The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) KG Financial Sector Development Project (P125689) EUROPE AND CENTRAL ASIA | Kyrgyz Republic | Finance, Competitiveness and Innovation Global Practice | IBRD/IDA | Investment Project Financing | FY 2012 | Seq No: 17 | ARCHIVED on 16-Apr-2021 | ISR46254 | Implementing Agencies: Ministry of Economy and Finance, Kyrgyz Post Office, National Bank of the Kyrgyz Republic, Ministry of Justice Key Dates Key Project Dates Bank Approval Date: 08-Mar-2012 Effectiveness Date: 25-Dec-2013 Planned Mid Term Review Date: 31-Mar-2016 Actual Mid-Term Review Date: 31-Mar-2016 Original Closing Date: 30-Jun-2017 Revised Closing Date: 30-Jun-2021 pdoTable Project Development Objectives Project Development Objective (from Project Appraisal Document) Project Development Objectives are to: (i) enhance financial sector stability, and (ii) increase access to financial services. Has the Project Development Objective been changed since Board Approval of the Project Objective? No Components Table Name Strengthen Institutional capacity of the NBKR:(Cost $0.33 M) Enhancing financial services via KPOs network:(Cost $6.60 M) Modernizing the secured transactions and debt resolution regime:(Cost $1.12 M) Project coordination and monitoring:(Cost $0.80 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Moderately Unsatisfactory Moderately Unsatisfactory Overall Implementation Progress (IP) Moderately Unsatisfactory Moderately Satisfactory Overall Risk Rating Moderate Moderate Implementation Status and Key Decisions Progress achieving Project Development Objective (PDO): The rating Progress towards achievement of PDO remains Moderately Unsatisfactory. Despite the satisfactory implementation progress over the past 6 months, achieving PDO indicators remains challenged, partly due to on-going COVID-19 circumstances and partly due to the long-delay in implementing Component 2. PDO 1 indicator (changes to the legal, regulatory and supervisory framework) has been met. However, PDO 2 indicator for increased financial transactions (the target of 11 million) still falls short at 9.3 million transactions as of March 31, 2020. Though the target was lowered from 17 million to 11 million during the last restructuring in 2020, there is still a high risk that this target will not be fully achieved before the project closing date. KPO faces increasing market competition amid limited time left before the project closing date. The PDO 3 indicator (annual 5,000 new registrations of movable collaterals) expected to be met before the COVID-19 pandemic – achieving 4,461 new registrations in 2019 – could not be achieved either. The pandemic has slowed down new lending and lending against movable assets was particularly affected: only 2,576 new registrations of movable collaterals were registered in 2020. 4/16/2021 Page 1 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) Implementation progress: The rating for Overall Implementation Progress is upgraded to Moderately Satisfactory. Despite the challenging situation under the pandemic, significant progress has been made in Component 2. In addition to 4 intermediate indicators met previously, other 6 intermediate indicators have been met over the past 6 months. Further, several intermediate indicators were overachieved. However, 4 indicators remain unmet and it is important to accelerate completion of remaining activities before the project completion. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance -- Moderate Moderate Macroeconomic -- Moderate Moderate Sector Strategies and Policies -- Moderate Moderate Technical Design of Project or Program -- Moderate Moderate Institutional Capacity for Implementation and -- Substantial Substantial Sustainability Fiduciary -- Moderate Moderate Environment and Social -- Low Low Stakeholders -- Substantial Substantial Other -- Substantial Substantial Overall -- Moderate Moderate Results PDO Indicators by Objectives / Outcomes Strengthening legal, regulatory and supervisory framework for banks, MFOs and credit unions. IN00979000 ►Number of changes to the legal, regulatory and supervisory framework are implemented (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 2.00 2.00 2.00 Date 30-Jun-2018 29-Sep-2020 13-Apr-2021 30-Jun-2021 This target was achieved on January 13, 2020, when NBKR adopted the new risk-based supervisory Comments: approach that included revised human resources policies and procedures. Enhancing financial services via KPO network 4/16/2021 Page 2 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) IN00979051 ►Number of financial services transactions going through KPO (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 10,000,000.00 8,600,000.00 9,300,000.00 11,000,000.00 Date 08-Mar-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 The target of the PDO indicator, the number of financial services transactions going through KPO, is 11 million per year. Meeting this target may be a challenge before the closing of the Project due to the delays in the implementation of the Project (IT system, Financial Management System, training KPO Staff, and bank agency agreement). The implementation is nearing completion but the results may not reflect in the Comments: transaction volume before the Project closure. The volume of transactions went down in recent years because of the increased competition by banks and payments service providers, growing access infrastructure via ATMs and POS terminals, delays in implementation of access infrastructure by KPO, and the decline in cash delivery of pensions, especially in urban areas. Modernizing secured transactions and debt resolution regime IN00979052 ►Number of new annual registrations in the secured transactions registry, using moveable assets as collateral (alone or in combination with immoveable collateral) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1,354.00 