Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR173067 IMPLEMENTATION COMPLETION AND RESULTS REPORT < TF015084 > ON A SMALL GRANT IN THE AMOUNT OF USD 4.9 MILLION TO THE KINGDOM OF MOROCCO FOR THE MOROCCO MICROFINANCE DEVELOPMENT PROJECT June 27, 2022 Finance, Competitiveness And Innovation Global Practice Middle East And North Africa Region Regional Vice President: Ferid Belhaj Country Director: Jesko S. Hentschel Regional Director: Nadir Mohammed Practice Manager: Djibrilla Adamou Issa Task Team Leader(s): Samia Mouline ICR Main Contributor: Ekaterina Mikhaylova TABLE OF ACCRONYMS AFD French Development Agency (Agence Française de Développement) AMC Microcredit Associations (Associations de microcrédit) BAM Bank Al Maghrib (Central Bank of Morocco) CCG National Guarantee Agency (Caisse Centrale de Garantie CDG Deposit Management Fund (Caisse de Dépôts et de Gestion) CGAP Consultative Group to Assist the Poor CM6 Center Mohammed VI for Social Microfinance (Centre Mohammed VI Pour la Microfinance Solidaire) CPS Country Partnership Strategy CTEPS Center for Very Small Social Businesses (Centre pour la Très Petite Entreprise Solidaire) DPF Development Policy Financing DPL Development Policy Loan FM Financial Management FMEF Moroccan Foundation for Financial Education (Fondation Maroccaine pour l’Education Financière) FNAM National Federation of Micro-Credit Associations GDP Gross Domestic Product GNI Gross National Income IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IFI International Financial Institution IT Information Technology M&E Monitoring and Evaluation MAD Moroccan Dirham MEF Ministry of Economy and Finance MENA Middle East and North Africa MFI Microfinance Financial Institutions MIS Management Information Systems MEF Ministry of Economy and Finance MEFAR Ministry of Economy, Finance and Administration Reform MSME Micro Small and Medium Sized Enterprises PAD Project Appraisal Document PDO Program Development Objective PMU Project Management Unit SNIF National Strategy For Financial Inclusion (Stratégie Nationale Pour l’Inclusion Financière) TA Technical Assistance TF Trust Fund USD United States Dollar TABLE OF CONTENTS DATA SHEET ....................................................................... ERROR! BOOKMARK NOT DEFINED. I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 4 II. OUTCOME ...................................................................................................................... 9 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 19 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 20 V. LESSONS LEARNED AND RECOMMENDATIONS .............................................................. 22 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 24 ANNEX 2. PROJECT COST BY COMPONENT ........................................................................... 32 ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ...... 33 ANNEX 4. DOCUMENTS IN PROJECT FILE .............................................................................. 34 ANNEX 5. PROJECT ACTIVITIES BY PROJECT COMPONENT .................................................... 35 The World Bank Morocco Microfinance Development Project (P144500) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P144500 Morocco Microfinance Development Project Country Financing Instrument Morocco Investment Project Financing Original EA Category Revised EA Category Organizations Borrower Implementing Agency Ministry of Economy, Finance and Administration Kingdom of Morocco Reform Project Development Objective (PDO) Original PDO 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. FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF-15084 4,900,000 4,457,846 4,457,846 Total 4,900,000 4,457,846 4,457,846 Total Project Cost 4,900,000 4,457,846 4,457,846 Page 1 of 40 The World Bank Morocco Microfinance Development Project (P144500) KEY DATES Approval Effectiveness Original Closing Actual Closing 27-Jun-2013 25-Jul-2013 31-Jan-2018 30-Nov-2021 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 30-Jan-2018 1.78 Change in Loan Closing Date(s) Change in Implementation Schedule 28-Jun-2019 2.59 Change in Loan Closing Date(s) Change in Implementation Schedule 31-Jul-2019 2.59 Change in Loan Closing Date(s) Change in Implementation Schedule 30-Jun-2020 2.59 Change in Loan Closing Date(s) Change in Implementation Schedule 30-Jun-2021 4.04 Change in Loan Closing Date(s) Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 29-Nov-2013 Moderately Satisfactory Moderately Satisfactory 0.00 02 06-Jul-2014 Moderately Satisfactory Moderately Satisfactory 0.49 03 07-Jan-2015 Moderately Satisfactory Moderately Satisfactory 0.49 04 16-Aug-2015 Moderately Satisfactory Moderately Satisfactory 0.50 05 10-Apr-2016 Moderately Satisfactory Moderately Unsatisfactory 0.50 06 04-Aug-2016 Moderately Satisfactory Moderately Unsatisfactory 1.16 Page 2 of 40 The World Bank Morocco Microfinance Development Project (P144500) 07 07-Mar-2017 Moderately Satisfactory Moderately Unsatisfactory 1.51 08 06-Sep-2017 Moderately Satisfactory Moderately Satisfactory 1.51 09 03-Jun-2018 Moderately Satisfactory Moderately Satisfactory 2.36 10 14-Jun-2019 Moderately Satisfactory Moderately Satisfactory 2.59 11 04-May-2021 Moderately Satisfactory Moderately Satisfactory 4.04 ADM STAFF Role At Approval At ICR Regional Vice President: Country Director: Director: Practice Manager: Task Team Leader(s): Teymour Abdel Aziz Samia Mouline ICR Contributing Author: Page 3 of 40 The World Bank Morocco Microfinance Development Project (P144500) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES Context at preparation 1. Morocco made significant economic headway during the decade preceding the Arab Spring. Growth averaged 4.8 percent over 2001-12, compared to 2.8 percent in the 1990s. Inflation was less than 2 percent a year. Gross domestic product (GDP) per capita doubled to reach US$2,951 in 2012; unemployment declined from 13.6 percent in 2000 to 9 percent in 2012; absolute poverty decreased from 15.3 percent to roughly 8.8 percent between 2001 and 2008. 2. Following the wave of the Arab Spring transformations making their way across the Middle East and North Africa (MENA) region, Morocco started on its path towards democratization in a reasonably peaceful way. The updated Constitution of 2011 set the basis for a more open and democratic society, provided mechanisms for the construction of a modern state of law and institutions, and laid the foundation for regional integration. Morocco’s population had similar grievances as other countries across MENA (lack of economic opportunities, social inequality, unemployment among other), but its experience reflected its political distinctiveness whereas the Moroccans were more inclined to seek evolution within the system – gradual change aligned with the country’s history and religious values. The political transition and constitutional changes represented real pressure on the Moroccan state for meaningful and quick change. 3. Meanwhile, Morocco was also confronted with growing economic challenges because of the second round of the global financial crisis. Continued high fuel and food import prices put sustained pressure on fiscal and external balances. The current account deficit reached 9.6 percent of GDP in 2012 from losses in terms of trade, and lower tourism receipts and remittances. The fiscal deficit deteriorated to 7.6 percent of GDP in 2012 and central government debt jumped to 58.8 percent of GDP. Financing the deficit through classical external borrowing from multilateral and bilateral creditors, along capital grants proved insufficient, which led the Government to raise US$1.5 billion bonds on international financial markets in December 2012. As a result, the central government debt increased by 5.1 percentage points of GDP in 2012 to reach 58.8 percent of GDP. 4. These shocks have left the Government with much smaller policy margins to meet the aspirations of the populations for job creation and poverty alleviation. At the time of project preparation (2012/2013), unemployment was high (9 percent), especially among the urban youth, despite one of the lowest participation rates (49 percent) among comparator countries. Four out of 5 unemployed were urban, 2 out of 3 were youth aged 15-29, 1 in 4 jobless held a university diploma. About a quarter of the population-around 8 million people were living either in poverty or under constant threat of falling back into poverty. Seventy percent of poverty was in rural areas and income of the poor has been growing at a slower rate than the average income. Sector Context 5. By the time of the Micro-Finance1 Development Project (MFDP) preparation, Morocco had a well-thought-out strategy for the development of its financial sector. Over the preceding 20 years, important reforms of the institutional and legal framework helped sustain the development of a capable financial industry. The sector was open to international practices balancing financial sector stability objectives with diversification and innovations to meet the needs of households and enterprises. Reform process encompassed steps to improve governance of financial institutions and of 1MSMEs are defined by the Moroccan Observatory of MSMEs as firms with an annual turnover below US$ 17.5 million and micro enterprises - as firms with a turnover below US$0.3 million. MSMEs accounted for 92% of Moroccan firms in 2019 (OMTPE 2021). Page 4 of 40 The World Bank Morocco Microfinance Development Project (P144500) regulatory authorities, strengthening oversight and crisis preparedness, developing mechanisms to finance small enterprises and capital market, and improving financial inclusion. 6. The Microcredit Law of 1999 and the launch of Jaida provided a conducive framework for the microcredit industry to take off. The law established Jaida, a fund dedicated to supporting and refinancing microcredit associations which is a subsidiary of the Moroccan State-Owned Enterprise (SOE) Deposits and Management Agency (CDG). JA�DA was licensed as a finance company and started its activities in April 2007. Prior to that date, it was financed by international donors and DFIs, including the German state-owned investment and development bank (KFW) and the French Development Agency (AFD), as well as the Moroccan Hassan II Fund. After 2007, Jaida has strongly contributed to the refinancing of the microfinance sector. In just four years, from 2003 to 2007, micro-finance loan portfolios in Morocco grew 11 times and outreach four times, to 1.2 million accounts2. Growth was driven by four leading Micro Credit Associations (Associations de Micro Credit – AMCs3) - Zakoura, Al-Amana, Fondation des Banques Populaires (FBP), and Fondep - with 90 percent client outreach. With the emergence of these non-profit AMCs, oversight responsibilities over them (and future Micro-Finance Institutions (MFIs)4) shifted from the Ministry of Economy and Finance (MEF)5 to Bank Al-Maghrib (BAM), which started to supervise the sector in 2007, although the MEF retained licensing power until 2012. 7. A microfinance strategy was launched by Moroccan authorities in 2007 with support of the national association of banks and finance companies. The strategy included the implementation of financial education programs for population and businesses as well as setting up of a center for financial mediation; the licensing of a second credit bureau; the licensing of intermediary banking agents for wider access to banking and payment services; creating reporting mechanisms to monitor financial inclusion indicators by banks; undertaking of a financial literacy survey; and implementing various initiatives to enhance consumer protection and financial choice. However, at that time the microfinance federation (FNAM)6, which was expected to represent microfinance sector, was not yet fully functional which delayed a full integration of microfinance initiatives into BAM’s plans. At the same time, market forces, including strong demand from underserved segments of the population, continued to push the growth of large microcredit institutions without strategic plan or system in place. 8. At the time of MFDP preparation, the Moroccan microfinance sector was among the largest in MENA and represented 40 percent of all microfinance clients across the region, 80 percent of branches, and 50 percent of AMCs’ employment7, for a share of MENA population of 10 percent. The Moroccan microcredit sector consisted of 13 not-for- profit8 associations ‘Association de Micro Credit’ (AMC) with some 800,000 accounts and outstanding loans of Moroccan Dirham (MAD) 5 billion (0.4 percent of GDP; 0.7 percent of credit to the private sector).9 The four largest AMCs accounted for 95 percent of the outstanding loans, and the five smallest, just one percent. With AMCs prohibited from collecting deposits, liabilities were 80 percent bank lines, 15 percent subsidized refinance facility for the ones not fulfilling bank lending conditions (through Jaida – see above), plus government and donor funds. In 2010, the sector’s equity/asset ratio 2 Consultative Group to Assist the Poor – CGAP, 2010 3 The report will use the term “AMC� when referring to the existing micro-finance associations in Morocco, which are currently non-profit organizations. 