The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) REPORT NO.: RES36032 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF LAO PDR - SMALL AND MEDIUM ENTERPRISE ACCESS TO FINANCE PROJECT APPROVED ON JUNE 9, 2014 TO MINISTRY OF FINANCE FINANCE, COMPETITIVENESS AND INNOVATION EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Ulrich Zachau Senior Global Practice Director: Gloria M. Grandolini Practice Manager/Manager: Irina Astrakhan Task Team Leader: Michael Corlett, Mombert Hoppe The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) ABBREVIATIONS AND ACRONYMS DPC Department of Planning and Cooperation DOSMEP Department for Small and Medium Enterprise Promotion ILO International Labor Organization LOC Line of Credit MOIC Ministry of Industry and Commerce M&E Monitoring and Evaluation SME Small and Medium Enterprise TA Technical Assistance The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) BASIC DATA Product Information Project ID Financing Instrument P131201 Investment Project Financing Original EA Category Current EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Approval Date Current Closing Date 09-Jun-2014 30-Jun-2019 Organizations Borrower Responsible Agency Ministry of Finance Ministry of Industry and Commerce Project Development Objective (PDO) Original PDO This project aims at providing long-term funding sources for banks to provide long-term credit to SMEs. The project will support the growth of privately-owned SMEs by increasing the supply of long-term finance provided by commercial banks and by strengthening thecapability of the Department for Small and Medium Enterprise Promotion (DOSMEP) to formulate and implement public policies that promote access to finance for SMEs. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-54710 09-Jun-2014 14-Aug-2014 15-Sep-2014 30-Jun-2019 10.00 9.08 0 IDA-H9580 09-Jun-2014 14-Aug-2014 15-Sep-2014 30-Jun-2019 10.00 8.26 .81 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The SME Access to Finance Project was approved on June 9, 2014, became effective on September 15, 2014, and is scheduled to close on June 30, 2019. The latest Implementation Status Report (ISR) confirmed that the project objective continues to be highly relevant to the priorities of the country and the Bank. Progress towards achievement of the PDO and implementation progress are rated Moderately Satisfactory. 2. Following a slow start, implementation progress began to show improvements in the second half of 2016, which has continued to date as noted below: a) Component 1: Line of Credit (LOC) is on track to achieving objectives. A total of US$ 13.6 million has been allocated to 4 selected private financial institutions (PFIs). Sub-Loans from the PFIs to SMEs as of December 31, 2018 amounted to US$10.76 million to 128 SMEs. b) There has been significant progress in the implementation of key activities under Component 2: Technical Assistance (TA), including: (1) TA to Small and Medium Enterprises (SME) – the consultant commenced work in August 2018 with a target to deliver training to a minimum of 600 SMEs. The consultant completed the preparation and testing phase, consisting of developing SME training modules (Business planning and financial management) and training 11 business development service providers, and launched the implementation phase, which as of May 2019 has delivered training to 383 SMEs; and (2) a reputable international consulting firm (AFC) commenced training for the PFIs in September 2018. However, due to the late start of the TA to SMEs and Participating Financial Institutions, there is insufficient time to achieve the objectives of the TA (to change behavior in targeted SMEs and PFIs). In addition, other activities have been delayed, including (i) strengthening the monitoring and evaluation framework; (ii) developing an implementation plan for the SME Master Plan 2021-2025; and (iii) developing a methodology for SME statistics/data collection. B. Rationale for Restructuring 3. This is the second project restructuring. The first restructuring, completed in September 2016, canceled project component 2: Risk Sharing Facility and reallocated funds from this component to component 1: Line of Credit. In addition, the restructuring streamlined and clarified implementation arrangements within the Ministry of Industry and Commerce (MOIC), which has led to improved project implementation. 