Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) Ethiopia: SME Finance Project (P148447) AFRICA | Ethiopia | Finance, Competitiveness and Innovation Global Practice | IBRD/IDA | Investment Project Financing | FY 2016 | Seq No: 5 | ARCHIVED on 13-Jun-2018 | ISR32422 | Implementing Agencies: National Bank of Ethiopia, Development Bank of Ethiopia, MOFEC, Federal Small and Medium Manufacturing Industry Development Agency Key Dates Key Project Dates Bank Approval Date:17-May-2016 Effectiveness Date:01-Sep-2016 Planned Mid Term Review Date:30-Oct-2018 Actual Mid-Term Review Date:-- Original Closing Date:31-Aug-2022 Revised Closing Date:31-Aug-2022 Project Development Objectives Project Development Objective (from Project Appraisal Document) The project development objective is to increase access to finance for Eligible Small and Medium Enterprises in the Recipient's territory. Has the Project Development Objective been changed since Board Approval of the Project Objective? No PHRPDODEL Components Name Financial Services to SMEs:(Cost $193.00 M) Enabling Environment for SME Finance:(Cost $0.80 M) Business Development Services for SMEs:(Cost $2.50 M) Project Management, Communication and Impact Evaluation:(Cost $3.70 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO  Satisfactory  Satisfactory Overall Implementation Progress (IP)  Moderately Satisfactory  Satisfactory Overall Risk Rating  Substantial  Substantial 6/13/2018 Page 1 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) Implementation Status and Key Decisions Key messages from this ISM include: The World Bank has raised its disbursement ceiling to USD 40 million since last Mission. In total USD 50.4 million has been disbursed from IDA. Leasing. USD 44.7 million (including 10.3 million reimbursement) from the World Bank and EUR 8 million from EIB has been disbursed for leasing. As of May 18, DBE had processed the letters of credit opening for 137 SMEs (with USD 34.4 million from IDA and EUR 8 million from EIB). A decision has been made for leasing borrowers to provide a 20% down-payment. Working capital lending. USD 5.6 million from the IDA and EUR 2 million from EIB have been disbursed for working capital. Due to the high demand for working capital, the lending disbursement is expected to increase significantly in the next 6 months. Enabling Environment. The drafts of the Proclamation on Movable Property Security Rights Registration have been submitted to the NBE Vice Governor for clearance and is expected to be submitted to NBE Board and then the Parliament for endorsement. The draft of the Insolvency Law is being translated from Amharic to English so that World Bank experts could provide their feedbacks on the draft. Procurement. The BDS needs assessment, the hiring of a private BDS provider, and the project vehicles are key procurement priorities. A timeline for each step of the procurement process has been proposed and agreed by the PIU and the World Bank. The World Bank will hire a procurement consultant to assist in this process. Regional leasing companies. The turnkey projects in the regional leasing companies have been identified and an alternative solution to remove them from the books of the regional leasing companies has been agreed by the Technical Committee. The minutes will be shared with the SME Steering Committee for review, and then the Council of Ministers for final approval. Component 1: Financial Services to SMEs The objective of Component 1 is to establish a credit facility providing access to finance for working capital and leasing finance for participating financial institutions (PFIs) for on lending to eligible SMEs. The liquidity support is complemented with mandatory technical assistance (TA) aimed at supporting financial institutions in designing, piloting and rolling out financial products utilizing novel lending methodologies to successfully expand their outreach to the target SMEs. This component is also complemented with parallel financing from European Investment Bank in the amount of EUR70 million. Successful graduation from the technical assistance program is a prerequisite for PFIs to access the credit line. To date, DBE’s leasing unit, four banks and four Microfinance Institutions (MFIs) have been certified. DBE has signed agreement with all 8 certified PFIs: 4 banks and 4 MFIs. SMEFP TA is organized around five pillars: institutional support to DBE, TA on DBE’s leasing finance business, TA for five regional capital good companies, TA to MFIs, and TA to banks. Good progress has been made in all five pillars. As