- FFCIAL EDIT NUMBER 1191 NEP QOCM:ENTS Project Agreement (Cottage and Small Industries Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NEPAL RASTRA BANK Dated , 1982 CREDIT NUMBER 1191 NEP PROJECT AGREEMENT AGREEMENT, dated , 1982, between the INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and the NEPAL RASTRA BANK (hereinafter called NRB), established pursuant to the Nepal Rastra Bank Act, 2012 (1955), as amended to the date of this Agreement, of the Kingdom of Nepal (hereinafter called the Borrower). WHEREAS by the Development Credit Agreement of e. date herewith between the Borrower and the Association, the Association has agreed to lend to the Borrower an amount in various currencies equivalent to five million seven hundred thousand Special Drawing Rights (SDR 5,700,000), a part of which is to be relent to NRB on the terms and conditions set forth in the Development Credit Agreement, but only on condition that NRB agree to undertake such obligations toward the Association as are hereinafter set forth; and WHEREAS NRB, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01 Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of NRB Section 2.01. NRB shall carry out Part A of the Project, described in Schedule 2 to the Development Credit Agreement, and conduct its operations and affairs, with due diligence and effi- ciency and in conformity with appropriate economic, financial and -2- investment standards and practices, with qualified and experienced management, in accordance with the NRB Act and the statement of policies and operating procedures referred to in Section 2.02 (a) of this Agreement. Section 2.02. For the purposes of carrying out Part A of the Project, NRB shall: (a) (i) establish and maintain a CSI Refinance Fund with accounting procedures and a statement of policies and operat- ing procedures satisfactory to the Association; (ii) pay into the said Fund an initial capital of not less than five million rupees (Rs 5,000,000); (iii) use the funds in the CSI Refinance Fund exclusively to refinance up to eighty per cent (80%) of Sub-loans made by Participating Credit Institutions to Investment Enterprises for Sub-projects and to finance the costs of opera- tions related thereto; (b) provide such additional capitalization as may be re- quired from time to time to meet the operational needs of the CSI Refinance Fund; and (c) establish and maintain within its organization, a CSI Refinance Unit, with functions, a Manager and professional staff with qualifications, experience and terms of employment, satis- factory to the Association, and with such other support staff as shall be required for the carrying out of its functions. Section 2.03. (a) NRB shall: (i) establish and maintain a CSI Credit Guarantee Scheme within its organization, with an initial capital of not less than two million rupees (Rs 2,000,000) and with policies and procedures satisfactory to the Association; and (ii) use the funds in the said Scheme exclusively to provide guarantees of up to 75% of the principal amount of Sub-loans refinanced under the CSI Refinance Fund. (b) NRB shall transfer the CSI Credit Guarantee Scheme to CGC only if the Borrower shall have complied with the provisions of Section 3.02 (d) of the Development Credit Agreement. Section 2.04. (a) Except as the Association shall otherwise agree, NRB shall refinance Sub-loans made by the Participating Credit Institutions on the terms and conditions set forth in this Agreement applicable to Sub-loans and Sub-projects, including, inter alia, those set forth in the Schedule to this Agreement, -3- provided however that, Sub-loans to be refinanced for any Trading Company in its first year of operation, shall not exceed the amount of two million five hundred thousand rupees (Rs 2,500,000). (b) NRB shall: (i) make the interest rate for Sub-loans, as specified in Part E of the Schedule to this Agreement and as such rate may be adjusted from time to time in accordance with Section 3.09 (b) of the Development Credit Agreement, applicable to all CSI loans by Participating Credit Institutions (except loans for CSIs in remote areas defined by the Borrower and satis- factory to the Association); and (ii) participate in the interest rate reviews referred to in Section 3.09 (b) of the Development Credit Agreement and take all action necessary to implement any interest rates or spreads established pursuant to the provisions of said Section. Section 2.05. NRB shall ensure that no more than 30% of the total amount of the Credit allocated to Part A of the Project, shall be utilized in respect of Sub-loans made to Market Agents for production facilities located in the districts of Kathmandu, Bhaktapur and Lalitpur. Section 2.06. (a) In accordance with and subject to the provisions of this Agreement, NRB shall submit Sub-loans for Investment Enterprises to the Association. for approval or for authorization of withdrawals to be made from the Credit Account. (b) When submitting a Sub-loan in an amount exceeding the equivalent of $25,000 to the Association for approval, NRB shall furnish an application, in a form satisfactory to the Association, which shall include a description of the Investment Enterprise and of the Sub-project (including a description of the expenditures proposed to be financed and an appraisal of the Sub-project) and such other information as the Association shall reasonably request. (c) Each request by NRB for authorization to make with- drawals from the Credit Account in respect of a Sub-loan in an amount not exceeding the equivalent of $25,000 shall be