Document of The World Bank FOR OFFICIAL USE ONLY Report No: 75522-MA PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF US$4.9 MILLION FROM THE MIDDLE EAST AND NORTH AFRICA TRANSITION FUND TO THE KINGDOM OF MOROCCO FOR A MICROFINANCE DEVELOPMENT PROJECT June 27, 2013 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. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 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: 75522-MA
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED GRANT
IN THE AMOUNT OF US$4.9 MILLION
FROM THE MIDDLE EAST AND NORTH AFRICA TRANSITION FUND
TO THE
KINGDOM OF MOROCCO
FOR A
MICROFINANCE DEVELOPMENT PROJECT
June 27, 2013
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.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective June 5, 2013)
Currency Unit = Moroccan Dirham (MAD)
US$1 = MAD 8.52
MAD 1 = US$0.12
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AMC Associations de Micro-Crédit (Micro-Credit Associations)
BAM Bank Al Maghrib (Central Bank of Morocco)
CCG Caisse Centrale de Garantie (Central Guarantee Fund)
CDG Caisse de Dépot et de Gestion
CGAP Consultative Group to Assist the Poor
CM6 Centre Mohammed VI pour la Microfinance Solidaire
CMU County Management Unit
CPS Country Partnership Strategy
CQS Selection Based on Consultant's Qualifications
DAAG Direction des Affaires Administratives et Générales (Directorate of Administrative and
General Affairs)
DECDG Development Economics, Development Data Group
DPL Development Policy Loan
DPTF Deauville Partnership Transition Fund
DPTF OM Deauville Partnership Transition Fund Operations Manual
FM Financial Management
FNAM National Federation of Micro-Credit Associations
GDP Gross Domestic Product
GID Gestion Intégrée des Dépenses (Integrated Expense Management)
GNI Gross National Income
IBRD International Bank for Reconstruction and Development
IC Individual Consultants
IDA International Development Association
IFC International Finance Corporation
IFI International Financial Institution
IFMIS Integrated Financial Management Information System
IGF General Inspectorate of Finance
IMF International Monetary Fund
INTOSAI International Standards on Auditing
ISA International Standards on Auditing
IT Information Technology
IUFR Interim Unaudited Financial Report
J-PAL Jameel Latif Poverty Action Lab
M&E Monitoring and Evaluation
MAD Moroccan Dirham
MCA Millennium Challenge Account
MENA Middle East and North Africa
MFI Microfinance Institutions
MIS Management Information Systems
MoEF Ministry of Economy and Finance
MSME Micro Small and Medium Sized Enterprises
NCB National Competitive Bidding
OP Operations Policy
PAD Project Appraisal Document
PDO Program Development Objective
PEFA Project Economic and Financial Assessment
PFM Public Financial Management
PFS Project Financial Statements
PJD Parti de la Justice et de Développement (Justice and Development Party)
PMU Project Management Unit
PPP Purchasing Power Parity
QCBS Quality and Cost Based Selection
SBD Standard Bidding Documents
SME Small and Medium Enterprise
TA Technical Assistance
TF Trust Fund
UN United Nations
USAID United States Agency for International Development
USD United States Dollar
VAT Value-Added Tax
Regional Vice President: Inger Andersen
Country Director: Simon Gray
Sector Director: Loic Chiquier
Sector Manager: Simon C. Bell
Task Team Leader: Teymour Abdel Aziz
KINGDOM OF MOROCCO
Morocco Microfinance Development Project
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT .................................................................................................1
A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context ................................................................................. 3 C. Higher Level Objectives to which the Project Contributes .......................................... 8
II. PROJECT DEVELOPMENT OBJECTIVES ................................................................8
A. Project Development Objective (PDO) ........................................................................ 8
B. Project Beneficiaries ..................................................................................................... 8 C. PDO Level Results Indicators ..................................................................................... 11
III. PROJECT DESCRIPTION ............................................................................................11
A. Project Components .................................................................................................... 11
B. Project Financing ........................................................................................................ 13 C. Lessons Learned and Reflected in the Project Design ................................................ 14
IV. IMPLEMENTATION .....................................................................................................16
A. Institutional and Implementation Arrangements ........................................................ 16 B. Results Monitoring and Evaluation ............................................................................ 17
C. Sustainability............................................................................................................... 17
V. KEY RISKS AND MITIGATION MEASURES ..........................................................18
A. Risk Ratings Summary Table ..................................................................................... 18 B. Overall Risk Rating Explanation ................................................................................ 18
VI. APPRAISAL SUMMARY ..............................................................................................19
A. Economic and Financial Analyses .............................................................................. 19
B. Technical ..................................................................................................................... 19 C. Financial Management ................................................................................................ 19
D. Procurement ................................................................................................................ 20 E. Social (including Safeguards) ..................................................................................... 21 F. Environment (including Safeguards) .......................................................................... 21
(reflecting recent credit losses), remuneration of capital, plus a margin.3 The large MFIs have
indicated that attracting new investors in the context of “transformation” hinges on maintaining
the prior regulatory regime and generally the tax-free regime of not-for-profit entities (VAT
exemption).