4. Despite a high level of disbursement (overall 95 percent disbursement) and recent improvements in project implementation, several critical activities necessary to achieve PDO will not be completed before the current closing date of June 30, 2019. First, two important technical assistance activities, (i) to strengthen SME skills and (ii) to strengthen the capacity of PFIs, commenced in the last year of project implementation due to initial implementation delays and will not achieve planned results at project closing. Therefore, without an extension in the closing date, the activities will be less likely to be sustainable and achieve long-term impact. For example, in the case of the TA to SMEs, the project recently completed the Training of Trainers (business development providers), and has launched direct assistance to SMEs, which should continue for at least a year to achieve desired impact (increase business skills and access to finance) and sustainability of model (including developing a cahort of business development services providers). Similarly, the TA to PFIs has achieved promising initial results, but a second phase could increase the sustainability of the interventions, for example by providing hands-on support to PFIs to help them develop an SME business strategy. Second, an activity aimed at strengthening the monitoring and evaluation system in DOSMEP will not be completed before June 30, 2019. During the proposed extension period, this activity will include an impact assessment to measure the impact of the project’s main activities (e.g. impact of loans and technical assistance on SMEs and PFIs and contribution to employment) on beneficiaries, including SMEs and PFIs. A project extension for 12 months would increase the sustainability of the interventions and allow for implementation and completion of key project activities. The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) 5. The result framework will also be revised to better measure the contribution of project activities to the PDO. II. DESCRIPTION OF PROPOSED CHANGES 6. The restructuring, in response to Government request of May 17, 2019, proposes the following changes: (1) a 12 month extension of the project closing date from June 30, 2019 to June 30, 2020; and (2) revisions to the results framework. 7. Extension of the project closing date: The extension of the project closing date from June 30, 2019 to June 30, 2020 is necessary to complete ongoing and planned activities that contribute to achieving the PDO. The Bank and MOIC have agreed on the actions necessary to complete the project with this no-cost extension. MOIC should focus on critical activities necessary to achieving the PDO, including implementing TA for SMEs and PFIs, ensuring that PFIs intermediate all remaining funds, and strengthening M&E function in order to adequately measure project impact. 8. Changes in the Results framework. The overall objective of the proposed changes in the results framework is to reorient the storyline from a transaction focus to one of development impact. In addition, revisions will better align results framework with project activities and their contribution to PDO. The following changes are proposed:  Replace the PDO indicator to measure impact of line of credit on SMEs. The new indicator, “% increase in employment at beneficiary SMEs”, replaces “Increase in Sales by beneficiary SMEs (Percentage)”, which has proven difficult to measure. The new indicator will capture contribution to employment in SMEs which have borrowed under Component 1, and will be measured as part of the activity to strengthen M&E, which includes carrying out an impact assessment.  Replace PDO level indicator to measure “Objective 2: Increase Department of SME Promotion’s capacity to formulate and implement SME strategy” with“% of trained DOSMEP Staff, SMEs and PFI staff reporting medium or intensive use of lessons learnt from Capacity Building Measures”. This indicator will measure the broad impact of several TA activities, and will be measured as part of the activity to strengthen M&E.  