The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) Sri Lanka Financial Sector Modernization Project (P159303) SOUTH ASIA | Sri Lanka | Finance, Competitiveness and Innovation Global Practice | IBRD/IDA | Investment Project Financing | FY 2017 | Seq No: 4 | ARCHIVED on 30-Dec-2018 | ISR34464 | Implementing Agencies: Democratic Socialist Republic of Sri Lanka, Insurance Board of Sri Lanka, Securities and Exchange Commission of Sri Lanka, Central Bank of Sri Lanka Key Dates Key Project Dates Bank Approval Date: 05-Apr-2017 Effectiveness Date: 22-Feb-2018 Planned Mid Term Review Date: 15-Nov-2019 Actual Mid-Term Review Date: -- Original Closing Date: 31-Dec-2022 Revised Closing Date: 31-Dec-2022 pdoTable Project Development Objectives Project Development Objective (from Project Appraisal Document) The Project Development Objective (PDO) is “to contribute to increasing financial market efficiency and use of financial services among micro, small and medium enterprises (MSMEs) and individuals”. The project will achieve the PDO through modernizing financial market infrastructure, upgrading the legal and regulatory framework for the financial system, and strengthening the institutional capacity of financial sector regulators (Central Bank of Sri Lanka, [CBSL]; Securities and Exchange Commission of Sri Lanka, [SEC]; and Insurance Board of Sri Lanka, [IBSL]). On account of its comprehensive approach to creating an enabling environment for robust financial development, the project is also expected to advance financial inclusion through (a) increased financial efficiency and competition and (b) the greater reach and financial connectivity of MSMEs and individuals that the new and more inclusive financial market infrastructure shall enable. Has the Project Development Objective been changed since Board Approval of the Project Objective? No Components Table Name Supporting Selected Mid-Level Reforms through Results-Based Financing:(Cost $15.00 M) Strengthening Regulators’ Institutional Capacity, Upgrading the Legal and Regulatory Framework and Modernizing Financial Market Infrastructure:(Cost $59.00 M) Project Implementation and Monitoring:(Cost $0.81 M) Front-end Fee:(Cost $0.19 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Satisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Unsatisfactory Overall Risk Rating Substantial Substantial Implementation Status and Key Decisions 12/30/2018 Page 1 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) The project has made the following progress in terms of implementation: Several DLIs are ongoing and some DLRs have been completed. With the appointment of the Project Director, all covenants have been complied with. However, the project has not progressed satisfactorily in terms of procurement and disbursement, especially under the component “Strengthening Regulators’ Institutional Capacity, Upgrading the Legal and Regulatory Framework and Modernizing Financial Market Infrastructure”. As such, the overall implementation progress has been downgraded to Moderately Unsatisfactory. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance Substantial Substantial Substantial Macroeconomic Substantial Substantial Substantial Sector Strategies and Policies Substantial Substantial Substantial Technical Design of Project or Program Moderate Moderate Moderate Institutional Capacity for Implementation and Sustainability Substantial Substantial Substantial Fiduciary Substantial Substantial Substantial Environment and Social Low Low Low Stakeholders Moderate Moderate Moderate Other -- -- -- Overall Substantial Substantial Substantial Results PDO Indicators by Objectives / Outcomes Project Development Objectives IN00613690 ►(1) Increased transactions of retail electronic payments on the modernized infrastructure (measured by the cards issued under NCS to total debit cards in the system– target 15%) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.00 1.00 1.00 15.00 Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613691 ►Increased participation (trading) in the secondary market Central Government bonds (measured by the growth in secondary market trades of Central Government Debt in value terms—target 5%) (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target 5% increase from Value LKR 6591 Billion LKR 5800.02 Billion LKR 5800.02 Billion base line 12/30/2018 Page 2 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613688 ►(3) Increased share of private insurance companies (newly issued) insurance policies (measured by the growth of insurance premiums to GDP—target 3%) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.05 1.21 1.21 3.00 Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613689 ►Increased financial soundness of MFIs (measured by establishing and complying with the regulatory minimum capital requirement (MCR) by MFIs—target all MFIs complying with (MCR) Regulation) (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target All MFIs are complying Value MCR not established MCR not established MCR not established with MCR Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 31-Dec-2021 Intermediate Results Indicators by Components Strengthening Regulators’ Institutional Capacity, Upgrading the Legal and Regulatory Framework and Modernizing Financial Market Infrastructure IN00613701 ►CBSL has undertaken consolidated risk-based supervision of banks on both solo and group wide basis, and performs risk assessment on a stand-alone and consolidated basis (Basel Core Principles for effe (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Compliant. CBSL produces 2 consolidated risk Value Non compliant non compliant non compliant based supervision reports for identified financial groups. Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613702 ►RTGS new system with multi-currency settlement and convertibility features and the Scripless Securities Settlement System (SSSS) with Central Depository System operational (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target New system Not New system not New system not New RTGS and SSSS Value operational operational operational with CDS operational. Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613695 ►SEC’s regulatory framework and supervisory practices have a significantly high level of observance of the International Organization of Securities Commission’s (IOSCO) Objectives and Principles of Se (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target 3 of 38 principles fully 3 of 38 principles fully 3 of 38 principles fully implemented, 13 of 38 implemented, 13 of 38 implemented, 13 of 38 Broadly implemented, 17 Broadly implemented, 17 Broadly implemented, At least 28/38 Value of 38 partially of 38 partially 17 of 38 partially principles observed. implemented; 6 of 38 not implemented; 6 of 38 not implemented; 6 of 38 implemented; 1 of 38 not implemented;1 of 38 not not implemented;1 of applicable applicable. 38 not applicable. 12/30/2018 Page 3 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613694 ►IBSL’s regulatory framework and supervisory practices have a significantly high level of observance of the International Association of Insurance Supervisors- Insurance Core Principles (IAIS-ICPs) (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Largely observed (6 of Largely observed (6 of Largely observed (6 of 26 26 principles; partially 26 principles; partially principles; partially observed 3 of 26 At least 12/26 observed 3 of 26 observed 3 of 26 principles; assessed principles observed Value principles; assessed yet principles; assessed yet yet not finalized 10 of and 6/26 principles not finalized 10 of 26 not finalized 10 of 26 26 principles; not partially observed. principles; not assessed principles; not assessed assessed 7 of 26 7 of 26 principles) 7 of 26 principles) principles) Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613696 ►CBSL & LankaClear Assessment of Observance of the CPSS_IOSCO Principles for Financial Market Infrastructures completed (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target All applicable PFMIs Observed or Broadly Observed by each FMI type (i.e., 18/18 observed or broadly Value Not assessed not assessed not assessed observed or not applicable for RTGS; 21/21 observed or broadly observed or not applicable for CSD/SSS). Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613697 ►Central Counter Party system established for the securities market (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value Non operational non operational non operational Pilot runs started. Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613698 ►Regulatory and supervisory framework for financial consumer protection established and in use (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Regulations issued and FIs abide by FCP law. Value Non-existent non-existent non-existent Framework in use. Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613692 ►Outstanding MSME Loans from commercial banks (Note: Value of total loans granted by commercial /development banks) (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target 12/30/2018 Page 4 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) Publishing of SME Published disaggregated Published data Published disaggregated data not N/A. disaggregated data not data not N/A. (total Value N/A. (total estimated Total loans granted by estimated around LKR (total estimated around around LKR 685 banks increased by 685 Billion) LKR 685 Billion) Billion) 30% Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613706 Outstanding MSME Loans from commercial banks by females (% of total commercial bank loans) (Text, Custom Breakdown) Baseline Actual (Previous) Actual (Current) End Target Not available/ gender disaggregation Not available/gender Not available/gender Data available and Value not done disaggregation not done disaggregation not done published Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613699 ►Outstanding Microfinance lending from licensed microfinance institutions (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target None (not licensed Data available and Value None (not licensed yet) None (not licensed yet) yet) published Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613707 Outstanding Microfinance lending from licensed institutions to women (% of MFI loans) (Text, Custom Breakdown) Baseline Actual (Previous) Actual (Current) End Target Data available and Value None (not licensed yet) None (not licensed yet) None (not licensed yet) published Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613693 ►Outstanding Corporate Debt (% of GDP) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.00 0.22 0.22 15.00 Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 Supporting Selected Mid-Level Reforms through Results-Based Financing IN00613700 ►Year-end stock market capitalization (% of GDP) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 27.00 24.50 24.50 50.00 Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613704 ►Change in investment portfolio composition of EPF (% in government securities) (Text, Custom) 12/30/2018 Page 5 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) Baseline Actual (Previous) Actual (Current) End Target 90-95% in government 90-95% in government 90-95% in government less than 89% in Value securities securities securities government securities Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613703 ►Regulatory and supervisory framework with proportionate risk-based supervision for microfinance established and