Date of Submission to Coordination Unit:

A. GENERAL INFORMATION

1. Activity NameMorocco Microfinance Development Project (MMDP)

2. Requestor Information Name: Mr Nizar BARAKA Title: Minister of Economy and Finance

Organization and Address: Ministry of Economy and Finance, Mohammed V Avenue, Chellah, Rabat

Telephone:00212 5 37 76 06 61 Email: minister@finances.gov.ma

3. Recipient Entity Name: Mrs Faouzia ZAABOUL Title: Treasury and External Finance Director

Organization and Address: Ministry of Economy and Finance, DTFE, Mohammed V Avenue, Chellah, Rabat

Telephone:00212 5 37 67 75 32 Email: f.zaaboul@tresor.finances.gov.ma

4. ISA SC RepresentativeName: Junaid Ahmad Title: Sector Director, Sustainable Development, Middle

East North Africa Region

Organization and Address: The World Bank 1818 H Street, N.W. Washington, DC 20433 USA

Telephone: (202) 458-8470 Email: Jahmad@worldbank.org

5. Type of Execution (check the applicable box)√ Type Endorsements JustificationX Country-Execution Attach written endorsement

from designated ISAJoint Country/ISA-Execution Attach written endorsement

from designated ISA(Provide justification for ISA-Execution)

ISA-Execution for Country Attach written endorsement from designated ISA

(Provide justification for ISA-Execution)

ISA-Execution for Parliaments

Attach written endorsements from designated Ministry and ISA

January 25, 2013

6. Geographic FocusX Individual country (name of country): Morocco

Regional or multiple countries (list countries):

7. Amount Requested (USD) Amount Requested for direct Project Activities:(of which Amount Requested for direct ISA-Executed Project Activities):

4,900,000(0)

Amount Requested for ISA Indirect Costs:1 660,000Total Amount Requested: 5,560,000

8. Expected Project Start, Closing and Final Disbursement DatesStart Date: May 1, 2013 Closing

Date:April 30, 2017 End Disbursement

Date:October 31, 2017

9. Pillar(s) to which Activity RespondsPillar Primary

(One only)Secondary(All that apply)

Pillar Primary(One only)

Secondary(All that apply)

Investing in Sustainable Growth. This could include such topics as innovation and technology policy, enhancing the business environment (including for small and medium-sized enterprises as well as for local and foreign investment promotion), competition policy, private sector development strategies, access to finance, addressing urban congestion and energy intensity.

X Enhancing Economic Governance. This could include areas such as transparency, anti-corruption and accountability policies, asset recovery, public financial management and oversight, public sector audit and evaluation, integrity, procurement reform, regulatory quality and administrative simplification, investor and consumer protection, access to economic data and information, management of environmental and social impacts, capacity building for local government and decentralization, support for the Open Government Partnership, creation of new and innovative government agencies related to new transitional reforms, reform of public service delivery in the social and infrastructure sectors, and sound banking systems.

Inclusive Development and Job Creation. This could include support of policies for integrating lagging regions, skills and labor market policies, increasing youth employability, enhancing female labor force participation, integrating people with disabilities, vocational training, pension reform, improving job conditions and regulations, financial inclusion, promoting equitable fiscal policies and social safety net reform.

X Competitiveness and Integration. This could include such topics as logistics, behind-the-border regulatory convergence, trade strategy and negotiations, planning and facilitation of cross-border infrastructure, and promoting and facilitating infrastructure projects, particularly in the areas of urban infrastructure, transport, trade facilitation and private sector development.

B. STRATEGIC CONTEXT

1 ISA indirect costs are for grant preparation, administration, management (implementation support/supervision) including staff time, travel, consultant costs, etc.

10. Country and Sector Issues

The Arab Spring has put real pressure on the Moroccan State to meet the electorate’s demands for political reform, sustainable economic growth and employment creation. The electorate is expecting that the new Government will usher in more credible and faster reforms to create more jobs and improve the quality and equity of public services. If the new Government can deliver results on these fronts, this will transform the social and political landscape of Morocco.

Morocco made significant economic headway during the decade preceding the Arab Spring, and weathered the first round of the global financial crisis relatively well, maintaining an investment grade rating since 2007. This reflected sustained efforts to implement sound macroeconomic policies and ambitious structural reforms. The financial sector was strengthened to support the new dynamism of the nonagricultural sector and (although much still remains to be done) the microfinance segment is among the most developed in the MENA region.

