The World Bank Report No: ISR10233 Implementation Status & Results Tanzania Financial Sector Support Project (P099231) Public Disclosure Copy Operation Name: Financial Sector Support Project (P099231) Project Stage: Implementation Seq.No: 13 Status: ARCHIVED Archive Date: 28-Jun-2013 Country: Tanzania Approval FY: 2006 Product Line: IBRD/IDA Region: AFRICA Lending Instrument: Specific Investment Loan Implementing Agency(ies): Key Dates Board Approval Date 15-Jun-2006 Original Closing Date 31-Jul-2011 Planned Mid Term Review Date Last Archived ISR Date 26-Dec-2012 Effectiveness Date 28-Nov-2006 Revised Closing Date 30-Jun-2013 Actual Mid Term Review Date 01-Dec-2009 Project Development Objectives Project Development Objective (from Project Appraisal Document) The Project Development Objective is to promote increased household and firm access to financial services, facilitate efficient financial intermediation, and support financial stability and integrity. Has the Project Development Objective been changed since Board Approval of the Project? Yes No Component(s) Component Name Component Cost Strengthening the Banking Sector 6.90 Developing Financial Markets 2.60 Reforming the Pension Sector 3.50 Strengthening the Insurance Industry 0.90 Provision of Long Term Development Finance 2.70 Strengthening Micro and Rural Finance 1.60 Public Disclosure Copy Overall Ratings Previous Rating Current Rating Progress towards achievement of PDO Moderately Satisfactory Moderately Satisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Overall Risk Rating Implementation Status Overview This is the last ISR being filed for the Tanzania Financial Sector Support Project (FSP) that will close on June 30th, 2013. The FSP is a basket fund comprising of a USD 5 million Page 1 of 7 The World Bank Report No: ISR10233 DfID grant, a USD 15 million IDA credit and a USD 2 million in-kind contribution from the Government of Tanzania (GoT). The Project was approved on June 15, 2006 and the financing agreement was signed on August 30, 2006. The Project became effective on November 28, 2006. In June 2011 the Project closing date was extended by 18 months to January 31st, 2013. The main reason for this extension was to allow the GoT to follow-up on the recommendations arising from the Financial Sector Assessment of Tanzania carried out in late 2010. The pace of project implementation, which had been a major problem with the Project till then, picked up subsequently and at the request of the Government of Public Disclosure Copy Tanzania the closing date for the Financial Sector Support Project (FSP) was extended in December 2012, by an additional five months from Jan 31st 2013 to June 30th 2013. The rationale for the extension is to ensure smooth completion of some on-going contracts which are a follow-up on activities previously concluded under the same project. During this phase contracts are being wound down within a timeframe such that all stakeholders have a chance to review the final products. RELEVANCE: The FSP provides support to the Second Generation Financial Sector Reforms (SGFSR) being implemented by the GoT. The roadmap for SGFSR identifies ten key priority areas, namely, Legal and Judicial Reform; Monetary Policy Reform; Banking Sector Reform; Financial Markets; Pensions; Insurance; Long Term Development Finance; Micro and Rural Finance; Land; and Employment. Six out of the ten components are covered under the FSP. These include; i. Strengthening the Banking Sector; ii. Developing Financial Markets; iii. Reforming the Pension Sector; iv.Strengthening the Insurance Industry; v. Facilitating the Provision of Long Term Development Finance; and vi.Strengthening Micro and Rural Finance. EFFICACY: The impact of the activities carried out under the FSP was constrained by the uneven pace of project implementation. It is worth noting that even in the early phase of project implementation the client expressed a high degree of satisfaction with the quality of support being delivered via the Project. Nevertheless, a vast majority of the planned activities under the project have been carried out in the last year and a half of the Project's life. There are many reasons for this delay in the project implementation. The main reason is that several of the planned activities were contingent on a baseline of institutional reforms taking place in Tanzania. Delays in these institutional reforms deferred the activities that were contingent on them. Some of the activities concluded earlier in the project are also now beginning to show onward impact. For instance, building on the support provided by FSP to drafting the regulations and software and hardware purchases related to a credit reference databank, the Bank of Tanzania recently licensed 2 private bureaus and a third application is under consideration. In light of the sustained uptick in the pace of project