The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Combined Project Information Documents / Integrated Safeguards Datasheet (PID/ISDS) Appraisal Stage | Date Prepared/Updated: 15-Apr-2019 | Report No: PIDISDSA26933 Apr 08, 2019 Page 1 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Guinea P164283 Support to MSME Growth Competitiveness and Access to Finance Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA 03-Apr-2019 30-May-2019 Finance, Competitiveness and Innovation Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Guinea Ministry of Industry and SMEs Proposed Development Objective(s) Support micro, small and medium enterprises access to markets and access to finance in the Conakry urban area. Components Support entrepreneurship and MSME Development Support financial infrastructure Develop financial services tailored towards MSMEs Project Management and Monitoring PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 30.00 Total Financing 30.00 of which IBRD/IDA 30.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 30.00 Apr 08, 2019 Page 2 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) IDA Credit 30.00 Environmental Assessment Category B-Partial Assessment Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B. Introduction and Context Country Context 1. Guinea is a low-income country in West Africa with a population of 12.4 million. It has immense hydrographic potential (6,000 MW potential for hydropower); fertile land (6.2 million acres arable land); and a rich mineral potential (a third of the world reserves of bauxite, gold, diamond, the world largest untapped reserves of iron, manganese, zinc, cobalt, nickel, and uranium) largely underexploited. 2. Guinea remains one of Sub-Saharan Africa‘s poorest countries despite having achieved notable economic growth since 2010. However, political unrest contributed to a decline in the per capita gross domestic product (GDP) growth from 4 percent in 2012 to 2.3 percent in 2013. According to official data, real GDP rebounded to 6.7 percent in 2017 against 5.2 percent in 2016, supported by the resumption of mining production, improved performances in the agriculture and energy sectors, and investments made in the construction sector. However, per GDP growth averaged a very low 0.6 percent from 1998 to 2016, about 1.2 percentage points lower than for Sub-Saharan Africa and 3.3 percentage points lower than for middle-income countries. 3. The country per capita income of US$508 (World Bank gross national income, 2016) is substantially lower than the regional average of US$1,463 and among the lowest in the world. Guinea ranked 175 out of 187 countries on the Human Development Index (2018) of the United Nations Development Programme (UNDP). Social losses brought about by the Ebola outbreak have exacerbated poverty. In 2017, on average, 55 percent of the Guinean population lived below the poverty line (against 52 percent in 2012), and unemployment was high, particularly among youth and women (2018, United Nations). The country also completed for the first time in its history a program with the International Monetary Fund (IMF) in 2016.1 A new three-year program (2018–2020) for a US$650 million non- 1 Guinea received a US$170.1 million International Monetary Fund’s (IMF’s) Extended Credit Facility (ECF) and budget support programs during 2012-–2016. Also, the country reached the Highly-heavily Indebted Poor Countries (HIPC) completion point in September 2012, leading to significant reductions in its external debt level and servicing costs. Debt servicing payments amounted to over four 4 percent of GDP in 2008. However, by 2013, this had fallen to below 1 percent of GDP. Lower debt service costs enabled greater fiscal space for pro-poor spending. Apr 08, 2019 Page 3 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) concessional loan under the Extended Credit Facility was concluded with the IMF in 2017 to pursue macroeconomic reforms. 4. The Guinean economy has experienced slow levels of structural transformation in the past 20 years with mining and agriculture being key sectors driving economic growth. In 2015, the service sector accounted for 45 percent of GDP, followed by mining (25 percent), manufacturing (10 percent), and agriculture (20 percent). Mining generates 80 percent of exports but employs less than 200,000 people if one also includes artisanal mining. The country is a major exporter of bauxite, as well as gold and diamonds. The manufacturing sector is very small, concentrated in the agribusiness sector, manufactured goods and beverages, accounting for less than 9 percent of GDP. The service sector is large representing 21.6 percent of GDP, mostly driven by activities in the informal sector, with focus on retail trade, construction, telecommunications, and finance. The current employment structure (52 percent of total employment in agriculture and 34 percent in services) reflects the lack of skilled human capital, high informality, and poor infrastructure. 5. Guinea’s social and political context remains fragile and unstable. The 2010 presidential elections were Guinea’s first democratic election since the country’s independence in 1958 and marked the end of a three-year period of military rule during 2008–2010. The political landscape is polarized in a context characterized by the organization of political parties along ethnic and regional lines. Violent demonstrations took place in the mining region against the lack of jobs and public services in late 2017 and 2018; strikes organized by the opposition and labor unions have repeatedly paralyzed the capital and protests due to electricity shortages are frequent. The next presidential elections are scheduled in 2020. 6. The 2016–2020 National Development Plan (Plan National de Développement Economique et Social, PNDES) of the Government of Guinea (GoG) places a strong emphasis on the critical role of the private sector. The PNDES, grounded in the country’s long-term vision (Vision Guinea 2040) with the stated goal of promoting strong, high-quality growth that will improve the well-being of Guineans, brings an economic structural transformation and places the country on a sustainable development path. The PNDES underscores “access to bank credit and diversified financial services fit to support private sector� as a main priority of the development agenda. The PNDES also focuses on “enhancing the digital economy as indispensable factors of development and a cross-cutting sector with direct multiplier effects on all other sectors of economic activity.� A National Financial Inclusion Strategy for the next five years has been drafted and is expected to be approved in 2019. 7. Supporting this goal, the World Bank Country Partnership Framework (CPF)2 has designed its 2018–2022 program. The CPF is voluntarily selective, leveraging on the World Bank Group comparative advantages and synergies with development partners. Its three pillars are (a) fiscal and natural resource management, (b) human development, and (c) agricultural productivity and economic diversification. In a nutshell, the overarching objective of the CPF is to help Guinea achieve its tremendous development potential with dedicated interventions to boost productivity, enhance capacities, and bolster private sector competitiveness. 2http://documents.worldbank.org/curated/en/346601528601433676/Guinea-Country-partnership-framework-for-the-period- FY2018-FY23 - report #125899 Apr 08, 2019 Page 4 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Sectoral and Institutional Context Private Sector Development in Guinea 8. A recent study—financed by the African Development Bank (AfDB), UNDP, and Guinea’s Promotion Agency for Private Investment (Agence de Promotion de l’Investissement Privé, APIP)—found that over 90 percent of the Guinean private sector consists of informal micro, small, and medium enterprises (MSMEs) in agriculture, trade, or services, with low salaries (less than US$50 per month) and low literacy rates (25 percent). It is estimated that 80 percent of the workforce is employed in this sector. The same study provides a definition of MSMEs in Guinea as being firms with 5–100 employees and an annual turnover ranging from GNF 65 million to GNF 2,000 million or US$6,500–US$200,000, which suggests that Guinean MSMEs are not a homogenous group. They differ in size, degree of formality, experience, market orientation, and funding needs. The MSME sector, which can be classified based on size and growth, broadly presents five MSME segments: (a) small necessity entrepreneurs, (b) moderate growth entrepreneurs, (c) high-growth start-ups, (d) opportunity-driven MSMEs, and (e) gazelles3. 9. The Guinea MSMEs ecosystem is weak compared to other Sub-Saharan African countries. This is primarily due to the high level of informality, the lack of entrepreneurial culture, the lack of skilled professionals, and limited access to quality business development services (BDS) and financial services. To expand the number of high-growth MSMEs in Guinea capable of creating sustainable jobs, quality BDS must be developed along with financial solutions that can provide access to growth capital. It is also critical to expand the number and the capacity of existing incubators, accelerators, and start-up hubs, which are important to create a steady inflow of future high-growth MSMEs. 