Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7025-BU STAFF APPRAISAL REPORT BURUNDI SMALL ENTERPRISE APEX PROJECT February ^5, 1988 Industry and Energy Operations Division South-Central and Indian Ocean Department Africa Region This document has a restricted disbudion and may be used by recipients only in the performance of their officil duties. Its contents may not otherwise be disclosed witout World Bank authoraion. CURRENCY EQUIVALENTS Currency Unit = Burundi Franc (FBU) US$1.00 . FBu 125 (June 1987) US$1.00 - FBu 114 (Annual Average 1986) US$1.00 ' FBu 105 (June 1985) GLOSSARY OF ABBREVIATIONS AGCD - Administration Generale de la Cooperation au Developpement BANCOBU - Banque Commerciale du Burundi BBA - Banque Belgo-Africaine BCB - Banque de Cridit de Bujumbura BNDE - Banque Nationale de Developpement Economique BRB - Banque de la Ripublique du Burundi CADEBU - Caisse d'Epargne de Burundi CAMOFI - Caisse de Mobilisation et de Financement CCCE - Caisse Centrale de Coopiration Economique CCI - Chambre de Commerce et de l'Industrie du Burundi CCP - Office des Cheques Postaux CCPF - Centre de Perfectionnement et de Formation CFTB - Centre de Formation Technique Bancaire du Burundi COOPEC - Cooperatives d'Epargne et de Credit CPI - Chambre de Promotion Industriel DEG - Deutsche Entwicklungsgesellschaft EIB - European Investment Bank FNG - Fonds National de Guarantie SBF - Societe Burundaise de Financement SIP - Societe Immobiliere Publique SOCABU - Societe d'Assurances du Burundi Societi Holding - Sociite Holding Arabe Libyen Burundais UNDP - United Nations Development Program UNIDO - United Nations Industrial Development Organization USAID - United States Agency for International Development GOVERNMENT OF BURUNDI FISCAL YEAR January 1 - December 31 FOR OFFICIAL US ONLY BURUNDI STAFF APPRAISAL REPORT SMALL ENTERPRISE APEX CREDIT CONTENTS Pane No. Credit and Project Summary .................. .... PART I - THE SECTORAL ENVIRONMENT .... .......... ......... ...... . 1 A. The Economic Setting ...**....*****..**.............. . ............ 1 B. The Small Scale Enterprise Sector ............... .......... 2 Importance and Characteristics ......................... 2 Formal SSE ...................... * 3 Informal SSE ... o***........................... .... 3 Artisan Sector ........ #.0 .... ,*06 . .~... 5 Government SSE Policies ......**.*0* ............*.... 5 Import Licensing ....... 0000* ........... *..*..... 6 Price Decontrol ............................... 6 Production Incentives .# ........... . .. . . .. . . . .. . . . . . 6 Tariff Reform .................6..................... 6 Investment Code ........ ....... .............0 ........... 7 The National Guarantee Fund ............ .......... 7 Promotion and Training Institutions ....... ............. 7 Ministry of Commerce and Industry (MCI) .............. 8 Industrial Promotion Center (CPI) ...... .............. 8 Chamber of Commerce and Industry of Burundi (CCI). *.. 8 Government Staff College (CPF) ............. .......... 9 C. The Financial Sector ......... ..... ....... ...........* .. ...... 9 Institutional Structure . ...... ......... . ,....... 9 The Central Bank (BRB) .................... O.. 10 The Commercial Banks ..........*.... *....*.. ,........ 11 The Development Banks ... ........... ............... 13 The Savings and Credit Cooperatives (COOPECs) ........ . 15 Iuterest Rates and Resource Mobilization ............... 15 Credit Policy .............. .. *...*..... .*.**... 17 Term Lending and SSEs: Need for the Proposed Credit.... 19 This report is based on the findings of an appraisal mission to Burundi in June-July 1987. The mission was composed of Messrs. Christian Schmidt and Andres Jaime of AF3IE and of Messrs. Jacob Levitsky and Roman Semkow, Consultants. This document has a restricted distribution and may be used by recipients only in the performance of their offlchl duties Its contents may not otherwise be disclsed without World fank authorintion. - ii - Pate Nc. PART II - BANK GROUP SECTOR LENDING STRATEGY ........... ........ 20 PART III - THE PROJECT ..... ...........*....**.** .***......... 21 Project Objectives and Justification .. ................. 21 Lessons Learned from Previous SME Assistance Efforts ...2: Project Description .................... 22 Credit Component .. ............... .. . .. .. ..... . 22 Institutional Arrangements ............ ..........t 22 Eligible Intermediaries ............................. 23 Eligible Beneficiaries and Subprojects ....... ......... 24 Terms and Conditions of Financing .0..................... 25 Subloan Processing and Administration ............... 26 Assistance and Training Component ...................... 27 Design and Special Features .....aa................. 27 Entrepreneurship Development Program ................ 27 General SSE Assistance Training for Banks ........... 28 Estimated Cost of the Component's Various Programs ... 29 Terms and Conditions ........ ................ . 29 Project Management Unit ....... . ........ ...... .. ... . 30 Small Enterprise Bureau ..................... . 31 Project Cost and Financing ............................. 32 Project Implementation ...... ........ .................. . 32 Project Management .................................. 32 Procurement and Disbursement ........................ 32 Special Account ..................................... 34 Auditing and Reporting ... .... .............. ..... . 34 Project Benefits and Risks ............................. 34 Benefits .............................34 Risks .. .................................. 35 PART IV - AGREEMENTS AND UNDERSTANDINGS TO BE REACHED .......... 35 ANNEXES: I - Draft Participating Agreement .......................... 37 II - Appraisal Format ....................................... 45 III - Simplified Appraisal Format ...... ............ ....... .. . 50 IV - Supervision Format ............. **000...... .......................... 55 -iii - Page No. ANNEXESt (continued) V - Draft Agreements ........ .. ............................ 57 (a) Project Management Unit (Management Agreement) ..... 57 (b) Small Enterprise Bureau (Cooperation Agreement) .... 60 VI - Draft Terms of Reference for (a) SSE Technical Assistance ........................... 63 (b) Bank Seminars .......... .. .......................... 66 VII - Companies and Employment in the formal SSE Sector in 1986 .......... ................................... 68 VIII - Stratification of a formal SSE Sector sample by Employment ..................e********.****..* ...... 69 IX - Expenditure Pattern of Households and Demand Projection for Selected Consumer Goods ..... ........ ... 70 X - Central Bank Organization chart, 1987..... ............. 71 XI - List and Characteristics of Financial Institutions ..... 72 XII - Interest Rate Structure as of May 1, 1987 .............. 73 XIII - Distribution of Credit to the Economy by Term Structure. 75 XIV - Summary Balance Sheets of Commercial Banks ............. 76 XV - Summary Balance Sheets of BNDE & SBF ................... 77 XVI - Distribution of Bank Deposits by Category of Depositors. 79 XVII - Distribution of Bank Deposits by Sector and Term ....... 80 XVIII - Synopsis on Savings and Credit Cooperatives (COOPECs) ... 81 XVIX - Schedule of Disbursements .............................. 83 BURUNDI SMALL ENTERPRISE APEX PROJECT CREDIT AND PROJECT SUMMARY Borrowers Republic of Burundi Beneficiaries: Banque de la Republique du Burundi (BRB), participating financial intermediaries, Chamber of Commerce and Industry, and small enterprises. Amount: SDR 5.7 million, equivalent to US$8 million. Terms: Standard IDA terms. Relendinft Terms: The Borrower would pass on US$7.2 million equivalent to BRB at 7.0 percent p.a. minus an administrative fee, of 0.5 percent (to cover the operating cost of a Project Unit within BRB) for 30 years, including a grace period of 10 years. BRB would onlend the funds to qualified participating financial intermediaries at 7.0 percent (or at the treasury bond rate to be established following the introduction of a treasury bonds auction), with a flexible amortization schedule reflecting the aggregate maturity of subloans extended by intermediaries. The onlending rates would be revised annually. Interest rates charged by participating intermediaries to beneficiary SSEs would be, initially, 11 percent for subloans of up to seven years and 12 percent for subloans beyond seven years. Following the introduction of a market-oriented rediscount rate, interest rates would be variable and market-determined. The foreign exchange risk would be borne by the Government. The Borrower would use the remaining US$0.8 million to (i) provide training and technical assistance to participating intermediaries and beneficiary SSEs and, (ii) establish an SSE promotion unit in the Chamber of Commerce and Industry. Benefits: In the past, Burundi has not had a practical and effective approach towards SSE development. With the mandate recently given to the Chamber of Commerce and Industry to take the lead in SSE promotion, the proposed project would help nurture this development, which is expected to generate new job opportunities at a relatively low capital cost. It is expected that the credit component would help create 2,500 new jobs at an average cost of US$4,000 per job. The impact of the project is expected to be appropriately dispersed both geographically and among various groups with benefits reaching subborrowers in the secondary cities and microenterprises. -ii- Risks: Being the first apex operation in Burundi, the project lnvolves institutional arrangements that are new to the Central Bank and to the participating intermediaries. Initial dalsy in subloan processing may occur as BRB will need to familiarize itself with the system and as participating intermediaries develop further their appraisal and supervision capacity. This risk would be considerably reduced by the swift implementation of the technical assistance component and by close IDA supervision during the initial project execution phase. Estimated Costs Local Foreign Total -----------US$ million---------- Investments 3.0 7.0 10.0 Technical Assistance and Training 0.4 0.6 1.0 SSE Bureau 0.1 0.1 0.2 3.5 7.7 11.2 Financing Plan: SSE Subborrowers 1.5 - 1.5 Participating Financial Intermediaries 1.5 - 1.5 Government 0.2 - 0.2 IDA 0.3 7.7 8.0 3.5 7.7 11.2 Estimated Disbursements: IDA FY 1989 1990 1991 1992 1993 1994 Annual 0.7 1.1 1.8 2.4 1.6 0.4 Cuwulative 0.7 1.8 3.6 6.0 7.6 8.0 Economic Rate of Returns NA. Maps No. 20663. BURUNDI STAFF APPRAISAL REPORT SMALL ENTERPRISE APEX PROJECT I. THE SECTORAL ENVIRONMENT A. The Economic Setting 1.01 Burundi is a small, densely populated and land-locked country with over 4.5 million inhabitants and an estimated GNP per capita of US$250 in 1986. The population is overwhelmingly rural (93 percent) and derives its livelihood from subsistence agriculture and coffee cultivation. Despite the predominance of the rural economy (60 percent of GDP), Burundi has a relatively developed services sector and a small but active manufacturing sector which the Government is eager to promote as agricultural development is constrained by land availability and increasing demographic pressures. 1.02 Following a period of growth due to the coffee boom in the mid- 70s, Burundi's economy started encountering serious financial and economic difficulties in 1981. Terms of trade deteriorated and oil prices surged. A rapid increase in domestic demand and expansionary fiscal and monetary policies led to a deterioratiotn in the balance of payments and large budget deficits. Between 1978 and 1983, the current account deficit increased from 5 percent of GDP to 12 percent, and the budget deficit from 6 percent to 11 percent. Inflation, which was running at a high rate of 15 percent p.a. led to a rapid appreciation of the Burundi franc in the absence of corrective adjustments. To control the increasing deficit in the balance of payments, administrative controls were imposed on imports and on foreign exchange. In addition, price controls were imposed for imported and domestic goods. These control measures led to distorted prices, high rents accruing to monopolist importers, lack of Interest in productive sector investments and to a general slowdown of economic activity. 1.03 Towards the end of 1983, the Government launched a program of initial adjustment measures. These included the depreciation of the Burundi franc by 30 percent versus the US dollar, an increase of producer prices of main export crops (ranging from 6 to 50 percent) and the raising of some taxes. In addition, public wages were frozen, and an effort was made to control both capital and recurrent public expenditures. But while Government revenues initially increased significantly due to higher coffee revenues, continued import restrictions on intermediate goods hampered the output of the modern sector. Furthermore, a prolonged drought in 1984 led to a reduction in agricultural value added of about 6 percent, and thus to a 1 percent decline in real GDP. -2- 1.04 Starting in 1985 the economic situation recovered somewhat. GDP growth reached 4.2 percent due to a substantial recovery in agricultural value added (a result of higher world coffee prices), and expansion of existing manufacturing units. The balance of payments improved as well. With IMF and IDA assistance, preparation for the first Structural Adjustment Program --currently being implemented--began in May 1985 with the objective of restoring financial equilibrium in the short-term and initiating a medium- term restructuring of the economy. 1.05 Main short term adjustment measures included: the adoption of a realistic and flexible exchange rate policy, the correction of the appreciation of the real effective exchange rate which had occurred during the previous years, progressive liberalization of exchange controls and prudent financial policies compatible with the objective of (i) reducing the budget deficit, (ii) maintaining a sustainable balance of payments position, (iii) containing inflation to about 5-6 percent, and (iv) increasing credit to the private sector. 1.06 The medium term adjustment program included the rationalization of the incentive syst,m through further decontrol and liberalization of the economy, and the improvement of the efficiency in resource allocation through major changes in trade and industrial policies. The Government has also taken important steps to strengthen public expenditure management and to rehabilitate the public enterprise sector. 1.07 The above measures have already produced important changes in the economic environment. Faced with increased competition, firms are now looking for cheaper sources of imports (notably in the regional and non- traditional markets) and export markets are being explored. Manufactured exports increased by 60 percent in nominal value in 1986 (80 percent of which in the form of processed coffee), and export contracts for beer, glass, soap, tobacco and textiles have increased substantially. Moreover, the depreciation of the FBu (23 percent in terms of SDR, between July and December 1986), offset the impact that import liberalization might otherwise have had on increased demand for imports. The policy environment for industry has, as a result, improved substantially. The second tranche of IDA's first structural adjustment credit was released on April 21, 1987. Another SAC carrying the adjustment process further is currently being prepared, and SAF discussions are being finalized. B. The Small-Scale Enterprise Sector Importance and Characteristics 1.08 Small-scale enterprises (SSEs) in Burundi are a non-homogeneous and relatively small group, varying significantly in complexity and sophistication as well as by size and activity. SSEs with the same number of employees or comparable sales volume often differ in management style, organization and ability to maintain records, depending on the nature of their activity or the background and capacity of the owner-manager. Partly because of this diversity, and partly because of the absence of a clear official definition of small--and in the Burundian context also medium-- enterprises, reliable data on Burundi's SSEs are scarce. In the absence of - 3 - comprehensive statistics, the characterization below draws on several scurces, Including the National Studies and Statistics Service, various Ministries (Commerce and Industry, Labor, Justice), and the Chamber of Commerce and Industry, all of which focus on different aspects of SSE activity, such as employment, taxes, licensing, permits, etc. 1.09 The SSE sector is marked by very limited donor support. Except for past UNIDO assistance to the iniustrial promotion center (para. 1.31) and two SSE credit lines to one of the development banks, most donor assistance has concentrated so far on selected artisan activities in the provinces. 1.10 Officially, all SSE establishFrants belong to one of four categories, namely the formal and informal industrial sector and the modern and traditional artisan sector. The formal industrial sector includes, besides registered SSE establishments, the 7 larger manufacturing companies in Burundi, among which are the beer and bottle factories. Activities in all four categories are geared towards meeting domestic demand for basic goods. As in other countries of comparable stage of industrial development, food processing (excluding coffee and tea) dominates manufacturing the sector. Other activities are linked to shelter (basically construction materials), clothing, (weaving, spinning, etc.), furniture making, wire drawing and gem cutting. Overall, all four SSE sector categories contribute one third to the total manufacturing sector which, in this predominantly agricultural country, accounts for about 10 percent of GDP and which grew at an average annual rate of 4 percent in real terms between 1978 and 1986. 1.11 The formal SSE sector comprises all officially registered firms in Burundi except for the 7 large manufacturing firms mentioned above and employs about 20,000 people. Its activities are monitored by the National Studies and Statistics Service, which has a roster of 557 registered companies. Of these, 69 percent are in the commercial and services sector and 20 percent in manufacturing. The majority (60 percent) are concentrated in the metropolitan region of Bujumbura. While relatively few companies employ a large labor force, 66 percent employ less than 50 persons each in the agro-industry, mining and manufacturing subsector. In the remaining sectors, the majority of companies employ less than 25 persons each. 1.12 Capital investments of the formal SSE sector are concentrated in the manufacturing sector. The average investment for the sector is US$40,000 per enterprise. Basic financial ratios of the sector indicate that long-term credit has so far not played a significant role in the fixed capital formation of formal manufacturing enterprises. Over half of the assets are self-financed by company owners. As a result, debt servicing represents only 3 percent of total operating expenses for the sector. At the same time, 25 percent of companies carry no debt at all. 1.13 The informal SSE sector, defined as all non-registered SSE activities in Bujumbura and the larger provincial towns, especially in Ngozi and Gitega consists of an estimated total of 950 companies employing less than 25 persons each. The best available estimates indicate that about 65 percent of these companies are active in the commercial and - 4 - services sector. Most of them exist and manage to operate outside the official legal framework, hence reliable information on their activities is scarce. Compared to the country's predominant agricultural sector, informal inoustrial establishments do not require assets such as land, nor do they require large amounts of capital. The labor force generally is made up primarily of the owners plus a few family mt bers and apprentices. A special 1987 Bank survey of the informal sector in Bujumbura, which represents the most developed market, reveals that activities are concentrated mainly in retail trade, construction, manufacturing, electrical and mechanical repair and transport. Trade constitutes 66 percent of the total output of the sector, while manufacturing activities constitute less than 20 percent, and construction less than 3 percent. In the latter two subsectors, it is the formal sector which dominates. Other informal SSE activities include pottery, carpentry, tailoring, and basket making. Metal fabrication is also a significant, more rural manufacturing activity, but it is concentrated in the provinces of Ruyigi and Bubanza. 1.14 Most SSEs in Burundi's formal and informal sector are owned, managed and operated by nationals, unlike the few large companies which often have foreign interest and management. Less than 2 percent of the staff of all SSEs are foreign. Available data also suggest that SSEs are more labor intensive and less dependent on imported inputs than larger enterprises. 