Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) Report Number: ICRR0023578 1. Project Data Project ID Project Name P154389 Myanmar Financial Sector Development Country Practice Area(Lead) Myanmar Finance, Competitiveness and Innovation L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-59300 30-Jun-2021 25,002,874.00 Bank Approval Date Closing Date (Actual) 20-Dec-2016 31-Dec-2022 IBRD/IDA (USD) Grants (USD) Original Commitment 100,000,000.00 0.00 Revised Commitment 100,000,000.00 0.00 Actual 25,002,874.00 0.00 Prepared by Reviewed by ICR Review Coordinator Group Burcin Pamuksuz Ebru Karamete Avjeet Singh IEGSD (Unit 4) 2. Project Objectives and Components DEVOBJ_TBL a. Objectives According to the Loan Agreement (p.5) and the Project Appraisal Document (PAD, p.9) the project development objective (PDO) was “to expand access to finance in Myanmar and, in the event of an Eligible Crisis or Emergency, to provide immediate and effective response to such Eligible Crisis or Emergency”. For assessing the project’s efficacy, the PDO is parsed as: Page 1 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) Objective 1: To expand access to finance in Myanmar. Objective 2: In the event of an Eligible Crisis or Emergency, to provide immediate and effective response to such Eligible Crisis or Emergency. A military takeover took place on February 1, 2021, and the World Bank paused all project disbursements in accordance with OP/BP 7.30. Accordingly, the information presented by the Implementation Completion and Results Report (ICR) was up until the military takeover and was prepared based on a desk review and interviews with World Bank staff and development partners. b. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? No c. Will a split evaluation be undertaken? No d. Components Myanmar Financial Sector Development Project (MFSDP) was composed of following five components and was to be implemented by Ministry of Planning, Finance and Industry (MOPF) and the Central Bank of Myanmar (CBM). Component 1: Reform of State-Owned Banks (US$ 37 million estimated at appraisal, US$ 7.38 million actual): This component was to improve the competitiveness of the financial sector through the restructuring of state-owned banks. The development of an overall state-owned bank policy framework and the capacity building activities for MOPF to establish effective ownership arrangements were to be implemented. In addition, through this component, the project was to support development of a specific reform or restructuring plan for each individual state-owned bank. Component 2: Upgrading of the Financial Sector Legal, Regulatory, and Supervisory Framework (US$ 37 million estimated at appraisal, US$ 0.69 million actual): This part of the project was to strengthen the legal, regulatory, and supervisory framework for the financial sector with an emphasis on banking, microfinance, and insurance sectors. Specifically, the project was to support the CBM to develop and implement the associated implementing regulations for the Financial Institutions Law of 2016 and supervise banks in accordance with the provisions. Regarding the microfinance sector, technical assistance to Financial Regulatory Department (FRD) for upgrading the microfinance policy and regulatory framework in line with international good practices was to be provided. For insurance supervision, the project was to support strengthening of the insurance sector legal framework to make it in line with the core principles of the International Association of Insurance Supervisors (IAIS). In this regard, the FRD Insurance Supervisory Department was to be assisted in developing and putting in use a set of standardized reporting formats that are more in line with international norms. Component 3: Modernization of the CBM and Financial Infrastructure (US$ 24 million estimated at appraisal, US$ 15.26 million actual): This component was to support the modernization of the CBM and its Page 2 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) financial infrastructure, with a focus on payment systems and the framework for secured transactions. Also, the CBM Financial Sector Training Center was to be established to help build the capacity of the CBM and improve the quality of supervision of the banking sector. Component 4: Project Coordination and Monitoring (US$ 2 million estimated at appraisal, US$ 0.32 million actual): The funds allocated to this component were to be used to support the institutional capacity of the MOPF and CBM to coordinate program implementation and monitoring of key outcomes and results through establishment of a Project Coordination Unit (PCU) in both implementing agencies. Component 5: Contingent emergency response: This component was designed to allow for rapid reallocation of credit proceeds in the event of an eligible crisis or emergency under streamlined procurement and disbursement procedures. Revised Components: No component was revised. e. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The project cost estimated at appraisal was US$ 100 million (SDR 71.7 million). The actual cost at closing was US$23.65 million. Following the military takeover which took place on 1 February 2021, the World Bank paused all project disbursements in accordance with the World Bank operational policy OP/BP 7.30 on dealing with de facto governments. Financing: The project was financed by an IDA Credit. The instrument was Investment Project Financing (IPF). At appraisal, the IDA credit was estimated at US$ 100 million (equivalent of 71.7 million Special Drawing Rights-SDR). The project disbursed US$ 23.65 million by project closing. The project was financed through two types of financing mechanisms: (a) results-based financing in the form of disbursement-linked indicators (DLIs), which were defined as results that trigger payments against Eligible Expenditure Programs (EEPs), and (b) traditional input-based financing in the form of goods and services. According to the PAD, the goods and services procured under the various components have been selected to be financed under this modality (rather than through the DLIs mechanism) because they (a) are considered significant and critical investments required for meeting the PDO and (b) require specialized TA for the procurement process and/or international tenders (PAD, p. 13). Borrower’s Contribution: At appraisal, no Borrower’s contribution was foreseen, and none materialized at closing. Dates: The project was approved on December 20, 2016, and became effective on June 27, 2017. The closing date was extended by a total of 18 months through restructuring from June 30, 2021, to December 31, 2022. Restructurings: The project had one Level 2 restructuring on March 16, 2020. Although the progress towards the achievement of project objectives was satisfactory, disbursements remained slow, and a disbursement lag was identified during the mid-term review conducted in November 2019. This was mainly due to the mismatch of the fiscal year endings and MOPF financial rules that created an obstacle for MOPF to withdraw funds eligible under the DLIs in a timely manner. In order to address this disbursement lag, the restructuring expanded the EEPs and extended the project’s closing date by eighteen months from June 30th, 2021, to December 31st, 2022. In this regard, EEP was expanded to include the MOPFI annual Page 3 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) contribution to pensions for employees in the public sector and accordingly, incentivize a faster disbursement of project funds. The ICR reports that this was particularly requested by the Government of Myanmar (GoM) as a way to facilitate their plans for a major reform of the public sector pension system (ICR, p.12). Also, in line with the GoM’s request the submission of annual audit report deadline was extended from six months to nine months. Based on these changes, the end targets of one PDO indicator (end target for outstanding loans from 16 percent to 40 percent) and one intermediate results indicator (the share of financial institutions complying to the CBM’s financial reporting requirements as reported by the CBM from 50 percent to 100 percent) were increased. The original targets were already achieved therefore the project set more ambitious targets to match extended implementation deadline (ICR, p.11 and 12). In this context, increasing the target of the outcome indicator does not require a split assessment of the PDO, and the assessment will be based on the revised target. These indicator changes were not part of the project’s restructuring. 3. Relevance of Objectives Rationale Country Context: Myanmar had a small and underdeveloped financial sector. The country had one of the lowest levels of penetration of financial services in the world and access to finance was extremely low. The main constraints for the development of the financial sector and increased financial sector inclusion were: the small size and underdevelopment of financial institutions, the limited range of financial products, the dominance of state-owned banks, the obsolescence of the legal and regulatory framework for the financial sector, the weak regulatory and supervisory capacity, and the lack of a legal and regulatory framework for mobile financial services. At appraisal, the project was well aligned with the priorities and the strategies of the GoM to address these constraints. The project supported the GoM’s reform efforts in financial system which were outlined in two strategic documents: 1) The Financial Sector Development Strategy (FSDS) 2015–2020 aimed to provide a comprehensive set of sequenced actions to build a larger, more efficient, and more competitive financial system in the country. The five-year strategy concentrated on economic stability through active monetary and foreign exchange policies, financial institutions, markets, and products, access to finance for the Government, investors, and the public, deepening of the financial sector to support the sustainable growth of the economy and efficiency of finance, 2) Myanmar Financial Inclusion Roadmap 2015–2020 focused on financial inclusion aspects, provided a baseline diagnostic and analysis of the key barriers to financial inclusion, and outlined a phased strategy for addressing the challenges. As reported in the ICR, the military takeover halted further reforms in the country and relationship with the authorities was interrupted (ICR, p.30). Therefore, it was not possible to make an assessment regarding project’s alignment with the GoMs priorities or strategies at closing. The World Bank Strategy. The project remained well aligned with the CPF at closing (CPF for the period of FY2020-2023). The project directly supported the objective of fostering responsible private sector-led growth and inclusive opportunities. The project’s focus on increasing financial capacities for regulation and supervision as well as improving the environment for business through reforming state-owned banks, upgrading the legal and supervisory framework, improved conditions for private sector and inclusive opportunities. Page 4 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) Previous Sector Experience: The project incorporated a number of lessons into the project design, drawing on the experience in supporting financial sector development in other low-income and transition countries (PAD, p. 15) which included sequencing finance sector reforms, using a comprehensive approach to finance sector and building in resources for capacity building into the procurement process. In addition, more specifically, the FM arrangements for the project were built upon the experience in Myanmar with two other results-based financing projects: the Myanmar Essential Health Services Access Project and Myanmar Decentralizing Funding to Schools Project. Also, the project design relied on a PASA on “Myanmar: Scaling Up Financial Services for the Poor (P153898)”. In addition, a gender analysis of access to finance, a poverty analysis of access to finance, and a gap analysis to determine upgrade requirements in the CBM’s real-time gross settlement system were conducted at appraisal and were part of the PAD (ICR, footnote 15). Large presence of state-owned banks, outdated legal and regulatory framework, weak supervisory and regulatory capacities, lack of clear legal and regulatory framework for mobile services and absence of modern financial infrastructure were the main challenges to financial sector development and access to finance in Myanmar. In this context, the PDO was appropriately pitched for development status, capacity of the government and constraints in the operational setting. Rating Relevance TBL Rating Substantial 4. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective Objective 1: To expand access to finance in Myanmar Rationale Theory of Change: In Myanmar, only 23 percent of adults had access to an account in financial institutions and bank penetration was among the lowest in the world. Access to finance was one of the most significant constraints in the country. The theory of change suggests that access to finance in the country can be increased if access to an account at a financial institution is increased and the availability of bank loans is expanded. The project included activities of updating regulatory and supervisory framework for the banking sector, training CBM and MOPF staff, providing support to MOPF for establishing a policy framework for state-owned banks, improving financial infrastructure for payment systems at CBM. These activities were expected to result in outputs of a stronger and more resilient banking sector, enhanced transparency, enhanced legal certainty and consumer protection. These would lead to increased depositors’ confidence in opening an account at a financial institution and also encourage banks to increase lending. Page 5 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) This was to be achieved through a results-based financing design with four disbursement-link indicators (DLIs) with 13 activities associated with them and with a traditional input-based financing in the form of goods and services. The selection of DLIs was driven by attention to the specific binding constraints to financial sector development. All DLIs support the key outcomes of the Government financial sector reform program (PAD, p.12). DLI 1: Reform of state-owned banks initiated in order to create financially sustainable institutions with sound risk management and corporate governance practices and clear developmental mandates. 1. Establishment of a high-level steering committee and issuance of a policy framework by the MOPF for state-owned banks, 2. Development and approval of a comprehensive restructuring plan for Myanmar Economic Bank (MEB) by MOPF to improve governance and efficiency, 3. Amendment of MEB’s legal structure and corporate governance arrangements by MOPF, 4. Implementation and improvement of risk management framework by MEB. DLI 2: Upgrading of the banking sector legal and regulatory framework. 1. Issuance of appropriate regulations by the CBM to improve banking sector legal framework in accordance with the Financial Institutions Law, 2. Percentage of financial institutions (at least 50%) that have complied with the requirements and standards set forth in the Financial Institutions Law and implementing regulations by project closing, 3. Issuance of a regulation by the CBM to strengthen the legal and regulatory framework for secured transactions by facilitating landing using movable collateral. DLI 3: Upgrading of the microfinance sector regulatory and supervisory framework. 1. Development of standardized financial reporting formats by the Financial Regulatory Department (FRD) for the use of MFIs, 2. Percentage of the trained FRD staff supervising MFIs (at least 80%), in basic credit risk analysis and MFI supervision, 3. Percentage of MFIs reporting to the FRD (at least 70%) with annual financial statements for the prior fiscal year in accordance with standardized reporting formats. DLI 4: Upgrading of the insurance sector regulatory and supervisory framework. 1. Issuance of standardized financial reporting formats by the FRD for the use of insurance companies, 2. Percentage of the trained FRD staff in on-and off-site insurance supervisory practices (at 70%), 3. Percentage of insurance companies reporting to the FRD (at least 70%) with annual financial statements for the prior fiscal year with financial statements in accordance with the standardized reporting formats by project closing. Overall, the causal pathways from TA and procurement of goods and services to strengthened capacities, improved legal and regulatory frameworks, were valid and direct. The results achieved could be attributable to the project’s intervention. It can be reasonably expected that project outputs would improve financial sector’s transparency, stability, predictability while increasing depositor’s confidence to open an account at a financial institution. There were some weaknesses in the M&E framework. The framework did not include an indicator Page 6 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) which could