Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) AFRICA | Africa | Finance, Competitiveness and Innovation Global Practice | IBRD/IDA | Investment Project Financing | FY 2011 | Seq No: 13 | ARCHIVED on 12-Mar-2018 | ISR30201 | Implementing Agencies: EAC Secretariat, EAC Secretariat, East African Community, East African Community Key Dates Key Project Dates Bank Approval Date:31-Jan-2011 Effectiveness Date:20-Jun-2011 Planned Mid Term Review Date:30-Nov-2012 Actual Mid-Term Review Date:22-Oct-2012 Original Closing Date:30-Mar-2014 Revised Closing Date:30-Sep-2019 Project Development Objectives Project Development Objective (from Project Appraisal Document) To establish the foundation for financial sector integration among EAC Partner States. Has the Project Development Objective been changed since Board Approval of the Project Objective? Yes Board Approved Revised Project Development Objective (If project is formally restructured)PHRPDODEL To establish the foundation for financial sector integration among EAC Partner States. For the purposes of this additional financing the "foundation of financial sector integration  refers to formulating a regional approach to financial inclusion, furthering legal and regulatory harmonization and building institutional capacity to manage the increasingly integrated financial sector in the EAC. Components Name Financial inclusion and strengthening of market participants:(Cost $4.30 M) Harmonization of financial laws and regulations:(Cost $4.23 M) Mutual recognition of supervisory agencies:(Cost $0.70 M) Integration of market infrastructure:(Cost $3.75 M) Development of regional bond market Institution Building:(Cost $12.10 M) Project Management:(Cost $1.10 M) Overall Ratings 3/12/2018 Page 1 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) Name Previous Rating Current Rating Progress towards achievement of PDO  Moderately Satisfactory  Moderately Satisfactory Overall Implementation Progress (IP)  Moderately Satisfactory  Moderately Satisfactory Overall Risk Rating  Moderate  Moderate Implementation Status and Key Decisions In June 2017: (1) The ratings for progress towards PDO and Implementation Progress were maintained at Moderately Satisfactory. Since the last update of the ISR, , the EAC PAT submitted a progress report detailing activities undertaken between October 2016 and May 2017. These include i) workshops under component one - Financial Inclusion and Strengthening Market Participants; ii) a study and workshops on the legal and regulatory frameworks for the pension, insurance and capital markets sectors, under component two - Harmonization of Financial Laws and Regulations; iii) some progress towards support to Burundi to establish a securities market and workshops on the EAC financial sector database as well as harmonization of monetary, fiscal and financial statistics, related to component three – Institution building. (2) The annual and 3-year work plan were reviewed and given the delays in year 1 of AF activities, the EAC will revise the work plans considering the remaining time period. (3) In addition, the EAC PAT submitted numerous concept notes and TORs (about 20) for activities under the AF annual work plan. These activities will be reviewed to ensure proper sequencing given participants are in multiple events, by EAC members and Partner State participants (4) The implementation of the Capital Market Infrastructure (CMI) project has continued to face challenges since the last ISM mission. However, there has been progress registered with Tanzania and Uganda. The third-party vendor, Securities Trading Technology (STT), has released their version of the solution based in the CMI specification provided by Infotech (EAC’s solution provider) in both Uganda and Tanzania. The outstanding issues require Infotech to check the integration between the CMI with Uganda and Tanzania, and then to make preparations to complete milestone 4 and 5 in the two Partner States. (5) Following South Sudan’s admission into the EAC in March 2016, the FSDRP is working to incorporate the country into current activities as per the discussion with the EAC Secretariat. As South Sudan is the newest country in the world and has a less developed financial sector, compared to other Partner States, with very limited capacity, the WB task team cautioned the EAC to proceed gradually with including South Sudan, particularly on agendas where there are significant gaps in financial sector development in comparison to other partner states. The focus initially should be on building the solid foundation of the financial sector, which will enable the South Sudan to eventually integrate into the EAC financial community. The WB task team supported the idea of conducting a financial sector diagnostic including the desk review of prior WBG work in South Sudan and other fragile states on financial sector development and crafting a strategy for financial sector development, and then to determine areas in South Sudan where the FSDRP can feasibly provide additionality, for instance activities that focus