funds on a program basis.

Fish stocking is an attractive option for sustaining inland fish production, but effective arrangements for sharing of costs and benefits among users and stakeholders are required. Apart from technical feasibility, organizational, management, and social aspects of fish stocking should be addressed. Participatory processes should be followed that require the involvement of stakeholders including beneficiaries from the planning stage.

Food safety and hygiene are key requisites for sustaining exports. Appropriate legal instruments for and enforcement of environmental protection and sanitation, and harmonization of standards for food safety are essential for sustained aquaculture operations.

Risks of diseases and their potential devastating impacts on aquaculture production should be considered during project preparation. Aquaculture health and sanitation management, including issues concerning diagnostics, health certification, and quarantine, is equally important to minimize risks of epidemics.

The poor credit recovery generally reflects the current conditions affecting the banking sector which has suffered from inadequate capitalization and nonperforming loans. Although these systemic conditions were recognized during project preparation, the use of loan covenants to mitigate risks has not been effective. The targets specified in loan covenants were too ambitious given the systemic and far-reaching problems afflicting the banking sector. An aquaculture project cannot be expected to resolve such problems.

The start of project implementation was delayed by premature loan effectiveness and protracted recruitment of consultants. As the project proforma is an administrative requirement of the government, future project preparation should promote strong country ownership with clear responsibilities for counterpart government agencies to provide administrative clearances or approval on a timely basis, including compliance with ADB s Guidelines on the Use of Consultants.

There should be operating guidelines for the recycling of subloan repayments by the participating banks. The use of the credit facility for such recycling should be monitored to prevent uses for purposes other than those intended by the project.

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