4 Micro-Finance Institutions (MFIs) term will largely refer to future arrangements when some of the Moroccan AMCs transition into the for- profit status. At the time of the ICR preparation, AMCs transition to MFI status was already possible under the revised Micro-finance Law, but in view of still emerging regulations, none of the AMCs became a formal MFI yet. 5 The Ministry of Economy and Finance (MEF) which was a designated implementing entity at Project approval, was renamed the Ministry of Economy, Finance and Administration Reform (MEFAR) during the Project implementation period. To be consistent with the PAD and Grant Agreement, the ICR will use MEF designation. 6 Fédération Nationale des Associations de Microcrédit 7 Livre Blanc, 2012 8 Not-for-profit status means that net earnings accrue entirely to equity and all activities are tax-exempt, incl. VAT. 9 MixMarket, December 2012. Page 5 of 40 The World Bank Morocco Microfinance Development Project (P144500) was 25 percent and its return on equity was 15 percent. 9. This uncontrolled growth overwhelmed not-for-profit governance arrangements, risk control, and information systems and led to a crisis in microfinance sector in 2009. BAM inspections revealed alarming financial conditions, including instances of fraud. BAM’s interventions resulted in the clean-up of micro loan portfolios, a pause in lending, and consolidation. Portfolio-at-risk greater than 30 days (PAR30) increased from 2 percent in 2007 to 10 percent in 2009, and client accounts quickly dropped below one million, including through paring back cross-borrowing.10 The sector regulators initially focused on addressing immediate issues at the level of AMCs, without undertaking qualitative actions to develop the literacy of the client base, implement responsible lending practices, and introducing risk management and commercial standards. In 2009, Zakoura, Morocco’s leading AMCs, reported a portfolio at risk 30 days above 30 percent, and the authorities organized its absorption into Fondation Bank Populaire, backed by a large commercial bank. To keep the system afloat, local commercial banks had to keep up their credit lines to AMCs open, and other financial backers had to maintain their stakes or waive financial covenants. To restore investor confidence going forward, BAM established close oversight of AMCs’, slowing their growth, and supporting steps to recover funds from defaulting or fraudulent borrowers. The effects of this crisis are still felt to-date even with the prudent lending approach by AMCs. 10. Stabilization was accompanied by the implementation of deep reforms designed to put the sector on a sustainable commercial and financial footing. BAM mandated a comprehensive review of underwriting and credit appraisal practices and risk improvements and internal controls used by AMCs. Their governance requirements were strengthened to be more in line with those of financial institutions. Assistance from key donors, such as the Millennium Challenge Account (MCA) and International Finance Corporation (IFC), focused on introducing modern banking practices, obtaining external ratings, developing human resource strategies, and improving client satisfaction. Particular attention was paid to sector-wide information systems to identify and monitor concentration risk and weed out risky borrowers. AMCs entered into agreements with the private credit bureau who provided them with discounted access to the database in exchange for information on their client profiles, as well as three large AMCs (Al Amana, FBP and Fondep) established a common database to report on monthly basis their active loans so they can better monitor cross-lending. In 2011, 50 percent of micro-finance clients were in the credit bureau database, about a fifth of economy-wide records. The earlier crisis and comprehensive reforms that followed primed the sector for a more mature growth phase. 11. In 2012, the Parliament amended the Microcredit Law 1999, introducing provisions to (i) formalize a framework for the consolidation of micro-credit associations through acquisitions or mergers; (ii) allow AMCs to create finance companies (MFIs) under Morocco’s corporate law; and (iii) request the MEF to regulate the costs that AMCs (and future MFIs) were allowed to pass through to their beneficiaries. Remaining issues to be addressed included integration of data to inform policy decisions and building capacity of FNAM as the microfinance industry association to promote inclusion as well as addressing the key concern of AMCs – ways to mobilize savings. 12. With the important updates of the legal and regulatory framework for microfinance and efforts of MEF and BAM to improve sector oversight and accountability and to promote financial inclusion, the MEF requested the World Bank support to reform the microfinance sector under the MENA Transition Fund. A Technical Assistance (TA) Project was needed to finalize and implement legal and regulatory reforms and to build requisite capacity among stakeholders in order to develop microfinance sector to its full potential and reach more end clients across underserved segments of the population. ICR’s Section on “Theory of Change� that is presented below, describes the linkage between challenges and reforms undertaken under this Project. The MEF identified the World Bank as a key partner in this agenda given the Bank’s strong Finance, Competitiveness (FCI) Global Team as well as its position as a host of the Secretariat of the G-20 10 40 percent of beneficiaries had loans from different institutions, with no integrated view of cross-borrowing. Page 6 of 40 The World Bank Morocco Microfinance Development Project (P144500) Global Partnership for Financial Inclusion (GPFI) and the Consultative Group to Assist the Poor (CGAP), the leading policy group on microfinance. The financial sector development policy loans (DPL) in 2013 were expected to include an important financial inclusion pillar and the MFDP grant was designed to help informing the design of the DPL triggers. The strategy of transforming Morocco into a regional financial sector hub had also been supported by Bank-financed DPLs and several Technical Assistance projects, as well as IFC investments in and advisory services to the larger AMCs. All these coordinated efforts provided a comprehensive framework for Moroccan microfinance sector to succeed. Project Development Objectives (PDOs) 13. The Project Development Objective was to promote access to finance to low-income households and micro and small enterprises through the promotion of a sustainable and inclusive microfinance sector. 14. The Project was contributing to the objectives of the World Bank Country Partnership Strategy (CPS) for Morocco for FY2010-2013. The first pillar of the CPS stated that the structural transformation of the Moroccan economy required a comprehensive and coordinated set of policies, underpinned by a financial sector that better serves smaller firms and microenterprises. The Project was responding to this objective by improving the legal, regulatory and institutional frameworks for microfinance and thus supporting the financial inclusion of the underserved segments of the Moroccan economy, including women, which were the key beneficiaries of the Moroccan microcredit sector. Of all microloans issued in Morocco at around the time of project preparation, 55.3 percent benefitted women and 46.9 percent have benefitted age group between 30 and 49 years. These objectives were also central to the MENA Regional Strategy, discussed by the Board in January 2013 and adopted in 2015 which was structured along four pillars, widely known as the “4Rs�: i) Renewing the Social Contract, ii) Resilience to Shocks, iii) Regional Cooperation, and iv) Recovery and Reconstruction. 15. The Project’s direct and indirect beneficiaries included: (i) industry regulators and policymakers including BAM and the MEF; (ii) professional federation of microfinance associations (FNAM) and service providers to micro- entrepreneurs including the Centre Mohammed VI (CMS); (iii) microfinance institutions; (iv) low-income individuals, particularly women; and (v) microenterprises and small businesses, including women-led firms. Theory of Change (Results Chain) 16. At the time of the Project appraisal, the Bank did not require project documents to present a theory of change (TOC). However, the documentation did provide sufficient details on the results chain in order to construct a project TOC for the ICR. Figure 1 below provides Project’s TOC which was subtracted from the information in the Project Appraisal Document (PAD). The Outcomes (expansion of microcredit, improved microfinance services, improved financial inclusion and improved financial literary among population) directly support the PDO which targets increased access to finance by low-income groups. Figure 1: Microfinance Development Project – Theory of Change Page 7 of 40 The World Bank Morocco Microfinance Development Project (P144500) Challenges Activities/Inputs Outputs Outcomes • Low access to basic financial services • Consultants’ services to • Improved legal, regulatory and • Expansion of Microcredit (bank account, credit, savings) among the inform legal and regulatory institutional environment for in terms of number of Moroccan population, especially, the reforms of microcredit sector microfinance with two loans and amount poor, women and rural population, as • Development of entrepreneur groundbreaking reforms to i) • Improved microfinance well as micro-entrepreneurs. and consumer -focused services and transition of triple the cap on microcredit • Low level of financial awareness among training and capacity building AMCs into MFIs to amount, ii) allow AMC to create programs to be run by support these goals population and small and micro MFIs. established institutions serving • Improved financial entrepreneurs the sector • Improved capacity of FNAM and • Low capacity of microcredit associations AMCs to serve their customers inclusion including • Develop new products and women, youth and rural and professional association (FNAM). services to improve small and • New and improved education, population • Constraining legal and regulatory micro entrepreneurs’ access to training and outreach • Improved financial framework: low cap on microcredit finance tools/platforms/institutions literacy among amount, poor product offer limited to • Design a fully-fledge financial designed to benefit micro- microcredit providers, credit. inclusion strategy gathering all entrepreneurs and microcredit entrepreneurs and • High proportion of bad loans stakeholders associations staff consumers Key Expected Outcomes and Outcome Indicators 17. Through reforms, the microfinance sector had aimed 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 percent of GDP). If these high-level objectives were to be reached, 40-50 percent of the population would have been served (assuming four to five beneficiaries per account). With this, to align with higher level sector objectives, the performance of the MFDP, was assessed against the following PDO indicators: • Percentage of adults (and women) with an account at a formal financial institution, including low-income households • Volume of outstanding microloans (in USD million) • Number of end-beneficiaries of AMCs/MFIs11, including low-income households, microenterprises and small firms • Portfolio at Risk of AMCs/MFIs Components 18. The Project was designed 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 was expected to be achieved through a comprehensive package of analytical work and technical assistance aimed at supporting the enabling environment for microfinance and financial inclusion. The Project was 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 each component is included below. B. Project Components 19. Component 1: Strengthening the institutional, legal, regulatory, tax and governance framework for microfinance (US$ 1.9 million). This component aimed to support activities contributing to the strengthening of the institutional, legal, regulatory and governance framework of the microfinance sector. This component included (a) preparation of an action plan to assess and reinforce the capacity of the FNAM, and (b) support for activities contributing to the strengthening of 11 PAD referred to “MFIs�, however, this indicator was tracking data for AMCs which remained non-profit associations in the end of the Project, MFIs were not yet formed at the end of the Project. Page 8 of 40 The World Bank Morocco Microfinance Development Project (P144500) the legal, regulatory, tax and governance framework of the microfinance sector. This component also financed goods, services, travel, and incremental operating costs incurred by the Project Management Unit (PMU) at MEF. 20. Component 2: Strengthening the market infrastructure, product innovation and funding sources for microfinance (US$ 1.5 million): This component focused on activities aimed at (a) building common platforms improving the efficiency and effectiveness of microcredit associations (studies to develop new products for micro-finance, mobile banking platform for AMCs/MFIs, and training and certification program for AMCs/MFIs), (b) building market infrastructure in support of microenterprises (studies on how microenterprises can commercialize their products, development of marketing platforms, develop mediation function within BAM), and (c) promoting the strengthening and diversification of funding (studies aimed at assessing refinancing possibilities for AMCs/MFIs, amend regulations for MFIs allow them access additional markets, design guarantee mechanisms, and in the second phase of the project set up stabilization and guarantee funds if feasible). 