on helping partner states to narrow gaps in financial sector development e.g. capacity building in Rwanda and Burundi. (6) The EAC also presented the initiatives to be undertaken in collaboration with other development partners. In December 2017: (1) The project made progress on activities under each AF component, making contributions towards the project development objective. The PAT submitted a progress report detailing activities undertaken between July 2017 and December 2017. Out of 18 project activities that received a no objection during this period, 16 activities were completed by December 2017. The PAT has followed up with the relevant counterparts to ensure that the 2 outstanding activities can be completed in a timely manner. The progress report also articulated the way forward for the project as it has progressed out of the diagnostic phase and into the implementation phase, including i) enhancing capacity for regional policy formulation and coordination at a level of the EAC Secretariat; and ii) increasing advocacy initiatives to improve stakeholders buy-in for a more collaborative implementation of the PDO. (2) The progress report details the status and the next steps of the following activities: i) 5 workshops under component one - Financial Inclusion and Strengthening Market Participants; ii) Council Directives, a study and 2 workshops related to the microfinance and SACCOs, capital markets, pensions and insurance sectors, under component two - Harmonization of Financial Laws and Regulations; iii) a workshop and technical assistance to continue support to Burundi to establish a securities market and meetings to develop a roadmap to address challenges hindering CMI project implementation, related to component three – Institution building; and iv) meetings with the EAC Executive and Steering committees to ensure effective project management, related to component four – Project management. (3) In addition, the PAT submitted 15 concept notes to expedite implementation of activities under the revised AF annual workplan for 2017/2018. The WB task team provided feedback on each note, notably to ensure proper sequencing of the increased number of activities particularly given the participation in multiple consecutive events by EAC members and Partner State 3/12/2018 Page 2 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) participants. (4) The WB task team was pleased to note progress made to address challenges affecting CMI project implementation. Of particular note are the following outcomes from the PAT’s efforts to revigorate this project: i) Participating CMI Partner States submitted timebound work plans to ensure the finalization of CMI implementation in a timely manner during the remaining project lifespan; ii) Negotiations with InfoTech Private Ltd (Infotech) are underway to address contract issues raised in the previous ISM; and iii) New activities have been added to the CMI project in order to resolve challenges hindering project implementation. (5) The 3-year work plan was revised to accommodate the shortened project lifespan and to incorporate new activities needed for the CMI implementation. Given these changes, a budget reallocation request was submitted to the WB task team prior to this ISM to ensure sufficient resources to expedite the implementation of project activities as well as to fund new CMI activities. Discussions during the ISM highlighted the need to further revise the work plans and budget reallocation and adjustment request to accommodate the addition of a project accountant to the PAT as well as possible changes to certain activities during the mid-term review of the project. The PAT agreed to submit revised annual and 3-year workplans as well as the budget reallocation request for NO. (6) During the previous ISM, the WB task team recommended that the PAT undertake a scoping mission to determine the scope, nature and design of the FSRDP activities in South Sudan. During the current ISM, the PAT presented a concept note for this mission that defined the objective of this mission, namely to assess the status of the financial sector in South Sudan and to inform the development of a road map that identifies how best to integrate South Sudan in FSDRP activities and, where necessary, designs specific interventions that support national financial sector development in order to facilitate the EAC financial sector integration agenda. The WB task team is supportive of this effort, but cautioned the PAT to manage the expectations of South Sudanese counterparts regarding the FSDRP project objectives and capacity. (7) The PAT presented a proposal for further World Bank support to the EAC and its Partner States as they continue to pursue the higher-level objective of the FSDRP project, particularly following the closure of the current project in September 2019. The WB task team welcomed this proposal and noted that, while it is still too early in the project cycle to discuss the design of such a project, the PAT should share this proposal with the EAC Executive who need to make a formal request to the World Bank. In addition, the task team advised that the EAC to consider other implementation mechanisms for this new project as the current configuration of the FSDRP PAT does not lend itself well to ensuring the development of institutional memory at the EAC, which is needed to guarantee the continuity of financial sector integration activities following the closure of development partner projects. 