INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: ISDSC13529 ,2 Date ISDS Prepared/Updated: 12-Aug-2015 Date ISDS Approved/Disclosed: 13-Aug-2015 I. BASIC INFORMATION A. Basic Project Data Country: Kazakhstan Project ID: P154975 Project Name: SME Line of Credit (P154975) Task Team Nabila Assaf,Colleen Mascenik Leader(s): Estimated 15-Sep-2015 Estimated 07-Dec-2015 Appraisal Date: Board Date: Managing Unit: GTC10 Lending Investment Project Financing Instrument: Sector(s): SME Finance (100%) Theme(s): Micro, Small and Medium Enterprise support (50%), Other Financial Sector Development (50%) Financing (In USD Million) Total Project Cost: 200.00 Total Bank Financing: 200.00 Financing Gap: 0.00 Financing Source Amount Borrower 0.00 International Bank for Reconstruction and Development 200.00 0 Total 200.00 Environmental F - Financial Intermediary Assessment Category: Is this a No Repeater project? B. Project Objectives The project development objective is to improve SME access to sustainable enterprise lending. C. Project Description This project has two components: 1) the Line of Credit, and 2) The Center of Excellence in Lending, part of a broader program to improve SME Competitiveness in Kazakhstan. The SME Competitiveness project, a recently approved US$ 40 million project, takes direct aim at the constraints and impediments to competitiveness at the firm-, cluster-, and supply chain-levels. The outcomes of that project will be to improve business and management practices of SMEs and their participation in supply chains, which is expected to increase both their demand for credit and their bankability and credit-worthiness. This line of credit complements the SME Competitiveness project O addressing a critical supply-side constraint to SME growth, access to finance, by providing access to the type of loan products needed in any sector or region where they are needed. Component 1 -Line of Credit ($200 million) As a result of this component, access to both investment and working capital loans will allow borrowing enterprises to undertake new initiatives, and/or broaden the product or services range, and/ or improve the existing product quality and production efficiency. Additional working capital finance will facilitate entry to markets where the payment for goods or services takes longer. More importantly, the systemic approaches to lines of credit and their management will be enhanced through introduction of best practice methods. The aim of this component is to implement a market-based, broadly accessible line of credit as a benchmark to improve the effectiveness of future credit lines including those currently funded by the government. This will support the GOK's objective to maintain a steady flow of credit to the private sector and assist in enhancing competitiveness, including to sectors and groups of borrowers that would otherwise be excluded. It would also contribute to extending the maturity structure of enterprise lending. At the systemic level, it would also stimulate introduction of new technologies for credit risk appraisal and management and new products, and would strengthen financial intermediaries. Table 2. Key features of the Line of Credit - Open to all sectors: The LoC would be open to all enterprises operating in any sector of the economy to allow diverse sectors of the economy to benefit from the financing 0 - SME focused: SME focused within the maximum flexibility allowed within DAMU's governing framework, at up to a $US 5 million loan amount. o - Lending in local currency: Responding to the increased demand by SMEs for KZT-denominated credit, the Project will agree with NBK providing a swap arrangement for PFIs. - Lending for longer terms: The LOC provides DAMU the option to borrow on a longer-term, a benefit which may be passed along to borrowing enterprises. - Lending to first time borrowers: A portion of the loan (to be determined) will be allocated to first- time borrowers. New firms tend to create more jobs, and are more likely to face constraints in accessing finance for the first time. Combined with technical assistance on credit risk analysis and cash flow based lending (in Component 2), this allocation will aim to broaden access to finance among the lesser served segments, including new firms, smaller firms and women-managed businesses. The project will also seek to link up PFIs with partial-credit guarantee programs already offered by DAMU to reduce collateral requirements for marginalized borrowers who may have been denied in the past due to lack of sufficient collateral. - Lending in lesser served regions: The project will seek to include PFIs with regional reach beyond Astana and Almaty and seek to leverage DAMU's engagement on both this project and the SME Competitiveness project, which will offer services to SMEs in a planned 171 Entrepreneurship Centers all over the country. The project will seek to embed lending information and assistance on loan applications to SMEs through those same centers. o - Safeguard policies: DAMU has indicated already the willingness to apply Bank safeguard policies, including those triggered by Environmental Category B projects. PFIs will receive technical assistance (as needed) to improve their implementation of environmental safeguards. Component 2 - Center of Excellence on Lending and Project Management ($2 million) DAMU will establish a Center of Excellence on Lending (CEL) with the aim of disseminating international best practices in lending within the Kazakh banking sector. The CEL will be created within DAMU and will provide training and limited technical assistance to banks and other financial institutions on international best practices in lending. Training would be provided by experts on topics including lending technology, cost-efficient models of SME lending, credit risk assessment, cash flow based lending, implementing environmental safeguards, and other topics. The focus will be on SME lending departments of banks which tend to have lower capacity. Training may be sponsored by DAMU or provided on a cost-recovery basis, while individualized TA would only be provided on a full cost-recovery and limited scope basis. The CEL would also host a community of practice on SME lending in Kazakhstan to facilitate knowledge sharing and promote an understanding of key priorities in improving SME credit-enabling financial infrastructure. The CEL would also collaborate with the Economic Research Institute (ERI) on developing an impact evaluation of lines of credit under its supervision, including this LoC and government sponsored LoCs, to help promote learning on the outcomes and impacts of different approaches and designs of LoCs. This impact evaluation would be proposed as one of the impact