21. Component 3: Integrating Microfinance into a national financial inclusion strategy (US$ 1.5 million): This component was designed to integrate the national microfinance roadmap into a wider, comprehensive national financial inclusion strategy. This component aimed to (i) conduct a cross-cutting stocktaking exercise of all activities aimed at promoting financial inclusion and integrating microfinance sector in a larger financial sector development context; (ii) design and roll out the financial literacy programs for low-income households and microenterprises, the key beneficiaries of microfinance; and (iii) 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. In a second phase, this component was planned to build on the findings of the aforementioned activities to develop a comprehensive national financial inclusion strategy which was to be developed in a consultative way with key public and private sector stakeholders and to develop an action plan with specific objectives and targets (including an M&E framework) to implement the strategy. II. OUTCOME Assessment of Achievement of Each Objective/Outcome 22. The PDO was to promote access to finance to low-income households and micro and small enterprises through the promotion of a sustainable and inclusive microfinance sector . The progress towards achieving this objective was measured through a set of indicators: (i) percentage of adults (and women) with an account at a formal financial institution, including low-income households (to measure microfinance sector outreach and financial inclusion); (ii) volume of outstanding microloans (USD million) (to measure growth of microcredit volume over time); (iii) number of end-beneficiaries of AMCs/MFIs, including low-income households, microenterprises and small firms (to measure effectiveness and outreach of targeted technical assistance and training provided under the project); and (iv) portfolio at Risk of AMCs/MFIs (to measure health of the microfinance portfolios in AMCs overtime). The indicators were adequate, measurable and linked with high level sector objectives as well as with project components and activities. 23. The PDO was being achieved through the Project’s contribution to the development of the microfinance ecosystem with positive effects on public and private beneficiaries, allowing it to be more inclusive, efficient, fair, and transparent. The Project created a policy platform between the MEF, BAM, AMCs, the FMEF and the CMS to define a common vision for the sector and coordinate their efforts to make microfinance an engine to enhance financial inclusion. It improved market knowledge of the authorities on the potential demand for microcredit, legal and regulatory improvement axis, enforcement of anti-money laundering and terrorism rules while providing robust data on the progress Page 9 of 40 The World Bank Morocco Microfinance Development Project (P144500) of financial inclusion in Morocco as compared with other countries through the FINDEX survey. It paved the way to overhauling the microcredit sector in synergy with the IBRD DPF series on financial inclusion, leading to the increase in credit amount celling, the possibility to create microfinance credit institutions allowed to collect deposits. It improved the sector governance through the re-organization of the professional association of microcredit actors. It strengthened the ability of the FMEF and CMS to deliver both physical and digital trainings on financial literacy and micro-entrepreneurship, thereby, benefiting capacity of micro-entrepreneurs. Thus, the Project contributed to an enhanced governance system, improved access to finance as well as strengthened consumer protection. Overall, activities under the Project boosted the sector performance and growth. Table 1 below provides details of achievements under each PDO level result indicator measured against targets agreed at the start of the Project. The MDFP delivered quality results but Covid-19 health crisis negatively impacted end beneficiaries and portfolio at risk in its final two years. This is discussed in more detail in the next section of Outcome Assessment. Table 1 Project Indicators Status as of November 2021 Indicators with unit Baseline End of the 2017/19- Nov 2021 - Comments 2012 project benchmark completion target % of adults (and women) with 39.00% 51% 44% 60% Target overachieved. Data is an account at a formal financial based on BAM statistics and institution, including low- reported by MEF. Demand side income households survey under Findex showed a (Percentage, Custom) lower number but the team preferred to use updated BAM figures based on the actual number of bank accounts in the adult populations in 2021, more accurate than a survey. BAM did not consistently disaggregate data by gender or age or vulnerable groups, which made reporting somewhat deficient – it is a lesson learnt to set up an adequate M&E collection mechanism at the start of the project. Number of end-beneficiaries of 804,000.0 1.0 million 937,000 888,978, of Target was not fully achieved due AMCs/MFIs, including low- 0 which 47% to Covid-19 health crisis during income households, women and final stages of the project which microenterprises, and small 34% rural caused hardship among most firms (Number, Custom) population businesses. Reports from 2017 /2019 showed that this indicator was on track (measuring at 937 thousand) but it declined in 2021. This was beyond Project control. Portfolio at Risk - Microfinance 6.70% 6.40% 3.5% 13.38% Not achieved. Portfolio at risk in (Percentage, Custom) the end of the Project was high due to Covid-19 health crisis during final stages of the project which caused financial difficulties among many businesses in Page 10 of 40 The World Bank Morocco Microfinance Development Project (P144500) Morocco (and globally). Reports from 2017 /2019 showed substantial improvement and substantial decrease in risky loans (to 3.5%) but by 2021 the positive trend reversed. This was beyond Project control. The GoM launched various programs including guarantee funds to alleviate the impacts. Outstanding Microfinance Loan $550.00 $590.00 $816 $90612 The indicator was exceeded. In Portfolio (Amount in USD mln, 2019, pre-Covid-19, this number Custom) was $816 mln showing that outstanding portfolio was growing prior to the increase of restructured or non—performing loans. Source: MEF, March 2022 24. In terms of specific Project activities and their contribution to the PDO, the Project measured progress of outputs under each component through intermediate indicators. Even though the MDFP took longer to complete, it delivered what it promised and helped to substantially improve microfinance sector outreach and performance in Morocco. Table 2 below provides details on status of these intermediate indicators which were delivered in full or overachieved. Table 2 Status of intermediate indicators Indicators with unit Baseline 2012 End target Nov 2021 Comments Regulatory Studies Completed 0.0 3.0 4.0: (3) Compliance of AMCs/MFIs Indicator (Number, Custom) with the requirements of the fight overachieved. The against money laundering and the studies were financing of terrorism. (4) instrumental in Organizational diagnosis of FNAM updating the law and regulations Number of operational and 0.0 3.0 3.0: (2) Guide to the requirements Fully achieved. These regulatory initiatives implemented applicable to the microfinance outputs helped to by BAM and other key stakeholders institutions related to the Anti- improve application (Number, Custom) Money Laundering/Combating of regulations and the Financing of Terrorism. improve quality of (3) Circular relating to the the oversight of conditions of application to microfinance. microfinance institutions of certain dispositions of the banking law. Number of alternative 0.0 3.0 3.0 (micro-insurance, deposits Fully achieved microfinance products developed and savings, and funds transfers) and piloted (Number, Custom) 12 Exchange rate: USD/MAD 9.2213 at the end of November 2021 Page 11 of 40 The World Bank Morocco Microfinance Development Project (P144500) Number of Trainings to Micro 0.0 1,100.00 117,781 at end of December 2021 Overachieved. The Entrepreneurs Delivered (Number, project was highly Custom) successful in reaching its target audience Financial inclusion stock taking No Yes Yes Fully achieved completed. (Yes/No, Custom) Evaluation Completed of Existing No Yes Yes Fully achieved Financial Inclusion Measures (Yes/No, Custom) Integrating Microfinance into a 6,000.00 14,000.00 43,280: number of beneficiaries Overachieved national financial inclusion of financial education programs strategy: Number of Beneficiaries provided by CM6 and FMEF Receiving Financial Literacy Training (Number, Custom) Source: MEF, March 2022 25. According to the GOM, the studies carried out and the training provided within the framework of this Project have allowed a profound reform of the sector based on successful foreign experiences and on the strengthening of financial education for both microcredit beneficiaries and AMC agents. Total planned expenditure was $4.9 million; total actual: US$4.6 million (see Annex 5 for information on all project financed activities). Sections below provide details on Project contribution to achieving the Outcomes. 26. Expansion of microfinance in terms of number of loans and amount of financing reaching micro entrepreneurs. By the end of the Project, the number of microfinance beneficiaries increased to 886 thousand and the percentage of adults with bank accounts increased to 60 percent of the population (from 39 percent). Outstanding microfinance loans at the end of the project were US$906 million. The MFDP supported these outcomes through provision of consultants’ services and training. The Project financed several critical studies to improve services and access for microfinance. Study on the potential of the microfinance sector (2017) helped updating the national strategy for microfinance. It was structured around the following three pillars: (i) understanding issues and bottlenecks towards development of Moroccan microcredit institutions; (ii) understanding the demand for various forms of financing by micro enterprises and perceived barriers to the use of microcredit; and (iii) making recommendations and developing action plans and avenues to enable microcredit organizations to generate higher demand from potential new clients. The project developed a communication strategy for the microcredit sector in Morocco (2019) and associated implementation plan to help diagnosing and improving the image of the sector, including designing and implementing the ways to address issues, seek feedback and report back to the public and microfinance beneficiaries. 27. Improved service delivery to microfinance beneficiaries, reduced riskiness of microcredit portfolios and transfer of AMCs into MFIs to achieve these goals. At the end of the project, microfinance sector consolidated, a revised micro- finance law was passed, and a regulatory framework was in preparation to help AMCs to create MFIs. Loans at risk increased due to Covid-19 to 13 percent (many businesses experienced financial hardships during the pandemic and had difficulties repaying loans) but prior to the pandemic loans at risk showed a healthy decrease from 6.7 percent to 3.5 percent. The Project supported the GoM achieving these results through consultants’ services and policy dialogue (linked with Bank financed DPFs). The project rolled out new guidelines on combatting money-laundering and combating the financing of terrorism. New products – micro-finance insurance, deposits and savings and funds transfer were developed. Page 12 of 40 The World Bank Morocco Microfinance Development Project (P144500) 28. One of the bottlenecks toward AMCs growth and improved service delivery was linked to their limited access to finance due to their non-profit status under the law in Morocco. The MFDP supported updates to the microfinance law and regulations to facilitate this transition. A study on upgrading the institutional environment of the microfinance sector (2017) supported implementation of the national microfinance strategy, aimed at enabling actors in the sector to improve their performance and contribute effectively to the achievement of the objectives of this strategy. The study supported benchmarking the regulatory framework for Microfinance in Morocco against international best practice. The results were taken into account during the preparation of the Law 50-20 governing microfinance adopted in 2021 as well as regulatory texts including the decree on the ceiling of microcredit. Preparation of a study on risks in the microfinance market in Morocco (2020). This study informed Moroccan microcredit institutions on their vulnerability to credit risk, helped them to understand the non-payments, and provided them with recommendations and action plans. The study enabled AMCs to define new policies and procedures including eligibility criteria, loan review and approval processes, guarantee scheme and other collateral and security requirements, and staff incentive systems. A diagnosis of compliance of microcredit institutions with legal and regulatory requirements (2021), supported: (i) diagnosis of AMCs’ compliance with the requirements of Law 43-05 on money laundering as well as Circular No. 5/w/2017 on duty of vigilance and Law 03-03 on the fight against terrorism; and (ii) provide training and awareness-raising to regulatory authorities’ executives, managers and relevant personnel to enable a better understanding of regulatory enforcement of anti-money laundering and fight against terrorism requirements. 29. To address deficiencies of overarching micro credit association, the Project undertook an organizational diagnosis of the FNAM (2021). This activity reviewed organizational and budgetary structure of FNAM including benchmarking it against other similar organization in the world and identifying ways to improve its functioning by taking into consideration the aspirations and specificities of dominant MFIs and smaller ones, that agreed on sharing knowledge technical expertise. Both for-profit MFIs and non-profit AMCs will remain part of the same professional organization. 30. Improved financial inclusion including women, youth and rural population. The number of adults with bank accounts increased to 60 percent (from 39 percent), but there is no breakdown provided by vulnerable groups. By the end of the Project, microfinance was formally included into the Financial Inclusion strategy and in terms of microcredit provided, 2021 BAM statistics show that 47 percent of beneficiaries were women and 37 percent were rural population. One of the key outputs of the project was undertaking the National Demand Survey: Assessing Access to and Use of Financial Services in Morocco (FINDEX) (2018) helped to standardize the approach and reporting on financial inclusion across 148 countries. It updated available data on financial inclusion in Morocco collected through the World Bank's 2011 Global Findex Survey and 2013 Financial Capability Survey and helped to understand consumer perceptions and use of formal and informal financial services, identify access/usage patterns (geographic, demographic, etc.), analyze the potential market for various financial services including mobile banking, and strengthen efforts in financial inclusion by public and private actors. The results of this survey were used to enrich the new National Strategy for Financial Inclusion (SNIF). MFDP was instrumental in designing the SNIF, including the policy dialogue carried out by the Bank and bringing in the exposure to international best practice which came with developing the SNIF. The uptake of SNIF was excellent and the 2022 meeting of SNIF stakeholders outlined that 33 percent of actions planned in the SNIF had been adopted and 40 percent are in preparation to be deployed, despite the context of the pandemic 31. The Project carried out a survey of payment habits that helped to identify the payment behavior of the public, to measure disparities and to understand their causes. It analyzed potential changes in habits, both positive and negative, to anticipate the various risk factors. The project succeeded in helping AMCs to provide better support to their clients. In interviews, they shared some recent success stories of their clients (see Box 1) as examples. Box 1 Micro-finance in Morocco – Al Amana Clients’ Stories Page 13 of 40 The World Bank Morocco Microfinance Development Project (P144500) Al Amana client is an enthusiastic micro-entrepreneur. He noticed that there were not many leisure activities for children in his town and called on Al Amana's microcredits to rent a room where he installed some play equipment for the kids. A year later, building on the good outcome of his first project, he rented a second, larger space next to the first one to add a game room, some more entertainment equipment, and a warehouse. Later, he built a playground in the district garden and an amusement park for children from one to eight years old including bouncy castles and miniature cars. He holds a permit from the authorities to operate the public place and since then ran a formal business, complying with safety norms. In total, he borrowed about US$ 22.6 thousand to make this wonderful project that brings so much joy to the city kids a reality. Another Al Amana client is a 47-year-old mother of three, who dreams of becoming a painter. She started her career by learning embroidery at a local school and later enrolling at the craft training center in Rabat to master various techniques of hand and machine embroidery. Upon graduation, she applied for a microcredit at Al Amana and started her first business making various embroidered interior design accessories. To expand, she enrolled in another training program and learnt to craft beautiful Beldi outfits. Her customers and suppliers loved the quality and finesse of her work and her client focus. With her family support and a microcredit, she eventually rented a big enough space to combine a sewing shop and a public shop area to display her craft and receive her clients. Now that her business is thriving, she established a network of subcontractors who provide her with accessories and elements that go into the making of caftans and various traditional outfits that she makes. With her business a success, she was able to realize her childhood dream and now has her own paint studio. Source: Al Amana 32. The project financed innovative projects as a “Solidarity Business Group Project� which was implemented between 2017-2021. The aim of the "Groupement Solidaire du Commerce (GSC)" project was to improve the livelihoods of Moroccan microentrepreneurs through professional marketing of their products. The GSC was built around five guiding principles, namely (i) being focused on social impacts, (ii) diversification of distribution channels; (iii) ensure regional aspects are included: an economic model spread over three geographical areas: "Central" area, "Northern" area, and "Southern" area; (iv) improve product quality and labelling to meet consumer expectations; and (v) improve internal financial rate of return of micro-enterprises. The GSC achieved some tangible results including opening of a few sales outlets, mainly in Casablanca. However, new partnerships for the development of distribution channels across geographical areas had been stopped because of the health crisis. With the resumption of the activity of the AMCs at the end of 2021, talks are underway with the Mohamed VI center for the support of solidarity microfinance to seek more investors who can take charge of this GSC project going forward. 33. Improved financial literacy among microcredit providers, entrepreneurs and consumers. The project supported this outcome through a variety of courses, designing and setting e-learning platforms with established training service providers, training the trainers and development of targeted pedagogical content based on the results of the impact assessment. The Project ran 11 thousand training sessions to entrepreneurs and trainers; over 43 thousand of trainees benefited from trainings provided through FMEF and CM6 training platforms designed under the project. In 2017, FMEF conducted a study aimed at diagnosing the use of financing instruments available to SMEs, microenterprises and entrepreneurs (see Box ). Based on the results and recommendations of this study, the FMEF developed two financial education programs for small and micro entrepreneurs. Box 2: Key findings of 2017 Survey of Small and Micro Entrepreneurs in Morocco: � Information and awareness needs of small and micro entrepreneurs are comparable to the needs of the general public. Only a minority of respondents had more advanced understanding of financial matters. � Financial inclusion remains low, knowledge and use of funding offerings limited: ➢ 48 percent of microentrepreneurs and SMEs surveyed have a bank account. ➢ A majority (63 percent) report having financing needs or cash flow problems. ➢ Credit access ratios are low. Only 11 percent of companies seek a solution to their financing needs from the financial sector. ➢ 6 percent have obtained credit which may be related in part to a supply problem. ➢ Only 10 percent of entrepreneurs have benefited from training and only 4 percent from coaching. Source: FMEF Page 14 of 40 The World Bank Morocco Microfinance Development Project (P144500) 34. The MFDP developed E-learning platforms and courses content for the Moroccan Federation for Financial Education (FMEF) and for the Mohamed VI Center. The focus of FMEF is population in general on the topics of personal finance and self-employment. Taking into account the wide range of needs in financial education for the entrepreneurs, both in terms of content and the diversity of needs and the disparity of conditions for the deployment of training sessions, the FMEF has made its EF-Entrepreneur program available in an e-Learning version. This e-Learning program has further enriched the current training system by diversifying the teaching methods and approaches. Within this FMEF led education program, a first batch of eight modules has been prepared: (i) Managing the cash flow of my business; (ii) Development and management of my company's budget; (iii) Adapted financing for my company; (iv) Preparing a credit application for my business; (v) Payment methods for the entrepreneur; (vi) Mobile payment; (vii) Risks and insurance for the entrepreneur; and (viii) Inclusive Insurance. The training on these modules took place in July 2019, through the partnership of the FMEF with Attijariwafa Bank and its Dar Al Moukaouil network. Microfinance associations (Al Amana, Attawfiq microfinance, Ardi), the Mohamed VI Center, BCP and its Business Creation Foundation, CRI (Regional Investment Centers) and ANAPEC have partnered through the Intelaka program. FMEF trains the trainers of these institutions and supports them throughout the deployment process with the final beneficiaries. 35. CM6 rolled out a series of on-line training courses included: (i) the management of defaults and unpaid debts, restructuring of micro-credits; (ii) crisis management; (iii) risk management and internal control; (iv) strategic aspects of the microfinance Sector; (v) good practices of Information and Management Systems (MIS); (vi) development and use of financial products relevant to micro enterprises; (vii) methods of analysis of business plans of micro enterprises, and (viii) governance of Moroccan microcredit institutions. The activity supported training of trainers on Digital Learning. Overall Outcome Rating 36. Overall, the Project achieved its objectives, but with delays as well as its outcome was impacted by Covid-19 pandemic in the final phase of its implementation. The overall outcome is rated as Moderately Satisfactory. With the support provided under MFDP, significant progress was made by GoM in overhauling its microfinance sector thus supporting achievement of the outcome targets (COVID-19 not withstanding). Number of households with accounts in formal financial institutions almost doubled during the MFDP lifetime (exceeding the target) and number of microfinance clients increased to 886 thousand (or by about 10 percent). The increase in number of clients is below target of one million (about 25 percent increase was anticipated at Project start), but this metric was impacted by Covid-19 pandemic restrictions and forbearance programs. In 2017, the number of clients was 936 thousand and 925 thousand in January 2020, so it is reasonable to assume that without pandemic this target would have been achieved. In addition, the Project (and open dialogue with MEF and BAM) helped to stimulate support to MSMEs during Covid-19 measures. Legal and regulatory reforms supported opening of guarantee funds and providing credit relief to affected borrowers. With less prudent lending by AMCs prior to Covid-19 and less capacity to manage risks and make provisions, the impacts on small and micro borrowers and AMCs themselves most likely would have been more severe. 37. The Project fell short of achieving a Satisfactory outcome due to its slow implementation progress due to procurement delays (thus, lower efficiency), and complexity of stakeholder dialogue (in part due to many competing priorities in MEF and BAM as well as capacity constraints among some of project beneficiaries). About US$0.5 million of Project funds remained undisbursed. The PAD flagged the implementation risk at MEF’s project management unit as High due to lack of dedicated staff with knowledge of the World Bank procedures, specifically procurement. Among mitigation measures were maintaining clear institutional structure, engaging additional staff to support procurement and provision of additional procurement training. While these steps were mostly undertaken, the process remained slow. The second Page 15 of 40 The World Bank Morocco Microfinance Development Project (P144500) factor decreasing the Outcome rating of the Project relates to a somewhat limited scope of activities. While the Project delivered on most of the targets, it could have supported implementation of key reforms as well – such as expediting development of regulations to transition AMCs into MFIs (the Project supported the revision of the law but regulations are not yet promulgated), support further dialogue on savings which were highlighted as of key importance to AMCs in raising funds, and use of technology to better support final beneficiaries (the Project supported studies on new technologies but did not include steps to support the roll out of these new tools). Graph 1 Growth of microcredit loan portfolio and consolidated balance sheet size from 2010 to 2020 Source: BAM annual report on banking supervision Graph 2 Number of microcredit beneficiaries (thousands) 1000 950 900 850 800 750 700 650 600 550 500 2012 2013 2014 2016 2018 2019 2020 2021 Source: MEF 38. Over the past decade, the Moroccan microfinance sector has improved its contribution to financial inclusion and to the economic inclusion of vulnerable population. The MFPD contributed to this improvement through targeted technical assistance and reforms. As of November 30, 2021 (closing date of the MFDP), the outstanding loan portfolio stood at US$906 million, for 886 000 clients, with 47 percent of women and 34 percent of rural population. The sector also managed to reach geographically isolated populations through a network of nearly 1,770 selling points. The sector now generates more than 7,000 direct jobs and more than one million indirect jobs according to the FNAM and contributes to the effort to increase the number of people with access to banking services with the opening of more than 500,000 accounts in partnership with banks. In 2021, about 46 percent of the staff of microcredit associations were Page 16 of 40 The World Bank Morocco Microfinance Development Project (P144500) women (BAM 2021), while women represent 22 percent of the working population in the formal sector (HCP 202113). 12 non-for-profit associations were operating: four large national associations, which hold more than 90 percent of total outstanding loans (Al Amana, Rawaj, Attawfiq, Ardi), three associations with regional coverage (ATTADAMOUNE, INMAA, Al Karama), four local associations (Fondation du Nord, Ismailia, AMOS), and Bab Rizk Jameel (BRJ). They are part of the professional association National Federation of Microcredit Associations (FNAM). The JAIDA Fund provides technical assistance to associations to improve their financial autonomy. The Center Mohammed VI for Microfinance was created in 2007 to: (i) provide trainings to AMCs/MFIs staffs and their beneficiaries, (ii) conduct studies on microfinance via the Observatory of microfinance, and (iii) promote micro-businesses and microcredit products. FNAM, CM6, and AMCs were directly supported by the Project through capacity building, training, support in developing IT systems, and technical assistance to improve services to final beneficiaries – micro entrepreneurs. 39. Significant progress was achieved on the legal and regulatory framework for microfinance, which was directly supported by the Project through studies and technical assistance. In particular, the FINDEX survey (the study including policy dialogues on legal and regulatory frameworks and market potential for microfinance conducted under this Grant) paved the way for major reforms supported by IBRD lending, notably the US$500 million DPF-1 (FY20) and US$450 million DPF-2 (FY21) of a Programmatic Series dedicated to enhancing Financial and Digital inclusion in Morocco. The first regulatory reform consisted in the adoption of a Decree increasing the maximum lending size for microcredit from US$5,000 to US$15,000 in August of 2019. This reform facilitated the financing of revenue-generating activities for micro- entrepreneurs unable to access bank credits. The second groundbreaking reform, adopted by the Parliament on June 22, 2021, consisted of reforming the Microcredit Law to allow microfinance institutions to provide financial services comparable to those provided by banks to the underserved segments of the population. By allowing microfinance institutions to collect deposits, the reform will allow them to diversify their funding sources and financial services offering. With the adoption of the Law, the authorities plan to roll out a clear transformation plan and clarify possible tax changes in the related bylaws to incentivize microfinance non-for-profit associations to transform into microfinance institutions. These measures are expected to improve the performance, governance, prudential framework, financial resources and range of products of Moroccan AMCs to allow the sector to fulfill its role as a financial inclusion lever. 40. The Project succeeded in reaching a very high number of beneficiaries through training and capacity building programs. 117 thousand training on financial education, microcredit and micro-entrepreneurship were provided, reaching over 43 thousand trainees - micro-entrepreneurs, microcredit associations and government staff – strongly exceeding the Project targets. All courses were delivered by established institutions, the Center Mohammed VI and the Moroccan Foundation for Financial Inclusion, both physically and digitally via their respective platforms, and with “train the trainer� approach the continued improvement of financial skills and awareness of financial support is seen as successful and sustainable in the long run. 41. The Project contributed to the design by the Moroccan authorities of a comprehensive national agenda to enhance financial inclusion of vulnerable populations, leading to the adoption of the National Strategy for Financial Inclusion (NFIS) in April 2019, with microfinance as one of its eight core pillars (see Box 3). Technical presentations from World Bank specialists and convening events to showcase other countries experience on financial inclusion (such as cases of Pakistan and Uganda) helped to give NFIS’s more depth and would help its implementation going forward. 13 HCP 2021, “La femme marocaine en chiffres » file:///C:/Users/WB561813/Downloads/Femme%20marocaine%20en%20Chiffres%20_%2020%20ans%20de%20progr%C3%A8s,%202021%20(3 ).pdf Page 17 of 40 The World Bank Morocco Microfinance Development Project (P144500) Box 3 The National Strategy for Financial Inclusion (2019)14 The Strategy encompassed eight pillars: (a) fostering mobile payments; (b) increasing the contribution of microfinance to financial inclusion; (c) promoting inclusive insurance; (d) enhancing the financial inclusion of MSMEs and start-ups through reforms and the promotion of innovative financing tools, including fintech and digital financial services (DFS); (e) digitalizing government-to-person payments; (f) improving the contribution of banks to the financial inclusion of targeted segments of the population, including MSMEs; (g) increasing financial education; and (h) coordinating stakeholders for the implementation, governance, and monitoring of progress on financial inclusion initiatives. It provided a blueprint for transformative reforms dedicated to improving access of households and firms to finance and accelerate the digitization of the economy, part of which were strongly supported by three subsequent DPLs noted in the paragraphs above. The progress of this strategy is monitored by a multi-stakeholder body, the National Council for Financial Inclusion, chaired by the MEF, including line ministries, BAM, regulators of the capital market (AMMC) and pensions and insurances (ACAPS), the professional associations of firms (CGEM), banks (GBPM) microcredit associations (FNAM), and payment businesses. The Council has held annual meetings since the adoption of the Strategy. On April 13, 2022, the latest meeting outlined 33 percent of actions planned in the SNIF had been adopted and 40 percent are in preparation to be deployed, despite the context of the pandemic. Source: MEF from the third meeting of the National Council for Financial Inclusion, 2022 42. The COVID-19 crisis severely impacted microcredit associations, triggering a surge of non-performing loans. A four- months lockdown starting in March 2020 and lasting sanitary measures until end of 2021, made it hard to adequately assess the quality of the microfinance portfolio at the end of the Project . Portfolios became riskier in all institutions (globally) which was outside of the Project control. Prior to the pandemic, the overall quality of the credit portfolio was improving - in 2017 and early 2020 the loans at risk ratios were 3 percent and 3.5 percent respectively. At the end of the Project, in November 2021, however, NPLs jumped up to over 13 percent. Like other countries in the World, to alleviate economic hardships, BAM had to roll out various financial support programs including forbearance measures and liquidity support to sustain population. It is hard to tell what the impact would have been without the legal and regulatory reforms or capacity building provided by MFDP, but it is likely the impacts would have been more severe in the absence of prudent practices of BAM and AMC in their pre-Covid-19 lending. Graph 3 evolution of the share of non-performing loans in the microcredit sector from 2010 to 2021 Source: BAM Other Outcomes and Impacts 43. The Project has strengthened the capacities of public actors to produce knowledge on the sector and collaborate with each other. It offered a platform for strategic dialogue and project supervisions between public and private 14BAM, 2020 «Stratégie Nationale d’Inclusion Financière » https://www.finances.gov.ma/Publication/dtfe/2022/rapport-strategie-nationale-if2020.pdf Page 18 of 40 The World Bank Morocco Microfinance Development Project (P144500) stakeholders. It helped bridge a knowledge gap on micro and very small enterprises via the design of the IT system of the Moroccan Observatory of MSMEs, operational since 2020 which consolidate data from BAM, the National Social Security (CNSS) and Intellectual Property Organism (OMPIC) to provide a landscape of Moroccan firms and their financial situations. In parallel, the Observatory of Microfinance by the Center Mohammed VI was operationalized in 2022 is now working with each AMC to set up their information technology systems to enable the automatic collection of data from microcredit associations on consumer behaviors, risks, geographical and gender aspects, to run matching analysis. The Project supported financial inclusion including closing gender gap, as a very significant percentage of micro entrepreneurs are women. Based on BAM statistics about 47 percent of microcredit beneficiaries in the end of the project we women. The AMCs reported that about 46 percent of their employees in 2021 were women (which is a start contrast to average female employment in the formal sector overall standing at 22 percent) III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME 44. The Project underwent five restructurings – all of which were extensions of the closing dates (noting that two final extensions were granted during the Covid-19 pandemic as virtually all Project activities were at standstill for over a year). Based on the project reports and interviews with stakeholders and the Bank team, the Project implementation was slow due to the high number of stakeholders and beneficiaries, and complexity of procurement procedures (whereas government procedures were overlayed on the Word Bank procedures), and overall low implementation capacity amongst stakeholders (the risk highlighted as High in PAD and also noted in the earlier section). No changes were made to the components or arrangements and overall project design and approach remained relevant and valid throughout its implementation. The extensions were needed to allow more time for stakeholders to implement the Project and, given the high impact of activities and overwhelmingly positive feedback from participants and beneficiaries, linkage of the MFDP with other Bank-supported projects, the Bank was supportive of these extensions and saw them as fully justified. It is noted, however, that while reasons for delays were known and measures to address them were designed, they were not fully put into action over the first three restructurings. 45. Since March 2020, the COVID-19 outbreak in Morocco and the knock-on effects of the lockdown on the microfinance sector have triggered an acceleration of the policy dialogue between MEF and the MEF PMU, both to define a short-term response to support struggling AMCs and to advance on the longer-term financial inclusion agenda. Though the rescue plan was not considered part of the project, it mobilized significant amount of time and efforts on both the World Bank Group and the MEF to preserve achievements of the Moroccan microfinance sector over the past years. 46. Though the lockdown has delayed implementation of some activities of the Project, as part of the emergency response to the impact of the COVID-19 crisis on Moroccan AMCs, the World Bank and MEF have been engaged in a close policy and technical dialogue, with a strong focus on the design of an emergency public guarantee fund. Though Moroccan AMCs remained opened during the three months lockdown (March to June 2020), being classified as “essential operators�, they still suffered from a quasi-complete freeze of loan collections and new borrowings during this period, raising high risks of liquidity for AMCs in the short run. Thus, the MEF, BAM, the World Bank Group and CGAP closely cooperated on the design, sizing, structuring and prudential framework of a new public guarantee fund to support the microfinance sector. An agreement between the MEF and the Centralized Guarantee Fund (CCG - Caisse Centrale des Garanties) to launch this MAD 651 million (US$64.8 million equivalent) fund was signed on November 2020 (the fund is managed by CCG, which entered into agreements with the three biggest AMCs accounting for 90 percent of microfinance loans). The guarantee fund included two- components: the first to support the activities of AMCs by providing a public portfolio guarantee on new loans, and the second to contribute to financing struggling AMCs. It is financed by both Page 19 of 40 The World Bank Morocco Microfinance Development Project (P144500) national public resources and international donors (including KFW). In 2022, the Fund has provided guarantees on loans by nine microcredit associations15. 