Document of The World Bank Report No: ICR2801 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-75150) ON A LOAN 7515-CO IN THE AMOUNT OF USD300 MILLION TO THE INSTITUTO COLOMBIANO DE CREDITO EDUCATIVO Y ESTUDIOS TECNICOS EN EL EXTERIOR (ICETEX) WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR A SECOND STUDENT LOAN SUPPORT PROJECT IN SUPPORT OF THE FIRST PHASE OF THE IMPROVING ACCESS AND QUALITY IN HIGHER EDUCATION PROGRAM December 19, 2013 Human Development Unit Mexico and Colombia Country Management Unit Latin America and the Caribbean Region CURRENCY EQUIVALENTS (Exchange Rate Effective December 27, 2007) Currency Unit = Colombian Pesos (COP) USD1.00 =COP 2,011.78 FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS Access with Quality to Higher Education (Acceso con Calidad a la Educación ACCES Superior) COP Colombian Pesos CPS Country Partnership Strategy FM Financial Management GoC Government of Colombia GEIH General Integrated Household Survey HEI Higher Education Institution IBC Contribution Base Income Colombian Institute for Educational Credit and Technical Studies Abroad (Instituto ICETEX Colombiano de Crédito Educativo y Estudios Técnicos en el Exterior) ICR Implementation Completion and Results Report IP Implementation Progress IPC Consumer Price Index IRR Rate of Return ISO International Organization for Standardization ISR Implementation Status Report KPI Key Performance Indicator LAC Latin America and the Caribbean M&E Monitoring and Evaluation MAIE Comprehensive Student Support Model (Modelo de Atención Integral al Estudiante) MEN Ministry of National Education (Ministerio de Educación Nacional) MHCP Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público) MoF Ministry of Finance Public Management Quality Technical Norm (Norma Técnica Calidad Gestión NTCGP Pública) OECD Organization for Economic Cooperation and Development PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit PND National Development Plan (Plan Nacional de Desarrollo) PNDE Nation Decennial Education Plan (Plan Nacional Decenal de Educación) QEA Quality at Entry QSA Quality of Supervision System of Identification and Classification of Potential Beneficiaries for Social SISBEN Programs (Sistema de Identificación y Clasificación de Potenciales beneficiarios para programas sociales) Higher Education Dropout Prevention System (Sistema para la Prevención de la SPADIES Deserción de la Educación Superior) SWAP Sector-Wide Approach TAE Educational Saving Security (Título de Ahorro Educativo) Regional Vice President: Hasan A. Tuluy Country Director: Gloria M. Grandolini Sector Manager: Reema Nayar Project Team Leader: Marcelo Becerra ICR Team Leader: Marcelo Becerra COLOMBIA SECOND STUDENT LOAN SUPPORT PROJECT IN SUPPORT OF THE FIRST PHASE OF THE IMPROVING ACCESS AND QUALITY IN HIGHER EDUCATION PROGRAM Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes ............................................. 3 3. Assessment of Outcomes .......................................................................................... 10 4. Assessment of Risk to Development Outcome ......................................................... 16 5. Assessment of Bank and Borrower Performance ..................................................... 16 6. Lessons Learned........................................................................................................ 18 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 20 Annex 1. Project Costs and Financing .............................................................................. 21 Annex 2. Outputs by Component...................................................................................... 22 Annex 3. Economic and Financial Analysis ..................................................................... 33 Annex 4. Bank lending and implementation support/supervision processes .................... 41 Annex 5. Beneficiary Survey Results ............................................................................... 44 Annex 6. Stakeholder Workshop Report and Results....................................................... 45 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 46 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 57 Annex 9. List of Supporting Documents .......................................................................... 58 MAP A. Basic Information Second Student Loan Country: Colombia Project Name: Support Project, APL Phase I Project ID: P105164 L/C/TF Number(s): IBRD-75150 ICR Date: 12/19/2013 ICR Type: Core ICR ICETEX- THE Lending Instrument: APL Borrower: GOVERNMENT OF COLOMBIA Original Total USD 300.00M Disbursed Amount: USD 300.00M Commitment: Revised Amount: USD 300.00M Environmental Category: C Implementing Agencies: INSTITUTO COLOMBIANO DE CREDITO EDUCATIVO Y ESTUDIO TECNICOS - ICETEX Co-financiers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept 09/11/2007 Effectiveness: 05/02/2008 05/02/2008 Review: 10/20/2010 03/29/2011 Appraisal: 12/10/2007 Restructuring(s): 05/08/2012 06/14/2013 Mid-term Approval: 03/04/2008 12/10/2010 12/10/2010 Review: Closing: 12/31/2010 06/30/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory i C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Implementing Satisfactory Satisfactory Supervision: Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Tertiary education 100 100 Theme Code (as % of total Bank financing) Education for the knowledge economy 67 67 Improving labor markets 33 33 E. Bank Staff Positions At ICR At Approval Vice President: Hasan A. Tuluy Pamela Cox Country Director: Gloria M. Grandolini Axel Van Trotsenburg Sector Manager: Reema Nayar Eduardo Velez Bustillo Project Team Leader: Marcelo Becerra Alberto Rodriguez ICR Team Leader: Marcelo Becerra ICR Primary Author: William Experton ii F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objectives of the Program are to (a) improve coverage by increasing the enrollment and graduation rates of students in tertiary education; (b) improve equity by increasing enrollment and graduation rates of tertiary education students from economically disadvantaged backgrounds; and (c) increase and diversify the sources of alternative funding available to Borrower in order to increase the Borrower's financial sustainability. Revised Project Development Objectives (as approved by original approving authority) The Project’s PDO remained unchanged throughout the life of the Project. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Increase in transition rate between secondary and tertiary education. Value quantitative or 62% 67.4% 71.5% 75% Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 Surpassed. However, calculation of this indicator was discontinued by Comments the MEN, due to the lack of reliability. 75% corresponds to the latest (incl. % available data: Number of 1st year tertiary education students 2011/number achievement) of students that presented SABER 11 in 2011. Indicator 2 : Increase in the number of tertiary education graduates. Value quantitative or 146,810 182,270 199,828 241,049 Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 Surpassed. The actual value is from December 2012 (defined as the Comments number of students who have completed, in a given year, an (incl. % undergraduate university degree program, or a professional technical or achievement) technological degree program). Increase in the percentage of students enrolled in the first year in tertiary Indicator 3 : education (whose family income is below twice the minimum salary). Value quantitative or 45.6% 49.7% 49.9% 58.1% Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 iii Achieved. At the 10/20/2010 restructuring this indicator substituted for Comments the indicator Increase in the net enrollment of students in quintiles 1 and 2 (incl. % to address the data shortcomings. The actual value 58.1% is from achievement) December 2012. Surpassed. Decrease in the annual administrative costs of ICETEX as a Indicator 4 : percentage of total annual income. Value quantitative or 6.1% 3.7% 3.0% 2.6% Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 Comments (incl. % Surpassed. The 2013 value is still preliminary. achievement) Decrease in portfolio at risk over 30 days as a percentage of total portfolio Indicator 5 : (portfolio quality ratio). Value quantitative or 19% 15% 18% 17.4% Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 Comments (incl. % Surpassed. The actual value is from May 2013. achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Number of new students obtaining an ICETEX ACCES loan. Value (quantitative 0 90, 149 134,875 187,610 or Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 Comments (incl. % Surpassed. achievement) Number of renewals disbursed for students currently under the loan Indicator 2 : program. Value (quantitative 0 432,000 650,487 801,072 or Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 iv Comments (incl. % Surpassed. achievement) Indicator 3 : Number of new students from strata 1 and 2 obtaining an ACCES loan. Value (quantitative 0 80,000 111,426 156,170 or Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 Comments (incl. % Surpassed. achievement) Number of new agreements signed with participating tertiary education Indicator 4 : institutions. Value (quantitative 0 30 206 259 or Qualitative) Date achieved 12/31/2006 06/30/2010 06/30/2013 06/30/2013 Surpassed. An agreement signed with participating HEI means a contract between ICETEX and an eligible HEIs, setting the obligations of the HEI, through an Affirmative Action Plan, to: (i) increase support and the provision of services for students with student loans provided by ICETEX to help them graduate; (ii) help students manage education loans; (iii) Comments foster a culture of repayment of loan among students; (iv) support (incl. % collection efforts after graduation. Moreover, the agreement set the achievement) provisions to: (i) HEIs to receive and manage student loan funds in proper manner; (ii) participate in a sustainability fund to cover the losses derived from dropouts during the school period (ICETEX deducts a variable percentage of student loans proceeds wired to HEIs to combat default associated with dropouts). Percentage of total resources available for student credit generated from Indicator 5 : new external sources (other than ACCES credit, government/ public funding for tuition or interest rate subsidies or equity resources). Value (quantitative 0% 9% 7.5% 7.59% or Qualitative) Date achieved 12/31/2006 06/30/2010 10/30/2013 06/30/2013 Achieved. At the 10/20/2010 restructuring this indicator was revised to Comments measure funding diversification both from private (firms, NGOs) and (incl. % public resources (contributions from HEIs, local Government and achievement) Municipalities). Indicator 6 : Number of new or upgraded management and IT systems in place. Value (quantitative 0 10 10 15 or Qualitative) Date achieved 12/31/2006 06/30/2010 10/30/2013 06/30/2013 v Comments (incl. % Surpassed. Current value is from May 2013. achievement) G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 04/30/2008 Satisfactory Satisfactory 0.00 2 05/28/2008 Satisfactory Satisfactory 0.00 3 11/29/2008 Satisfactory Satisfactory 35.66 4 05/15/2009 Satisfactory Satisfactory 68.94 5 10/16/2009 Satisfactory Satisfactory 92.15 6 04/23/2010 Satisfactory Satisfactory 131.94 7 11/02/2010 Satisfactory Satisfactory 173.02 8 05/13/2011 Satisfactory Satisfactory 173.02 9 10/05/2011 Satisfactory Satisfactory 173.02 10 04/22/2012 Satisfactory Satisfactory 173.02 11 11/03/2012 Satisfactory Satisfactory 205.87 12 06/08/2013 Satisfactory Satisfactory 293.62 H. Restructuring (if any) ISR Ratings Amount Board at Disbursed at Restructuring Reason for Restructuring Approved Restructuring Restructuring Date(s) & Key Changes Made PDO Change in USD DO IP millions The closing date was extended by eighteen months, from December 31, 2010 to June 30, 2012, to allow ICETEX to fully achieve its objective. Targets 10/20/2010 N S S 173.02 and the financing plan were revised to reflect the implementation schedule and a larger resource envelope than originally anticipated. Additionally, two indicators were vi ISR Ratings Amount Board at Disbursed at Restructuring Reason for Restructuring Approved Restructuring Restructuring Date(s) & Key Changes Made PDO Change in USD DO IP millions modified to address current monitoring and evaluation (M&E) data shortcomings and to acknowledge ICETEX's funding diversification efforts to include non-private sources and better capture results. A corrigendum was made to the previous restructuring to revise the definition of 03/29/2011 N S S 173.02 Conversion Date in par. 20 of the Appendix to the General Conditions. The closing date was extended for 12 months from 05/08/2012 N S S 173.02 June 30, 2012 until June 30, 2013. Reallocation of Proceeds: $6.3 Million from Category 2 to Category 1 because 06/14/2013 N S S 293.62 ICETEX decided to use all the resources from the Project to finance student loans in component 1. vii I. Disbursement Profile viii 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Since the 1990s, the Government of Colombia (GoC) strategy has been to develop human capital to improve competitiveness, diversify the economy, and sustain growth. Colombia has achieved nearly universal enrollment at primary education level and has significantly increased access at secondary level. However, the GoC could not afford to increase tertiary education supply on its own. Private institutions have sprung up to meet the rising demand for higher education, but the market was failing to adequately finance demand. Thus, the GoC decided to increase access to tertiary education through student loans, provided by the Instituto Colombiano de Crédito Educativo y Estudios Técnicos en el Exterior (ICETEX). The Bank had provided support to the GoC through a preceding 2002 “Higher Education Improving Access Project”, which contained the original ACCES loan program. This Project has been designed to increase the efficiency and effectiveness of ICETEX student lending while working with the GoC to achieve its broader sector goals of reaching 35 percent of enrollment rate by 2010, as established in National Development Plan 2006-2010 (PND, Plan Nacional de Desarrollo). 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 2. The objectives of the program were to (a) improve coverage by increasing the enrollment and graduation rates of students in tertiary education; (b) improve equity by increasing enrollment and graduation rates of tertiary education students from economically disadvantaged backgrounds; and (c) increase and diversify the sources of alternative funding available to the Borrower in order to increase the Borrower’s financial sustainability. 3. Key indicators for rating Project outcomes were: • Increase in the transition rate between secondary and tertiary education. • Increase in the number of tertiary education graduates. • Increase in the net enrollment rate of students in quintiles 1 and 2. • Decrease in the annual administrative costs of ICETEX as a percentage of total annual income. • Decrease in portfolio at risk over 30 days as a percentage of total portfolio. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 4. The PDO remained unchanged. One Key/PDO Indicator was modified in the first restructuring; due to the lack of data, the original PDO indicator “increase in the net 1 enrollment of students in quintile 1 and 2” was replaced by “the percentage of students enrolled in tertiary education whose income is below twice the minimum salary”. 1 1.4 Main Beneficiaries 5. The Project was intended to serve the following beneficiaries: (i) an estimated 100,000 new qualified students who would have, for the first time, received an ICETEX loan to enroll in tertiary education; and (ii) an estimated 432,000 tertiary education students who have already received ICETEX loans and would renew those loans to advance toward completion of a tertiary education program. 1.5 Original Components 6. Component 1 - Expanding equity and access to tertiary education (USD 293.70 million; 100% of total Project cost): (i) to extend new student loans and renew existing loans to qualified students from economically disadvantaged families; (ii) to form new alliances with tertiary education institutions to increase support and services to low income students, foster a culture of repayment among students, support collection efforts after graduation and co-finance tuition. 