accompanied by a statement which shall contain a summary description of the Investment Enterprise and the Sub-project (including a description of expenditures financed under the Sub-loan for such Sub-project), and shall indicate that such Sub-loan has been refinanced in accordance with the provisions of -4- this Agreement and such other supporting documentation as the Association shall reasonably request. (d) In the case of applications for approval or requests for authorization of withdrawals in respect of the first Sub-loan to any Trading Company, the documentation to be furnished by NRB to the Association pursuant to the foregoing paragraphs of this Section shall include, in addition, evidence satisfactory to the Association that such Trading Company has been duly established in accordance with the laws of the Borrower, with articles of agreement, membership composition, paid-in capital and financing plan and a first year action program of operation which are all satisfactory to the Association. (e) Except as the Association shall otherwise agree, NRB shall submit applications for approval of Sub-loans pursuant to paragraph (b) of this Section on or before December 31, 1984. Section 2.07. (a) NRB undertakes that, unless the Association shall otherwise agree, any Sub-loan will be made on terms whereby the lending Participating Credit Institution shall obtain, by written agreement or other appropriate legal means, rights ade- quate to protect the interests of the Borrower, the Association, NRB and the Participating Credit Institution, including any Sub-loan provisions and procedures, to ensure: (i) that goods and services procured locally shall be purchased at reasonable and competitive prices, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and in the case of services, of their quality and the competence of rendering them; (ii) that, except as the Association shall otherwise agree, contracts for goods procured outside the Borrower's territory and estimated to cost more than the equivalent of $5,000 per item or more than the equivalent of $20,000 per contract shall be let after solicitation of at least three price quotations; (iii) the right of the Association and of NRB to inspect such goods and the sites, works, plants and construction included in the Sub-project, the operation thereof, and any relevant records and documents; and (iv) that the Sub- project is carried out and operated with due efficiency and in accordance with sound technical standards. (b) NRB shall exercise its rights, and shall ensure that the Participating Credit Institutions exercise their rights, in relation to each Sub-loan, in such manner as to (i) protect the -5- interests of the Borrower, the Association, NRB and the Partici- pating Credit Institutions, (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agreement and (iii) achieve the purposes of Part A of the Project. Section 2.08. NRB shall furnish to the Association all such information as the Association shall reasonably request concerning the expenditure of the proceeds withdrawn from the Credit Account in respect of Part A of the Project, the Sub-loans, the Participating Credi.t Institutions and the Sub-projects. Section 2.09. (a) NRB shall issue to the Participating Credit Institutions instructions, including the staffing and training requirements set forth in Part A of the Schedule to this Agreement, satisfactory to the Association covering the conditions under which NRB will refinance out of the proceeds of the Credit, the Sub-loans granted or made by the Participating Credit Institutions and such other matters as shall be required to ensure the accomplishment of the purposes of Part A of the Project, provided that, before such instructions are issued to ADBN, the Borrower shall have complied with the provisions of Section 3.02 (c) of the Development Credit Agreement. (b) NRB shall not amend or waive the instructions referred to in the foregoing paragraph (a) of this Section without prior approval of the proposed amendment or waiver by the Association. Section 2.10. NRB shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, NRB shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving any provision of the.Subsidiary Loan Agreement. Section 2.11. In order to assist ISC in the carrying out of Part D of the Project, NRB shall prepare and furnish to the ISC reports at intervals agreed upon between NRB and ISC concerning the implementation of Part A of the Project. ARTICLE III Other Covenants Section 3.01. (a) NRB shall maintain procedures and records adequate to monitor and record the progress of Part A of the -6- Project and of each Sub-loan refinanced under the CSI Refinance Fund (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained appro- priate accounting practices its operations and the financial condition in respect of Part A of the Project, including, without limitation to the foregoing, separate accounts reflecting all expenditures under Category (1) (b) of the table in paragraph 1 of Schedule 1 to the Development Credit Agreement on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure. (b) NRB shall retain or cause to be retained until one year after the Closing Date, all records (orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure and shall enable the Association's accredited representatives to examine such records. (c) NRB shall: (i) cause the records and accounts referred to in paragraph (a) of this Section for each fiscal year to be audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any, case not later than six months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested, including, without limitation to the foregoing, an opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this Section as to whether the proceeds of the Credit withdrawn from the Credit Account on the basis of statements of expenditure have been used for the purpose for which they were provided; and (iii) furnish to the Association such other information concerning the accounts and financial statements of NRB and the audit thereof as the Association shall from time to time reasonably request. ARTICLE IV Consultation, Information and Inspection Section 4.01. (a) The Association and NRB shall cooperate fully to assure that the purposes of the Credit will be accom- plished. To that end, the Association and NRB shall from time to -7- time, at the request of either party, exchange views through their representatives with regard to the progress of Part A of the Project, the performance by NRB of its obligations under this Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition in respect of such Part of the Project and of NRB, and other matters relating to the purpose of the Credit. (b) NRB shall furnish to the Association at regular inter- vals all such information as the Association shall reasonably request concerning the expenditures of the proceeds of the Credit or the performance by NRB of its obligations under this Agreement or the Subsidiary Loan Agreement. (c) Within six months following the last withdrawal from the Credit Account, NRB shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution of Part A of the Project, its costs and the benefits derived and to be derived from it, the performance by the Borrower, the Association and NRB of their respective obligations under this Agreement and the Subsidiary Loan Agreement, and the accomplishment of the purposes of the Credit. Section 4.02. NRB shall promptly inform the Association of any condition which interferes with, or threatens to interfere with, the progress of Part A of the Project, the accomplishment of the purposes of the Credit, or the performance by NRB of its obligations under this Agreement or the Subsidiary Loan Agreement. Section 4.03. NRB shall enable the Association's representa- tives to inspect the records of NRB including those referred to in Section 3.01 of this Agreement and any relevant documents. ARTICLE V Effective Date; Termination Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. -8- Section 5.02. (a) This Agreement and all obligations of the Association and of NRB thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate; or (ii) a date 20 years after the date of this Agreement. (b) If the Development Credit Agreement terminates before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify NRB of this event, and upon the giving of such notice, this Agreement and all obligations of the parties thereunder shall forthwith terminate. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under Article VI of the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America -9- Cable address: Telex: INDEVAS 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) For NRB: Nepal Rastra Bank Central Office Baluwatar Kathmandu Nepal Cable address: Telex: RABA NP 207 Kathmandu Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of NRB may be taken or executed by its Governor, or by such other person or persons as the Governor shall designate in writing, and NRB shall furnish to the Association sufficient evidence of the authority and the authenticated speci- men signature of each such person. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President South Asia NEPAL RASTRA BANK By Authorized Representative - 10 - SCHEDULE A. Minimum Staffing and Training Requirements of Participating Credit Institutions Staffing Participating Head Office Zonal Credit Institution CSI Unit Level Branches Nepal Bank Limited One Manager 2 CSI 15 CSI and 4 CSI Officers Officers Officers each Rastriya Banijya One Manager 2 CSI 15 CSI Bank and 4 CSI Officers Officers Officers each ADBN One Manager - 20 CSI and 4 CSI Officers Officers Training At least 4 CSI Officers from the Head Office CSI Unit of each Participating Credit Institution shall receive training abroad in CSI appraisal and supervision methods and at least 15 CSI Branch Officers shall receive local training in CSI appraisal and supervision methods. B. Terms for Subsidiary Loan to NRB 1. Interest Rates: 2% per annum and 4% per annum for Sub-loans up to Rs 20,000 and above Rs 20,000, respectively 2. Amortization: 14 years, inclusive 3 years grace C. Terms for Refinancing Sub-loans by NRB 1. Interest Rates: Not less than 5% per annum and 7% per annum for Sub-loans up to Rs 20,000 and above Rs 20,000, respectively - 11 - 2. Amortization: maximum of 7 years, inclusive of a maximum of one year grace 3. Amount of refinanc- up to 80% of amount of each ing: Sub-loan D. Terms of Guarantee under the CSI Credit Guarantee Scheme 1. Premium: 1% per annum 2. Coverage: up to 75% of Sub-loan E. Terms of Sub-loans by Participating Credit Institutions 1. Interest Rate: Not less than 11% per annum 2. Amortization period: 18 months to 7 years, inclu- sive of a maximum of one year grace 3. Maximum Sub-loan: Rs 800,000 (except for Trading Companies) 4. Minimum Equity Participation: (a) CSI - 20% of Sub-project amount except for Sub- projects under Rs 5,000 (b) Performance Contractors - 10% of Sub-project amount (c) Trading Companies and Emporium - 20% of Sub-project amount INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the -day of , 198 2. FOR SECRETARY