implementation the rating for overall implementation progress (IP) for this project is moderately satisfactory. The rating for the progress towards achievement of the PDO is also retained at moderately satisfactory. As the results framework indicates, progress on some of the PDO indicators has been somewhat uneven. Specifically: PDO Indicator 1, Credit to the private sector: From a baseline figure of 9.8 percent of GDP the figure has gone up to 19.2 percent. It is worth noting that in September last year this indicator was actually a little above the closing target of 24 percent, having grown steadily during the life of the project from the baseline of 9.8 percent in June 2006 . Thus the slide in the reported closing number could well reflect a temporary macroeconomic fluctuations, whereas the long-term trend reflects the gains from the reforms carried out during the project. Public Disclosure Copy PDO Indicator 3, Adult population with access to formal/semi-formal finance: In the case of the access indicators it could also be that the data are stale and do not reflect the current situation. The reported values rely on the data from the FinScope Surveys. The last such survey was carried out in 2009 and is not likely to take into account subsequent developments especially o the mobile money front. Financial Sector Deepening Trust which carried out these surveys plans to put out an update later this calendar year. Other proxy indicators (number of SACCO members, mobile money users) indicate that there have been gains in access to finance but for historical comparability purposes the FinScope data are best. PDO Indicator 4, Compliance with capital adequacy ratios. The trends in the reported ratios could be attributed, in some part, to improved monitoring by the regulator. This is especially true for insurance companies where the regulator has enhanced the supervision of insurance companies as compared to when the baseline numbers were set. It could also well be that give the delays in project implementation in the early life of the project some of the impact of t he efforts undertaken will only be felt with a lag. Thus, the MS rating maybe an accurate reading of the indicators as they are now but could well be an understatement of the medium-term impact of the project. A post-closure impact assessment Page 2 of 7 The World Bank Report No: ISR10233 might be warranted by these circumstances. PROJECT-END DISBURSEMENT RATE: Subsequent to the second extension of the closing date the client requested a a withdrawal of the almost USD 3 million which has since Public Disclosure Copy been processed. The implementing agency has indicated that they are a committed to the full amount of the remaining IDA funds on existing contracts, and will be utilizing these funds a 100 percent via withdrawal applications or direct payments by the disbursement deadline of October 30, 2013 (4 months after the project closing date). As of March 31st this year actual expenditures under the various components of the totaled USD 18.8 million (this includes the in-kind Government contribution and equals 85 percent of the basket fund) with additional commitments totaling USD 3.6 million, so that the expenditures (disbursed and committed) at closing are projected at USD 22.4 million. Since the total project basket fund is comprised of USD 5 million DfID grant, a USD 15 million IDA credit, and a USD 2 million in-kind contribution from the Government, at this point there is a small projected overrun of USD 400,000. The extension of the project closing date and the sustained pace of project implementation has ensured that project beneficiaries have been able to avail of technical assistance on several important fronts. The list of on-going activities currently include: (a)Drafting a new law to govern deposit insurance operations in Tanzania (b) IFRS training for Bank examiners, finance and internal audit staff. (c)Studies relating to setting up a commodity exchange in Tanzania (d)Developing a five-year strategic plan for the CMSA (e) Public education and awareness program for the pensions regulator (f)Purchase of risk-based supervision software for the insurance regulator FINANCIAL MANGEMENT: The Financial Management rate remains satisfactory based on the fact that there are sound financial management arrangements which include adequate and skilled staff handling the project. The Project audit report for the period ending June 2012 was un-qualified (clean) opinion and was submitted to the WB on time. IFRs are submitted on time. In addition, there has been an increase of disbursement rate (from 78.355 to 95.46%). PROCUREMENT MANAGEMENT: The processing of procurement activities such as preparation and approval of Terms of Reference (TORs) for consultancy services and specifications for goods/ equipment has continued to improve . The improvement is due