7. Component 2: Institutional strengthening (USD6.3 million; 100% of total Project cost): (i) to strengthen ICETEX loan administration, portfolio management and collection procedures and upgrade its data technology hardware and software; (ii) to expand ICETEX funding base to ensure long term sustainability; and (iii) to monitor the Project and to perform impact evaluation studies. 1.6 Revised Components 8. The original components were not revised. 1.7 Other significant changes 9. A first restructuring was approved on October 20, 2010, due to slower disbursement than originally intended. Six months before the original closing date (December 31, 2010) only USD173 million had been disbursed of the USD 300 million approved, for two main reasons: (i) ICETEX had chosen to pursue a conservative financial leverage policy; and (ii) a slowdown of students’ loans demand and improvement in the management of the portfolio had contributed to a budget surplus in 2010.The restructuring allowed to adapt the Project to the changing context since the 1 Using minimum wages as an indicator has the following advantages: (i) the indicator is comparable over time; (ii) the data is available from the MEN (there was a lack of data on income quintiles); and (iii) the universe of those whose family income is below two minimum wages includes all the individuals that fall under SISBEN. In 2010, Students in quintiles Q1 and Q2 represented 23.1% of total enrollment while students whose family income is below twice the minimum enrollment represented 38%. 2 financial crisis prevented the initial objective of diversifying ICETEX funding through private sector investment and to present a more realistic assessment of the operating environment and costs. For ICETEX to fully achieve its objective of diversifying its funding sources and scaling up the provision of student loans, the closing date was extended from December 31, 2010 to June 30, 2012. All PDO and intermediate indicator targets were made more ambitious to reflect the extended implementation schedule and a larger resource envelope than originally anticipated (with the exception of PDO indicator 5 “Decrease of the portfolio at risk” and intermediate indicator 5 “Diversification of ICETEX resources”). Additionally, one intermediate indicator was modified: the percentage of total resources available for student credit generated from new external sources was substituted by the percentage of total resources available for student credit generated from external private source, to reflect ICETEX’s strategy to diversify its funding sources through public sector alliances (Alianzas). 10. A corrigendum to the first restructuring was approved on March 29, 2011 to revise the definition of Conversion Date in par. 20 of the Appendix to the General Conditions. 11. A second restructuring was approved on April 25, 2012, to extend the closing date from June 30, 2012 to June 30, 2013 to ensure the Project could fully meet its development objectives and to enable the continued scaling up of the provision of student loans to students from the lowest socio economic strata, in a rapidly changing context for higher education. There was no re-allocation of funding. 12. A third restructuring was approved June 14, 2013 to reallocate $6.3 million from Category 2 (Component 2) to Category 1 (Component 1). This reallocation was justified since Component 2 was financed with ICETEX’s own resources. Therefore these funds were used to finance additional student loans under Component 1. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Strengths 13. Responsiveness of the Bank: The Bank was able to respond to ICETEX’s and GoC’s demands in six months because of: (i) the exemplary cooperation between IFC, the Treasury(BDM) and LAC (a memorandum of understanding was signed between IFC and the Bank for the preparation of the Project); (ii) the knowledge accumulated during the previous Higher Education project in Colombia; and (iii) the strong collaboration between the Bank, ICETEX and GoC due to the past experience of several members of the Bank’s team in Colombia. To respond to the needs of ICETEX and GoC, the Bank Treasury innovated by: (i) extending the duration of repayment period of the Bank loan to 22.5 years – including 6 years of grace period - (and 5 years after the repayment period of a student loan); (ii) making a disbursement linked repayment (the 6 years grace period starts with each disbursement, instead of when the Bank commits the funds); (iii) making 3 the loan to ICETEX with a guarantee of GoC; and (iv) converting the loan to pesos (COP)on disbursement so ICETEX did not take a foreign exchange risk. The flexibility of financial terms allowed ICETEX to adapt to new circumstances. 14. Relevance of PDO objectives and strong ownership of GoC and ICETEX: The Project was fully aligned with: (i) the GoC objective to increase access to tertiary education by supporting demand from students from the lower socio-economic quintiles; and (ii) ICETEX goals to expand ACCES lending and to improve its management practices and financing alianzas to support a publicly guided loan program. More broadly, the Project was conceived as the first phase of a six year APL Program consistent with the GoC long term objective (Visión Colombia 2019) and the Country Partnership Strategy (CPS) under development to sustain economic growth while also ensuring a more rapid reduction of poverty. 15. Technical quality of Project design: The Project design was simple and perfectly adapted to ICETEX needs. While short, the Project preparation process brought some technical improvements to ICETEX's ways of operating: (i) the pricing differentiation to target the ACCES student loans to strata 1 and 2; and (ii) the methodology to calculate the portfolio at risk. The Project design benefited from: (i) lessons learned from the Bank’s broad experience with student loans in five LAC countries and in Indonesia, ICETEX past experience, and strong analytical work; (ii) carefully considered alternatives for Project design; (iii) good quality economic and financial analysis; and (iv) a sensitivity analysis carried out to analyze the behavior of the student debt burden under various interest rates and tuition levels. Finally the fact that the Bank’s loan was made directly to ICETEX created a strong incentive: (i) to manage seriously the repayment and default risk of student loans; and (ii) to increase and diversify the sources of alternative funding to increase its sustainability. Weaknesses: 16. Incomplete risk assessment: The risk assessment did not anticipate the conditions that led to a slow disbursement of Bank loan and implementation delays. At preparation time, the Bank’s team could not have foreseen the severity of the global financial crisis, which reached its peak in October 2008. The exposure of ICETEX to currency risk with an arrangement consisting in negotiating the loan in USD and then doing the conversion to Colombian Pesos (COP) through a series of currency swaps immediately after disbursements was well described in the PAD. 2.2 Implementation Factors outside the control of the Government and the implementation agency 17. Deterioration of economic conditions with the 2008 global financial crisis: The Project took place in a difficult macroeconomic context. The global financial crisis had three main consequences: (i) it limited the options for carrying out the underlying SWAP for the conversion of the loan into COP; (ii) it became more difficult to diversify 4 ICETEX’s funding base through capital markets (the Colombian Capital Markets had not carried out any securitization for two years 2009-2010); and (iii) in January and February 2009, due to the uncertain economic context there was a surge in delinquency associated to drop outs. Factors generally subject to Government control 18. Difficulties to diversify ICETEX resources: Law 1328, approved in July 2009, set a more favorable regulatory framework for the issuance of Educational Saving Securities (TAE), but a report commissioned by ICETEX in 2011 reached the conclusion that TAEs were not a feasible funding alternative due to a lack of market demand. Instead, ICETEX chose to make strategic alianzas with municipalities and local government to finance students. 19. Low quality (lack of accreditation) of HEIs being attended by ACCES beneficiaries: Only 28 HEIs are accredited of the 159 HEIs participating in the ICETEX student loan program. The MEN did not have enough resources to provide the incentives that could have put non-accredited HEIs on the path to accreditation. In 2009, ICETEX increased the weight given to accreditation and academic results in the ACCES algorithm from 7% to 12% and from 62% to 75%, respectively, in order to weed out low performing and poor quality HEIs from the assignment of new loans. However, this had limited incidence on quality improvement among non-accredited HEIs. As a result, beneficiaries attending high quality accredited HEIs or academic programs account for 28% of new ACCES beneficiaries (2013), slightly up from 25% in 2011 when data started to be monitored. Factors generally subject to implementing agency control 20. Surge in the delinquency and default rates associated with dropouts: Since 2009, to combat drop out and delinquency, ICETEX implemented agreements with HEIs which included: (i) a plan of affirmative actions to prevent dropout; and (ii) a sustainability fund to cover the losses derived from dropouts during the school period (ICETEX deducts a variable percentage of student loans proceeds wired to HEIs to combat default associated with dropouts). 21. ICETEX overestimation of its financial needs: ICETEX followed a conservative policy toward financial leverage until 2012. ICETEX had a surplus in resources in its 2010 budget that was transferred to its 2011 budget, which obviated the need to use loan resources. The main causes of this surplus were: (i) a slowdown in student demand in 2010 for new loans occasioned by the rising real cost to students due to several successive years of declining inflation without a corresponding adjustment to the interest rate on ICETEX loans; and (ii) some improvements in the management of portfolio leading to an increase in repayments and decrease in defaults. 22. Change in Government higher education policy: The new GoC in its “Development Plan 2011-2014” put a greater emphasis on increasing higher education 5 coverage and through the 2011 Law 1450 and 2012 Law 1547 introduced much more favorable conditions for student financial assistance. As part of this policy shift, ICETEX introduced the following changes to the ACCES loan terms and conditions starting January 2011: (i) the reduction of the interest rate for strata 1, 2 and 3 to IPC (Consumer Price Index or Índice de Precios al Consumidor) (0% real interest rate); (ii) the cancellation of the mandatory monthly “culture of repayment quota”; (iii) the possibility of paying off debt through higher repayments at any point in time; (iv) an increase in the size of the subsidy of COP 630,000 (USD330.4) per semester for living expenses indexed to inflation and an expansion of coverage to all beneficiaries falling under levels 1 and 2 of SISBEN (version II); (v) the implementation of a 25% write off of the loan principal for all students falling under levels 1 and 2 of SISBEN (version II) who take a new loan starting January 2011 and onwards and who successfully completed their degree; and (vi) the cancellation of the 25% tuition subsidy that was previously allocated to beneficiaries falling under levels 1 and 2 of SISBEN. 23. Disbursement: the Project disbursed behind the original schedule from effectiveness to the third quarter of 2012, with no disbursement from September 2010 to September 2012. In addition, the options for converting the loan into COP were limited; as a result, the first and second disbursements were only made on April 2009. A plan to make disbursements smaller and more frequent, as preferred by ICETEX, was prepared but never implemented. Additionally, an amendment to the loan agreement was introduced in May 2011 to allow spot currency conversions. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 24. The PDO was not correctly formulated and the PDO and the outcome indicators should have been better aligned with each other. This led to some ambiguity and difficulties during the supervision and evaluation process. To fully reflect the PDOs, outcome indicators should have included: (i) the enrollment rates and the graduation rates for all students and for students whose income is below twice the minimum salary; and (ii) the increase in the amount and percentage of alternative sources of funding available to ICETEX, which is an intermediate indicator in the PAD. Conversely, the decrease in ICETEX administrative costs selected as a PDO indicator could have been an intermediate indicator. In fact, at preparation stage: (i) the team decided not to include the graduation rate because the duration of the studies (8 semesters) exceeded the initial 3 years duration of the project; and (ii) the graduation rates of students whose income is below twice the minimum salary were not available. As such, increase in graduation rates should not have been part of the PDO. 25. The outcome and monitoring indicators could have been better defined. The methodologies to calculate the PDO and monitoring indicators were not included in the PAD and in the operations manual. There are some minor discrepancies between the indicators selected in the evaluation and monitoring framework and the ones contained in 6 the operations manual. More precision would have dispelled ambiguities and facilitated the supervision and evaluation process. 2 26. At inception, it was not possible to build and select one single indicator of equity to capture the multiple methodologies used to target the beneficiaries from a vulnerable background. ICETEX used strata 3 to allocate loans, the GoC used SISBEN to target subsidies for vulnerable families, and the MEN used family income when students took their exams (SABER11) to access tertiary education. In these circumstances, various indicators have been used and not all the relationships between them were stated clearly in the PAD to facilitate the monitoring and evaluation of equity issues. 4At preparation stage, a clear comparison of these methodologies and their relation to the socio economic conditions of student families was not available. The comparison in the 2012 “Tertiary 2 For instance, since the definition of the indicators was not included in the PAD, a confusion was created at the 10/20/2010 restructuring: the percentage of students enrolling in the first year of tertiary education whose income is below twice the minimum salary was reported and monitored instead of the percentage of students enrolled in tertiary education whose income is below twice the minimum salary. 3 Socioeconomic strata or estratos socioeconómicos, based mainly on the location of the families, were originally created to distinguish which households would get subsidized access to public services and utilities. There are six strata (1-6, from poorest to richest), of which the first 3 receive a subsidy. However, this system has been shown to be overly inclusionary, so that 90% of the population lives in areas classified as strata 1-3. 4 The relationship is particularly difficult between the intermediate indicator to monitor loan renewals, the “students from strata 1 and 2” to measure the number of ACCES loans, and the students in quintile 1 and 2 considered in the PDO indicator to measure the net enrollment rate. 7 Education in Colombia” study, prepared by the OECD and the Bank, shows the relationship among strata, SISBEN, income quintiles and minimum wages 5. Monitoring and Evaluation (M&E) Implementation 27. ICETEX closely monitored and evaluated the progress of activities carried out under the Project. ICETEX responded to the Bank’s demand for specific data, prepared thorough semi-annual reports and adapted its content and timing to the needs of the Bank. Substantial efforts were also made by ICETEX: (i) to make an in-depth monitoring of repayment trends and to identify and reach students in default to improve the quality of its portfolio; (ii) to monitor the main indicators at HEI level and the implementation of affirmative action plans; and (iii) to conduct all the studies initially planned to improve its 5 Comparison of main socio-economic scales using divisions of the population aged 17-21 None/unknown 100% 6 4 9 or greater Unknown 5 or higher between 7 & 9 4 5 University 90% between 5 & 7 T&T 3 80% 3 between 3 & 5 Secondary 4 70% between 2 & 3 Incomplete 60% secondary 50% 2 3 2 between 1 & 2 40% 30% Primary 2 20% 1 1 under 1 10% 1 None 0% Estrato SISBEN II Minimum wage Equivalised quintiles Mother's education intervals Note: Shares are calculated for population aged 17 to 21; this explains why equalized income quintiles are not each equal to 20% of the total population. Note that each measure is independent; therefore, for instance, households in estrato 1 are not all in equalized income quintiles 1 and 2. Although minimum wage intervals and equalized income quintiles both use income as the underlying variable, note that the former uses total household income and the latter uses income per capita, adjusted for household size and composition. Source: Authors’ calculations based on GEIH 2009 (General Integrated Household Survey) and ECV 2008 (DANE Quality of Life Survey). 