1.15 Between 1973 and 1986, the net increase in the number of registered SSEs amounted to 421, which resulted from 4,142 start-ups and 3,721 closures. While the number of start-ups indicates that there is no lack of entrepreneurial spirit in Burundi, the emount of closures demonstrates simultaneously that the SSE sector faces problems as well as it tends to base new activities on inadequate feasibility studies, overrates the market potential and underestimates operating costs. 1.16 SSEs in Burundi encounter a number of constraints, brought to the attenition of the appraisal mission in all main provinces: (i) The access to bank credit, both for fixed assets and working capital is still difi-lcult with banks being concerned more about collateral quality than financial viability of the project; (ii) SSEs are characterized by their lack of well established management structure and orzanization, and by rudimentary accounting s:stems. Basic practices such as quality, production and inventory controls are virtually unknown. The resulting excess costs are integrated in the product cost structure and passed on to the consumer disregarding price and demand elasticity; (iii) Market limitations represent a lesser, but still relevant problem. The expenditure pattern of rural households which represent 92 percent of total households indicates that purchases are limited to basic consumer needs: food, clothing, housing, medicine and household goods of first necessity. As a result, SSEs face a local market the growth of which is restricted by the modest purchasing power of its predominantly rural population; (iv) Being landlocked, another difficulty for economic operators in Burundi is the access to appropriate technoloay and imported raw materials. Transit of goods is unreliable and very costly. Only large companies can afford adequate inventories to safeguard against stock outs. In addition, imports of second-hand equipment are currently prohibited, resulting in low capacity utilization and high investment costs per job. It is expected, however, that under SAC II, this restriction will be lifted; (v) Finally, local distribution channels are In disarray and suffer from collusive practices. Since Burundi's independence In 1962, over 190 commercial trading centers have ceased operation. SSEs unable to develop costly private distribution channels encounter serious marketing problems in commercializing and selling their products. 1.17 Successful SSEs in Burundi have been built up by individual initiative and have developed by reinvestment ok surpluses. In the past several years, few new SSEs have been established. This can be attributed mainly to the economic slow down until 1985 (para. 1.02). Since SSEs have generally found it difficult to obtain professional assistance in the past to prepare bankable feasibility reports and in getting banks interested in their project proposals, few of them had access to funds other than the equity investments of the owner or his imediate or extended family, although some SSEs have in rare cases operated on suppliers' credits. Those that have had access to bank credit have been mainly financed by BNDE and, more recently, by SBF for machinery and equipment imports. The appraisal mission strvey (para. 1.16) showed that new SSEs are being established again and this will result in increasec credit demands. Improved assistance and increased regional coverage to meet financing needs will substantiate this additional credit demand. 1.18 The Artisan Sector. The modern as well as the traditional artisan sectors are made up of a large number of establishments, most of which are unregistered and do not keep any records of their activities. Despite these shortcomings, the artisan sector is an important generator of employment. Traditional artisan activities are carried out by approximately 100,000 farmers, predominantly in the rural areas. These activities, which range from basket weaving to brick making represent a part-time occupation providing additional Income. Skills are transmitted from one generation to the next. More 'modern' artisan activity implies, by local definition, that the craftsmen, received either formal training at a specialized institution or church mission or underwent apprenticeship training, or both. Whereas the traditional craftsman operates as an individual in his spare time, modern craftsmen exercise their profession on a full-time basis and usually have employees assisting them. Approximately 40,000 craftsmen conduct activities in metropolitan Bujumbura and in smaller townships. According to a 1987 study of the artisan sector by a foreign consulting company, modern artisans are increasingly in competition with each other due to the often homogeneous products and have to survive on very small profit margins. 1.19 Burundi's artisan sector received considerable donor assistance from both official bilateral and NGO sources. This assistance is mostly granted in the form of expert advice and is scattered among various, in some instances quite distant provinces. Government Policies affecting SSEs 1.20 Although the Government of the Third Republic, formed in September of 1987, has reemphasized the importance of SSE development, there are no regulations for SSEs separate from those for large enterprises. However, after a period of emphasizing large public sector projects as an instrument - 6 - for industrial growth, the Government now recognizes that further industrial development appropriate to the country's scale and needs should largely involve privately owned small- and medium-scale enterprises. In the past, the growth of the sector was partly hindered by policies such as price controls and import restrictions, but also by cultural values which gave higher social status to administrative and military positions compared to trade and industrial activities. This environment has changed. Starting in 1984, numerous public appeals have been made by highly placed Government officials for national talents to concentrate on economic productive activities, start their own busir.ess and rely on their own capacity to be economically successful. 1.21 The new macroeconomic environment, together with the need to promote the participation of Burundian entrepreneurs in the country's investment and growth process, has thus accorded a high priority to private sector enterprises and to improving the policy and institutional framework for their development. In the process, the Government has implemented major changes in trade and industrial policies. While they do not affect SSEs exclasively, they do have the same results for them as for other economic agents. The main steps towards deregulation of the economy were in the areas of import licensing, price determination, production incentives and tariff reform. 1.22 Import Licensing: At present, most import licenses are granted automatically, except for a limited number of luxury goods, and for 3 groups of locally manufactured goods, subject to temporary quantitative restrictions. Previous regulations which had led to monopolization of the trader profession have been abolished. 1.23 Price Decontrol: Most price controls have been removed, after they had been fixed for most manufactured goods at the producer, wholesale and retail levels until 1985/86. This policy was applied to producer prices through a fixed 20 percent profit margin (cost plus) oa production cost. For some strategic products (salt, cement, sugar), prices can still be subject to a ceiling (for no longer than four months), to offset possible speculation caused by acute shortages or temporary import difficulties. The new pricing policy applies to public enterprises as well. 1.24 Production Incentives: The above measures were complemented by a set of incentives designed to stimulate -nvestment and production in the productive sectors. The Investment Code was revised (para. 1.26) to provide automatic incentives to all investors (Burundian and foreign) who meet specific criteria related to utilization of labor and adequate rates of return. Other incentives include elimination of all export taxes on manufactured goods and the reactivation of the draw-back system. 1.25 Tariff Reforms With a view to reducing high rates of effective protection the Governaent restructured Import tariffs and provided a basic rate of protection for the production of intermediate goods based on domestic resources. To this end, the number of duty rates was reduced from 57 to 5, a minimum duty of 20 percent was established on all imports and the maxim-m duty was reduced to 100 percent, applied essentially to luxury goods. Non-luxury goods are now taxed in the 20-50 percent range, to be narrowed to 20-40 percent in 1989. For a few cases in which higher rates might be imposed to protect infant industries, the Government has introduced formal procedures to grant selected enterprises a temporary relief in form of an import surcharge (with a maximum rate of 30 percent) levied for a maximum period of three years. This import surcharge rate would be gradually reduced during the three-year period. 1.26 A new Investment Code was promulgated in March 1987. The new Code, which was revised under the Structural Adjustment Credit, provides automatic incentives to all investors (Burundian and foreign) who meet specified criteria, namely having an economic rate of return of at least 10 percent for the project and an investment cost per job of less than US$20,000. This increases the access of SSEs to the Code as provisions contained in the previous Code encouraged investments only if they reached a minimum size, i.e., FBu 15 million (US$125,000) for new projects and FBu 10 million (US$85,000) for extensions. Other changes in the new code include (i) lifting the protection against competing imports and no longer prohibiting the establishment of new enterprises even if they compete with existing a~--4vities; (ii) eliminating the exeAption of import duties on equipment and industrial imports; and (iii) reducing the review process (including final approval or rejection) to a maximum of three months. The Code's benefits now consist essentially of a profit tax exemption for a fixed period of five years and seven years for industries located outside Bujumbura. 1.27 The National Guarantee Fund. In July 1987, a decree was approved setting up the Fonds National de Guarantie (FNG)-- a National Guarantee Fund--the purpose of which is to provide additional guarantees to the banks for a substantial part of the loans to SSE when the latter cannot furnish sufficient collateral. The appraisal mission advised the Government in the form and procedures of the FNG. It is envisaged that the guarantee scheme, if operated efficiently, will help remove one of the major obstacles to increase lending by the commercial banks to SSEs, namely the lack of adequate collateral of such borrowers. 1.28 The FNG would guarantee up to 70 percent of a loan for a 1 percent annual fee on the guaranteed portion to a maximum of FBu 10 millions for fixed assets loans. The FNG would also guarantee 60 percent of working capital loans up to a maximum of Flu 5 million for each borrower. Eligibility for guarantees would be limited to enterprises with fixed assets not greater than FBu 30 million (US$240,000 equivalent). Promotion and Training Institutions 1.29 The principal institutions charged with promoting the development i of Burundi's SSE sector are the Ministry of Commerce & Industry (MCI), the National Development Bank (BNDE), the Industrial Promotion Center (CPI), and more recently, the Chamber of Commerce and Industry (CCI). With the exception of 3 foreign experts (not specifically focussed on SSE issues) in BNDE, there is no other donor assistance for SSEs. The main training institution is the Government Staff College (CPF). Even though a major objective of the technical assistance component of this project is to help the Chamber of Commerce and Industry meet its new promotion role, the other institutions might also render useful services to potential SSEs. - 8 - 1.30 The Ministry of Commerce and Industry (MCI) has a General Directorate with two departments for industry and artisanal sector. Both departments report being understaffed. At this point, the MCI does not have any units directly concerned with policy formulation and preparation of legislation to promote the SSE sector. 1.31 The Industrial Promotion Center (Centre de Promotion Industrielle, CPI) was created in 1981 to help promote and develop Burundian industry through provision of assistance to industrial enterprises. CPI is a parastatal agency under direct control of the Ministry of Commerce and Industry. The 1986 operating budget was FBu 56.6 million (US$450,000 equivalent), provided by Government resources and foreign donor grants. Main activities have included the preparation of project feasibility studies and, since 1985, the provision of technical assistance to firms in technological choice, management, and training. In the past, CPI's role has been limited by frequent changes in management as well as by difficulties in gaining acceptance by the private sector. Furthermore, the local staff of 22 have inadequate backgrounds and some are working only part-time. Under the new Government, CPI is redefining its role to become a study unit and shift all assistance functions to the Chamber of Commerce and Industry. 1.32 The Chamber of Commerce and Industry (CCI) represented in the past a relatively small segment of the commercial and industrial community, mainly the larger enterprises based in Bujumbura. Starting in 1987, the Government has given the mandate to the CCI to expand its activities and play a more aggressive role in representing the business community throughou.t the country. This initiative came about by realizing that a private organization was more suited to effectively reach the private sector and channel the assistance needs. As a consequence, CCI's structure has been modified significantly and its budget increased considerably. Under the project, CCI is to play a leading role in implementing the technical assistance program. Following a membership drive after its mandate was increased, CCI currently has over 2,000 associate members, and the number is still increasing. The General Secretary is a dynamic and knowledgeable executive and former Dean of the Faculty of Economics and Administration at the University of Burundi. 1.33 CC!'s budget is entirely financed from membership dues which range from FBu 2,000 to FBu 100,000 p.a., depending on the size and equity strength of ths member company. In parallel to its membership drive, CCI is expanding its services, and it has already established 4 representations outside Bujumbura to better attend members' needs in the provinces. Recently two Directors have been recruited. One has responsibility for domestic affairs covering information, communication training, assistance and coordination with the regional chapters of the chamber. The other director oversees international affairs, including import/export, relations with regional trade zones such as CEPGL, PTA, foreign chambers of commerce, etc. 1.34 The 1987/1988 program of the CCI focuses on the launching of training programs both in the capital city and throughout the most important provinces. This shows that the Chamber does not perceive itself only as a lobbying group but that it responds to the needs of its members, -9- who concluded that governmental agencies did not generate the practical, private sector oriented programs required. Despite its relatively fresh start in Burundi's business promotion, the CCI, through its enthusiastic staff, has shown its willingness to assume a leading role in assisting enterprises. Therefore, CCI was chosen as the best suited institution in the country to take charge of the project's TA program. 1.35 The Government Staff College. The Government Staff College (Centre de Perfectionnement et de Formation en cours d'emploi, CPF) is a parastatal agency primarily sponsored by UNDP. It started operations in 1979, has a total of 40 local staff, and 3 foreign experts. Revenue sources comprise mostly Government subsidies and foreign donor grants. The center focuses its overall attention on civil servants even though private sector participants are allowed to participate in the courses. The center organizes management seminars and workshops, conducts research on management and training issues, publishes its own monographs and studies and maintains an audio-visual library. However, the few workshops and seminars oriented towards the private sector tend to concentrate on scientific management suitable for big corporations only. C. The Financial Sector Institutional Structure 1.36 The financial sector in Burundi consists of: (i) the Central Bank (BRB); (ii) three commercial banks: Banque de Credit de Bujumbura (BCB), Banque Commerciale de Burundi (BANCOBU) and Banque Belgo-Africaine Burundi (BBAB); (iii) three other deposit-taking institutions: Caisse d'Epargne du Burundi (CADEBU), Caisse Centrale de Mobilisation et de Financement (CAMOFI) and Comptes Courants Postaux (CCP); (iv) two other lending institutions: Holding Arabe Libyen Burundais (HALB) and Fonds de Promotion Economique (FPE); and (v) two development banks: Banque Nationale de Developpement Economique (BNDE), a mixed institution with 40 percent Government participation, and Societe Burundaise de Financement (SBF), controlled (54 percent) by the Government but with sizeable (31 percent) local private shareholding. 1.37 The Government, directly or through two fully Government owned financial institutions (BRB and FPE) holds a controlling interest in all financial institutions but the commercial banks. With other public sector enterprises, Government holds close to 50 percent of the capital of the commercial banks but needs the Burundian private shareholders to marshal a majority. Foreign shareholding is limited to the commercial banks (49 percent in two banks and soon a similar or lower proportion in the third) and to BNDE. The Burundi private sector holds shares only in the commercial banks and in SBF. 1.38 In addition to these institutions there is an array of savings cooperatives (COOPECs) started with French assistance in 1984 which are not yet accredited by the Central Bank (para 1.60). There are also quasi- financial institutions which comprise: the Institut National de la Securite Sociale (INSS), a Government agency which collects contributions from employers and employees, and manages the national pension plan; the Societa d'Assurance du Burundi (SOCABU), a mixed sector insurance company which - 10 - used to have a monopoly in the insurance business in the country but has now a competitor (UCAR), recently established with foreign participation; the Office des Cultures Industrielles du Burundi (OCIBU) which collects, processes and partly finances the coffee crop; and the Coffee Equalization Fund. The relative importance of the various institutions in terms of their lending to the economy is shown in the table below and in Annex XI. Total credit outstanding by the financial institutions at the end of 1986 amounted to FBu 16.1 billion (US$129 million). DISTRIBUTION OF CREDITS TO THE ECONOMY (Annual averages An percent) 1981 1982 1983 1984 1985 Central Bank 7.6 4.4 3.2 2.5 2.2 Commercial Banks 65.1 62.0 53.3 50.1 53.0 Development Banks 12.5 16.5 25.2 27.8 26.7 CAMOFI 6.6 8.9 9.7 10.5 10.3 CADEBU 6.4 6.6 7.2 8.0 7.0 Other 1.8 1.6 1.4 1.1 0.8 TOTAL 100.0 100.0 100.0 100.0 100.0 Source: BRB 1.39 There is a certain measure of competition within Burundi's financial system. The commercial banks compete among each other and with BRB, CADEBU, CAMOFI and CCP for public sector deposits, and with CADEBU and CCP for private sector deposits. On the credit side, development institutions participate in short-term credit, namely coffee financing, while commercial banks are required to allocate a portion of their resources to term credit. 1.40 The financial institutions participating in the project (the Central Bank, and the commercial and development banks), as well as the COOPECs, are described in more detail in the paragraphs below. 1.41 The Central Bank (BRB) regulates financial institutions in Burundi and defines and administers national monetary and credit policies. The latter function is performed by BRB's three-person Executive Committee (the Governor, Vice-Governor and the Administrator) and approved, when not actually directed by the Minister of Finance. Between October 1986 and October 1987, BRB was without a Governor and the Executive Committee was virtually inactive. This weakened the Central Bank and led to the Minister of Finance increasingly assuming the task of formulating monetary and credit policies. As Burundi's central financial institution, BRB issues the currency, manages the foreign exchange reserves, and acts as the Government banker and the lender of last resort to the financial system. It also accepts deposits from and grants credit to a number of public sector enterprises, and manages a Credit Bve..au (Centrale des Risques) which collects from the financial institutions monthly information on the - 11 - amount and nature of loans outstanding to any given borrower and advises each financial institution of the total loans extended to each of their customers. 