3 (a) small necessity entrepreneurs. They represent the largest segment, typically a microenterprise set up to achieve an income for the owners’ family, aimed at survival rather than growth. This segment will not be a target segment for the project ; (b) moderate growth entrepreneurs. Companies in this segment typically offer a product or service with a stable demand but usually do not deploy innovative products or production techniques. An annual growth rate of 2 –3 percent increases the size of these firms over time in the direction of a mid-size enterprise. They are often family businesses with a higher rate of formality (around 20 percent) than the small necessity entrepreneurs. These will be targeted by the project. (c) High-growth start-ups. These are typically young entrepreneurs starting a business in the technology sector. Guinea has relatively few of these. The project will target these by supporting the development of an entrepreneurship ecosystem and by selecting each year several disruptive ideas that could be supported from development through expansion; (d) opportunity-driven MSMEs. These are MSMEs that engage in opportunistic business behavior, copying successful business models observed elsewhere, and regularly switching or adding new business activities. This group includes entrepreneurs that run several businesses at once (parallel entrepreneurs.) They tend to lack a long-term business vision and have limited market knowledge and client understanding. These will not be expressly targeted by the project; (e) Gazelles. Successful start-ups that have made the move from small to mid-size firms quickly, owing to high annual growth rates of around 10 percent, are called gazelles. Usually formally registered, they typically have 20 – 100 employees. They have achieved a mature financial performance and are generally headed by a strong business leader. Gazelles look for larger amounts of long-term financing to finance investments in assets. Gazelles usually have access to debt or other forms of financing. These companies will be among the prime targets of the project because they potentially hold the largest reservoir of job creation and which with the proper support system will be the most able to integrate the large companies supply chains, be they multinational or domestic companies. Apr 08, 2019 Page 5 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) 10. The high rate of informality creates unfair competition for MSMEs that operate formally, which in turn creates a disincentive for smaller informal MSMEs to formalize . The tax regime, the length, and cost of procedures are major deterrents to the formalization of MSMEs. In addition, MSMEs in Guinea are not well informed on the services available to them including information on market opportunities, financial services, or favorable government regulations. A 2016 study revealed that nearly half of Guinean MSMEs (46 percent) believe that the Government does not understand their needs versus 28 percent that believe they do. Likewise, 63 percent consider that the Government is not doing enough to promote MSMEs compared to neighboring countries such as Côte d’Ivoire or Senegal). About 72 percent of MSMEs surveyed are not aware of MSME-related services offered by the Government, and 89 percent are not familiar with the new investment code for MSMEs. An Unfavorable Business Climate 11. Private sector development is significantly constrained by a poor business environment and a lack of access to finance resulting in low levels of private investment . The GoG has taken the following positive steps in the past five years to improve the business:  An investment code and its implementing decrees were adopted in 2015  A regulatory and legislative framework for the promotion of industrial production was developed  The National Charter of MSMEs, the National Quality Policy, and the National Strategy for the Promotion of Intellectual Property were also adopted  The business registration tax rate was reduced from 5 percent to 2 percent to encourage new companies. That contributed to improving the country’s Doing Business ranking from 163 in 2017 to 153 out of 190 countries An Underdeveloped Entrepreneurship Ecosystem 12. Guinea’s MSME entrepreneurship ecosystem scores lower than most other West African countries according to the Global Entrepreneurship Index (130/137) and Global Innovation Index (119/126). However, the last three years has seen an increase of nonfinancial and financial intermediaries such as incubators (Saboutech and Osez Entreprendre) which are able to provide a wide range of services to support the rise of entrepreneurs and start-ups. Access to readily available growth capital is a major constraint to the development and expansion of these start-ups with high growth potential. The proposed project will use the Maximizing Finance for Development (MFD) approach to catalyze a risk capital market to promote future champions in Guinea. Viable financing alternatives for start-ups such as pre-seed and seed would be channeled through entrepreneurship support institutions leveraging private investment, in addition to a strategic investment made across the ecosystem support in business development intermediaries to enable them to foster more and better-quality start-ups and provide them with the support services needed to succeed. The Financial Sector in Guinea 13. Guinea’s financial sector is dominated by the banking sector which represents more than 90 percent of total assets in the financial sector. The financial sector consists of 16 private commercial banks, Apr 08, 2019 Page 6 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) 25 microfinance institutions (MFIs), 10 insurance companies, 42 exchange bureaus, and 33 money lenders. The banking sector is almost exclusively made of subsidiaries of foreign groups (two French, eight from the West African region, one from the Central African Region, one private Malagasy bank, and four from the Middle East and North Africa Region). Three banks dominate the market and hold over 57 percent of assets, 62 percent of deposits, and 57 percent of loans. Domestic credit to private sector as a ratio of GDP amounted to 10.7 percent4 below the regional average for Sub-Saharan Africa of 28.5 percent in 2016 and one of the lowest in the region after Chad. Total outstanding credit of the banking system reached GNF 7,473 billion (approximatively US$829 million) at the end of 2017, a 6.4 percent increase compared to the previous year. 14. According to the most recent data available, Guinea’s banking system is broadly sound but faces challenges. The banking sector shows favorable aggregated indicators as of June 2018 with a regulatory capital to risk-weighted assets ratio of 17 percent (above the 10 percent requirement); profitability remains robust (with return on assets [RoA] and return on equity [RoE] of 2.1 percent and 17 percent respectively, well above regional average, and an improving nonperforming loan (NPL) ratio at 8.7 percent. Following tight liquidity conditions in 2016 and early 2017, liquidity in the banking system started to improve in the second half of 2017. The reduction in the reserve requirement ratio from 18 percent to 16 percent in March 2017 freed up liquidity in the banking system. Furthermore, the increase in annual deposits growth at about 13 percent in 2017, which continued at 17 percent) in the first quarter of 2018, improved banks’ liquidity. 15. The risk level associated with the loan portfolio is underestimated. Banks are rapidly provisioning and reclassifying restructured loans as performing loans. Guinean banks enjoy significant profitability owing to negative real interest rates on deposits and high interest rate spreads (+18.2 percentage points) and banking fees (Guinean banks indicated that about 40 percent of their labor force is unproductive, which might explain the large intermediation costs). This reflects low income levels, lack of competition (the largest three banks represent about 75 percent of banking sector assets), limited physical access to financial institutions, and other barriers to credit such as weak credit reporting, poor property rights, and bankruptcy procedures. Finally, improved liquidity conditions in the banking system had only a limited impact on credit to the economy. 16. The massive borrowing of the Government from commercial banks contributes to constrain credit to the private sector. Between 2016 and the first quarter of 2018, commercial bank lending to the Government increased by over 42 percent, while lending to the private sector declined by 3.1 percent. Commercial banks’ lending to the Government increased by 16.5 percent in 2017 (average, year-on-year). Furthermore, commercial banks’ lending increased by 2.8 percent in the first quarter of 2018 (compared to end-2017) to finance the repayment of expenditure arrears accumulated in 2017. Limited Access to Finance for MSMEs 17. Limited access to financial resources constitutes the most critical binding constraint to MSME development and growth in Guinea. According to the most recent World Bank Enterprise Survey (2016), 30 percent of firms identify access to credit as a major business constraint in Guinea (compared to 42 percent in Sub-Saharan Africa). Although 98 percent of small firms have access to a checking or savings 4source: IMF - https://www.imf.org/en/Publications/CR/Issues/2019/01/28/Guinea-Second-Review-of-the-Arrangement- under-the-Three-Year-Extended-Credit-Facility-46557 Apr 08, 2019 Page 7 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) account, only 3.9 percent have a bank loan or line of credit (compared to 21.6 percent in Sub-Saharan Africa). Only 2.5 percent of small enterprises and 8 percent of medium enterprises have a loan or a line of credit. Overall, firm investments in Guinea are primarily financed internally—92 percent—compared to 2.8 percent by banks. In addition, the collateral remains high, above 150 percent of the loan amount. 