8 management and additional studies related with the Sustainability Fund, the perception of beneficiaries and the dropout and risk analysis to understand the causes affecting ICETEX middle and long term sustainability. 28. With the 10/20/2010 restructuring, all but four targets were made more ambitious to reflect the extended implementation schedule and a larger resource envelope than originally anticipated. The other four targets were revised to reflect the impact of the financial crisis, and a more realistic assessment of the operating environment and costs. Finally, PDO-level/impact indicators and intermediate results/implementation indicators were modified. Use of Monitoring and evaluation data 29. ICETEX efficiently used the monitoring and evaluation framework to redefine its relationship with HEIs and improve its portfolio; the reduction of dropouts among loan beneficiaries and the improvement of the graduation of students particularly from families of low socio economic status have been at the center of the contracts made with HEIs. In addition, by linking HEI contributions to the Sustainability Fund to the dropout rates of students, ICETEX created an incentive for academic achievement improvement. Unfortunately, the planned impact evaluation was not concluded timely and therefore could to provide inputs for this ICR. 2.4 Safeguard and Fiduciary Compliance 30. Indigenous peoples: As planned in the PAD, ICETEX has included ethnicity in the application form for student loans since 2008. Since 2010 ICETEX has gone beyond this commitment and implemented a new policy to provide a 50% subsidy to students of indigenous descent. From 2008- 2013, the Alvaro Ulcue Fund for Indigenous Peoples and the Scholarship-loan Program for Afro-Colombians complemented ACCES resources with COP 41.17 billion and COP 59.87billion, respectively. In addition, (i) the participation of indigenous peoples and Afro-Colombians show a positive trend: in 2013 they represented 9.8% of the total number of ACCES loans while in 2008 they represented only 2.7%; and (ii) 18,828 indigenous students and 15,731 Afro-Colombians benefited from loans and grants. 31. FM arrangements were appropriate. A thorough FM assessment was well documented in the PAD, and FM risks were properly identified. ICETEX complied with all its contractual fiduciary obligations. Only the 2009 audit was qualified because an internal control issue was detected. Difficulties with the reconciliation of accounts became more acute when ICETEX decentralized the management of student loans to HEIs in 2009. ICETEX implemented the 9 key corrective actions (of which 8 were related to reconciliations) recommended in the 2010 audit improvement plan with a moderate delay. The 2011 and 2012 audit reports were unqualified and no internal control deficiencies were identified. ICETEX financial control improved following up on the recommendations from the auditors. 9 32. Procurement: Procurement arrangements were appropriate. Since component 1 is procurement free and component 2 had been executed with fiscal and ICETEX resources there was no procurement financed by the Loan. 33. Covenants: all covenants stipulated in the loan agreement were met. 2.5 Post-completion Operation/Next Phase 34. A Third Student Loan Support Project SOP Phase II is under preparation to pursue the expansion of access to tertiary education through ICETEX student loans. The objective of the Project to increase student enrollment, graduation and equity in higher education, by: (a) increasing the number of ACCES Student Loans and the ACCES Program’s focus on students from disadvantaged socioeconomic backgrounds and in quality higher education institutions and programs; and (b) enhancing the ICETEX’s institutional capacity. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Relevance of Objective: High 35. Increasing coverage, graduation and equity in tertiary education mainly through private services, catalyzed by expanded student aid and loan programs remains the priority of the MEN’s National Decennial Education Plan 2006-2016 (PNDE, Plan Nacional Decenal de Educación). Likewise, Project objectives are fully aligned with outcome 2 - Increase in tertiary education enrollment of students from poor households- of the activity “Improve opportunities in education” under the strategic theme “Expanding opportunities for social prosperity” in the current Country Partnership Strategy for Colombia for FY12-16, approved on June 12, 2011. Relevance of Design: High 36. The expansion of targeted student loans remains a suitable global practice to increase coverage, graduation and equity in tertiary education. The GoC continues to be fully aligned with this strategy: while GoC expenditure on higher education has increased from 0.86% of GDP in 2007 to 0.98% in 2011, the share of national transfers to HEIs in the budget has declined over the past decade from 82.6% in 2000 to 54.9% in 2011. On the other hand, Government funds allocated to ICETEX rose from 7.4% of the total public expenditure on higher education in 2000 to 20.1% in 2011.The ICETEX approach is to expand ACCES student loan coverage through collaboration with HEIs, while increasing support and services for low income students, encouraging graduation and fostering a culture of repayment among students. The GoC will pursue this policy, as it plans to provide 240,000 ACCES loans from 2013 to 2018, of which at least 70,000 will benefit students from vulnerable backgrounds, as defined by the SISBEN III methodology. 10 Relevance of Implementation: High 37. The restructuring of the Project helped maintain the relevance of the Project by adapting it to the context of the financial crisis. ICETEX was able to diversify its funding through alianzas with municipalities, universities and departments rather than private sector financing. 3.2 Achievement of Project Development Objectives Table 1 summarizes the results for the five dimensions of the PDO, relying on evidence from the Project’s key outcome indicators but also on several supplementary indicators available in ICETEX bi-annual reports or collected at the ICR stage. Indicator Baseline Original Revised Actual End End Value Target Target 12/31/2006 12/31/2010 06/30/2013 06/30/2013 Improve coverage by increasing the enrollment rate of students in tertiary education Enrollment in tertiary education 1,219,954 1,587,928 1,858, 634 1,841,893 (Undergraduate) (PNDE (2012) for 2012) Enrollment rate in tertiary education 30% 37.1% 42.8% 42.4% (PNDE (2012) for 2012) Improve coverage by increasing the graduation rate of students in tertiary education Number of tertiary education graduates 241,049 146,810 182,270 199,828 (Undergraduate) (2012 ) Graduation rate in tertiary education 22.2% NA NA 22.9% 6 (2013) (Undergraduate) cohort methodology Gross graduation rate in tertiary 19.4% NA NA 33.8% education (Undergraduate) OECD (2012 pr) 7 methodology Graduation rate in tertiary education 29.2% NA 50.0% (Undergraduate) for ACCES NA (2013 pr) beneficiaries cohort methodology Improve equity by increasing the enrollment rate of tertiary education students from economically disadvantaged backgrounds. 6 Source: SPADIES “Sistema para la prevención de la deserción de la educación superior”, using MEN cohort based methodology. The cohort based methodology consists in calculating the percentage of students who graduate with a tertiary education degree within the typical duration of the studies. 7 The gross graduation rate is the number of graduates in a given year divided by the population in the typical graduation age group for the specified level. The typical age refers to the age of the students at the beginning of the school year; students will generally be one year older than the age indicated when they graduate at the end of the school year. For undergraduate study in Columbia the typical age will be 22. 11 Enrollment inthe first year of tertiary 239,216 NA 301,645 education of students whose family (2008) NA (2012) income is below twice the minimum salary Percentage of students enrolled in the 45.6% NA 49.9 58.1 first year of tertiary education whose (2012) family income is below twice the minimum salary 8 Improve equity by increasing the graduation rate of tertiary education students from economically disadvantaged backgrounds Graduation rate of students whose 20.9% NA NA 21.6% family income is below twice the (2013 ) minimum salary. cohort methodology Graduation rate in tertiary education for 11.8% 39.4% ACCES beneficiaries whose family (2013 ) income is below twice the minimum salary, cohort methodology Increase and diversify the sources of alternative funding available to ICETEX in order to increase ICETEX sustainability Amount of ICETEX alternative funding COP COP (resources available for credit generated 56,7342 10,596 NA from external sources other than World NA million million Bank and GoC subsidies) (2013) Percentage of ICETEX alternative 14.9% funding in total ICETEX funding (2012) 0% 9% 7.5% 7.6% (2013 ) Increase in Sustainability Fund COP 0.0 COP 22.5 NA billion NA (2013 Pr) Decrease in portfolio at risk over 30 19% 15% 18% 17.4% days as a percentage of total portfolio (i) Improve coverage by increasing the enrollment rate of students in tertiary education. The outcome is substantial 38. Through the expansion of student loans, (187,610 new student loans and 801,072 loans renewed), the Project has contributed substantially to the increase in access to 8 The enrollment rate of students whose family income is below twice the minimum salary cannot be calculated because the population aged 17-21 whose family income is below twice the minimum salary is not available. 12 tertiary education, exceeding the targets established for the Project before and after the restructuring. Enrollment in tertiary education increased from 1,306,520 in 2008 to 1,841,264 in 2012; enrollment rate went from 31.7% to 42.4% during the same period.This corresponds to the targets established in the National Education Plan. (ii) Improve coverage by increasing the graduation rate of students in tertiary education. The outcome is substantial The number of graduates increased from 146,810 in 2008 to 241,049 in 2012. From 2008 to 2012, the graduation rate for all students enrolled in tertiary education increased from 19.4% to 33.8%.While the graduation rate of students with ACCES loans improved dramatically from 29.2% to 50%. This difference is consistent with: (i) the dropout rate in tertiary education in Colombia remains very high; (ii) academic merit is the main factor in the selection process of ACCES beneficiaries; (iii) ICETEX signed contracts with HEIs to substantially reduce dropouts among loan recipients and HEIs implemented Affirmative Action Plans required by these contracts; and (iv) students who took a loan tended to be more committed to finishing their studies. These results confirm that the contracts between ICETEX and HEIs, which include the implementation by the HEIs of plans to lower dropouts and a more careful monitoring of students with ACCES loans, can be an effective way to reduce dropouts and improve graduation. (iii) Improve equity by increasing enrollment of tertiary education students from economically disadvantaged backgrounds. The outcome is substantial 39. Through the targeting of strata 1 and 2, ICETEX contributed to the expansion of student loans to students whose family income is below twice the minimum salary (from 39.3% of total students enrolled with ACCES support in 2006 up to 49.5% in 2012). Enrollment in tertiary education of students whose family income is below twice the minimum salary increased from 239,216 in 2008 to 301,645 in 2012 while their proportion of total first year enrollment went from 45.6% to 58.1% respectively, exceeding the target established after the first restructuring. In terms of geographical distribution ICETEX ensured a better coverage of the poorest areas by distributing resources among departments according to the share of secondary education graduates. (iv) Improve equity by increasing the graduation rate of tertiary education students from economically disadvantaged backgrounds. The outcome is substantial 40. The graduation rate of students whose family income is below twice the minimum salary increased slightly from 20.9% in 2008 to 21.6% in 2013, while the graduation rate of those who benefited from an ACCES loan increased substantially from 11.8% to 39.4% in the same period. The agreements between ICETEX with HEIs contributed significantly through Affirmative Action Plan to reduce drop outs, increasing graduation and fostering a culture of loan renewal and repayment among students. (v) Increase and diversify the sources of alternative funding available to ICETEX in order to increase ICETEX sustainability. The outcome is modest 13 41. ICETEX pursued a very pro-active policy to increase its sustainability by: (i) establishing the Sustainability Fund in 2009, through contracts with HEIs; (ii) leveraging funds through alianzas with 89 local government, districts, departments and municipalities; (iii) exploring the possibility to tap into the private capital market by issuing TAEs and other options (bonds, securitization) on the private equity market, although the results were not successful; (iv) managing about 300 targeted funds and donations. However, the total amount of funds rose through alianzas amounts to just 1.3% of ICETEX resources. 42. According to the definition of sustainability included in the PAD, the assessment of the outcome is also based on the following: (i) ICETEX was successful in demonstrating that it could operate in a more sustainable manner by reducing its administrative costs, since the cost for administering the student loans program should normally be covered by the interest rate paid by students; (ii) ICETEX was successful in reducing the proportion of the portfolio at risk over 30 days from 19% to 17.4%; (iii) ICETEX was less successful in minimizing its dependence on GoC subsidies considering that GoC transfers tripled since 2008; and (iv) it is not possible to reach a conclusion on the ability of borrowers to meet loan repayment installments under variable economic conditions (third dimension of sustainability considered in the PAD), since no new sensitivity analysis has been done. 43. ICETEX achieved all the activities and sector works dedicated to the improvement of portfolio management and collection processes, financial management and evaluation and monitoring management. These activities contributed substantially to the reduction of the administrative costs and the portfolio at risk. 9 3.3 Efficiency Rating: Substantial 44. The cost-benefit analysis performed for the appraisal (2007) 10 provided a sound basis to estimate the economic results of the operation. Based on the same assumptions used in 2007, the economic analysis was carried out for the ICR using actual data for the different variables (Annex 3). The results, measured as the Internal Rate of Return (IRR), were calculated for the perspective of three distinct agents, namely: (i) the Colombian economy as a whole or the “Project”, (ii) the Government of Colombia (GoC) and; (iii) the average ICETEX student loan recipient. A summary is as follows: (i) Colombian 9 A list of these activities and sector works are detailed in annex 2 Outputs by component. 