OFFICIAL DOCUMENTS CREDIT NUMBER 6182-CV Financing Agreement (Access to Finance for Micro, Small and Medium-Sized Enterprises Project) between REPUBLIC OF CABO VERDE and INTERNATIONAL DEVELOPMENT ASSOCIATION CREDIT NUMBER 6182-CV FINANCING AGREEMENT AGREEMENT dated as of the Signature Date between REPUBLIC OF CABO VERDE ("Recipient") and INTERNATIONAL DEVELOPMENT ASSOCIATION ("Association"). The Recipient and the Association hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) apply to and form part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II - FINANCING 2.01. The Association agrees to extend to the Recipient a credit, deemed by the Association to be on concessional terms, as set forth or referred to in this Agreement, in an amount equivalent to ten million six hundred thousand Special Drawing Rights (SDR 10,600,000) (variously, "Credit" and "Financing"), to assist in financing the project described in Schedule I to this Agreement ("Project"). 2.02. The Recipient may withdraw the proceeds of the Financing in accordance with Section III of Schedule 2 to this Agreement. 2.03. The Maximum Commitment Charge Rate is one-half of one percent (1/2 of 1%) per annum on the Unwithdrawn Financing Balance. 2.04. The Service Charge is three-fourths of one percent (3/4 of 1%) per annum on the Withdrawn Credit Balance. 2.05. The Payment Dates are January 15 and July 15 in each year. 2.06. The principal amount of the Credit shall be repaid in accordance with the repayment schedule set forth in Schedule 3 to this Agreement. 2.07. The Payment Currency is Dollar. -2- ARTICLE III - PROJECT 3.01. The Recipient declares its commitment to the objective of the Project. To this end, the Recipient shall carry out the Project, through its Ministry of Finance, in accordance with the provisions of Article V of the General Conditions and Schedule 2 to this Agreement. ARTICLE IV - REMEDIES OF THE ASSOCIATION 4.01. The Additional Events of Suspension consists of the following: (a) any action has been taken for the dissolution, disestablishment or suspension of operation (including cancellation of license to operate as a Financial Institution) of the PCG Fund; and, (b) termination of the independent Fund Manager appointment without prior consultation with the Association. 4.02. The Additional Events of Acceleration consist of the following: (a) The event specified in paragraph (b) of Section 4.01 of this Agreement occurs and is continuing for a period of sixty (60) days after notice of the event has been given by the Association to the Recipient. (b) The event specified in paragraph (a) of Section 4.01 of this Agreement occurs. ARTICLE V - EFFECTIVENESS; TERMINATION 5.01. The Additional Condition of Effectiveness consists of the following, namely the adoption by the Recipient of a Project Implementation Manual in form and substance satisfactory to the Association. 5.02. The Effectiveness Deadline is the date ninety (90) days after the Signature Date. 5.03. For purposes of Section 10.05(b) of the General Conditions, the date on which the obligations of the Recipient under this Agreement (other than those providing for payment obligations) shall terminate is twenty (20) years after the Signature Date. -3- ARTICLE VI- REPRESENTATIVE; ADDRESSES 6.01. The Recipient's Representative is its minister responsible for finance. 6.02. For purposes of Section 11.01 of the General Conditions: (a) the Recipient's address is: Minister of Finance Ministry of Finance Avenida Amilcar Cabral C.P. 30, Praia Cabo Verde; and (b) the Recipient's Electronic Address is: Telex: Facsimile: E-mail: 608 MCECV (238) 61 38 97 Carla.Cruz@mf.gov.cv 6.03. For purposes of Section 11.01 of the General Conditions: (a) the Association's address is: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America; and (b) the Association's Electronic Address is: Telex: Facsimile: 248423 (MCI) 1-202-477-6391 -4- AGREED as of the Signature Date. REPUBLIC OF CABO VERDE By Authorized Representative Name: MODO PDn%k-A Title:A1) ½(1 IO t 4 4 Date: 9=ci t INTERNATIONAL DEVELOPMENT ASSOCIATION By uthorized Representative Name: Z c C v Title: pp Date: 07\c A / -5- SCHEDULE 1 Project Description The objective of the Project is to increase access to finance to MSMEs. The Project consists of the following parts: Part A: Partial Credit Guarantee Fund to Enhance MSME Finance Support the establishment and operationalization of a partial credit guarantee fund (PCG Fund) in line with the Principles for Public Credit Guarantee Schemes through, inter alia: (i) the development of PCG business plan, investment policy, financial model and operational guidelines; (ii) the undertaking of PCG Fund- related outreach and communication activities targeting PFIs and MSMEs; (iii) the provision of training to PFIs on accessing the PCG Fund; (iv) the capitalization of the PCG Fund and operationalization of the PCG Fund by providing partial credit guarantees to selected PFIs in respect of credits that said PFIs extend to selected MSMEs. Part B: Technical Assistance to MSMEs Provision of support to MSMEs for generating and sharing business and financial information with financial institutions in the context of their loan applications, including through, inter alia, the provision of accounting and auditing services to MSMEs and support in the preparation of business plans, financial statements, loan applications and feasibility studies for new ventures. Part C:Improve Credit Information Systems Improve credit information systems and oversight of credit reporting systems, in line with the General Principles for Credit Reporting, including through, inter alia: (i) an assessment of existing gaps and possible improvements to the Bank of Cabo Verde's Credit Registry; (ii) provision of hardware and software; (iii) the improvement of reporting templates and reporting requirements on outstanding loans of MSMEs owed to commercial banks and microfinance institutions; and (iv) the design and implementation of an electronic database for collection and processing of economic and financial data of non-financial corporations (Central de Balancos). -6- Part D Project Implementation Support Provision of support for Project implementation, including for, inter alia, coordination, procurement, financial management, and monitoring and evaluation activities and financing of Incremental Operating Costs. -7- SCHEDULE 2 Project Execution Section I. Implementation Arrangements A. Institutional Arrangements Unidade de Gestilo de Projetos Especiais (UGPE) 1. The Recipient shall maintain, throughout Project implementation, the UGPE within the Ministry of Finance, composed of key staff, with qualifications and under terms of reference acceptable to the Association, including one accountant, one procurement officer, one financial management specialist and any other specialists as may have been agreed with the Association, as further detailed in the PIM. The UGPE shall be responsible for overall Project implementation, including, inter alia, ensuring coordination with key stakeholders, managing the Project's fiduciary and safeguard aspects, and monitoring and evaluation of Project implementation, as further detailed in the PIM. Project Steering Committee (PSC) 2. The Recipient shall establish, and thereafter maintain, throughout Project implementation, the PSC, which shall be headed by high level representatives of the Ministry of Finance and shall also include, inter alia, high level representatives of the Ministry of Economy and Employment and BCV, as further detailed in the PIM. The PSC shall be responsible for coordinating and providing overall strategic guidance for Project implementation. Independent External Auditor 3. The Recipient shall, not later than three (3) months from the Effective Date, appoint an independent external auditor, with qualifications, experience and under terms of reference acceptable to the Association. Fund Manager 4. The Recipient shall select and appoint an independent Fund Manager, with qualifications and experience and with terms of reference satisfactory to the Association, and in accordance with the Procurement Regulations. PCG Fund 5. The Recipient shall ensure that the PCG Fund, established in accordance with the provisions in Section III.B. 1(c) of this Schedule, is maintained, throughout Project -8- implementation, with a structure, functions, responsibilities, and staffing acceptable to the Association, and in accordance with the Financial Sector Laws. B. Project Implementation Manual (PIM) 1 . The Recipient shall: (a) prepare and furnish to the Association for review, a PIM setting out detailed guidelines, methods and procedures for the implementation of the Project, including: (i) administration and coordination; (ii) budget and budgetary control; (iii) disbursement procedures and banking arrangements; (iv) financial, procurement and accounting procedures; (v) internal control procedures; (vi) accounting system and transaction records; (vii) reporting requirements; (viii) audit arrangements; (ix) corruption and fraud mitigation measures; (x) and such other arrangements and procedures as shall be required for the effective implementation of the Project; (b) adopt such PIM as shall have been approved by