18. The financial needs of microenterprises are small on average, and the banks often find it difficult to provide credit of such small amounts. Transaction costs of small loans are either equivalent to or higher than those associated with large loans and the level of nonperforming MSME loans is very high. MSMEs are also less likely to generate fee income on other services that large enterprises use (such as letters of credit). Profits generated from small business loans are significantly lower than those from large loans. As a result, commercial banks are reluctant to engage in the MSME loan market. MFIs play a significant role as credit providers to very small unorganized enterprises, many of which are street-based enterprises. 19. The microfinance sector is highly concentrated and faces important challenges . The microfinance sector comprises 10 credit cooperatives (Category 1); 10 savings and credit organizations concentrated on a target group (for example, rural microfinance) (Category 2); and 5 typical open-door MFIs (nongovernmental organizations and associations). All are regulated by the Central Bank of Guinea (Banque Centrale de la République de Guinée, BCRG). In 2017, MFIs mobilized a total of saving deposits of GNF 336 billion (US$37million) (20 percent higher than in 2016) and an outstanding credit portfolio of GNF 316 billion (US$34 million), (29 percent higher than in 2016). The microfinance sector is concentrated in four large MFIs (Credit Rural de Guinée with 60 percent market share, Cofina, Finadev, and Yete Mali) which account for 90 percent of the customer base, 96 percent of deposits, and 87 percent of outstanding credit in 2016. The current situation of the microfinance sector is characterized by a rebound from the Ebola crisis that devastated the microfinance sector, particularly smaller institutions. In the affected areas, all the smaller MFIs greatly reduced their interface with clients in 2014 and 2015, ceasing both collections and advances. Despite the recovery, the sector faces several challenges which include but are not limited to funding constraints, high operational costs, deficient management information systems (MIS),5 and limited management capacity/expertise. 20. Important reforms in the legal and regulatory framework of the microfinance and electronic money have been introduced in 2017. With the help of the World Bank and financing from the Financial Sector Reform and Strengthening (FIRST) Initiative, a new inclusive Financial Services Law was approved by the Parliament in July 2017 and became effective in June 2018. The law introduces new regulations governing the activity and control of MFIs as well as of the electronic money institutions and the financial services of the Guinean Postal Services. Specifically, the law introduced (a) resolution powers for the financial sector regulator (BCRG) and (b) more stringent prudential and non-prudential measures such as consumer protection and enhanced supervision including tool derived from the Capital adequacy, Asset quality, Management, Earnings, and Liquidity (CAMELS) approach. 5 The quality of the management information is very poor, including for the data on compliance with prudential rules provided to the BCRG. The operational and business information reported by the MFIs was in most cases lacking and containing several inconsistencies. Most of the MFIs are likely noncompliant with the prudential rules and regulations from the BCRG, especially on capital adequacy and loan loss provisioning. Few MFIs (CRG, Yete Mali, RAFOC, and FINADEV) have a basic IT system to support their operations and, when available, these systems are often found lacking in configuration of reporting and performance monitoring. Apr 08, 2019 Page 8 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Promoting Digital Financial Services to Improve Access to Finance 21. Between 2014 and 2017, the World Bank-funded MSME Support Project (P128443) in collaboration with AfDB helped establish the framework for the development of a modern national payment system infrastructure in Guinea. The MSME Development Project (P128443) financed some technical assistance (TA) to set up an oversight of payment systems in BCRG (and a backup center) while AfDB-financed key payment systems infrastructure such as an interbank system for retail electronic fund transfers (that is, an automated clearing house and a large value interbank settlement system (that is, a real-time gross settlement system). However, in the absence of a national switch platform, interoperability is nonexistent. In 2011, the BCRG had created Société Monétique de Guinée to ensure interoperability of electronic payments but it failed to be operationalized for issues related to inadequate governance in place. This situation creates important challenges in the development of retail payment infrastructure and limits access to finance to individuals, small firms, and the wider public. The payments aspects of financial inclusion’s report shows that a strong, efficient, and dynamic payment system contributes to the promotion of access to finance. 22. Digital financial services are used by a mere 2 million subscribers, a number significantly below the market potential. While three e-money issuers (Orange, MTN, and PAYCARD) have been licensed, the supply or services stagnate at the level of transfers and payments, not reaching second generation services targeting credit and savings through a more integrated financial sector. As a result, several mobile money account holders fall into inactivity, which worsens the percentage of dormant accounts. The situation is mainly due to a lack of integration among stakeholders that can potentially trigger innovative and alternative business models to serve the financial needs of MSMEs and individuals. 23. The lack of an interoperable retail payment platform hampers full access to digital financial services in Guinea. The implementation of the digital platform will allow mobile money interoperability hence deeper integration of various digital transactions. Mobile money providers such as Orange and MTN will join the platform as direct participants alongside the banks and the MFIs which will come onboard at a later stage. Overall, the platform will gather 15 banks, 3 e-money issuers, and at least 15 MFIs, hence creating a dynamic ecosystem of digital financial services. The key expected results of such digital transformation are to increase access and usage of financial services including social services and government payments, induce cost reduction of individual transactions, and in turn, contribute to GDP growth. 24. Further to the above, the digital platform has the potential to help address the asymmetry of information hampering access to credit by MSME. The digital platform will be an enormous database of consumer data and analytics that can potentially inform decision making by lenders. The digital platform will be managed under the purview of a separate company created, led, and supervised by the BCRG that has a mandate to increase financial inclusion as stated in their Maya Declaration. 25. In the microfinance sector, the lack of automated and well-performing MIS limits the ability of MFIs to embrace digitization. Nonetheless, the substantial outreach potential of these institutions, their contribution to access to finance for MSMEs is stifled by the lack of modernization on both front office and back office operations. Most are under financial distress and lack the capacity to invest in alternative and innovative delivery channels. MFIs in Guinea are essential contributors of access to credit with GNF 415 billion in loans awarded to the private sector. Apr 08, 2019 Page 9 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Strengthening Guinea’s Financial Infrastructure to Support Access to Finance 26. The lack of reliable MSMEs credit information to lenders constitute a barrier for the former to obtain financing from the latter. Credit reporting systems address the problem of asymmetric information between borrowers and lenders and, by doing so, they contribute to improve access to finance. Lenders’ access to accurate information on MSMEs would enhance their ability to assess MSME creditworthiness and make fact-based credit risk assessments. 