10 The 2007 calculations were adjusted since there were some technical errors. Thus, the values shown for 2007 are based on the revised assumptions made during appraisal. Therefore, the IRRs for 2007 differ from the IRRs mentioned in the PAD as follows: (i) Economy as a whole: 10.9 % adjusted (14.9% PAD); (ii) State: 12.2 % adjusted (15.3% PAD); (iii) Student: 28.5%, no changes. 14 economy: The IRR derived is 19.67 percent, comparing to 10.7 percent in 2007: the actual result is higher due to the actual higher number of graduates vis a vis the estimated value at appraisal; (ii) Colombian Government: The IRR derived is 12.2 percent, comparing to 14.1 percent in 2007: the return decreased mainly due the higher default rate (30 percent vis a vis 20 percent at appraisal) ; (iii) Private benefits: The IRR derived is 29.2 percent for the 2008-2010 period and 35.1 percent for 2011-2013, comparing to 28.5 percent at appraisal. The individual returns increased for the period 2008-2010 due to higher salaries and increases in the tuition subsidies, and for the period 2011-2013 due to subsidies for living costs, partial debt cancellation and reduction of real interest rate to 0%. 45. ICETEX made high efficiency gains by reducing its administrative costs substantially from 6.1% in 2006 to 2.6% in 2013. This is the result of several managerial decisions: (i) to decentralize to HEIs the management and monitoring of student loan disbursements; (ii) to computerize and simplify administrative processes; (iii) to improve information systems; (iv) to develop a very comprehensive interactive web site to provide information to students; and (iv) to maintain the permanent staff levels at 200 individuals, while the volume of transactions of student loans was multiplied by 6. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory 46. The relevance of the objectives, design and implementation at the date of evaluation are high. The outcomes of the Project are substantial in terms of improving tertiary education coverage, and graduation rates including those whose family income is below twice the minimum salary. The outcome is modest in terms of diversifying the sources of alternative funding available to ICETEX. The efficiency rating is Substantial. The combination of these ratings yields an overall satisfactory. 3.5 Overarching Themes, Other Outcomes and Impacts Poverty Impacts, Gender Aspects, and Social Development 47. Of the 187,610 ACCES student loan recipients, 83% come from strata 1 and 2 and 34% from stratum 1. Therefore, the Project was able to target the students from lower socio-economic backgrounds. This will certainly lead to a positive long term intergenerational impact on poverty reduction. However, the results of the impact evaluation and the graduate long term tracking survey of graduates would demonstrate more accurately how ACCES graduates progress after-graduation, including evaluating income differences related to socioeconomic origin. 48. There is no specific gender issue of tertiary education coverage and no indicator was considered in the PAD. Girls represent 56% of the portfolio of ACCES loans, and they represent 52.5% of total tertiary education enrollment. 15 Institutional change/strengthening 49. In addition to the continuous expansion of student loans, the main institutional change was to decentralize part of the processes to the HEIs through contracts. Other Unintended Outcomes and Impacts (positive or negative) 50. None 4. Assessment of Risk to Development Outcome Rating: Moderate 51. The risks that the outcomes achieved under the Project might not be sustained are moderate. ICETEX is strongly backed by the GoC and HEIs, responds to a strong demand for student loans, and has robust and efficient processes. However, student loans policy has faced some resistance from some students groups demanding for free public education, grants and/or lower interest rate. There are still considerable gains that can be achieved with student loans in terms of coverage, graduation, and equity in tertiary education. The main limitation is its funding base, which is still highly dependent on public resources and is insufficient to satisfy the demand. If the gap between student demand and ICETEX lending capacity widens, there is a risk of expansion of students support to protests against loan policy. 5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5.1 Bank Performance Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 52. The Project benefited from a simple design, capitalized on the lessons learned from the preceding operation and incorporated state of the art international experiences. The collaboration between the GoC, ICETEX and the Bank was exemplary, and the Project was prepared swiftly. The Bank agreed: (i) to financial conditions that responded to the needs of the GoC and ICETEX; and (ii) to implement the Project through ICETEX and to dissolve the PIU. The Bank’s performance had some minor shortcomings: (i) the choice and definitions of key performance indicators (KPIs) could have been more clearly aligned with the Project PDO and target population; (ii) the target population could have been more precisely defined and only one definition could have been chosen for the results framework;; and (iii) the expectations of expanding the funding base through the private capital market were too high/unrealistic. 16 Quality of Supervision Rating: Satisfactory 53. Project supervision was satisfactory, benefiting from strong support from the Colombia country office. The Bank carried out a minimum of two field missions per year and provided additional technical assistance, particularly in the area of financial management. Aide memoirs and Implementation Status Reports (ISRs) provided detailed accounts of progress as it was being made. Close collaboration between ICETEX and the Bank helped to address several challenges such as: (i) the reduction of the administrative and financial costs; (ii) the emission of TAEs; (iii) hedging options to limit the exposure to exchange risks; and (iii) delinquency and default associated to dropout issues. The Bank worked closely with the GoC and ICETEX and provided the flexibility needed to achieve the successful implementation of Project activities, including processing three restructurings. Bank supervision had one minor shortcoming: the restructuring could have made a more profound revision of outcome indicators to align them with the PDO. Since the objectives of the Project were nonetheless clear all along, the Bank took the right decision not to change the PDO even though it did not follow best practices in its formulation. Justification of Rating for Overall Bank Performance Rating: Satisfactory 54. Overall Bank performance is considered satisfactory since quality at entry and quality of supervision are satisfactory. 5.2 Borrower Performance Government Performance Rating: Satisfactory 55. Student loans remain at the core of GoC policy to increase coverage of higher education and the Project and ICETEX benefited from a continuous support from the MEN and MoF. The loan penetration rate increased from 13% of total tertiary education enrollment subject to ICETEX loans in 2006 to 20% in 2013. The government that came into power in August 2010 increased its commitment to this policy by taking several steps: (i) Law 1450 approved by the Congress in 2011 and Law 1547 in 2012 liberalized the policy toward student loans and boosted demand; and (ii) GoC transfers to ICETEX tripled from 2010 to 2013. Implementing Agency or Agencies Performance Rating: Satisfactory 17 56. ICETEX exhibited strong ownership of the Project and its preparation. ICETEX is staffed with highly qualified professionals and demonstrated its experience, maturity and effectiveness in the assignment and disbursement of student loans. ICETEX was reactive to the necessity of improving the management of the student loan portfolio and reducing the portfolio at risk even in the context of the economic downturn. In particular ICETEX was very dynamic in engaging in collaborative actions with HEIs to address the issue of dropouts among student loan recipients, which is the main source of repayment delinquency and default. ICETEX introduced new eligibility criteria and numerous innovations in the financial conditions of ACCES loans. ICETEX and the Bank worked in a very collaborative way and ICETEX was always very responsive to recommendations during supervision. When the management of student loans was decentralized to HEIs and the issue of reconciliation of accounts arose, ICETEX implemented the necessary measures to strengthen its financial management. Justification of Rating for Overall Borrower Performance Rating: Satisfactory 57. Overall, the Borrower’s performance is deemed satisfactory given the satisfactory performance of both Government and the implementing agency. 6. Lessons Learned a) Lessons of wide general application 58. PDO and indicators. The PDO should be expressed in a way that the objectives are expressed upfront, followed by Project results which are expected to contribute to their achievement. Including PDO indicators in the PDO as a means of achieving Project objectives should be avoided to prevent confusion and clarify aims. PDO indicators should measure progress toward achievement of objectives for the target population, and should be defined in the Results Matrix. When appropriate, it is better to use indicators in absolute numbers rather than rates or percentages which are more difficult to monitor if they depend on census data which is beyond the scope of the Project (i.e. number of students enrolled in tertiary education rather than enrollment rate or number of graduates rather than graduation rates). 59. Implementation Arrangements. A transfer of responsibility in 2011 for implementing the Second Student Loan Support Project Phase I from a PIU (Project Implementation Unit) to ICETEX improved efficiency and continuity. The absorption of all PIU staff into ICETEX’s operational and financial units increased ICETEX’s commitment to that project and its sustainability. 60. Financial Terms. The financial terms of the Bank loan under the Project were developed in close collaboration between the Bank and ICETEX were important to reduce ICETEX’s financial risk:(i) an extended repayment period of 22.5 years, including a 6 year grace period, reduced cash flow risk, (ii) loan maturity tied to the timing of Bank 18 disbursements rather than commitments helped ICETEX further manage its cash flow risk; and (iii) conversion to COP (Colombian Pesos) at the time of disbursement minimized exchange rate risk. b) Project specific lessons 61. Agreements with HEIs. The agreements with HEIs and more specifically the implementation of affirmative actions to reduce dropout rates have proved to be effective and should be pursued and monitored carefully. The 2012 intermediate evaluation of the Sustainability Fund demonstrated that student loans can be associated with lower dropout rates in most HEIs. All the HEIs complied with the obligation of having an action plan to improve graduation rates. The agreements with tertiary institutions and more specifically the implementation of action plans should be encouraged and carefully monitored in order to ensure further improvement of graduation rates. Such monitoring could eventually be done through score cards. This collaboration between ICETEX and the HEIs has permitted the introduction of a more result oriented culture 62. Collaboration with MEN. The collaboration between the MEN and ICETEX is critical to ensure that a plan including the implementation of quality standards and incentives be in place to increase the number of accredited HEIs. The MEN should engage in complementary actions to the Project and coordinate with ICETEX to improve quality in tertiary education. The Phase II PDO and project design can remain similar and focus on student loan management and ICETEX efficiency if the MEN is committed to engage in these complementary actions on quality. 63. Funds Diversification. Leveraging ICETEX resources with funds from other sources, including municipalities, universities, and/or departments, through alianzas and through the Sustainability Funds has been more successful than raising financing from the private market. Despite ICETEX’s repeated efforts and its good credit rating, the expansion of the funding base through private capital markets has not been as successful. ICETEX has securitized parts of its portfolio through TAEs in the past but government regulation and market conditions have so far prevented bond issuances from being large enough to raise funds inexpensively and efficiently. 64. Allocation Formula. It is possible, through incremental changes to the formula used to allocate student loans, to reconcile the different methodologies used to target students from low income families to improve the targeting and make it compatible with the reduction of risks. Further improvements to the formula could still be done to improve the targeting while reducing the risks. This formula could avoid further competition between students from different socioeconomic backgrounds. 19 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies (b) Co-financiers (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 20 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal millions) millions) Total Baseline Cost NA NA Physical Contingencies NA NA Price Contingencies NA NA Total Project Costs 387.92 387.92 100.00 Front-end fee PPF 0.00 0.00 0.00 Front-end fee IBRD 0.75 0.75 100.00 Total Financing Required 388.67 388.67 100 (b) Financing Appraisal Actual/Latest Percentage Type of Estimate Estimate Source of Funds of Cofinancing (USD (USD Appraisal millions) millions) Borrower 88.67 88.67 100.00 International Bank for 300.00 300.00 100.00 Reconstruction and Development 21 Annex 2. Outputs by Component Component 1:Expanding equity and access to tertiary education 1.1. Finance and disburse student loans: Achieved Number 2008 2009 2010 2011 2012 2013* TOTAL of ACCES student loans Approved 37,982 43,347 41,782 47,078 53,336 28,642 252,167 New 30,801 29,464 29,022 36,455 40,444 21,424 187,610 Renewed 132,124 136,361 135,151 153,726 158,081 85,629 801,072 *Data as of 06/15/13 Number of new Original target Formally revised Actual values ACCES student values (from target values achieved at loans approval completion or target documents) year New ACCES loans 90,149 134,875 187,610 ACCES loans to 80,000 111,426 156,170 new students from strata 1 &2 1. The ACCES loans has enabled about 187,610 new students to access tertiary education of which 156,170 come from strata 1 and 2. (49% of the beneficiaries are from strata 2 and 34% from strata 1). This outcome far exceeds the targets set up. 2. ICETEX made several changes to the model and eligibility criteria used to allocate ACCES loans (i) an increase in the weight of accreditation in 2009 to give more importance to quality; (ii) the inclusion in 2012 of the eligibility criteria of the contracts with HEIs; (iii) an increase of the weight of the academic merits; and (iv) the reduction in 2009 of the weight of the socio-economic origin in the eligibility criteria (STRATA was reduced and SISBEN dropped). The objective of ICETEX was to improve the relationship between the allocation of ACCES loans and the probability of the beneficiaries to graduate. These changes slightly affected the targeting; the percentage of beneficiaries from strata 1 and 2 went down from 84 % in 2010 to 82% in 2013 of the ACCES loans that were approved during the period. Under ACCES, new student loans are distributed twice a year based on a formula that first allocates funds by department to 22 cover all of the demand in the apartados 11 , and for the remaining departments proportional to the number of secondary school graduates. ICETEX then allocates funds within each non-apartado department based primarily on student merit (weighted 73%) and to a lesser extent based on accreditation of the program or HEI that the student plans to attend (12%), the student’s socioeconomic strata 12 (12%) and the existence of an ICETEX contract with the HEI that the student plans to attend (4%). Weight of the different variables used in the allocation model Variable 2007 2008-1 2008-2 2009-1 2009-2 2010-1 2010-2 2011-1 2011-2 2012-1 2012-2 2013-1 2013-2 Academic merits 62% 62% 62% 62% 76% 76% 76% 76% 73% 73% 73% 73% 73% Strata 17% 17% 17% 10% 12% 12% 12% 12% 12% 12% 12% 12% 12% Semester 7% 7% 7% 7% 0% 0% 0% 0% 0% 0% 0% 0% 0% Acreditation 7% 7% 7% 7% 12% 12% 12% 12% 12% 12% 12% 12% 12% Sisben 0% 7% 7% 14% 0% 0% 0% 0% 0% 0% 0% 0% 0% Level 7% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Contracts HEIs 0% 0% 0% 0% 0% 0% 0% 0% 4% 4% 4% 4% 4% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Evolution of the targeting of ACCES loans 3. ICETEX made several changes to the terms and conditions of the loans which benefit the students: Following the Government 2011 Law 1450 and 2012 Law 1547, the following improvements were made and became effective on January 2011 for new ACCES loans and loans renewal; (i) the interest rate for borrowers from strata 1, 2 and 3 was reduced to IPC and for borrowers from strata 4,5, and 6 to IPC plus 4% during their study period, and for their repayment period IPC plus 4% in Technological Institutes and IPC plus 8% in Universities (prior to 2010 it was 14% and IPC plus 8% for students from SISBEN 1 and 2 and 16% for all the other students) ; (ii) the forgiveness of 25% of the outstanding balance of the loans for students of SISBEN 1, 2 who successfully completed their degree; (iii) the forgiveness of the totality of the debt for students of SISBEN 1, 2, 3 in the first decile of the SABER PRO; and (iv) an increase in the size of the subsidy of COP 630,000 per semester (adjusted every year for inflation) for living expenses and an expansion of coverage to all beneficiaries registered at SISBEN 1 or 2. 