However, Morocco has confronted growing economic challenges in the second round of the global financial crisis. Developments in the euro area and continued high fuel and food import prices are expected to put sustained pressure on fiscal and external balances. The recent shocks have left the Government with much smaller policy margins at a time when the population has higher expectations for job creation and poverty alleviation. Unemployment remains high (9 percent), especially among the urban youth, despite one of the lowest participation rates (49 percent) among comparator countries. 4 out of 5 unemployed are urban, 2 out of 3 are youth aged 15-29, 1 in 4 jobless holds a university diploma. About a quarter of the population–around 8 million people–is either in absolute poverty or under constant threat of falling back into poverty. 70 percent of poverty is still rural and in 2007 the urban poverty rate was 4.8 percent compared to 14.5 percent in rural areas. Income of the poor has been growing at a slower rate than the average income.

In the current political and economic environment, inclusive growth and job creation by the private sector dominate the policy debates. With government increasingly financially constrained, there are high expectations that SMEs and micro-enterprises can increasingly contribute to private sector job creation in Morocco. The World Bank’s 2011 financial sector flagship report showed that access to finance is a key constraint in areas and income levels underserved by conventional banks, such as the informal sector.

Microfinance institutions (MFIs), by the very nature of their business model and cost structure, are particularly well equipped to move the poor from the informal to the formal financial sector. Morocco’s MFIs have established a solid track record in expanding access to the formal sector. Morocco’s MFIs have established a solid track record in expanding access to the informal sector, despite problems resulting from an initial period of high growth without an adequate institutional and governance framework. A recent crisis has led to a pause in the sector’s development. The ensuing consolidation, as well as other central bank measures that led to improved governance, supervision, and enhanced sharing of information on the micro-borrowers lay the foundations for further expansion of access in a more sustainable way.

While the Moroccan microcredit sector has reached remarkable achievements over the past decade, it has more potential to reach low-income households and micro and small enterprises (MSE). The legal, regulatory and supervisory framework has been focused on the sector’s stability following the crisis and will need to be developed and strengthened to enable the sector’s growth and diversification and funding sources. The national federation of micro-credit association (FNAM), the representative body of Morocco’s MFIs, has not had the adequate capacity to play the role of a strong, proactive industry organization, representing the sector’s interests towards the regulators and policymakers and delivering high quality services that address member’s needs. MFIs have been focused to improve their governance and risk management functions following the crisis, moderating their expansion and

product development. They will need to be supported to scale-up outreach, product innovation and diversification to meet the large unmet needs of financing of Morocco’s low-income population.

The proposed operation aims to support the transformation of the Moroccan microfinance sector in order to strengthen its impact, resilience and sustainability, both for lending to enterprises as well as households for investment. The project was designed to address the shortcomings that continue to limit the sector’s transformation from its current narrow focus on ‘microlending’ to a strong, sustainable and innovative microfinance sector, offering a broad and comprehensive array of financial services to meet the large unmet demand for financing. The program aims to strengthen the institutional, legal, regulatory, tax and governance framework for microfinance, laying the framework for the sectors expansion. In addition to reforms on the institutional level, the program proposes to strengthen the market infrastructure, product innovation and funding sources for microfinance, enabling MFIs to broaden their product offering, lower their delivery cost, and strengthen their financing sources. Finally, the project aims to integrate the microfinance sector into a broader national financial inclusion strategy, ensuring that it can achieve its development objectives in coordination with other policies that aim to expand access to finance for the poor.

11. Alignment with Transition Fund Objective

This project supports the objective of the transition fund by fostering sustainable and inclusive economic growth through promoting access to finance by underserved households and micro and small enterprises (MSE). Morocco has made important strides in establishing a microcredit sector. The project seeks to accompany the next phase of development of the sector, after several years of consolidation and root-and-branch review of business practices. Access to quality financial services including savings, credit, insurance and money transfer systems - is crucial for low-income households to smooth consumption, manage risks, invest productively, and respond to financial shocks. Similarly, microfinance helps informal micro and small businesses to setup or expand operations, invest in assets, and generate valuable income, particularly in remote and rural areas. Microfinance also supports female economic empowerment, bypassing many socio-economic barriers that prevent women from participating in economic activity and improve household level productivity through microcredit.