27. Guinea has made positive changes in financial sector infrastructure recently, but it needs to be strengthened to promote financial intermediation. With the help of the World Bank Group, a thorough revamp of the Credit Registry (Centrale des Risques) was undertaken in 2017 for the development of an advanced information sharing system denominated Systeme d‘Information de Credit (SIC). While the system is an improvement as it allows full data sharing automation between banks and the BCRG, it is not fully implemented, mainly because of delays on provision of data from the lenders, especially MFIs that do not possess the technical infrastructure nor the financial capacity to commit and carry out compulsory data sharing with the SIC. As of June 2018, only 2,236 borrowers (1,659 individuals and 577 enterprises) were registered in the SIC. An appraisal of the SIC, prepared in August 2018, stressed basic but crucial limitations of the current system (no automated data quality and validation checks are run by the system. Because the system is not provided with a matching algorithm, homonymy cases need to be processed manually. Due to the lack of automated validation and audit controls of quality of data, there is no functionality of ‘rejects’; no credit history (granular data) is offered, just an aggregated figure on the total exposure, and so on). Furthermore, the lack of a collateral registry creates a major drag, in terms of cost and time, for the origination and execution of credit transactions.6 The current legal framework for secured transactions in Guinea is scattered among various laws and regulations with different laws covering the same subject matter.7 C. Proposed Development Objective(s) 6 Overall, the lack of an electronic collateral registry prevents banks, nonbank financial institutions, and other potential lenders from using financial assets to channel credit to the private sector. Currently, banks and other lenders accept as guarantees against loans only immovable property (land, buildings, and other immovable property rights), thus effectively preventing borrowers, including MSMEs from using movable assets such as inventory, machinery, equipment, accounts receivables, crops, stock, and so on as a collateral. Also, the lack of a centralized legal framework and registry prevents the banks from checking in one place whether movable securities are ‘clean’ to be used as guarantees for loans. The introduction of a movable collateral registry will allow borrowers to use movables to secure loans, thus removing the burden from banks to require only immovable security, and thereby increasing financial access to the unbanked population and MSMEs. 7 The secured transactions legal regime is governed by the Commercial Code which follows the OHADA (Organization for the Harmonization of Corporate Law in Africa) (Organisation pour l'harmonisation en Afrique du droit des affaires ) Model law of Commercial Code. Other parts of the secured transactions framework, particularly the laws concerning individuals and diverse types of secured transactions (such as account receivables, mortgages, leasing, intellectual property rights, and so on) are in separate laws and regulations. A deep review of the existing legal framework that covers secured lending in Guinea is ongoing in the World Bank-financed project about improving climate within OHADA (P164728). Apr 08, 2019 Page 10 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Development Objective(s) (From PAD) Support micro, small and medium enterprises access to markets and access to finance in the Conakry urban area. Key Results PDO Level Indicators (a) Support entrepreneurship and MSME growth  Number of sales contracts won by MSME supported by large companies  Number of startups and innovative companies supported (b) Strengthen financial infrastructure  Monthly volume of transactions processed by the National Switch  Credit registry coverage (% of individuals and firms listed in a credit registry) (c) Increase financial services for MSMEs  Loans provided to MSMEs by the participating financial institutions in the RSF Intermediate Results Indicators (a) Number of large domestic and foreign companies signed up for MSME linkage program (b) Number of entrepreneurship ecosystem providers to be strengthened (c) National switch fully operational (d) Number of MFIs digitally transformed (e) Number of inquiries received by SIC on a monthly basis (f) A collateral registry established and operational (g) Risk-Sharing Facility is created and operational (h) Number of grass root events, workshops, and strategic engagements with civil society representatives for broad-based consultations on the implementation and impact of MSME programs D. Project Description Component 1: Support entrepreneurship and MSME development (US$10 million) Apr 08, 2019 Page 11 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) 28. The objective of this component is to strengthen MSMEs’ ability to grow, create jobs , and wealth and effectively contribute to the socioeconomic inclusion of youth and women. 29. Filters used to identify MSME binding constraints, target MSMEs to be supported by the project, and design project activities accordingly were primarily factors limiting MSMEs ’ ability to grow, create jobs and wealth, and effectively contribute to the socioeconomic inclusion of youth and women. Four constraints were identified: (a) the prevalence of informality preventing businesses from accessing market opportunities, (b) lack of capacity of local MSMEs preventing them from capturing market opportunities from multinationals and large domestic companies, (c) an undeveloped entrepreneurial ecosystem preventing potentially disruptive and transformative projects from emerging businesses, and (d) highly limited access to MSME growth capital. Subcomponent 1.1: MSME business development services (US$1 million) 30. This subcomponent will finance MSME institutional support activities by providing the Conakry SME Support Center with consultant services, TA, and expertise to develop and implement a sustainable business and financial model. The project will support the recruitment of experts including (a) a program director for the management of the center, (b) a training expert to coordinate capacity-building and linkage programs, and (c) a financial expert for MSME access to finance programs. Three support staff for critical business registration services and strategic partnership programs will also be funded by the project. 31. This subcomponent will finance space planning and interior arrangement of the SME Support Center as well as the necessary systems and equipment to make the center fully compliant with World Bank-approved safety standards. This activity will provide the resources to divide and reorganize office space to (a) upgrade the SME Center facility with small works and equipment and (b) implement safety measures to ensure workers’ protection and safety. 32. The proposed project will support the long-term financial and operational sustainability of the Conakry SME Support Center by financing (a) TA to develop a viable fee-based financial and revenue model that will make the center financially independent and (b) domain expert consultants to help launch and manage the centers’ activities while transferring knowledge and competence to local staff who will take over the management and administration of the center after the project closes. Subcomponent 1.2 Connect MSMEs to sales contract opportunities (US$4 million) 33. MSMEs in Guinea are missing sizeable local contract opportunities procured through large companies. The project will fund activities that will help identify and select local MSMEs with the capacity to win and execute contracts with large domestic or multinational companies in high-growth sectors through an MSME linkage program that enables and connects local MSMEs to contracting opportunities offered by large domestic or multinational companies in high-growth sectors of the Conakry urban area. 34. The activity will finance an MSME linkage program. The MSME linkage program will be managed by the SME Support Center of Conakry and delivered through a partnership with partners. Partners will be selected competitively and assigned the mission of delivering on the program’s key performance indicators and transferring knowledge and competence to CAPME staff in charge of the management of CAPME. The program will assess end-buyers’ procurement needs and supply chain participation Apr 08, 2019 Page 12 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) requirements. The program will design and partner with private sector companies to finance trainings, capacity building, and certification programs for quality improvement aimed at building MSMEs’ capacity to meet norms and standards required by large local companies or multinationals for these MSMEs to become part of their supply chains. A portfolio of about 30 private companies participating in the linkage program to award contracts to local MSMEs will be constituted based on market screening and through collaboration including APIP, the investment promotion agency. The 3–5-year procurement needs of the private companies will be also assessed. The project will work jointly with the private sector to identify the local MSMEs that could fulfill these procurement needs and design the matching capacity-building program for the qualifying MSMEs identified. Furthermore, the MSME linkage program will be designed to include behavioral training on managerial and operational capabilities for MSMEs working jointly with IFC advisory services for input on MSME onboarding/training. 35. The program will be designed as a cost-sharing activity with the beneficiaries to support the TA provided as well as the acquisition of some equipment that can maximize the MSME value proposition in the procurement process. A Project Implementation Manual (PIM) will be drafted to outline the program eligibility criteria, guidelines, and standard operating procedures. Primarily focusing on the Conakry area, the program will assess the opportunity to extend its services to the Boke area once a critical mass of MSMEs has been reached in Conakry and core services of the center have been well established and functioning. The project will seek to target at least 150 MSMEs supporting individual TA packages averaging US$25,000 per MSME supported. 36. The CAPME MSME linkage program will work in a close, collaborative strategic partnership with IFC supported BSTP. The newly established BSTP is a supplier development platform established by IFC’s Mining Investment Climate Project to match companies seeking to purchase goods, services, or works with qualifying local SME suppliers. The formal strategic partnership between CAPME and the BSTP will focus on the following areas: (a) the BSTP will be able to leverage CAPME’s MSME capacity-building program to support MSMEs that require a training or certification program to win and execute a contract within its reach, (b) MSMEs supported in CAPME’s linkage program will be able to register with the BSTP to have access to broader market opportunities, (c) the project will strengthen the BSTP’s management team who can benefit from project-funded domain-specific training and certification to enhance their capabilities as a newly formed entity to help deliver on the BSTP’s strategic objectives, and (d) a BSTP antenna will be established in CAPME. Subcomponent 1.3: Support to entrepreneurship and ecosystem providers (US$5 million) 37. The objective of this subcomponent is to strengthen the capacity of entrepreneurship ecosystem providers to provide pre-seed and seed support to entrepreneurs translating ideas into fundable and marketable products and services. Ecosystem provider(s) such as incubators will be contracted as executing agency(ies) of the project to carry out business incubation services along with the building of skills and literacy. 38. The intended impact is the creation of more and better-quality startups and innovative enterprises with potential for receiving seed, early-stage, and early-growth financing. This fits into the private sector-led youth employment strategies in Guinea to improve job opportunities for youth. The subcomponent will have a transformational impact on the Guinean entrepreneurship ecosystem as well as a catalytic one of the deal flow side with provision of seed funding. The component will raise the overall Apr 08, 2019 Page 13 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) profile of innovation and technologies and its role to support Guinea’s economic growth. It is expected that 10 ecosystem providers will be strengthened, at least 150 startups will be supported with financial support at pre-seed and seed stages, and that at least 30 innovations and technologies will be tested with market traction. Overall the subcomponent will directly benefit up to 2,000 youth and indirectly create hundreds of jobs. 39. The project will support activities that help address the lack of technical talent and skills, mentors, and role models and expansion of ecosystem providers’ capabilities to build skills and startups. The subcomponent will finance the three following activities: (a) Results-based financing (performance contract) in the form of grant(s) to ecosystem provider(s) (competitively selected) to strengthen their operations and their ability to foster innovative entrepreneurship based on mutually agreed self-improvement plans to increase the quality and sustainability of services provided and extend pre-seed support to selected startups. The project will select five eligible ecosystem providers in the first year and five more in the second year. The 10 eligible ecosystem providers, in addition to their self-improvement plans, will be expected to mobilize expertise for at least five startups per year (in a cohort-based fashion to ease reporting) as well as organize one entrepreneurship training bimonthly. The project will directly contribute to at least the professionalization of 10 ecosystem providers, 150 startups, and 1,800 enterprising young innovators. It is expected that the funding will be limited to three years for both the ecosystem provider and its beneficiaries. An average of US$70,000 will be mobilized annually for self- improvement plan (HR, equipment, capacity building, and select running costs); US$20,000 for expertise support to 5 startups; and finally, US$10,000 for trainings (for example, coding, digital marketing, finance, and so on). A total of US$2 million will be allocated. Beneficiaries will sign contracts with the PIU (if legally mandated by the ministry in charge of SMEs) or the ministry itself. Eligible expenses will be defined in the Project Implementation Manual (PIM). At midterm review, the project can decide to reallocate funding depending on the performance of ecosystem provider(s) or any other relevant factor approved by the bank. (b) Seed financing to entrepreneurs (10 per year) translating ideas into fundable and marketable products and services in the form of a cohort-based competitive selection process that awards financial support to entrepreneurs for early testing or development phases of a business concept, idea, or model (grant) or the commercialization phase of products/services. Biannually, the project will organize a call for innovative and growth ventures open to startups that are legally established (for less than 5 years) to access funding. The startups showing market traction will be selected by a Seed Funding Committee (SFC) comprising five private sector members, whose CVs will have to be submitted to the World Bank for no-objection, or any other ecosystem actor approved by the World Bank. The SFC will select up to 10 startups per year for 4 years (equivalent to 8 calls). Each startup will be granted seed funding amounting to maximum US$50,000, with an average of US$10,000. The investment strategy, eligible sectors, and expenses will be defined in the PIM. At midterm review, startups performing well could receive follow-on funding. A total of US$2.5 million be allocated with US$2 million in seed funding and another US$500,000 needed to communicate, proceed to the selection, perform due diligence for expected beneficiaries, and cover the running costs of the SFC, including the recruitment of the implementation agency and the independent verification institution which will ensure the conformity of the process with TORs and relevant conditions. Apr 08, 2019 Page 14 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) (c) Organization of open innovation competition and hackathon by ecosystem providers to help foster co-creation of innovative solutions and the adoption of disruptive technologies based on the demand of large public and private organizations. The project will identify the needs and problems of large corporations and public authorities that are interested to externalize part of their problem- solving and/or innovation processes and support the organization of hackathons. Based on the demand of large public and private organizations, categories will be prioritized. The winners of the hackathon will be granted support to further develop the solution. One open innovation week per year will be organized, with 10 startups matched with large public and private organizations, and one or two receiving support to execute the contractual relationship(s). It is expected that over 15 innovations will be recognized with a market traction (B to B) and five startups be granted a contract while receiving support from the project. A total of US$450,000 will be allocated. Component 2: Support financial infrastructure (US$10 million) 40. The objective is to finance critical financial infrastructure in Guinea to encourage sustainable, viable, and significant improvements in access to MSME finance. The strengthening of Guinea’s financial infrastructure will improve financial access for all firms, but MSMEs benefit proportionately more, as the problems of opacity and information asymmetry are more severe in the case of smaller firms. 41. This component will help set up a retail payment platform connecting financial institutions, making it more efficient for them to provide funding to businesses at a lower cost. Digital data derived from financial transactions processed by the new platform will feed into scoring mechanisms that allow for creditworthiness evaluation of micro-entrepreneurs. The national switch platform has the potential to address the asymmetry of information hampering access to credit. Beyond interoperability, digital platforms today can provide consumer data and analytics that are used as decision-making tools by lenders. 