3/12/2018 Page 3 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) 3/12/2018 Page 4 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) 3/12/2018 Page 5 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance  --  Substantial  Substantial Macroeconomic  --  Moderate  Moderate Sector Strategies and Policies  --  Low  Low Technical Design of Project or Program  --  Moderate  Moderate Institutional Capacity for Implementation and Sustainability  --  Substantial  Substantial Fiduciary  --  Moderate  Moderate Environment and Social  --  Low  Low Stakeholders  --  Moderate  Moderate Other  --  Moderate  -- Overall  --  Moderate  Moderate Results Project Development Objective Indicators PHINDPDOTBL  Number of accounts within regulated institutions (Banks and deposit-taking MFIâs) (Number) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target 3/12/2018 Page 6 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) Value 57,370,000.00 57,370,000.00 57,370,000.00 75,000,000.00 Date 21-Jul-2016 15-Dec-2016 12-Dec-2017 30-Sep-2019 PHINDPDOTBL  Number of EAC legal instruments relating to financial sector harmonization in the EAC (Number) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 14.00 14.00 14.00 25.00 Date 21-Jul-2016 15-Dec-2016 12-Dec-2017 30-Sep-2019 Comments The following 14 Council Directives (CD) were presented to the Council of Ministers 1.CD of the EAC on Public Offers for Equity Securities; 2. CD of the EAC on Public Offers for Fixed Income Securities; 3. CD of the EAC on Public Offers for Asset Backed Securities (ABS); 4. CD of the EAC on Collective Investment Schemes (CIS); 5. CD of the EAC on Corporate Governance for Market Intermediaries; 6. CD of the EAC on Admission to Trading on a Secondary Exchange; 7. CD of the EAC on Regional Listings in the Securities Market; 8 CD on Licensing Market Intermediaries; 9 CD on Investor Compensation Scheme; 10 CD on Takeovers and Mergers; 11 CD on Investor Education and Protection; 12 CD on Anti- Money Laundering in the Securities Market; 13 CD of the EAC on Self- Regulatory Organization; and 14 CD of the EAC on Conduct of Business for Market Intermediaries. PHINDPDOTBL  Average weekly volume of shares executed through EAC CMI IT platform (Number) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 118,000.00 118,000.00 118,000.00 266,000.00 Date 21-Jul-2016 15-Dec-2016 12-Dec-2017 30-Sep-2019 Comments The operation of the CMI system has not yet started. Overall Comments 3/12/2018 Page 7 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) Intermediate Results Indicators PHINDIRITBL  Development of implementation strategies for certification programs (Number) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 2.00 Date 21-Jul-2016 15-Dec-2016 12-Dec-2017 30-Sep-2019 PHINDIRITBL  Number of policy papers prepared by the PAT (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 7.00 7.00 7.00 10.00 Date 21-Jul-2016 15-Dec-2016 12-Dec-2017 30-Sep-2019 Comments The following 7 policy papers were presented to the FSDRP Executive and Steering committee meetings; 1. Mobile and agency banking in EAC countries; 2. Determinants of household savings mobilization; 3. Assessment against IOSCO Principle 38; 4. Assessment against IOSCO new principles; 5. Assessing EAC financial integration (focus on Banking sector); 6.Risk based supervision for EAC Securities Market; and 7. Draft EAC Insurance Policy PHINDIRITBL  Harmonized statistics for financial subsectors represented in the database (Number (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 3.00 3.00 3.00 5.00 Date 21-Jul-2016 15-Dec-2016 12-Dec-2017 30-Sep-2019 Overall Comments The Banking, Capital Market and Pension sub- Sector has been represented/ populated in the database. Data on Financial Performance 3/12/2018 Page 8 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P121611 IDA-D1410 Effective USD 10.50 10.50 0.00 2.18 8.82 20% P121611 IDA-H6410 Closed USD 16.00 16.00 0.00 15.03 0.40 97% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P121611 IDA-D1410 Effective 30-Sep-2016 11-Nov-2016 15-Feb-2017 30-Sep-2019 30-Sep-2019 P121611 IDA-H6410 Closed 31-Jan-2011 14-Feb-2011 20-Jun-2011 30-Mar-2014 30-Nov-2016 Cumulative Disbursements Restructuring History Level 2 Approved on 28-Feb-2014 ,Level 2 Approved on 18-Jun-2015 ,Level 2 Approved on 25-Feb-2016 ,Level 2 Approved on 28-Sep-2016 Related Project(s) 3/12/2018 Page 9 of 10 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Financial Sector Development & Regionalization Project I (FSDRP I) (P121611) P160770-EAC Financial Sector Development and Regionalization Project I: AF 3/12/2018 Page 10 of 10 Public Disclosure Copy