1.42 The Central Bank's regulation of financial institutions mainly focuses on three aspects: (i) interest rate regulation - BRB currently still fixes the minimum deposit and maximum lending rates, thus predetermining the financial spread available to financial institutions; (ii) prior approval for bank credit exceeding a certain amount (currently FBu 10 million or US$80,000); and (iii) classification of credits as wrediscountablen or "non-rediscountable" and the related operating ratios that banks have to maintain. BRB does not establish reserve requirements and commercial banks are financially regulated mainly through the operating ratios. 1.43 BRB's past supervision of the management and operation of financial institutions has been weak, especially as regards inspection. BRB relies exclusively on information and data provided monthly by the financial institution, and undertakes no thorough inspection of the banks other than occasional brief on-the-spot checks. Despite the past lax control, banking institutions are generally well managed and financially sound. They have their own provisions policies and adequate appraisal and disbursement procedures. 1.44 BRB has a total staff of 418, including its Bujumbura headquarters and one branch each in the 2 largest provinces. The fact that in the past year BRB has been without a Governor accounts in part for its managerial weakness. With the recent appointment of a new Governor, this situation is expected to change. BRB's organization structure appears in Annex IX. 1.45 The three commercial banks were until 1985 fully foreign-owned. In 1985 the foreign parent companies of the two larger banks sold 51 percent of their shares to Burundian interests, mainly to the Government and public sector enterprises. The transfer to local shareholders of up to 80 percent of the capital of the third bank (BBAB) is currently being negotiated. The former parent companies have retained the management of BCB and BANCOBU until the end of 1987 under a management contract agreed upon at the time of the sale of their shares. The authorities have recently made known their intention to extend the management contracts. Furthermore, the Minister of Labour has agreed to reconfirm, prior to negotiations of the project, the employment status of non-Burundian staff in the banks (and all other private firms). The three banks are still closely linked to their European shareholders and their policies, procedures, and management practices reflect those of the parent companies. BCB and BANCOBU are the dominant institutions, with 43 percent and 37 percent respectively of the total loan portfolio of commercial banks. They have a branch network in the country (six branches for BANCOBU, five branches for BCB) which would allow the project to reach SME clients outside of Bujumbura more directly. The third bank is only active in the capital and has a more limited range of services. 1.46 The commercial banks extend mainly short-term credit with a large proportion of loans financing export and import operations. Other short- term credits are extended through overdrafts. Banks do not engage in more - 12 - sophisticated types of operations such as leasing. Coffee financing constitutes another central part of the lending business. Until recently commercial banks were the only institutions engaged in this very profitable and virtually risk free activity, but lately, with the help of the authorities, other financial institutions have become involved in coffee financing (development banks and OCIBU). 1.47 Following Central Bank instructions to commercial banks (para. 1.71) to hold at least eight percent of their outstanding portfolio in the medium- term (2-7 years) and long-term (over 7 years), the banks are becoming familiar with term credit but so far, in the abse':e of a functioning guarantee fund (para. 1.27), term loans are gtanted mostly to well-known clients. The capacity of commercial banks to appraise loans is generally adequate. Credit analysis, although emphasizing the personality of the borrower, also covers such aspects as evaluation of market potential, sales forecast, projected cash flow, pro-forma financial statements, quality of the management, and includes direct visits to the company. The appraisal capabilities of commercial banks' staff will be further strengthened under the TA component of the project. (para. 3.29 iii). 1.48 Procurement and disbursement procedures vary from bank to bank, but appear generally satisfactory. For large, well-known clients, disbursement is made directly to the beneficiary. For smaller or less well-known clients and for foreign goods, funds are directly disbursed to the supplier or contractor, and other disbursement and procurement conditions are more thoroughly checked. Under the proposed project, participating institutions would be required to receive quotations from three suppliers and to disburse directly to the supplier, except for small payments of less than US$5,000. 1.49 Practically all bank lending is backed by some form of collateral (mortgages, floating charges on stocks or other assets, personal guarantees, overseas guarantees, etc.) even though the enforceability of some of these guarantees is legally difficult and time-consuming. The collateral requirement is a particularly important problem for SSEs and limits their access to institutional credit. (para. 1.27 on Guarantee Fund and para. 1.75 on Code Fonciere). 1.50 All commercial banks seem to have a fairly sound portfolio condition and the impact of the non-performing loans is manageable. The exact situation, however, is difficult to assess because of differences in the policies followed by individual banks, as the Central Bank provides no guidance on the treatment of doubtful and contentious loans. Commercial banks generally apply the standard provisions policies of their parent companies. 1.51 Banks are reasonably leveraged, with an average debt-equity ratio as of December 1986 of 9.8:1 and a range varying between 8.5:1 and 18.6:1 (Annex XIV). Banking profits are moderate. Net profJts represented about 12 percent of the capital funds in 1986 but were inflated in one bank by an exceptional profit of FBu 94 million. The net profits on assets represented slightly over 1 percent of the average total assets in 1986 and 1.5 percent of the average loan portfolio but fell to 0.3 percent and 0.5 percent respectively if non-recurrent profits are excluded. - 13 - 1.52 The Development Banks. Burundi has two development banks, BNDE and SBF. The Banque Nationale de Developpement Economique (BNDE), Burundi's first and principal development finance institution, was established in 1967 as a limited liability company with a share capital of FBu 60 million (US$ 0.7 million), subscribed 75 percent by Government and public institutions and 25 percent by Burundi's three local commercial banks. BNDE's objectives at its inception were to provide term loan and equity funds to agricultural, industrial and tourism enterprises and to finance housing. The institution received strong support from the international community (the French Caisse Centrale de Cooperation Economique - CCCE - provided the general management of the bank until 1970) and its equity base was expanded four times between 1969 and 1983 to allow international development assistance organizations (DEG, CCCE, EIB, etc.) to participate in its shareholding. BNDE's FBu 740 million (US$5.9 million) capital at the end of 1986 is subscribed 40 percent by the Government and BRB, 46 percent by the EIB, CCCE, DEG and AGCD and 14 percent by the commercial banks and other local public sector institutions, thus rendering majority ownership to the Government. Although BNDE has earned reasonable profits (FBu 50.6 million in 1986 but much less in the previous years), it has preferred to build up its reserves and equity base rather than pay dividends. 1.53 The strong international support has allowed BNDE to establish itself as an important institution for development financing in Burundi. In addition to a DFC-type credit (Cr. 731-BU for US$3.4 million) which IDA provided to BNDE in 1977, significant institutional and financial support came from KfW, CCCE, EIB and the African Development Bank. Over the years, BNDE*s project appraisal and supervision capacity was gradually strengthened and adequate procedures and policies were instituted. The number of staff was kept at appropriate levels (as of December 31, 1986 BNDE employed 49 people, 22 of whom were professionals) and staff quality Improved with the assistance of foreign donors and IDA, who funded experts for the positions of Chief Financial Officer, Economist/Financial Analyst and Engineer, and provided training. A Burundi national successfully assumed the General Manager position in 1979, but the institution will continue to need the support of some three expatriate assistants until their counterparts become fully capable of replacing them. 1.54 No Project Performance Audit Report (PPAR) has been issued on the IDA credit to BNDE. A Project Completion'Report (PCR) of January 1987, however, noted that the two main objectives of the IDA credit - to provide financing on appropriate terms to well conceived and viable industrial projects and to strengthen BNDE's project appraisal capabilities and internal organization - were only partly met at the time. The PCR pointed out that despite intense political pressure and weaknesses in the legal system, BNDE did succeed in improving its internal organization and procedures and in maintaining a relatively sound portfolio. Since its establisbment, BNDE has financed over 4,400 loan operations for about FBu 3.9 billion (US$40 million) and five equity participations for FBu 56.5 million. BNDE's operations have always been sectorally diverse and cover agriculture, manufacturing, mining, handicraft and housing. About two- thirds of all loans were to enterprises in the capital Bujumbura with the remainder distributed throughout the provinces. About 82 percent of all BNDE loans were medium/long term and went to private (36 percent), public - 14 - (38 percent) or mixed-sector projects. Over the past 3 years, BNDE's lending (excluding coffee financing) increased from FBu 480.0 million in 1984 to FBu 826.0 million (US$7.0 million equivalent) in 1986. 1.55 As of December 31, 1986, BNDE had an outstanding portfolio of FBu 3.0 billion (US$25 million equivalent) two thirds of which in medium- and long-term and counted with US$14 million in foreign exchange resources for new approvals. About 85 percent of these resources are for specific operations or have special conditions regarding procurement or type of projects. This limits BNDE's financing flexibility, especially as far as origin and used equipment are concerned. BNDE's foreign exchange resources come mainly from the European Investment Bank. the Caisse Centrale and the African Development Bank. The Government has also from time to time allocated funds to BNDE for specific purposes. 1.56 Since the somewhat unsatisfactory experience with BNDE during implementation of IDA's Cr. 731-BU (para. 3.03), which was closed in 1983, the institution has significantly improved its internal procedures with respect to loan administration and project supervision. BNDE seems to be the only financial institution which strictly applies clearly defined policies with regard to non-performing loans. Loans are classified as overdue as soon as a repayment installment has been missed, an action that tmmediately triggers a review of the borrower's situation and may lead to classification of the loan as doubtful. Doubtful loans become automatically contentious once the file is sent to BNDE's lawyers. As of December 31, 1986, BNDE's doubtful and contentious loans were 9.7 percent of the portfolio and are classified below. BNDE balance sheet is presented in Annex XVa. BNDE: Doubtful and contentious loans by sector at the end of 1986 (BuF million and in percentage of total loans to each sector) Doubtful Contentious Total Housing 0.7 (0.1) 7.4 (0.8) 8.1 (0.9) Trade and artisanat 9.9 (3.4) 45.6 (15.8) 55.5 (19.2) Industry 114.0 (18.8) 10.9 (1.8) 124.9 (20.6) Tourism 11.2 (6.0) 12.7 (6.8) 23.9 (12.7) Agriculture 18.6 (4.7) 12.7 (3.2) 31.3 (7.9) Small equipment 11.7 (4.9) - - 11.7 (4.9) Total 166.1 (6.3) 89.3 (3.4) 255.4 (9.7) Source: BNDE BNDE is expected to be one of the largest users of the proceeds of the proposed project. 1.57 Burundi's other development finance institution, the Socite' Burundaise de Financement (SBF), started operations in 1982, and is the - 15 - country's only financial institution with a sizeable local private shareholding (34 percent'. The rest of its shares are held by the state (16 percent), the state-owned Fund for Economic Promotion FPE (40 percent), and SOCABU (10 percent). SBF provides medium- and long-term loans for housing, commercial and transport equipment and to a lesser extent agriculture, mainly coffee financing. Total medium- and long-term loans at the end of December 1986 amounted to FBu 754 million (US$6 million) and together with coffee financing made up 87 percent of the institution's total credit. Over the past 3 years, SBF's lending (excluding coffee financing) increase from FBu 234.0 million in 1984 to FBu 1.1 billion (US$9.0 million equivalent) in 1986. All of SBF's term resources are local and come mainly from the FPE and the Institut National de Securite Sociale (INSS) (FBu 223.8 and 100 million respectively). SBF balance sheet is shown in Annex XVb. 1.58 Although SBF is young it has a small but competent staff of 21, including 10 professionals, and has established itself as a quality institution with appropriate policies and procedures. Its previous Managing Director was a former Central Bank Governor and he was replaced in October 1987 by the former Minister of Plan. The nine-member Board of Directors approves all loans exceeding FBu 50 million, a Board subcommittee (the Conseil de Direction) is authorized to approve loans of between FBu 10 to 50 million while the Mrnagement Committee, comprising the Managing Director and two delegate-administrators, has approval authority for loans below FBu 10 million. SBF has three departments - administration, finance and projects - which are well suited to its size and functions. 1.59 The SavinRs and Credit Cooperatives (COOPECs). The most recent addition to the range of financial institutions have been the COOPECs (Cooperatives d'Epargne et de Credit) established with French assistance in 1984. By May 1987 the COOPECs comprised a network of 31 cooperatives in the central rural areas of the country with over 33,000 members, deposits of almost BuF 70 million (US$500,000 approximately) and outstanding credits of about BuF 16 million (US$128,000). The COOPECs are growing at a fast rate and their operations may be expected to double in volume by mid-1988. 1.60 The COOPECs represent an important development in being the first financial institutions to operate within these rural areas but are not yet accredited by the BRB. Their lending volume is small and mostly for consumption loans. Thus, they have no need at present for additional financial resources nor for technical assistance which they receive from the French Credit Mutuel. (See Annex XVIII for further details). Interest Rates and Resource Mobilization 1.61 Interest rates are regulated by BRB, which determines the maximum rates (including commissions) the commercial banks and other financial institutions can charge on their loans and, since 1981, the minimum interest rates they must pay on deposits, thus setting a ceiling on the gross spread of deposit taking financial institutions. In October 1981 the maximum interest rates on deposits were changed to minimum rates and the rate level raised by 2 to 3.25 percent while lending and rediscounting rates were also increased significantly. In August 1986 the general level of interefst rates was raised again and financial institutions were also required to pay a 3 percent interest on demand deposit balances in excess >f FBu 100,000 - 16 - (US$800). The August 1986 change also simplified and unified the structure. The number of posted rates went down from 94 to 57 and special deposit and lending rates for non-bank financial institutions were abolished, all financial institutions being subjected to the same interest rate structure. On May 1, 1987 the scale was further simplified and some of tite anomalies in the previous scale removed. The scale presently in force still has 37 posted rates, but unified agriculture and industry lending rates and treats all financial institutions alike. Interest rates for non-rediscountable loans range now between 10 and 16 percent, while rates on rediscountable loans range between 6 and 13 percent (10-12 percent for term loans), with the corresponding discount rates set between 5.0 and 9.5 percent (7.5-9.5 for term discount). 1.62 Real interest rates were negative from 1981 to 1984 and turned significantly positive since then. The increase in 1986 seems to have been a delayed reaction to the surge in the inflation rate in 1984 which had by then reached 14 percent but declined since. Infiation is currently about 5 percent. Such a delayed reaction might have occurred again in May 1987 when the rates were lowered at a time when preliminary indications pointed to an increase in the inflation rate. The latest change kept real interest rates on deposits marginally positive. 1.63 Despite encouraging improvements, the new interest rate scale still provides insufficient margin for certain types of operations especially in the medium term field. Similarly the spread between term lending and rediscounting rates may be too narrow. Margins are more comfortable for non rediscountable credits but the liquid assets ratio (para. 1.72) and the medium-term credit requirement (para. 1.71) severely limit the freedom of the banks in that area. To make the financial sector efficient, the Central Bank is currently considering, and should be encouraged, to let the financial institutions and market forces determine freely their deposit and lending rates. As a minimum, rates on non-rediscountable credit and on demand deposits should be deregulated and other rates linked to a central rediscount or reference rate. Once the auction market for treasury bills is established (para. 1.65) the resulting rate in this market should be used as the reference rate. 1.64 Interest rates on Government securities held by financial and quasi-financial institutions are determined by agreement between the Ministry of Finance and the purchaser. These securities have been issued to a few selected institutions at different negotiated interest rates which seem to bear no relation with the matur±ty of the securities or the conditions of the market. Rates on Treasury bills range from 4 to 8 percent (tax free and not negotiable). Investment bonds with a seven-year maturity bear interest rates which vary between 4.7 per-ent to 8.5 percent. 1.65 The above system of setting interest rates on Government securities represents a major obstacle to fair competition in the financial field and a costly way of subsidizing specific institutions. Moreover, its cost to the Treasury is substantial in terms of high interest payments and losses of tax revenues. There is a clear need for reform in this area and the Government should replace the presently arbitrary arrangements by an open auction system. As part of the financial sector component of the proposed second Structural Adjustment Credit, currently under preparation, treasury bills - 17 - (3-6 months maturity) would be sold at monthly auctions open to all financial institutions, would be negotiable and would be granted no tax advantages. Investment bonds would be sold at a unified interest rate and would be subject to taxation. The issue of bonds could be enlarged to the general public, and the commercial banks should be given the option to purchase the bonds to meet their medium-term credit obligation. 