42. Information asymmetries represent a significant challenge for MSMEs to obtain adequate external financing. Credit reporting systems address the problem of asymmetric information between borrowers and lenders and, by doing so, they contribute to improve MSME access to financing. Lenders’ access to timely and accurate information on MSMEs enhance their ability to assess MSME creditworthiness and to make fact-based credit risk assessments. Subcomponent 2.1: Retail payment infrastructure (US$5 million) 43. This subcomponent will finance the hardware and software required for the design and implementation of a national switch platform that will create an interoperable and interbank payment network with interconnected points of sales, including ATMs and mobile devices. The switch platform to be funded by the project will be designed to allow interoperability of digital payments, international transactions, payments at point-of-sales (POS), mobile money, and online transactions. Holders of cards issued in Guinea will be able to execute transactions at all ATMs and POS displaying the system's logo. Cards are also used rarely, either debit or credit cards. There are a few ATMs or POS terminals, most of which are in Conakry. Currently, in Guinea, international credit cards are accepted in a few locations, mainly hotels and the airport. Under this new project, holders of cards issued outside Guinea through international card schemes (ICS) will be able to make payments for goods and services directly through terminals at merchants which display the appropriate international scheme's logo. Payments for goods Apr 08, 2019 Page 15 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) and services made with the use of ICS cards will be executed in compliance with the international scheme's rules. The system will also provide full functionality for setup of mobile money products with the creation of prepaid accounts. Furthermore, it is envisaged that the new platform will allow Guineans to have access to Internet purchases through a payment gateway. 44. The project will fund a comprehensive TA to the BCRG to improve technical and operational expertise of switch platform systems. TA activities will include (a) training of frontline technical staff, (b) acquisition of new platform (hardware and software), (c) support to the design of technical specifications of the switch platform and drafting of request for proposal, and (d) a broad-based communication campaign to raise awareness and increase adoption of the new system and the related benefits of transitioning of adopting a digital over a cash system. Subcomponent 2.2: Digitization of microfinance activities (US$2 million) 45. This subcomponent will finance hardware, software, and capacity-building programs to make the operations of MFIs more efficient and allow the BCRG to have a better supervision of their activities. Activities will include (a) a mutualized MIS, that can be used remotely by participating MFIs for future connection to the national switch; (b) operating costs for the shared-use MIS for two years (the MIS will integrate mobile money applications and modules to allow MFIs to offer digital finance products in rural areas); (c) hardware/software TA needs for the BCRG staff and MFIs joining the mutualized MIS, including capacity development in internal controls and financial management (FM); and (d) workshops on digital transformation of MFIs. Subcomponent 2.3: Strengthening credit reporting (US$2 million) 46. This subcomponent will finance a TA to the Central Bank of Guinea (BCRG) to improve the existing credit registry (SIC), the development of a medium-term national credit reporting strategy, and a TA to build a conducive legal and regulatory environment (data sharing, borrowers’ rights, credit bureau, and so on). With the stabilization of the SIC and the increased utilization and maturity of the lenders, the project will also provide technical support to the BCRG to move toward a future credit bureau. Specific activities that will be funded by the project include (a) TA to develop the legal and regulatory environment to create a credit bureau; (b) TA to the BCRG to help them work with the SIC’s provider to ensure sufficient services to meet international global standards; (c) TA to support the BCRG for the development of a well-defined and realistic national medium-term credit reporting strategy, with the intended outcome of turning the SIC into a credible source of credit data for the banking system; (c) a capacity-building program within the BCRG for the modernization of credit reporting schemes (including assistance to improve data quality8 and completeness), conducting awareness campaigns and delivering training to lenders. 8 Guinea’s BCRG requires that data providers (banks and MFIs only) report all their loans for individuals and firms to the CIS and only negative data is reported. Also, information on updates on existing loans is not done event-based. While the introduction of credit reporting has been useful for the automation of collected data, the SIC should be upgraded to improve data quality and completeness, enable wider participation, and in general, to ensure that it fulfills its role of effectively assisting banks and other lenders in their credit risk assessments. Apr 08, 2019 Page 16 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Subcomponent 2.4: Creation of an electronic collateral registry for lending and leasing (US$1 million) 47. The project will finance the hardware, software, and capacity building for a centralized electronic collateral registry. The collateral registry for movable assets would have to fulfill two key functions: notify parties about the existence of a security interest in movable property (of existing liens) and establish the priority of creditors—in relation to third parties. This registry will be designed to be (a) the place where security interests over movables are registered, (b) cost-efficient, (c) designed as a notice- filing system, and (d) electronically accessible. Component 3: Develop financial services tailored toward MSMEs (US$8 million) 48. The objective of Component 3 is to establish two RSFs to provide incentives for PFIs to lend to eligible MSMEs. These facilities will be complemented with mandatory technical assistance aimed at supporting participating financial institutions in designing, piloting, and rolling out financial products to successfully expand their outreach to the targeted MSMEs. 3.1 Risk Sharing Facility (US$6 million) 49. This subcomponent will expand MSMEs’ access to finance by increasing financial institutions’ incentives to lend to MSMEs 50. A joint IDA-IFC Risk Sharing Facility (RSF) of US$6 million will be created to provide a portfolio risk guarantee through a first-loss cover to participating financial institutions (includes both banks and microfinance institutions (MFIs)) to lend to eligible MSMEs (See Figure 1 below). i. The RSF will cover 50 percent of the losses, on a pari passu basis, that participating banks and microfinance institutions may incur in their lending operations to eligible MSMEs, enabling them to lower excessive collateral requirements for loans to MSMEs. As a result, the RSF will encourage the participating financial institutions to serve new cohorts of eligible MSME clients. ii. The RSF will leverage IFC’s strategic objectives and experience in the region to bolster MSME financing with a focus on MSMEs located primarily in the urban area of Conakry, with the flexibility to be extended to other areas. iii. The sizing of the proposed risk sharing facility will be based on the needs and absorption capacity of participating financial institutions, following an IFC’s field assessment and participating bank appraisals. The IFC will manage the proposed RSF and will conduct due diligence of participating financial institutions to ensure that sound institutions with proper risk-management capabilities are selected. A Risk Sharing Framework Agreement will be signed by the Ministry of Industry and SMEs, IFC and IDA. iv. The RSF will be implemented through competitively selected financial institutions under the overall coordination of the PIU in partnership with the Ministry of Industry and SMEs. IDA-IFC Risk-sharing facility structure Pooled First-Loss Risk Sharing Portfolio Agreement Guarantee 50/50 Apr 08, 2019 Page 17 of 26 Participating IFC Financial IDA SME institutions 1 SME SME SME Eligible SMEs The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Subcomponent 3.2: Technical assistance (US$1.6 million) 51. This subcomponent will provide mandatory TA to banks and microfinance institutions to strengthen their institutional, human, and business capacities to effectively serve the MSME market (such as design of MSME products, marketing approaches, adaptation, origination, and decision-making methodology for MSME credit origination, specific credit scoring, and promotion of leasing). The TA will be implemented by the Bankers’ Association (Association des Professionnels des Banques, APB) and the Association of Microfinance Institution. About US$0.8 million will be ear-marked for funding TA to banks and US$0.8 million for funding TA to MFIs. Subcomponent 3.3: Equity investment ecosystem (US$0.4 million) 52. This subcomponent will finance a private equity and/or venture capital ecosystem study to assess the development of the private equity/venture capital (PE/VC) industry in Guinea and identify legal, regulatory, supervisory, and business environment impediments to the development of the industry. Increasing companies’ access to private equity at all stages of development—venture, growth, and pre-Initial Public Offering—can have a significant impact on innovation, productivity, employment creation, and competitiveness. Also, the PE/VC industry can be an additional source of finance for the MSME sector in Guinea. Component 4: Project management and monitoring (US$2 million) 53. This component will finance the establishment and operation of the PIU. The component will also finance TA to support project implementation costs for procurement, FM, communication, and the monitoring and evaluation (M&E) of the project. It will include operational expenditures, consultant fees and trainings costs, knowledge sharing, and goods and services to equip the PIU and finance the audits. PIU staff to be recruited include (i) a project coordinator, (ii) an FM specialist, (iii) a procurement specialist, (iv) an accountant, (v) an assistant, (vi) an M&E specialist and (vii) a gender specialist. The project will also recruit three component experts to support the PIU, one MSME development expert, one gender inclusion expert, and one expert in access to finance issues. 