4. In addition, ICETEX introduced in 2012 (i) a more flexible model for students’ loans repayments with the introduction of an optional amortization system with staggered repayments (as opposed to fixed premium), as an intermediate step towards income- 11 9 departments in Colombia are considered zonas apartadas (remote areas) or apartados due to their low income levels and geographic inaccessibility. They are granted special status for loan allocation purposes. The following departments are apartados: Amazonas, Arauca, Caquetá, Guainía, Guaviare, Putumayo, San Andres, Vaupes, Vichada, and more recently Chocó. 12 Socioeconomic strata or estratos socioeconómicos were originally created to distinguish which households would get subsidized access to public services and utilities. There are six strata (1-6, from poorest to richest), of which the first 3 receive a subsidy. However, this system has been shown to be overly inclusionary, so that 90% of the population lives in areas classified as strata 1-3. 23 contingent loans; (ii) the suspension for a period of up to 12 months, of a loan’s entry into the repayment period (or the suspension of the obligation to repay, if the loan is already in the repayment period) when the borrower is unemployed; (iii) the cancellation for the mandatory monthly payment ; (iv) the possibility to make repayments toward the loan in excess of the agreed repayment at any point in time; and (iv) the cancellation of the 25% subsidy for tuition fee which was previously allocated to beneficiaries with SISBEN 1replaced by the new maintenance subsidy. 5. These reforms were beneficial to both current and future borrowers by making ICETEX loans more attractive and the repayment easier. This contributed to increase demand for ICETEX loans and to improve repayment ratios. Impact of student loans on completion of study and employment 6. The impact evaluation should be available in January 2014 and was not available for this ICR. Student loans have generally a positive impact on completion of study and employment. The 2008 impact evaluation shows that the dropout rate of students with an ACCES loan is 9.4% compared to 34.4% for the students without a loan. And the 2010 employment study shows that 77% of the students with an ACCES loan have an employment compared to 75% for students without a loan. Demand for student loans 2008 2009 2010 2011 2012 2013* 13 Eligible demand of student loans 72,351 81,286 61,387 66,362 79,765 61,948 Student loans approved 37,982 43,347 41,782 47,078 53,336 28,642 % student loans approved 52% 53% 68% 71% 67% 46% *First semester 2013 7. The numbers by year are not fully comparable: (i) in 2008 and 2009 there was a substantial duplication of applications due to an unrestricted access of HEIs to Credit Committees; (ii) in 2010 to 2012 the reduction of duplication of applications led to an increase of the approval rate; and (iii) in 2013 since only the first semester is considered the demand and approval will certainly exceed 2012. 8. The resources of ICETEX are insufficient to attend the demand of student loans. 13 Demand that meets the minimum eligibility criteria of ACCES loans such as to be a student from strata 1,2, 3 with good academic results, or a student from strata 4, 5, 6 with excellent academic results, or a vulnerable student from rural area or displaced. 24 Student loans and choice of HEIs DD Aproved 2008 2009 2010 2011 2012 2013 T&T 8612 15506 13320 14963 16507 7813 Universidad 29331 27795 28431 32113 36829 20829 Total 37982 43347 41782 47078 53336 28642 % Legal T&T 23% 36% 32% 32% 31% 27% % Legal Univ 77% 64% 68% 68% 69% 73% 9. The distribution of approved ACCES loans by HEIs corresponds more or less to the distribution of enrollment of tertiary education by HEIs (33.8% in technical and technological colleges and 66.2% in universities). Participation of indigenous and Afro-Colombian: Achieved Beneficiaries 2008 2009 2010 2011 2012 2013 TOTAL Indigenous 0 0 2015 2078 2501 3633 10227 Indigenous ACCES 342 979 1290 2749 2712 529 8601 Afro-Colombian 0 0 2908 1184 3582 3500 11174 Afro-Colombian ACCES 475 362 482 711 961 1566 4557 TOTAL of loans/grants 817 1341 6695 6722 9756 9228 34559 10. The fund Alvaro Ulcuè Chocuè was created in 1990 to facilitate the access of indigenous people to higher education. Since 2008 about 10,227 loans have been approved for a total amount of 41,171,815,826 pesos. In addition, 8,601 new ACCES loans have been approved for indigenous population representing about 4.5% of the 187,610 ACCES new beneficiaries during the period 2008-2013 while the indigenous population represents 3.43% of the total Colombian population. This fund is managed by ICETEX according to the following: (i) the beneficiary should belong an indigenous community; (ii) the credit is for undergraduate and graduate studies; (ii) the credit can be forgiven if the student graduates and does community service in his/her community during his/her period of study. 11. The Scholarship- Loan Program for the Afro-Colombian population was created more than 20 years ago to facilitate the access of the Afro-Colombian population to higher education. Since 2008, about 11,444 loans have been provided and 1181 debt have been forgiven for a total amount of 59,868,688,636 pesos. In addition, 4557 ACCES loans have been approved for Afro-Colombian representing 2.42% of the 187,610 ACCES new beneficiaries during the period 2008-2013 while the Afro-Colombian population represents 10.62% of the Colombian population. This fund is managed by ICETEX according to the following parameters: (i) the beneficiary should belong to the Afro-Colombian community and should belong to a low income family; (ii) the credit is for undergraduate and graduate studies; (ii) the credit can be forgiven if the student graduate and do community service in his/her community during its study period. 25 12. In total, ACCES loans to students from indigenous and afro-Colombian groups represented 7.01% of the total number of new ACCES loans during the period 2008-2013. Participation of indigenous and afro-Colombian groups show a positive trend: in 2013, they represented 9.8% of the total number of ACCES loans while, in 2008, they represented only 2.7%. Importantly, with the support of the Government, ICETEX went beyond its commitment and since 2010 has given these students a subsidy of 50% of their tuition fees. 13. In addition, the GoC approved a law 1448 in 2011 in favor of the victims of the conflict. This law compelled educational institutions to adapt their requirements, cost, and admission criteria to ensure that victims of violence have equal access to higher education, with a special focus on single mothers, teenagers, and the disabled. It additionally compelled ICETEX to create separate credit lines and subsidies for victims. As a result, ICETEX established a separate Fund for Victims of Violence (Fondo de Reparación para el Acceso, Permanencia y Graduación en Educación Superior para la Población Víctima del Conflicto Armado), offering loans (eligible for 100% forgiveness), biannual subsidies for students equal to 1.5 minimum salaries, and a subsidy for HEIs that adopt differentiated academic and mentoring programs for victims. 1.2. Form alliances with higher education institutions: Achieved ICETEX signed 233 contracts with tertiary education institutions in 2010, 14 in 2011 and 12 in 2012. The total of 259 contracts exceeds the target of 206 that was set up. 14. The content of these contracts represent a substantial improvement compared to the previous agreements done with HEIs. The main improvements are the following: (i) the inclusion of a set of affirmative actions to reduce drop outs and a plan to implement them; (ii) the provision of information every six months about students with a low economic achievement; and (iii) the contribution of HEIs to a Sustainability Fund. 15. Through these contracts, ICETEX encourage institutions to: (i) increase support and services to low income students; (ii) help students manage education loans; (iii) foster a culture of repayment among students; (iv) support collection efforts after graduation, and in some cases; (v) co-finance tuition. ICETEX monitors contracts and the plans every 6 months but there is not yet a full analysis of the impact of these contracts on students’ academic achievement. Contents of the contracts between ICETEX and HEIs ICETEX obligations HEIs Obligations Report every months the approved student Help disseminate information about loans students loans Inform at the beginning of each semester Present a Plan of affirmative actions to the schedule for student loans processing. reduce drop outs Transfers the fund 45 days after le legal Provide the facilities necessary for the approval of the students loans provision of services and management of 26 student loans Publish in the web pages the funds Realize the monitoring and certify the transferred to each beneficiary academic achievement of beneficiaries of student loans Distribute to beneficiaries the payment Report every semester the students who receipts drop outs Coordinate all the actions related to Verify the socio economic strata of the students loans beneficiaries Advise HEIs on student loans management Designate a coordinator in charge of and provide assistance ICETEX student loans Advise HEIs on the monitoring of Process and monitor students loans beneficiaries according to the rules Assess the achievement of targets set up in Improve dropout rates of students with the Plan of affirmative actions ICETEX loans Provide incentives to access, quality and Monitor students financial obligations relevance during their study Improve financial sustainability Update each semester the information on students Component 2: Improving ICETEX management practices: achieved 2.1 Strengthen loan administration, portfolio management and collection procedures and upgrade data technology hardware & software. 16. ICETEX financed its Institutional Strengthening component activities exclusively with its own resources to concentrate financial leverage to support ICETEX’s core business the origination of student loans. Activity Implementation Achievement 2.1 Improvement The following activities took place: achieved of portfolio - The partnership contract with the credit bureau management and allowed ICETEX to be permanently informed on collection processes the (i) credit check processes; (ii) borrower localization actions; and (iii) repayment behavior. As outcomes, the risk profile of the co- debtors and collection improved. - With regard to the data migration of the new portfolio management system for ACCES loans, the following is completed: (i) the migration of COBOL to C&CTEX in 2008; (ii) the implementation of the software design project since 2008 onwards. - The Business Impact Analysis realized in 2010 leaded to the implementation of a Business continuity plan which is permanently updated. - Development of six software for (i) 27 information security; (ii) business process management; (iii) quality; (iv) risks; (v) customer relationship management; (vi) documents and files management. The software related for TAE management was cancelled and the software for collection management was studied but not implemented. - The information technology upgrade consisted of: (i) the data warehouse licensing (2008); (ii) the upgrade of the WAN server (; (iii) remote control management (procurement of 450 licenses) of computers; (iv) computer renewal (100% of ICETEX computers have been upgraded to windows 7 and office in 2010); and (v) renewal of the UPS system for power safety in ICETEX headquarters and its 23 regional branches (procurement in 2010 and 2011). (v) to ensure data confidentiality ICETEX took significant steps in 2011-2012 to re-engineer security processes like encryption and actions against hacking . 2.2 Financial - Study about TAE issuance (2011) achieved sustainability - Study about local bonds issuance (2012) - Student loans securitization study (2012) - Public debt issuance study (2013) - Study of expected losses for portfolio provision and write off (2012) –Credit Risk Administration System 2.3 Management - Staffing of the Project Implementation Unit (69 achieved monitoring and contracts during the life of the project, from evaluation 2008 to 2011 the PIU was staffed with 26 management: people) - External audits (5 realized) - Impact Evaluation for the mid-term review (2010) - Student loan program: Impact evaluation and reasons for success (2013) - Stakeholders survey (2008) - Design of an econometric model for the allocation of students loans (2009) - Design of the MAIE (“Modelo de Atención Integral al Estudiante”) Comprehensive Student Care Model - Study: ICETEX loans: The path to equitable Access to tertiary education in Colombia (2011) 28 2.2 Prepare to expand funding base to ensure long-term sustainability: Partially Achieved 17. From 2008 to 2013, ICETEX more than doubled its funding base from 545, 097 million COP to 1,181,230 million COP. However, these resources are still insufficient to address current demand for student financing (only 46% of student loans are approved). The main source of external funding is the government subsidies which increased its share from 24.16% in 2008 to 35.22% in 2013 of ICETEX total resources. The increase of Government participation is the consequence of the implementation of the 2011 Law 1450 and 2012 Law 1547. ICETEX own resources are growing slowly and steadily to represent 48.33% of total resources. ICETEX resources 2007 2008 2009 2010 2011 2012 2013 (PR) Own resources 375,669,092,144 344,769,722,824 384,924,793,744 446,124,340,589 565,315,630,253 548,585,940,662 568,077,983,621 GoC ressources 129,996,446,784 131,718,966,103 144,741,863,765 131,349,009,001 194,248,095,078 328,040,411,105 423,012,323,559 World Bank 0 68,600,828,759 130,183,676,190 148,788,988,704 0 59,127,834,706 174,942,993,418 Alliances 31,452,660 7,553,594 8,779,872,770 13,562,614,780 15,398,005,945 14,312,255,238 15,196,760,219 Total 505,696,991,588 545,097,071,280 668,630,206,469 739,824,953,074 774,961,731,276 950,066,441,711 1,181,230,060,816 18. ICETEX explored the possibility to tap into the private capital market by issuing Educational Savings Certificates (TAE) on the private equity market. This would be feasible with the credit rating AAA received by Fitch in 2011, its increased financial transparency and better collection performance. A consultancy firm has been hired to carry out a study on alternatives for balancing the financial mix of the institution. But the 2011 study was not conclusive: (i) the potential of investors interested in the Bogota Stock Exchange would have been very small and that only about 19,500 million pesos could have been raised; and (ii) the cost would have been too high. 19. ICETEX started diversifying it resources in 2009 through strategic alliances with 89 local government, districts, departments and municipalities. The four main contributors “Gobernación de Cundinamarca Plan Primavera, Gobernación de Cundinamarca Opción de Vida, Distrito de Cartagena, Departamento de la Guajira” represent more tan 50%. Despite the number of strategic alliances, the amounts in 2013 COP 15,196,760,219 remains modest and represents only 1.28% of ICETEX funding. Nevertheless, from 2009 to 2013 the strategic alliances financed about 23000 students. 