1.66 Financial institutions lend their excess funds to each other on an informal call money market. BRB does not participate in the market and requests no information on the transactions including the interest rates. Operations on the market are of the overnight nature and the transaction is automatically extended for another day if neither the borrower nor the lender signals the other party its intention to clear up the operation. According to the participants the rates on the market have ranged between 4 and 4.5 percent during the last year. 1.67 Mobilization of resources from the public in Burundi consists only of deposit taking. While total deposits more than doubled in nominal terms between 1981-86 (Annex XIV) most of this growth took place during 1982-86 in a period of rapid monetary expansion. The relatively more rapid growth in sight deposits enabled these deposits to increase their share of total deposits from 60 percent at the end of 1981 to 74 percent at the end of 1986. The compulsory interest rate on demand deposits may explain the high preference for that kind of deposits, as the additional return of time deposits represents only a marginal benefit to the depositors which does not compensate them for their preference for highly liquid placement. Given the inflation rates over the past several years (1982: 5.7; 1983: 8.3; 1984: 14.4; 1985: 3.6 and 1986: 1.8 percent), the above expansion of deposits in nominal terms was also positive in real terms. The main depositors are public sector institutions (46 percent) and individuals (37 percent). Deposits of public enterprises are due to lack of acceptable alternatives such as a competitive market for Treasury bills. Should this be established, a significant portion of deposits would be transferred as cash rich PEs would shift their liquidity to the central budget through the purchase of Treasury bills. 1.68 COOPECs have allowed resource mobilization to start in the rural environment. Although the magnitude of the resources mobilized is still limited, there is significant potential for COOPECs playing an important role in financial intermediation in the future. Credit Policy 1.69 Monetary and credit policies include limitations on credit to the Government and on outstanding credit to the economy. In addition to the interest rate regulation, policy instruments include (i) a system of a priori authorization for new loans for clients whose individual credit has exceeded a certain amount and the classification of rediscountable credits; (ii) a rediscountable medium-term credit requirement; and (iii) a liquid assets ratio. 1.70 The Central Bank, through its Credit Department, must approve in advance any credit extended to any borrower which will bring the total amount of the loans outstanding to that borrower above FBu 10 million - 18 - (US$80,000). Financial institutions keep track of their customer's total indebtedness through the Risk Bureau (Centrale des Risques) managed by the Central Bank. In giving prior authorization, BRB also decides whether the loan can be classified as rediscountable, an important factor In computing liquid asset ratios and medium term credit requirements. The prior authorization and classification system is cumbersome, slow and open to arbitrary judgements. Under the forthcoming liberalizatioa program, .t is proposed that, at least for short term credit, prior review be eliminated with all credits in principle discountable, subject to general rules, with bank discount quotas, variation of the discount rate and, if needed, credit ceilings to exercise monetary control. Until now, the easy access to discount facilities has not posed much danger, as commercial banks have utilized them only to back up seasonal coffee financing (the cheapest source of BRB financing for banks is the coffee credit discount rate, currently 5 percent). Instituting a cash reserve/marginal reserve requirement for banks may also facilitate monetary control. 1.71 Banks are required co maintain a portfolio of rediscountable medium- and long-term credit equivalent to 8 percent of the average of their resources and their non-rediscountable credits, a rather unusual combination. It aims not only to compel the banks to extend term rediscountable credits but also to deter them from extending non- rediscountable loans. 1.72 The liquid assets requirement forces banks to maintain at least an 80 to 100 relationship between certain types of assets and liabilities. The ratio has been set too high and should be lowered. Banks at present have no choice once they have exhausted their credit opportunities, brtt to deposit in a non-interest bearing account with BRB any additional deposit they may receive. 1.73 Banks which do not comply with either of the ratios are penalized for it. Banks have had difficulties in complying with the ratios in the last few years. 1.74 The main recipients of credit are the trade sector (including coffee financing), construction (mainly housing loans) and industry, with 42 percent, 24 percent and 16 percent respectively of the total credit outstanding. The remaining eighteen percent goes to agriculture, transport and other miscellaneous activities. There is no information about geographical distribution of credit, but most of the medium and large loans are approved and granted in Bujumbura. 1.75 An additional factor affecting the availability of term credit has been the system of guarantees introduced in January 1987 which discourages the commercial banks to finance development projects. Under the revised Code Foncier, in effect since January 1987, the Government would have a prior claim on all guaranteed property (most guarantees in Burundi being based on mortgages), even when the state had not previously laid claim to the mortgage. Under this system, a bank may had held a mortgage as a guarantee on a loan for 10 years, but if the debtor had financial problems with both the bank and the Government, the Treasury automatically had the prior claim, with no ceiling. Before 1987, the Treasury's right to preempt the guarantee was limited to debts towards the state accumulated over a relatively brief period of time so that, although a guarantee's value was affected by this right, the banks could still count on a significant portion - i9 - of the mortgage. The new system introduced in 1987 had a negative impact on bank lending, since the banks considered the new situation to be equivalent to lending without a guarantee. Early resolution of this problem was needed for the successful implementation of the project. Prior to negotiations, Government had agreed to revert the system, and by negotiations had already completed revision of the Code Foncier. Term Lending and SSEs: Need for the Proposed Credit 1.76 Term lending in Burundi, which only a few years ago was almost the exclusive domain of BNDE, has experienced some diversification with the creation of SBF and the commercial banks showing more interest in this type of lending as a result of both the improved macro-economic environment (para. 1.04) and, to a lesser extent, the BRB regulations (para. 1.71). 1.77 This development merits to be supported. At present, commercial banks only extend term loans with relatively short maturities to larger companies in Bujumbura, leaving the financing of SSEs to BNDE. Despite BNDE's commendable efforts (80-85 percent of BNDE's approvals by number and 50-55 percent by value are for small and medium enterprises) one institution alone cannot satisfy the need of small enterprises, particularly those in the regions. In addition to the demand assessment based on the mission's field visits, all 3 commercial banks confirmed their interest in lending a portion of the US$7.2 million subloan amount over a three year commitment period. 1.78 While the banks expressed their willingness to participate in the credit, they need incentives to do so. First, their capacity to provide term loans is limited and they prefer to finance large operations capable of generating attractive ancillary business. Second, their credit analysis expertise is not fully adequate, and is mainly concentrated in Bujumbura, while a considerable number of SSEs are in the regions. Financing SSEs would thus require strengthening the credit analysis capacity and improving coordination between headquarters and branch offices, both of which add extra cost and make this type of lending less attractive. On the SSE side, many firms would not be able to meet the commercial banks' guarantee requirements, nor would be attracted by the conditions of their loans, which are not adapted to SSE investment projects, given the relatively short maturities (two to three years) and high cost (17 percent on average, when commissions and the transaction tax are included). 1.79 The proposed project has been designed to ease some of these constraints and to provide incentives to commercial baniks to engage in SSE financing because: (i) The government and the IMF agreed that credits extended to SSEs and financed under the IDA Credit would be outside the IMF overall ceiling as they are backed by adequate foreign resources and would be counted towards meeting the medium-term requirements. The proposed project would thus bring to participating banks a new business without limiting their traditional short-term activities; - 20 - (ii) Subloans under the proposed project would not have to receive the Central Bank's prior authorization in order to accelerate the approval process by the Project Management Unit (PMU); (iii) Technical assistance would be provided under the project to participating banks to strengthen their capacity to appraise and supervise SSE projects both at headquarters and at the branch level, as well as to small entrepreneurs; (iv) Credits extended to SSEs under the project would be made in local currency. The foreign exchange risk would be borne by the Governtmeut; and (v) In parallel to the project the establ'.shment of the Guarantee Fund would be finalized to ease the accrest. to bank credits. II. BANK GROUP SECTOR LENDING STRATEGY 2.01 The Bank Group's recent objectives in Burundi have been to support adjustment policies in areas such as trade reform, management of public expenditure, rehabilitation of public enterprises and institutional strengthening. To follow up and consolidate the measures already taken, additional action would be needed to help the diversification of the economy and the acceleration of growth. In this regard, the Bank has identified the following priority areas: export promotion, agriculture, employment, financial sector and SSEs. Prior involvement of the Bank Group in the industrial and financial sectors included a standard DFC-type US$5.0 million credit to BNDE to promote the development of the private sector in 1979. IFC made a loan and capital subscription in 1983 to a glass container factory, totalling US$5.6 million. The latest Bank Group intervention in the sector was through a local construction industry pilot project of US$3.3 million in 1982. 2.02 The 1986 macro-economic reforms and Government's determination to liberalize the economy through policy reforms have created a more suitable environment for new interventions in the industrial sector. The macro- economic reforms have been supported by a Structural Adjustment Credit (US$50 million), an IMF Structural Adjustment Facility Arrangement (SDR 20.1 million) and a stand-by arrangement (SDR 21.0 million), approved by the Boards of IDA and IMF in May and August of 1986 respectively. A second Structural Adjustment Credit is under preparation. 2.03 Given the new Government's overall commitment to assist private sector development, the proposed operation would support this strategy by making available the foreign exchange required for the importation of equipment (new and used) and spare parts for investment projects to be financed through BNDE, SBF and the commercial banks. - 21 - III. THE PROJECT Proiect Oblectives and Justification 3.01 The main objectives of the proposed operation are to (1) support the development of SSEs in Burundi through the provision of term resources and technical assistance; (il) increase the participation of financial intermediaries in the financing of productive investments, including areas outside Bujumbura and, hence, contribute modestly to the decentralization of economic activity; (iii) help, in coordination with SAC II conditionality, to improve the efficiency of the financial sector and the SSE policy framework; (iv) strengthen the SSE appraisal/supervision capabilities of Burundi's financial intermediaries and (v) generate new employment opportunities. 3.02 The rationale for IDA's involvement in the project is to assist the Burundi Government in its effort to stimulate growth and increase employment. Contributing to this objective is particularly timely as potential SSEs will benefit from the policy reforms under the adjustment process of the ongoing SAC I. Term financing to be provided by the project would help support SSEs, a sector that has substantial employment generation potential and could become a breeding ground for developing an entrepreneurial class. Despite the existence of two small credit lines to BNDE as part of bilateral assistance (KfW and CCCE), there is still a shortage of term resources to finance SSE projects because these foreign term resources are channeled through one development bank only and because most of these resources have restrictive conditions regarding procurement, nationality of the beneficiary, size, type and geographical location of projects. IDA's country assistance strategy is in full agreement with the Government's intention to develop the sector. IDA's main role will be to support a country-wide technical assistance program in cooperation with the Chamber of Commerce and Industry and other donors (para. 3.04). IDA's involvement can be regarded as essential in helping the Government both in changing the design of technical assistance to potential as well as existing entrepreneurs and in encouraging a full range of financial institutions to have access to IDA foreign exchange term resources. Lessons Learned from Previous SSE Assistance Efforts 3.03 While IDA has not had an exclusive SSE credit to Burundi in the past, two previous projects were related to SSE activity. The first credit line to BNDE (paras. 1.54 and 1.56) covered investments for projects of all sizes. While the bulk of the financing went to a few large companies, experience from the eighteen SSE projects which also benefitted from financing shows that lack of direct and appropriate technical assistance contributed to the non-success of projects, several of which had to close down. The importance of technical assistance was also brought to light in IDA's recently completed local Construction Industry Pilot Project, through which private construction companies benefitted substantially from expert advice and training and as a result fared very well. In addition, a review of general Bank/IDA experience with SSE lending indicates that SSE assistance programs have often been less than successful mainly because of - 22 - (i) the bias against SSEs in many countries' trade and pricing policies; (ii) the SSEs' difficult access to the benefits accorded under national investment codes; (iii) the over-reliance on single intermediaries for channeling financial assistance, thus limiting the chances of reaching small enterprises in remote regions of the country; and (iv) the lack of working capital funds for SSEs. In Burundi where the policy reforms undertaken by the Government have removed many discriminations against SSEs, the proposed project will build on these lessons to improve the chances of developing a viable SSE sector. Project Description 3.04 The project would involve an IDA credit to the Government of Burundi of US$8.0 million (SDR 5.7 million). It would have the following components: (i) an investment component of US$7.2 million equivalent to finance development projects promoted by SSEs. The investment component would be coordinated and monitored by a Project Management Unit located in the Central Bank; and (ii) a technical assistance and training component of US$0.8 million equivalent to: (a) help small entrepreneurs to prepare and manage their projects and (b) strengthen the participating financial intermediaries' capacity to appraise and supervise investment projects. The technical assistance and training component would be executed by the SSE Bureau in the Chamber of Commerce and Industry. The cost of this Bureau and its activities would be financed in part by the 0.8 million equivalent of IDA assistance and further by UNIDO and USAID financial assistance to pay for part of staff salaries (foreign and local), equipment and operating charges to cover a five year period. Expenditures for the Bureau establishment up to US$50,000 incurred between post-appraisal (October 1987) and credit signing would be financed through a PPF, (which is being processed). Credit Comoonent 3.05 Size of the Credit Component. Based on the SSE project pipelines of BNDE and SBF and indications given by commercial banks, a credit component for commitment over three years of US$7.2 million has been agreed upon. About 60 percent of this amount (US$4.2 million, or US$1.4 million/year) would probably be used by the two development banks. The remaining US$3.2 million would be utilized by the commercial banks. This distribution is indicative as no preestablished allocations among participating institutions would be set. 3.06 Institutional ArranRements. The credit component would be made available under an apex arrangement to all sound financial institutions accredited by the Central Bank (para. 3.08). Funds under the Credit would be channelled through the Central Bank to the commercial banks and development banks, which would in turn grant loans to the final beneficiaries of the project, the small-scale enterprises. The apex arrangement would be the most suitable for financing numerous SSE projects, - 23 - due to the number of financial institutions that would participate, and would provide Burundian SSEs better accessibility to term credit. 3.07 The Central Bank, through a Project Management Unit (PMU) (pars. 3.36) located in the Credit Department, would act as the apex institution and administer the line of credit for the Government. The signing of a Management Agreement between the Government and the Central Bank defining the functions and responsibilities of the latter, under terms and conditions satisfactory to IDA, would be a condition of credit effectiveness. 3.08 Eligible Intermediaries. Any financial intermediary accredited by the Central Bank which complies with the laws and regulations governing banking operations in Burundi, and has its financial statements audited starting with CY 1989, with no qualifications, by independent auditors acceptable to IDA, would be eligible for participating under the line of credit. 3.09 Currently, all commercial and specialized banks would satisfy the eligibility criteria described in the previous paragraph, except for the audited financial statements for which special action will be taken under the project (pars. 3.29 iv). An eligible financial intermediary would be able to participate in the project provided it has entered into a participating agreement with BRB. This agreement would, inter alia. specify that the participants should: (i) designate qualified staff to manage the credits financed by the project; (ii) perform satisfactory subproject appraisals and submit required appraisal reports to the PMU; (iii) ensure that resources are used by the final borrowers for the purposes intended; (iv) supervise subprojects according to required schedule and provide the PMU with periodical reports on the status of subprojects; (v) help identify and provide input to the SSE Bureau of the Chamber of Commerce and Industry about technical assistance needs of SSEs; (vi) adhere to terms of lending and repayment of loans; and (vii) provide the PMU and IDA with such information as they would reasonably request. 3.10 A draft participating agreement has already been discussed with the interested parties and appears as Annex I. All of the banks have stated that they would be prepared and able to comply with these conditions as needed. Receipt by IDA of at least one satisfactory signed agreement between BRB and a participating intermediary would be a condition of effectiveness, the signing of the remaining agreements would be a condition of disbursement for each respective remaining intermediary. - 24 - 3.11 The principal participating institutions are likely to be the two development banks, BNDE and SBF, which would finance SSEs of all sizes while the commercial banks would tend to concentrate more on relatively larger SSEs (closer to the US$300,000 ceiling, para. 3.13). 3.12 An important second group of potential intermediaries is constituted by the savings cooperatives, which would be the key future intermediaries to reach microenterprises and artisans. However, at present these coopecatives do not need IDA financial support as they are highly liquid. In addition, they are not eligible to participate in the project as they are still relatively new and not yet accredited by the Central Bank. Also, their financial management is not yet supervised or controlled by a Government institution. To prepare the savings cooperatives' eventual participation in a follow-up project, the project would finance an action program to help BRB prepare legislation regulating savings cooperatives in Burundi. A dated covenant (June 30, 1990) to that effect is included in the Project Agreement. It is likely that at some future time the COOPECs will have exhausted their excess liquidity and will start to have customers who would require importation of equipment, machinery and spare parts. In the meantime, the COOPECs are receiving institutional assistance from the Cr;dit Mutuel of France, including credit procedures and appraisal techniques which should help over time to employ the excess resources. 3.13 Eligible Beneficiaries and Subproiects. Beneficiary SSEs would be enterprises with net total assets before the project of up to US$300,000. In the case of a new enterprise, the total investment cost would also not exceed the equivalent of US$300,000. 3.14 All productive activities, transport, trade and all other services which contribute to the economic development of Burundi would be eligible for financing. The only exception would be the financing of land and housing construction, which would not be eligible. The line of credit would finance (i) fixed assets and associated permanent working capital for new operations, extensions and rehabilitations; and (ii) free-standing working capital for viable existing SSEs in the productive sectors. However, given that the major objective of the project is to finance investment, the total amount of subloans financing free-standing working capital would be limited to a maximum of 25 percent of the credit component (US$1.8 million). 3.15 The enterprises and their subprojects to be financed would have to meet the following conditions: (i) They would be required to demonstrate viability both financially and economically (based on indicators such as foreign exchange savings, job creation, investment cost per job etc.); subloans of over US$80,000 would be specifically required to have an expected financial rate of return of at least 10 percent on total subproject investment; (ii) The projected debt servicing capacity should be no less than 1.5 over the life of the subproject and the debt to equity ratio should be no more than 2.33:1.0, (except for temporary, special - 25 - arrangements, para. 3.22), with the ratios calculated on the basis of the enterprise's total debts, inclusive of those to be incurred under the subproject; and (iii) Total subproject cost should not exceed the equivalent of US$300,000. 3.16 Terms and Conditions of Financing. The IDA credit would be made to the Government, which would relend the Credit component (US$7.2 million) in local currency through the Central Bank to financial institutions which in turn would relend it to beneficiary SSEs. The foreign exchange risk would be borne by the Government which has agreed to do so. The onlending rate to financial intermediaries would be, initially, one half of one percent below the discount rate for industrial lending (at present 7.0X), but would be equal to the treasury bill market rate once this market will be established. The onlending rate would be reviewed annually (para. 3.21). 3.17 The Government would pass on the funds to the BRB at the rate of 7 percent minus an administrative fee of one half of one percent p.a. that would accru^ to BRB to compensate it for costs incurred and services rendered for the adequate operation of the project through its project management unit. 3.18 The Central Bank would receive the funds for a period of 30 years starting on the date of credit effectiveness. BRB would return the funds to the Government in twenty equal annual installments starting ten years after the effectiveness date of the credit, so as to allow recycling back of the funds, in the same terms, to financial intermediaries. BRB would relend these funds, through a rediscount mechanism, to the participating intermediaries. 3.19 Funds onlent under the Credit component to participating intermediaries would be in local currency, with the same maturities as the individual subloans to final beneficiaries. Subloans to beneficiaries would range from a minimum of two to a maximum of ten (twelve for agricultural projects specially authorized by the PMU) years, inclusive of grace periods of up to three years (up to six years for special agricultural projects with proven long gestation periods). 3.20 The participating intermediaries would be free to set their own final rates to SSEs subject to the maximum spreads agreed between IDA and the Central Bank. Under the present interest rate structure the maximum spread would be 4 percentage points for medium term loans (2-7 years) and 5 percentage points for long term loans (7 years and above). It is expected that during project implementation and in parallel to establishing the Treasury bill market, lending interest rates would be liberalized in Burundi. Once this liberalization has taken place, participating intermediaries would no longer be subject to the ceilings on the spreads they can charge on SSE loans refinanced under the line of credit. A covenant to that effect is included in the Project Agreement. 3.21 The Government and Central Bank onlending rates, as well as the maximum spreads chargeable by participating intermediaries, would be - 26 - reviewed at least every 12 months, and modified by agreement between IDA and the Government as necessary to ensure that they continue to adequately compensate the Government for assuming the foreign exchange risk and reflect the cost of resources for financial intermediaries and SSEs. 3.22 Subloans granted under the line of credit could finance up to 80 percent of the total project cost for extension/rehabilitation subprojects, and up to 70 percent for new subprojects to limit the debt to equity ratio of new projects to 2.33:1.0. The maximum size of a subloan would therefore be US$240,000 for extensions and US$210,000 for new projects. Promoters would be required to finance a minimum of 20 percent of subproject cost for extensions and 30 percent of subproject cost for new projects. However, in exceptional cases, and only if participating intermediaries agree, the 30 percent minimum participation for new projects could be temporarily reduced down to 10 percent at the beginning of a project if all generated profits are applied to reach the 30 percent as quickly as possible. In addition, to encourage co-financing by participating intermediaries with their own resources, agreement has been sought from BRB that such co-financing be exempted from the Central Bank's prior approval. However, to minimize the impact on credit ceilings, co-financing by participating intermediaries would be limited to 20 percent of subproject cost. 3.23 Subloan ProcessinR and Administration. Subloan processing under the project would be coordinated and centralized by the PMU, which would serve as the principal link between IDA, the participating intermediaries and the beneficiaries for the project's investment component (para. 3.36 to 3.39). The PMU would send subprojects for approval to IDA. 3.24 Subprojects would be prepared by the beneficiaries, with, if needed, assistance from the SSE Bureau of the Chamber of Commerce (SEB), and presented to the intermediaries. The financial intermediaries would review the subprojects in accordance with their own loan analysis procedures and internal operating requirements which have been found satisfactory by the appraisal mission. Thereafter, intermediaries would prepare a simple appraisal report for presenting the subproject to refinancing under the line of credit. This appraisal report would be in the standard format prescribed by the PMU (Annex II), which would vary in depth and sophistication depending on the size and nature of subprojects. The report would cover all relevant information about the enterprise and the proposed investment, including details about its technical soundness, financial viability and economic efficiency. Financial rate of return calculations would be required for all subloans over US$80,000. The PMU would review the appraisal reports to verify that all eligibility conditions (including, inter alia, those specified in paras. 3.13 and 3.15) are adequately met. This review would be carried out in the form of a check-list approach for projects below the free limit (within 5 working days) and through a more in-depth review for project above the free limit (within 10 working days). If the subproject is eligible for financing, the PMU will authorize the intermediary to present the loan documents for rediscount at the Credit Department of the Central Bank. 3.25 In view of the involvement of untested financial intermediaries, the first five subprojects from each intermediary would be subject to prior IDA review and approval. Thereafter, assuming satisfactory standards and - 27 - given the small size of subloans (maximum US$240,000), IDA would review a sample of subprojects on an ex-post basis during supervision missions. 3.26 The Central BAnk will serve as disbursement and collection agent for the financing granted to intermediaries. The Credit Department, which is currently responsible for rediscount operations, would execute rediscount and collection operations upon approval by the PMU. On the basis of the PMU's instructions and authorizations, the Credit Department of BRB would debit or credit the appropriate financial intermediary's account without further intervention in the approval process. 3.27 Financial intermediaries would be responsible for making supervision visits to SSEs receiving IDA funds, for maintaining records adequate to monitor the evolution of subprojects, and for reporting to the PMU on the progress of each subproject and the status of the corresponding subloan. Supervision reports, in a standard format prescribed by the PMU, would be required from the intermediaries at least once a year until the loans are repaid. These intermediaries' supervision responsibilities are specified in the participating agreement which intermediaries would sign with BRB. 3.28 In addition, the PMU would conduct its own selective supervision of SSE subprojects in order to monitor the performance of intermediaries' supervision activities. Assistance and Training Component 3.29 Design and Special Features. The technical assistance and training component (US$0.8 million) has been designed to build up, together with the future input of other donors such as UNIDO and USAID, a dynamic and effective SSE department (Small Enterprise Bureau, SEB) within the Chamber of Commerce and Industry with a view to create an effective system of technical assistance to SSEs in Burundi. (i) Entrepreneurship Development Program. The program, which would be carried out by the CCI together with a foreign consulting firm and local counterparts, would introduce in Burundi an integrated program for entrepreneurship development based on successful experiences in other countries and adapted to the special circumstances of the Burundi culture and economy. Participants in the program will be about 30-50 individuals, who have the potential to expand existing enterprises or start new businesses. As a pilot program, the objectives would also include to test the feasibility and impact of the proposed approach and to initiate the process of transferring to local individuals at the CCI the capacity to sustain and expand the program over time. Elements of the program include: (a) a set of selection instruments for assessing entrepreneurial potential; (b) an 80-hour behavioral training program; and (c) a scheme which assists participants to prepare business plans for submission to participating financial intermediaries under the project and to other potential equity investors in the country. Given the pilot nature, the program will build on a small research effort to identify unique characteristics of successful Burundi entrepreneurs, develop a - 28 - msterials development component to create case studies and other training materials specifically tailored to the local context and train future trainers who could implement repeater operations if proven successful. (ii) General SSE Assistance. Building on the above, the general SSE assistance would be provided over several years by the Small Enterprise Bureau (SEB) of the CCI together with foreign consultants and local counterparts. It would focus on project preparation and execution, including advice on technical matters such as plant lay-out, selection of equipment, etc., project mnagement, marketing assistance, basic accounting and other matters as needed. To implement the assistance, the CCI's SEB would hire consultants who would help, together with local counterparts, build up a direct and client needs-oriented service, with seminars tailored to actual needs. SEB staff would also undertake promotional missions to each of the 15 provinces with concentration on those provinces where participating banks have regional branches, to inform potential investors of the existence of the IDA line of credit, explain to them the commercial banks' and development banks' procedures and requirements for obtaining term loans, and advise them on the availability of SEB's assistance for their projects and bank loan applications. To this end, SEB staff are available to advise SSEs, assist them in discussions and negotiations with banks and help them prepare feasibility studies. (iii) Trainint for Banks. Under the project, training would be provided to staff of the commercial banks, the two development banks and the PMU of the Central Bank. Training would be in project analysis and risk evaluation to ensure that SSE projects would not only be reviewed based upon their soundness and their meeting the established requirements, but also that this be done fast and efficiently. (iv) Bank Audits. Starting in 1989, the project would also finance the audits of the participating financial intermediaries for 3 years, financing 50 percent in each year. (v) COOPEC Central Bank accredition. To bring the COOPECs under the supervision of the Central Bank, the project would finance the services of a legal consultant who would prepare appropriate legislation governing credit cooperative activities. 3.30 A first entrepreneurship development program would be executed starting February 1988 and would be financed by USAID's Human Resources Development project (# 695-0121). If successful, program repetition would later on be financed under the project. Also, the general SSE assistance to be provided through CCI's SEB would start, prior to credit effectiveness, with UNIDO's funding contribution for this purpose, which in principle has been agreed upon. As a result, specific subprojects could be ready for submission to IDA for its review soon after effectiveness of the proposed credit, expected to be May 1988. Draft terms of reference for the general SSE assistance and content of the course for bankers appear as Anrex VI (a) and (b). - 29 - 3.31 Both the entrepreneurship development program and the general long-term technical assistance are expected to use foreign experts with *ppropriate local counterparts to be selected. While the two foreign entrepreneurship development experts would only be present in Burundi for relatively short intervals each time a program is held or repeated, the general technical assistance would last at least three consecutive years, thus requiring the foreign experts' local presence for those three years. 3.32 To carry out the training for banks' staff the SEB would invite bids for the services of a well qualified training institution. 3.33 The Chamber of Commerce and Industry is in the process of building a network of representations throughout the provinces, through which SSEs can be reached. Within the next two years, all 15 provinces will have an office with staff and basic services. Five of these offices exist already in the Important provinces. The local CCI representations would serve as the logistic centers in the regions to collect and channel information on clients' needs and at the same time disseminate information about the available assistance services of the Chamber's Small Enterprise Bureau. 3.34 Estimated Cost. The technical assistance component would provide for one repeater module of the entrepreneurship development program (pilot module to be financed prior to credit effectiveness by USAID) for a total maxlmum cost of US$80,000; 72 man-months of foreign consultant services for the general three-year assistance to CCI's SEB; and one month (two modules of two weeks each) of banks' staff training; for 50 percent of bank audits cost for three years starting in 1989; and for legal services to prepare appropriate legislation governing credit cooperatives. The cost of the various programs, including part of SEB's expenditures, is estimated as follows over a period of three years. US$ General SSE Assistance (72 man-months), including the Bank's staff training and Entrepreneurship Development Program (repeat) 600,000 Support to SEB (material, equipment, salary supplements) 130,000 Bank audits 50,000 Establishment of COOPEC legislation 3,000 Unallocated 17.000 Total 800,000 3.35 Terms and Conditions. Funds allocated for the technical assistance component would be passed on as a grant from Government to CCI's SEB and would be available for commitment until December 31, 1991. The component would be managed by the CCI on behal' of the Government. The PMU at the Central Bank would review requests for financing before submitting them to IDA for approval along with a brief justification and qualification of the experts. The PMU would also process disbursement requests. - 30 - Proiect Manatement Unit 3.36 To help manage the investment component of the project, it is proposed to establish a Project Management Unit (PMU) which would be located at the Central Bank and would report to BRB's Administrateur General (Vice-Governor). The PMU activities would be governed by a Management Agreement (Annex Va) to be signed, as a condition of effectiveness, between the Central Bank and the Government. The Central Bank has agreed to provide offices for the PMU, which would be autonomous, with own staff, operating policies and procedures. 3.37 The staff of the PMU would consist of a qualified, senior level, project analyst who would be the unit chief, an accountant/financial analyst and support staff. The identification of personnel has already started but is not yet completed. The recruitment of the unit chief was carried out prior to negotiation of the project. All positicns would be filled by local staff from the inception of the Unit, which is a condition of effectiveness. 3.38 The PMU would receive a spread of one half of one percent p.a. on the outstanding amount of subloans to cover its administrative expenses. Even though this spread might not be fully sufficient to cover the expenses during the first year or two (cost expected to be in the order of US$25,000 p.a.) in which the outstanding volume will be small, the Central Bank has agreed to absorb any possible cost overruns. 3.39 The functions of the PMU would be as follows: (i) ensure adherence of participating intermediaries to established procedures in selecting eligible subprojects and ensure application of appropriate standards for subloan appraisals; (ii) review the eligibility and authorize financing under the line of credit for subprojects submitted by participating intermediaries. For subloans of less than US$80,000 equivalent, the PMU would only insure that the requests meet the eligibility criteria (paras. 3.13 and 3.15) and would give its approval within three working days from submission. For subloans above US$80,000 equivalent, the PMU would review, within a maximum period of seven working days, the requests in more detail, would give its comments on the quality of the appraisal to the participating intermediary and would insure that the eligibility criteria are met (iii) administer the Project Special Account (para. 3.48), ensure proper disbursements of funds (including those for the TA component implemented by the SEB) and supervise and centralize the collection and forwarding of supporting documentation; (iv) supervise the participating intermediaries' compliance with the various obligations (para. 3.09) tnder the project; (v) supervise, on a sample basis, SSE subprojects; and (vi) ensure liaison between IDA and the participating intermediaries on matters related to SSE subprojects. - 31 - Small Enterprise Bureau 3.40 To help implemenc the technical assistance component of the project, the CCI has created, in addition to its two existing departments (para. 1.33) a special Small Enterprise Bureau (SEB), which is headed by a director who was recruited locally in January 1988. The SEB staff would further consist of two additional analysts and have its own small secretariat. Its annual operating budget would amount to about US$300,000 equivalent, two thirds of which would consist of salaries of two foreign experts who would become regular staff of the Bureau. The SEB activities would be governed by a Cooperation Agreement (Am.ex Vb) to be signed, as a condition of effectiveness, between the CCI and the Government. The establishment of the fully operating unit is also a condition of effectiveness. 