operational (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value Non-operational non operational non operational Operational Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 IN00613705 ►Citizen engagement indicator of percentage of project beneficiaries that feel project activities/services/results reflected their needs. (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 75.00 Date 01-Sep-2016 20-Jul-2018 28-Nov-2018 30-Dec-2022 Project Implementation and Monitoring IN00657735 ►Plans and reports are generated and discussed in a timely manner (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value None -- None Completed Date 01-Sep-2016 -- 14-Dec-2018 30-Dec-2022 IN00657795 ►Audit reports completed and submitted within six months of closing of the financial year. (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value None -- None Submitted Date 01-Sep-2016 -- 14-Dec-2018 30-Dec-2022 Disbursement Linked Indicators IN00641772 ►DLI 1 Adoption of consolidated, risk-based approach to supervision of financial institutions (Yes/No, Process, 4.00, 0.00%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 1.1 FSOC agrees through the MOU that CBSL will be lead consolidated supervisor (Text, Process, 1.00, 0.00%) 12/30/2018 Page 6 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- Yes (MOU to be signed) Yes Date -- -- 29-Oct-2018 -- DLI 1.2 Implementation of the MOU evidenced by a minumum of four (4) meetings (from four quarterly sessions in one (1) year) of the FSOC, confirmed by the chairman of FSOC (Yes/No, Process, 1.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 1.3 Based on MoU, CBSL produces 2 consolidated risk-based supervision financial groups for FSOC meeting confirmed by the chairman of FSOC (Yes/No, Process, 2.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- IN00641778 ►DLI 2 Establishment of the Financial Consumer Protection Authority across all financial services under independent authority or an authority under CBSL (Yes/No, Process, 3.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 2.1 MoF's submission of request for establishement of authority under CBSL to conduct FCP (Yes/No, Process, 2.00, 0.00%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 2.2 If the decision of the cabinet is to establish FCPA under CBSL, CBSL Monetary Board issues decision to establish FCP department within CBSL*. (Yes/No, Process, 1.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- IN00641779 12/30/2018 Page 7 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) ►DLI 3 Establish an information system for holistic management of EPF’s assets (investment) and liabilities (collections), and adopt a diversified investment strategy. (Yes/No, Process, 3.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 3.1 Submission of cabinet memorandum, requesting approval to bring the mgt of EPF’s collections (liabilities) and investments (assets) into common information management system under CBSL (Yes/No, Process, 2.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 3.2 CBSL Monetary Board issues decision to adopt a diversified investment strategy to reach adequate replacement income for retirees (Text, Process, 1.00, 0.00%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Yes (strategy approved by Value No -- MB, need critical Yes adjustments) Date -- -- 29-Oct-2018 -- IN00641780 ►DLI 4 Establishment of Delivery vs Payment (DvP) mode of settlement for corporate securities to minimize possible risks to financial stability. (Text, Process, 1.50, 0.00%) December 31, Baseline Actual (Previous) Actual (Current) 2022 No (technical model under Value No -- Yes discussion) Date -- -- 29-Oct-2018 -- DLI 4.1 SEC & CSE adopt rules and regulations necessary to enable the settlement of the corporate securities segment on DvP basis. (Yes/No, Process, 0.50, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 4.2 Successful CSE Business Continuity Planning test involving the DvP arrangement completed. (Yes/No, Process, 0.50, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value Yes -- No Yes 12/30/2018 Page 8 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) Date -- -- 29-Oct-2018 -- DLI 4.3 SEC undertakes on-site or off-site inspection/audits one year after enabling DvP to ensure DvP is happening. (Yes/No, Process, 0.50, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- IN00641786 ►DLI 5 Restructuring of the NITF by separating the underwriting and reinsurance businesses (Yes/No, Process, 3.50, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 5.1 NITF Board issues decision to restructure NIFT by separating the underwriting and reinsurance businesses (Yes/No, Process, 1.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- Yes Yes Date -- -- 29-Oct-2018 -- DLI 5.2 SLIRC issues no objection to separation. (Yes/No, Process, 0.50, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- DLI 5.3 MoNP&EA/MoF submits cabinet memorandum, requesting to approve the proposed restructuring of NITF and such a request is approved by the cabinet (Yes/No, Process, 2.00, 0%) December 31, Baseline Actual (Previous) Actual (Current) 2022 Value No -- No Yes Date -- -- 29-Oct-2018 -- Data on Financial Performance Disbursements (by loan) 12/30/2018 Page 9 of 10 The World Bank Implementation Status & Results Report Sri Lanka Financial Sector Modernization Project (P159303) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P159303 IDA-60060 Effective USD 75.00 75.00 0.00 0.20 78.40 0.3% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P159303 IDA-60060 Effective 05-Apr-2017 04-Oct-2017 22-Feb-2018 31-Dec-2022 31-Dec-2022 Cumulative Disbursements Restructuring History There has been no restructuring to date. Related Project(s) There are no related projects. 12/30/2018 Page 10 of 10