Revise intermediate indicators to measure impact of technical assistance o Replace Indicator: “SME Master Plan” with “A cross-ministerial and outcome-oriented SME Development Action Plan (2021-2025) is developed”. The new indicator more accurately reflects the project’s contribution to DOSMEP and is supported by an activity which will be carried out during extension period. o Introduce intermediate indicator to measure impact of TA to PFIs: “Number of SME Banking Strategies developed and adopted by PFIs” o Change target for intermediate indicator: “Number of SMEs benefiting from TA” to 600 (from 72) to align target with terms of reference for associated activity III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) DDO Status ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-54710 Effective 30-Jun-2019 30-Jun-2020 30-Oct-2020 IDA-H9580 Effective 30-Jun-2019 30-Jun-2020 30-Oct-2020 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) Year Current Proposed 2014 0.00 0.00 2015 1,117,800.00 0.00 2016 1,984,600.00 0.00 2017 3,581,960.00 0.00 2018 5,000,000.00 5,800,000.00 2019 2,000,000.00 800,000.00 2020 0.00 400,000.00 . The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) . Results framework COUNTRY: Lao People's Democratic Republic Lao PDR - Small and Medium Enterprise Access to Finance Project Project Development Objectives(s) This project aims at providing long-term funding sources for banks to provide long-term credit to SMEs. The project will support the growth of privately- owned SMEs by increasing the supply of long-term finance provided by commercial banks and by strengthening thecapability of the Department for Small and Medium Enterprise Promotion (DOSMEP) to formulate and implement public policies that promote access to finance for SMEs. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 increase in long-term financing available to SMEs in participating banks (Action: This Objective has been Revised) Volume of Bank Support: Lines of Credit - SME 0.00 500,000.00 2,000,000.00 6,000,000.00 8,000,000.00 12,000,000.00 15,000,000.00 (Amount(USD)) Action: This indicator has been Revised Increase Department of SME Promotion's capacity to formulate and implement SME strategy SME Masterplan (Text) 0.00 0.00 1.00 1.00 1.00 Action: This indicator has been Marked for Deletion % of trained DOSMEP Staff, SMEs and PFI staff reporting 0.00 70.00 medium or intensive use of lessons learnt from Capacity The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Building Measures (Percentage) Rationale: Action: This indicator is The new indicator more accurately reflects the project’s contribution to DOSMEP, and is supported by an activity which will be carried out during extension New period. Strengthen business skills of participating SMEs Increase in Sales by beneficiarySMEs 0.00 30.00 (Percentage) Rationale: Action: This indicator has replaced by % increase in employment been Marked for Deletion % increase in employment at beneficiary SMEs 0.00 10.00 (Percentage) Rationale: Action: This indicator is The new indicator will capture contribution to employment in SMEs which have borrowed under Component 1, and will be measured as part of the activity to New strengthen M&E, which includes carrying out an impact assessment. PDO Table SPACE The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 1. Line of Credit to Commercial Banks to Support SME Loans Direct project beneficiaries 0.00 20.00 50.00 100.00 150.00 150.00 150.00 (Number) Action: This indicator has been Revised Female beneficiaries 0.00 5.00 10.00 15.00 15.00 20.00 20.00 (Percentage) Performance of SME loans 0.00 0.00 3.00 5.00 5.00 5.00 5.00 (NPLs) (Percentage) Action: This indicator has been Revised Number of SME Banking Strategies developed and 0.00 2.00 adopted by PFIs (Number) Rationale: Action: This indicator is This indicator will measure impact of TA to PFIs, which during the extension period, will focus on assisting participating PFIs to develop and adopt a SME New business strategy 3. Techical assistance Number of DOSMEP Staff 0.00 10.00 100.00 200.00 300.00 receiving training (Number) Rationale: Action: This indicator has targets revised upwards been Revised The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Number of SMEs benefiting from Technical Assistance 0.00 10.00 100.00 200.00 300.00 400.00 600.00 (Number) Rationale: Action: This indicator has The activity plans to build the capacity for 600 SMEs through a Business Development Consulting Service (BDS) network on Business Planning, Financial been Revised Management and Accounting, Marketing and how to compile forms or documents for borrowing the loans from Commercial Banks A cross-ministerial and outcome-oriented SME Development Action Plan 0.00 0.00 1.00 1.00 1.00 (2021-2025) is developed (Text) Rationale: Action: This indicator has SME A2F does not support the writing of an SME Master Plan but is supporting the development of an Action Plan. been Revised Formulation of SME Census Plan and Methodology 0.00 1.00 1.00 (Text) Action: This indicator has been Marked for Deletion IO Table SPACE Click here to enter text. The World Bank Lao PDR - Small and Medium Enterprise Access to Finance Project (P131201)