47. In addition to the fund, the WBG and CGAP provided the Moroccan authorities with policy advice built on international responses and best practices to help Moroccan AMCs at the midst of the crisis. The set of suggested measures aimed at preserving AMCs from a default of liquidity and included fiscal instruments, specific bank refinancing lines for AMCs, temporary adjustment of the prudential framework of banks to foster lending to AMCs. Implementation Arrangements and Fiduciary Issues 48. MEF was the management entity for the project and was responsible for the overall management of activities and the Project contributed to the capacity building of the MEF team. MEF PMU handled procurement, financial management, disbursements, and monitoring and evaluation for the Project, as well functioning of the Project Steering Committee. It collected data from the beneficiaries and reported on Project results. In the end of the Project, MEF prepared its contribution to ICR which provided depth of details on project activities (Rapport D’achèvement Du Projet De Développement De La Microfinance Au Maroc, March 2022, which served as a basis for detailed description of activities provided in Annex 5 of this ICR). 49. Procurement. The procurement under the project was of a simple nature and specialized skills were not needed to implement project’s activities. However, many Project status reports and aide-memoires noted that procurement was taking a long time to finish and that the process was not optimal because the clients utilized both the national and the World Bank procedures at the same time and that the capacity of staff in charge of procurement activities in the PMU was low because it was their first use of the World Bank procurement procedures. Recommendations were made on streamlining the process, training the PMU staff on WB procedures, and providing the PMU with close support by procurement WB team. The process however remained slow until the end of the project. At the same time, it is noted that the local consultants’ services and vendors market was able to respond competitively to the project procurement notices. The implementing agency followed the core procurement principles defined by the World Bank procurement regulations. The project financed technical assistance activities in accordance with the World Bank’s guidelines. The procurement therefore was rated as Moderately Satisfactory. 50. Financial Management. At closing, the project's financial management performance and risk ratings were rated respectively “Moderately satisfactory� and “Moderate�. Overall, slow implementation was due in part to the lower capacity of the MEF to implement the grant’s activities. It is explained by the high number of stakeholders and beneficiaries and complexity in procurement. There were low commitments under contracts and low payments, which led to an overall low disbursement rate. The financial management performance and risks therefore remained Moderately Satisfactory and Moderate until closing date, given the non-completion of all planned activities by the grant closing date. Low disbursements were also flagged in latest financial audit report of the project for 2020. The Project financed technical assistance and capacity building to MEF’s PMU to reinforce its financial management functions in regard to this Project, and recruitment of a financial officer, to help the PMU in complying with financial management arrangements agreed for the Project. This enabled the PMU to submit timely Interim Financial Reports (IFRs) of satisfactory quality and unqualified audit reports throughout the Project implementation. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME 15Le Matin, 2022 « Microfinance : le gouvernement vise 900,000 bénéficiaires cette année ». https://lematin.ma/express/2022/microfinance- gouvernement-vise-900000-beneficiaires-cette-annee/371269.html Page 20 of 40 The World Bank Morocco Microfinance Development Project (P144500) 51. The project design fully reflected lessons learnt from other World Bank Group activities, as well as, donor and development partner projects, and international best practice in the microfinance area. These included lessons learnt from similar operations in Egypt, Jordan, India, and other developing and emerging economies. The MFDP included components that would tackle regulatory and enabling environment issues alongside market development tools including direct training of entrepreneurs and trainers and rolling out new tools to support financial access and inclusion. 52. The design of the Project was underpinned by extensive analytical, advisory and diagnostic work and was informed by analytical documents including, CGAP “A Guide to Regulation and Supervision of Microfinance� (published in 2012) deriving learning from international experiences to present recommendations on prudential framework for microcredit associations and for profit financial institutions, raising challenges associated with transformations, tax issues, caps on interest rates or amount of credit . 53. The Project design was simple with clear components that were well structured (three components to achieve the PDO). The beneficiaries were well defined, and stakeholders were properly identified to ensure the most efficient utilization of the funds. The implementation arrangements were intended to be simple with MEF leading the implementation and being in charge of the multi-stakeholder workplan while using World Bank procedures. However, implementation became less efficient in practice primarily due to the use of both the government’s and the Bank’s procurement procedures by the implementation agency, lack of Project dedicated staff at MEF, and low implementation capacity of some beneficiaries. 54. The PDO was well-defined and clearly articulated, which made the objectives achievable and realistic. Almost all objectives were achieved or exceeded the targets (except for non-performing loans which were higher than expected due to impacts of Covid-19) that were well-designed in the Results Framework and well aligned with the objectives. The Project identified and evaluated the potential risks and mitigation measures during the preparation phase. Some more mitigation measures could have been included to mitigate implementation risks which were rated as High. 55. The extensions of closing date allowed the PMU the needed time to achieve the objectives and allowed for further activities and optimal utilization of the available funds for a Project that was highly appreciated by all its beneficiaries and that supported implementation of several other operations including Bank financed DPLs. 56. The supervision was carried out regularly, with Aide-memoires provided to the counterparts and Implementation Status Reports (ISRs) filed on time and at least each year. There was a good continuity in the Bank’s team, with one TTL in place through most of the project implementation and a new TTL taking over on June 12, 2020, at the final 18 months of the Project (which coincided with Covid-19 pandemic when most activities were on hold). The Bank team included procurement and financial management specialists as well as a technical Consultant engaged by the Bank and stationed in Rabat to support project implementation. Procurement post-reviews and financial management reviews were taking place in accordance with the Bank requirements. Audits were carried out timely and were unqualified. There were no serious fiduciary or compliance issues during the project implementation. 57. The Task Team Leader of the project reported to the MENA Transition fund management, quarterly reports on the implementation status of the project and the achievements under the technical assistance. This helped aligning the work done under the project and provided a monitoring and evaluation method of progress quarterly and reporting was consistent and comprehensive based on proper data collection and cooperation with the World Bank team. Page 21 of 40 The World Bank Morocco Microfinance Development Project (P144500) V. LESSONS LEARNED AND RECOMMENDATIONS 58. Key lessons learnt from previous operations that were successfully embedded in Morocco Micro-Finance Development Grant are summarized as follows: (i) Implementing entity’s accountability and ownership is essential for the successful execution of the project. The project’s main counterpart MEF was the key institution, in charge of strategic and legal aspects of the microfinance sector, in close operation with Bank in charge of supervising the sector. The MEF was identified as the core actor to implement the Project in coordination with other public and private entities members of the Steering Committee given its engagement to improve financial inclusion, technical expertise on financial topics, partnership with all other counterparts and experience in handling World Bank projects. Implementation capacity must be carefully thought through, including amongst implementing counterparts with large work programs and competing priorities in related domains (in this case financial sector). (ii) Effective donor coordination is a key requirement to ensure synergies in approach and guidelines and for the success of project implementation. This Project was implemented in coordination with other donors active in microfinance development to take advantage of synergies between different donor-funded activities (in this case GIZ, which was the key partner for workshops on the NFIS and sector dialogue). (iii) 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. The regular reporting on the indicators helped serve as an early warning system indicating the potential need for any modifications. Most important it helped in pushing forward the legal and regulatory reforms, with the clear timeline and the prioritization of tasks. 59. Expectations for technical assistance grants implementation delivery need to be realistic. Initial pace and targets set forth by MFDP were rather ambitious which led to the need to extend the project closing date four times (the first three restructurings were due to slow progress and the final two were due to Covid-19 pandemic). Reforms take time, and microfinance focused reforms, in particular, can be slow due to low capacity across the entire chain as well as the need to engage with a multitude of stakeholders. As such, timed targets for such grants can be set accordingly to account for longer implementation time required upfront. 60. The Project envisaged that PDO indicators were to provide data disaggregated by gender and where possible by vulnerable groups and types of borrowers. This unfortunately was not implemented, and the Project relied on exiting data reporting provided by BAM and MEF which was not disaggregated. Having specific mechanisms for tracking data at the Project launch and/or supporting development of tools to track such data would have strengthened reporting not only at the Project level but also on overall financial inclusion targets by the government. 61. Procurement processes need to be streamlined for small TA grants. MFDP procedures combined complex World Bank procedures with GoM’s own procedures, which proved to be extremely cumbersome. Agreeing on simplified processes upfront as well as aggregating procurement packages as much as possible could have helped to smooth out implementation. Alternatively, such grants can consider engaging a professional project management unit to administer procurement and financial management to reduce burden on government entity in charge of the project (MEF, in case of this project). As this appears a common problem with technical assistance projects in MENA Region (same issues were flagged by RETFs in Egypt and Jordan, for example), the Bank may consider a centralized approach by MENA procurement Page 22 of 40 The World Bank Morocco Microfinance Development Project (P144500) team in design appropriate mechanisms to improve performance of such grants. 62. Linkage with Development Policy Financings and broader financial sector agenda helped to support uptake of outputs developed by this Project, including adoption of respective laws and regulations, and, during Covid, ensuring support to struggling microfinance sector through policy advice and temporary adjustments as well as financial support to financial institutions. The TA/ DPF linkages help RETFs get higher level engagement by the clients to carry out reforms linked with budget support, while helping DPFs achieve their targets with clients having sufficient TA funds and advice to design high quality reforms and implement them. RETFs, given their technical assistance nature that requires close engagement and attention to detail, stimulate closer working collaboration with the client that is essential for ad hoc or emergency engagements. 