capture impact of established regulatory framework for mobile financial services which was a major development for promoting financial inclusion. Secondly, although there was a DLI, there was no indicator in the results framework to assess results of interventions in insurance sector. Also, the PDO indicator on bank lending focused on the overall growth of outstanding loans was broad. Although stronger bank soundness and resilience, enhanced transparency, consumer protection standards and legal certainty are signs of an improved financial sector, according to the ICR (page 8), they can well lead to banks to take over less risk and therefore reduce their overall lending. Lastly, the collection of data for verification of achievements was problematic. (please see M&E Quality section for details). Achievements under the DLIs: At project closing, the end targets had been achieved for 8 of the 13 DLI activities whereas no information is available for the remainder (ICR, p. 31).  DLI 1: Reform of state-owned banks initiated in order to create financially sustainable institutions with sound risk management and corporate governance practices and clear developmental mandates. The State-Owned Banks Reform Committee was established under the leadership of the Deputy Minister of MOPF. The Cabinet Committee adopted the governance policy for State-Owned Banks contributing to improved transparency and policy framework. Also, the MOPF developed and approved a comprehensive MEB restructuring plan and amended of MEB’s legal structure and corporate governance arrangements. However, no update was available on targets for improvement of risk management at MEB and implementation of restructuring plan for the merger of MEB and Myanmar Agricultural Development Bank (MADB).  DLI 2: Upgrading of the banking sector legal and regulatory framework. The CBM issued regulations on capital adequacy (Notification 16/2017), asset classification (Notification 17/2017), large exposures (Notification 18/2017), liquidity ratio requirement (Notification 19/2017), subordinated debt (Directive 3/2019), fit and proper criteria of shareholders, directors and officers (Directive 8/2019), directors of banks (Directive 9/2019), external auditors of banks (Directive 10/2019), related parties (Directive 11/2019), substantial interest (Directive 12/2019) improving the banking sector legal framework. In 2019, 90% of total financial institutions complied with the requirements of Financial Institutions Law and its implementing regulations, exceeding the target of 50%. However, no achievement could be reported regarding strengthening the legal and regulatory framework for secured transactions.  DLI 3: Upgrading of the microfinance sector regulatory and supervisory framework. The FRD issued standardized financial reporting formats for the use by MFIs. Also, the percentage of MFIs reporting to the FRD with annual financial data in line with standardized supervision formats was 80.10% as of April 2020 (149 out of 186 MFIs) exceeding the target of 70%. 50% of FRG MFI supervision staff was trained in basic credit risk analysis and MFI supervision in 2018. However, no further information was available after the military takeover of February 2021 regarding the achievement of the final target of 80%.  DLI 4: Upgrading of the insurance sector regulatory and supervisory framework. Page 7 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) The FRD issued standardized financial reporting formats for the use by insurance companies (January 2017). The percentage of insurance companies reporting to the FRD for the prior fiscal year with annual financial statements in line with standardized reporting formats was 64.64 % as of April 2020 (7 out of 11 licensed insurance companies) almost achieving the final target of 70%. As of October 2018, 50% of FRG insurance supervision staff was trained in on and off-site supervisory practices consistent with Insurance Core Principles. However, no further information was available after the military takeover of February 2021 regarding the achievement of final target of 70%. Outputs: Achievements as reported in the Results Framework:  Improved transparency of state-owned banks: The MEB’s special financial diagnostic was finalized but it was not yet published when the latest update was released. On the other hand, within the scope of DLI1, the achievements overall constitute important steps towards improving the transparency and soundness of the state-owned banks, laying the ground for a more competitive market and for encouraging the entry of commercially oriented private financial institutions. Target could not be fully achieved.  Improved soundness and transparency of financial institutions (Percentage of financial institutions that comply with the requirements of new Financial Institutions Law and its regulations): As of October 2021, 90% of financial institutions complied with the soundness and transparency requirements. New implementing regulations issued by CBM within the scope of DLI2 established the legal basis for offering financial services, improved regulatory certainty and improved supervision by the CBM for the sector.  Upgrading Non-Bank Financial Institution (NBFI) supervisory capacity: The capacity indicator scored 2 out 3. The supervisory manuals/internal guidelines for insurance and microfinance were developed. Those for state-owned banks were also developed but were pending adoption as of October 2020 (ICR, p.40). The achievements under the DLIs3 and 4 contributed to establishment of the regulatory basis for microfinance institutions and insurance companies to provide their services, offer products in line with the demands of the underserved segments of the country.  