of May 15, 2018, DBE has withdrawn USD 50.3 million from IDA source and EURO 10 million from EIB source. Out of the total DBE’s withdrawal, about 80% is allocated for leasing finance (while the remaining 20% is allocated to working capital loan). For Leasing, as of May 18, 2018, DBE has processed letters of credit (L/C) opening for 137 SMEs with IDA source of USD 34.4 million and EIB source of EUR 8 million. A commercial invoice worth of USD 10.3 million has been received out of the first phase of the first tranche of USD 12 million (IDA source) utilized for import of machineries and equipment. The reimbursement request of USD 10.3 million has been released and deposited at NBE D/A account to be used for direct leasing. For the second phase of the first tranche, USD 22.4 million (IDA source) has been withdrawn. A key decision has been made by DBE requiring a 20% down payment from borrowers for leasing based on international practice. The Project is exploring how to ensure the advance requirements are not overly burdensome for borrowers to access both leasing and working capital lending. Another challenge is that imported machineries and equipment usually take longer time to reach applicants’ sites and start operation with full capacity. For working capital, from the IDA’s USD 5.6 million (Birr155.5 million), USD 1.2 million (Birr 34.1 million) has been disbursed, and from EIB’s EUR 2 million (Birr 68 million), EUR 0.26 million (Birr 9 million) has been disbursed. Two banks (Enat Bank and United Bank) and three MFIs (ACSI, Wasasa and VisionFund) have received funds from the project, and the rest will start receiving funds soon too, since all 8 PFIs have signed the agreements with DBE. The demand for working capital clearly exceeds the amount approved by DBE, and the mission has suggested to increase the disbursement for working capital loan in the next tranche. Based on EP’s calculation, the approved working capital loan is about 3% of Banks' request and 5% of MFIs' request. The volume of disbursement for working capital loan is too small for PFIs to effectively engage with SMEs. Component 2: Enabling Environment for SME Finance The objective of Component 2 is to improve the enabling environment for facilitating SME finance in Ethiopia. This would require the following: (i) creation of a collateral registry that would support both the lending and the leasing business; and (ii) issuance of the insolvency law that addresses the bottlenecks to SME lending. To better facilitate the collaboration across components, NBE is requested to ensure an active role of its assigned focal person in the PIU. Proclamation on Movable Property Security Rights Registration: A Legal Drafting Committee has been created under the leadership of NBE’s Vice 6/13/2018 Page 2 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) Governor, consisting of senior legal experts from NBE and financial institutions. This committee took the lead in drafting the Movable Property Security Rights Proclamation with TA from the IFC. The final Amharic draft, incorporating written feedbacks received from stakeholders, has been submitted to NBE Vice Governor for clearance. Once cleared, it will be submitted to NBE Board for approval. The draft proclamation will then be submitted to the council of Ministers and then to the Parliament for endorsement. In parallel, NBE is also taking preparatory steps for the procurement of the registry by drafting the RFP. To this effect, 6 NBR staff (4 from IT) participated in an exposure visit to Lusaka to learn from the experience of Zambia, a country that has recently implemented secured transaction collateral registry regime which is deemed as “best practice”. The team has drafted the RFP based on the lessons taken from Zambia. Insolvency Law: The GoE is in the process of finalizing the amendment of the commercial code which also includes a book on Bankruptcy. The draft is being translated to English to enable review by WBG experts. Once the draft is reviewed and feedback is shared with the GoE, the diagnostic is planned to take place to look into the insolvency legal/regulatory and institutional reforms. Component 3: Business Development Services to SMEs The objective of Component 3 is to support SMEs through the provision of tailored Business Development Services (BDS) to address constraints on the demand side, and to make SMEs more bankable. BDS services may include business management and entrepreneurship training, business plan development, marketing strategy, human resource management, financial systems and