924.00 1,652.00 2,500.00 Date 31-Dec-2017 01-Jun-2020 13-Apr-2021 30-Jun-2021 The target of the PDO indicator, number of new annual registrations in the secured transaction registry, is 5,000 on an annual basis (i.e., 2,500 per half-year). MOJ measured 4,461 new registrations (89 percent of the target) at the end of 2019. However, the pandemic has slowed down new lending and lending against Comments: movable assets was particularly affected: only 2,576 new registration of movable collaterals was registered in 2020 (the first half of 2020 registered 924 and the second half 1,652).. Intermediate Results Indicators by Components Strengthening Institutional Capacity of the NBKR IN00979053 ►Improved staff capacity, measured in terms of number of years of staff experience in supervision departments (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 2.00 2.50 6.90 4.50 Date 15-Jan-2012 30-Jun-2020 13-Apr-2021 30-Jun-2021 The NBKR reported the average years of supervisory staff experience of 6.9. Previous years data was not updated with the note that the NBKR was in the process of determining the number of years of staff Comments: experience. IN00979056 4/16/2021 Page 3 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) ►Supervisory staff conducted spacialist training (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 25.00 Date 30-Jun-2018 29-Sep-2020 13-Apr-2021 30-Jun-2021 The NBKR had earlier planned training of bank supervisors in spring 2020, however, it was placed on hold due to the pandemic. Given no prospect for in-person training, the NBKR decided in early 2021 to shift Comments: training from in-person to virtual or hybrid so as to complete the activities before the project closing. Training is planned in April-June, 2021. Enhancing financial services via KPOs network IN00979054 ►Number of ICT-equipped Post Offices (with installed, operational front office cash terminals) connected to the central hub (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 360.00 388.00 360.00 Date 01-Jan-2012 29-Sep-2020 13-Apr-2021 31-Dec-2020 388 post offices (more than 360 in the target) are fully equipped with the new IT and connected to Comments: Internet. IN00979057 ►Revenues from non-government financial services transactions (payment, remittances, bank) as a share of total KPO revenues from financial services (including also pension pay out and social allowances (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 15.00 17.55 21.00 20.00 Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 This indicator has already been met due to decline in pension fees and increase in demand driven, competitive financial services; based on KPO reports of Dec 31, 2020 Comments: IN00979059 ►Improved quality, reliability and cost-efficiency of small value payments operations, measured in terms of same day Straight Through Processing as a share of total transactions to&from bank accounts (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0% 0% 38% >30% Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 In February 2021, the 115 operational post offices already processed 400,000 financial services transaction in a fully automated way. This ratio is expected to increase significantly when other post Comments: offices connected to the Central Hub (total of 388 post offices) start processing transactions through the front-end system, once training of staff is completed in April 2021. IN00979061 ►Enhanced transparent financial performance (Text, Custom) 4/16/2021 Page 4 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) Baseline Actual (Previous) Actual (Current) End Target Financial audit 2016 and 2017 are completed including publishing on the website of the KPO. Financial audit reports Annual audited Financial audit 2018 is Value No published for 2016, statements 2016, completed and is 2017, 2018 and 2019. 2017, and 2018. expected to be published soon. Preparations of financial audit 2019 has commenced. Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2020 This indicator has already been meet. 2016 and 2017 were audited by Deloite Touche, and 2018 and Comments: 2019 by BDO Armenia, published in January 2021 IN00979063 ►Introduction of performance measurement, in terms of accounting reports with separated profitability and risk analysis for financial services and postal services (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target KPO is working KPO is preparing to work together with a together with a consultant on piloting consultant on piloting financial reports. To financial reports. To this this end, KPO end, KPO commenced Monthly financial Value 0.00 commenced data entry data entry into the new reports into the new FM FM application. This will application. This will enable KPO to do enable KPO to do financial performance financial performance assessments. assessments. Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 31-Dec-2020 This will be completed by May 31, 20201 (as per action plan). Comments: IN00979064 ►Number of cashiers, tellers, postmasters and other operational staff completed NBKR training to operate financial services at KPO (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 476.00 1,206.00 1,200.00 Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 31-Dec-2020 Series of training programs were executed in the period 2019 and 2020 based on an training need analysis in 2018. The data is as of December 31, 2020. Additional training is being provided to further Comments: support capacity building of KPO employees. After the project, KPO's own trainers will continue in the 4 new training centers. IN00979066 ►Enhanced competitive outreach for last mile delivery of remittances, measured in terms of market share of KPO in total remittances (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.07 2.00 Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 