20. In addition, ICETEX diversified its resources through contracts with HEIs and the establishment of a Sustainability Fund as an independent trustee in December 2009. The contribution of each HEI to the Sustainability Fund is based upon its dropout rate. The dropout rates serve to establish an indicator of risk for each HEI.14 ICETEX matches the 14 The indicator of risk is the number of student drop out who default divided by the number of beneficiaries of student loans. The value of this indicator was 7.9% in 2011. 29 contribution of the HEI on a 1-for- 1 basis. The dropout rates on average in HEIs was 7.9% in 2011 and 6.6% in 2012. ICETEX Board decided to use 6% on average to define the respective contribution of ICETEX and HEIs to the Sustainability Fund. A new evaluation of the dropout rates will be done before the end of 2013 to define the future contributions of HEIs to the Sustainability Fund. PAD Indicator 2008 2009 2010 2011 2012 2013 Resources for investment in Undergraduate Programs 355,785,177,189 408,297,351,838 435,140,348,969 519,589,767,598 621,556,798,649 737,928,679,005 (ACCES and other ICETEX credit lines) - (2) Total resources available for student loans Alliances 7,553,594 8,779,872,770 13,562,614,780 15,398,005,945 14,312,255,238 15,196,760,219 generated from new external sources - Administered Funds Fees 15,469,101,610 17,078,945,903 15,286,604,758 15,521,400,328 18,958,685,528 16,838,053,820 different from ICETEX own collection and Sustainability Fund 0 0 0 0 59,456,217,914 22,527,008,600 GoC transferences (1) Other 0 0 0 13,014,792,301 0 1,480,000,000 PAD INDICATOR - Resources Diversification = (1) / (2) 4.3% 6.3% 6.6% 8.5% 14.9% 7.6% 21. In 2013, the total of resources generated from external sources 15 reached 56041million COP on a total 723928 million COP of available for student loans at undergraduate level. This represents 7.59% of total resources, slightly above the target of 7.5% set up after restructuring and below the target of 9 % set up initially. 2010 was a year to estimate the resources for the Sustainability Fund, the rules for the respective contributions of ICETEX and HEIs were only effective in 2011. The resources of the Sustainability Fund accounted in 2012 represent the total of 2011 and 2012. 22. The origin of the external sources in 2013 is shown in the table below: PAD Indicator 2013 Resources for investment in Undergraduate Programs 737,928,679,005 (ACCES and other ICETEX credit lines) - (2) Total resources available for student loans Alliances 15,196,760,219 generated from new external sources - Administered Funds Fees 16,838,053,820 different from ICETEX own collection and Sustainability Fund 22,527,008,600 GoC transferences (1) Other 1,480,000,000 PAD INDICATOR - Resources Diversification = (1) / (2) 7.6% 15 The formula used to measure the percentage of total resources available for credit generated from external resources is the following: resources from Strategic Alliances + Commissions generated by the management of Funds+ Sustainability Fund + Other (Donation, Asset sales, guarantees etc) 30 2.3Project monitoring & impact evaluation: Achieved 23. Planned monitoring has been undertaken regularly, using the implementation indicators agreed upon with ICETEX. Specifically, these indicators were measured and reported by ICETEX every six months and progress was assessed by comparing the actual performance of the indicators against predefined targets, as described in the PAD. 24. In the October 20, 2010 restructuring it was agreed to revised all but four targets and to revise two indicators (Increase in the percentage of students enrolled in tertiary education whose income is below twice the minimum salary and Percentage of total resources available for student credit generated for new external sources (other than ACCES credit, government/public funding for tuition or interest rate subsidies or equity resources). 25. In addition ICETEX developed several new indicators and in particular: • To monitor dropouts, credits’ defaults and the main causes of decline of the portfolio quality under the guidelines discussed with HEIs • To monitor non-performing loans 26. The following complementary studies that were not initially programmed in the Project have been implemented by ICETEX: Studies Consulting firms Year Financial viability research CORREVAL SA 2008 funding and financing alternatives for the company given its borrowing capacity Satisfaction survey, 360 INVAMER GALLUP 2008 perception of ICETEX Educational expenditure and Universidad Nacional de 2008 impact on family income, Columbia CID characterization of institutional strategies to complement student loans, to increase the permanence and social inclusion of students in higher education Building the model of ECONOMETRIA SA 2009 classifying and profiling for the allocation of student loans at undergraduate level Colombian Program of ECOMOMETRIA 2010 student loans: Impact and factors of success 31 ICETEX Student Loans ICETEX-World Bank 2011 Satisfaction survey, 360 Centro Nacional de 2012 perception of ICETEX Consultoría Definition of the “Modelo ICETEX Office of 2012 de Atención Integral al Planning Estudiante” and model to secure the credit 27. The final impact evaluation has been launched on July 31, 2013 and the results will be available in January 2014. 32 Annex 3. Economic and Financial Analysis 1. Cost-Benefit Analysis: The cost-benefit analysis performed in 2007 for the appraisal (CBA 2007) 16provided a sound basis to estimate the economic results of this operation. The methodological approach used was the standard, comparing whether the Project’s benefits, namely higher wages and probability of employment for graduates, positive spillovers for society, and higher tax revenue for the state, outweigh the opportunity cost (forfeited wages, tuition and loan interest, living costs, amongst others). The results, measured as the Internal Rate of Return (IRR), were calculated for the perspective of three distinct agents, namely: (i) the Colombian economy as a whole or the “Project”, (ii) the Government of Colombia (GoC) and; (iii) the average ICETEX student loan recipient. 2. Based on the same assumptions used in CBA 2007, ICETEX was carried out the economic analysis for the ICR using actual data for the different variables for the period 2008-2013. The results are summarized as follows: (i) Colombian economy: The IRR derived is 19.67 percent, comparing to 10.7 percent in 2007: the actual result is higher due to the actual higher number of graduates vis a vis the estimated value at appraisal; (ii) Colombian Government: The IRR derived is 12.2 percent, comparing to 14.1 percent in 2007: the return decreased mainly due the higher default rate (30 percent vis a vis 20 percent at appraisal) ; (iii) Private benefits: The IRR derived is 29.2 percent for the 2008- 2010 period and 35.1 percent for 2011-2013, comparing to 28.5 percent at appraisal. The individual returns increased for the period 2008-2010 due to higher salaries and increases in the tuition subsidies, and for the period 2011-2013 due to subsidies for living costs, partial debt cancellation and reduction of real interest rate to 0%. Summary Cost-benefit for the economy as a whole 3. This calculation attempts to capture the overall cost-benefit of the Project for Colombian society as a whole. It includes four components: i) salary increases for ACCES student loan graduates derived from the additional years of education, ii) private cost (for individuals) of attending an HEI, iii) the cost of the program for HEIs, and iv) administrative costs for ICETEX. The IRR derived from this cost benefit analysis from 16 The CBA 2008 calculations were adjusted since there were some technical errors. Thus, the values shown for 2007 are based on the revised assumptions made during appraisal. Therefore, the IRRs for 2007 differ from the IRRs mentioned in the PAD as follows: (i) Economy as a whole: 10.7 % adjusted (14.9% PAD); (ii) State: 12.2 % adjusted (15.3% PAD); (iii) Student: 28.5%, no changes. 33 the perspective of the Colombian economy is 19.67 percent, for a benefit-cost ratio of 1.88. The net present value is found to be COP 3.59 million. Cost-Benefit Flow for the Economy 2,000,000 1,500,000 1,000,000 500,000 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 -500,000 -1,000,000 -1,500,000 Increased Wages Private Costs HEI Costs Admin. Costs -2,000,000 4. A number of assumptions were made when evaluating the NPV of the Project: (i) the discount rate for future income and spending is set to 10%, as used in the previous analysis; (ii) the unemployment rate is assumed to be 9.7%. This is the result of averaging the unemployment rate for higher education graduates reported by DANE from 2008 to September of 2013. For the previous analysis, this rate was 11.5%; (iii) the counterfactual scenario for students is assumed to be the following: 70% of ACCES new student loan recipients would not have managed to find alternative funding to pursue their studies, and 40% of those who already have ACCES student loans (and are due to renew them) would not have found alternative funding either (remains unchanged from the previous analysis); (iv) the salary of graduates were estimated based on OLE survey data up to 2007 and then on OLE PILA data thereafter, and are shown in Table 1). The effects of graduating with a higher education degree are estimated based on the Mincer methodology as used by Núñez and Sánchez (2000), who concluded that the return to each year of higher education is around 22%. For graduates from levels one or two of SISBEN, the returns were estimated based on OLE data; (vii) the career length of the average graduate is assumed to last from graduation (aged 22, thus having entered an HEI 34 at age 18) to retirement (aged 60); (viii) the dropout rates used are shown in Table 3, and are lower than forecast in the 2007 analysis. Table 1 – Wages by Education Level (Previous and Current Estimate) OLE Survey OLE PILA 2007 (For Education Level CBA 2007 2006 Graduates) 1.102.810 1.332.751 College (2.5 MW) (3.1 MW) 818.639 1.000.279 Technical (1.9 MW) (2.3 MW) 842.249 1.023.131 Technological (1.9 MW) (2.4 MW) Professional 795.029 905.430 Technical (1.8 MW) (2.1 MW) 5. Additionally, the figures for total investment and loan placement were drawn from ICETEX administrative data, and are shown in Table 2. The Project involved a total investment of 1.03 billion dollars from 2008 to 2013, of which 300 million were provided by the Bank. ICETEX was able to place more than 205,000 new loans and to renew almost 892,000. Table 2 – Total Investment and Loan Placement Investment (USD million) Loan placement New Renewed Year Total IBRD Counterpart Total loans loans 2008 132 35.7 96.5 30,801 132,124 162,925 2009 119 56.5 62.1 29,464 136,361 165,825 2010 143 80.9 62.6 29,022 135,151 164,173 2011 171 0.0 171.0 36,455 153,726 190,181 2012 213 32.9 180.1 40,444 158,081 198,525 2013 250 94.1 155.7 39,370 176,431 215,801 Total 1,028 300 728.1 205,556 891,874 1,097,430 35 Table 3 – Dropout Rates by Education Level Universities T&T Semester No ACCES ACCES ECB 2008 No ACCES ACCES ECB 2007 1 20,9% 8,0% 9,0% 30,0% 8,1% 9,0% 2 8,8% 5,1% 8,5% 11,1% 6,5% 7,5% 3 5,6% 3,8% 8,0% 7,4% 4,9% 6,0% 4 4,0% 2,8% 7,5% 5,1% 3,5% 5,0% 5 3,0% 2,4% 7,0% 4,6% 19,9% 5,0% 6 2,6% 2,3% 6,5% 4,5% 10,1% 7 1,9% 1,9% 6,0% 8 1,5% 1,4% 5,5% 9 1,1% 1,3% 5,0% 10 1,9% 2,2% 6. The estimated figures for the direct impact of the Project on the total number of higher education graduates and total years of education gained are higher than forecast in the 2007 evaluation (by 9,274 and 41,942, respectively), as shown below. Table 4 – Net Effect of the Project in Terms of Number of Graduates and Years of Higher Education Gained CBA 2007 2013 Diference Number of students 117.591 126.896 9.274 graduated. Years of higher 505.641 547.583 41.942 education gained. 7. The private cost for individuals was assumed to be COP 500,000 per semester, based on ICETEX estimates using administrative data for its graduates for the previous exercise and corroborated by the DANE Living Standards Survey (2003) where it was stated that the maintenance stipend of a higher education student was, in average, COP 434,670 (USD 260 with the average FX rate). The cost for HEIs was calculated using data from the 2007 HEI Financial Sustainability Report (Estudio de Sostenibilidad Financiera de Instituciones de Educación Superior), prepared by Econometría for MEN. The weighted average per student and semester is equal to COP 2,500,000 (USD 1,301 at the average FX rate). Administrative costs were calculated using ICETEX administrative data. Cost-benefits for the state 8. Three types of income were included in the calculation: (i) Bank loans, (ii) ICETEX loan repayments (under the assumption that collection parameters remain the same), and (iii) higher tax revenue, extra revenue due to decreased informality, and increased social security contributions. The cost component of the analysis included: (i) Bank loan repayment, (ii) new and renewed loan disbursements, (iii) cost for public HEIs of supplying education, and (iv)ICETEX administrative costs. The IRR derived from this 36 cost-benefit analysis from the perspective of the GoC was 12.2 percent, for a benefit-cost ratio of 1.13. The net present value is COP 247,366. Cost-Benefit Flow for the State 300,000 200,000 100,000 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 (100,000) (200,000) (300,000) IBRD Loan Student Loan Repayment Taxes and SS Contributions Admin. Costs Loan Placement HEI Costs IBRD Loan Repayment (400,000) 9. The assumptions are the same as for the previous evaluation, despite the fact that, according to OLE, informality amongst college graduates is well below 30% (13% in 2007, based on 2006 graduates). Additionally, repayment rates were assumed to be 80% of the total value of the loans, whereas for the additional income from taxes and contributions, the following figures were taken: a 12% average income tax, a tax evasion rate of 30%, and an 8% average social security contribution. The maturity of the loan was assumed to be 20 years, as in the original analysis. New and renewed loan disbursements are based on ICETEX loan growth projections for the next 30 years. Based on historical data, it was assumed that about 5% of student loan recipients would pursue their degrees in public universities. As previously mentioned, the cost per semester per student is assumed to be COP 2.5 million. Cost-benefits for the average student loan recipient 10. NPVs and IRRs for the average student loan recipient were calculated in two separate groups due to the changes introduced to loan requirements and regulations during 2010. Loan interest rates and requirements to apply for subsidies changed. Interest rates were set to inflation (as measured by the CPI) for more than 96% of ACCES student 37 loan recipients (those in strata 1, 2, and 3). Similarly, living stipends and more generous loan forgiveness programs were also introduced (conditional on graduation). The benefits to the student are: (i) the cash inflow derived from student loans and direct subsidies, and (ii) the increased wages, perceived as a result of the additional years of education received due to the student loan. On the cost side, the analysis included the present values of (i) the repayment of the student loan, (ii) tuition, (iii) living costs, and finally (iv)higher taxes and social security contributions due to increased salaries. 11. The IRR derived from this cost benefit analysis from the perspective of the credit recipient was 29.2 percent for the 2008-2010 period, for a benefit/ cost ratio of 1.89. For 2011-2013, the IRR was 35.1 percent and the benefit-cost ratio was 1.93. The net present value is found to be COP 43.5 million and 46.6 million, respectively. 