3.41 The SEB would, in addition to IDA funding, receive grant funds from UNIDO and USAID (para. 3.30) to cover other expenditures such as the trial run of the experimental entrepreneurship development program (USAID), and short-term consulting assignments as needed (UNIDO). Also, other operating costs for necessary vehicles and office equipment will be financed from these sources. In addition to the 72 man-months of long-term expert advice, IDA would finance up to a total of US$50,000 of directly imported office equipment (up to 100 percent of the c.i.f. price) and locally purchased materials and supplies (up to 90 percent), and up to a total of US$70,000 for salaries and operating costs of the SEB (up to 80 percent). 3.42 In managing IDA's TA assistance, the SEB would: (i) provide guidance to potential beneficiaries for the preparation of subprojects to be financed under the line of credit; (ii) implement the general SSE assistance program as per the draft cooperation agreement between the Government and the CCIB and the terms of reference for SSE assistance; and (iii) organize the seminars for bank staff. 3.43 Project Cost and Financing Total project cost is estimated at US$11.2 million equivalent, of which US$7.7 million equivalent (69 percent) would be in foreign exchange. A sumary of the project cost and its expected financing are given in the table below: - 32 - ESTIMATED COSTS AND FINANCING PLAN Local Foreixn Total --US$ million equivalent-- Estimated Costs Investments 3.0 7.0 10.0 89.3 Technical Assistance and Training 0.4 0.6 1.0 8.9 SSE Bureau 0.1 0.1 0.2 1.8 TOTAL 3.5 7.7 11.2 100.0 Financing Plan: SSE Subborrowers 1.5 - 1.5 13.4 Participating Financial Intermediaries 1.5 - 1.5 13.4 SSE Bureau 0.2 - 0.2 1.8 Proposed IDA Credit 0.3 7.7 8.0 71.4 TOTAL 3.5 7.7 11.2 100.0 ProAect Implementation 3.44 Prolect Manazement. The Central Bank, through the Project Management Unit (paras. 3.36-3.39), would be the implementing agency for the credit component and the SEB at the Chamber of Commerce and Industry would be the implementing agency for the technical assistance component. 3.45 Procurement and Disbursement. Procurement for subprojects financed under the investment component of the Credit would be made on the basis of current procurement procedures of the participating financial institutions. These procedures, which require quotations from three different suppliers, have been reviewed and found acceptable to IDA. Procurement of equipment and goods for the SEB would be made on the basis of at least 3 quotations from reputable suppliers. A statement to that effect will be included in the Cooperation Agreement between the Government and the Chamber of Commerce and Industry. Selection of consultants would be made in accordance with Bank Group Guidelines. The table below summarizes the procurement methods. - 33 _ BURUNDI SMALL ENTERPRISE APEX PROJECT PROCUREMENT METHOD 4ND DIStURSEMENTS Procurement Procurement Element Procurement Method ICB LCB Other - ----(US$ million)------------- Subloans - - 10.0'/ (7.2) Equipment/Vehicles - - 0.2 (O.2)b Consultant Services and Technical Assistance - _ 1.0 (0.6)cI TOTAL - - 11.2 (8.0) I/ Standard commercial practice. b/ 3 quotations. cI In accordance with IDA procedures. 3.46 The proceeds of the proposed credit would be disbursed as follows: SSE subloans: 100 percent of expenditures up to 70 percent of total subproject cost for new operations; s 100 percent of expenditures up to 80 percent of total cost of subprojects for extensions. Technical Assistance and trainine comuonents 100 percent of the cost of consultants, assistance and training. SSE Bureau: 100 percent of the c.i.f. cost of goods directly Imported, 90 percent of the local cost for materials and supplies, 80 percent for salaries and operating expenditures. Bank Audits: 50 percent of audit expenditures of participating financial intermediaries in all three years. COOPEC Central Bank Accreditation: 100 percent of the cost of the consultant preparing appropriate legislation governing credit cooperative activities. 3.47 The project disbursement schedule is based on the disbursement profile for IDF projects in Eastern and Southern Africa. It is expected that the investment component would be disbursed in six years and the technical assistance component over three years. Funds under the credit - 34 - component would be available for commitment until December 31, 1991. Disbursements would be completed by December 31, 1994. 3.48 Special Account: To expedite disbursement of funds, a special account would be set up in a credit institution acceptable to IDA into which IDA would make an initial deposit in US dollars for SDR 300,000 equivalent from the proposed credit immediately after credit effectiveness. This amount represents an estimated average disbursement of funds over a four-month period. Applications for replenishment of the Special Accounts for a minimumn of US$100,000 would be submitted on a monthly basis. The Special Account would be audited annually by independent auditors and the audit reports would be submitted to IDA within six months of the end of the fiscal year. Disbursements for expenditures for contracts under US$40,000 would be made on the basis of Statements of Expenditures (SOEs). The documentation for withdrawals made under SOEs would be retained by the Project Unit for ten years and would be reviewed by supervision missions and audited annually. All other disbursements would be made on the basis of fully documented applications. 3.49 Auditing and Reporting: The PMU will have its accounts, as well as the Special Account and SOEs (para. 3.48) audited annually by independent auditors acceptable to IDA and will furnish to IDA certified copies of its audited accounts together with the corresponding management letter within six months of the end of the fiscal year. The PMU will also submit to IDA quarterly an annual progress reports on the investment component. Furthermore, the PMU will review the annual audits of participating financial intermediaries. The PMU and the SSE Bureau together will prepare the required Project Completion Report within 6 months after the closing date of the project. The SSE Bureau will submit to IDA quarterly and annual progress reports on the technical assistance component Proiect Benefits and Risks 3.50 Benefits: By supporting the growth of SSEs, the proposed project will help develop a Burundian entrepreneurial class and generate new job opportunities at a relatively low capital cost. It is expected that the US$7.2 million investment component would support investments totalling about US$10 million and create 2,500 new jobs at an average cost of US$4,000 per job. The impact of the project is also expected to be appropriately dispersed both geographically and among various groups with benefits reaching subborrowers in the secondary cities and micro- enterprises. 3.51 In addition to providing term finance to SSEs, the project will also play an important role in building up an effective capacity for financing and assisting small enterprises in Burundi. The entrepreneurship development program, the technical assistance and the training components would be a cost effective way to develop within the commercial banking sector an expertise in appraisal and supervision of development projects and to strengthen the capacity of the Chamber of Commerce and Industry to provide assistance to SSEs. - 35 - 3.52 Risks: As the first apex operation in Burundi, the project involves institutional arrangements that are new to in.termediaries and the Central Bank in Burundi. Some initial delays in subloan processing may occur as the Central Bank needs to familiarize itself with the system and as participating intermediaries develop their capacity to appraise and supervise SSE projects. This risk would be considerably reduced by the rapid implementation of the technical assistance component. In addition, the banking system in Burundi is relatively developed. Finally, IDA would closely supervise the initial phase of project implementation. IV. AGREEMENTS REACHED AND RECOMEMDATIONS 4.01 Prior to neaotiations, the Government has (i) reconfirmed its policy concerning the employment status of non-Burundian staff in the private sector (para. 1.45) and (ii) has completed the revision of the Code Foncier (para. 1.75). 4.02 During negotiations, the following agreements and understandings were reached with the Government and the Central Banks (i) on lending rates and conditions for the Government, the Central Bank, the participating intermediaries and the beneficiary SSEs (paras. 3.16 to 3.20 and 3.22); ($i) use of the Treasury bill market rate as a basis for replacing the base rate In (i) above after such market rate is established (para. 3.16); (iii) annual review of the Government onlending rate (para. 3.21) and further disbursements under the project, subject to agreement between IDA and the Government in the case of changes in either the currently agreed or the future market-determined interest rate system (para. 3.21); (iv) content of the Participating Agreement between financial intermediaries and the Central Bank (para 3.09); (v) appraisal and supervision procedures to be followed by participating intermediaries (paras. 3.24 and 3.27); (vi) obligations of and terms of reference for the Small Enterprise Bureau of the Chamber of Commerce and Industry (paras. 3.29 to 3.31); (vii) content of the courses and seminars to be given by a consultant to staff of banks and the Chamber of Commerce and Industry (Annex VIb); (viii) establishment of a Special Account at the Central Bank to facilitate disbursements of the credit funds (para. 3.48); and (ix) agreement with IDA on an action program aimed at bringing the COOPECs into the formal financial system by June 30, 1990 (para. 3.29 v). - 36 - 4.03 Conditions of Board Presentation: Recruitment of the PMU director (para. 3.37) and of the SEB director (para. 3.40). These conditlons were met on January 16, 1988. 4.04 Conditions of Effectiveness: Signing of a Management Agreement, satisfactory to IDA, between the Government and the Central Bank as well as full establishment of the PMU (para. 3.36), signing of a Cooperation Agreement, satisfactory to IDA, between the Government and the Chamber of Commerce as well as full establishment of the SEB (para. 3.40) and signing of at least one participating agreement between a flnancial intermedlary and BRB (para. 3.10). 4.05 Conditions of Disbursement: Signing of the Participating Agreement between the Central Bank and financial lntermediaries is a condition of disbursement for each intermediary (para. 3.10), except for the one which signed the Agreement first (para. 4.04). 4.06 Subject to the above assurances and conditions the project constitutes a suitable basls for an IDA Credit of US$8.0 million equivalent to the Republic of Burundi. - 37 - ANNEX I PART I FORMULAIRE ACCORD DE PARTICIPATION Page 1 de 4 BURUNDI PROJET DE DEVELOPPEMENT DE PETITES ET MOYENNES ENTREPRISES ACCORD DE PARTICIPATION AU PROJET DE DEVELOPPEMENT DES PETITES ET MOYENNES ENTREPRISES Dans le cadre de l'Accord de Credit (Projet de Developpement des Petites et Moyennes Entreprises) en date du (ci-aprbs denomme l'Accord de Credit) entre l'Association Internationale de Developpement (ci-apr&s denommee l'IDA) et la Republique du Burundi (ci-apras d6nomm0ele Burundi) representee par la Banque de la Rdpublique du Burundi (ci-apr&s dCnomrJeBRB), l'IDA a mis a la disposition du Burundi une ligne de cr6dit (ciraprbs denommee Ligne de Credit IDA) destinee a promouvoir la creation, l'expansion et la modernisation de petites et moyennes entreprises. Cette Ligne de Credit sera geree par le Bureau du Projet de Developpement des Petites et Moyennes Entreprises (ci-apras d4nomm4 BPDPME) aupras de la BRB et servira a refinancer des credits a terme en francs burundais octroyes par les institutions financibres participantes en faveur de petites et moyennes entreprises destines a financer des investissements (a 1'exception des terrains, et de la construction des logements) y compris les fonds de roulement permanents. Afin de permettre l'accas de (nom de 1'IFP) en qualite d'Institution Financibre participante (ci-aprbs denommee IPP) au reescompte finance par la Ligne de Credit IDA, la BRB, representee par en qualite de , et 1'IFP representee par en qualite de , sont convenus de ce qui suit t 1. La BRB prend les engagements suivants : a) La BRB escomptera, sur presentation des piaces justificatives, tel qu'indique au paragraphe 2 (g) ci-dessous. les credits a terme accordes par l'IFP pour financer les projets des petites et moyennes entreprises qui remplissent les conditions prdvues-a cet effet dans le present Accord, dans les Normes operationnelles et procedures et dans les instructions et circulaires de la BRB adoptees pendant l'administration du programme. b) Les credits escomptes au titre du present Accord seront en dehors de tous les plafonds eventuel de credit etablis par la BRB et seront comptes pour le calcul du ratio d'emplois a moyen et long terme mobilisables. - 38- ANNEX I FORMULAIRE PART I ACCORD DE PARTICIPATION Page 2 de 4 c) Les cr4dits escompt6s au titre du present Accord ne seront soumis I aucune autre forme d'autorisation de la BRB que celle qui resulte de l'analyse faite par le Bureau du Projet. d) La BRB donnera & l'IFP l'accas aux devises necessaires pour les importations relatives aux credits escomptes selon le present Accord, sans qu'une autorisation particuliere soit necessaire. 2. L'IFP s'engage pour sa part a : a) Octroyer des credits a moyen ou long terme ayant une echeance de deux I dix ans (jusqu'& douze ans pour les projets agricoles de longue duree qui auraient ete autorises specialement par le BP) aux petites et moyennes entreprises, et ne rappeler ces credits que dans le cas ot le Beneficiaire Final (ci-aprbs denomme BF) ne respecte pas les conditions du credit. Les frais financiers comprendront seulement l'inter6t sur l'encours a l'exclusion de toutes autres commissions, frais et charges. b) Soumettre lesdites operations aux conditions stipulees dans le present Accord, dans les Normes operationnelles et procedures et dans les instructions et circulaires adoptees par la BRB pour la Ligne de Credit IDA, notamment fixer les taux applicables aux BF dont la marge maximum sur les taux indiques au paragraphe m du present article sera de quatre (4) points de pourcentage pour les pr#ts de deux a sept ans et de cinq (5) points de pourcentage pour les prfts de plus de sept ans. Une fois qutun marche de Titre d'Etat sera etabli au Burundi, les taux appliques ne seront plus soumis & aucune marge maximum. c) Designer au moins un cadre qualifie au sein du Bureau du projet, qui coordonnera les operations de l'IFP avec le BPDPME et avec les BF, et tiendra en outre un releve exact de chacune des operations effectuees et de la documentation y afferent. d) Promouvoir activement l'utilisation de la ligne de credit IDA, en particulier dans les regions. e) Donner des conseils aux BF pour la preparation des demandes de credit, conformement aux conditions requises par la BPDPME. f) Evaluer les projets d'investissement qui lui sont presentes pour s'assurer que seuls ceux qui sont viables financibrement soient approuves et ensuite presentes au BPDPME pour Atre refinances par l'intermediaire de la Ligne de Credit IDA. g) Veiller et slassurer que les fonds du credit soient utilises par les BF conformement aux conditions auxquelles ils ont ete approuves. A cette fin, la IFP procedera au decaissement des financements sur presentation des pieces justificatives par le BF. 39 - ANNEX I PART I FORMULAIRE ACCORD DE PARTICIPATION Page 3 de 4 h) Aider a l'identification des situations ou problemes qui permettent notamment de determiner les besoins d'assistan^e technique et pour les petites et moyennes entreprises et pour les IFP. i) Assumer entibrement le risque lid aux credits octroyes et escomptes par la BRB. J) Fournir au BPDPME tous les renseignements sur les operations realisees dans le cadre de la ligne de credit IDA qui seront raisonnablement demandes par BPDPME et l'IDA. k) Soumettre au BPDPME ses etats financiars annuels dfment audites par des auditeurs acceptes par l'IDA et la BRB. 1) Autoriser irrevocablement la BRB tant qu'il existe des obligations de paiement en faveur de la BRB liees A l'application du present Accord, a effectuer les ddcaissements et remboursements a son compte et a sa charge, suivant le systame de debit et de credit automatique prevu dans les Normes operationnelles et procedures. m) Payer & la BRB sur le montant du credit debourse, les taux suivants: (i) s'il n'existe pas de marche des Titres d'Etat au Burundi, un demi pourcent (Z 0,5) de moins que le taux de mobilization applique par la BRB au credit industriel I moyen terme; (ii) si un tel marche des Titres d'Etat existe, le taux d'interet payable sur les Titres d'Etat emis dont l'echeance est la plus longue. n) Rembourser & la BRB le montant du credit debourse sur la Ligne de Credit IDA selon le mAme plan d'amortissement du client applicable au credit actroye au BF, mame si l'IFP n'a pas recu en temps voulu les somes correspondantes de la part du BP. o) Regler immediatement & la BRB la valeur correspondant & tout paiement anticipe effectue par le BF a -l'IFP. p) Effectuer des visites de supervision chez les BF, etablir et tenir a jour une comptabilite et des documents de controle suffisants pour suivre l'exdcution des operations realisees et rendre compte au BPDPME de l'avancement de chaque operation realises et de la situation du credit correspondant. Les rapports de supervision, conformes aux modeles prescrits par la BRB, devront etre etablis par les IFP au moins unq fois par an, jusqu'& ce que les credits soient rembourses. 40 - ANNE I PART I FORMULAIRE ACCORD DE PARTICIPATION Page 4 de 4 3. Si l'IFP manque a l'une quelconque des obligations qui lui incombent en vertu du present Accord, la BRB pourra suspendre temporaire- ment ou definitivement la participation de l'IFP aux operations de la Ligne de Credit IDA. 4. Le BPDPME pourra, ind6pendamment ou conjointement avec l'IFP et/ou l'IDA, superviser l'exdcution et la marche des sousprojets et, 8'il constate que le beneficiaire final n'a pas utilise les fonds come convenu, l'IFP devra considerer l'obligation comme annulee et procdder au recouvrement immediat, en restituant a la BRB les somes correspondantes. Ce pouvoir devra Otre stupul6 dans l'accord qui sera conclu entre 1'IFP et le BF au moment de l'octroi du credit. 5. Au cas oti les parties decideraient d'apporter des modifications au present Accord, il en sera rendu compte par ecrit, par un Echange de lettres, ou eventuellement, il sera conclu un avenant. 6. Le prdsent Accord restera en vigueur jusqu'& ce que l'une quelconque des parties ait manifestd, expressEment ou par ecrit, sa volonte d'y mettre fin. N6anmoins, lee obligations qui ont ete contract6es avec la ERB en application du prEsent Accord resteront pleinement en vigueur jusqu'& ce qu'elles aient 6te entierement ex6cutdes. En foi de quoi les parties au present Accord, agissant par l'intermediaire de leurs representants dUment autorises & cet effet, ont fait signer le preeent Accord et, en tant que partie integrante dudit Accord, les Normes op6rationnelles et procedures, le ___, dans la ville de _ Par la Banque de la Republique Par l'nstitution Financiere du Burundi (BRB) Participante (IFP) ANNEX I - 4.1 - NORMES OPERATIONNELLES PART II Page 1 de 4 BURUNDI PROJET DE DEVELOPPEMENT DE PETITES ET MOYENNES ENTREPRISES NORMES OPERATIONNELLES ET PROCEDURES POUR L'INSTITUTION FINANCIERE PARTICIPANTE Le present document fait partie integrante de l'Accord de participation et fize les ragles generales des operations r6alisdes dans le cadre dudit iccord et du Projet de Developpement des Petites et Moyennes Entreprises. 1. DEFINITIONS GENERALES ET CRITERES D'ELIGIBILITE INSTITUTION FINANCIERE PARTICIPANTE (IFP) Ddsigne la banque ou la societe financiire dOment agrEee par la BRB qui a signe l'Accord de Participation. PETITES ET MOYENNES ENTREPRISES Aux fins du present programme, sont definies ainsi les personnes physiques et morales dont les actifs, & leur valeur commerciale actuelle, ne depassent pas l1equivalent de US$300,000 SOUSPROJET Designe un projet d'investissement qui sera mis au point par une petite ou moyenne entreprise, ou des besoins en fonds de roulements d'une petite ou moyenne entreprise, qui seront finances dans le cadre de la Ligne de CrEdit IDA. Le montant total du sousprojet ne pourra pas depaaser l'Equivalent de US$300,000. BENEFICIAIRE FINAL (BF) DEsigne une petite ou moyenne entreprise ayant un sousprojet a financer dans le cadre de la Ligne de CrEdit IDA. -42 - ANNEX I NORMES OPERATIONNELLES PAT II Page 2 de 4 CREDIT Designe le montant des fonds que 1'IFP octroie au BF et reescompte aupres de la BRB dans le cadre de la Ligne de Crddit IDA. Ce montant ne pourra pas depasser 902 de la valeur totale d'un nouveau projet ou 80Z de la valeur totale d'un projet d'extension. SECTEURS Toutes les activites de production, de transport et de services en general qui contribuent au developpement economique du Burundi sont eligibles pour financement. II. PROCEDURE A SUIVRE En ce qui concerne les demandes de cr4dit des petites et moyennes entreprises a *tre financees par la Ligne de Credit IDA, les demarches a suivre seront les suivantes 1. Le BF presentera la demande de credit a l1IFP de son choix, sous la forme etablie par cello-ci. 2. L'IFP eoaminera la demande et l'4valuera selon les techniques d'evaluation des projets g4n6ralement utilis6es et conformement aux normes et procedures etablies a cet effet. 3. Une fois que la demande sera approuvee par 1'IFP, celle-ci pr6sentera au BPDPME (a) Une fiche d'information selon le format etabli par le BPDPME si le credit est l'dquivalent de US$80,000. (b) Un rapport d'evaluation du sousprojet selon le format Etabli par la BPDPME si le credit est superieur a l'equiv'alent de US$80,000. 4. Le BPDPME verifiera l'eligibilite du sousprojet presente, et le cas Ocheant, donnera son visa dans les dElais suivants : (a) Cinq jours ouvrables pour les credits d'un montant inferieur a l'equivalent de US$80,000. (b) Dix jours ouvrables pour les credit d'un montant superieur a l'equivalent de US$80,000. ANNEX I 43 - PART II NORMES OPERATIONNELLES Page 3 de 4 Dans le cas des credits mentionnes dans l'alinea 4(b), le Bureau du Projet donnera son opinion sur la qualite du rapport d'Xvaluation du sousprojet. 5. Les trois premiers sousprojets prdsent6s par chaque IFP au BPDPME devront atre autorisEs par l'IDA. Dans ce but l'IFP soumettra au BPDPME le dossier de l'4valuation du sousprojet, qui sera aussi complet que possible. Ce dossier sera envoye par le BPDPME A l'IDA qui l'4tudiera pour approbation. 6. Une fois que le BPDPME, et le cas echeant l'IDA, auront autorised le sousprojet, l'IFP procedera aux decaisjements en faveur du BF sur presentation des piAces justificatives. A la suite 1'IFP devra presenter les effets de commerce correspondants au Credit au reescompte irrevocable de la BRB avec les pi6ces justificatives soumises par le BF dans un delai maximum de 30 jours a partir de la date de creation de chaque effet. III. SUPERVISION ET CONTROLE DES SOUSPROJETS Les IFP effectueront la supervision et le contrOle des sousprojets finances sur les ressources de la Ligne de Credit IDA et devront notamment: 1. Contr8ler l'exdcution du sousprojet jusqu'& ce qu'il soit totalement acheve, en verifiant l'apport en fonds propres que doit effectuer le beneficiaire final. 2. Verifier que les fonds sont dOment utilises et adopter les mesures qui s'imposent afin d'atteindre cet objectif. 3. Suivre la situation economique et financiere du projet pendant toute la duree du credit octroye, et plus particuliArement dans le cas ou le BF serait en retard dans ses paiements. 4. Identifier les aspects susceptibles de b6neficier d'une assistance technique dans les divers sousprojets finances et en informer le BPDPME en temps voulu afin quil puisse en tenir compte dans le cadre des programmes d'assistance technique accordes aux petites et moyennes entreprises avec la collaboration de la Chambre de Commerce et de l'Industrie. 5. Informer le BPDPME au moins une fois par an par le moyen de la Fiche de Suivie de Projet de la situation generale de chacun des sousprojets finances par l'IP et beneficiant de refinancement sous la ligne de credit IDA; en outre, presenter une evaluation generale du fonctionnement du programme une fois par an. -44 - ANNEX I NORMES OPERATIONNELLES PART II Page 4 de 4 En general, lea IFP pourront faire tous les contrOles qu'ils jugeront appropri6s, mais ceux-ci seront effectues au moins une fois dans les six mois suivants le premier d6boursement et une fois des que le projet sera en operation, pour v4rifier que lea investissements ont ete effectues comme convenus et que le projet est en fonctionnement. IV. SITUATIONS SPECIALES 1. Informer immediatement le BPDPME de toute situation qui rique serieusement d'entralner l'annulation d'un credit afin d'adoptew. de commun accord lea mesures les plus appropriees. 2. Demander l'autorisation 4crite du BPDPME avant d'introduire des modifications substantielles aux operations approuvees, comme, par exemple, la destination du credit ou la vente des actifa acquis au moyen du credit. - 45 - ANNEX II Page 1 of 5 BURUNDI SMALL ENTERPRISE APEX PROJECT APPRAISAL FORMAT RAPPORT D'EVALUATION (Pour des credits sup6rieurs I US$80.000) 1. DonnGes generales - Nou ou raison sociale du ben6ficiaire final: - SNES: - Membre CCIB: - Slage d'exploitation: R6gion: - Singe social: Region: - Cadres: Nom Position Exp6rience - D&jA en opEration? .. Oul, depuis: ... Non, a partir de: - Activlt6 principale: - Composition du capital: - Objectif du projet: 2. Situation financiare (seulement pour des entreprises existantes): - Dernier bilan disponible (prepar6 selon format a 6tablir, conforufemut au plan comptable, et exprime en valeur commerciale actualisee) - Dernier compte d'exploitatlon et resultats (m6mes conditions que pour le bilan) - Commentaire sur lea etats financiers: - 46 - AHNEX II Page 2 of 5 3. March& - Ventes passtes et privues des principaux produits pr&sents et future de l'entreprise: - Besoirs des march6s auxquels s'adresse le projet: - Estimation du volume du marche potentiel accessible: - SystAme de commercialisation et distribution: - Concurrence (volume et prix des principaux produits concurrentiels): 4. Aspects techniques - Procedure de production (description br&ve): - Capacit6 de production: nombre de par jour: nombre de jours de travail par an: - Capacite totale par an: Pr4sente Apris projet nominale utilis6e X utilisation - Quels sont les facteurs ou &l6euents critiques qui limitent la capacit6 de production: - 47 - AN=E II Page 3 of 5 S. Investisseuenta *t leur flnanceent Present 1/ (date) ProJet Total Iuvestiese.ents (nets): Terrain Bltlrents Equipesents VEhieales Autres (prEciser) Drolts de Douane Autres lup8ts Fond de roulement (net) Total Equivalent en US$ au taux de ..- Financeuast: CrEdlt ligne IDA propose Autres credlts MT (speifier) Cofinancesent de 12'IP Autres sources Fonds propres Total Present 2/ Premiare Annge | (date) ann6e noruale 6. Fond de roulement a) Actif circulant b) Passlf clrculant Fond de roulement not (a-b) 1/ MI.. date quo pour les etats financiers prEsentEs. T/ Mm.e date que pour les Etata financiers prEsentEs. - 48 - Page 4 of 5 7. DonnSes du cridit Propose a) Coviitlons: Montant Terms Diff6re Taux d'intSrft Commission b) DEboursement estI6: Dates Montant c) Tableau d'amortissement: 8. Comnpte d'exploitation et cash-flow Prlvisionuels Privislons annuelles pour toute la dur6e du projet tant pour 1'ensemble de l'entreprise que pour le projet udi vdduellemnt considdre. 9. Capacite de repaiement et prEvisions de trdsorerle PrEvislons annuelles pour tout. la duree du projet. 10. Autres resultats du prolet Emplols crEEs Valeur des uatAres prouiares Importees Valeur des matiares premidres locales Valeur des exportations 11. Taux interne de rentabllltE (TIR) - 49 - ANNEX II Page 5 of S 12. Evaluation Opinion sur l'entreprise et la gestion actuelles Opinion our la capacit4 de gErer le projet: Quels *oDt leg prinlipaux ufrites du projet: Quels soot lee principaux risques assoclis aU projet: Garantles: Assistance technlque rerue par 1l' aou le BPME de la CCIB pour la preparation du dossier (prgciser nature et source): Besols future d'asesltance technique du BF: Indiquer la/les date(s) de supervision prgvue(s) et lee ralsons du calendrier: Autres comental res: DEtail des lnvestissements Description Montant Fouraisseur Origine - so - ANNEX III Page I of 5 BURUNDI SMALL ENTERPRISE APEX PROJECT SIMPLIFIED APPRAISAL FORMAT FICHE D'INFORMATION (Pour des credits Inferieurs a l'6quivalent de US$80.000) l Donnees g4ndrales - Nom ou raison sociale du beneficiaire final: - SNEs: - Membre CCIB: - Slage d'exploitation: Region: - Siage social: Region: - Responsables:o Nam Positlon Exp6rience - D6j& en op6ration? Oui, depuis: Non, a partir de: - Activite prlncipale: - Objectif du projet: 2. Situation flnanciere (seulement pour des entreprises existantes): -.Dernier bilan disponible (prgpare selon format A etiblir, d'accord avec le plan comptable et exprimE en valeur comuerciale actualisee) - Dernier compte d'exploitation et resultats (m8mes conditions que pour le bilan) - 51 - ANNEX III Pogo 2 of 5 3. Investlsseuents et leur financement Pr(sent I/ ProiJet Total (dote) -___ Inveetieseemnts (nets): Terraln Utltents Equipewents VWhIcules Autres (priclser) Drolts de Douane Autres iup8ts Fond de roulement (net) Total Equivalent en US$ au tau de Financement: CrEdit ligne IDA propose Autres crEdits MT (specifier) Cofinancement de l'IFP Autres sources Fonds propres Total Present 1/ Prediare Ann6e (date) annee normale 4. Fond de roulement a) Actif circulant b) Passif eirculant Fond de roulement net (a-b) 1/ MC..; date que pour lee Etats financiers presentes - 52 - ANNEM III Page 3 of 5 S. Donnfes du crGdIt propou a) Conditions: Montant Terse Diffiri Taux d'lint4rt Commlision b) DSbourseuent estiuS: Dates Montant c) Tableau d'auortisseuent: 6. Co2mte d'exploItation et cash-flow prdvislonnels et capacIt4 de repa=ement 1 &re annde Anxe normale Ventes - CoOt matires preiudres - C8ut main d'oeuvre - CoOt co_rcialisation - Frais gindraux - Amortissements _ REsultat d'exploitation - Frais financiers - ImpOts REsultat net + Auortissements _ Cash Flow -53 - ANNEX III Page 4 of 5 Reubour eumt des prfts - Prat proposE - Autres prtts Excfdeut 7. Autres risultats du iroaet Buplols criEs Valeur des aatlaree premar lmporties Valeur des *atiares preulares locales Valeur des export ation S. Evaluation Opinion mar l'e1treprlse et lee responsables (aspects positifs et nigatifBy Pmrciser comeut le projet proposE ripond a mun besoin du rehE (expliquer en dBtadl): Quels *ont les prlnlpaux risques msociis at projet: Gcarantiess Assistance technique egue par l'IPP ou le BPME de la CCIB pour la prEparation du dossier (priciser nature et source): Beeolns future d'mistn et technique au btiAficiaire: -54 - ANNEX III Page 5 of 5 Indlquer la/lee date(s) de supervision prEvue(s) et lee ralsons d. co caleodrier: Autres com_ntaires: Detail des Investisseu_ ts Description Montaut Fournisseur Origine -55 - ANNEX IV Page 1 of 2 BURUNDI SMALL ENTERPRISE APEX PROJECT SUPERVISION FORMAT FICHE DE SUIVIE DE PROJET 1. Informations gin4rales - Numfro du projet: - Non ou ralson sociale du b6nefleld re final: - SNEs: - Membre CCIB: - Stage social: Rigi on: - Activit6 principale: - Objectif du projet: - Date de la dernaare visite: 2. Informations sur le credlt Originalement Selon prevues a dernlares l'Evaluation Informations Montant du cr4dit octroy4: Terne/dlffirt: ... . ..... . Ddhemr-seaent (sontant/date): ... . ..... . Montant du reflnancement IDA: ............. Date du refinaneement IDA: ............. Montant cofinancement de 1'IFP: . ............ 00000*....... Utlllsation du crEdit: - B tl* ents: n4n,... a... . .......... - Equlpements: .. ........... .................... - VEhicules: .........*.... ............ - Fonds de roulement: . . ........... 000000....... Fonds propres pourvus: 0............ .. ........... - 56 - AMI3U IV Page 2of 2 3. Inforutions our le prolet at l'utrerlse Orlginall.usnt So1lo pv6ues a dornlares I'Evaluatiom Informations Investlssemants du projet: Terrains Iltinents Equip sents V4hicules Ponds de roulseent ............. Autres (prdciser) Droits de Douans Autres Ip8ts. Operation du projet _/: Production physlque CoOt mat. premlares Import6es Coat mat. presfres locales ............. Ventes Valeur des exportations ............ Emplois criss: Sltuation de reubourseusnt du credit: Assistance technique reque par Ilentreprise: 4. Autres coim_ntaires a/ Pour ces valours prEciser la piriode utiliste (noralmnt veleurs - annuelles). - 57 - ANNEX Va Page 1 of 3 BURUNDI SMALL ENTERPRISE APEX PROJECT Draft Maxaaement Agreement for Project Management Unit B8QtIAUUBQlI...BAHAE A..LA.YI8EBIE La presente circulaire d6crit les objectifs assignes au Bureau charge d'adeinistrer la composante ligne de cr6dit du Projet de petites et sovennes entreprises (Bureau du Projet) et les principes et n6thodes qu'il appliquera pour s'acquitter de ses responsabilites au titre du Credit de d6veloppenent (IDA) pour le projet de petites et eoyennes entreprises (le Credit). A. QUEQIIE2 Le Bureau du projet a pour objectifs a) de contribuer au developpeoent Oconomique du Burundi en fournissant une aide financiere aux petites et moyennes entreprises, particuliereaent A celles qui utilisent le plus de ressources locales et qui contribuent A la creation d'emplois, a la decentralisation de l'activite 6conomique, a la realisation de recettes en devises ou au remplacesent d'importations; b) d'aider A la cr6ation, 1'expansion et la nodernisation de petites et moyennes entreprises; c) de promouvoir le renforcesent des *oyens institutionnels necessaires au developpeeent du secteur de la petite et *oyenne entreprise, notamment ceux des intermsdiaires financiers. B ( Q oANIplIQUALEMtrEL (A coepleter) - 58 - ANNEX Va Page 2 of 3 c. EBhSI£3ET"IUQD Les fonds geres par le Bureau du Projet seront utilis6s conform6eent aux conditions de !'Accord de cr6dit de developpeeent y relatif et de l'Accord de projet en vue de: (a) financer la creation, 1'expansion ou la modernisation d'entreprises privees economiquement viables, via le refinancesent de prets secondaires accordes par les inters6diaires financiers participants. L'eligibilit6 d'un intereediaire financier 3 un refinancesent est ddtermin6e conforaement 3 l'Accord de crOdit de d6veloppement relatif au Projet; (b) financer les audits des banques pour 3 ann6es A partir de 1988 (A 100l pour.la Iere annee, A 501 pour la 2eae annee et a 301 pour la troisieae ann6e). Le Bureau du projet verifiera l'eligibilite des sousprojets pr6sentes par les inters6diaires participants et en autorisera le financement au titre de la ligne de credit. Pour les prets secondaires d'un montant inferieur A l'equivalent de 80.000 dollars, il v6rifiera si les demandes r6pondent aux crit6res d'4ligibilitO et donnera son approbation dans un delai de trois jours ouvrables 3 coapter du d6p6t de la demande. Pour les prets secondaires d'un montant sup6rieur i l'4quivalent de 80.000 dollars, il Proc6dera a un examen plus detaillI, cohmuniquera ses observations sur la qualite de 1'evaluation a l'intera6diaire participant en cause et verifiera l'6ligibilit6 de la desande de refinancement dans un delai de sept jours ouvrables. Apres les avoir lui-eOme exahines et approuv6s, le Bureau du projet soumettra a l'exa,en et 3 l'approbation de l'IDA les cinq premiers sousprojets presentes par chaque interaediaire financier participant. Le Bureau du projet veillera A ce que les intermodiaires participants appliquent syst6aatiqueaent les nornes appropri6es 3 l'6valuation des sousprojets. 3. .ueermi4iQQe nitiai Le bureau du projet veliiea 'a ea cua les .n'erAi ae r artnan+* s'acquittent des obligations auxquelles ils ont souscrits au titre des accords de participation. - 59 - ANNEX Va Page 3 of 3 Le Bureau du projet veillera a ce que les intermediaires participants suivent p6riodiquesent les sousprojets conforam6ent aux dispositions des accords de participation et a ce qu'ils sousettent a bonne date les rapports de suivi prevus. I1 examinera les rapports de suivi, en tenant coapte des rapports d'evaluation initiaux, et prendra, conjointement avec I'intereediaire concerne, les aesures qu'appellent les sousprojets & problemes. 4. D6g,isseg..v,_y6rification des_ggcotes_ete tablj§sgegege Les d6caissements du Credit de l'IDA et des coeptes sp6ciaux ouverts par la Banque de la Republique du Burundi seront regis par les regles et methodes definies dans l'Accord de credit de developpenent et dans l'Annexe (3) audit Accord decrivant le fonctionnement du Coupte special. Le Bureau du projet gerera (conjointement avec le departement des operations bancaires etranger de la Banque de la Republique du Burundi) deux Couptes sp6ciaux. Le Coapte sp6cial A qui sera utilise pour les decaissements pour les sousprojets et le Compte sp6cial B qui sera utilise pour les d6caissements de la composante assistance technique. Le Bureau du projet veillera a ce que les fonds soient decaisses conme il convient, et supervisera et centralisera la collecte et l'envoi des pieces justificatives. Le Bureau du projet conservera toutes les ecritures relatives aux sousprojets et aux actions de formation et d'assistance technique financ6s, y compris les pieces justifiant les retraits des comptes speciaux. Le Bureau du projet fera verifier ses comptes, ainsi que les coeptes speciaux et les releves des depenses, chaque annee par des reviseurs ind6pendants juges acceptables par l'IDA et communiquera a 1'IDA, dans les six mois suivant la cl8ture de chaque exercice, des copies certifiees de ses comptes verifies et de la note que lui auront adressee lesdits reviseurs. Le Bureau du projet etablira chaque triaestre et chaque annee, des rapports sur l'avancement de la composante ligne de credit et en transeettra des copies a l'IDA. Lorsque le projet touchera A sa fin, le Bureau du projet etablira un rapport d'acheveoent. D. 96Q8M2E EQRI6EI La Bangue de ia nepublique du Burutu'i et 'iDA puutfrist, par &CIaiige de lettres, adender le present mandat d'un commun accord. - 60 - ANNEX Vb Page 1 of 3 BURUNDI SMALL ENTERPRISE APEX PROJECT Draft Cooperation Agreement for Chamber of Commerce La pr6sente circulaire decrit les objectifs assign6s a la cellule des PHE charg6e d'adainistrer la composante assistance technique du Projet de petites et moyennes entreprises et les principes et aethodes qu'il appliquera pour s'acquitter de ses responsabilites au titre du Credit de developpeeent accord6 par l'Association Internationale de Developpement (IDA) pour le projet de petites et *oyennes entreprises (le Credit). A. QIIEMEL La cellule des PHE h la Chambre de Commerce et de l'Industrie a pour objectifs: a) ae contribuer au d6veloppement 6conomique du Burundi en fournissant une assistance technique aux petites et sovennes entreprises, particulierement a celles qui utilisent le Plus de ressources locales et qui contribuent a la creation d'emplois, a la d6centralisation de l'activite econcoique, a la realisation de recettes en devises ou au remplacement d'importations et b) aider a la creation, l'expansion et la modernisation de petites et moyennes entreprises; La cellule des PHE sera dirig6e par un Directeur rattache & la Chambre de Commerce et de l'Industrie a Bujumbura. La cellule emploiera en outre un ou deux experts 6trangers specialises dans la promotion de la petite et moyenne entreprise et deux homologues locaux, et le personnel auxiliaire approprie. La nomination du Directeur de la cellule et, le cas 6cheant, de son succsser Sr& Caof6e V.- 1lTt~A . a,. 4 Son appnhlAti.Tn la ihrt4v dil successeur & a - Ao l - ^t .uw -- -- personnel du Bureau relbvera exclusivement du Directeur de la cellule, qui consultera l'IDA sur ses projets de recrutement. - 61 - ANNEX Vb Page 2 of 3 Les fonds re;us pour l'assistance technique par la cellule seront utilis6s conformement aux conditions de l'Accord de Cr6dit de d6veloppesent y relatif et de l'Accord de Coop*ration en vue de a) financer un programme de formation et d'assistance technique a l'intention (i) des petits et moyens entrepreneurs, et (ii) du personnel des interaediaires financiers participants pour renforcer leurs capacit6s d'evaluation et de suivi des projets; b) couvrir les frais de demarrage et d'exploitation de la cellule des PHEs y compris la r6muneration de son personnel 6tranger a 1001 et de son personnel local a 801. Toutes les depenses engag6es au titre des alineas (a) et (b) ci-dessus devront etre prealablement autorisees par l'IDA. 2. erietotim-des-sQuier9iges La cellule des PtiEs guidera les petites et aoyennes entreprises, en vue de la preparation des sousprojets devant Otre financ6s au moyen de la ligne de credit de 1'IDA. Elte guidera aussi les intereediaires financiers participants dans le choix de sousprojets 6ligibles et les aidera a se doter des aoyens necessaires pour evaluer l'impact des sousprojets sur l'environnesent. - 62 - ANNEX Vb Page 3 of 3 3. Qi a l re 4kgn des sous2roJets La cellule des PMEs aidera les petits et eoyens entrepreneurs avec la preparation des projets et des dossiers en general. En meee temps, la cellule des PHEs veillere a ce que les intermediaires participants appliquent systeeatiqueaent les norses appropri6es & l'evaluation des sousprojets. En executant ce type d'assistance, la cellule coordonnera son travail avec le Bureau du Projet i la BRB et, le cas 6ch6ant, avec le Fonds National de Garantie. 4. EuVJVJ_ V§_ jtQIgJ La cellule suivra directement les sousprojets financ6s par l'IDA en se basant sur un echantillon et/ou en se concentrant sur les cas difficiles. 