Capacity building for citizen engagement and activities empowering citizens: According to the ICR, both the CBM and FRD have strengthened their consultative processes and commenced to engage proactively with financial institutions and the general public. But further capacity improvements are needed (ICR, p.40). Target could not be fully achieved.  Modernization of the CBM and financial infrastructure - Banks connected to CBM (%): As of August 2020, 50% of banks in Myanmar by assets with operational core banking system was connected to the CBM-Net. Although the target was on track, to reach the final target of 80%, no further data was available. Additional output achievements reported in the ICR:  National Payment System Strategy 2020-25 was published, and an advanced retail payments system was procured. This helped to strengthen the infrastructure of a retail payments, lowered the transaction costs associated with small value payments. Outcomes: Page 8 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) Achievements as reported in the Results Framework:  Adults with active transaction accounts: The percentage of adults with active transaction accounts was 47.79% exceeding the target of 32% (baseline 22.80%) as of 31 December 2021. Percentage of females was 46.15% exceeding the target of 32% (baseline was 17%). In this context, the digitization of banking services, which was supported by the project, was critical in boosting individuals’ access to an account in a formal institution. The project’s support of legal and regulatory advisory and development of capacity to oversee and regulate mobile finance service as part of an effort to the overall upgrading and modernization of CBM contributed to digital and mobile banking. The number of mobile money accounts in Myanmar grew rapidly from 7 million in 2018 to 17 million in 2019, according to data from the market leader in mobile money services (ICR, p.14).  The percentage of adults in the poorest 40% with account at a financial institution was 21.31% by 31 December 2021 slightly above the target of 20%.  The percentage of loans from commercial banks was 22.77% in 2019 (ICR, paragraph 36 and this was reported as 28% in August 2020, Annex 1, ICR), below the revised target of 40%. (original target 15%, baseline 8%). With respect to this achievement (increase in bank lending) the ICR reports a weakness in attribution to project’s components. The ICR highlights that revised financial regulations and reporting guidelines might have pushed banks to take over less risk and therefore reduce their lending. In Myanmar Project case, the lending slightly decreased from 2017 to 2018. However, as the indicator was broad it is not possible to distinguish percentage of high-quality loans (increase in) from the overall lending. In addition, despite this slight decrease mentioned above the credit expansion continued with a steady growth in bank deposits. In addition, a CBM directive which gave banks more time to meet capital adequacy levels and to meet exposure limits also contributed to credit expansion (ICR, p.35). Target was not achieved. Additional outcome achievements reported in the ICR:  The project’s comprehensive approach to financial sector reforms in the preparation stage, which encouraged the involvement and the cooperation between key actors including the MOPF, FRD and CBM promoted interagency coordination. This created a common ground and more focused approach and enabled swifter and more informed actions by supervisors to prevent or manage risk in the financial sector.  The number of mobile accounts has grown from 7 million in 2018 to 17 million in 2019, according to data from the market leader in mobile money services. The digitization of banking services, which was supported by the project, was crucial in boosting individuals’ access to an account in a formal institution (ICR, p.14). Overall, the project’s efficacy in achieving this objective is rated Substantial with moderate shortcomings. Target of one out of three outcome indicators (percentage of loans from commercial banks) could not be met and intermediate results indicators were partially achieved. On the other hand, the project’s effort to strengthen the regulatory and supervisory framework created the conditions for a sound and credible banking sector, which potentially mitigates financial risks, contributed to saver’s decision in opening new accounts and maintaining credit growth. The development of supervisory manuals and guidelines, the training of supervisors, and the connection of banks with the CBM’s payment system, encouraging regulations for the MFIs and insurance companies all contributed to strengthening the financial sector and promoted financial access for many unbanked citizens. Page 9 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) Rating Substantial OBJECTIVE 2 Objective Objective 2: In the event of an Eligible Crisis or Emergency, to provide immediate and effective response to such Eligible Crisis or Emergency Rationale As this objective was not triggered it was not rated. Rating Not Rated/Not Applicable OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale The project’s efficacy in achieving the first objective is rated Substantial with moderate shortcomings. Overall, the project’s activities and outputs contributed to strengthening the financial sector, increased transparency and legal certainty while increasing depositors’ confidence in opening an account and encourage banks to increase lending which promoted financial access for many unbanked citizens. There were moderate shortcomings since one of the PDO indicators was not achieved, and intermediate outcome indicators were partially achieved. The project’s efficacy in achieving the second objective is not rated, since the CERC was not triggered. Based on these sub-ratings the overall efficacy is rated Substantial with moderate shortcomings. Overall Efficacy Rating Substantial 5. Efficiency Economic and Financial Analysis: At appraisal, neither a cost benefit analysis nor a cost-effectiveness analysis was conducted. Instead, a detailed qualitative technical and economic analysis was conducted. The PAD argues that (page 19) the support provided by the project in the forms of modernization of legal framework, supporting implementation of Financial Institutions Law, building capacities of key financial sector regulators (i.e., CBM, FRD), and IT investments is expected to reduce the likelihood of financial crisis and minimize the economic and fiscal costs of a crisis, should one occur. The restructuring of state-owned banks would reduce Page 10 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) the Government’s fiscal burden (at the time of appraisal, the four main-state-owned banks were loss-making institutions). Lastly, the project’s focus on financial inclusion and more specifically promoting digital financial services was to bring economic benefits and help boost shared prosperity in the country. At project closing the updated data was not available and the ICR did not provide an economic and financial analysis either. However, the ICR provides some information on the positive economic impact of the project. The activities of publication of the National Payment System Strategy, 2020-25, and advance procurement of a retail payments system strengthened the infrastructure of a retail payments infrastructure to lower the transaction costs associated with small value payments. The result of these activities reflected on the growth of the number of mobile accounts (from 7 million in 2018 to 17 million in 2019). In addition, adults in the poorest 40 percent with accounts at a financial institution also increased from 16.10 percent in 2014 to 23 percent by August 2020. This extension of basic financial services and improved payments to underserved areas are expected to reduce costs for banks to operate in these areas (ICR, p.22). On the state-owned banks, although full reform could not be completed, the adoption of the governance policy for state-owned banks, a comprehensive MEB restructuring plan and amendment of MEB’s legal structure and corporate governance arrangements improved the transparency, improved policy framework and efficiency of the operations (ICR, p.23). There was no project cost overrun. Administrative and Operational Efficiency: Delays in project implementation and disbursements due to slow project procurement progress, lack of key positions in FRD and lack of expertise in CBM and FRD, negatively impacted the administrative and operational efficiency. During early periods of implementation, the achievements and the disbursements under the DLIs lagged due to the mismatch of the fiscal year endings and MOPF financial rules. According to the ICR, the cost of commitment charge set by the financing agreement also constituted a burden for the borrower and therefore was another reason for lagged disbursements. These issues could have been addressed upfront at appraisal. Although the project team addressed the disbursement delays through restructuring and extended the project’s implementation period by 18 months, the low disbursement ratio remained a concern. The restructurings could not improve the disbursements. The MOPFI did not make any further withdrawals under the DLIs since the project restructuring until the disbursement pause as a result of the military takeover (ICR, p.24). Efficiency Rating Modest a. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable 0 ICR Estimate 0  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome Page 11 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) The PDO was substantially relevant to the country context and the World Bank strategy. The project’s efficacy in achieving the objective is Substantial with moderate shortcomings. The project’s efficiency is Modest due to some operational and administrative inefficiencies. Based on these sub-ratings, the overall outcome is rated Moderately Satisfactory. a. Outcome Rating Moderately Satisfactory 7. Risk to Development Outcome Economic Risks: Sustainability of the achievements are at risk due to deteriorating macroeconomic conditions and increasing isolation after the military takeover. It can be predicted that the demand for credit might decrease under slowing economic growth and sanctions imposed. Political Risks: The military takeover put the reform agenda at risk. The project involved many activities related to improvement/amendment of legislative framework. Depending on the priorities of the current authorities after the military takeover, the legislative changes introduced by the project can be amended and reversed which constitute a risk to development outcome. On the other hand, the project strengthened capacities of MOPF and CBM through trainings and capacity building programs and also modernization of financial infrastructure to upgrade payment system. These achievements are likely to be sustained. 