Document of The World Bank FOR OFFICIAL USE ONLY Report No: 89569-EG PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF US$ 4 MILLION FROM THE MIDDLE EAST AND NORTH AFRICA TRANSITION FUND TO THE ARAB REPUBLIC OF EGYPT FOR THE Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 89569-EG
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED GRANT
IN THE AMOUNT OF US$ 4 MILLION
FROM THE MIDDLE EAST AND NORTH AFRICA TRANSITION FUND
TO THE ARAB REPUBLIC OF EGYPT
FOR THE
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January 13, 2016
Finance and Private Sector Development Group
Middle East and North Africa Region
This document has a restricted distribution and may be used by recipients only in the performance of their
official duties. Its contents may not otherwise be disclosed without World Bank authorization.
Currency and Equivalent
Unit of Currency = Egyptian Pound (LE)
US$1 = LE 6.96 (As of February 12, 2014)
Fiscal Year
July1st – June 30th
ABBREVIATIONS AND ACRONYMS
Page
I. STRATEGIC CONTEXT ........................................................................................................1
A. Country Context ....................................................................................................................2
B. Sectoral and Institutional Context .........................................................................................3
C. Alignment with Transition Fund Objective ..........................................................................7
D. Higher Level Objectives to which the Project Contributes...................................................7
II. PROJECT DEVELOPMENT OBJECTIVES ......................................................................9
A. Project Development Objectives ...........................................................................................9
B. Project Beneficiaries .............................................................................................................9
C. PDO Level Results Indicators ...............................................................................................9
III. PROJECT DESCRIPTION ..................................................................................................9
A Project Components ...............................................................................................................9
Regional Vice President: Inger Andersen
Country Director: Hartwig Schafer
Sector Director: Loic Chiquier
Sector Manager: Simon C. Bell
Task Team Leader: Sahar Nasr
B. Project Cost and Financing .................................................................................................12
C. Analytical Underpinnings and Lessons Learned and Reflected in the Project Design ......13
D. Links with other Related World Bank Group and Development Partners'Activities .........14
E. Collaboration with Other Partners .......................................................................................16
F. Stakeholders' Consultation ..................................................................................................16
IV. IMPLEMENTATION .........................................................................................................17
A. Institutional and Implementation Arrangements.................................................................17
B. Sustainability ......................................................................................................................18
V. KEY RISKS AND MITIGATION MEASURES ................................................................18
A. Risk Rating Summary .........................................................................................................18
B. Overall Risk Rating Explanation.........................................................................................19
VI. APPRAISAL SUMMARY ..................................................................................................19
A. Economic and Financial Analyses ......................................................................................19
B. Technical Analysis ..............................................................................................................20
C. Financial Management ........................................................................................................20
D. Procurement ........................................................................................................................21
E. Social and Enviroment Safeguards ......................................................................................22
ANNEXES
Annex 1: Results Framework and Monitoring………………………….................................23
greater opportunity and choice to low-income households. Access to financial services can help
informal home-based businesses grow into formal micro and small enterprises (MSEs).In that
context, this project would contribute to ending extreme poverty.
26. The proposed project will contribute to transforming the underdeveloped microfinance
sector to be more efficient, fair, and transparent, promoting a level playing field. It will enhance
the accountability and governance of the Egyptian regulatory system, while improving their
access to financial services and products, as well as strengthening consumer protection, with the
ultimate objective of sustainable private sector-led growth. The multifaceted project will
contribute to leveraging funding for microfinance, and will address critical deficiencies in micro
financing in Egypt.
27. At the same time, the consumer protection and financial literacy initiatives under the
project will ensure better and fairer access to information and accountability to financial clients,
especially the marginalized and small clients who lack financial knowledge and expertise. In
addition, strengthening the institutional framework for the implementation of the microfinance
regulation will boost the sector’s performance, encouraging its growth and its outreach to
underserved clients and Governorates.
28. Relationship to World Bank Group Strategy and Interim Strategy Note (ISN). The
proposed project contributes to the World Bank Group strategic goals. The project is directly in
line with the global initiative recently announced by the World Bank Group President Jim Kim
to provide universal financial access around the world by 2020. Extending finance to
microenterprises is a key tool to combat poverty for poor households, as well as improving the
standards of living of their families. Financial inclusion is an enabler and a catalyst for achieving
the Bank Group's goals of ending extreme poverty by 2030 and boosting shared prosperity for
the bottom 40 percent of the population in all developing countries. Financial inclusion was
recently recognized as a vital development priority by the UN High-Level Panel on the Post-
2015 Development Agenda.
29. The proposed project’s objective is also aligned with the World Bank and IFC Regional
Framework and Strategy for MENA, which evolves in response to the events of the Arab Spring
and focuses engagement on financial inclusion, and sustainable private sector-led growth. On the
regional front, the project contributes to ensuring economic and social inclusion, strengthening
governance, and accelerating sustainable growth and job creation. With average unemployment
at 10 percent and youth unemployment at 23 percent, MENA has the colossal task of creating
four million jobs a year over the next decade to get on par with the global average
unemployment rate. According to the IMF, raising access to finance in the MENA region to the
world average could boost per capita GDP growth by between 0.3 and almost one percentage
point annually.
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30. The proposed project is also closely aligned with the 2012 Interim Strategy Note (ISN)
for Egypt (2012−2014), discussed by the World Bank’s Board of Executive Directors on June
28, 2012. The ISN envisions attaining a level playing field and supporting marginalized and
underserved enterprises, by strengthening the legal, regulatory and institutional environment for
smaller marginalized firms, which the proposed operation aims to achieve. The project addresses
the three pillars of the ISN, namely:
(i) Improving economic management through strengthening governance, enhancing
transparency, and accountability of the financial system by improving EFSA’s governance structure, as
well as its information dissemination mechanisms. Moreover, MFIs will be required to disclose and share
credit information, which will ameliorate transparency and accountability.
(ii) Creating jobs and unleashing entrepreneurial potential by improving the business
environment, and enhancing access to finance so that the private sector can function efficiently,
fostering economic opportunity, competition, innovation and entrepreneurship with the objective of
achieving sustainable private sector-led growth. The importance of microenterprises for low-income
households is critical for managing risks during difficult times, responding to shocks.
(iii) Fostering inclusion and ensuring broader financial access for disadvantaged segments of
the population—women, and youth, as well as, lagging geographical regions. The project will promote
economic inclusion through paying special attention to women and youth, and expanding the network
of beneficiaries through reaching out to marginalized regions via promoting innovative mechanisms and
tools in the microfinance domain.
II.
A. Project Development Objectives
31. The project development objective (PDO) would be to strengthen the regulatory and
institutional framework of the microfinance sector in Egypt.
B. Project Beneficiaries
32. The direct project beneficiary would primarily be EFSA in that the project will enable the
financial authority to: (i) develop the legal and regulatory framework for financial inclusion;
(ii) establish and operationalize the microfinance unit; and (iii) promote accountability,
governance and consumer protection that can help enhance the financial infrastructure. The
project will also benefit MFIs, which would be able to diversify their products and expand their
outreach. Microenterprises and households will benefit from greater supply of quality financial
services, improved consumer protection mechanisms, and greater financial literacy resources.
C. PDO Level Results Indicators
33. Progress towards achieving the project’s objectives will be measured by a series of quantitative and qualitative indicators at the PDO, and at the intermediate level (Results Framework is outlined in Annex 1). Key results and indicators at the PDO level, are: (i) new regulatory framework effective for MFIs, including NGOs-MFI; (ii) number of MFIs licensed by EFSA under the Microfinance law; (iii) number of NGOs engaged in microfinance activities (reported by the Microfinance NGOs Oversight Board); (iv) number of microfinance beneficiaries under the Microfinance Law, including percentage of female beneficiaries.
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III.
A. Project Components
34. The proposed project comprises of three main components: (i) developing the legal and regulatory framework for microfinance; (ii) establishing and operationalizing the microfinance unit at EFSA; and (iii) promoting accountability, governance and consumer protection. The total cost of the project is US$ 4 million.
35. Component I: Developing the regulatory framework for microfinance (US$ 1.5 million). This component will support the establishment of a regulatory framework that is conducive to growth and stability of the non-bank financial institutions (NBFIs) in Egypt. Critical to the success of the draft Microfinance Law are the executive regulations that should be robust and comprehensive and provide clear guidelines for NGO MFIs, finance companies, and other market players to easily comply with the new supervisory framework. The new regulations will adopt light prudential requirements, with a focus on fit and proper requirements, strong governance rules, consumer protection (especially transparency, disclosure), and internal and external controls.
36. The NGO Microfinance Oversight Board, which will be established as stipulated by the Microfinance Law, will play the role of a “sounding board” responsible for the effective supervision and regulation of NGO-MFIs through coordination and cooperation between EFSA (responsible for regulating and supervising microfinance companies licensed by EFSA) and the Ministry of Social Solidarity (responsible for supervising NGO-MFIs which do not have that status) to make sure the same rules and requirements are applied to both microfinance companies and NGO-MFIs, thus creating a level playing field for all service providers in the market. This would also allow microfinance companies to engage in other non-banking financial services in accordance with the EFSA Law No. 10 of 2009 after getting EFSA’s approval. This would not only be encouraging for the microfinance companies who will be able to engage in other financial services besides microcredit, but can also be an incentive to NGO-MFIs to transform to microfinance companies.
37. Specifically, this component will support EFSA through four main sub-components: (i) developing and finalizing the Executive regulations, and supervision manuals, stipulating the instructions needed to enforce and implement the law and developing the needed rules and standards to be enforced on NGO-MFIs in accordance with the Microfinance Law; (ii) drafting and finalizing the Directives of the NGO Microfinance Oversight Board6, (iii) conducting study tours on legal and regulatory framework for microfinance institutions ; and (iv) providing advisory services to strengthen the regulatory framework for non-bank financial institutions (NBFIs), aiming at enhancing overall financial inclusion in Egypt. This would include addressing in the regulatory challenges faced by EFSA to play an active role in financial inclusion, notably the securities markets, micro insurance, and leasing as well as microfinance. This would promote a more diversified financial system, enhancing competition and better quality services to the clients.
38. Component II: Establishing and operationalizing the Microfinance Unit at EFSA (US$ 1.5 million). The objective of this component is to ensure that the Microfinance Unit adopts international best practices and develops the capacity necessary to implement the law and associated executive regulations effectively so as to support the growth of the overall microfinance sector in Egypt. It will support EFSA through the provision of technical assistance and advisory services in establishing and equipping the Microfinance Unit, which would be responsible for operationalizing the executive regulations and policy, enforcing rules, ensuring compliance, and supervising MFIs. This will help EFSA
6 The Oversight Board comprises representatives from the Ministry of Social Solidarity, CBE, EFSA, SFD, General Federation of NGOs, Egyptian Union for Microfinance (to be established), and financial experts especially in the field of microfinance.
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to establish appropriate on-site and off-site monitoring systems and procedures, advice on enforcement mechanisms and training on the operationalization of the Microfinance Law and its executive regulations. The IT system will also allow the compilation of sectoral data to monitor macro prudential indicators, which would allow adequate and timely monitoring of the performance and soundness of microfinance sector and NBFIs. The system will also help in identifying financial inclusion barriers created by some financial institutions (such as minimum balance amounts for opening a bank account).
39. This component comprises of three sub-components: (i) supporting the establishment of the microfinance unit that is specialized and responsible for licensing, monitoring, oversight, inspection and audit, financial reporting, and consumer protection, and complaints. This support will be provided through the provision of advisory services in relation to issues such as advice on the structure, staffing and reporting lines for the Unit, the development of terms of reference (TORs) for the relevant positions (which TORs will define staff members’ roles, qualifications, responsibilities, accountabilities and performance criteria) and advice as to coordination and communication arrangements with other departments in EFSA and other government agencies; (ii) providing capacity building and training of relevant staff, to be equipped to undertake key operational procedures and strategic functions within the Unit. This include conducting training seminars and workshops and study tours to countries that have well developed systems for microfinance regulations and supervision and on the job training; (iii) strengthening the institutional infrastructure, with the required equipment and IT, both software and hardware, aiming at enhancing the data collection from the financial entities, information dissemination, allow for better monitoring and supervision and ensuring compliance, with the objective of improving transparency, disclosure and overall governance. Experts will be hired to support this. These three sub-components are aimed at ensuring the sustainability of the Microfinance Unit through the provision of the required skills and capacity for effective implementation of the Microfinance Law.
40. Component III: Promoting accountability, governance and consumer protection (US$ 1 million). This component will support EFSA in enhancing accountability and governance, as well as developing a robust consumer protection capacity within the microfinance industry, and in developing financial literacy amongst target population groups. The tasks related to consumer protection will be handled by EFSA’s PMU.
41. This component comprises three sub-components: (i) enhancing consumer protection and financial literacy through providing (a) advice on consumer protection specific supervisory tools that are likely to be required (such as mystery shopping, monitoring of forms of disclosure and advertising materials, consumer forums etc.); (b) advice on content and review of manuals for processes and procedures for consumer protection supervision; (c) advisory inputs/services for the development of transparent, fair and accessible procedures for the complaint resolution function of the new Unit; (d) assistance in designing and implementing financial literacy training materials and programs relevant to customers of MFIs (the relevant programs might be provided by EFSA or the MFIs themselves); and (e) the design of a public awareness campaign about rights and responsibilities under the new Microfinance Law and the supervisory role of EFSA; (ii) conducting study tours and on the job training in countries which have well developed systems for financial consumer protection; and (iii) building the capacity of the Microfinance NGOs Oversight Board through training seminars and workshops. Within this component particular attention will be placed on comprehensive transparency and disclosure requirements and further business conduct rules.
42. Gender mainstreaming. An overarching goal of the project is to promote gender-inclusive development of the Egyptian microfinance sector. Under component I, a gender specialist will form part of the team drafting the Executive regulations to help ensure gender mainstreaming. For example, the published supervisory guidelines would be cognizant of the need to track and promote female
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microfinance clients. Similarly, NGOs specializing in female economic participation and entrepreneurship will form part of the Microfinance NGOs Oversight Board. This will help ensure the concerns and priorities of women are taken into account during the drafting of the Executive regulations and during the implementation of the Microfinance Law.
43. Under component II, capacity building workshops on gender-inclusive financial inclusion and microfinance development will be delivered to EFSA staff, with particular reference to the role of regulatory agencies in the promotion of gender-inclusive development. This is a frontier area of financial sector development (particularly for the MENA region) and one that Egypt can take a leadership role in. Similarly, study tours to countries that have effectively promoted gender inclusive microfinance sectors will be organized under this component.
44. Under component III, consumer protection initiatives that specifically target women will be developed and implemented. These programs (centering on fair treatment, timely information, and effective recourse) will be structured and delivered in a manner in which women can successfully access and benefit from services provided. These programs will take into account socio-economic and cultural barriers (for example women ownership of assets) that cause women to be treated differently than men by financial institutions and regulators. Program modules will include topics on transparency (key terms, relevant charges), fees and charges, debt collection, consumer awareness, and sales and marketing practices. They will focus on using delivery channels tailored the needs of female clients.
45. Overall, enhancing financial consumer protection mechanism will ensure that female clients’ rights are protected and that discriminatory practices are eliminated. Furthermore, through promoting a supportive regulatory and institutional framework the project will facilitate women’s access to finance and encourage them to access the formal financial sector. Gender disaggregated data will be prioritized and tracked throughout project implementation, specifically the percentage of women beneficiaries, and the number of consumer protection initiatives targeted specifically to women.
B. Project Cost and Financing
46. The proposed project is an Investment Project Financing in the amount of US$ 4 million, which will be financed through the MENA Transition Fund. The project cost and financing are outlined in Table 1.
Table 1: Project Cost and Financing
Cost by Component Transition Fund
(US$)
Funding
%
Component 1: Developing the legal and regulatory Framework
for financial inclusion
• Sub-component 1.1: Technical assistance to EFSA in finalizing
the Microfinance Executive regulations and supervision
manuals.
• Sub-component 1.2: Technical assistance in forming the NGO
Oversight Board and drafting and finalizing its Directives
• Sub-component 1.3: Conducting study tours on legal and
regulatory framework for Microfinance Institutions
• Sub-component 1.4: Advisory services to strengthen the
1,500,000
250,000
250,000
250,000
750,000
100
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regulatory framework for NBFIs, aiming at enhancing financial
inclusion
Component 2: Establishing and operationalizing the
Microfinance Unit at EFSA
• Sub-component 2.1: Establishing the Microfinance Unit, and
capacity building and training of key staff
• Sub-component 2.2: Strengthening the institutional
infrastructure, with the required equipment and IT, both
software and hardware.
1, 500,000
900,000
600,000
100
Component 3: Promoting accountability, governance and
financial literacy, and public awareness campaigns
• Sub-component 3.2: Conducting study tours
• Sub-component 3.3: Training and capacity building of the
Microfinance Oversight Board
1,000,000
400,000
100,000
500,000
100
Total Project Cost 4,000,000
C. Analytical Underpinnings and Lessons Learned and Reflected in the Project Design
47. The project design fully reflects lessons learnt from recent, ongoing, and completed
World Bank Group activities, as well as, donor and development partner projects, and
international best practice in the microfinance area. This includes, lessons learnt from similar
operations in Jordan, India, and other developing and emerging economies.
48. The design of the project is underpinned by extensive analytical, advisory and diagnostic
work undertaken over the past years. The project is informed by analytical documents including
Financial Development and Inclusive Growth: Attaining Shared and Sustainable Prosperity in
Egypt (2013), which flagged the challenges confronting the Egyptian microfinance sector,
including the weak legal and regulatory framework. The project design also benefits from the
findings of Egyptian Women Workers and Entrepreneurs: Maximizing Opportunities in the
Economic Sphere (2010); and the Opening Doors: Gender Equality and Development in MENA
(2013) in identifying the main economic and social obstacles facing women, and means of
addressing them. The design of the project especially tapped on the findings of the impact
evaluation of the Egyptian Women Leadership in MSEs Project, which was conducted on April,
2013 to evaluate the impact of the project on gender empowerment, job creation, and poverty
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alleviation through enhancing finance for MSEs. This evaluation highlighted the need to expand
the microfinance sector.7 The recent IFC Sub-national Doing Business (2014) flagged the
importance to reaching out to the marginalized areas and Governorates, improving their access to
finance, which a more developed and diversified financial system would be essential.
49. Key lessons learned from previous operations are summarized as follows:
50. Implementing entity’s accountability and ownership is essential for the successful execution of the project. The project’s main counterpart EFSA, is a prominent and credible institution with a competent Board, strong management capacity, market knowledge and a good governance structure, and as such, has been assigned a clear responsibility for project implementation. The new Chairman of EFSA is reform oriented and committed to the financial inclusion agenda. He has been appointed for a four year term promoting sustainability of reforms.
51. Effective donor coordination is a key requirement to ensure synergies in approach and guidelines and for the success of project implementation. This proposed project is done in partnership between the World Bank, IFC and the Saudi Fund for Development, and will be implemented in coordination with other donors active in microfinance development to take advantage of synergies between different donor-funded activities. During implementation, the team will continue to undertake consultations with donors and development partners active in MSME financing in Egypt to coordinate efforts and better identify the project's value added (AFESD, USAID, DFID, AfDB, EBRD, EIB, GIZ, and EU).
52. Adequate supervision of the project should include clearly defined and transparent indicators for monitoring the implementation progress and measuring the overall impact. Clear project indicators have been defined in the Results Framework. Monitoring and evaluations will be an important aspect of the project. The regular monitoring indicators will help serve as an early warning system indicating the potential need for any modifications. Most important it will push forward the legal and regulatory reforms, with the clear timeline and the prioritization of tasks.
D. Links with other World Bank Group Activities
53. The proposed project complements on-going World Bank Group activities, ranging from
IBRD investment, to advisory services and technical assistance under the Regional World Bank-
IFC MENA MSME Facility; IFC advisory services; and the Consultative Group to Assist the
Poor (CGAP) technical assistance, as well as, the Gender Development Unit Programs, gender
mainstreaming efforts. The Bank is ensuring complementarity between these diverse activities to
ensure synergies and effective results on the ground.
54. Lending. The proposed project will complement the US$ 300 million World Bank-financed Promoting Innovation for Inclusive Financial Access Project for Egypt (P146244), which aims at expanding access to finance for MSE in Egypt, using innovative financing mechanisms, with a special focus on youth and women, as well as underserved regions. A key objective of this project is to expand the microfinance sector. This has been scaled up by a parallel line of credit from the Saudi Fund for Development (US$ 200 million) which is fully dedicated to supporting the microfinance sector. Both these investment loans provide lines of credit to financial intermediaries, including NGOS-MFIs. The
7 The analysis relied on more than one methodology to ensure robust results for plausible and applicable policy
recommendations to enhance finance to MSEs in Egypt. These methodologies are in-depth interviews with main
stakeholders, data analysis of intermediaries (SFD, banks, MFIs and NGOs), and surveys covering more than 400
small and micro enterprises in different Governorates depending on the share of these governorates of the loan.
Large Governorates, such as Cairo and Giza; Upper Egypt Governorates, such as Fayioum and Asyut, and Lower
Egypt, such as Al-Sharqia, were included and covered in the sample.
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proposed project will ensure effective implementation of the lines of credit through developing the legal, regulatory and institutional financial infrastructure to promote the expansion of the microfinance sector. It provides critical non-financial support to ensure the line of credit can be effectively used by MFIs in the sector.
55. World Bank-IFC MENA Regional MSME Technical Assistance Facility.8 The proposed operation will complement the joint World Bank-IFC MSME Facility, a multi-donor trust fund, which provides technical assistance and advisory services under three pillars, namely: (i) developing the enabling environment for MSMEs; (ii) providing advisory services to financial institutions that serve MSMEs; and (iii) building the capacity of MSMEs through entrepreneur networks, mentoring, and business incubator-type services. This will ensure that adequate capacity and resources are in place through adopting global best practices in microfinance and entrepreneurial skills development.
56. It is also worth noting that the remaining funds under the Egypt MSME Facility, Pillar I—developing the enabling environment, are not sufficient to finance the extent of legal and regulatory reforms called for under this operation. In addition, being a client-executed operation, this Transition Fund will further complement the Bank and IFC-executed MSME Facility. The Transition Fund will support the drafting of the Executive regulations, and the Directives of the Microfinance NGO Oversight committee, which the Bank and the IFC cannot contribute in drafting through the MSME Facility to avoid any issues of conflict of interest. The proposed Transition Fund will also support EFSA in getting resident advisors and experts to support the establishment of the Microfinance Unit, and the Consumer Protection Department—activities that cannot be financed under the MSME Facility. In addition this project will finance software and hardware that cannot be finance by the World Bank Group-executed trust funds. Moreover, a recipient-executed project supports the fostering of home-grown country-led reforms, which will ensure sustainability, ownership, as well as capacity building.
57. Overall, this operation should be seen as part of a package of parallel assistance that helps in strengthening the legal and regulatory framework and complements the lines of credit provided by the World Bank and the Saudi Fund for Development and other development partners. Such a design is in line with what has been done in other countries and is considered to be a technically-sound all-inclusive package of assistance to address microfinance sector development. The technical assistance provided will complement and not duplicate the activities supported by other donors.
E. Collaboration with Development Partners
58. This project is prepared in collaboration with the Arab and Islamic funds both in terms of
financial and technical support, where Egypt is a priority country. The operation is also done in
collaboration with other international financial institutions and bilateral donors active in the
domain of the Microfinance sector development.
59. The World Bank’s line of credit has also been scaled up by several other Arab and Islamic
funds. This includes the line of credit from the Saudi Fund for Development (US$ 200 million)
targeted to the microfinance sector. The Arab Fund for Economic and Social Development
(AFESD) is also providing a line of credit, amounting to US$ 50 million as part of the MSME
Special Account, that was launched at the Arab Economic and Social Summit held in Kuwait in
8 MENA MSME TA Facility is supported by UKAID (DFID), the Swiss State Secretariat for Economic Affairs (SECO),
Foreign Affairs, Trade, and Development, Canada (DFATD), the Japanese International Cooperation Agency (JICA),
the Danish International Development Agency (DANIDA).
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January 2009.9 In addition, in December 2013 the Khalifa Fund for Enterprise Development of
the United Arab of Emirates (UAE) provided parallel financing, amounting to US$ 200 million
for MSMEs. The Islamic Bank for Development is also providing a line of credit amounting to
US$ 50 million, as well as technical assistance to financial intermediaries with a focus on
Sharia’s compliance finance. The proposed Transition Fund would complement these lines of
credit by creating an enabling environment for financial inclusion.
60. The project team has been coordinating and undertaking consultations with other donors and development partners active in Microfinance sector development in Egypt, including Agence Francaise de Development, GIZ, and UNIDO. The Bank has also been working closely with the USAID that is leading the drafting of the National MSME Strategy in Egypt. All this has been done in synergy with the Regional MSME Facility which is supported by DFID, SECO, DANIDA, JICA, and DFATD, which supports financial inclusion.
61. In response to the political transformations underway in MENA countries, the Deauville Partnership was launched at the G8 Summit in May 2011. The aim is to provide a coordination framework that would help transition countries implement reforms, where MSE development is a key component within the context of the governance pillars. In that context, an SME Policy, Entrepreneurship and Human Capital Development Committee was formed, dedicated to enhancing the role of MSEs in creating jobs, and preparing country-specific action plans, where Egypt was one of the key countries benefiting from such support.
F. Stakeholders’ Consultation
62. Consultations were undertaken with stakeholders, comprising the relevant government agencies, including the Ministry of Social Solidarity, Ministry of Trade and Industry and Investment, SFD, Ministry of Finance, CBE, NGO-MFI, microenterprises and other donors that are actively involved in the development of the microfinance sector. Throughout the project preparation phase, EFSA discussed with all relevant stakeholders, the design and details of the proposed project. The consultations with numerous stakeholders will continue throughout project implementation to ensure continued stakeholders buy-in and ownership.
I.
A. Institutional and Implementation Arrangements
63. The methodology to be adopted by this project will seek to integrate established evidence-based diagnostic work conducted by the World Bank Group—WB and IFC, with a robust stakeholder engagement, and effective coordination with development partners. The project would follow the World Bank guidelines related to procurement, financial management, and social and environmental safeguards.