The project is also in line with the transition fund objective of advancing country-led policy and institutional reforms. The project aims to strengthen the institutional, legal, regulatory, and governance framework of the microfinance sector. It will allow MFIs and other financial service providers to overcome current vulnerabilities, for example in securing and diversifying funding, and offering a broader array of products and services to the country’s low income population. These reforms will help increase efficiency and effectiveness and place the sector on a path of balanced growth. The project also focuses on institution building through developing a national financial inclusion strategy and coordinating the many initiatives Morocco is pursuing to achieve ambitious inclusion objectives. actors towards promoting financial inclusion of all Moroccans. In addition, this project strengthens financial literacy nation-wide and thus directly supports enhancing the financial capability of the MFI target customer base, which can lead to job creation and increased economic inclusion, themes closely aligned to the objectives of the transition fund.

12. Alignment with Country’s National Strategy

The roll out of the national microfinance strategy, which is supported by this project, has been endorsed at the highest level of the State. His Majesty King Mohammed VI, King of Morocco, addressed a message to participants in the

International Symposium on Microfinance held in Morroco on 11-12 October 2012. The King presented the main components of Morocco’s new strategic vision for the microfinance sector in which he said: “The strategy makes it possible to redefine our perception of microfinance as a sector which contributes to fighting poverty as well as financial exclusion of the poor. The ambitious program included in this strategy is likely to strengthen Morocco’s standing as a leading country in the region in terms of promoting microcredit projects that create jobs and encourage income-generating activities.”… “I also urge the government to consult with all stakeholders and be attentive to their needs in order to promote the emergence of a healthy, competitive institutional environment that can contribute to the harmonious development of the microfinance sector and ensure its gradual integration into the global financial system”.

The project is also in line with Morocco’s financial sector development strategy. Morocco has a well thought-out strategy for the sustainable development of its financial sector, inspired by a drive to learn from and adapt best practices to the need of Morocco’s modernizing economy. Over the past 20 years, important reforms of the institutional and legal framework helped sustain the development of a capable financial industry. The sector is open to international practices, with a view to balance financial sector stability objectives with diversification and innovations that meet the needs of households and enterprises. The strategy aims to establish Morocco as a regional hub for the dissemination of best practices in financial sector development, and Moroccan financial institutions have established important subsidiaries in Africa. Financial inclusion is one of three dimensions of the strategy, with capital market development, and continuous refinements of oversight standards and practices.

The Central Bank (Bank Al-Maghrib, BAM) has been working since 2007 with the national association of banks and finance companies, and has launched an action plan that includes: a foundation for financial education; a center for financial mediation; the licensing of a second credit bureau; the licensing of intermediary banking agents for wider access to banking and payment services; dedicated bank reporting to monitor inclusion; a financial literacy survey; and other initiatives to enhance consumer protection and choice. However, the lack of a well-funded microfinance sector association and the sector’s heterogeneity delayed a full integration of microfinance initiatives in BAM’s plans. Accordingly, there is a need to take stock, and through a process of consultation, achieve synergies, and mitigate implementation risk across various inclusion initiatives.

In addition, the proposed operation contributes directly to the objectives of the World Bank’s Country Partnership Strategy (CPS) for Morocco (FY2010-2013) discussed by the World Bank’s Board of Executive Directors on January 26, 2010. The CPS proposes three thematic pillars aligned with the development priorities of the country. The first pillar states that the structural transformation of the Moroccan economy will require a comprehensive and coordinated set of policies in many areas, underpinned by a financial sector that better serves smaller firms and microenterprises.

C. PROJECT DESCRIPTION

13. Project Objective

The project objective is to promote access to finance to low income households and micro and small enterprises through the promotion of a sustainable and inclusive microfinance sector. This objective will be achieved through a comprehensive package of analytical work and technical assistance aimed at supporting the enabling environment for microfinance and financial inclusion, leading to enhanced financial services to wider segments of the population.

14. Project Components

Component 1: Strengthening the institutional, legal, regulatory, tax and governance framework for

microfinance (USD 1.9 million)

This component aims to support activities contributing to the strengthening of the institutional, legal, regulatory and governance framework of the microfinance sector. This component aims to a) assess and reinforce the capacity of the National Federation of Microcredit Associations of Morocco (FNAM) and b) support activities contributing to the strengthening of the legal, regulatory, tax and governance framework of the microfinance sector. This component will also finance goods, services, travel, and incremental operating costs incurred by the PMU in the implementation and management of the project.

a) Assess and reinforce the capacity of the National Federation of Microcredit Associations of Morocco (FNAM): FNAM is the primary industry association responsible for development of the microfinance sector in Morocco through policy guidance, MFI coordination, and engagement with key actors including funders and regulators. The institutional capacity of FNAM needs to be strengthened to ensure the sector can effectively restructure, expand, and respond to changing regulatory and market conditions. The project will assist the FNAM in fulfilling its core mandate of acting as the industry’s steering body by centralizing information and disseminating studies, acting as an intermediate body between state regulating bodies and microfinance institutions, developing and delivering services that address member’s needs/issues, and providing support across all levels and in all regions and districts in the Country. FNAM also plays the role of an intermediary between Microfinance Institutions and key stakeholders of Microfinance services of Morocco, including the Government, Central Bank, Donors, Development partners, financiers, investors and clients of microfinance services.

This component will be implemented in two stages: First, a comprehensive diagnostic will be conducted to assess the current role, funding structure, statutes, governance and capacity of the FNAM, measuring the gap between its current status and desired future role, benchmarking it with other global best practice examples. In a second step, a technical assistance program will be developed building on the recommendations of this diagnostic, with the objective of transforming the FNAM into a proactive industry organization and knowledge hub of the Moroccan microfinance sector.

b) Strengthening of the legal, regulatory and governance framework of the microfinance sector: This sub-component aims to support activities contributing to the modernization of the legal, regulatory and fiscal framework for microfinance, as well as the development of governance and risk management standards for the microcredit sector. Activities will include, inter alia, studies that inform the development of a tax policy adapted to the specific needs of the MFIs, review the cap on borrowings for clients of MFIs, the regulation of remuneration of credit, review and adapt the solvency and liquidity ratios of the MFIs, and strengthen the financial reporting and regulatory oversight of BAM over MFIs. Improving the use of judicial and non-judicial (arbitration, mediation) means for recovering unpaid loans will also be a key activity of the project under this component.

Component 2: Strengthening the market infrastructure, product innovation and funding sources for microfinance (USD 1.5 million)

This component focuses on activities aimed at a) building common platforms improving the efficiency and effectiveness of microcredit associations, b) build market infrastructure in support of microenterprises, and c) promote the strengthening and diversification of funding.

a) Promoting innovative common platforms and new products for MFIs. This sub-component will support the development of common platforms, systems and products aimed at improving the efficiency and effectiveness of MFIs. Activities will include studies on the development of new products for the microfinance sector, the development of a mobile banking platform for MFIs, which is expected to have a transformational impact on the sector through the significant reduction of transaction costs for cash transfers for low income households and microenterprises. Other proposed activities include the development of a training and certification program for MFI officers.

b) Building market infrastructure for micro entrepreneurs: This sub-component will support the development of market infrastructure aimed at facilitating microenterprises’ access to markets. Activities supported will include studies on how microenterprises can improve the commercialization of their products, and the development of an electronic platform allowing microenterprises to market their goods, or the development of an e-project platform through which micro entrepreneurs can get information on innovative business models, and supporting the development of a micro-credit mediation function within the framework of BAM’s mediation center.

c) Strengthen and diversify funding sources: This sub-component aims to support activities which would inform policymakers, regulators, supervisors and MFIs on how the microfinance sector can diversify and strengthen its funding sources to ensure its financial sustainability over the medium and longer term. Proposed activities include, inter alia, studies aimed at assessing refinancing possibilities to MFIs and amend existing regulations to allow MFIs to tap into new financial resources, and structuring and designing a guarantee mechanism including all stakeholders. In a second phase, this sub-component would, building on the findings of the aforementioned studies, finance the design and structuring of mechanisms (e.g. stabilization fund, guarantees, etc.) aimed at strengthening the financial sustainability and stability of the sector.

Component 3: Integrating Microfinance into a national financial inclusion strategy (USD 1.5 million)

This component aims to integrate the national microfinance roadmap into a wider, comprehensive national financial inclusion strategy. In a first step, this component aims to conduct a cross-cutting stocktaking exercise of all previous and ongoing activities aimed at promoting financial inclusion, putting the microfinance sector in a larger financial sector development context. This component will also finance the design and roll out of financial literacy programs for low income households and microenterprises, the key beneficiaries of microfinance, within the framework of the proposed ‘foundation for financial education’, which is in the process of being rolled out under the leadership of BAM. This component will also finance studies and impact evaluations assessing the effectiveness of public policies and private initiatives aimed at promoting financial inclusion, as well as the impact of financial inclusion, including microfinance, on employment creation, poverty reduction and growth.