the Association and shall cause the Project to be carried out in accordance with the requirements set forth in the PIM; and (c) not assign, amend, abrogate or waive any provision of the PIM without prior approval of the Bank. 2. In case of any conflict between the terms of the PIM and those of this Agreement, the terms of this Agreement shall prevail. C. Subsidiary Agreement 1 . Upon the establishment of the PCG Fund, and in order to facilitate the carrying out of Part A(iv) of the Project, the Recipient shall make the proceeds of the Financing allocated to Categories (3) and (4) ("Subsidiary Financing") available, subject to withdrawal conditions in Section III.B of this Schedule, to the PCG Fund under a subsidiary agreement ("Subsidiary Agreement") to be entered into between the Recipient and the PCG Fund, under terms and conditions approved by the Association, which shall include the following: (a) the PCG Fund shall not be required to repay the proceeds of the Subsidiary Financing received from the Recipient; (b) the obligation of the PCG Fund to maintain, throughout Project implementation, the independent Fund Manager, appointed pursuant to Section III.B.(a)(b) of this Schedule; (c) the obligation of the PCG Fund to use the proceeds of the Subsidiary Financing for purposes of providing partial credit guarantees to cover credits extended by eligible PFIs to eligible MSMEs to finance eligible activities to be carried out by said MSMEs. To that end, the PCG Fund shall appraise and select PFIs in accordance with the procedure and criteria in the Operational Guidelines and enter into a framework agreement with the selected PFI, under terms and conditions satisfactory to the Association -9- and as further set out in the Operational Guidelines and which include requiring selected PFIs to ensure that MSMEs proposing to use PFI credit for carrying out activities under the Negative List are excluded from credits to selected MSMEs; (d) the obligation of the PCG Fund to carry out Part A(iv) of the Project with due diligence and efficiency, in conformity with appropriate administrative, economic, managerial, financial, environmental, social and technical standards and practices, and provide promptly as needed, the facilities, services and other resources required for Part A(iv) of the Project; (e) the obligation of the PCG Fund to: (i) exchange views with the Recipient, and the Association with regard to the progress of Part A(iv) of the Project, and the performance of its obligations under the Subsidiary Agreement; and (ii) assist the Recipient in complying with its obligations referred to in Section II of this Schedule, as applicable to Part A(iv) of the Project; (f) the obligation of the PCG Fund to promptly inform the Recipient and the Association of any condition which interferes or threatens to interfere with the progress of Part A(iv) of the Project; (g) the obligation of the PCG Fund to carry out Part A(iv) of the Project in accordance with the Operational Guidelines; (h) the obligation of the PCG Fund to carry out Part A(iv) of the Project in compliance with the Anti-Corruption Guidelines; (i) the obligation of the PCG Fund to: (i) maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Association, both in a manner adequate to reflect the operations, resources and expenditures related to Part A(iv) of the Project; and (ii) at the Association's or the Recipient's request, have such financial statements audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association, and promptly furnish the statements as so audited to the Recipient and the Association; and, (j) the right of the Recipient to take remedial actions against the PCG Fund, in case the PCG Fund shall have failed to comply with any of its obligations under the Subsidiary Agreement, which actions may include, inter alia, the partial or total suspension and/or cancellation or refund of all or any part of the proceeds of the Subsidiary Financing transferred to the PCG Fund pursuant to the Subsidiary Agreement (as the case may be). -10- 2. The Recipient shall exercise its rights under the Subsidiary Agreement in such manner as to protect the interests of the Recipient and the Association and to accomplish the purposes of the Financing. Except as the Association shall otherwise agree, the Recipient shall not assign, amend, abrogate or waive the Subsidiary Agreement or any of its provisions. D. PCG Fund Operational Guidelines 1 . The Recipient shall cause the PCG Fund to carry out Part A(iv) of the Project in accordance with the provisions and requirements of a set of guidelines satisfactory to the Association ("Operational Guidelines"), which shall include, inter alia: (a) eligibility criteria for the selection of MSMEs and their PFIs that can benefit from the partial credit guarantee; (b) criteria for guaranteeing eligible credits; (c) template of the framework agreement with PFIs; (d) investment policy of the PCG Fund; (e) environmental and social screening, evaluation and supervision procedures and guidelines, including excluded activities set out in the Negative List; and (f) monitoring and evaluation arrangements. 