4/16/2021 Page 5 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) KPO launched together with Pochta Rossii in Dec 2020 Postransfer on the corridor with Russia, as an electronic, instant and low-cost service. In response to this Western Union, a partner of the Russian Post, already lowered its rates with nearly 50%. UPU, the UN agency behind Postransfer has entered into talks Comments: to connect Western Union and RIA Money Transfer to the same system. Alternative option for KPO remains to launch remittances as part of agency banking. Migrant remittances are a life line for many poor, rural Kyrgyz households. Data based on those of KPO and NBKR for the end of 2020. IN00979067 ►Implementation of bank agency agreement in post offices (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 8.00 3.00 Date 10-Apr-2020 29-Sep-2020 13-Apr-2021 31-Dec-2020 KPO rapidly expanded its agreements with banks for provision of agency services and started with operations in post offices while some are still at an early stage. The total of 8 agency agreements in place, Comments: exceeding the target of 3. IN00979068 ►Number of ICT-equipped Post Offices that is connected to (bank) card payment terminal (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 360.00 Date 15-Jun-2020 29-Sep-2020 13-Apr-2021 30-Jun-2021 POS terminal is installed in 271 post offices but they are not part of the Project and not connected to the Central Hub, therefore, this is not counted towards the results indicator. KPO is in the process of Comments: negotiating with banks to install more POS terminals. Modernizing the secured transactions and debt resolution regime IN00979055 ►Amended legal framework for moveable collateral and debt resolution regimes (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 1.00 2.00 2.00 Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 The law on Pledge was enacted in 2017. Following the Government approval on June 4, 2020 (Government Decree #298), the Law «On the Law of the Kyrgyz Republic» on Amendments to the Certain Legislative Acts of the Kyrgyz Republic (the Law of Comments: the Kyrgyz Republic «On Pledge», the Civil Code of the Kyrgyz Republic, the Code of the Kyrgyz Republic on Violations)» was enacted by the Parliament and signed by the President on March 24th, 2021. IN00979058 ►Issued regulations for the well-functioning of the collateral registry (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 2.00 3.00 4.00 4/16/2021 Page 6 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) Date 08-Mar-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 The Decree «On the issues of registration of rights of claim for the fulfillment of obligations (under the contract) in respect of movable property» #. 35 adopted on February 8th, 2021. This makes the Comments: regulations for the well-functioning of the collateral registry to 3, adding to the by-laws (the procedure for registration and the single state registry); IN00979060 ►Online system for registering collateral is operational and connected to other assets registrations (for example (registration of vehicle registration) (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target On-line registration Online registration system is operational Online registration system is operational and at least connected system is operational and Value No online system and connected to to another asset connected to vehicle vehicle registration registration system (for registration system. system. example system of vehicle registration) Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 The collateral registry system is operational and connected to the vehicle registration system, as well as to Comments: the registration system of natural persons, and the registration system of legal entities. IN00979062 ►Number of dissemination and capacity-building and training events held (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 13.00 16.00 6.00 Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 The Collateral Registry Department of the Ministry of Justice organized 3 additional events over the past 6 Comments: months, in addition to 13 events previously organized in different regions of the country. IN00979065 ►Increase in the debt recovery rate for creditors (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target 30 cents on the dollar Value zero 40.60 40.60 of 4% of insolvent companies Date 15-Jan-2012 29-Sep-2020 13-Apr-2021 30-Jun-2021 The recovery rate is recorded as cents on the dollar recovered by secured creditors through judicial reorganization, liquidation, or debt enforcement (foreclosure or receivership) proceedings. The recovery rate is calculated by the WB doing business team by taking into account the time, cost, and outcome of Comments: the recovery process. The recovery rate increased from 36.2 cents on a dollar at the end of 2018 to 40.6 cents on a dollar at the end of 2019. Performance-Based Conditions Data on Financial Performance 4/16/2021 Page 7 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P125689 IDA-50670 Effective USD 7.15 4.03 3.12 2.99 0.65 82% P125689 IDA-H7600 Effective USD 5.85 4.92 0.93 4.40 0.24 95% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P125689 IDA-50670 Effective 08-Mar-2012 11-Jul-2013 25-Dec-2013 30-Jun-2017 30-Jun-2021 P125689 IDA-H7600 Effective 08-Mar-2012 11-Jul-2013 25-Dec-2013 30-Jun-2017 30-Jun-2021 Cumulative Disbursements PBC Disbursement Achievement Disbursed amount in Disbursement % PBC ID PBC Type Description Coc PBC Amount Status Coc for PBC 4/16/2021 Page 8 of 9 The World Bank Implementation Status & Results Report KG Financial Sector Development Project (P125689) Restructuring History Level Approved on 21-May-2013 ,Level 2 Approved on 29-Jun-2018 ,Level 2 Approved on 18-Feb-2019 ,Level 2 Approved on 10-Jul-2020 Related Project(s) There are no related projects. 4/16/2021 Page 9 of 9