In a second phase, this component aims to build on the findings of the aforementioned activities to develop a comprehensive national financial inclusion strategy, to be developed in a structured consultative process with all key public and private sector stakeholders, and develop an action plan with specific objectives and targets to achieve the aims of the strategy, as well as a clearly defined M&E framework to measure progress.

15. Key Indicators Linked to Objectives

The performance of the project will be assessed against the following indicators that will also serve as project milestones:

Increase in number of end-beneficiaries of Microfinance Institutions (MFIs) Reduction in portfolio at risk of MFIs by 5% % of adults and women with an account at a formal financial institution # of beneficiaries receiving financial literacy training

D. IMPLEMENTATION

16. Partnership Arrangements (if applicable)

The Moroccan Ministry of Economy and Finance asked the World Bank to be implementation support agency for the proposed grant in light of its long-standing engagement with the Moroccan authorities on financial inclusion issues. In addition, the Bank hosts the secretariat of the G-20 Global Partnership for Financial Inclusion (GPFI) and develops policy documents with the Financial Inclusion Expert Group for the GPFI. The Ministry of Economy and Finance is the primary implementing agency, but the project will be overseen by a broad based ad-hoc advisory committee led by the Ministry of Economy and Finance, comprising representatives from BAM, FNAM [which represents all MFIs], Centre Mohamed VI and potentially other key stakeholders to provide guidance to the project throughout its lifetime. The partnership arrangements with other donor implemented activities are described in the subsequent section (question 17).

17. Coordination with Country-led Mechanism/Donor Implemented Activities

The project will be implemented in coordination with complementary projects to take advantage of synergies between different donor-funded activities. The team has undertaken consultations with a number of donors active in private and financial sector development in Morocco, and this project has strong potential complementarities with ongoing and planned activities. The Financial Sector Strengthening Project of the USAID/Millennium Challenge Corporation (MCC) began in 2007 and provided USD 42 million in technical assistance to MFIs and MAD 33 million in IT, management information systems and risk control systems. The project will end in 2013. The IFC has been providing technical assistance to MFIs to strengthen their risk management functions and review their strategies and product offering. Building on these activities, which have been focused on building the capacity of the MFIs, this project aims to promote the institutional environment and develop the market infrastructure which will enable the sector to accelerate its growth and improve its efficiency and outreach. The project is also complementary to the ‘Strengthening micro-entrepreneurship for disadvantaged youth in the informal sector’ project, which pilots the provision of training and business development services for disadvantaged, unemployed youth, an important sub-set of microcredit beneficiaries. The Morocco Microfinance Development project does not offer individual business development services, but aims to support market infrastructure that help microenterprises lower their costs (eg. through mobile banking) and improve their sales and competitiveness (eg. electronic platforms allowing them to market their goods and services).

The project has gone through a review process consisting of project consultations from Bank colleagues within the FPD financial inclusion global practices (Douglas Pearce), the MENA Financial and Private Sector Development Unit (MENA FPD), and the IFC (Hicham Bayali). Comments and analysis from these consultation sessions have been incorporated into this proposal. The Bank has also advised extensively with colleagues from the international finance corporation (IFC) who are providing TA to MFIs (see chart below). In addition, there is an advisory group consisting of the World Bank’s MENA FPD team, IFC, CGAP, and the World Bank’s financial inclusion global practice that will provide strategic guidance throughout the project. Budget has been allocated for monitoring and evaluation of activities to ensure indicators are established and verified and the outputs and outcomes are attained.