8. Assessment of Bank Performance a. Quality-at-Entry The project had strategic relevance as it supported the Government of Myanmar in implementing the reforms outlined in the Financial Sector Development Strategy (2015-2020) and the Myanmar Financial Inclusion Roadmap (2015-2020). The project design incorporated lessons from the World Bank’s experience in supporting financial sector development in other low-income and transition countries as well as on a PASA on “Myanmar: Scaling Up Financial Services for the Poor (P153898)”. The implementation arrangements at appraisal were sufficient. The PCUs were established in each of the implementing agencies (MOPF and CBM) and were jointly responsible for the management and supervision of the project. At appraisal the overall risk of the project including political risk, macroeconomic risk, implementation and coordination risk, and conflict and violence risk, was rated High. To mitigate the political risks and the macroeconomic risks, close and regular consultations with the authorities, senior stakeholders, and decision makers were foreseen. Also, engagement in regular monitoring as part of this World Bank Group public FM engagement and the IMF Article IV surveillance missions was planned. The establishment of dedicated PCUs with skilled personnel at the MOPF and CBM, streamlined procurement procedures were expected to mitigate implementation and coordination risks. Page 12 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) However, there were several key shortcomings with the QAE. Although the DLIs and EEPs were discussed with the Borrower, the Bank underestimated the Government’s conditions and relevant financial rules and budget principles for withdrawal of funds in regards to the DLIs. In addition, setting the commitment charge at zero, and service charge at three-fourths of one percent per annum did not incentivize disbursements causing the Borrower not being able to utilize 75 percent of loan proceeds. Also, there were some weaknesses related to the M&E framework. The PDO indicator of outstanding loans was broad and the framework did not include an indicator to capture impact of achievements in the insurance sector as well as mobile banking. Based on the above, the QAE is rated moderately unsatisfactory. Quality-at-Entry Rating Moderately Unsatisfactory b. Quality of supervision According to the ICR (p.33), during the implementation, the project benefited from regular supervision support from the World Bank, through the Aide Memoires and Implementation Status and Results Reports (ISRs) produced every six months. The project was subjected to five implementation support/supervision missions and one MTR mission up to 2020 before the military takeover. The progress and guidance were recorded in seven ISRs and Aide Memoires. The team identified the lagging disbursement from DLIs during the project supervision support mission in March 2019. Accordingly taking the withdrawal challenges into account the project was restructured in a way to expand EEPs and extend implementation period. However, there were no withdrawals after the restructuring due to the fact the Government would like to reallocate the undisbursed project funds to the emergency component as part of the economic slowdown from Covid-19 and also due to burdensome service charge (ICR, p.33). According to the ICR, the change of TTLs did not disrupt supervision and the presence of the World Bank Team based in Myanmar facilitated productive relations with the GoM. Although human and organizational capacity constrains posed challenges to the implementation, the World Bank team provided continuous support to their counterparts to compensate for these challenges. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9. M&E Design, Implementation, & Utilization a. M&E Design The project relied on DLIs, outcome and output indicators to monitor and assess the level of achievement of the PDO. The DLIs were aligned with the PDO and mostly clearly defined. For monitoring and Page 13 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) verification, the DLIs followed a protocol and methodology identified in the Project Operations Manual (ICR, p.30). The PCUs within the CBM and MOPF were responsible for collecting the data on the DLIs (12 out of 13 DLIs). The ICR reports that the verification protocol was effective and to move implementation forward, M&E specialists were hired, reporting requirements for financial institutions were improved, investments made in monitoring infrastructure, and training programs for supervisors were conducted (ICR, p.30). Regarding the digital and mobile banking, there was no DLI activity or an indicator as part of the results framework. The impact on financial inclusion could have been better captured if an indicator were considered. The outcome indicator of outstanding loans as share of GDP had shortcomings. It was broad as it covered both individuals and the businesses (SMEs). In addition, this indicator aggregates loans together without distinguishing based on credit quality, in the short run, its growth could actually be negatively affected by a strengthening of the legal and regulatory framework in the banking sector (ICR, p. 30). Data source for this indicator (and other outcome indicators) was IMF FAS database, whereas the information for intermediate results indicators were to be collected by the Borrower. The results framework did not include an indicator to capture achievements in insurance sector. Lastly, an independent survey of the beneficiaries of the project (i.e., supervisory/regulatory institutions and financial service providers) could have been useful to enrich the evidence base for results if included in the M&E framework. b. M&E Implementation Due to institutional capacity constraints, data collection was difficult initially, however progressed during the implementation. After the military takeover it became a significant issue. Although the project's main outcomes relied on indicators released by public and reliable databases, (i.e., Findex and FAS), intermediate indicators relied on data inputs from the Borrower. Particularly for the indicators assessment of which fully relied on Borrower’s input (e.g., percentage of banks connected to CBM), presence