64. EFSA is the implementing agency for the project and will be responsible for coordinating and managing the overall project. EFSA was selected as the implementing agency because it is by law the entity responsible for regulating and supervising the non-banking financial institutions (NBFIs) in Egypt. The proposed project will help accelerate its reform program. The project comes at an opportune time where the leadership of EFSA is pushing for transformational and regulatory reforms.
9 This is an initiative led by H.E. Amir of Kuwait to provide US$ 2 billion to support MSMEs development in the Arab countries.
The number of participating countries reached 17 by July 2013, where total contribution reached US$ 1.3 billion (with Saudi
Arabia and Kuwait being the largest contributors, each US$ 500 million), of which US$ 940 million has been paid out of the total
of pledged amount. Loans approved as of July 2013, amount to US$ 333 million through 13 financial intermediaries and apex
institutions, known for their active operations in the MSME sector.
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65. The Project Management Unit (PMU) at EFSA will oversee and manage this project. The PMU mandate will be to implement policies and procedures outlined in this document and it will report directly to the Chairman of EFSA. The PMU will be responsible for all steps regarding procurements procedures. EFSA has experience in World Bank procedures, having previously implemented projects with Bank support.
66. EFSA has prepared an Operational Manual with guidance from the World Bank, which includes financial management and procurement arrangements and describes the roles and responsibilities for project implementation, the institutional and implementation arrangements, financial management, and safeguards, as well as disbursement and procurement procedures.
67. The World Bank will be responsible for the provision of implementation support to the project, in partnership with the Saudi Fund for Development, where joint missions will take place to ensure coordination and effective implementation of these activities with the objective of ensuring that the services provided are addressing all institutional and regulatory reforms needed to complement the line of credit to have an impact on the ground. Distribution of responsibilities is done based on expertise, comparative advantage, and previous engagement. However, team members and experts from each institution will contribute and provide support wherever necessary based on required knowledge and expertise. To ensure effective coordination and implementation on the ground, periodic joint supervision missions will be led by the Bank and the Saudi Fund for Development, with the active participation of IFC these would take place at least once every six months.
68. A robust system to monitor and evaluate (M&E) progress is crucial to the project success, and will be implemented based on the agreed results framework, monitoring arrangements and indicators. A strong M&E framework to track inputs, outputs, and outcomes in a systematic and timely fashion has been discussed, and agreed on with EFSA during the preparation phase. M&E will be based on clearly identified benchmarks and output indicators that feed into the project indicators (Annex 1).
B. World Bank—Saudi Fund for Development Partnership.
69. The project will be conducted in partnership with the Saudi Fund for Development. The technical assistance and advisory services that would be offered under this project is critical for the effective and successful implementation of the lines of credit provided by both the World Bank, and the Saudi Fund for Development. The World Bank-financed Promoting Innovation for Inclusive Financial Access Project (US$ 300 million) is complemented up by a US$ 200 million line of credit from the Saudi Fund for Development that was approved in February 2014. In addition to ensuring effective execution of the lines of credit, the partnership will ensure synergies and consistency in terms of pushing the right policies and regulatory reforms by two major players in the microfinance sector in Egypt. The Saudi Fund for Development is solely targeting microenterprises, using the design, the eligibility criteria and the implementation arrangements of the Bank’s operation.
70. This project would also strengthen further the strategic partnership between the Bank and the Saudi Fund for Development. The Saudi Fund for Development will bring in their extensive knowledge of the region, especially with regards to Islamic finance regulations. It has also been providing lines of credits to the Arab countries, and has experience in dealing with regulatory bodies, microfinance institutions and financial systems. The Saudi Fund for Development with its competent and experienced leadership has great credibility in Egypt, and is entrusted by the authorities to develop the microfinance sector. The World Bank will play a coordinator role, to ensure the most effective use of resources, prudent allocation of funds that are not distortive to the market, tapping on the comparative advantage and expertise of the different institutions and international best practices.
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C. Sustainability
71. Key elements in the sustainability of the proposed project are the high quality of EFSA in carrying out the project, the Government’s strong commitment to sound financial policy and increasing access to finance reflected in making MSMEs development a priority in the reform program, and the commitment to reform and improve the legal and institutional capacity of the microfinance sector in Egypt.
72. Project sustainability will be facilitated by the strong partnership that has been established between the World Bank Group and the Egyptian authorities over the past years through an integrated work program, reflected in an effective policy dialogue, analytical work, technical assistance, and key operations. The World Bank Group and the Saudi Fund for Development have had a strong and professional policy dialogue with EFSA, where commitment to financial sector reform was evident. Moreover, the Bank and IFC will provide technical assistance to the EFSA through the MENA TA Facility leading to enhancing the outcome and the impact of the proposed project.
73. The operation could be confronted with various risks with regards to stakeholder involvement level, operating environment, implementation, and sustainability. These risks were carefully analyzed and mitigation measures were drafted. The overall project risk is rated as moderate, and will not have major implications on the project achieving results, taking into account the mitigating measures, which are detailed in the Operational Risk Assessment Framework (ORAF) in Annex 4.
74. Project stakeholder risks include principal risks that could come from a delay or reversal of policy commitment. Implementing agency risks, include insufficient capacity to implement the project that may cause delays. An important risk is the lack of sufficient funding to maintain the required human capacity once the grant closes. This will be mitigated through ensuring that EFSA will raise sufficient funds to cover its institutional and human capacity to establish and maintain s sustainability.
75. Project risks include risks associated with project design, such as the risk of lack of expertise on relevant technical subjects and time needed to digest new concepts, and reaching consensus of changes. These risks may delay the project implementation. These risks are mitigated through the focused project design and the duration of the project (four years), which allows for sufficient time for effective and smooth implementation. There are no major social or environmental concerns because the proposed project activities are limited to advisory services and technical assistance. This project is a Category C. Means of mitigating these risks are outlined in Annex 4.
III.
A. Economic and Financial Analyses
76. Project Development Impact. The proposed operation will foster a more prudent legal, institutional and regulatory framework to lend to microenterprises in Egypt. The project will provide necessary support to EFSA on the issuance, enforcement and implementation of the Microfinance Law and its Executive regulations based on international best practice. This will help ensure an adequate regulatory framework and help prepare the sector for expansion and further outreach to underserved communities across Egypt. As EFSA is not yet institutionally prepared for implementation of the Microfinance Law, technical assistance will also be provided to ensure effective implementation and enforcement of the law through establishing and providing capacity building and training to the EFSA staff to enable them to ensure compliance of the Law.
77. This project will also be assisting EFSA in providing support and capacity building to NGOs interested in transforming into microfinance companies under the new law, which requires, among other things, legal and accounting adjustments, in addition to building consensus and synergy among the various market players on the best approach to help the sector expand and grow. Consumer protection will ensure better and fairer access to information and accountability to financial clients, especially for poor and vulnerable clients who lack robust financial knowledge and expertise.
78. Overall, strengthening the regulatory and institutional framework for the microfinance sector will promote its expansion and its growth in a sustainable way. There will be substantial benefits for clients, providers, and public authorities to regulate and oversee all similar financial activities under a consistent rather than fragmented set of rules. For example, top-performing microcredit NGOs should typically be able to transform, as they grow and need to raise more capital. The new regulations will have a positive impact on the soundness of MFIs, and their ability to diversify and deepen their funding sources and on-lend to microenterprises. This will also increase the numbers of MFIs and their client base, which will contribute in alleviating poverty and inequality, particularly in underdeveloped Governorates and amongst women and youth.
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79. Value Added of Bank’s Support. The World Bank Group will bring forward its cross country experience and regional knowledge, as well as international best practices. There has been extensive work done in the area of MSME development, ranging from IBRD policy lending, to advisory services and technical assistance under the World Bank-IFC MENA MSME Facility, as well as the work done by the IFC technical support across a number of key priority areas to this project. IFC’s extensive experience in supporting reform initiatives and their links to a wide network of international practitioners is key in supporting EFSA as part of the collaboration on this initiative.
80. A major value added of this project is that it will complement the lines of credit for microfinance, and help leverage parallel financing from other development partners, especially from the GCC countries that provided significant financial support to Egypt during the transition period. The technical assistance provided through this project will tap on the bank’s international experience and bring industry-leading knowledge to EFSA and key project partners.
C. Technical Analysis
81. Setting the legal and regulatory framework that is conducive to growth and stability of the microfinance sector would also allow microfinance companies to engage in other non-banking financial services in accordance with the EFSA Law No. 10 of 2009 after getting EFSA’s approval. Establishing and operationalizing the Microfinance Unit at EFSA will ensure that the microfinance unit adopts international best practices and develops the capacity necessary to implement the law and associated executive regulations, supporting the growth of the microfinance sector in Egypt. It will strengthen the institutional infrastructure, which would enhance the information dissemination mechanisms internally and externally aiming at improving the governance structure and transparency. Support to EFSA in enhancing accountability and governance, and developing a robust consumer protection capacity within the industry, will center on fair treatment, transparency, and effective recourse.