evaluation activities on the efficacy and impact SME interventions in Component 3 of the SME Competitiveness project. U5 The CEL would also collaborate with the Economic Research Institute (ERI) on developing an impact evaluation of lines of credit under its supervision, including this LoC and government sponsored LoCs, to help promote learning on the outcomes and impacts of different approaches and designs of LoCs. This impact evaluation would be proposed as one of the impact evaluation activ ities on the efficacy and impact SME interventions in Component 3 of the SME Competitiveness project. The Project management costs, including the establishment of Project implementation unit and its expenditures, will be included in this component. The PIU will be staffed by DAMU's staff (with consulting support) and run as part of its routine operations. It will also be linked into the implementation structure of the SME Competitiveness project through its reporting to the same Project Implementation Commission established under the SME Competitiveness project. D. Project location and salient physical characteristics relevant to the safeguard analysis (if known) The project will operate throughout Kazakhstan. The project will not finance category A projects, projects in extractive industry nor SMEs involved in any activities which are inconsistent with WB policies (e.g. arms, tobacco, etc.). Note that these criteria do not exclude firms in non-extractive sectors that operate "upstream" or "downstream" from larger corporations in the extractive sector. Project will also not finance activities that might trigger Natural Habitats policy. In cases where the project will finance investments in already existing SME's, sub-project evaluation should include due diligence review to confirm that the SME's are in compliance with environmental (including safety) national laws and regulations and have no pending legal actions or complaints against them. If any non-compliance or issues are identified, the sub-projects could still be eligible as long as there O U is a commitment and an approved action plan to correct the identified problems, either independently or as needed with financing included in the project loan. O E. Borrowers Institutional Capacity for Safeguard Policies a The main implementing agency for the project is DAMU Fund, an implementing arm of the Ministry of the Regional Development. It is a national development institute whose explicit mission is to promote quality development of SMEs in Kazakhstan. This is the first engagement of the Bank with DAMU, although DAMU has experience with the Asian Development Bank. DAMU has indicated already the willingness to apply Bank safeguard policies. PFIs will receive technical assistance (as needed) to improve their implementation of environmental safeguards. The World Bank team will work closely with the DAMU expert to build the capacity during project preparation period. An Environmental Management Framework has already been prepared by DAMU which will be responsible for ensuring the adherence to the Bank's safeguard policies. Adherence will be assured through various measures including application of safeguards as part of PFI eligibilty criteria, assessment of safeguards capacity of PFIs and capacity building where needed, environmental screening of sub-borrower projects, and monitoring of compliance. In cases where the project will finance investments in already existing SME's, sub-project evaluation should include due diligence review to confirm that the SME's are in compliance with environmental (including safety) national laws and regulations and have no pending legal actions or complaints against them. If any non- compliance or issues are identified, the sub-projects could still be eligible as long as there is a commitment and an approved action plan to correct the identified problems, either independently or as needed with financing included in the project loan. F. Environmental and Social Safeguards Specialists on the Team Lola Ibragimova (GSURR) Natasa Vetma (GENDR) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) Environmental Assessment Yes Component 1, Line of Credit, will include various OP/BP 4.01 initiatives/ subprojects implemented by borrowing enterprises. The nature of sub-projects will not be known by appraisal. However it is possible that sub- projects will relate to physical infrastructure, refurbishment of assets, provision of equipment, changes/ optimization of physical processes and other. Therefore, there is a need to outline the process for identification, prediction, evaluation, and mitigation of the environmental impacts and risks which may arise from the proposed sub projects. Thus, OP/BP 4.01 Environmental Assessment is being triggered. At present no other SG policies are triggered, but during project preparation, it should be determined whether there will be the potential for financing sub- projects which might trigger other policies, or whether these should be explicitly excluded. the Team will explore with the Borrower the option of applying the WB Performance Standards, as this is an option in the case of projects providing financing to the private sector. Natural Habitats OP/BP 4.04 No Project will not finance any activities that might trigger OP 4.04. Forests OP/BP 4.36 No Pest Management OP 4.09 No Physical Cultural Resources No OP/BP 4.11 Indigenous Peoples OP/BP No 4.10 Involuntary Resettlement OP/ No SME investments that would involve any land BP 4.12 acquisition (including land acquisition carried out for purposes of the project prior to seeking project funding) will be ineligible for financing. Detailed criteria for screening will be included in the Operations Manual. Therefore, OP 4.12 is not triggered. Safety of Dams OP/BP 4.37 No O Projects on International No Waterways OP/BP 7.50 Projects in Disputed Areas OP/ No BP 7.60 III. SAFEGUARD PREPARATION PLAN A. Tentative target date for preparing the PAD Stage ISDS: 31-Aug-2015 B. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timingi should be specified in the PAD-stage ISDS: An Environmental Management Framework has already been prepared by DAMU and will be an integral part of the Project Operations Manual. It will be reviewed during preparation, disclosed in country and submitted to the infoshop by Aug 31, 2015. Sub-projects specific safeguards documents will be prepared when SME loans /sub -projects are identified during project implementation. IV. APPROVALS Task Team Leader(s): Name: Nabila Assaf,Colleen Mascenik 1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons. Approved By: Safeguards Advisor: Name: Brandon Enrique Carter (SA) Date: 12-Aug-2015 Practice Manager/ Name: Paloma Anos Casero (PMGR) Date: 13-Aug-2015 Manager: