The World Bank Ethiopia: SME Finance Project (P148447) REPORT NO.: RES28324 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ETHIOPIA: SME FINANCE PROJECT APPROVED ON MAY 17, 2016 TO MOFEC FINANCE & MARKETS AFRICA Regional Vice President: Makhtar Diop Country Director: Carolyn Turk Senior Global Practice Director: Ceyla Pazarbasioglu-Dutz Practice Manager/Manager: James Seward Task Team Leader: Francesco Strobbe The World Bank Ethiopia: SME Finance Project (P148447) ABBREVIATIONS AND ACRONYMS The World Bank Ethiopia: SME Finance Project (P148447) BASIC DATA Product Information Project ID Financing Instrument P148447 Investment Project Financing Original EA Category Current EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Approval Date Current Closing Date 17-May-2016 31-Aug-2022 Organizations Borrower Responsible Agency National Bank of Ethiopia,Development Bank of MOFEC Ethiopia,Ministry of Industry,Federal Small and Medium Manufacturing Industry Development Agency Project Development Objective (PDO) Original PDO The project development objective is to increase access to finance for Eligible Small and Medium Enterprises in the Recipient's territory. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-57930 17-May-2016 15-Jun-2016 01-Sep-2016 31-Aug-2022 200.00 .50 196.12 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING The World Bank Ethiopia: SME Finance Project (P148447) The restructuring introduces changes agreed through a consultative and collaborative process with national counterparts, the Federal Democratic Republic of Ethiopia. The proposed changes consist of: (i) modifications to the institutional arrangements, to reflect a change in one of the project’s implementing agencies; (ii) modifications to a sub-activity, to introduce changes to the way that beneficiaries will be registered for the project. The Small and Medium Enterprise (SME) Finance Project was declared effective on September 1, 2016. The first year of the project was planned as a preparatory phase, to prepare for a full launch of the line of credit and other beneficiary-facing activities. The project implementers - Ministry of Industry (MoI) and the Development Bank of Ethiopia (DBE) - have progressed well in activities to launch the project. MoI has finalized recruitment of all project specialists in the Project Implementation Unit (PIU) and DBE has finalized recruitment of all staff needed for the National Project Management Team (NPMT). Recruitment of a Project Coordinator in the PIU is currently underway. In the original design of the project, Components 2, 3 and 4 of the project were to be implemented by the Ministry of Industry (MoI) whereas Component 1 was to be implemented by the Development Bank of Ethiopia (DBE). However, based on the Federal Democratic Republic of Ethiopia regulation passed during the preparation of the project (Council of Ministers Regulation No. 373/2016, February 2016), matters related to support to small and medium manufacturing enterprises in Ethiopia were shifted from the Ministry of Industry to a newly created agency, the Federal Small & Medium Manufacturing Industry Development Agency (FSMMDA). At the time of effectiveness in September 2016, FSMMDA was not fully operational and did not have established financial management and procurement systems. Therefore, Components 2, 3, and 4 of the project remained under the implementation authority of the Ministry of Industry for an interim period. FSMMDA is now fully operational, and has undergone financial management and procurement assessments conducted by the World Bank task team. The assessments conclude that FSMMDA has sufficient capacity to serve as an implementing agency for the project, satisfying the World Bank’s minimum requirements as per OP/BP 10.00. The financial management assessment states: “Based on the assessment conducted, the financial management arrangements for part of the project implemented by FSMMDA satisfy the World Bank’s minimum requirements and that the current arrangements could provide with reasonable assurance, accurate and timely information on status of the proposed project.” The proposed restructuring therefore seeks to change the implementing agency for Components 2, 3, and 4 of the project from MoI to FSMMDA. II. DESCRIPTION OF PROPOSED CHANGES (i) Modifications to the institutional arrangements, to reflect a change in one of the project’s implementing agencies; The FSMMDA was established on February 15, 2016 as per Council of Ministers No. 373/2016. This regulation establishes the agency as autonomous federal government organ having its own legal personality. The agency is accountable to the Ministry of Industry. The current Project Implementation Unit (PIU) under MoI will move to the new agency. The agency does not have prior experience of implementing WB financed projects. However, some staff from the previous Federal Micro and The World Bank Ethiopia: SME Finance Project (P148447) Small Enterprise Development Agency (FeMSEDA) which has experience in Bank financed operations have been retained in the new agency. Moreover, the existing PIU, which is functioning well within MoI, will be transferred in full to the new Agency. Project specialists hired in the PIU, namely the Financial Management Specialist and Procurement Specialist, have prior experience implementing World Bank projects. Ongoing training on project operations as well as World Bank policies and procedures for other staff of the new Agency will help to mitigate any implementation risks. The shift of the PIU from MoI to FSMMDA will ensure that the project is correctly situated within the Federal Democratic Republic of Ethiopia’s administrative structure, and that the project’s focus is fully aligned with its host agency. (ii) Modifications to a sub-activity, to introduce changes to the way that beneficiaries will be registered for the project. A second change introduced through this restructuring relates to the way in which participating small and medium enterprises (SMEs) will be registered for the project. Membership registration is an important element of the Small and Medium Enterprise (SME) Finance Project, as a comprehensive registration process will ensure that project services are accessed by eligible enterprises, and will enable close monitoring of participating enterprises and the services which they receive. The project’s registration form will capture basic information from entrepreneurs and their enterprises, including business characteristics such as business sector and sub-sector, age of business, age of start-up capital, previous credit history, annual earnings, and number of employees, as well as on characteristics of the entrepreneur, such as age, education level, and experience. Each registrant will receive an ID card containing a unique ID number, and their information will be stored by ID number in a central project database, accessible online to all implementers. The unique, 10-digit membership number will serve as the central individual identifier that will enable the establishment of linkages between different data sources. In the Project Appraisal Document (PAD), it was envisioned that Regional Micro and Small Enterprise Development Agency (REMSEDA) offices would be the entry point for the program, and would be responsible for registering SMEs for the program and issuing ID cards, as well as referring registered SMEs to services under the project. However, based on further analysis of the capacity of REMSEDA offices and the lack of existing coordination between REMSEDA offices and PFIs and BDS providers, the project team and counterparts determined that a more suitable entry point for program participants would be the PFIs and business development service (BDS) providers themselves. This restructuring proposes to shift the program entry point as well as the site of registration from REMSEDAs to PFIs and BDS providers. This change will streamline access to the project for SMEs themselves, and will ensure that IDs are issues per a standardized process. SMEs interested in accessing Small and Medium Enterprise (SME) Finance Project services (loans, leases, business development services) will visit Participating Financial Institutions (PFI) or business development service providers (BDS) to access these services. At this time, the PFIs and BDS providers will register eligible participants, and issue project IDs. All other elements of the registration process will remain the same, with each sub-borrower issued a unique ID number, and only sub-borrowers with an ID number will be eligible to receive project services. The World Bank Ethiopia: SME Finance Project (P148447) III. SUMMARY OF CHANGES Changed Not Changed Change in Implementing Agency ✔ Change in Institutional Arrangements ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Results Framework ✔ Change in Components and Cost ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Systematic Operations Risk-Rating Tool ✔ (SORT) Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ The World Bank Ethiopia: SME Finance Project (P148447) IV. DETAILED CHANGE(S) IMPLEMENTING AGENCY Implementing Agency Name Type Action Implementing National Bank of Ethiopia No Change Agency Implementing Development Bank of Ethiopia No Change Agency Implementing Ministry of Industry Marked for Deletion Agency Federal Small and Medium Manufacturing Implementing New Industry Development Agency Agency