63. Technical Assistance and Capacity Building proved to be essential in complementing other Bank operations . Technical assistance and capacity building should always be available to aid in setting the stage for other Bank operations in the sector, as they play an important role in supporting institutional capacity strengthening. This Project supported the technical discussions around small enterprises and startups, which helped support the Financing Innovative Startups and Small and Medium Enterprises Project (P150928) and some of the microfinance and financial inclusion related institutional and legal reforms supported under the DPF Programmatic Series. 64. Ongoing implementation support and proper reporting cycle are key to the Project positive implementation. The consistent communication and follow-up with counterparts and regular reporting cycles ensured keeping implementation on track. The achievement of almost all PDO indicators can be largely attributed to the Bank team’s extensive project supervision and consistent communication with the counterpart. The Project implementation, while substantially behind schedule, completed planned activities and substantially improved micro-finance environment in Morocco. . Page 23 of 40 The World Bank Morocco Microfinance Development Project (P144500) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion % of Adults (and women) with Percentage 39.00 12.00 51.00 60.00 an account at a formal financial institution, including low 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 income households Comments (achievements against targets): Target overachieved. Data is based on BAM statistics and reported by MEF Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of end-beneficiaries of Number 804000.00 1100000.00 1000000.00 888978.00 MFIs, including low-income households, microenterprises, 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 and small firms Page 24 of 40 The World Bank Morocco Microfinance Development Project (P144500) Comments (achievements against targets): Target was not fully achieved due to Covid-19 health crisis during final stages of the project. Reports from 2017 and 2020 showed that this indicator was on track (measuring at 925 thousand) but it declined in 2021. This was beyond project control. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Portfolio at Risk - Microfinance Percentage 6.70 6.40 6.40 13.38 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 Comments (achievements against targets): PDO was met before COVID-19 that led to a surge in NPLs due to a three months lockdown in 2022 and lasting restrictive measures until 2021; Reports from 2017 and 2020 showed substantial improvement and substantial decrease in risky loans (to 3.5%) but by 2021 situation reversed. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Outstanding Microfinance Loan Amount(USD) 550.00 550.00 590.00 906.00 Portfolio (USD mn) 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 Comments (achievements against targets): The indicator was exceeded. In 2019, pre-Covid-19, this number was US$816 mln showing that outstanding portfolio was growing prior to the increase of restructured or non—performing loans. Page 25 of 40 The World Bank Morocco Microfinance Development Project (P144500) A.2 Intermediate Results Indicators Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Strengthening Institutional, Number 0.00 0.00 3.00 4.00 Legal, Regulatory, Tax and Governance Framework for 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 Microfinance: Regulatory Studies Completed Comments (achievements against targets): Indicators overachieved. The studies were instrumental to update the law and regulations, especially, the study on institutional and legal framework, the Findex study , the study on the Compliance of AMCs/MFIs with the requirements of the fight against money laundering and the financing of terrorism. on the organizational diagnosis of FNAM Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Strengthening Institutional, Number 0.00 0.00 3.00 3.00 Legal, Regulatory, Tax and Governance Framework for 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 Microfinance: Number of operational and regulatory initiatives implemented by BAM and other key Page 26 of 40 The World Bank Morocco Microfinance Development Project (P144500) stakeholders Comments (achievements against targets): Fully achieved. This indicator helped to improve application of regulations and improve quality of the oversight., notably Guide to the requirements applicable to the microfinance institutions related to the Anti-Money Laundering/Combating the Financing of Terrorism, and the circular relating to the conditions of application to microfinance institutions of certain dispositions of the banking law. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Strengthening Market Number 0.00 0.00 3.00 3.00 infrastructure, product innovation and funding sources 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 for microfinance: Number of alternative microfinance products developed and piloted Comments (achievements against targets): Fully achieved (incudes micro-insurance, deposits and savings, and funds transfers) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Strengthening market Number 0.00 0.00 1100.00 117781.00 Page 27 of 40 The World Bank Morocco Microfinance Development Project (P144500) infrastructure, product 01-Dec-2012 01-Dec-2016 30-Jun-2021 30-Nov-2021 innovation and funding sources for microfinance: Number of Trainings to Micro Entrepreneurs Delivered Comments (achievements against targets): Over achieved. The project was highly successful in reaching its audience Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Integrating Microfinance into a Yes/No N Y Y Y national financial inclusion strategy: Financial Inclusion 01-Dec-2012 01-Dec-2014 30-Nov-2021 30-Nov-2021 Stock-Taking Completed Comments (achievements against targets): Fully achieved. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Integrating Microfinance into a Yes/No N Y Y Y national financial inclusion strategy: Evaluation Completed 01-Dec-2012 01-Dec-2013 30-Nov-2021 30-Nov-2021 Page 28 of 40 The World Bank Morocco Microfinance Development Project (P144500) of Existing Financial Inclusion Measures Comments (achievements against targets): Achieved Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Integrating Microfinance into a Number 6000.00 14000.00 14000.00 43280.00 national financial inclusion strategy: Number of 01-Dec-2012 01-Dec-2016 30-Nov-2021 30-Nov-2021 Beneficiaries Receiving Financial Literacy Training Comments (achievements against targets): Over-achieved. 43,280: number of beneficiaries of financial education programs provided by CM6 and FMEF at end of December 2021 Page 29 of 40 The World Bank Morocco Microfinance Development Project (P144500) B. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1. Percentage of adults (and women) with an account at a formal financial institution, including low-income households 2. Volume of outstanding microloans (USD mln) Outcome Indicators 3. Number of end-beneficiaries of MFIs, including low-income households, microenterprises and small firms 4. Portfolio at Risk of MFIs 1. Regulatory Studies Completed (Number, Custom) 2. Number of operational and regulatory initiatives implemented by BAM and other key stakeholders (Number, Custom) 3. Number of alternative microfinance products developed and piloted (Number, Custom) 4. Number of Trainings to Micro Entrepreneurs Delivered (Number, Custom) Intermediate Results Indicators 5. Financial inclusion stock taking completed. (Yes/No, Custom) 6. Evaluation Completed of Existing Financial Inclusion Measures (Yes/No, Custom) 7. Integrating Microfinance into a national financial inclusion strategy: Number of Beneficiaries Receiving Financial Literacy Training (Number, Custom) 1. Study on upgrading the institutional environment of the microfinance sector 2. Development of e-Learning Platform and tailor-made e-Learning Key Outputs by Component modules and their implementation by the Mohammed VI 3. Study on the potential of the microfinance sector 4. Development of a communication strategy for the micro-credit sector in Morocco 5. Organizational diagnosis of the FNAM Page 30 of 40 The World Bank Morocco Microfinance Development Project (P144500) 6. Solidarity Trade Group Project 7. Preparation of a strategy to improve performance and capacity for the Moroccan MSME Observatory 8. Conducting the National Demand Survey: Assessing Access to and Use of Financial Services in Morocco (FINDEX) 9. Preparation of a study on the risk controls in the microfinance market in Morocco 10. An awareness /information campaign and e-learning training system to build capacity and awareness among young beneficiaries of microcredits 11. Development of tailor-made e-learning modules for the benefit of the Moroccan Federation for Financial Education 12. Rolling out of an e-platform of the Microfinance Observatory of the Mohammed VI Center 13. A diagnosis of compliance of microcredit institutions with legal and regulatory requirements 14. Conference on start-ups 15. Implement programs for business games and a co-working space 16. The design and broadcasting of a radio and digital communication campaign on financial education for Moroccan Federation for Financial Education (FMEF) 17. Survey of payment habits for Bank Al-Maghrib and MEF 18. Development of targeted pedagogical content based on the results of the impact assessment Page 31 of 40 The World Bank Morocco Microfinance Development Project (P144500) . ANNEX 2. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Strengthening the institutional, legal, regulatory, tax and 1.9 1.8 94% governance framework for microfinance Strengthening the market infrastructure, product 1.5 1.18 79% innovation and funding sources for microfinance Integrating Microfinance into a national financial inclusion 1.5 1.60 106% strategy Total 4.9 4.58 93% Page 32 of 40 The World Bank Morocco Microfinance Development Project (P144500) ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Feedback from Ministry of Economy and Finance: Comme discuté j'ai revu le projet de rapport d'achèvement du projet de développement de la microfinance au Maroc qui a été bien établi sur la base de notre document et des indicateurs de résultats fournis par les différents partenaires. Deux commentaires sont en marge qui ont trait à la date de création du Fonds Jaida en tant que société de financement spécialisée dans le refinancement des AMC: cette société a été agréée en 2007 soit 7 ans après le début de la mise en œuvre de la loi de 1999. le deuxième commentaire concerne les prérogatives du MEF et de BAM en matière respectivement de définition de la stratégie et mise en place de la législation (MEF) et de supervision et contrôle permanent du secteur (BAM). En outre, sur le plan de l'exécution de ce projet, je réitère la recommandation de veiller à une meilleure élaboration des termes de référence des activités du projet afin d’optimiser leurs impacts sur les bénéficiaires. Quant aux observations et analyses avancées, ils ne soulèvent pas d'objection de notre part. ci joint le projet de rapport avec mes annotations. Page 33 of 40 The World Bank Morocco Microfinance Development Project (P144500) ANNEX 4. Documents in Project File Aides-mémoires Audit reports Completion Report transmitted by the Governmeent Morocco (Rapport D’achèvement Du Projet De Développement De La Microfinance Au Maroc, March 2022) Microfinance Development Project (P144500) Grant Agreement dated July 25, 2013 Diagnostic Risques Microfinance Maroc, PwC, 2018. Diagnostic Organisation Fédération Nationale Associations de Microcrédit, Maroc, MAZARS, 2022 Rapport final de l’étude sur le Potentiel du Marché de la Microfinance au Maroc, Nevolys-Sunergia Etudes, 2018. Rapport sur la mise à niveau de l’environnement institutionnel de la microfinance au Maroc, Azimut Inclusive Finance, 2016. Second Financial and Digital Inclusion Development Policy Financing iin Morocco (P174004), Program Appariasial Document, World Bank, 2021 Financial Management Reports Morocco Microfinance Development Project (P144500) Project Appraisial Document Narrative reports transmitted by the client Restructuring papers Stratégie Nationale d’Inclusion Financière, Ministère de l’Economie et des Finances, Maroc, 2019 Page 34 of 40 The World Bank Morocco Microfinance Development Project (P144500) ANNEX 5. Project Activities by Project Component Table: Project Cost by Component Component Original allocation Actual Disbursement Component 1: Strengthening the institutional, legal, $1.9 million $1.8 million regulatory, fiscal framework of microfinance & governance Component 2: Strengthening market infrastructure, US$1.5 million US$ 1.18 million product innovation and sources of financing for microfinance Component 3: Integration of microfinance into a US$1.5 million US$1.6 million national financial inclusion strategy TOTAL $4.9 million $4.45 million Component 1: Strengthening the institutional, legal, regulatory, fiscal framework of microfinance & governance (US$1.9 million planned, US$1.8 million actual expenditure). • Study on upgrading the institutional environment of the