D. Financial Management
82. The EFSA capacity was assessed and found satisfactory to conduct the FM aspects of the project including the accounting, reporting and project external audit arrangements. The PMU, will be located at EFSA, and will be mandated to follow up on project activities. A Project Manager will be assigned the PMU and an agreement has been reached with the EFSA to assign a Financial Management Specialist and an Accountant (from EFSA) as part of the PMU. The selected staff will possess adequate experience to conduct the project activities.
83. EFSA has a previous experience in implementing the Bank’s project namely the “Enhancing Capital Market Authority Monitoring Capacity (P105337- TF90813)”. The project’s overall outcome performance was rated as satisfactory both for the Bank and recipient performance. The relevance, efficacy and outcome performance of the Grant as a whole were rated as Satisfactory.
84. A Financial Management Manual of procedures which is a part of the Operation Manual of Procedures, defines the controls and the flow of information, including the auditing arrangements under the project. Given the straightforward nature and the relatively small size of the Grant, the Project, through the PMU, will issue on a semi-annual basis, interim un-audited financial reports (IFRs). These reports will reflect the project sources and uses of funds, contract expenditures, and uses of funds by project component, and will be submitted to the Bank within 45 days following the end of each semester, starting from the semester where the first disbursement from the grant takes place. The Financial Management Specialist at the PMU will be responsible for the preparation of the IFRs and sending them on a timely basis to the World Bank.
85. To ensure that funds are readily available for Project implementation, a US Dollar Designated
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Account (DA) will be opened and operated by the EFSA. The account will be opened at bank acceptable to the Bank. An independent external auditor will be hired to audit, on an annual basis, the Project financial statements and payments made on SOE basis. To successfully implement the FM arrangements for the project, the FM Manual, which is a part of the Operation Manual of Procedures, has been finalized prior to Negotiations. This Manual will define the FM and Disbursement procedures under the project. An external auditor must be contracted within three months of Project effectiveness. The TORs for the auditor, as well as the selected auditor should be acceptable to the Bank.
E. Procurement
86. Procurement of Goods and Non-Consulting Services shall be carried out in accordance with the World Bank “Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011. For the selection of consultants, the World Bank “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011 shall be used. Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and revised January 2011, shall apply to the Project.
87. The overall responsibility for Project procurement will rest with the PMU, which will act as the World Bank's main counterpart for all procurement aspects of the Project. A PMU will be established within EFSA and will be composed of EFSA staff, and consultants in various fields, to manage the overall implementation of the Project. The PMU will manage the procurement process and will be responsible for contract management.
88. An Assessment of EFSA Procurement Capacity (PCA) was carried out during project preparation. It concluded that EFSA has qualified procurement staff with experience in National Competitive Bidding and Shopping procedures in accordance with Egypt Public Procurement Law no. 89/98, however, EFSA staff have limited experience in Selection of Consultants and Bidding Documents in languages other than Arabic. Also, the PCA noted that EFSA staff have not been previously exposed to International Finance Institutions (including World Bank) procurement procedures. Given the nature of this Project which requires Selection of Consultants and issuance of an International Competitive Bidding for IT Equipment and Software under Component 2, this may present a potential challenge that could delay Project procurement and implementation.
89. To ensure efficient implementation of Procurement under the Project, the detailed responsibilities and procedures of the procurement related activities are clearly defined in the Project Operations Manual (POM), which outlines the processing steps for the various procurement/selection methods and for contract administration. Training on procurement and contract management will be provided to the staff of the PMU and designated officials of EFSA. The TORs for the critical consultancy assignments, to be implemented during the first 18 months of Project implementation, were prepared and submitted for Bank’s review; and these were cleared during appraisal.
90. The World Bank’s Procurement Prior Review (PPR) thresholds were set based on the bases of existing procurement capacity and identified procurement risks. The first three activities for Procurement of Goods and Selection of Consultants will be subject to PPR. In addition to PPR, the World Bank will carry out four Procurement Implementation Support Missions during the first year and at least two per year for the following years during which support to the PMU and follow up of procurement matters will be maintained.
91. A Procurement Plan (PP) for the first 18 months of project implementation was prepared by EFSA and agreed with the Bank. Procurement packages planned during the first 18 months of project implementation are reflected in Annex 3.
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92. The Residual Procurement Risk rating for the project is “Moderate”.
D. Social and Environmental Safeguards
93. The proposed project is a Category C, as it is likely to have no adverse environmental impacts. The project will not finance any civil works. Thus, the Bank OP 4.01 on Environmental Assessment does not apply. If a need arises during implementation for the financing of goods or any civil works, the Bank may reassess the application of OP 4.01 and require further environmental assessment.
94. The Bank’s OP 4.12 policy on Involuntary Resettlement and Land Acquisition does not apply. The project will not entail any investments that will trigger the policy since the project components are focused on developing the legal and regulatory framework for financial inclusion; establishing and operationalizing the Microfinance Unit at EFSA; and promoting accountability, governance and consumer protection. The total cost of the project is US$ 4 million. This project does not include civil works, relocation of populations, impacts on livelihoods nor restriction of access to resources. However, social impacts are likely to be positive. Project activities of technical assistance, capacity building, and study tours will enhance individuals, and institutional reforms will support small private sector entities.
95. No environmental and social safeguards instruments other than the Integrated Safeguards Data Sheet (ISDS) need to be prepared for this project.
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PROJECT DEVELOPMENT OBJECTIVE: The project development objective (PDO) is to strengthen the regulatory and institutional framework of the
microfinance sector in Egypt
PDO Level Results Indicators
Co
re Unit of
Measure Baseline
Cumulative Target Values Frequency
Data Source/
Methodology
Responsibilit
y for Data
Collection
YR 1 YR 2 YR 3 YR 4
New regulatory framework effective for MFIs, including NGOs-MFIs Yes/No No No Yes Yes Yes Annual EFSA EFSA
Number of MFIs licensed by EFSA under the Microfinance Law Number 0 2 4 6 10 Annual EFSA
EFSA
Number of NGOs engaged in microfinance activities (reported by
the Microfinance NGOs Oversight Board)
Number 0 3 7 10 14 Annual EFSA
EFSA
Number of microfinance beneficiaries under the Microfinance Law Number 0 5,000 10,000 15,000 20,000 Annual EFSA EFSA
Component I: Developing the Legal and Regulatory Framework for Microfinance
Issuance of the Microfinance Executive Regulations by EFSA Yes/No No Yes Yes Yes Yes Annual EFSA EFSA
Frequency of meetings of the Microfinance NGOs Oversight Board Number 0 2 6 12 16 Annual EFSA EFSA
Component II: Establishing and Operationalizing the Microfinance Unit at EFSA
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Microfinance Unit established and operational at EFSA Yes/No No Yes Yes Yes Yes Annual EFSA EFSA
Number of staff of MFIs trained Number 0 3 6 12 16 Annual EFSA EFSA
Microfinance sector reports disclosed by EFSA Number 0 2 6 12 16 Quarter EFSA EFSA
Number of training programs for Microfinance Unit staff Number 0 3 8 11 13 Annual EFSA EFSA
Component III: Promoting accountability, governance and consumer protection
Number of staff and clients trained—workshops, study tours, and
capacity building events Number 0 2 6 10 14 Annual EFSA EFSA
Number of awareness and consumer protection initiatives launched
and implemented by EFSA Number 0 2 6 12 16 Annual EFSA EFSA
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1. The proposed project comprises of three main components: (i) developing the legal and regulatory framework for microfinance; (ii) establishing and operationalizing the microfinance unit at EFSA; and (iii) promoting accountability, governance and consumer protection. The total cost of the project is US$ 4 million.
2. Component I: Developing the regulatory framework for microfinance (US$ 1.5 million). This component will support the establishment of a regulatory framework that is conducive to growth and stability of the non-bank financial institutions (NBFIs) in Egypt. Critical to the success of the draft Microfinance Law are the executive regulations that should be robust and comprehensive and provide clear guidelines for NGO MFIs, finance companies, and other market players to easily comply with the new supervisory framework. The new regulations will adopt light prudential requirements, with a focus on fit and proper requirements, strong governance rules, consumer protection (especially transparency, disclosure), and internal and external controls.
3. The NGO Microfinance Oversight Board, which will be established as stipulated by the microfinance Law, will play the role of a “sounding board” responsible for the effective supervision and regulation of NGO-MFIs through coordination and cooperation between EFSA (responsible for regulating and supervising microfinance companies licensed by EFSA) and the Ministry of Social Solidarity (responsible for supervising NGO-MFIs which do not have that status) to make sure the same rules and requirements are applied to both microfinance companies and NGO-MFIs, thus creating a level playing field for all service providers in the market. This would also allow microfinance companies to engage in other non-banking financial services in accordance with the EFSA Law No. 10 of 2009 after getting EFSA’s approval. This would not only be encouraging for the microfinance companies who will be able to engage in other financial services besides microcredit, but can also be an incentive to NGO-MFIs to transform to microfinance companies.