2. The Recipient shall cause the PCG Fund not to assign, amend, abrogate or waive any provisions of the Operational Guidelines without the prior approval of the Association. 3. In the event of any conflict between the provisions of the Operational Guidelines and those of this Agreement, the terms of this Agreement shall prevail. E. Safeguards 1 . The Recipient shall ensure that the Project is carried out in accordance with the provisions of the ESMF, and shall ensure that no provision of the ESMF is amended, suspended, abrogated, repealed or waived without the prior written approval by the Association. 2. Without limitation to the excluded expenditures provision set forth in the Operational Guidelines and/or the ESMF, the following activities shall not be eligible to be included in or funded under the Project ("Negative List"): (a) activities involving the use of pesticides; (b) any activities that would lead to conversion or degradation of critical natural habitats or their supporting areas; (c) any activities that would lead to conversion or degradation of critical forest areas, related critical natural habitats, clearing of forests or forest ecosystems; (d) activities involving Involuntary Resettlement; (e) activities involving the financing the rehabilitation or construction of dams; (f) activities whose implementation or operation depend on an existing dam; (g) activities involving nuclear reactors and parts thereof and fuel elements (cartridges), non-irradiated, for nuclear reactors; and (h) goods intended for a military or paramilitary purpose. 3. The Recipient shall, and shall cause the PCG Fund to, maintain, throughout Project implementation, and publicize the availability of a grievance redress mechanism, in form and substance satisfactory to the Association, to hear and determine fairly and in good faith all complaints raised in relation to the Project, and take all measures necessary to implement the determinations made by such mechanism in a manner satisfactory to the Association. Section II. Project Monitoring, Reporting and Evaluation The Recipient shall furnish to the Association each Project Report not later than forty-five (45) days after the end of each calendar semester, covering the calendar semester. Section III. Withdrawal of the Proceeds of the Financing A. General Without limitation upon the provisions of Article II of the General Conditions and in accordance with the Disbursement and Financial Information Letter, the Recipient may withdraw the proceeds of the Financing to: (a) finance Eligible Expenditures; and (b) repay the Preparation Advance; in the amount allocated and, if applicable, up to the percentage set forth against each Category of the following table: -12- Category Amount of the Percentage of Credit Allocated Expenditures to be (expressed in SDR) Financed (inclusive of Taxes) (1) Goods, non-consulting 848,000 100% services and consulting services for Parts A(i) to A(iii) of the Project (2) Goods, non-consulting 2,261,000 100% services, consulting services and Incremental Operating Costs for the Project (except for Part A of the Project) (3) First Capitalization of the PCG 3,533,000 100% Fund under Part A(iv) of the Project (4) Second Capitalization of the 3,533,000 100% PCG Fund under Part A(iv) of the Project (5) Refund of Preparation 425,000 Amount payable Advance pursuant to Section 2.07 (a) of the General Conditions TOTAL AMOUNT 10,600,000 B. Withdrawal Conditions; Withdrawal Period 1 . Notwithstanding the provisions of Part A above, no withdrawal shall be made: (a) for payments made prior to the Signature Date; (b) under Category 1 unless and until an independent Fund Manager is selected and appointed as provided in Section I.A.4 of this Schedule; (c) under Category 3 unless and until: (i) the PCG Fund has been duly established and licensed to operate as a financial institution, in a manner -13- acceptable to the Association, and in accordance with the Financial Sector Laws; (ii) the Subsidiary Agreement is executed, in form and substance satisfactory to the Association; (iii) the PCG Fund Operational