The Bank has conducted a series of consultations with microfinance donors active in Morocco to coordinate efforts and better identify the Bank’s value added. Opportunities to leverage results between this project and these other initiatives will be sought throughout the project. A brief summary of donor activities is provided below:

TA provider Beneficiaries Focus Duration Funding Source

IFC Al-Amana, Fondep Governance, Risk Management

ongoing MENA MSME Facility (50% Cofinance)

MCA Ardi, Reseau microfinance solidaire

MarketingDiversification of funding sources Geographical coverage strategy

2007-13 80% USAID The rest by beneficiaries

MCA All MFIs Strengthening internal controls, improving risk management andorganization ofMFIs

2007-13 80% USAID The rest by beneficiaries

MCA RMS, FONDEP-MC Change management 2007-13 80% USAID The rest by beneficiaries

MCA Al AMANA FONDEP-MC

Implementation ofMobile Banking Improving customer relationship

2007-13 80% USAID The rest by beneficiaries

GiZ CM6 Financial education of micro-entrepreneurs

2011-13 GiZ

Banque de France/AFD

CM6 Microfinance observatory

2012 AFD

Lessons leant from these projects, which have been incorporated into the project design, are three-fold. First, large MFIs have been relatively successful at completing TA projects and have relatively robust internal and external procedures. Thus, a project seeking to provide TA to these MFIs risks duplicating efforts. Any direct TA provided to MFIs should focus on smaller MFIs that lack capacity and resources to grow and sustain themselves. Second, there is a need to address the institutional, regulatory, and governance framework that surrounds the sector for a number of these TA initiatives to prove successful. For example, scoping and diagnostic work on mobile banking was completed, although currently there lacks a legal and regulatory framework to support this. Finally, there is a significant need to deepen sectoral reforms through increased coordination between MFIs and regulators through common platforms that promote communication and policy dialogue. This can help reduce duplication, help market actors learn from each other, and promote coordination innovation and growth in the sector.

18. Institutional and Implementation Arrangements

The project is proposed to be implemented by the Ministry of Finance and Economy. The Ministry is in charge of the regulation of the microcredit sector: Its competencies include the regulation of the maximum amount of microcredit (currently capped at 50,000 MAD); the sector’s accounting framework; The maximum interest rate; asset/liability

ratios, etc., in consultation with the Micro-Credit Advisory Board comprised of key MFIs, regulators, and government representatives. This overarching regulatory role qualifies the Ministry of Finance and Economy as a well suited implementing agency for this cross-cutting project.

Implementation of Activities

The Ministry of Economy and Finance (MoEF) will be responsible for the implementation of all project components, in close collaboration with FNAM, BAM and Centre Mohamed VI. The Ministry of Economy and Finance has been identified as the most qualified implementing agency to host the Project Management Unit of this project.

The MoEF has ultimate responsibility for the implementation of the project and exercises oversight functions including approval of the Operations Manual, work plan, and budgets, and oversight of fiduciary implementation and progress towards implementation and results. Detailed implementation arrangements are available in Annex 3 of the Project Appraisal Document.

The MoEF will prepare a work plan describing activities, timeline, and budgets for activity implementation. The MoEF will also develop an Operations Manual, the development of which will be subject to World Bank no objection and will be completed prior to negotiations or otherwise will constitute a condition of grant effectiveness. The operations manual will describe the policies to be followed for all project components. The Operations Manual will be supported by sub-manuals with detailed procedures, instructions, and templates, which will not require Bank’s no objection.

Project Team: The Project will be implemented by leveraging the MoEF’s in-house team with a team of local consultants, managed by a dedicated Project Manager reporting to the MoEF. The MoEF will contribute an estimated in-kind contribution of USD 500,000 to support the implementation of this project (USD 400,000 in staff time and USD 100,000 in other expenses [travel, material, etc.]).

Ad-hoc Advisory Committee: An ad-hoc advisory committee comprising representatives from BAM, FNAM and Centre Mohamed VI will be formed to advise the project based on ad-hoc briefings provided by the MoEF throughout the lifetime of the project.

Coordination Activities: The MoEF will undertake to coordinate with other financial sector development activities throughout the implementation of the project. Steps will be taken to identify synergies with other projects and to leverage linkages between them.

19. Monitoring and Evaluation of Results

The results framework for the project is centered around the PDO and specifies PDO level and intermediate indicators which will be monitored to evaluate project performance towards the objectives (see M&E framework below). Primary responsibility for results monitoring will be given to the Ministry of Economy and Finance, which will present an M&E report to the World Bank on a quarterly basis. Monitoring and evaluation of project components, sub-components, and activities will be kept simple and integrated into project implementation at every stage (application, implementation, follow-up).