4. Specifically, this component will support EFSA through four main sub-components: (i) developing and finalizing the Executive regulations, and supervision manuals, stipulating the instructions needed to enforce and implement the law and developing the needed rules and standards to be enforced on NGO-MFIs in accordance with the Microfinance Law; (ii) drafting and finalizing the Directives of the NGO Microfinance Oversight Board10, (iii) conducting study tours on legal and regulatory framework for microfinance institutions ; and (iv) providing advisory services to strengthen the regulatory framework for non-bank financial institutions (NBFIs), aiming at enhancing overall financial inclusion in Egypt. This would include addressing in the regulatory challenges faced by EFSA to play an active role in financial inclusion, notably the securities markets, micro insurance, and leasing as well as microfinance. This would promote a more diversified financial system, enhancing competition and better quality services to the clients.
5. Component II: Establishing and operationalizing the Microfinance Unit at EFSA (US$ 1.5 million). The objective of this component is to ensure that the microfinance unit adopts international best practices and develops the capacity necessary to implement the law and associated executive regulations effectively as to support the growth of the overall microfinance sector in Egypt. It will
10 The Oversight Board comprises representatives from the Ministry of Social Solidarity, CBE, EFSA, SFD, General Federation of NGOs, Egyptian Union for Microfinance (to be established), and financial experts especially in the field of microfinance.
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support EFSA through the provision of technical assistance and advisory services in establishing and equipping the Microfinance Unit, which would be responsible for operationalizing the executive regulations and policy, enforcing rules, ensuring compliance, and supervising MFIs. This will help EFSA to establish appropriate on-site and off-site monitoring systems and procedures, advice on enforcement mechanisms and training on the operationalization of the Microfinance Law and its executive regulations. The IT system will also allow the compilation of sectoral data to monitor macro prudential indicators, which would allow adequate and timely monitoring of the performance and soundness of microfinance sector and NBFIs. The system will also help in identifying financial inclusion barriers created by some financial institutions (such as minimum balance amounts for opening a bank account).
6. This component comprises of three sub-components: (i) supporting the establishment of the microfinance unit that is specialized and responsible for licensing, monitoring, oversight, inspection and audit, financial reporting, and consumer protection, and complaints. This support will be provided through the provision of advisory services in relation to issues such as advice on the structure, staffing and reporting lines for the Unit, the development of terms of reference (TORs) for the relevant positions (which TORs will define staff members’ roles, qualifications, responsibilities, accountabilities and performance criteria) and advice as to coordination and communication arrangements with other departments in EFSA and other government agencies; (ii) providing capacity building and training of relevant staff, to be equipped to undertake key operational procedures and strategic functions within the Unit. This include conducting training seminars and workshops and study tours to countries that have well developed systems for microfinance regulations and supervision and on the job training; (iii) strengthening the institutional infrastructure, with the required equipment and IT, both software and hardware, aiming at enhancing the data collection from the financial entities, information dissemination, allow for better monitoring and supervision and ensuring compliance, with the objective of improving transparency, disclosure and overall governance. Experts will be hired to support this. These three sub-components are aimed at ensuring the sustainability of the Microfinance Unit through the provision of the required skills and capacity for effective implementation of the Microfinance Law.
7. Component III: Promoting accountability, governance and consumer protection (US$ 1 million). This component will support EFSA in enhancing accountability and governance, as well as developing a robust consumer protection capacity within the microfinance industry, and in developing financial literacy amongst target population groups. A separate division will be solely responsible for consumer protection.
8. This component comprises three sub-components: (i) enhancing consumer protection and financial literacy through (a) advice as to the consumer protection specific supervisory tools that are likely to be required (such as mystery shopping, monitoring of forms of disclosure and advertising materials, consumer forums etc.); (b) advice on content, and review, of manuals for processes and procedures for consumer protection supervision; (c) advisory inputs/services for the development of transparent, fair and accessible procedures for the complaint resolution function of the new Unit; (d) assistance in designing and implementing financial literacy training materials and programs relevant to customers of MFIs (the relevant programs might be provided by EFSA or the MFIs themselves); and (e) the design of a public awareness campaign about rights and responsibilities under the new Microfinance Law and the supervisory role of EFSA; (ii) conducting study tours and on the job training in countries which have well developed systems for financial consumer protection; and (iii) building the capacity of the Microfinance NGOs Oversight Board through training seminars and workshops. Within this component particular attention will be placed on comprehensive transparency and disclosure requirements and further business conduct rules.
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9. Gender mainstreaming. An overarching goal of the project is to promote gender-inclusive development of the Egyptian microfinance sector. Under component I, a gender specialist will form part of the team drafting the Executive regulations to help ensure gender mainstreaming. For example, the published supervisory guidelines would be cognizant of the need to track and promote female microfinance clients. Similarly, NGOs specializing in female economic participation and entrepreneurship will form part of the Microfinance NGOs Oversight Board. This will help ensure the concerns and priorities of women are taken into account during the drafting of the Executive regulations and during the implementation of the Microfinance Law. This is particularly critical given the ongoing political and economic volatility in Egypt and the recent prioritization of citizenship feedback in Egyptian public policy.
10. Under component II, capacity building workshops on gender-inclusive financial inclusion and microfinance development will be delivered to EFSA staff, with particular reference to the role of regulatory agencies in the promotion of gender-inclusive development. This is a frontier area of financial sector development (particularly for the MENA region) and one that Egypt can take a leadership role in. Similarly, study tours to countries that have effectively promoted gender inclusive microfinance sectors will be organized under this component.
11. Under component III, consumer protection initiatives that specifically target women will be developed and implemented. These programs (centering on fair treatment, timely information, and effective recourse) will be structured and delivered in a manner in which women can successfully access and benefit from services provided. These programs will take into account socio-economic and cultural barriers (for example women ownership of assets) that cause women to be treated differently than men by financial institutions and regulators. Program modules will include topics on transparency (key terms, relevant charges), fees and charges, debt collection, consumer awareness, and sales and marketing practices. They will focus on using delivery channels tailored the needs of female clients.
12. Overall, enhancing financial consumer protection mechanism will ensure that female clients’ rights are protected and that discriminatory practices are eliminated. Furthermore, through promoting a supportive regulatory and institutional framework the project will facilitate women’s access to finance and encourage them to access the formal financial sector. Gender disaggregated data will be prioritized and tracked throughout project implementation, specifically the percentage of women beneficiaries, and the number of consumer protection initiatives targeted specifically to women.
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1. EFSA is the entity responsible for regulating the non-bank financial service industry in Egypt including, capital markets, derivative markets, commodities, insurance, mortgage finance, financial leasing, factoring and securitization. EFSA will be the main counterpart, responsible for coordinating and managing the overall project. The new Constitution issued on January18, 2014, has made EFSA an independent regulatory and supervisory entity, reporting directly to the President. In terms of legal and regulatory reforms, the Minister of Investment is the responsible Minister for presenting the required legal reform to the Cabinet, and ensuring its ratification.
2. EFSA, under the leadership of its new Chairman appointed in August 2013. To ensure his independence, the Chairman was appointed for a four-year term which will ensure sustainability and continuity of the reforms. EFSA currently has a strong professional cadre at the Board, the senior management and officer levels. EFSA was the main counterpart of a number of World Bank projects (three Financial Sector Reform DPLs, amounting to US$ 1.5 billion).
3. Arrangements will be put in place to ensure adequate project implementation support, covering fiduciary and safeguards aspects, with semi-annual implementation support missions. The implementation support team will draw on expertise from the Bank as well as, external experts, where necessary.
4. A financial management assessment of the implementing agency was conducted and it was found that the implementing agency has previous experience in managing World Bank funds; during the preparation and implementation of a previous project “Enhancing Capital Market Authority Monitoring Capacity (P105337- TF90813)” that is completed. The assessment concluded that the EFSA financial management arrangements satisfied the minimum requirements.
5. EFSA is a public Authority, having a legal status, established in accordance to Law 10 of 2009. EFSA is responsible for supervising and regulating non-banking financial markets and instruments, including the Capital Market, the Stock Exchange, and all activities related to Insurance Services, Mortgage Finance, Financial Leasing, Factoring and Securitization. EFSA's role is to regulate the market and ensure its stability and competitiveness to attract more local and foreign investments “The mandate of the Authority also includes limiting inconsistency risks and addressing problems arising from applying different supervisory rules".
6. Also, EFSA is considered the concerned administrative body entitled to apply the Financial Leasing provisions promulgated by Law no. 95 of 1995.
7. Risk Assessment and Mitigation:
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Inherent Risks
Risk Before
MM
Mitigating Measures After MM
- The current staffing structure of EFSA is not designed to accommodate the nature of the project activities and the Bank fiduciary requirements.
S
- Designate FM staff from within EFSA to the PMU, preferably with previous experience in donors financed activities, to be responsible for the TF recording and reporting.
M
Inherent Risk Before MM S Inherent Risk after MM M
Control Risks
Budgeting
- Budgeting capacity to plan, execute and monitor the grant funds.
S
- The PMU will prepare a comprehensive budget for all project activities. The projected disbursements will be revised on a Semi-annual basis and reported in the corresponding Semi-annual IFR.
M
Internal Control
- Adequacy of internal control structure to enable segregation of duties and efficient management of the grant funds.
S
- Separate filing will be made for the TF proceeds and expenditures supporting documents and all original supporting documents will be maintained in a traceable and organized manner by the TF accountant within the EFSA Finance Department.
- A financial manual will be prepared before effectiveness by the Financial and Administrative Manger depicting the controls that will be applied over the use of funds
M
Flow of funds
- Grant funds are not segregated resulting in lack of traceability of World Bank funds.
S
- The PMU will open a designated account in a bank acceptable to the World Bank for the sole purpose of managing the grant activities. Reconciliation between the Grant financial records and the designated account will be prepared on a monthly basis.
M
Accounting and Reporting
- Availability of timely and sufficiently detailed financial information with the current accounting system in place.
S
- All project-related transactions would be recorded in the ORACLE automated books of accounts and supporting documents will be kept at the PMU level (audit trail).
- Funds received would be identified separately and reflected in the project accounts, semi-annual IFR, and annual Financial Statements.
M
Audit
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- The project annual reports will have to be audited in accordance with the World Bank policies.
S
- A private external auditor acceptable to the Bank will be hired by the EFSA to conduct review of the project’s semi-annual IFRs and audit of the project’s annual Financial Statements.
- Also the independent external auditor will be required to issue a Management Letter reporting on any significant internal control and/or accountability issues.
M
Control Risk Before MM S Control Risk after MM M
8. Staffing: The project will be managed by a Project Management Unit (PMU) which will be established within EFSA and will have overall responsibility for the project’s financial management function for all components. The financial management and accounting of the project will be composed of two staff (both appointed from EFSA), Financial Management Specialist (FMS) and an Accountant with clear responsibilities as described in the financial procedures manual which was prepared by the PMU. The Financial Management Specialist will be responsible for the review of the Accountant recording of journal entries in the accounting system, coordination in regard to financial matters with Central Department for Financial and Administration Affairs in EFSA, reviewing the Withdrawal Applications (WAs) in addition to reporting on the financial performance of the Project to the World Bank. The Accountant will be responsible for the day to day transactions including recording the journal entries in the accounting system. Also, the Accountant will be responsible for preparing the Withdrawal applications, submitted to the World Bank.
9. Accounting and Record Keeping: EFSA utilizes ORACLE system for recording and reporting purposes which is capable of generating the semiannual IFRs and annual Financial Statements which will be required under the Grant Agreement. Also, it permits segregation of duties among different users.
10. The format and content of the project reports was shared and agreed with EFSA. Aunique code on the ORACLE system will be created for the sole purpose of recording and reporting the project’s financial activities. This system should allow the generation of the overall project financial reports on a timely basis.
11. The FM Team prepared and delivered to EFSA an IFR Excel Template which includes sample i) Sources and Uses of Funds, ii) Disbursements by component, iii) Bank Reconciliations and iv) Cash Forecast. Also, it was agreed with EFSA that the semi-annual IFR package will include reporting on the commitments established by the PMU i.e. (i) Commitments Value, (ii) Disbursed Amount and (iii) Committed not yet Paid Amount
12. Flow of funds: A designated account (DA) will be opened in a bank acceptable to the World Bank where an advance will be made. The DA will be maintained by the assigned accountant within the PMU. Replenishments will be made through Withdrawal Applications (WAs) which will be signed by the authorized signatories communicated officially to the Bank.
13. Internal Controls and filing: Separate filing will be made for the TF proceeds and expenditures supporting documents and all original supporting documents will be maintained in a traceable and organized manner by the Grant FM Specialist.
14. The EFSA developed an Operational Manual which includes the Internal Controls and a Financial Management Chapter. This manual will aim at standardizing the project activities and assist PMU employees in consistently implementing control procedures. For fixed Assets to be purchased, the FM
31
Specialist will establish a Fixed Asset Register that is intended to improve accuracy of the accounting records for fixed assets and improved control over each asset (location, custodian, etc.).
15. Reporting and Auditing: The EFSA will hire the project’s external auditor within three months after project effectiveness. The external auditor will conduct Semi-annual reviews on the project IFRs and audit of the project’s annual Financial Statements before submission to the Bank.
(i) Semi-annual IFRs. The format and content of the IFR, which will be produced 45 days from each semester closing date, were discussed to include the receipts and expenditures of the Grant funds by component and category as well as the coming 6 months disbursements forecast. Also, the IFRs will include a detailed reconciliation of the DA receipts and disbursements.
(ii) Audited FS. The audit of the grant will be conducted by independent private auditor and will cover the grant’s sources and uses of funds, reconciliation and use of the DA and will be submitted to the Bank within six months after the closing date of each fiscal year.
16. Procurement for the Project shall be carried out in accordance with the World Bank “Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011, for Goods and Non-Consulting Services, the World Bank “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011, for Consultants’ Services, the accompanying standard bidding documents/standard request for proposal and the Grant Agreement. Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and revised in January 2011, shall also apply to the project.
17. The overall responsibility for Project procurement will rest with the PMU, which will act as the World Bank main counterpart for all procurement aspects of the Project. A PMU will be established within EFSA and will be composed of EFSA Staff and consultants in various fields, to manage the overall implementation of the Project. The PMU will manage the procurement process in all steps of the procurement process: preparation of BDs/TORs/RFPs, bid/proposal opening, bid/proposal evaluation, contract negotiations and contract award. Further, the PMU, will also be responsible for contract management including the review and approval of consultants’ deliverables and the receipt/inspection and acceptance of goods, and for the release of funds to the consultants/suppliers in accordance with the signed contracts.
18. An Assessment of EFSA Procurement Capacity (PCA) was carried out as part of project appraisal. The PCA evaluated the institutional capacity of EFSA to implement procurement for the Project activities to be financed under World Bank Procurement Guidelines. Furthermore, the assessment evaluated procurement risks and made recommendations on mitigation measures for efficient procurement under the Project. The following is a summary of the identified procurement risks and mitigation measures:
19. Identified Risks:
a. Staffing
Shortcoming in procurement under ICB procedures and Selection of Consultants may present a potential
challenge that may delay Project procurement and accordingly Project implementation.
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Having to deal with documents in English while staff English language skills is poor constitute a high risk
during procurement processing.
Improper implementation of procurement activities under the project (in terms of efficiency,
competition, transparency).
Implementation delays and poor quality of contract deliverables.
b. Procurement Planning
Poor quality procurement and outcomes due to limited procurement and contract administration
capacity of Agency.
Delay to project processing and implementation due to lack of proper planning.
c. Bidding documents,(pre-)qualification, shortlisting, and evaluation criteria.
Project delays due to unfinished bidding documents/RFPs.
Technical specifications/TORs are vague.
Lack of English Language skills while having to deal with documents in English may cause all sorts of
confusion and delays.
d. Review of Procurement Decisions and Resolution of Complaints
Disincentive to competition due to lack of system to resolve complaints.
20. Mitigating Measures:
(a) A Procurement Plan (PP) for the first 18 months was prepared by EFSA and reviewed; and
agreed upon between the Bank and the Project Team at appraisal. This plan will be updated in
agreement with the PMU, at least twice annually (in preparation for the Bank Implementation Support
Missions) or as required to reflect the actual project implementation needs and improvements in
institutional capacity;
(b) To ensure Project readiness for implementation, immediately after effectiveness, TORs for the
main/critical TA/consultancy assignments, to be implemented during the first 18 months of Project
implementation, were prepared and submitted for Bank’s review and clearance.
(c) To ensure efficient implementation of Project procurement, the project implementation
structure was established and the detailed responsibilities of the various entities is defined in the POM,
which outlines the processing steps for the various procurement/selection methods and for contract
management and administration.
(d) Training on procurement and contract management will be provided to the staff of the PMU and
designated officials of EFSA. The training, which will take place immediately after effectiveness, will be
carried out by Bank Team and will focus on the Project procurement arrangements as indicated in the
33
POM and will provide a detailed explanation on the critical steps of the procurement and contract
management process.
(e) The World Bank’s Procurement Prior Review (PPR) thresholds were set based on the bases of
existing procurement capacity and identified procurement risks. The first three activities for
Procurement of Goods and Selection of Consultants will be subject to PPR. In addition to PPR, the World
Bank will carry out four Procurement Implementation Support Missions during the first year and at least
two per year for the following years during which support to the PMU and follow up of procurement
matters will be maintained.
(f) Heavy WB procurement supervision during the first year of implementation.