23. Through “transformation” and other measures, the sector aims in the next ten years to
multiply by four the number of accounts (to 3.2 million), and by five the volume of credit (to 2%
of GDP). If reached, 40-50 percent of the population would be served, assuming 4-5
beneficiaries per account. Comprehensive financial inclusion would be well within reach given
overlap between these targets and parallel financial inclusion initiatives. The postal bank created
in 2009 as part of BAM’s inclusion plan already has in excess of 5 million accounts, although it
3 MoEF has regulated the all-in-cost of credit extended by banks and finance companies since 1997, and limits the
margin to 200 basis points.
6
does not yet offer lending services, but partners with a large MFI to this end. The commercial
banks are also developing inclusion tools (so-called “low income banking”) through partnerships
with telecom or remittance operators, with 3.5 million accounts opened in the recent past.
BAM’s targets under its financial inclusion plan are for two-thirds of the population formally
accessing banks by 2014, either directly or via intermediaries.
24. MFI stakeholders are working on other financial inclusion projects that are at various
stages of maturation. However, the design of transformational projects has been hampered by a
lack of knowledge management platforms and integrated information systems for analysis and
policy formulation. Stakeholders indicated that much data is available, and with suitable
granularity. However, the data is dispersed and highly unwieldy for analysis, outreach, and
policy. A leading industry advocate that attempts to conduct analysis has been the Centre
Mohammed VI pour la Microfinance Solidaire (CM6), which was established in 2007. Its
mission is to: train AMCs, including in the development of innovative products; studies and
outreach (it hosts the microfinance observatory); market access and basic management advice for
microenterprises; and financial education. The Centre aims to develop new products and design
common technology and information platforms that could provide industry-wide services,
especially to the small AMCs. For example, CM6 and Jaida are conducting background work to
assess the regulatory and technical feasibility of a mobile-banking platform that would be
common to all AMCs. However, CM6 does not engage in policy formulation or interface with
the regulatory authorities on behalf of the industry.
25. FNAM as the microfinance industry association has been absent from inclusion
initiatives. The 1999 law provided that all AMCs are members of FNAM to ensure a strong
interlocutor for the authorities in what was then a nascent industry. The mission of FNAM is to
represent the industry in the public arena and with oversight authorities, and spearhead sector-
wide initiatives. However, lack of resources since inception means that FNAM has no permanent
staff, nor offices, and is thus unable to fulfill its mandate. A critical factor preventing agreement
among FNAM members to develop the institution appears to have been heterogeneous
membership, with large and financially savvy MFIs at odds with small charitable MFIs. For the
past several years, a large commercial bank with an AMC subsidiary has been filling in for
FNAM on its own resources. The bank has also been trying to organize and provide basic
financial services to a loose grouping of smaller AMCs. FNAM estimates it would need a budget
of US$ 0.5 million per year to begin work. A key aim of the proposed project is strengthening
FNAM.