38 Cost-Benefit Flow for the Average Student (2008-2010) - COP Million 25.0 20.0 15.0 10.0 5.0 0.0 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 (5.0) (10.0) Student Loan Increased Wages Living Expenses Taxes and SS Contributions Tuition Student Loan Repayment Cost-Benefit Flow for the Average Student (2011-2013) - COP Million 25.0 20.0 15.0 10.0 5.0 0.0 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 (5.0) (10.0) Student Loan Increased Wages Living Expenses Taxes and SS Contributions Tuition Student Loan Repayment 39 12. Average tuition costs were assumed to be COP 3,086,984 per semester per student during the 2008-2010 period and COP 3,819,092 per semester per student during the 2011-2013 (see table 5 below). Based on these figures, the income derived from ACCES student loans was assumed to be, on average, COP 1.5 million per semester for tuition (to be repaid) and COP 771,000 as a living subsidy from 2008 to 2010, based on the same set of assumptions used in the report prepared by Econometria. From 2011 to 2012, policy changed the set of assumptions to COP 1.9 million per semester for tuition credit, COP 520,000 per semester for maintenance subsidy, and COP 477,386 per semester for the 25% debt forgiveness upon graduation. The loan and subsidies were assumed to last for an average of four years (based on the length of the different HEI programs, assuming a proportion of 70% college and 30% T&T students). Table 5 – Average Tuition, Loan and Subsidy 2013 2013 2013 2008 Evaluation (Full) (2008-2010) (2011-2013) Exchange Rate (COP/USD) $ 2.083,33 $ 1.920,96 $ 1.955,62 $ 1.815,64 Cop USD Cop USD Cop USD Cop USD Average Tuition 2.000.000 960 3.490.257 1.817 3.086.984 1.579 3.819.092 2.103 Loan 1.000.000 480 1.745.129 908 1.543.492 789 1.909.546 1.052 Subsidy 500.000 240 872.564 454 771.746 395 954.773 526 13. To calculate the loan repayment costs, an interest rate of 13.2% and a total of 96 payments were assumed from 2008 to 2010; these include payments while the student is studying and the full repayment after the one-year grace period once the student graduates. From 2011 onwards a 3% yearly interest rate is assumed, with no study period payments. Social security contributions are assumed to be 4% of the salary increase associated with graduating from an HEI. 40 Annex 4. Bank lending and implementation support/supervision processes (a) Task team members Responsibility/ Names Title Unit specialty Lending Alberto Rodriguez Sector Manager, Education ECSH2 Team Leader Alejandro Caballero Senior Education Specialist CMGCS Team Leader Operational/Administrative Aracelli Woodall Senior Program Assistant LCSHE support Martha Laverde Senior Education Specialist LCSHE Education Specialist Senior Procurement Jose M. Martinez LCSPT Procurement Specialist Operational/Administrative Patricia Bernedo Senior Program Assistant LCSHE support Senior Financial Jeannette Estupinan LCSFM Financial Management Management Lead Financial Officer Luis de la Plaza Bringas /Debt Capital Markets & FABBK Financial/Debt CBP Gabriel Peñaloza Procurement Specialist LCSPT Procurement Miguel de Pombo Investment Officer Investment Claudia Mylenna Consultant LCSHE Consultant Cardenas Garcia Supervision/ICR Alberto Rodriguez Sector Manager, Education ECSH2 Team Leader Alejandro Caballero Senior Education Specialist CMGCS Team Leader Michael Crawford Senior Education Specialist LCSHE Team Leader Marcelo Becerra Senior Economist LCSHE Team Leader Country Sector Christoph Kurowski ECSHD Sector Leader Coordinator Maria Rosa Puech Consultant LCSHE Consultant Lead Financial Officer Maria Dolores Lopez- /Debt Capital Markets & CMD Financial/Debt Larroy CBP Barbara Bruns Lead Education Economist LCSHE Team Leader 41 Junior Professional Operational/technical Domenec Ruiz Devesa LCSHE Associate support Operational/Administrative Elsa Coy Team Assistant LCCO support Operational/Administrative Antonella Novali Program Assistant LCSHE support Luz Zeron E.T. Consultant LCSFM Consultant Junior Professional Operational/technical Maria Retana de la Peza LCSHE Associate support Diomedes Berroa Senior Operations Officer LCSPT Procurement Maria Elena Paz Operational/Administrative Program Assistant LCSHE Gutzalenko support Junior Professional Operational/technical Maria Paulina Mogollón LCSHE Associate support Ignacio del Busto Junior Professional Operational/technical LCSHE Mellado Associate support Junior Professional Operational/technical Guillermo Toral LCSHE Associate support Junior Professional Operational/technical Octavio Medina Pedreira LCSHE Associate support Consultant- Alexandra Gonzalez ET Consultant LCSHE Operational/technical Rubio support Santiago Rene Torres ET Consultant LCSHE Consultant Duncan Kiara Senior Counsel LEGFI Counsel Gabriel Barrientos Team Assistant LCSHE Team Assistant (b) Staff time and cost Staff time and cost (Bank budget only) Stage of project cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY08 50 196 Total Supervision/ICR FY08 7 31 FY09 25 106 42 FY10 23 133 FY11 39 147 FY12 23 103 FY13 25 121 FY14 16 98 Total 158 739 43 Annex 5. Beneficiary Survey Results (if any) 44 Annex 6. Stakeholder Workshop Report and Results (if any) 45 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ICETEX Final Evaluation Report for the Second Student Loan Support Project (ACCES II Phase I) 1. Project Development Objective and Components The Project Development Objectives were as follows: i) improving coverage through an increase of enrollment and graduation in higher education institutions (HEIs), ii) improving the equity conditions by increasing the coverage and graduation rates of socioeconomically vulnerable groups, and iii) increase and diversify the alternative sources of financing of ICETEX to improve sustainability. The Project had two components: 1) the provision of educational loans to students based on academic merit and socioeconomic status, 2) the consolidation of management practices of ICETEX to improve efficiency and sustainability. Component 1 has contributed to the expansion and equity of the Colombian educational system through the disbursement of educational loans and the creation and management of alliances (alianzas), to ensure and strengthen the support for student loan recipients. Component 2 included the improvement of the management and administration systems of ICETEX, through the strengthening of the information systems and the technological infrastructure of ICETEX, in order to strengthen the management and monitoring of the portfolio. It also included the expansion of alternative financing forces and, finally, the impact evaluation of the Project. 2. Measuring of Results During the implementation period, ICETEX achieved the Project Development Objective. ACCES II has provided loans to 190,000 new students, of which 83% belong to strata 1 and 2, the most vulnerable. ACCES II has also helped financially strengthen ICETEX. The disbursement calendar of Phase I of ACCES II, including the extensions provided by the Bank, show that the closing of the loan in June 2013 was necessary due to the improvement of collection and the creation of alliances with other institutions. As a result of the efficient use of resources, the objectives for both phases of the Project were achieved in Phase I (167,000 new student loans in 2013), whereas the original target for Phase I was 100,000 new loans in 2010. Colocación de Créditos Educativos ACCES 2008 - 2013 2008 2009 2010 2011 2012 2013 (1) TOTAL No. Créditos Aprobados 37,982 43,347 41,782 47,078 53,336 28,642 252,167 No. Créditos Nuevos 30,801 29,464 29,022 36,455 40,444 21,424 187,610 No. Créditos Renovados 132,124 136,361 135,151 153,726 158,081 85,629 801,072 46 The student loans were given to a population that did not have an alternate source of financing for the costs of attending higher education. According to the latest impact evaluation, carried out by Econometría, 94% of the population polled answered that they would have had to work to finance their studies, postpone them or give up the possibility of attending an HEI if they had not had access to an ICETEX student loan. Additionally, equity conditions have also been improved through increased retention and graduation rates. Impact assessments have shown that having an ICETEX loan is associated with a lower dropout: The overall average dropout rate for students who have received an ACCES loan is 9.4 %, while the figure for non-recipients is 34.4 %. (ICETEX - CEDE 2008, p. 54). During their first semester, loan recipients attending public universities have pass rates that are 15 percentage points above those of non- recipients (the difference is 9 percentage points for private schools). Despite the fact that this difference fades off as semesters pass, loan recipients graduate one semester before non-recipients, on average (ICETEX - CEDE 2008, p. 15). In terms of job performance, 77% of ACCES graduates were contributing to health insurance and pension schemes at the time of the last assessment of impact (Econometria 2010), compared to 75% of the group of students without student loans. This implies that ACCES loans have the potential to mitigate the correlation between socioeconomic background and poorer employment prospects, since a higher proportion of ICETEX loan recipients come from vulnerable socioeconomic backgrounds. The situation is similar when comparing the earnings of college graduates. The Contribution Base Income (IBC) of ICETEX loan recipients (2003-2009) reported in 2008 was COP 1.65 million (3.57 minimum salaries) and for non-recipients it was COP 1.78 million (3.86 minimum salaries (ICETEX - Econometria 2010, p. 22). Two factors explain this: the higher socioeconomic level of non-recipients and their higher participation rate in graduate degrees, linked to higher salaries. Graduates from the lowest socioeconomic stratum earn, on average, COP 1 million, whereas those from the highest stratum earn COP 2 million, and 90.4% of ACCES loan recipients belong to the three lowest strata (ICETEX – Econometria 2010, p. 23). The analysis of the current situation of higher education indicates significant progress in terms of access, equity and efficiency, as evidenced by the evolution of coverage, and the impact evaluations previously mentioned. A final evaluation of the impact of the Project is scheduled for the second half of 2013. The following section will discuss the main lessons learned in the implementation of Phase I of ACCES II. Component 1: Origination of student loans The table below shows new student loans and renewals for the first semester of 2013 and cumulatively since 2008: 47 Ejecución Avance meta junio 2012 a junio 2013 Total Meta Fase I % Avance Acumulada Concepto Logro a % Avance hasta Junio meta 2008 a Meta 2013 - 1 Cumplimiento 2013 - 1 de 2013 Fase I Jun - 2012 Nuevos Estudiantes con 147,110 33,000 40,500 122.7% 187,610 167,875 111.8% Crédito Educativo Nuevos Estudiantes de estratos 123,195 26,400 32,975 124.9% 156,170 137,826 113.3% 1 y 2 con crédito educativo Estudiantes que renovaron el 635,778 165,597 165,294 99.8% 801,072 816,084 98.2% crédito educativo Corte: Junio 2013; Reporte VCC - Restructuring Paper ACCES II - 2010 During the 2nd semester of 2012 and the 1st semester of 2013, which corresponds to the current year of implementation, two of the three indicators exceeded 100% of the annual target: Number of new student loans (122.7%) and number of new student loans from strata 1 and 2 (124.5%). Student loan renewals reached 99.8 % of the annual target. Regarding the cumulative targets from 2008 to the first half of 2013, new loans reached 111.8% (187,610 loans approved) and 113.3% among students from strata 1 and 2 (156,170 loans approved), whereas renewals reached 98.2 % of the cumulative target (801,072). Profile of the Targeted Population By socioeconomic stratum Estrato Años Participación nuevos beneficiarios con crédito educativo 1 2 3 4 5 6 legalizado según estrato socioeconómico 2008 al 2013 2008 8,648 16,864 4,189 805 205 90 5; 1,201; 1% 4; 4,136; 2% 2009 10,306 14,894 3,420 602 175 67 6; 468; 0% 2010 9,508 14,832 3,972 519 124 67 3; 25,635; 14% 1; 63,897; 34% 2011 12,714 17,889 4,991 612 186 63 2012 14,460 18,645 5,952 974 307 106 2013 8,261 9,149 3,111 624 204 75 Total 63,897 92,273 25,635 4,136 1,201 468 2; 92,273; 49% 48 The graphs show that during the implementation of the Project, student loans targeted mainly stratum 2 (49% of the total) and stratum 1 (34% of the total). During the first semester of 2013, the proportion of loans going to students from stratum 2 was 43%, and 39% for stratum 1. By type of degree It also noteworthy that during the Project students showed a greater preference for technical and technological programs, which represented 29% of the total (compared to only 17% in ACCES I). Participación nuevos beneficiarios con crédito educativo legalizado según nivel de formación 2008 al 2013 ENS; 31; 0% Técnica y Tecnológica; 54,292; 29% Universitarios; 133,287; 71% By ethnic group From 2008 to 2013-1 12,888 loans were given to Afro-Colombian and indigenous students. This represents 6.9% of the total population served in the period. The proportion has been rapidly increasing, up from 2.7% in 2008 (817 loans) to 9.8% in 2013 (2,095 loans). Participación nuevos beneficiarios con crédito educativo legalizado según grupo étnico 2008 al 2013 GRUPO ÉTNICO Años Afrocolombianos Indígenas Mestizos Total Afro; ,4;557 Indígena; 2% 8,331; 5% 2,008 475 342 29,984 30,801 2,009 362 979 28,123 29,464 2,010 482 1,290 27,250 29,022 2,011 711 2,479 33,265 36,455 2,012 961 2,712 36,771 40,444 2,013 1,566 529 19,329 21,424 Total 4,557 8,331 174,722 187,610 Mestizo; 174,722; 93% 49 Subcomponent 1.1: Diversification of funds As of May 31, 2013, a total of COP 150.7 billion has been raised through strategic alliances, directed towards new student loans, leveraging risk and provisioning for past cohorts, as shown below. Departments, municipalities and localities represent the largest share (65.6%). ORIGEN ALIADO VR APORTE % Departamentos, Municipios y Localidades 98.820.623.771 65,57% Ministerios y Entidades Gubernamentales 48.971.550.953 32,49% Otras Entidades 2.925.391.108 1,94% TOTAL 150.717.565.832 100% Within the ministries and other governmental entities, the Department for Social Prosperity is the greatest contributor (51% of the group total), whereas for departments and local governments, the department of Cundinamarca takes the lead with 33.8% of the group total. Component 2: Institutional strengthening of ICETEX Subcomponent 2.1: Portfolio and collection management Status of the portfolio As of May 31, 2013, the ICETEX loan portfolio recorded a principal balance of COP 2.5 trillion, of which 71.9% corresponds to the ACCES credit line and the remaining 28.1% to other credit lines. In terms of number of loans, ACCES accumulates 70.4% of the total (242,375 loans), while the rest of credit lines have a share of 29.6% (101,739 loans), for a total of 344,114 loans. CARTERA ICETEX CARTERA ICETEX Saldo Capital al 31 de Mayo de 2013 No. de Obligaciones al 31 de Mayo de 2013 CARTERA TRADICIONAL CARTERA $708.991 TRADICIONAL 28,06% 101.739 29,57% CARTERA ACCES CARTERA ACCES 242.375 $1.818.029 70,43% 71,94% 50 Holdings by period and line of credit The highest share of the ICETEX portfolio corresponds to university loans, with 79.7% of the capital, followed by technological degree loans (11.7%). In terms of the number of loans, university loans represent 72.0 % of the total, compared to 16.2 % for technological degree loans. LINEA No. Obligaciones % Obligaciones Saldo Capital % Capital UNIVERSITARIA 247.784 72,0% $ 2.013.291 79,7% TECNOLOGICA TERMINAL 55.854 16,2% $ 294.920 11,7% MAESTRIA 11.388 3,3% $ 86.706 3,4% ESPECIALIZACION 13.028 3,8% $ 84.957 3,4% TECNICA PROFESIONAL 15.658 4,6% $ 42.839 1,7% DOCTORADO 363 0,1% $ 4.273 0,2% NORMALISTA 39 0,0% $ 33 0,0% Total general 344.114 100% $ 2.527.021 100% Fuente: Detalle_Provi Activa MAY_2013 Cifras en millones de pesos In terms of the period, as of May 31, 2013, 60.1% of the capital (COP 1.5 trillion) corresponds to loans under disbursement (students are still studying). In terms of number of loans, those under disbursement amount to 214,354 or 62.3% of the total. 