5. CQu22nsa ue__siS taQe-tfQr3§IiQn La cellule des PHEs gerera cette composante du Projet pour le coapte du Gouvernesent. A cet effet, elle a la responsabilitd pour les demandes de financement au titre de cette conposante, y compris, notamment, le contenu des cours et s6minaires, le cadre de reference des activit6s de promotion et d'appui aux petites et aoyennes entreprises, la justification desdits cours et activit6s, et les qualifications des experts proposes. Les demandes approuvees par la cellule des PMEs seront sousises a I'IDA, pour examen et approbation definitive. A cet effet, la cellule des PlEs comuuniquera A l'avance & 1'IDA le programme de formation et d'assistance technique lSvant §tre financ6 au cours du trimestre & venir. -63 - ANNEX VI a Page 1 of 3 BURUNDI SMALL ENTERPRISE APEX PROJECT Draft Terms of Reference for SSE Technical Assistance A. PROMOTION DES NOUVEAUX PMEs Dans le cadre economigue 1'"elaboration d'un programe d'etudes a realiser et repondre aux demandes d'intervention adressees au CCIB; la recherche des donnees de base permettant un jugement preliminaire sur la rentabilite des projets; l'elaboration d'une documentation sur les equipements necessaires et la technologie a utiliser; la recherche des partenaires techniques et promotion des jointes- ventures avec des investisseurs locaux; observation permamente de l'evolution des prix sur le marche mondial pour lea produits industriels exportables; l'elaboration des demandes de financement pour les pronoteurs et la cooperation avec des institutions financieres. Dans le cadre techniaue assistance a lelaboration d'un programme d'tude a realiser et repondre aux demandes d'interventions adressees au CCIB danss * la recherche des donnees techniques de base permettant un jugement preliminaire sur les possibilites d'utilisation des techniques adaptees; * la recherche des offres pour des equipements et leur depouillement; * l' laboration des analyses sur les technologies proposees afin de determiner et justifier la proposition la plus adequate; * l'elaboration des proportions sur le niveau de formation des techniciens n'ecessaires i engager pour le fonctionnement des projets. - 64 - ANNEX VI a Page 2 of 3 Dans le cadre socio-4conomigue consideration, dans le cadre de la preparation dos projets, de la protection contre la pollution de lair et de l0eau; definition d'un plan de le promotion des femmes parmis les entrepreneurs potentiels. B. SERVICE DE CONSEIL POUR LES PNEs EXISTANTES diagnostic des installations techniques des unites PMEs existantes dans le but de determiner les goulots d'ltranglement dens la production; definition des programmes de restructuration des PMEs existantes et sea executions; elaboration des tableaux de bord pour les cadres techniques des petites et moyennes entreprises; assistance dans la resolution des problemes ponctuels; assistance dans la recherche des equipements adtquats en cas d'une modernisation. C. FORMATION * laboration et execution d'un programme de formation pour les cadres du Bureau PME a la Chambre dans les domaines specifiques de la promotion industrielle; elaboration et execution d'un programe de perfectionnement en gestion pour les dirigeants des petites et moyennes entreprises industrielles (cours du soir; sujets : comptabilite de base, production, evaluation du marche, etc.). - 65 - ANNEX VI a Page 3 of 3 D. ASSISTANCE POUR LES INTERVENTIONS CAS PAR CAS. Dans l. cadre technique description des produits et du programme de production; definition de la qualite du produit fini, sa standardisation et son emballage exige sur l marche local et sur le marche mondial; deternmnation de la capacite a installer et du processus de production a utiliser, avantages du processus de production propose en comparaison avec d'autres possibilites techniques, liste detaillee des equipements ainsi que consideration du choix de l'6quipement utilise; presentation du lieu d'implantation du projet et la superficie du terrain a prevoir; elaboration d'un plan pour la supervision de la construction et l'installation des equipements; evaluation de la periode de realisation du projet en tenant compte des delais pour les travaux de genie civil, l'installation des equipements et la mise en marche de l'equipement. Dans le cadre des etudes micro-economiques * determination des coiuts des investissements fixes sur base de la conception technique arrAtie; * d4finition de la production en quiyt .'t en qualite sur base des resultats de l'etude du marche et de £ _ude technique; evaluation de la disponibilite, des coats et les conditions d'acquisition de matieres premieres, de produits intermediaires, d'energie, d'eau, de pieces de rechange et de services sur base du programme de production arrAetee; * projection des couts d'entretien et de separation en relation avec la capacite utilisee; * difinition de la main d'oeuvre, leur nombre et leur qualification. - 66 - ANNEX VI b Page 1 of 2 BURUNDI SMALL ENTERPRISE APEX PROJECT Draft Terms of Reference for Bank Staff Seminar "E Evaluation financi&re et *uivi de oroiets" £UILZCL: Cadres r4sionaux dos banques commercial*9 en charte des desand*s de cr*4its d'investiose*ent. PREDIESUIIS - Oipl6-m d'ens*ignesent sug4riour (graduat ou licence) on finance, commercial ou administration - Plus do deux ann*es d'experience mrofeesionnelle. PROGRA""E DE FOR"ATION - Introduction au concept de projet - D4finition et analyse des variantes Evaluation des couts d'un projet - Analyse financi*re de projets - Distinction entre l'analyse financi*re so_asire et l'analyse financ#re* d*tasillh - Analyse financi4re som_aire - *ch*ancier do fiux financiers - analyse de l'6ch4ancier at comparaisom d'investassements * techniques qui *vitent le recoures 1'actualtsstion * techniques qui utili-nt t'actualisation. - la prise en co-pte des ri-4ues et incertitudes. - Analyse financi4re ditaill4e - tableau des amortissemente d'investisseaents - sch*ma de financement - capacit4 d'autofinancement - tableau Emplois-Ressources - olan de tr*sorerie - l'analyse * taux de rentabilit* interne du projet * taux de rentabilit* des capitaux propres. - Fiscalitt des investissements - 67 - ANNEX VI b Page 2 of 2 - Le suiva dee Projets - RapproChement r*al itation/Pr*vision - Analyse des *carts - Diagnosttc des points forts/points faibles - Evaluation des actions correctives - Contr6le des actions - Rapport du suivi. flumE Of LA PONawtIo : 10 jouwe : 6 bhurede for-ation par jour. MOMS Of SENINAIRE : Su ivants le cas 1 diterminer NOHfW Of PARTCIATSSENAIRE : 15 ersonns noxious O3JECTfFS : aa*liorer leo c@sotencoe des agents des banqueo Commercialee dons leur fonction d'*valuation financtire de projets. Ce *ont ceu cadres quis en contact permanent avec leurs clients et l'environnesent 6conomique rgsionals sont lee uieux plaeCo pour Offectu*r la prsoi*r* #vSluation. Ces doesiers pr#*valu*s sersaent acheoin*o *ventuelleuent & Kinshasa pour d4cisions finales. -68 - ANNEX VII BURUNDI SMALL ENTERPRISE APEX PROJECT Companies and emplowment in the formal SSE sector in 1986 Number of Companies Employment Metropolitan ISIC Sector Ares Provinces Total Full-time Part-time Total Agriculture 17 7 24 1,724 4,264 5,988 Mining 2 0 2 172 188 360 Manufacturing 67 6 73 5,006 541 5,547 Public Utilities 1 2 3 775 1,339 2,114 Construction 19 4 23 2,700 4,501 7,201 Comuerce 129 64 193 29172 87 2,259 Transport 29 17 46 1,859 89 1,948 Services 26 15 41 2,691 5,128 7,819 Other 46 106 152 2,860 1,591 4,451 Totals 336 221 557 19,959 17,728 37,687 Source: Cross-referencing of official statistics. - 69 - ANNEX VIII SMALL 3NT3M181 AP PROJECT rmber of Companies In Employment Range Subsector 1-10 11-25 26-50 51-100 101-250 251+ Food processing - 7 10 8 7 2 Textile d ClothisW 5 2 3 1 3 1 Wood Products - 3 i 3 1 - Paper products a 4 2 2 - Chemicals 3 7 5 4 1 - Class products 1 1 - 1 - achinehry 8 8 - 1 2 - Totals 19 32 21 29 14 3 Cuimltiv 19 51 72 92 106 109 Percentaee of total 172 472 662 84Z 972 100X Sources Mission Researcl. - 70 - ANNEX IX BURUNDI SMALL ENTERPRISE APEX PROJECT Expoenditure patterns of rural households Category of expenditure Items Percentage of Total Food Condiments and basic staple food that the household cannot grow 54.8 Farm operating expenses seeds, fertilizers, vaccines, agricultural tools and Implements, equipment rental, rental of farmland, agricultural workers' salaries, etc. 18.6 Clothing garments and shoes 8.4 Education school fees, books, uniforms, etc. 2.9 Family events dowries, births, marriages, funerals 2.7 Transport & Communication public transport, purchases of personal transport, spare parts, fuel 2.3 Housing light, fuel, construction material, etc. 2.1 Medical doctor fees, medicine, hospitalisa-, tion, traditional medicine 1.9 Household items furniture, household articles, domestic services, etc. 1.3 Leisure Radios, cassettes, tape recorders 0.3 Other taxes, fines, otherwise not specified 4.1 Source: Mission Research. Annual Demand oroiection for selected basic consumer Roods of the total market Goods Value in BuF Equivalent (million) Value in USS ('000) Food and beverages 33,085 264,680 Agricultural products and equipment 11,230 89,837 Apparel 5,071 40,571 Construction materials & domestic fuel 1,268 10,143 Motorcycles, bicycles, spare parts 1,389 11,109 Household articles and furniture 785 6,279 Radios, cassettes, tape recorders 181 1,449 Source: Mission Estimates. - 71 - ANNEX X BURUNDI SMALL ENTERPRISE APEX PROJECT BANQUE DU BURUNDI ORGANIZATION CHART | Conseil General 'IL-~~~~ I Gouverneur Vice-Gouverneur Inspection Administrateur l I Operations Importations__ Bancaires Credit Doc, Exportations Change, Visas iOperations J [ Caisser I < ~~inanciAres ||de lEa Credit Caisse Etudes 1 1 Eission Inforatique_ Personnel Comptabilite Intendance -72- mIRUNDI SMALL ENTEtRIMS AM PROCT LIST AND CHARACIERISTICS OF FINANCIAL I SITUTIONS Avg. Avg. Year of Total Loan Avt ago No. of No. of Cration Atsst .l/ Portfoio LJI Dau 11 EiLevaa Braneba BANCOBU 4,684 3,234 3,721 180 7 BCB 1964 5.851 3.683 4,65W 182 5 BBAB 2,124 1.737 1,516 63 1 BNDE 1967 3,909 2,916 na. 49 1 SBF 1981 1,884 1,514 n.a. 21 1 CADEBU 2/ 1964 3,571 1,694 2,937 179 11 CAMOFI 1977 4,559 3,480 4,635 16 1 1/ Average between end 1986 and and 1986 in FSu million. 2.1 As of Decombor 1986. - 73 - ANNEX XII Page i of 2 BURUNDI SMALL ENTERPRISE APEX PROJECT Interest Rate Structure -as of Hay 1, 1987- (in percent p.a.) A: Debit (rates indicated are maximum rates) TAUX D'INTERET DEBITEURS awAXItIA, TOUTES COMMISSIONS COMPRISES, DES BA4QUES ET AUTRES IUSTITUTIO'.S ?ISlA2CIZRES (en p.c.,par an) 4 IlDBILI - tzBILI- 'DX DE Mo I- CREXITS A COKUX EME SABLES SABLIS LISATIOJ 1. CRE3ITS D'I.!CRTATIOL4 - Biens W4quipeents 11 9 7,5 agricole, industriel et artisanal et matidres premi#ws - Autres 13 11 9,5 2. CRDITS A L'EXiORCATICti - 6 5 3. CRWITSDE [TESolERIE - Production agricole, 10 8 6,5 industrielle et artisanale - Autres 13 11 9,5 CusIT A WYMA TI32 - Investissement agrooole, 13 10 7,5 industriel et artisanal - Construction de logement 14 11 8,5 Autres 15 12 9,5 CREDIT A IfrxG TE4E - Investissement agricole inzustriel et artisanal et construction de logements 15 12 8,5 - Autres lo 13 9,5 - 74 - ANNEX XII Page 2 of 2 B: Credit (deposit rates indicated are minimum rates) TAUX DIINTERET CREDITEURS $INIrtA DES BANQUES ET AUTRSS IiSTrITUTIOkIS FIN4ANCIEP'ES (en p.c., par an) DEPOUL'S A VUE Depots a partir de 100.000 F 2 CQIPTES SUR CARNETS 7 DEPOTS A TERME, BO.S DE CAISSE ST AUT'JES IASTRUMENiTS D'EPARGiI kioins o'un mois entre 2 et 3 1 mois 3 3 mois 4 6 mois 5 12 mois 7 Plus de 12 mois Plus de 7 COtPTES A PREAVIS: Taux des d6pots a terme correspondants major6s de 0,25 point. La r6mun6ration des termes interm6diaires se fera par r6f6rence au taux du terme ditectement inf6rieur. * * * - 75 - ANNEX XIII BURUNDI SMALL ENTERPRISE APEX PROJECT BRUNDI: DISTRIBUTION OF CREDIT TO THE ECONOMY BY TERM STRUCTURE, 1981-86 (In Millons of Burundi Frances) ITEM .191 1m 1983 1964 1985 Short-trn e356 7418 a89 0173 9370 of which: Trade 763 s 634 5516 647 692 (cofee export) 4724 8126 3o98 861 4543 Agricloture 11e 134 111 207 24 Industry 640 60? 719 708 160 Medliu-tern 1670 2617 2233 21#1 2S19 of which: Industry 538 503 604 651 716 Civil ngineering 424 642 763 679 S28 Transport and transit 131 61 94 43 53 Trade 26 226 240 256 279 Agriculture 21 132 126 127 11? Long-term 1905 2716 3364 3459 3625 of whIch: Civil egineering 1JJ6 1941 2294 2378 2664 Other servIces 319 284 294 256 279 Trade 0.3 0.6 0.3 12 63 Agriculture 56 e1 94 1n -21 Total 11360 1 m 1 13696 13767 lllI of which: Rediscounted credit a394 2518 1219 073 8 (in percent) 26.6 20.6 3.9 4.9 0.1 ALLOCATION OF CREDIT TO PUBLIC ENTERPRISES Short-term 4111 4655 4266 5204 of which: Export -- 3255 3975 3641 4574 Import -- 217 69 53 137 For liquidity purposes -- 640 592 566 493 On Government procurmnt, -- -- -- -- -- Long- and meium-term -- 2976 1941 1934 1969 Total - 6187 6597 6195 71?3 Souvre: Dots provided by Burundian Author;tios. ANNEX XIV BURUrNDI SMALL 'ENTERPRISE APEX PROJECT SUffltY BALANCE SHEET OF CO (Fbu Million) 12/84 12/8S 12/86 5/87 ASSETS Cash, Reserves 595 2,075 463 1.400 External Assets 801 587 1,204 1,588 Credit to fin. instituts. 863 68e 224 558 Credit to the 6ovrt. 316 779 775 780 Credit to public instituts 2,552 3,SS? 3,789 2,288 Credit to private sector 4,559 4,792 5,986 6,776 Other assets 431 473 472 486 TOTAL ASSETS 10,117 17,888 12,913 13,876 LIABILITIES Demand deposits 5,898 7,914 8,628 7,459 Time deposits 2,227 2,432 881 2,325 External Borrowings 984 983 1,391 1.750 Other liabilities 787 391 926 1,115 Equity 1,021 1,168 1,195 1,227 TOTAL LIABILITIES 10,117 12,888 12,913 13,876 Sourco: BRB - 77 - ANNEX XVa BURUNDI SMALL ENTERPRISE APEX PROJECT SUMKARY BALANCE SHEET OF BNDE AT END 1986 (BuP million) Assets Cash and Deposits with BRB and CCP 906.4 Financial Institutions 33.3 Claims on the Economy 3,081.3 Coffee Financing 463.3 Other Short-Term 397.1 Medium-Term 1,687.4 Long-Tenm 533.5 Fixed Assets and Participations 148.3 Miscellaneous 443.4 Assets - Liabilities 4,612.7 Liabilities Short-Term Liabilities 2,042.1 Medium- and Long-Term Liabilities 1,417.7 Capital Funds 770.5 Net Profits 50.6 jMNiscellaneous 331.8 Source: BNDE - 78 - ANNEX XVb BURUNDI SMALL ENTERPRISE APEX PROJECT SUMMARY BAWANCE SHEET OF SBF AT END 1986 (BuF Million) Assets Cash and Banks 19.4 Other Financial Institutions 50.0 Claims on the Economy 1,669.0 Short-Term 915.4 Medium-Term 628.6 Long-Term 125.0 Participations 269.2 Fixed Assets 10.8 Miscellaneous 35.7 Assets - Liabilities 2,054.1 Liabilities Financial Institution 25.6 Economic Sector 1+240.2 Short-Term 851.0 Medium-Term 289.2 Long-Term 100.0 Capital and Reserves Funds 662.2 Net Profits 42.9 Miscellaneous 83.2 Source: SBF - 79 - ANNEX XVI BURUNDI SMALL ENTERPRISE APEX PROJECT DISTRIBUTION OF DEPOSITS BY CATEQORY OF DEPOSITORS (End of period, FBu million) 1981 1982 1983 1984 1985 1986 SIGHT DEPOSITS Individuals 1,602 1,577 1,936 2,062 2,627 3,606 Private Companies 1,712 1,725 2,120 1,776 2,351 2,127 Public Institutions 1,412 1,066 1,873 2,884 5,552 6,336 Other 325 586 399 291 309 259 TOTAL 5,051 4,954 6,328 7,013 10,839 12,328 TIME AND SAVINGS DEPOSITS Individuals 1,482 1,516 2,077 2,392 2,263 2,645 Private Companies 137 132 575 698 547 463 Public Institutions 1,550 2,191 2,816 2,258 2,801 1,295 Other 198 31 132 94 119 34 TOTAL 3,367 3,870 5,600 5,442 5,730 4,437 TOTAL DEPOSITS 8,418 8,824 11,928 12,455 16,569 16,765 Source: BRB -80 - t ~~~~~~~~~~~~~~~AN1NEX XVII BURUNDI SMALL ENTERPRISE APEX PROJECT DISTRIBUTION OF CREDIT BY SECTOR AND TERM (BuF Billion) 1984 1985 Short Medium Long Short Medium Long Term Term Term Total Term Term Term Total Agriculture 0.2 0.1 0.1 0.4 0.2 0.1 0.1 0.5 Industry 0.8 0.6 0.6 2.0 1.1 0.7 0.6 2.4 Construction, Public Works 0.6 0.7 2.4 3.7 0.5 0.7 2.5 3.7 Transportation and Transit 0.1 0.0 0.0 0.2 0.2 0.1 0.0 0.3 Miscellaneous Services 0.1 0.1 0.3 0.4 0.1 0.0 0.3 0.4 Trade 5.5 0.2 0.0 5.7 6.1 0.3 0.1 6.5 Cthers 0.9 0.3 0.1 1.3 1.2 0.3 0.0 1.5 8.2 2.0 3.5 13.7 9.4 2.2 3.6 15.3 Source: BRB Note: Figures may not add up because of rounding. - 81 - ANNEX XVIII Page 1 of 2 BURUNDI SMALL ENTERPRISE APEX PROJECT Savinas and Credit Cooperatives (COOPEC) In 1984 an agreement was signed between the Ministry of Rural Development and the Credit Mutuel (CICM) of France on technical and financial assistance in the creation of a network of savings and credit cooperatives (COOPEC) in the rural districts of Burundi. The objectives of the project was to raise living standards in the rural areas where 95X of the population live through encouraging savings and developing mutual credit systems. According to the agreement, French assistance would provide FF 4.9 million of which 501 was for investment and 501 covering initial operating expenses. The Burundi Government contributed FBu 6 millions. The original agreement was for an initial trial period of 30 months but this has since been extended to 3 years. COOPEC (Cooperatives d'Epargne et de Credit) started functioning in June 1984 with the arrival of a French expert from the French Credit Mutuel with headquarters in the provincial town of Gitenga and a network of autonomous cooperatives. Each COOPEC - cooperative - takes in savings from members as deposits on which interest is paid and offers credits to members. The membership fee for an individual is FBu (approx. $4). An individual COOPEC is able to lend up to 301 of its deposits and the COOPEC central office up to 50% of total deposits. After 6 months of savings each member may borrow up to 5 times the amount of his/her deposits. Members act as guarantors for each other's credit. The maximum of a credit to an individual by a COOPEC is FBu 50,000 (approx. $400). The Central Office are permitted to make loAns to a maximum of FBu 500,000 ($4,000). Loans are generally made for 36 months at interest rates of between 11 and 141 depending on the type of loan. The rate for agricultural loans is 11 and 141 for trade. In general it takes about 1 month for a member to obtain a loan. The growth of the COOPEC's has been impressive. One reason has been that members may save with COOPEC in place of the compulsory savings required with CADEBU (Caisse d'Epargne de Burundi - the state owned savings bank). Individual COOPEC's are required to deposit funds in excess of FBu 200,000 with the Central Office on which they are paid 3.51. Individual members receive 31 on their COOPEC savings. The Central Office now deposits all its fund with CAMOFI (Caisse Centrale de Mobilisation et de Financement, - a savings and financing institution for the public sector) for fixed terms of 24 months at 81. - 82 - ANNEX XVIII Page 2 of 2 Recent figures on COOPEC's growth are given below: Date Total In FBu No of End of No. of COOPEC's Members Capital Deposits Credit Credits Dec. 1986 20 23514 13576000 56162529 7553500 152 Hay 1987 31 33361 18606500 69675702 15861245 485 As can be seen from the above figures while still relatively small in volume, the savings deposits and the credits given out are increasing at a fast rate. However the COOPEC organisation both at the headquarters and at cooperative level remains liquid and still have adequate resources for lending before reaching the limits set by the operating regulations. Most credits are for consumption and are small - around Fnu 30,000-40,000 average (approx. $220-300) but some loans up to a maximum of Fnu 150,000 ($1,200) have been given for income generating activities to farmers and artisans. The COOPEC Central Office operates services to assist individual COOPEC's in the management of their finances. It also offers training and advisory services for members and has a unit that inspects and audits the operations of each COOPEC. So far, the COOPEC's have not been accredited by BRB as recognised financial institutions but they already represent a significant extension of the financial system into areas and communities where the formal banking institutions do not op*rate. ANNEX XIY BURUNDI SMALL ENTERPRISE APEX PROJECT Schedule of Disbursements IDA Fiscal Year Credit T.A. Cumulative and Quarter EndinR Component Component Total X --------- US$ '000------------ FY 88 June 30, 1988 10 -- 10 -- FY89 September 30, 1988 50 50 100 1.3 December 31, 1988 150 100 250 3.1 March 31, 1989 200 200 400 5.0 June 30, 1989 500 200 700 8.8 FY90 September 30, 1989 700 250 950 11.9 December 31, 1989 950 300 1,250 15.6 March 31, 1990 1,220 350 1,570 19.6 June 30, 1991 1,370 400 1,770 22.1 FY91 September 30, 1990 1,820 450 2,270 28.4 December 31, 1990 2,350 500 2,850 35.6 March 31, 1991 2,720 550 3,270 40.9 June 30, 1991 3,010 600 3,610 45.1 FY92 September 30, 1991 3,420 650 4,070 50.9 December 31, 1991 3,790 700 4,490 56.1 March 31, 1992 4,500 750 5,250 65.6 June 30, 1992 5,200 800 6,000 75.0 FY93 September 30, 1992 5,950 800 6,750 84.4 December 31, 1992 6,230 800 7,030 87.9 March 31, 1993 6,470 800 7,270 90.9 June 30, 1993 6,790 800 7,590 94.9 FY94 September 30, 1993 7,000 800 7,800 97.5 December 31, 1993 7,050 800 7,850 98.1 March 31, 1994 7,120 800 7,920 99.0 June 30, 1994 7,200 800 8,000 100.0