26. Microfinance donors are in various stages of evaluating the impact of their strategies and
planning possible follow-on projects. Donor activities are generally coming to a close or have
already been discontinued. In particular, MCA/USAID will close a wide-ranging microfinance
project (see table below) that began in 2007, with MAD 42 million in technical assistance to
finish disbursing by June 2013 and MAD 33 million in IT, management information systems and
risk control systems. The size of these projects (compared with the sector’s need for additional
capital of MAD 5 billion to support MAD 25 billion lending by 2023) suggests that substantial
investments in human capital, processes and systems may come to an end, with no replacement
contemplated at this stage. The Bank has conducted a series of consultations with microfinance
donors active in Morocco to coordinate efforts and better identify the Bank’s value added. A
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brief summary of donor activities is provided below:
TA provider Beneficiaries Focus Duration Funding
Source IFC Al-Amana,
Fondep
Governance, Risk
Management
ongoing MENA MSME
Facility (50%
Cofinance)
MCA Ardi, Réseau
microfinance
solidaire
Marketing
Diversification of
funding sources
Geographical
coverage strategy
2007-13 80% USAID
The rest by
beneficiaries
MCA All MFIs Strengthening
internal controls,
improving risk
management and
organization of
MFIs
2007-13 80% USAID
The rest by
beneficiaries
MCA RMS, FONDEP-
MC
Change
management
2007-13 80% USAID
The rest by
beneficiaries
MCA Al AMANA
FONDEP-MC
Implementation of
Mobile Banking
Improving
customer
relationship
2007-13 80% USAID
The rest by
beneficiaries
GiZ CM6 Financial
education of
micro-
entrepreneurs
2011-13 GiZ
Banque de
France/AFD
CM6 Microfinance
observatory
2012 AFD
Source: World Bank staff interviews with donors and implementing agencies.
27. The MoEF asked the World Bank to be the implementation support agency for the proposed
grant under the MENA Transition Fund in light of its long-standing engagement with the
Moroccan authorities on financial inclusion issues. In addition, the Bank hosts the secretariat of
the G-20 Global Partnership for Financial Inclusion (GPFI) and develops policy documents with
the Financial Inclusion Expert Group for the GPFI. The Bank also has close links with and hosts
the Consultative Group to Assist the Poor (CGAP), the leading policy group on microfinance. A
financial sector DPL planned for end-2013 will include an important financial inclusion pillar
and the proposed grant will help inform the design of the DPL.
28. Morocco received considerable assistance from the donor community (see section III B
for additional details) and as such, incorporating core lessons and designing a project that
complements rather than duplicates other donor activities is of significant importance to the
overall success of the project.
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C. Higher Level Objectives to which the Project Contributes
29. The proposed operation contributes directly to the objectives of the World Bank Group’s
Country Partnership Strategy (CPS) for Morocco (FY2010-2013) discussed by the World Bank’s
Board of Executive Directors on January 26, 2010. The CPS proposes three thematic pillars
aligned with the development priorities of the country. The first pillar states that the structural
transformation of the Moroccan economy will require a comprehensive and coordinated set of
policies in many areas, underpinned by a financial sector that better serves smaller firms and
microenterprises. The proposed operation is targeting precisely the financial inclusion of this
underserved segment of the Moroccan economy, as well as women, which have been amongst
the key beneficiaries of the Moroccan microcredit sector: of all microloans issued in Morocco,
55.3% have benefitted women and 46.9% have benefitted age groups between 30 and 49 years.
These objectives are also central to the MENA Regional Strategy, discussed by the Board in
January 2013.
30. The Government’s support for a strong and sustainable microfinance sector has been
endorsed in the First International Symposium on Microfinance in Morocco held in October
2012. At this public forum, the country’s microfinance strategy was introduced and discussed.
Workshops covered the job creation potential of microfinance; integration of global best
practices; product diversification away from credit-led models; and funding needs. In addressing
the event, His Majesty the King endorsed the strategy and emphasized its key principles: help the
informal sector create jobs; develop new products and practices to reach the underserved;
incorporate best financial management and control practices; achieve synergies by integrating
the objectives of government policies across regions, types of income generating activities, age
or gender. The King also called on continued support from international entities. The proposed
operation supports the roll-out of the national microfinance strategy by strengthening the
resilience and impact of the microfinance sector, both for lending to enterprises as well as
households for investment. Microloans to households are often the initial steps toward
consumption smoothing, which helps raise living standards and thereby worker productivity in
formal enterprises. MFIs also generate “self-employment” which helps alleviate the incidence of
absolute poverty in the informal economy.
II. PROJECT DEVELOPMENT OBJECTIVES
A. Project Development Objective (PDO)
31. The project objective is to promote access to finance to low income households and
micro and small enterprises through the promotion of a sustainable and inclusive microfinance
sector.
B. Project Beneficiaries
32. The project’s direct and indirect beneficiaries fall into five categories and reflect key
actors at different institutional levels within the microfinance sector in Morocco. Beneficiaries
are: i) industry regulators and policymakers including BAM and the Ministry of Finance; ii)
coordinating agencies/service providers including FNAM and the Centre Mohammed VI; iii)
microfinance institutions; iv) low-income individuals, particularly women, and v)
9
microenterprises and small businesses, including women-led firms.