39.9% of the portfolio and 37.7% of the loans are under repayment. SALDO DE CARTERA POR ETAPA ACCES TRADICIONAL TOTAL DETALLE No. No. No. Saldo Capital Saldo Capital % Oblig. Saldo Capital % Capital Obligaciones Obligaciones Obligaciones Cartera Epoca de Estudios 144.478 $ 1.039.116 69.876 $ 478.695 214.354 62,3% $ 1.517.811 60,1% Cartera Amortizaciòn 97.897 $ 778.914 31.863 $ 230.296 129.760 37,7% $ 1.009.210 39,9% Total Cartera 242.375 $ 1.818.029 101.739 $ 708.991 344.114 100% $ 2.527.021 100% Nota: En ACCES se incluye Mi PC Fuente: Detalle_Provi Activa MAY_2013 Cifras en millones de pesos By maturity Regarding the repayment status of the portfolio, 13.4% of the total is overdue by more than 30 days (a total of COP 339.5 billion). Non-performing ACCES loans add up to COP 225.2 billion, equivalent to 12.4% of total loans given under this line. For the rest of the lines, non-performing loans amount to COP 114.3 billion, or 16.1% of the total. SALDOS DE CARTERA AL CORTE DEL 31 DE MAYO DE 2013 POR ALTURA DE MORA ACCES TRADICIONAL TOTAL DESCRIPCIÓN Saldo Saldo Saldo No. Oblig. % Oblig. % Capital No. Oblig. % Oblig. % Capital No. Oblig. % Oblig. % Capital Capital Capital Capital VIGENTE 208.720 86,1% $ 1.592.793 87,6% 84.947 83,5% $ 594.642 83,9% 293.667 85,3% $ 2.187.435 86,6% (0-30 días) VENCIDA 33.655 13,9% $ 225.236 12,4% 16.792 16,5% $ 114.349 16,1% 50.447 14,7% $ 339.586 13,4% (Mayor a 30 días) Total 242.375 100% $ 1.818.029 100% 101.739 100% $ 708.991 100% 344.114 100% $ 2.527.021 100% Fuente: Detalle_Provi Activa MAY_2013 Cifras en millones de pesos 51 CARTERA MAYO 2013 CARTERA MAYO 2013 Número de Obligaciones Saldo de Capital VENCIDA VENCIDA 50.447 $339.586 13,4% 13,4% VIGENTE VIGENTE 293.667 $2.187.435 86,6% 86,6% By level of risk Portfolio non-recovery stands at 13.4% as of May 2013, compared to 15.2% in May 2012. Of the ACCES portfolio (which represents 71.9% of the total), 87.6% is rated "A" (totaling COP 1,6 trillion), whereas for the rest of the portfolio it is 83.9% (COP 594.6 billion). CALIFICACION ACCES TRADICIONAL TOTAL HOMOLOGADA No. Oblig. Saldo Capital % Capital No. Oblig. Saldo Capital % Capital No. Oblig. Saldo Capital % Capital A 208.720 1.592.793 87,6% 84.947 594.642 83,9% 293.667 2.187.435 86,6% B 10.546 62.878 3,5% 5.038 36.433 5,1% 15.584 99.311 3,9% C 2.578 18.094 1,0% 1.938 14.252 2,0% 4.516 32.346 1,3% D 5.818 38.811 2,1% 2.627 17.675 2,5% 8.445 56.486 2,2% E 14.713 105.453 5,8% 7.189 45.989 6,5% 21.902 151.442 6,0% Total 242.375 1.818.029 100% 101.739 708.991 100% 344.114 2.527.021 100% Subcomponent 2.2: Financial sustainability of the Project Educational Savings Bonds (TAEs) To evaluate the feasibility of the third issuing of educational savings bonds, the Vice- presidency for Finance hired an independent firm, Correval, which presented the results of the study in December 2011, with the following conclusions: - Although the bonds generate acceptable returns, the decision to issue a third round of bonds should also take into account commercial aspects, as well as risks: risk of placement (high), reputational risk (medium-high), cost risk (middle) and interest rate risk (medium). - Correval estimated that the market for ICETEX educational savings bonds would amount to only COP 19.5 billion; for amounts below COP 30billion, fixed costs amount to a sizable amount of total costs, which is problematic. Given the low probability of placement as well as the risks associated with it, Correval found that a third round of educational savings bonds is not the best alternative for ICETEX financing at this time. 52 Securitization of the ICETEX portfolio To evaluate the feasibility of a securitization of the ICETEX portfolio, the Vice- presidency for Finance hired an independent firm, Multiactivos, which found that: - It would only be possible to issue securities up to 65% of the principal balance of the initial portfolio (under A and B ratings). - The issuing of senior securities rated AAA is only feasible using an external guarantee (the Government of Colombia). - The securities would be sold at a high discount, especially for overdue student loans, where discounts would reach almost 100%. Subcomponent 2.3: Management and evaluation of the Project Risk management models and systems During the second half of 2012 ICETEX hired a firm to build a new statistical model of expected loss for the loan portfolio with historical information from ICETEX from 2008 to June 2012. The main limitation of previous models is that they did not consider the true risk profile of the portfolio, obviating the characteristics of the population and the loan, and instead relying on models traditionally used in consumer banking. The main objective of the new model is to estimate portfolio provision based on the actual behavior of ICETEX loan recipients, using the PROVISION scoring methodology for the calculation of expected loss. This tool allows for the forecasting of an expected default rate. The model seeks to evaluate portfolio risk, develop differentiated by student profile, and ultimately improve the efficiency of provisioning Financial management With the funds received from the previous disbursements (the last being June 21) along with the resources obtained from a successful operational performance, ICETEX estimates that it will be able to maintain its operations and meet loan targets until the second half of 2013. The entirety of the Bank loan ($300 million) has been disbursed and implemented, following the scheduled completion date of June 30, 2013. Monitoring and evaluation The actions agreed upon in the aide memoire of March 2013 have been either carried out or rescheduled. 53 3. Lessons Learned The Role of HEIs One of the aims of the Project was to create partnerships with HEIs to strengthen the support received by students and enhance the benefits of student loans by giving HEIs an active role in terms of accompanying and mentoring the student. Firstly, the use of the infrastructure of HEIs means easier access to students, thus allowing HEIs to provide advice on financial support programs, including ICETEX student loans. Additionally, support and mentoring programs to increase retention, improve academic performance and graduation can enhance the effects of the student loan. The Comprehensive Model of Student Support (Modelo de Atención Integral al Estudiante) was designed precisely to achieve this, and was piloted in 20 HEIs during the implementation of the Project. This model aims to provide opportunities for students at a physical, social or economic disadvantage to continue pursuing their degrees and avoid dropout. At the same time the Model eases the transition of graduating students to the labor market by helping them find a job that is suited for them. HEIs, territorial education departments, private companies, NGOs and other state agencies may develop, at least, three types of actions to help students maximize the benefits of student loans: a. Preparation for access: Many students from the lower socioeconomic strata, especially those in marginal areas, plan to enter the labor market as soon as they finish their compulsory education. This highlights the need for mechanisms to smooth the transition between secondary education and higher education, including, at least three dimensions: (i) vocational counseling, (ii) improved academic results, to allow them to compete for spots in the top schools and (iii) financial planning skills and literacy. b. Inclusion - targeted access: Intended to generate real opportunities for access to higher education for disadvantaged youths in good academic standing but who do not have all the skills and financial resources required to enroll in and pursue a higher education degree. This requires focusing on the HEIs’ admissions process, providing stipends for educational and everyday spending, and strengthening students’ core competencies to allow them to adapt to college life and succeed in their degrees. c. Effectiveness - retention, academic performance and graduation: This dimension is intended to facilitate the progress of student loan recipients throughout their program, ensuring they graduate while fostering a culture of credit responsibility and repayment. The implementation of the pilot involved working with HEIs in the following areas: (i) strengthening the institutional capacity of the HEIs’ student loan coordination offices to improve management practices, (ii) highlighting the importance of seeking additional financing sources beyond ICETEX, (iii) training HEIs for the implementation of the comprehensive model of student support (MAIE), and (iv) providing technical assistance, monitoring, and support. 54 As ICETEX student loans gained relevance for HEIs, the role of these in the financial management process led to the creation of Student Loan Sustainability Fund (Fondo de Sostenibilidad del Crédito Educativo, created under Agreement 045, December 2009), intended to mitigate the large risks for loan sustainability derived from student dropout. This also led to the creation and renewal of partnerships between ICETEX and the HEIs. As of the closing of the Project, 255 HEIs have an active agreement with ICETEX. Tailoring Educational Credit to the Needs of Students The conditions offered to students at the time of the creation of the ACCES long term credit line and subsidy have been improved over the years, most recently when Law 1450 of 2011 and Law 1547 of 2012 were passed. These laws raised the level of support offered to students by including interest rate subsidies, loan forgiveness and stipends for students from vulnerable backgrounds, in order to avoid the risk of dropping out for financial reasons and to improve affordability at the time of repayment. In addition to the interest rate subsidies and living stipends, ICETEX has also implemented other policies, such as partial loan forgiveness after graduation and scoring in the top 10% of the SABER PRO test, tiered repayment (where the amount due varies depending on the income level of the graduate), or suspension of repayment. Strategic alliances Considering that one of the strategic objectives of ICETEX is meeting the needs of higher education funding while prioritizing low-income and high-achieving students, and that the resources available for new loans are limited, raising funds through strategic alliances has been key to reaching a larger share of the population. Strategic alliances provide greater benefits to students, considering that most finance up to 100 % of tuition and allow students greater flexibility when accessing debt forgiveness and subsidy schemes. They additionally allow for a more localized targeting of the vulnerable population and coordination of actors, including improved synergies between the private sector, the government, and HEIs. Strategic alliances have financed the studies of approximately 23,000 students, contributing to increasing access and retention in higher education. In 2008 there were 24 strategic alliances with contributions totaling COP 32.4 billion. As of first half of 2013 there are 106 existing alliances, and their contributions amount to COP 150.7 billion. Minimizing exposure to financial risk Paragraph 2.07 of the loan agreement between ICETEX and the Bank allowed for a currency conversion of the loan at any time, in order to ease debt management. These conversions were to be made in accordance with the provisions in Article IV of the General Conditions and Rules for Conversion. 55 In this regard, the World Bank had determined that the effective yearly date of disbursement conversion were April 15 and October 15 (semiannual interest payment), the date of interest settlement. This means that from the date of disbursement until the date of effective conversion, the conversion rate was calculated based on the interest rate agreed upon in the loan contract (6 months LIBOR + 5 basis points) up to the aforementioned dates, and, thereafter, interests were settled at the fixed interest rate negotiated in the conversion. To diminish the exchange rate risk when repaying the loan, ICETEX requested to have the option to carry out the conversion as soon as the repayment request was issued. This change was studied and approved by the Government and the Bank. In March 2011 the loan contract was amended. This gave ICETEX greater flexibility, effectively having two options for conversion. Accounting and financial management of resources In order to facilitate financial monitoring of the project and establish control mechanisms to oversee Bank resources, ICETEX designed a tracking system that simplified reporting to the Bank. Among other things, this system ensured that Bank disbursements were reflected in the balance sheet and in internal accounting as a separate element. This monitoring system allowed ICETEX to assess implementation, impact, and results, thereby providing useful input for decision-making. Disbursement methods In accordance with the Bank guidelines on disbursements, the ICETEX agreed on disbursements in advance, with the possibility of using reimbursements, having previously informed the Bank. ICETEX chose the latter option, which was undoubtedly satisfactory, as it eased ICETEX’s cash flow. Student loan disbursements were carried out with counterpart funds, which were reimbursed afterwards. Collection Management - Standardization Brigade In terms of portfolio management, the Normalization Brigade, by rewarding the collection firm with the best results with a larger contract, promoted competition, thereby improving practices and efficiency. Strengthening ties with collection firm has also been useful in terms of gathering information on the repayment performance of loan recipients, which will be vital when designing new policies to improve portfolio collection. 56 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 57 Annex 9. List of Supporting Documents DIRECCION NACIONAL DE PLANEACION (2007), Plan Nacional de Desarrollo 2006-2010, Government of Colombia, June 6, 2007 Bogota OECD – World Bank (2012), Tertiary Education in Colombia – Reviews of National Policies for Education -, 2012, Paris World Bank (2002), Colombia: Country Assistance Strategy FY 2003-2007 Report No. 2§129-CO, December 24, 2002. Washington, D.C. World Bank (2008), Colombia: Country Assistance Strategy FY 2008-07 Report No. 42847-CO, March 4, 2008. Washington, D.C. World Bank (2005), Colombia: Progress Report (32999-CO) for the Country Assistance Strategy FY 03-07, September 9,2005, Washington, D.C. World Bank (2008), Colombia: Second Student Loan Support Project, APL Phase I Loan No. 7515-CO, Project Appraisal Document, February 1, 2008, Washington, D.C. World Bank (2008), Colombia: Second Student Loan Support Project, APL Phase I Loan No. 7515-CO, Loan Agreement, March 14, 2008, Washington, D.C. World Bank (2010), Colombia: Second Student Loan Support Project, APL Phase I Loan No. 7515-CO, Project Paper for Restructuring - October 6, 2010, Washington, D.C. World Bank (2006), Colombia: Second Student Loan Support Project, APL Phase I Loan No. 7515-CO, Amended Loan Agreement, March 29, 2011, Washington, D.C. 58 IBRD 33388R1 SAN ANDRÉS, PROVIDENCIA 75°W 70°W and SANTA CATALINA Puerto Bolívar Santa 12°35’ Catalina A San Andres J IR Ríohacha UA San G To LA Providencia Santa Marta Andres Maracaibo 13°20’ Barranquilla Pico Cristóbal Colón 0 MILES 2 0 2 AT L Á N T I C O (5,775 m) 12°30’ COLOMBIA A MILES Cartegena Valledupar N 81°40’ 81°22’ LE DA 10°N Maganqué CESAR Lago de C a r i b be an S e a AG Maracaibo M Sincelejo PA NA El Baneo SU Monteria M CR AR Acandí NORTE DE E Ocaña A SANTANDER LÍV Turbo A D OB To R.B. DE BO ÓR Mérida Cúcuta C VENEZUELA uca To Ca Guasdualito Cord Bucaramanga Yarumal na Arauca ale iller Socorro ANTIOQUIA agd M ARAUCA CÁ ER Atra AND a O Casanare PAC IF IC SANT YA to Medellin Puerto cci BO Carreño OCEAN dental Quibdo Chiquinquirá Puerto S CASANARE CHOCÓ LDA Tunja Nueva CA Manizales CUNDINA- Yopal 5°N RISARALDÁ Santa Rita 5°N Cartago Pereira MARCA BOGOTÁ Me ta VICHADA Atacavi Armenia QUINDIO tal San Pedro Gaviotas Ibaque Giradot en Villavincencio Chaviva Vich a da ri al Buenaventura Buga M A O ntr VALLE DEL LI a DISTRITO Puerto TO Palmira CAPITAL Inirída Ce er CAUCA Cali M E TA ill rd a San Juan er Co de Arama Guaviare ill Neiva GUAINÍA rd CAUCA HULA Mapiripana Tabaquén Co San José Guapí Popayan del Guaviare Brujas San Vicente Garzon del Caguán Patía Calamar Tumaco Neg Florencia G U AV I A R E NARIÑO ro San Rafael Miraflores Mitu Pasto Cagu Mocoa Vau pés án Yavarate To Ipiales PUTUM CAQUETÁ VA U P É S Puerto AY Ibarra Asis O Macujer Puerto Huitoto 0°N Puerto 0°N Leguízamo Puerto Lérida E C U A DOR Pizarro Caq u etá Puerto Santander Locas de Ptu Cahuinari ma CO LOMB I A yo La Pedrera AMAZONAS El Encanto CITIES AND TOWNS BRAZI L DEPARTMENT CAPITALS NATIONAL CAPITAL PERU RIVERS GSDPM Map Design Unit MAIN ROADS 0 80 160 240 320 Kilometers This map was produced by the Map Design Unit of The World RAILROADS Bank. The boundaries, colors, Leticia denominations and any other 0 40 80 120 160 200 Miles information shown on this map DEPARTMENT BOUNDARIES do not imply, on the part of The World Bank Group, any judgment on the legal status of INTERNATIONAL BOUNDARIES any territory, or any endorsement or acceptance of 75°W 70°W such boundaries. DECEMBER 2013