of a positive policy dialogue between the World Bank and the Borrower and on the commitment of the Borrower to providing reliable and consistent information in a timely manner was crucial. Overall, COVID- 19 slowed the data collection creating a four-year gap in Findex (between 2017 and 2021). Following the military takeover and the disbursement pause, it was impossible to retrieve updated information on many of the outcome indicators, intermediate indicators as well as DLIs (ICR, p.31). The ICR relied on the data provided in the latest ISRs, which assessed the indicators up to October 2021, as well as documentation provided by the team (ICR, p. 19). c. M&E Utilization The MOPF and CBM regularly monitored and reported progress on achievements in the Results Framework. The project team and the implementing agencies used the findings to make appropriate adjustments to the project implementation. For example, the information on lagging disbursements was a critical input in decision to restructure the project and extending the implementation period. The ISRs were useful to monitor progress towards achieving results and identifying bottlenecks throughout project implementation. Due to shortcomings of design and implementation the M&E quality is rated Modest. Page 14 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) M&E Quality Rating Modest 10. Other Issues a. Safeguards The project was classified as Category C. No safeguard policy was triggered. The project was to finance mostly financial sector policy and legal and regulatory reform, and physical IT investments and capacity building activities which were not expected to have any negative environmental impact. b. Fiduciary Compliance Financial Management: The ICR does not include any information on financial management under the Fiduciary Compliance section. No issue was brought up during the meeting with the project team (meeting on 4 October 2023). The Financial Management rating in the latest ISR was Moderately Satisfactory. Procurement: The ICR does not include any information on procurement under the Fiduciary Compliance section. Considering the low procurement implementation capacity, the procurement process for new and ongoing World Bank projects were streamlined in February 2016. In the case of this project, the ICR reports slow procurement initially due to lack of key positions in the FRG, and the lack of experience in the CBM and FRD. With the appointment of national and international consultants, procurement activities progressed. The project team also informed that the complexity of the procurement packages (project being technically challenging) also slowed down procurement activities (meeting on October 4, 2023). c. Unintended impacts (Positive or Negative) None. d. Other None. 11. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Outcome Moderately Satisfactory Satisfactory Page 15 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) Moderately Bank Performance Moderately Satisfactory Satisfactory Due to shortcomings in M&E Quality of M&E Substantial Modest design. Quality of ICR --- Substantial 12. Lessons The following are lessons learned from the ICR with some paraphrasing:  Up-front incentives can ensure a consistent and timely disbursement of funds by the Borrower. The ICR reports that in the case of the project the disbursements lagged due to two reasons (apart from the from the mismatch of fiscal year endings and the MOPF financial rules). First the commitment charge to be paid by the Borrower calculated on the undisbursed amount was reduced to zero. This guaranteed no cost for the Borrower for not withdrawing the funds until they are needed. Second, the service charge was determined equal to three-fourths of one percent per annum which was represented a higher cost for the Borrower than the option of not withdrawing funds and relying on its own resources. For these reasons, the measures adopted through the restructuring (expanding EEPs and extending implementation period) did not help the lag in disbursements. Discussing these issues during the project preparation in advance can help adapting the project and improve project results.  Monitoring financial access in terms of traditional and mobile/digital finance via separate indicators can help better understand the sources of enhanced financial inclusion. In the case of Myanmar project, the PDO indicators were formalized in a way to cover trend in financial access stemming from both traditional and mobile banking improvements. Monitoring the parallel development in financial access through traditional and digital banks can provide a clearer picture of the vulnerability of the current trend of financial access as well as the contributors to the change. 13. Assessment Recommended? No 14. Comments on Quality of ICR The ICR provides a detailed overview of the project. It is candid in explaining the issues encountered at different phases of implementation. The report is concise and follows most of the guidelines. It is internally consistent. There is a logical linking and integration of the various parts of the report. The ICR well articulates the theory of change and focuses on attribution. The interrogation of evidence is sufficient, and the linking of evidence to findings is clear. It sufficiently explains how the ratings have been reached. On the other hand, the information provided by the report on fiduciary compliance is limited. The report draws lessons based on the Page 16 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Myanmar Financial Sector Development (P154389) experience gained during project implementation, but they are mostly in the form of recommendations or findings. a. Quality of ICR Rating Substantial Page 17 of 17