33. Industry Regulators and Policymakers: The project will provide technical assistance
through diagnostic studies and policy development support on key legal, regulatory, and
governance issues affecting the microfinance sector. Policy support will also be provided to
promote innovation and regulate new product development such as mobile banking. The project
will also develop a financial inclusion strategy (based on stock-taking and impact evaluation
work) and provide assistance in disseminating this strategy accordingly. These activities will
benefit industry regulators and policymakers, most notably the BAM and the Ministry of
Finance, allowing them to develop an enabling environment that promotes efficiency, stable
growth, and access to finance for underserved people in Morocco.
34. Coordinating Agencies/Service Providers: This project seeks to provide FNAM the
capacity and strategy needed to become an effective and sustainable industry association.
Technical assistance provided through the project will allow FNAM to effectively coordinate
information amongst MFIs and engage with policymakers on key sectoral issues. Similarly, the
project also seeks to reinforce key service providers within the industry, most notably Center
Mohammed VI, which will benefit from project assistance to expand their role in financial
education, knowledge management, and research. Together these activities seek to strengthen the
market infrastructure surrounding MFIs through enhancing the capacity of coordinating agencies
and service providers.
35. Microfinance institutions: Microfinance institutions (MFIs) will benefit directly from
technical assistance and policy work designed to build common platforms to enhance the
efficiency of the sector. MFIs will benefit from technical assistance designed to mutualize back
office and other support functions, diversify and expand funding sources, and provide guidance
on transforming to finance companies. MFIs will also benefit from policy guidance on product
innovation, particularly mobile banking. More indirectly, MFIs will benefit through a
strengthened industry association (FNAM) and an improved regulatory and legal environment
through assistance provided to regulators and policymakers.
36. Low-income individuals, particularly women: The project seeks to enhance the ability
of low-income individuals, particularly women, to access quality microfinance services. Low-
income individuals will benefit from more efficient and strengthened MFIs, which can translate
into greater product offerings, expanded geographic reach, and more competitive pricing for
clients. They will also benefit from the development of a national financial inclusion strategy
that seeks to address gaps in financial access and usage, particularly for rural poor and the
poorest segments of society who are not served by banks or microfinance institutions. Low-
income individuals will also benefit from financial education training that is prioritized in this
project. Finally, low-income individuals will benefit indirectly through more effective legal,
regulatory, and governance environment for the microfinance industry developed through the
project.
37. Microenterprises and small businesses, including women-led firms: Microenterprises
and small firms will benefit from the project through a strengthened and more efficient MFI
sector. MFIs will be able to offer microenterprises and small firms more innovative product
10
offerings, more competitive pricing, greater geographical reach, and improved efficiencies when
accessing microcredit. Microenterprises and small firms will also benefit indirectly from the
policy guidance provided through the project to MFIs transforming into finance companies.
Transformation allows MFIs to tap into significantly more diverse funding sources, most notably
equity investments through shareholders. This additional funding will help MFIs serve
microenterprises that have larger financing needs than average MFI clients but are not yet served
by banks or non-bank financial institutions. Additional financing as a result of transforming will
also enhance the geographic reach through which MFIs can serve small firms.
Box 1: Inclusion of Gender in Project Design and Implementation
Microfinance is considered a successful example of gender-inclusive development. Globally 75% of
more than 205 million customers served by MFIs are women, including 82% of the 137.5 million
poorest clients (Microcredit Campaign Report 2012). In Morocco 27% of women have an account at
a formal financial institution (Findex 2012) while 43% of women have taken a loan (formal or
informal) in the past year. Approximately 46% (368,000) of total MFI clients are women in
Morocco. Women are viewed as key beneficiaries for MFIs because they are often responsible for
the well-being of the family, and thus seen as a conduit for conferring income and consumption
smoothing benefits to the greatest number of people. Microfinance also supports females’ economic
empowerment because it creates opportunities for business expansion and productive investment at
the household level, bypassing many socio-economic barriers that prevent women from participating
in the local economy. Qualitative and quantitative studies (e.g. those from Women’s World Banking)
have demonstrated that access to microfinance services empowers women through an increased
likelihood to own assets (land, houses, etc.), greater control over household assets, and an ability to
invest and grow in microbusinesses.