bookkeeping. It may also include tailored coaching and mentoring support depending on the needs and the capacity of the SMEs. Procurement of consultancy service for BDS needs assessment. Five consulting firms submitted their proposals for BDS needs assessment consultancy assignment. Several delays have been encountered in the procurement process, mostly due to procedures surrounding technical evaluations of proposal finalization. Procurement of private BDS provider. Expression of Interest (EoI) has been received by May 9, 2018. The PIU is evaluating the EoI submissions for shortlisting. Both BDS procurements above will be conducted simultaneously. To ensure the BDS procurements are completed on time, a step-by-step procurement timeline has been agreed by the PIU and the World Bank. Meanwhile, the World Bank will hire a consultant to assist the procurement process. World Bank and PIU will collaborate to ensure that procurements are implemented according to timeline. The need assessment and the service providers selection are planned together, and the need assessment will inform the service providers selection. The role of public sector institutions in providing BDS. Due to the anticipated high BDS needs, this project is exploring how to incorporate support from public BDS providers. The PIU is working with FeSMMIDA and other stakeholders to finalize the draft proposal. Data from 17 Polytechnic Colleges has been collected and organized by field of study and Center of Excellence. Draft summary has been submitted to Project Coordinator for review and comment, and training fee from the 6 Directorates will be requested. The PIU will present the proposal to the Management Committee of FeSMMIDA once finalized. PIU Exposure visit. The PIU team plans to conduct an exposure visit to Italy to learn about international best practices on BDS delivery. Investment Readiness Program. The World Bank Investment Readiness Program (IRP) is a trust funded program with the goals to generate deal-flow to investors and induce access to finance for young SME ventures and to test effectiveness of the (young) SME venture support models. The project team made a presentation during the mission. Based on the discussion, all parties agreed that there would be synergy and benefits for collaboration. Component 4: Project Management, Communication, and Impact Evaluation The objective of Component 4 is to support overall coordination of project activities, and to rigorously measure the impact of the project on the growth of participating SMEs. The PMT in DBE has the direct responsibility of managing the credit facility under Component 1. The PIU in FeSMMIDA has the mandate of overall project’s coordination and direct responsibility of Components 2, 3 and 4. Project Management: staff recruitment process has been completed - both PMT and PIU are fully staffed and functioning well. Staff benefits, such as telephone and transport allowance, are expected to be approved by the end of August. Staff training continues. Awareness Creation Programs have been delivered to the staffs in FeSMMIDA, Ministerial Council Official groups (per request), and 3 cities representing the Regional Government, namely in Bahirdar, Bishoftu, and Ambo, with the 4th city Dessie planned. PIU also facilitated a one-day training program for concerned agency staff on the World Bank procurement method, two training programs of Component 2 for NBE staffs, and one for financial Specialist of the PIU member and FeSMMIDA staff. Procurement of Office supplies, IT equipment's, laptops and others has been completed per schedule. The vehicles procurement process is expected to be completed by the end of November. Monitoring & Evaluation: Monthly, Quarterly and IFRS reports have been submitted in time to stakeholders and the World Bank per schedule. Staff salaries and other facilities are performed on time. Training on how to register clients has been provided for DBE branches and for PFIs. Soon, the PIU will be responsible for managing the database and for overall project monitoring and evaluation, including using the database to generate reports, identify trends, and respond to client needs. Impact Evaluation: The EU and DFID are providing funding for the impact evaluation component of the project. The impact evaluation activities are being carried out by the EDRI and the World Bank. By May 18, EDRI has conducted about 7,076 firm survey and 1,407 workers survey. The baselines 6/13/2018 Page 3 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) data is expected to be completed as planned. For SMEs, the lease-financed SME profile will be complete by the end of November. For working capital loan clients, since there is no backlog of working capital loan clients, as in the case of leasing, working capital clients will be sent to EDRI after they register at PFIs. This will be a monthly submission with cumulative lists of clients registered and their SMEFP IDs. EDRI will compile the working capital lending client profile as data coming in. Financial Management (FM) and Procurement: the FM and procurement reviews are ongoing and the results will be communicated in due course. Environmental and Social Management System (ESMS): There has been good progress on environmental and social safeguards since the last mission. Based on the ESMS visits conducted in the last reporting period, it is critical to: (i) strengthening of the consolidation of environmental and social screening checklist particularly in preparing and incorporating Corrective Action Plans (CAPs); and (2) further strengthening of monitoring and supervision issues of E&S issues. Social and environmental issues will be incorporated in the loan agreement between DBE and PFIs for the provision of the working capital as well as DBE with direct beneficiaries in case of leasing finance. To ensure proper ESRM, training has been provided to all DBE districts/branches and PFIs. Monitoring and supervision tasks has been carried out by taking account of the Adama District, where some of the first-round visiting was conducted, and inputs on the E&S risk screening checklist have been forwarded there. ESMS of some PFIs has been collected while there are some remaining ESMS which is still being finalized. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance  Moderate  Substantial  Substantial Macroeconomic  Moderate  Moderate  Moderate Sector Strategies and Policies  Low  Low  Low Technical Design of Project or Program  Substantial  Substantial  Substantial Institutional Capacity for Implementation and Sustainability  Moderate  Moderate  Moderate Fiduciary  Substantial  Substantial  Substantial Environment and Social  Low  Low  Low Stakeholders  Moderate  Moderate  Moderate Other  --  --  -- Overall  Substantial  Substantial  Substantial Results Project Development Objective Indicators PHINDPDOTBL  Volume of Financial Support to SMEs under the credit facility (Amount(USD), Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 12,000,000.00 60,314,444.21 269,000,000.00 6/13/2018 Page 4 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) Date 17-Aug-2016 10-Nov-2017 25-May-2018 31-Aug-2022 PHINDPDOTBL  Number of SMEs Reached with Financial Services under the credit facility (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 36.00 137.00 2,152.00 Date 17-Aug-2016 10-Nov-2017 25-May-2018 31-Aug-2022 PHINDPDOTBL  Portfolio Quality under the credit facility (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 5.00 Date 17-Aug-2016 10-Nov-2017 10-Nov-2017 31-Aug-2022 Overall Comments Intermediate Results Indicators PHINDIRITBL  Number of Loans/ Leases disbursed to SMEs under the credit facility (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 36.00 137.00 3,873.00 Date 17-Aug-2016 10-Nov-2017 25-May-2018 31-Aug-2022 6/13/2018 Page 5 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) PHINDIRITBL  Collateral Registry Established (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N N N Y Date 17-Aug-2016 10-Nov-2017 25-May-2018 31-Aug-2022 PHINDIRITBL  Insolvency Diagnostic Completed (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N N N Y Date 17-Aug-2016 10-Nov-2017 25-May-2018 31-Aug-2022 PHINDIRITBL  Number of SMEs that received training through a BDS Program under the project (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 912.00 Date 01-Feb-2016 10-Nov-2017 25-May-2018 31-Aug-2022 PHINDIRITBL  Report drafted on citizen engagement survey (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N N N Y Date 20-Apr-2016 10-Nov-2017 25-May-2018 31-Aug-2022 Overall Comments 6/13/2018 Page 6 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P148447 IDA-57930 Effective USD 200.00 200.00 0.00 50.81 156.66 24% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P148447 IDA-57930 Effective 17-May-2016 15-Jun-2016 01-Sep-2016 31-Aug-2022 31-Aug-2022 Cumulative Disbursements Restructuring History Level 2 Approved on 20-Sep-2017 Related Project(s) 6/13/2018 Page 7 of 8 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Ethiopia: SME Finance Project (P148447) There are no related projects. 6/13/2018 Page 8 of 8 Public Disclosure Copy