Guidelines, including its business model and investment policy, are adopted by the competent body of the PCG Fund, in form and substance satisfactory to the Association; (iv) corporate governance instruments and internal controls are adopted by the Recipient, in form and substance satisfactory to the Association; and (v) an external auditor is appointed with qualifications, experience and terms of reference satisfactory to the Association; and (d) under Category 4 unless and until the conditions in sub-paragraph (c) above have been satisfied and a framework agreement is executed between the PCG Fund and a PFI, under terms and conditions satisfactory to the Association and in accordance with the provisions in the PIM and Operational Guidelines. 2. The Closing Date is January 31, 2023. IV. Other Undertakings 1. The Recipient shall ensure that: (a) during Project implementation, the PCG Fund uses the proceeds of the Subsidiary Financing for purposes of providing partial credit guarantees to cover credits extended by eligible PFIs to eligible MSMEs to finance eligible activities to be carried out by said MSMEs, all in accordance with the PIM and Operational Guidelines; and (b) after the Closing Date, the PCG Fund uses the proceeds of any Subsidiary Financing, which are remaining after any payments under said partial credit guarantees, for purposes of providing partial credit guarantees to cover credits extended by eligible PFIs to eligible MSMEs to finance eligible activities to be carried out by said MSMEs. -14- SCHEDULE 3 Repayment Schedule Date Payment Due Principal Amount of the Credit repayable (expressed as a percentage)* On each January 15 and July 15: commencing July 15, 2028, to and including 1% January 15, 2038 commencing July 15, 2038, to and including 2% January 15, 2058 * The percentages represent the percentage of the principal amount of the Credit to be repaid, except as the Association may otherwise specify pursuant to Section 3.05 (b) of the General Conditions. -15- APPENDIX Section I. Definitions 1. "Anti-Corruption Guidelines" means, for purposes of paragraph 5 of the Appendix to the General Conditions, the "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006, and revised in January 2011 and as of July 1, 2016. 2. "Bank of Cabo Verde" or "BCV" means the Recipient's central bank, established and operating pursuant to the Recipient's Law no 10/VI/2002 of July 15, published in the Recipient's Official Gazette, Serie 1, No 21. 3. "Category" means a category set forth in the table in Section III.A of Schedule 2 to this Agreement. 4. "Central de Balanqos" means the Recipient's electronic database for collection and processing of economic and financial data of non-financial corporations. 5. "Credit Registry" means the BCV's registry, established and operated pursuant to the Recipient's Decreto-Lei no 36/95 of July 17. 6. "CVE" means Cabo Verde Escudos. 7. "ESMF" means the Recipient's environmental and social framework, dated September 2017, disclosed in country on October 30, 2017, and at the Association's Infoshop on November 2, 2017, for the screening, assessment and mitigation of environmental and social risks related to the Project, including guidelines for the preparation and implementation of environmental and social management plans, as said framework may be amended from time to time with the prior written agreement of the Association. 8. "Financial Institution" means a financial institution pursuant to the Recipient's Law 61/V111/2014, of April 23, published in the Recipient's Official Gazette I Serie, No 28. 9. "Financial Sectors Laws" means the Recipient's Law 61/VIII/2014, of April 23, and the Recipient's Law 62/VIII/2014, of April 23, all such laws published in the Recipient's Official Gazette I Serie, No 28. 10. "First Capitalization of the PCG Fund" means the first contribution of the Association with the proceeds Subsidiary Financing to the PCG Fund account, subject to the conditions set out with Section III.B.1(c) of Schedule 2 to this Agreement, for payments on partial credit guarantees issued by PCG Fund. -16- 11. "Fund Manager" means an independent firm selected by the Recipient, pursuant to the Procurement Regulations, to manage the PCG Fund, and referred to in Section I.A.4. of Schedule 2 to this Agreement. 12. "General Conditions" means the "International Development Association General Conditions for IDA Financing, Investment Project Financing", dated July 14, 2017. 13. "General Principles for Credit Reporting" means the Association's publication, dated September 2011, setting out the nature of credit reporting elements which are crucial for understanding credit reporting and ensuring that credit reporting systems are safe, efficient and reliable. 14. "Incremental Operating Costs" means the reasonable incremental costs, as shall have been approved by the Association, incurred by the UGPE, on account of Project administration, implementation, monitoring and supervision consisting of vehicle operation and maintenance, communication and insurance costs, banking charges, office rental expenses, freight charges, office (and office equipment) maintenance, utilities, printing, non-durable goods, travel cost and per diem for Project staff for travel linked to the implementation, monitoring and supervision of the Project (but excluding consultants' services and salaries of officials of the Recipient's civil service). 15. "Involuntary Resettlement" means any direct economic and social impact caused by: (a) the involuntary taking of land resulting in (i) relocation or loss of shelter, (ii) loss of assets or access to assets, and (iii) loss of income sources or means of livelihood, whether or not the affected persons must move to another location; or (b) the involuntary restriction of access to legally designated parks and protected areas resulting in adverse impacts on the livelihoods of such person. 16. "Ministry of Economy and Employment" means the Recipient's ministry in charge of economy; or any successor thereto. 17. "Ministry of Finance" means the Recipient's ministry in charge of finance; or any successor thereto. 18. "MSMEs" means Micro, Small and Medium-Sized Enterprises that have annual sales of up to CVE 150 million and have met the eligibility criteria set out in the Operational Guidelines. 19. "Negative List" means the lists of activities that cannot be funded or included under the Project, as set out in Section I.E.2. of Schedule 2 to this Agreement, the Operational Guidelines and the ESMF. -17- 20. "PCG Fund" means the legal entity to be established and licensed pursuant to the Recipient's Financial Sector Laws for the purposes of providing credit guarantees to PFIs under Part A(iv) of the Project. 21. "PFI" means participating Financial Institution. 22. "Project Implementation Manual" or "PIM" means the manual to be prepared by the Recipient referred to in Section I.B. of Schedule 2 to this Agreement. 23. "Preparation Advance" means the advance referred to in Section 2.07(a) of the General Conditions, granted by the Association to the Recipient pursuant to the letter agreement signed on behalf of the Association on July 17, 2017, and on behalf of the Recipient on July 27, 2017. 24. "Principles for Public Credit Guarantee Schemes" means a guidance document, acceptable to the Association, that sets out the principles for public credit guarantee schemes for MSMEs. 25. "Procurement Regulations" means, for purposes of paragraph 87 of the Appendix to the General Conditions, the "World Bank Procurement Regulations for Borrowers under Investment Project Financing", dated July 1, 2016 and revised in November 2017. 26. "Project Steering Committee" or "PSC" means a sub-committee to be established under the Financial Reforms Committee, and referred to in Section I.A.2. of Schedule 2 of this Agreement. 27. "Operational Guidelines" means the guidelines to be prepared by the Fund Manager, and referred to in Section 1.D. of Schedule 2 to this Agreement. 28. "Second Capitalization of the PCG Fund means the second contribution of the Association with the proceeds Subsidiary Financing to the PCG Fund account, subject to the conditions set out with Section III.B.1(d) of Schedule 2 to this Agreement, for payments on partial credit guarantees issued by PCG Fund. . 29. "Signature Date" means the later of the two dates on which the Recipient and the Association signed this Agreement and such definition applies to all references to "the date of the Financing Agreement" in the General Conditions. 30. "Subsidiary Agreement" means the agreement to be entered into between the Recipient and the PCG Fund, and referred to in Section I.C. of Schedule 2 to this Agreement. 31. "Subsidiary Financing" means the proceeds of the Financing to be provided to the PCG Fund for purposes of carrying out Part A(iv) of the Project, in accordance -18- with the Subsidiary Agreement and the Operational Guidelines, and referred to in Section I.C. of Schedule 2 to this Agreement. 32. "UGPE" or "Unidade de Gestao de Projetos Especiais " means the unit within the Ministry of Finance, established and operating pursuant to the Recipient's Resolucao 81/2017 of July 28, and referred to in Section I.A.1. of Schedule 2 to this Agreement.