An impact evaluation in Morocco (Duflo et al 2011) estimated the effect of Al Amana opening 60
new branches in sparsely populated rural areas on credit allocation, consumption, and business
activity, among others. The main effect of improved access to credit was to expand the scale of
existing self-employment activities of households, including both keeping livestock and agricultural
activities. The evaluation revealed important limitations to female empowerment in rural areas in
Morocco. The studies found that only a small proportion of women borrow in rural areas. Out of
those women who borrowed there was little change with regards to bargaining power in the
household, decision-making, or mobility between villages.
Recognizing the gender-specific benefits of microfinance, as well as challenges outlined by the
recent impact evaluation (detailed above), this project seeks to mainstream gender into all activities.
All diagnostic work to be completed will incorporate gender analysis. For example, an assessment of
regulatory burdens on MFI growth will include gender-specific consideration and policy suggestions.
Policy guidance on product development will prioritize how to effectively innovate for female client
segments. The financial literacy activities will include specific modules on financial literacy of
women and girls, recognizing the differences in asset allocation and household bargaining power
women are subject to. An impact evaluation will be completed to measure the effect of existing
financial literacy efforts (mainly by BAM although also supported by MFIs) on the economic
participation of women. In addition, women will be placed at the center of the national financial
inclusion strategy, particularly for strategies addressing female microfinance access in rural areas.
Specific gender targets have been included and will be tracked by the M&E framework.
11
C. PDO Level Results Indicators
38. The performance of the project will be assessed against the following indicators that will
also serve as project milestones:
Percentage of adults (and women) with an account at a formal financial institution,
including low-income households
Volume of outstanding microloans (USD mn)
Number of end-beneficiaries of MFIs, including low-income households,
microenterprises and small firms
Portfolio at Risk of MFIs
III. PROJECT DESCRIPTION
39. The project aims to support access to finance to low income households, micro- and
small enterprises through the promotion of a sustainable and inclusive microfinance sector. This
objective will be achieved through a comprehensive package of analytical work and technical
assistance aimed at supporting the enabling environment for microfinance and financial
inclusion. The program is structured around three core components: (i) strengthening the
institutional, legal, regulatory, tax and governance framework for microfinance, (ii)
strengthening the market infrastructure, product innovation and funding sources for
microfinance, and (iii) integrating microfinance into a national financial inclusion strategy. A
brief description of the respective components is included below (See Annex 2 for detailed
project description).
A. Project Components
Component 1: Strengthening the institutional, legal, regulatory, tax and governance
framework for microfinance (US$ 1.9 million)
40. This component aims to support activities contributing to the strengthening of the
institutional, legal, regulatory and governance framework of the microfinance sector. This
component aims to a) prepare an action plan to assess and reinforce the capacity of the National
Federation of Microcredit Associations of Morocco (FNAM) and b) support activities
contributing to the strengthening of the legal, regulatory, tax and governance framework of the
microfinance sector. This component will also finance goods, services, travel, and incremental
operating costs incurred by the PMU in the implementation and management of the project.
a) Prepare an action plan, including a comprehensive assessment to reinforce the capacity
of the National Federation of Microcredit Associations of Morocco (FNAM): FNAM is
the primary industry association responsible for development of the microfinance sector
in Morocco through policy guidance, MFI coordination, and engagement with key actors
including funders and regulators. The institutional capacity of FNAM needs to be
strengthened to ensure the sector can effectively restructure, expand, and respond to
changing regulatory and market conditions. The project will assist the FNAM in fulfilling
its core mandate of acting as the industry’s steering body by centralizing information and
disseminating studies, acting as an intermediate body between state regulating bodies and
12
microfinance institutions, developing and delivering services that address member’s
needs/issues, and providing support across all levels and in all regions and districts in the
country. FNAM also plays the role of an intermediary between Microfinance Institutions
and key stakeholders of microfinance services of Morocco, including the Government,
Central Bank, donors, development partners, financiers, investors and clients of
microfinance services.