closer to close follow up by the Project Coordination Committee (PCC), respective components leaders, and BOT’s Procurement Management Unit (PMU) without waiting for formal meetings. The overall conclusion is that progress in procurement management remained moderately satisfactory. Locations No Location data has been entered Results Public Disclosure Copy Project Development Objective Indicators Indicator Name Core Unit of Measure Baseline Current End Target Credit extended to the private sector as a Text Value 9.8% 19.29 24.00% percentage of GDP Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Page 3 of 7 The World Bank Report No: ISR10233 Interest rate spread (lending versus deposit Text Value 12.80% 3.57 7.00% rates) Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Public Disclosure Copy Proportion of adult population that uses Text Value 11.00% 16.7 22.00% financial services provided by formal and semi Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 formal financial service providers Comments Using data from the 2009 Finscope Survey Proportion of financial institutions in Text Value Banks: 56.25% Insurance Banks 86% Banks: 100% Insurance compliance with capital adequacy ratios (banks companies: 85.00% Insurance: 54% companies: 100% and insurance companies) Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Intermediate Results Indicators Indicator Name Core Unit of Measure Baseline Current End Target Portion of non-performing loans Text Value 5.89% 7.92 5.10% Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Number of Basel I Core Principles with which Text Value 15 21 25 the BOT is compliant Date 30-Aug-2006 31-Mar-2013 30-Jun-2013 Comments 4 –Full Compliant; 17 – Largely Compliant and 4 – Materially non Compliant Credit Information Index Text Value 0 1 1 Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Annual turnover at the Dar es Salaam Stock Text Value 2.49% 2 7.50% Exchange in relation to total market Date 31-Dec-2006 31-Mar-2013 30-Jun-2013 capitalization Public Disclosure Copy Comments Percentage of market capitalization of Text Value 5.53% 11 50% government securities traded on the secondary Date 31-Dec-2006 31-Mar-2013 30-Jun-2013 market Comments Total value of the stock of corporate bonds Text Value Tsh 72.1 b Tsh 76.6b Tsh 100 b Date 31-Dec-2006 31-Mar-2013 30-Jun-2013 Comments Page 4 of 7 The World Bank Report No: ISR10233 Number of institutions that are actuarially Text Value 0 6 5 sound Date 30-Jun-2005 31-Mar-2013 30-Jun-2013 Comments GEPF, NSSF, LAPF, PPF, Public Disclosure Copy PSPF,NHIF Operational costs in relation to total Text Value 13.42% 11.9 7.50% contribution Date 30-Jun-2005 31-Mar-2013 30-Jun-2013 Comments Average in 5 pension schemes Number of members of pension funds Text Value 254,121 1,130,600 1,000,000 Date 31-Dec-2006 31-Mar-2013 30-Jun-2013 Comments Insurance penetration / annual premium Text Value 0.78% 1.1 1.50% income in relation to GDP % Date 31-Dec-2006 31-Mar-2013 30-Jun-2013 Comments Number of insurance policies (excluding motor- Text Value 141,488 234,622 227,500 vehicles) Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Medium-term loans (2-5 years) in relation to Text Value 16.30% 30 40% the lending portfolio (value) of commercial Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 banks Comments Long-term loans (5+ years) in relation to the Text Value 5.19% 7.17 5.0% lending portfolio (value) of commercial banks Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Volume of mortgage lending in relation to Text Value 0% 9.86 3.5% lending portfolio of financers Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Number of savings accounts in financial Text Value 1,589,585 3,399,180 3,520,850 Public Disclosure Copy institutions supervised by BOT Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Number of SACCO members Text Value 734,027 1,750,000 1,500,000 Date 30-Jun-2006 31-Mar-2013 30-Jun-2013 Comments Number of licensed MFCs and FICOs Text Value 0 2 2 Page 5 of 7 The World Bank Report No: ISR10233 Date 30-Jun-2006 31-Mar-2013 29-Jun-2013 Comments Public Disclosure Copy Data on Financial Performance (as of 07-Jun-2013) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P099231 IDA-41910 Effective 15-Jun-2006 30-Aug-2006 28-Nov-2006 31-Jul-2011 30-Jun-2013 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P099231 IDA-41910 Effective XDR 10.30 10.30 0.00 9.83 0.47 95.00 Disbursement Graph Public Disclosure Copy Key Decisions Regarding Implementation This is the last ISR for the project, closing on June 30th 2013. The ICR for this project will be prepared and finalized within six months of the closing date. Restructuring History Level two Approved on 25-Jul-2011, Level two Approved on 25-Jan-2013 Page 6 of 7 The World Bank Report No: ISR10233 Related Projects There are no related projects. Public Disclosure Copy Public Disclosure Copy Page 7 of 7