microfinance sector (2017). This study supported implementation of the national microfinance strategy, aimed at enabling actors in the sector to improve their performance and contribute effectively to the achievement of the objectives of this strategy. The study supported the regulatory framework for Microfinance in Morocco against international best practice. The results were taken into account during the preparation of the Law 50-20 governing microfinance adopted in 2021 as well as regulatory texts including the decree on the ceiling of microcredit. • Development of an E-learning platform on behalf of the Mohamed VI Center (2016). This activity supported developing an e-learning platform to improve access to training and skills development for the target CMS’s beneficiaries, such as micro-finance institutions, micro enterprises, local associations, cooperatives, centers for Office for Vocational Training and Labor Promotion, women, and young people. • Development of tailor-made e-Learning modules and their implementation by the Centre Mohammed VI (2018). This activity prepared a series of on-line training courses: (i) the management of defaults and unpaid debts, restructuring of micro-credits; (ii) crisis management; (iii) risk management and internal control; (iv) strategic aspects of the microfinance Sector; (v) good practices of Information and Management Systems (MIS); (vi) development and use of financial products relevant to micro enterprises; (vii) methods of analysis of business plans of micro enterprises, and (viii) governance of Moroccan microcredit institutions. The activity supported training of trainers on Digital Learning. The CMS "e-Learning" utilized an e-learning platform dedicated to micro credit institutions’ beneficiaries, as well as an e-learning platform Page 35 of 40 The World Bank Morocco Microfinance Development Project (P144500) dedicated to professionals in the sector (designed under this project and mentioned in paragraph above). • Study on the potential of the microfinance sector (2017). This study helped updating the national strategy for microfinance and was structured around the following three pillars: (i) understanding issues and bottlenecks towards development of Moroccan microcredit institutions; (ii) understanding the demand for various forms of financing by micro enterprises and perceived barriers to the use of microcredit; and (iii) making recommendations and developing action plans and avenues to enable microcredit organizations to generate higher demand from potential new clients. • Development of a communication strategy for the micro-credit sector in Morocco (2019). The new communication strategy for microfinance sector and associated implementation plan was designed to help diagnosing and improving the image of the sector, including designing and implementing the ways to address issues, seek feedback and report back to the public and microfinance beneficiaries. • Organizational diagnosis of the FNAM (2021). This activity reviewed organizational and budgetary structure of FNAM including benchmarking it against other similar organization in the world and identifying ways to improve its functioning. • Solidarity Business Group Project (implemented between 2017-2021). The aim of the "Groupement solidaire du Commerce (GSC)" project was to improve the livelihoods of Moroccan microentrepreneurs through professional marketing of their products. The GSC was built around five guiding principles, namely (i) being focused on social impacts, (ii) diversification of distribution channels; (iii) ensure regional aspects are included: an economic model spread over three geographical areas: "Central" area, "Northern" area and "Southern" area; (iv) improve product quality and labelling to meet consumer expectations; and (v) improve internal financial rate of return of micro-enterprises. The project achieved some tangible results including opening of a few sales outlets, mainly in Casablanca. However, new partnerships for the development of distribution channels across geographical areas had been stopped because of the health crisis. With the resumption of the activity of the AMCs at the end of 2021, talks are underway with the Mohamed VI center for the support of solidarity microfinance to seek more investors who can take charge of this GSC project going forward. • Preparation of a strategy to improve performance and capacity for the Moroccan MSME Observatory16 (2018). This activity supported design and implementation of an information technology (IT) master plan of the Moroccan MSME Observatory including a benchmark analysis of information systems utilized by similar observatories internationally, structuring the content for the Observatory databases, and designing implementation plan with detailed plans and 16 Observatory of MSMEs is a statistical tool set up by the central bank and other entities as the social security (CNSS) and intellectual property. Its task is to collect data on Moroccan firms and map the formal firm data, which was not possible under the National Statistical Agency (HCP) mostly providing survey-based estimations. Page 36 of 40 The World Bank Morocco Microfinance Development Project (P144500) budgets for new information systems. The second part of the activity was to assist the Observatory to update its information systems. Component 2: Strengthening market infrastructure, product innovation and sources of financing for microfinance (US$1.5 million planned, US$ 1.18 million actual expenditure) • Conducting the National Demand Survey: Assessing Access to and Use of Financial Services in Morocco (FINDEX) (2018). This study was the first one completed and published since 2011 and the Grant allowed the policy dialogue necessary to complete this process. The study helped to standardize the approach and reporting on financial inclusion across 148 countries. It updated available data on financial inclusion in Morocco collected through the World Bank's 2011 Global Findex Survey and 2013 Financial Capability Survey and helped to understand consumer perceptions and use of formal and informal financial services, identify access/usage patterns (geographic, demographic, etc.), analyze the potential market for various financial services including mobile banking, and strengthen efforts in financial inclusion by public and private actors. The results of this survey were used to enrich the new National Strategy for Financial Inclusion (SNIF). • Preparation of a study on risks in the microfinance market in Morocco (2020). This study informed Moroccan microcredit institutions on their vulnerability to credit risk, helped them to understand the non-payments, and provided them with recommendations and action plans. The study enabled AMCs to define new policies and procedures including eligibility criteria, loan review and approval processes, guarantee scheme and other collateral and security requirements, and staff incentive systems. • An awareness /information campaign and e-learning training system to build capacity and awareness among young beneficiaries of microcredits (2019). This activity consisted of development of: (i) the awareness/information portal (technology and content); (ii) an e-learning sub-platform integrating training/ coaching and support tools; (iii) awareness-raising and training modules; and (iv) a training of trainers’ program. • Development of tailor-made e-learning modules for the Moroccan Federation for Financial Education (FMEF) (2020). This activity consisted of helping the Federation in preparing and putting online learning and e-Learning training modules that are consistent with standards both technologically and content-wise. The focus of FMEF is population in general on the topics of personal finance and self-employment. Taking into account the wide range of needs in financial education for the entrepreneurs, both in terms of content and the diversity of needs and the disparity of conditions for the deployment of training sessions, the FMEF has made its EF- Entrepreneur program available in an e-Learning version. This e-Learning program has further enriched the current training system by diversifying the teaching methods and approaches. Page 37 of 40 The World Bank Morocco Microfinance Development Project (P144500) • Rolling out of an e-platform of the Microfinance Observatory of the Mohammed VI Center17 (2020). The e-platform’s purpose is to gather and present detailed analyses of the situation of the Microfinance sector, as well as to alert the Microfinance Observatory to the imminent risks of the sector as a whole. • A diagnosis of compliance of microcredit institutions with legal and regulatory requirements (2021). This activity consisted of the following tasks: (i) diagnosis of AMCs’ compliance with the requirements of Law 43-05 on money laundering as well as Circular No. 5/w/2017 on duty of vigilance and Law 03-03 on the fight against terrorism; and (ii) provide training and awareness- raising to regulatory authorities’ executives, managers and relevant personnel to enable a better understanding of regulatory enforcement of anti-money laundering and fight against terrorism requirements. • Conference on start-ups (2017). The project financed this major conference through printing of documents and media; rental of the conference rooms and equipment, participants registration, and simultaneous translation of the conference in three languages and Provision of catering services. • Implement programs for entrepreneurial business games style training and development of a co- working space (2020). This activity included: (i) development of an educational kit for entrepreneurs in business development (non-financial aspects); (ii) development of business games for entrepreneurial awareness and planning; (iii) development of a coworking space within the Center for Very Small Social Businesses18 (CTPES) for the incubation and a study trip to France; and (iv) training of trainers. • Organization of workshops, seminars and trainings including dissemination of the institutional environment study (2017) Component 3: Integration of microfinance into a national financial inclusion strategy (US$1.5 million planned; US$1.6 million actual expenditure) • The design and broadcasting of a radio and digital communication campaign on financial education for FMEF (2020). This media campaign helped to raise awareness among citizens and educate them on the basic concepts of financial education (budget management, savings, sources of financing, risks and insurance, etc.), with a focus on microfinance. It promoted the financial education programs of FMEF and its partners and ensured their visibility and accessibility to citizens. It helped FMEF to become a reference source in financial education, for the management of personal and professional finances and the use of financial services. 17 The observatory established under CMS is focusing only on microfinance to collect accurate data on consumer behavior, provide disaggregated data on gender and geographical areas, to do matching analysis. 18 The CTEPS (Centre des TPE Solidaires) is a nonprofit organization under the umbrella of Mohammed 6th Foundation and a unique program in its kind in Morocco. The CTPES has for mission to support entrepreneurship and incubate small businesses with the capacity to host 80 to 100 businesses simultaneously in Casablanca, including a co-working space Page 38 of 40 The World Bank Morocco Microfinance Development Project (P144500) • Survey of payment habits for Bank Al-Maghrib and MEF (2020). This survey helped to identify the payment behavior of the public, to measure disparities and to understand their origin. It analyzed potential changes in habits, both positive and negative, to anticipate the various risk factors. • Development of targeted pedagogical content based on the results of the impact assessment (2020). In 2017, FMEF conducted a study aimed at diagnosing the use of financing instruments available to SMEs, microenterprises and entrepreneurs. Based on the results and recommendations of this study, the FMEF developed two financial education programs for small and micro entrepreneurs. • Within this FMEF led education program, a first batch of eight modules has been prepared: (i) Managing the cash flow of my business; (ii) Development and management of my company's budget; (iii) Adapted financing for my company; (iv) Preparing a credit application for my business; (v) Payment methods for the entrepreneur; (vi) Mobile payment; (vii) Risks and insurance for the entrepreneur; and (viii) Inclusive Insurance. The training on these modules took place in July 2019, through the partnership of the FMEF with Attijariwafa Bank and its Dar Al Moukaouil network. Microfinance associations (Al Amana, Attawfiq microfinance, Ardi), the Mohamed VI Center, BCP and its Business Creation Foundation, CRI (Regional Investment Centers) and ANAPEC have partnered through the Intelaka program. FMEF trains the trainers of these institutions and supports them throughout the deployment process with the final beneficiaries. Component three was instrumental in designing the National Financial Inclusion Strategy. This included the policy dialogue carried out by the Bank and exposure to international best practice which came with developing the NFIS. The project succeeded in helping AMCs to provide better support to their clients. Page 39 of 40