This component will be implemented in two stages: First, an action plan will be prepared,
including a comprehensive assessment of the role, funding structure, statutes, governance
and capacity of the FNAM, measuring the gap between its current status and desired
future role, benchmarking it with other global best practice examples. In a second step, a
technical assistance program will be developed building on the recommendations of this
diagnostic, with the objective of transforming the FNAM into a proactive industry
organization and knowledge hub of the Moroccan microfinance sector.
b) Carrying out studies to inform the development of a modern legal, regulatory, tax and
governance framework for microfinance: This sub-component aims to support activities
contributing to the modernization of the legal, regulatory and fiscal framework for
microfinance, as well as the development of governance and risk management standards
for the microcredit sector. Activities will include, inter alia, studies that inform the
development of a tax policy adapted to the specific needs of the MFIs, review the cap on
borrowings for clients of MFIs, the regulation of remuneration of credit, reviews and
adapt the solvency and liquidity ratios of the MFIs, and strengthen the financial reporting
and regulatory oversight of BAM over MFIs. Improving the use of judicial and non-
judicial (arbitration, mediation) means for recovering unpaid loans will also be a key
activity of the project under this component.
Component 2: Strengthening the market infrastructure, product innovation and funding
sources for microfinance (US$ 1.5 million)
41. This component focuses on activities aimed at a) building common platforms improving
the efficiency and effectiveness of microcredit associations, b) building market infrastructure in
support of microenterprises, and c) promoting the strengthening and diversification of funding.
a) Promoting innovative common platforms and new products for MFIs. This sub-
component will support the development of common platforms, systems and products
aimed at improving the efficiency and effectiveness of MFIs. Activities will include
studies on the development of new products for the microfinance sector, the
development of a mobile banking platform for MFIs, which is expected to have a
transformational impact on the sector through the significant reduction of transaction
costs for cash transfers for low income households and microenterprises. Other
proposed activities include the development of a training and certification program for
officers of Microfinance Institutions.
b) Building market infrastructure for micro entrepreneurs: This sub-component will
support the development of market infrastructure aimed at facilitating microenterprises’
13
access to markets. Activities supported will include studies on how microenterprises
can improve the commercialization of their products, and the development of an
electronic platform allowing microenterprises to market their goods, or the
development of a e-project platform through which micro entrepreneurs can get
information on innovative business models, and supporting the development of a
micro-credit mediation function within the framework of BAM’s mediation center.
c) Strengthen and diversify funding sources: This sub-component aims to support
activities which would inform policymakers, regulators, supervisors and MFIs on how
the microfinance sector can diversify and strengthen its funding sources to ensure its
financial sustainability over the medium and longer term. Proposed activities include,
inter alia, studies aimed at assessing refinancing possibilities to MFIs and amend
existing regulations to allow MFIs tapping into new financial resources, and structuring
and designing a guarantee mechanism including all stakeholders. In a second phase,
this sub-component would, building on the findings of the aforementioned studies,
finance the design and structuring of mechanisms (e.g. stabilization fund, guarantees,
etc.) aimed to strengthen the financial sustainability and stability of the sector.
Component 3: Integrating Microfinance into a national financial inclusion strategy (US$
1.5 million)
42. This component aims to integrate the national microfinance roadmap into a wider,
comprehensive national financial inclusion strategy. In a first step, this component aims to
conduct a cross-cutting stocktaking exercise of all previous and ongoing activities aimed at
promoting financial inclusion, putting the microfinance sector in a larger financial sector
development context. This component will also finance the design and roll out of financial
literacy programs for low income households and microenterprises, the key beneficiaries of
microfinance, within the framework of the proposed ‘foundation for financial education’, which
is in the process of being rolled out under the leadership of BAM. This component will also
finance studies and impact evaluations assessing the effectiveness of public policies and private
initiatives aimed at promoting financial inclusion, as well as the impact of financial inclusion,
including microfinance, on employment creation, poverty reduction and growth.
43. In a second phase, this component aims to build on the findings of the aforementioned
activities to develop a comprehensive national financial inclusion strategy, to be developed in a
structured consultative process with all key public and private sector stakeholders, and develop
an action plan with specific objectives and targets to achieve the aims of the strategy, as well as a
clearly defined M&E framework to measure progress.
B. Project Financing
Project Cost and Financing
44. The proposed Investment Project Financing will be financed through a trust fund grant in
the amount of US$4.9 million from the MENA Transition Fund. The MoEF will provide an
estimated in-kind contribution of US$1 million. The project costs and financing are detailed in
the table below.
14
Project Components Project cost
(US$M)
Trust Fund
Financing
(US$M)
% Financing
Component 1: Strengthening the
institutional, legal, regulatory, tax
and governance framework for
microfinance
2.9 1.9 65.5
Component 2: Strengthening the
market infrastructure, product
innovation and funding sources for
microfinance
1.5 1.5 100.0
Component 3: Integrating
Microfinance into a national
financial inclusion strategy
1.5 1.5 100.0
Total Project Costs
Interest During Implementation
Front-End Fees
Total Financing Required
5.9
5.9
4.9
4.9
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C. Lessons Learned and Reflected in the Project Design
45. The project design is reflective of key lessons from existing projects providing support to
the Moroccan microfinance both inside and outside of the World Bank Group. The project is also
reflective of recent analytical and research work on the microfinance sector.
46. Existing Development Projects to the Sector: The Millennium Challenge Corporation, as
part of a broader US$700 million global compact signed with the Government of Morocco, is in
its final year of implementing a US$42.6 million financial services project. Project activities
consisted mainly of providing technical assistance to MFIs to increase institutional capacity.
Assistance was provided to nearly every MFI in the sector and focused on strengthening
institutional capacity on topics including internal management (human resources, employee
skills training), systems development (MIS, internal audit, risk management, credit scoring), and
market development (new product development, expanding funding sources). Equally, the
International Finance Corporation (IFC) has a robust TA program with leading MFIs Fondep and
Al Amana that has recently focused on streamlining credit operations.
47. Lessons leant from these projects are three-fold. First, large MFIs have been relatively
successful at completing TA projects and have relatively robust internal and external procedures.
Thus, a project seeking to provide TA to these MFIs risks duplicating efforts. Any direct TA
provided to MFIs should focus on smaller MFIs that lack capacity and resources to grow and
sustain themselves. Second, there is a need to address the institutional, regulatory, and
governance framework that surrounds the sector for a number of these TA initiatives to prove
successful. For example, scoping and diagnostic work on mobile banking was completed with a
leading MFI (Fondation Banque Populaire) although currently there lacks a legal and regulatory
framework to support this. Finally, there is a significant need to deepen sectoral reforms through
increased coordination between MFIs and regulators through common platforms that promote
communication and policy dialogue. This can help reduce duplication, help market actors learn
from each other, and promote innovation and growth in the sector.
15
48. Analytical and Research Work in the Sector: This project is informed by recent research
work on the microfinance sector utilizing a variety of approaches, including randomized control
trials, financial diary research, qualitative focus groups and analytical studies.4 This research has
pointed out limitations in both impact and outreach of microfinance institutions. Impact
evaluations have pointed out that while microcredit access is crucial for low-income households
to smooth consumption, manage risks, invest productively, and respond to financial shocks, it
often has little impact on poverty alleviation.5 Similarly, improved data, for example global
Findex data and Finmark Trust Finscope’s surveys, have pointed out that despite exponential
growth in the microfinance sector, a significant majority of the world’s poor are not served by
formal financial services. For example, recent survey work completed by the Jameel Latif
Poverty Action Lab (J-PAL) pointed to the fact that only 2.5% of those in Morocco living on less
than US$2/day borrow from formal credit sources.
49. These research findings have led to a shift in industry thinking away from enhancing
MFIs alone towards an interest in developing the broader financial ecosystem. In addition to a
renewed focus on consumers (demand), this approach acknowledges the need for effective and
appropriate supporting functions such as credit bureaus or payment systems and rules that govern
the system. Ensuring adequate infrastructure and developing a policy and regulatory environment
that enables increased outreach in a way that meets the needs of poorer consumers, has become a
priority for governments and other stakeholders. The result has been a much more holistic view
of the sector and a more coordinated effort by government and industry to focus on increasing
financial inclusion and ultimately, making microfinance work better for the poor.
50. This project incorporates this recent research and subsequent shift in industry thinking by
focusing on the institutional change required at both the MFI level as well as the broader market
eco-system. Significant project resources are dedicated to diagnostic work, stock-taking, and
impact evaluation, recognizing the importance of understanding in scientifically rigorous way
current impediments to growth in the microfinance sector. Similarly, the project focuses on
changes to the legal, regulatory, and governance framework surrounding MFIs. These activities
provide strategic investments in an enabling environment that will allow MFIs and other
providers to overcome current market bottlenecks (for example, transformation or lending
limits). The project also focuses on building a national financial inclusion strategy, seeking to
coordinate diverse market actors towards promoting financial inclusion of all Moroccans. This
extends significantly beyond the purview of MFIs alone. Finally, the financial literacy
components in the project help ensure the project supports the direct financial needs of low-
income Moroccans themselves, embodying the recent research shift towards understanding client
needs. This project complements a related World Bank regional project “Enhancing
Microfinance Access amongst Women and Youth in MENA”, under preparation, focusing on
completing demand-side research and implementing financial literacy modules across Egypt,
Morocco, and Tunisia.
4 For example, national level FinMark Trust’s FinScope surveys www.finmark.org.za and Global Findex databases
www.data.worldbank.org/data-catalog/financial_inclusion; Also see, see Financial Access Initiative (FAI)
http://financialaccess.org/; Abdul Latif Jameel Poverty Action Lab (J-Pal) http://www.povertyactionlab.org/about-j-pal;
Innovations for Poverty Action (IPA) http://poverty-action.org/ 5 See: Bauchet, Jonathan et al. Latest Findings from Randomized Evaluations of Microfinance. Report. Washington: CGAP,
(FNAM, MFIs, etc.) may find it difficult to sustain changes
beyond the duration of immediate assistance.
Risk Management: TA activities will be delivered with sustainability in mind, implying a significant focus
on integrating skills and knowledge into ongoing institutional processes and procedures. Attention will be
placed on training local staff to provide ongoing training to other staff members. Strong oversight and
project management can help identify potential sustainability issues throughout the life of the project and
move forward solutions accordingly. Similarly, all institutions the project will be provided capacity
building and TA to have extensive experience in microfinance (e.g. MFIs and FNAM). Thus, the capacity
and mandate to continue with newly adopted practices exists.
Resp: Bank
and Client
Stage: Preparation and
Implementation
Due Date : 31-Jan-
2018 Status: In progress
Overall Risk Following Review
Implementation Risk Rating: Moderate
Comments: The overall risk for this operation is moderate. There is a key risk associated with ensuring the implementing agency’s capacity to implement the project, in part
due to the lack of full time dedicated staff working on the project and the PMU’s limited experience with the Bank's procurement guidelines. The key risk with regards to
project design is a possible conflict of interest between implementing agents and industry actors, but is considered to be mitigated through a well-designed and balanced
institutional structure, promoting the effective participation of key actors in various project components.
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Annex 5: Implementation Support Plan
MOROCCO: Microfinance Development Project
Strategy and Approach for Implementation Support
1. The World Bank will support the implementation of this project through a combination of
fiduciary and technical support, technical assistance, and coordination. These activities will be
implemented through a combination of Bank staff and consultants.
2. Fiduciary and technical support. World Bank fiduciary staff in the Bank’s Rabat office
will provide routine supervision of FM and procurement activities. Review and clearance of the
Implementation Manual, interim financial reports, withdrawal applications, and procurement
actions will provide the basic necessary controls during implementation. In addition, technical
assistance and guidance will be provided when necessary on fiduciary issues, which are
anticipated to most likely be on procurement issues. Technical support will be provided by Bank
staff and local consultants at key design and implementation decision points, including
adjustment of design features during the course of the project.
3. Technical assistance - policy. Providing ongoing, just-in-time technical assistance to the
Government of Morocco on policies and programs concerning the development of the
Microfinance sector is an integral part of this project. The Bank will employ staff and
consultants, including staff from the anchor Financial and Private Sector Development Global
Practices and CGAP, to support technical assistance needs.
4. Coordination: The Bank will maintain coordination with other national entities and
international agencies concerned with financial sector development, particularly in the areas of
the development of the Microfinance sector and financial inclusion, to ensure continued synergy
and complementarity with other interventions.
Implementation Support Plan
5. Technical inputs needed: The PMU might require technical inputs during project
implementation. In addition, technical inputs on the design of the M&E system, as well as
training to PMU staff on M&E principles and implementation might be required. The World
Bank will provide implementation support in these areas if needed, in close collaboration with
key partners, including the IFC and CGAP.
6. Fiduciary requirements and inputs: the PMU will hire a FM and procurement specialists.
World Bank fiduciary staff will provide implementation support including capacity building
where needed.
What would be the main focus in terms of support to implementation during:
Time Focus Skills Needed Resource
Estimate
Partner Role
Throughout
project
Operational Aspects
(TBS)
Project
Management,
Procurement,
44
Selecting consulting
firms/ WB staff
Measure project
outcomes
Financial
Management
Microfinance
Measurement and
Evaluation
Skills Mix Required
Skills Needed Number of Staff Weeks Number of Trips Comments