21. The overall residual procurement risk rating for the project is “Moderate”.
Procurement Plan:
22. Procurement for Goods, and Non-Consulting Services: International Competitive Bidding (ICB) will be the default method to be used under the Project. The Grant shall use the National Competitive Bidding and Shopping procedures that include: (a) explicit statement to bidders of the evaluation and award criteria; (b) local advertising or through EFSA website, allowing bidders not less than 14 days to prepare and submit quotations and 30 days to prepare and submit Bids; (c) award to lowest evaluated Supplier/Bidder; and (d) foreign bidders would not be precluded from participation. Whenever justifiable, Direct Contracting can also be used.
23. Consultants’ Services: Quality and Cost Based Selection will be the default method to be used
for selection of Consultant Firms under the Project. Other methods as seen appropriate to the
assignments such as Least Cost Selection method for the selection of the Independent External Auditor
will be used. Individual consultants’ method shall be used as well. Whenever justifiable, single sourcing
of firms and of individuals can also be used.
24. A Procurement Plan (PP) for the first 18 months of project implementation was prepared by
EFSA and agreed with the World Bank and summarized below. The PP specifies the procurement
packages/consultancy assignments, estimated cost, methods and activity dates, taking into
consideration the Project implementation schedule. The PP will be updated at least twice annually (in
preparation for the Bank Implementation Support Missions) or as required to reflect the actual Project
implementation activities, needs and improvements in institutional capacity
Summarized Procurement Plan;
23. Below are the summarized procurement activities to be carried out during the first 18 months of
project effectiveness and the prior review threshold.
24. Goods and Works and non-consulting services.
a. Procurement Method and Prior Review Threshold: Procurement Decisions subject to Prior
Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement:
Resp: Bank Stage: Prep. Recurrent: Due Date: March 31,
2014
Frequency: Status: Completed
3.4. Delivery Monitoring and
Sustainability
Rating Moderate
Description: Ability to exercise
adequate level of project
supervision in view of the
current uncertainties in the
region.
Description: EFSA lack of
technical and institutional
Risk Management: Staff from the local country office are core team members involved in project preparation and
will be involved in the project ongoing supervision. The country team also draws upon financial inclusion experts
based in headquarters.
41
capacity to maintain project
initiatives (new functions on
MFI regulation ) after project
completion
Risk Management: One of the main project components is providing training and capacity building to EFSA staff to
ensure technical and institutional capacity.
Resp: Bank/EFSA Stage: Prep. Recurrent: Due Date: March 31,
2014
Frequency: Status: Completed
4. Overall Risk
Preparation Risk
Rating: Moderate
Implementation
Rating: Moderate
Comments: The overall preparation risk is
moderate given that a PMU will be established and
fully staffed with caliber members.
Comments: The project is implemented in parallel with activities being financed by the
MENA MSME TA Facility. This is complementary to the Project.
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ANNEX 5
Macro Level:
Legislation,
Regulation, and
Supervision
Activity
Implementing
Agency/TA
Provider
Description/Focus Beneficiaries Funding Source/Donor Status
TA to Egyptian
Financial Supervisory
Authority (EFSA)
World Bank Reviewing the microfinance
law EFSA
IFC World Bank MSME
TA Facility Completed
TA to EFSA in
developing new
microfinance law
GIZ
Financed consultant reviewing
elements of new microfinance
law
EFSA GIZ Completed
Micro Level:
Support
Services and
Infrastructure
Support to Central
Bank of Egypt (CBE) World Bank
Developing a credit guarantee
facility for MSME financing CBE
IFC World Bank MSME
TA Facility Ongoing
TA to Social Fund for
Development (SFD) World Bank
Establishment of M&E,
Innovation, and Gender Units;
Gender entrepreneurship work
SFD IFC World Bank MSME
TA Facility Ongoing
TA to Egypt Post World Bank
Product development, MFI
partnership, risk management
and Islamic financial services
Egypt Post IFC World Bank MSME
TA Facility Ongoing
43
CGAP Market
Building Workshops
(periodic)
CGAP
National financial inclusion
strategies, data needs,
regulatory frameworks;
Supports institutional TA
requirements.
Providers and
government
CGAP Donor Funds / GIZ
Cross Funding Ongoing
Development of
Venture Capital and
Early Stage
Innovation Financing
World Bank in
Conjunction
with the
University of
California at
Berkeley
Objective is to build the
ecosystem necessary for early
stage innovation financing
Market
players
(regulators,
providers,
donors)
IFC World Bank MSME
TA Facility Completed
Micro Level:
Financial
Service
Providers
Egyptian Banking
Institute (EBI) to
MSME banking
departments
IFC
Design of new financial
products, strengthening
corporate governance, and
improving credit information
systems
Banque Misr,
Alex Bank
IFC World Bank MSME
TA Facility Ongoing
TA to NGO-MFIs
IFC in
partnership
with the
Egyptian
microfinance
network
Focusing on governance,
financial management, and
better serving women/youth
via product and delivery
channel development
Dakahleya, Al-
Tadamun,
Lead
Foundation
IFC World Bank MSME
TA Facility Ongoing
TA on Islamic Finance
Product
Development
Egyptian
Banking
Institute
Islamic finance product
development
World Bank MNSFP in
conjunction with Islamic
Development Bank
Ongoing
44
TA to Lead
Foundation on
Product
Development
Women's
World Banking
Gender-responsive credit
products
Lead
Foundation Core Funding Ongoing
Clients and
Research
Entrepreneurship
Training to Women
World Bank;
SFD
Trainings focused on business
planning, feasibility studies,
access to finance, and linking
startups to mentors and
incubators
Women
Groups in
Alexandria
and
underserved
governorates
IFC World Bank MSME
TA Facility Ongoing
Micro, Small,
and Medium-
Sized Enterprise
Support Work
(Financial and
Non-Financial)
MSME Development
Project ($200 mn) SFD
Line of credit to banks and
MFIs to encourage
downscaling
Financial
Institutions,
MSMEs
World Bank investment
lending loan
Ongoing
(2010-
December
2015)
Promoting
Innovation for
Inclusive Financial
Access
World Bank
Supervises; SFD
Implements
Line of credit to banks, MFIs,
leasing companies, venture
capital companies; new
financial products for MSEs
(financial leasing, factoring,
venture capital);
Financial
institutions,
MSMEs
through
greater access
to finance
World Bank investment
lending loan
Preparation-
board
approval
planned
April 1 2014
MSME development
project ($300 mn) SFD
Line of credit to banks and
MFIs to encourage
downscaling
Financial
institutions,
MSMEs
African Development
Bank Ongoing
MSME development
project ($50 mn) Line of credit to banks and
other financial institutions to
Financial
institutions,
Arab Fund for Economic
and Social Development Ongoing
45
encourage downscaling MSMEs (AFESD)
MSME development
project ($50 mn)
Line of credit to banks and
other financial institutions to
encourage downscaling
Financial
institutions,
MSMEs
Khalifa Fund Planned
MSME development
project ($50 mn)
Line of credit to banks and
other financial institutions to
encourage Islamic Finance
development
Financial
institutions,
MSMEs
Islamic Development
Bank
46
ANNEX 6
IMPLEMENTATION SUPPORT PLAN
1. The World Bank will support the implementation of the project and provide the technical advice necessary to facilitate the achievement in the PDO.
2. The World Bank’s FM team will support EFSA to enhance their knowledge on FM Bank procedures and guidelines by providing workshops on FM and disbursement.
3. There will be a subsidiary agreement signed between the World Bank and EFSA whereby the Recipient makes the funds of the grant available to EFSA for implementation of the project.
4. Through the project duration the World Bank team will closely monitor the project on semi-annual supervision missions. During the supervision mission, the World Bank will ensure that the financial arrangements agreed on are respected and will assess if any additional training or support is needed. The World Bank team will review and clear the audit TOR, review the audit reforms and IFRs received and provide its feedback on a timely manner.
5. The main focus in terms of implementation during:
Time Focus Skills needed Resource
estimate
First twelve
months
Developing the regulatory
and institutional
framework for
Microfinance institutions.
Financial Specialist, MSME specialist,
Finance Operations Officer, Principal
Operations Officer, Legal Advisor and
Microfinance Expert, Procurement
Specialist, Financial Management
Specialist, Financial development analyst
$100,000
12-48 months Enhancing the
Microfinance unit and
NGO microfinance
Oversight Board
Banking and MSME Finance expert,
Financial specialist, MSME specialist,
Finance Operations Officer,
Microfinance Expert
$200,000 per
year
6. Skills Mix Required:
Skills Needed Number of Staff weeks Number of
Trips
Financial Specialist, MSME specialist, Finance
Operations Officer, Principal Operations Officer,
Legal Advisor and Microfinance Expert,
Procurement Specialist, Financial Management
Specialist, Financial development analyst,
60 weeks 7 trips
47
Banking and MSME Finance expert, Financial
specialist
7. Partners:
Institution Role
The Saudi Fund The World Bank will provide implementation support to the project and the Saudi
Fund will participate in missions for coordination of this activity with other related