54. In addition, this component will finance TA to the MISME to strengthen its capacity of the MISME to coordinate activities, as being the implementation agency. Apr 08, 2019 Page 18 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) E. Implementation Institutional and Implementation Arrangements 55. The institution responsible for the project will be the MISME. The project will be implemented over a period of five years. The end of implementation of the project is expected on July 31, 2024. A midterm review will be carried out within 24 months after progress effectiveness. Given the multi- institution nature of the project, high-level support is required to ensure consistency of interventions and ensure the removal of occasional blockages. This implies the setup of the agencies as detailed in the following paragraphs. 56. Steering Committee. The committee will be chaired by the Minister of Industry and SME (or his representative) and involve representatives of the main project stakeholders including the following ministries and structures: Prime Minister’s Office, Ministry of Mining, Ministry of Finance, Ministry of Budget, Ministry of Justice, APIP, BCRG, APB, and Microfinance Associations (Agence des Professionnels des Institutions de Microfinance, APIM), associations representing the private sector and other institutions. The Steering Committee will meet twice a year or more if needed. The Steering Committee will facilitate project execution by (a) providing strategic guidance of the implementation, (b) reviewing and coordinating project-led initiatives and reforms, and (c) eliminating blockages that could delay project implementation. 57. PIU. A PIU will be put in place and its staff recruited by the project to oversee coordination of project activities, be responsible for project fiduciary, M&E, and safeguards functions as needed. The PIU will report to the Minister of Industry. The PIU will oversee implementing the project in accordance with the Project Implementation Plan and the Annual Work Plan. The BCRG will be responsible for the implementation of Component 2 activities related to financial infrastructure and access to finance services. Hence, it will be responsible for the preparation of monitoring reports and other documents required by the World Bank. It will ensure that budgetary, procurement, disbursement (including management of the project IDA Designated Account [DA]), accounting, auditing, and reporting arrangements are carried out in accordance with agreed procedures. Such an arrangement will contribute to reduce fiduciary risks and consolidate all fiduciary transaction in a way that minimizes burden to the institutions. The PIU will also oversee (a) organizing the steering committee meetings; (b) providing all necessary information on project performance and monitoring to the Steering Committee, the Technical Committee, and the World Bank; (c) developing and implementing the project communication policy; and (d) implementing the project M&E framework. 58. Technical Committee. The Project Technical Committee, chaired by the representative of the MISME, will be set up to work alongside the PIU to monitor the timely implementation of project activities as agreed upon and validated in the Annual Budgeted Activity Plan (PTBA). The Technical Committee will include technical focal points appointed by different project beneficiaries’ departments or agencies and representatives of the private sector. The Technical Committee will meet regularly (monthly) to ensure close monitoring of the project. The committee would be able to convey the need for any other representatives for specific topics. Apr 08, 2019 Page 19 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) 59. Ad hoc executing technical agencies. In close coordination with the PIU which is responsible for the project fiduciary, M&E, and safeguards activities, the following agencies will be responsible for implementing technical project components: (a) CAPME: Subcomponents 1.1 and 1.2 (b) One or more private companies selected competitively in coordination with CAPME and under the co-management of the MISME and the general management of the PIU -for Subcomponent 1.3 (c) The BCRG: Subcomponents 2.1, 2.2, and 2.3 (and 2.4) APB and APIM: Component 3 . F. Project location and Salient physical characteristics relevant to the safeguard analysis (if known) Project activities will be concentrated in Conakry. The project is financing soft investments in technical assistance and ICT. It will not finance any activities that require land acquisition or will result in negative impacts on private property or incomes. The project has been classified as Category B because of the potential environmental and social risks and impacts associated with the rehabilitation of the SME Center in Conakry and with the grants of the risk sharing facility. An Environmental and Social Management (ESMF) has been prepared, consulted upon, approved and disclosed in-country and on the World Bank’s website. The ESMF includes institutional arrangements, outlining the roles and responsibilities for various stakeholders involved in the review and approval of sub-projects. The ESMF also includes tools for screening subprojects for potential risks and impacts, as well as guidance on implementation and monitoring of their mitigation measures. Guidance for screening to ensure that there is no impact on informal users of the area surrounding the SME center has been included in the ESMF. There are no indigenous peoples per the definition of OP 4.10 in Guinea and therefore this policy has not been triggered. G. Environmental and Social Safeguards Specialists on the Team Emmanuel Ngollo, Environmental Specialist Kristyna Bishop, Social Specialist Emeran Serge M. Menang Evouna, Environmental Specialist Apr 08, 2019 Page 20 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) This policy is triggered because this project intends to support and finance the rehabilitation of physical infrastructure for local SME development in Conakry as well as providing grants to support MSMEs as part of the risk sharing facility. To meet policy objectives, An Environmental and Social Management (ESMF) has been prepared, consulted upon, approved and disclosed in-country and on the World Bank’s Environmental Assessment OP/BP 4.01 Yes website. The ESMF includes institutional arrangements, outlining the roles and responsibilities for various stakeholders involved in the review and approval of sub-projects. The ESMF also includes tools for screening subprojects for potential risks and impacts, as well as guidance on implementation and monitoring of their mitigation measures. Performance Standards for Private Sector No NA Activities OP/BP 4.03 During project implementation, none of the Natural Habitats OP/BP 4.04 No activities will be undertaken in critical or sensitive natural habitats to trigger this policy. No project interventions financed by this project will Forests OP/BP 4.36 No undertake activities in forest areas involving deforestation or any forest activities. This policy is not triggered as the project does not Pest Management OP 4.09 No anticipate acquiring pesticides or equipment of pesticides aplication. The project will not involve physical work by the rehabilitation of new infrastructure and installation of equipment tis will lead to excavations and demolitions. Such footprint physical works may lead to excavation of artifacts and other cultural relics. Because of the nature of the proposed physical Physical Cultural Resources OP/BP 4.11 Yes activities and the project areas, Physical Cultural Resources policy OP/BP 4. 11 is triggered due to the possibility of finding evidence of physical cultural resources during civil works. As a result, the ESMF of the project will include a procedure for dealing with cases of "chance finds" procedures on civil works contracts, even where risks are deemed low. Apr 08, 2019 Page 21 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) This policy is not triggered in Guinea where there are Indigenous Peoples OP/BP 4.10 No no Indigenous Peoples, as per Government policy and World Bank definition. The project is financing soft investments in technical assistance and ICT. It will not finance any activities that require land acquisition or will result in negative impacts on private property or incomes. Guidance for screening to ensure that there is no impact on informal users of the area surrounding the SME Involuntary Resettlement OP/BP 4.12 No center has been included in the ESMF that has been prepared for the project and disclosed per the requirements of the policy. The PIU will be responsible for providing adequate documentation and ensuring the functioning of the GRM in order to address any non-compliance. The project interventions will not finance Safety of Dams OP/BP 4.37 No construction of dams nor will it support any dam infrastructure. Therefore, this policy is not triggered. Projects activities will not be implemented in the Projects on International Waterways areas of international waters nor have any impacts No OP/BP 7.50 on international waterways. Therefore, this policy will not be triggered. Project activities will not be implemented in Projects in Disputed Areas OP/BP 7.60 No disputed areas as there are no known disputes over project areas. Therefore, this policy is not triggered. KEY SAFEGUARD POLICY ISSUES AND THEIR MANAGEMENT A. Summary of Key Safeguard Issues 1. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe any potential large scale, significant and/or irreversible impacts: 1. This project, in component 1 intends to support and finance the rehabilitation of physical and institutional infrastructure for local SME development in Conakry. This will likely have negative impacts, though localized but enough to trigger OP/BP 4.01 (Environmental Assessment). 2. The Government of Guinea has prepared and disclosed the required safeguard documentation. An Environment and Social Management (ESMF) has been prepared, consulted upon, approved and disclosed in-country on April 11t, 2019 and on the World Bank’s website on April 12th, 2019. The ESMF includes institutional arrangements, outlining the roles and responsibilities for various stakeholder groups involved in the review and approval of sub-projects. The ESMF also include tools for screening subprojects for potential risks and impacts, as well as implementation and monitoring of their mitigation measures. In details: For component 1, sub-component 1 (MSME business development services): the rehabilitation of the Conakry SME Center will use a standard environmental code of practice (ECOP) for rehabilitation of old construction. This is a site-specific instrument for managing environmental risks and impacts associated with rehabilitation of old buildings. Apr 08, 2019 Page 22 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) The ECOP is annexed to the disclosed ESMF. For Component 1 sub-component 3 (Support to entrepreneurship and ecosystem providers): (a) For seed-fund financing, the selected subprojects are not expected to have environment and social risks per se because (i) the grants will only be financing soft business endeavors and (ii) All FI subprojects will be screened for environmental and social risks and against any relevant exclusions in the legal agreement. The ESMF includes a screening tool that will be used to screen out any subprojects with environmental and social safeguards risks. (i) For Results-based financing (performance contract) in the form of grant(s) to ecosystem provider(s) to strengthen their operations and their ability to foster innovative entrepreneurship and/or co-creation of innovative solutions as well as the adoption of disruptive technologies based on the demand of large public and private organizations, an environmental and social audit will be carried out to identify subprojects with E&S risks for which the achievement of the sub-project objectives could be hindered. For Component 3 (Develop financial services tailored toward MSMEs). A joint IDA/IFC risk sharing facility will be created to provide a portfolio risk guarantee to participating financial institutions (private commercial banks and microfinance institutions (MFIs)) that will be lending to eligible MSMEs. Participating financial institutions will be considered as Financial Intermediaries (FI) and will be required to monitor and manage environmental risks and impacts of subprojects and activities they finance. Participating financial institutions will be required to develop and maintain an Environmental and Social Management System (ESMS) to manage risk and impacts associated with subprojects in their portfolio. These subprojects will be prepared and implemented in accordance with relevant national laws and regulations. All FI subprojects will be screened for environmental and social risks and against any relevant exclusions in the legal agreement. The Team will ascertain that the FI have in place an effective ESMS, Environmental and Social Policy and Procedures as well as the capacity to assess and manage risks and impacts in their portfolio. 2. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: N/A 3. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts. N/A 4. Describe measures taken by the borrower to address safeguard policy issues. Provide an assessment of borrower capacity to plan and implement the measures described. A Project Steering Committee (PSC) will be responsible for validating and monitoring the activities to ensure that the project is carried out in accordance with the achievement of the PDO of the project. The Ministry of Industry, Small and Medium Enterprises will be the overall coordinator of the project and the implementation agency for the project on institutional support. Given the limited capacity of this Ministry, a Project Implementation Unit (PIU) will be established within the Ministry. There are limited projects financed in the sector in Guinea, therefore the Ministry has very limited managerial capacity, as it has not acquired a good exposure to the Bank’s policies and procedures, including disbursement and procurement aspects. In Guinea, the Ministry of Environment, Water and Forests is responsible for setting policy guidelines on environmental issues and ensuring compliance with national environmental standards. It has different departments among which the National body in charge of Environmental Evaluation and studies validation (BGEEE, Bureau Guinéen d’Etudes et d’Evaluation et Environnementale) in charge of safeguards compliance of all projects in the country. The unit’s capacities are acceptable. With regard to the PIU, a safeguard specialist will be recruited and capacity building efforts to support project implementation will be done by implementing recommendations Apr 08, 2019 Page 23 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) contained in the safeguard’s instruments prepared for the project. The project will also receive guidance from the Bank’s environmental specialist in the Project team. 5. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people. The MSME leaders in the Guinean private sector consist of informal micro or small enterprises in agriculture, trade, industry and mining (when formalized) or services with Small necessity entrepreneurs, Moderate growth entrepreneurs including women groups in project areas as the major stakeholders. The MSME sector, which can be classified based on size and growth, broadly presents five (5) MSME segments: i) Small necessity entrepreneurs, (ii) Moderate growth entrepreneurs, (iii) High growth startups, (iv) Opportunity driven MSMEs and (v) Gazelles. These mentioned key stakeholders, based on the business scheme, will be interacting with the PIU’s safeguard specialist for capacity building efforts and support to implementing recommendations contained in the safeguard instruments and that correspond to their designed activities. B. Disclosure Requirements OPS_EA_DISCLOSURE_TABLE Environmental Assessment/Audit/Management Plan/Other For category A projects, date of Date of receipt by the Bank Date of submission for disclosure distributing the Executive Summary of the EA to the Executive Directors 02-Apr-2019 15-Apr-2019 "In country" Disclosure Guinea 12-Apr-2019 Comments C. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) OPS_EA_COMP_TABLE OP/BP/GP 4.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? Yes If yes, then did the Regional Environment Unit or Practice Manager (PM) review and approve the EA report? Yes Are the cost and the accountabilities for the EMP incorporated in the credit/loan? Yes OPS_ PCR_COM P_TA BLE Apr 08, 2019 Page 24 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) OP/BP 4.11 - Physical Cultural Resources Does the EA include adequate measures related to cultural property? Yes Does the credit/loan incorporate mechanisms to mitigate the potential adverse impacts on cultural property? Yes OPS_ PDI_ COMP_TA BLE The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank for disclosure? Yes Have relevant documents been disclosed in-country in a public place in a form and language that are understandable and accessible to project-affected groups and local NGOs? Yes All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities been prepared for the implementation of measures related to safeguard policies? Yes Have costs related to safeguard policy measures been included in the project cost? Yes Does the Monitoring and Evaluation system of the project include the monitoring of safeguard impacts and measures related to safeguard policies? NA Have satisfactory implementation arrangements been agreed with the borrower and the same been adequately reflected in the project legal documents? Yes CONTACT POINT World Bank Sarah Zekri Financial Sector Specialist Mariama Cire Sylla Private Sector Specialist Borrower/Client/Recipient Apr 08, 2019 Page 25 of 26 The World Bank Support to MSME Growth Competitiveness and Access to Finance (P164283) Republic of Guinea Kanny Diallo Minister kdiallo@gmail.com Implementing Agencies Ministry of Industry and SMEs Aboubacar SYLLA Director boubagall@yahoo.fr FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Sarah Zekri Task Team Leader(s): Mariama Cire Sylla Approved By Safeguards Advisor: Practice Manager/Manager: Consolate K. Rusagara 15-Apr-2019 Country Director: Michael Hamaide 16-Apr-2019 Note to Task Teams: End of system generated content, document is editable from here. Please delete this note when finalizing the document. Apr 08, 2019 Page 26 of 26