E. PROJECT BUDGETING AND FINANCING

20. Project Financing (including ISA Direct Costs2)Cost by Component Transition

Fund(USD)

Country Co-Financing

(USD)

Other Co-Financing

(USD)

Total(USD)

Component 1:(a) Sub-component 1.1:(b) Sub-component 1.2:(c) Project management:

1,900,0001,000,000500,000400,000

500,000500,000

2,900,000

Component 2: (a) Sub-component 2.1:(b) Sub-component 2.2:(c) Sub-component 2.3:

1,500,000500,000500,000500,000

1,500,000

Component 3: 1,500,000 1,500,000

Total Project Cost 4,900,000 1,000,000 5,900,000

21. Budget Breakdown of Indirect Costs Requested (USD) Description Amount (USD)

For grant preparation, administration and implementation support:Staff time 460,000Staff travel 150,000

Central and Managing Unit Fee 60,000

Total Indirect Costs 660,000

2ISA direct costs are those costs related to the ISA’s direct provision of technical assistance within the project.

F. Results Framework and Monitoring

Project Development Objective (PDO): The project objective is to promote access to finance to low income households and micro and small enterprises through the promotion of a sustainable and inclusive microfinance sector. This objective will be achieved through a comprehensive package of analytical work and technical assistance aimed at supporting the enabling environment for microfinance and financial inclusion, leading to enhanced financial services to wider segments of the population.

PDO Level Results Indicators*Unit of

MeasureBaseline

Cumulative Target Values** FrequencyData Source/

Methodology

Responsibility for Data

Collection

Description (indicator

definition etc.)

YR 1 YR 2 YR3 YR4

Indicator One: Number of end-beneficiaries of MFIs

Number 800,000 900,000 1,000,000 1,100,000 1,200,000 Semi-annually

M&E System/ MFI self-reporting

PMU (MoEF) Number of microfinance clients

Indicator Two: % of adults (and women) with an account at a formal financial institution

Percent (percent female in brackets)

39% (27% )

- 40% (29%) 45% (35%) Bi-annually BAM PMU (MoEF) Access to formal financial inclusion is a core indicators of relative financial inclusion levels in a given county

Indicator Three: Reduction of Portfolio at Risk of MFIs

Percent Jan 2013 Values for MFIs

-- 2% 3% 5% Semi-annually

M&E System/ follow-up visits,

verified by independent follow-up visits for IE

PMU (MoEF) Improved capabilities means the firm demonstrates improved product/ process/ or

market access

Indicator Four: Number of beneficiaries receiving financial literacy training

Number 6,000 6,000 8,000 20,000 25,000 Semi-Annually

M&E System/ follow-up visits,

verified by Bank team

PMU (MoEF) Modules (class room or interactive) that enhance knowledge and understanding of financial concepts, and the skills, motivation and instill the confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts

INTERMEDIATE RESULTS

Intermediate Result (Component One): Strengthen Institutional Capacity of FNAM

Intermediate Results (Component One): Strengthening the institutional, legal, regulatory, tax and governance framework for microfinance

Intermediate Result indicator One: Regulatory studies completed

Number 0 0 1 2 3 Annually M&E System/ status reports

PMU (MoEF)

Intermediate Result indicator Two: Number of operational and regulatory initiatives implemented by BAM and other key stakeholders

Number 0 0 0 1 3 Annually M&E System/ status reports

PMU (MoEF)

Intermediate Results (Component two): Strengthening the market infrastructure, product innovation and funding sources for microfinance

Intermediate Result indicator One: Number of alternative microfinance products developed and piloted (e.g. Islamic finance, mobile phone banking, housing)

Number 0 0 1 2 3 Quarterly M&E System/ follow-up visits

PMU (MoEF)

Intermediate Result indicator Two: Number of trainings to microentrepreneurs delivered

Number 0 500 700 900 1100 Semi-Annually

M&E Systems/follow up visits

Centre Mohammed 6; PMU (MoEF)

Intermediate Result (Component three): Integrating Microfinance into a national financial inclusion strategy

Intermediate Result indicator One: Financial inclusion stock-taking completed

Binary No Yes Once Implementation Status Reports

PMU

Intermediate Result indicator Two: Evaluation completed of existing financial inclusion measures

Binary No Yes - - Once Implementation Status Reports

PMU

Intermediate Result indicator Three: Number of beneficiaries receiving financial literacy training

Number 6,000 (4,099 from CM6; 2,000 estimates from

8,000 15,000 20,000 25,000 Semi-Annually

M&E System/ follow-up visits,

verified by Bank team

PMU Modules (class room or interactive) that enhance knowledge and understanding of financial concepts, and

BAM) the skills, motivation and instill the confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts