Page 1 INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC1497 Date ISDS Prepared/Updated: 03/19/2007 I. BASIC INFORMATION A. Basic Project Data Country: Turkey Project ID: P082822 Project Name: Access to Finance for SMEs Task Team Leader: Marialisa Motta Estimated Appraisal Date: April 6, 2006 Estimated Board Date: June 8, 2006 Managing Unit: ECSPF Lending Instrument: Financial Intermediary Loan Sector: Micro- and SME finance (70%);General finance sector (15%);General industry and trade sector (10%);Banking (5%) Theme: Small and medium enterprise support (P);Other financial and private sector development (S) IBRD Amount (US$m.): 180.21 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 0.00 0.00 B. Project Objectives [from section 2 of PCN] The project's main development objective is to increase Turkish SMEs' access to medium-term finance in foreign and local currency, including in the East of the country. Key proposed indicators to measure project outcomes include (see Annex 3 for a complete list: (a) Number of SMEs and SME portfolio financed under the project; (b) Share of medium-term financing (more than 12 months) in total SME loan portfolio financed under the project; (c) Non-performing loans ratios for the project; (d) Share of credit line disbursed in local currency under the project; and (e) Number of provinces with active SME clients financed under the project. To assess project implementation progress, the WB will also monitor on a quarterly basis the amount of credit disbursed over the originally planned disbursement. In addition to the indicators included above and in Annex 3, the project will monitor basic indicators providing an overview of (a) the profile of SMEs financed under the project (e.g., amount of sales, number of workers, and economic sector) and (b) the lending technologies used by PFIs and Halkbank (e.g., Page 2 number of PFIs using credit scoring models or the information provided by the credit bureau to grant loans to SMEs); and (c) overall increase in access to finance for the SME sector in Turkey. These indicators will be monitored for analytical purposes only and serve as useful inputs to define policies and projects aimed at further improving access to credit for SMEs in Turkey. C. Project Description [from section 3 of PCN] The project will finance two credit lines targeting SMEs. The total project amount will be Euro 150 million. The project will include two components: (i) a wholesale credit line of Euro 100 million to be intermediated by TSKB, which in turn will intermediate through retail banks and leasing companies, and (ii) a retail credit line of Euro 50 million to be intermediated by Halkbank. SMEs will be the final beneficiaries of both credit lines. For the purpose of this project, SMEs will be defined as firms employing fewer than 250 people and having annual sales of less than US$20 million. TSKB will on-lend the World Bank's funds to private banks and leasing companies, which in turn will lend to SMEs. Halkbank will provide credit directly to SMEs. To ensure covering underserved regions, Halkbank will lend funds under the proposed credit line only to SMEs located in the East, South East and the center of the country. TSKB and the PFIs that receive credit by TSKB will target the rest of the country. (See Appendix 4.A for a detailed description of the geographical areas covered by the two Banks). The Treasury, Halkbank, and TSKB have agreed with the World Bank team on the proposed geographical division. Both credit lines will finance medium and long-term working capital (e.g., raw materials) and investment loans (e.g., vehicles, machinery, or equipment). There will be no sector restrictions. However, a cap of about 30 percent of the total lending amount will be applied to the tourism sector. SMEs operating in the tourism sector include "hotels, motels, resorts, pensions, holiday villages, and camping sites." Concerns have been raised that demand from this sector is high, and the cap will ensure sectoral diversification of the program. The compliance of TSKB and Halkbank with the 30 percent cap requirement for the tourism industry will be monitored during project supervision on the basis of a specific financial management report. Under the first project component, the World Bank will provide a Euro 100 million credit line to TSKB, which will be the borrower and the implementing agency for this component. The Turkish Government will issue a guarantee to the World Bank. TSKB is a private development Bank. It was one of the financial intermediaries in the World Bank's EFIL I project and is the borrower and the implementing agency for the EFIL II and III projects (see a detailed description of TSKB in Section C and Annex C1). TSKB will on-lend the World Bank's funds to private banks and leasing companies (Project Financial Intermediaries, PFIs)which will be selected pursuant to criteria agreed between the Borrower and the World Bank (see Appendix 2B). The PFIs will in turn make working capital and investment sub-loans and leases to private SMEs. The on-lending banks and leasing companies will assume the credit risk of the sub loans. As the Apex institution, TSKB will assume the credit risk of the loan that it intermediates. Under the second component, the World Bank will provide a Euro 50 million credit line to Halkbank, which will be the borrower and the implementing agency for this second component. The Turkish Government will issue a guarantee to the World Bank. As mentioned above, to ensure coverage of underserved regions (the East, South East and part of the Center) the project includes a second credit line targeting these areas which will be intermediated by Halkbank. Halkbank was selected after evaluations of all and discussions with two potential candidates Page 3 among public banks in Turkey. Halkbank has a unique advantage in offering credit to the Eastern regions of the country due to its strong branch presence in the targeted region (see Section 1) combined with its focus on the SME segment and its plans to further grow its SME portfolio. Additional criteria for selecting Halkbank were its financial soundness, the recent good performance of its credit portfolio, and the size of its current credit portfolio in the targeted region creating confidence that the bank will be able to disburse the loans in a sound manner (see Appendix 6A). As with TSKB for component 1, Halkbank will assume the credit risk for component 2. The World Bank's loan to TSKB and Halkbank will start as a Euro Fixed Spread Loan (FSL) with the option to convert into TRY. The loans to both Banks will start in Euros. Withdrawals can be converted into TRY at any time during the life of the loans, resulting in a local currency obligation for the converted portion of the loans. To re-denominate part of the loan obligation in TRY, the World Bank Treasury executes, with a market counterpart, a Euro-TRY swap. The World Bank passes to the borrower the terms of the swap it obtains in its market transaction. If the maturity of the conversion is shorter than the maturity of the loan, then at the maturity of the conversion, the borrower will have the option to roll over the conversion (if the swap market still exists at that time), or to revert to Euro the remaining obligation. If the borrower chooses to roll over the conversion, it will not be exposed to currency risk, but there will be interest rate risk as the loan will be converted at market interest rates at that time. Our survey of the market indicates that at this point in time it is possible to execute Euro-TRY swaps for up to 10 years. For conversion of disbursed amounts to TRY, a minimum amount of Euro 3 million equivalent will be required in order for the World Bank Treasury to enter into a swap with the market counterpart to effect the transaction. The Conversion Date (which is start of the Conversion Period) will always fall on the Interest Payment Date next following the Execution Date of the Conversion Request. The FSL Conversion Guidelines will apply when requesting, accepting and effecting conversions on Fixed-Spread Loans. The guidelines are posted on the Treasury's page at the web address: http://treasury.worldbank.org/Services/Financial+Products/Current+Products/Fixed+Spread+Loa n+(FSL).html. Additional information on the structure of the loan will be included in the Operational Manuals of TSKB and Halkbank. Annex 4 includes a detailed description of the Project components. The Annex provides (a) the exact geographic regions served by Halkbank and TSKB's PFIs under this operation, (b) the terms and conditions of the World Bank loan to TSKB and to Halkbank, (c) the eligibility criteria for the PFIs that will receive funds from TSKB, and (d) the eligibility criteria for the SMEs that will receive funds from the PFIs and Halkbank. D. Project location (if known) -Istanbul, Turkey (location of TSKB, one of the borrowers) -Ankara, Turkey (location of Halkbank, one of the borrowers) Sub-loans will be given to SMEs throughout Turkey. Page 4 E. Borrower’s Institutional Capacity for Safeguard Policies [from PCN] Each of the borrowers, TSKB and Halkbank, has prepared an Environmental Assessment Framework document that is acceptable to the World Bank; that defines environmental assessment procedures to be used in subproject evaluation; and which will be included in the Operations Manual for each bank. TSKB has during the EFIL II project developed institutional capacity to determine and monitor environmental risks of individual sub-projects. Halkbank has an environmental specialist who will be responsible for all environment-related aspects of the project. The Borrowers and Project Financial Intermediaries have had and will continue to have consultations with final beneficiaries (small and medium enterprises). F. Environmental and Social Safeguards Specialists Mr Halil Agah (ECSSD) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X The project is subject to environmental assessment (OP/BP/GP 4.01). The Project's environmental category is FI. Environmental issues of sub-borrowers and their sub-projects will be addressed through the sub-loan environmental eligibility assessments. Environmental assessments will be carried out in accordance with both the Government of Turkey Environmental Assessment (EA) requirements and the World Bank environmental assessment policies and procedures. There will be no large scale significant and/or irreversible impacts. Specific environmental procedures to be followed by the TSKB and Halkbank will be included in their respective Operational Manuals. Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X Environmental Category: F - Financial Intermediary Assessment III. SAFEGUARD PREPARATION PLAN A. Target date for the Quality Enhancement Review (QER), at which time the PAD-stage ISDS would be prepared: 07/01/2005 B. For simple projects that will not require a QER, the target date for preparing the PAD-stage ISDS: N/A Page 5 C. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing 1 should be specified in the PAD-stage ISDS. Note: Environmental Assessment Policies (OP/BP 4.01) will apply to the first project component (credit line for SMEs). TSKB will be responsible for ensuring that the sub- projects financed under this operation are consistent with Turkish environmental laws and with World Bank environmental policies (as defined by OP/BP 4.01). TSKB is already performing this function for the two complementary loans EFIL II and EFIL III. IV. APPROVALS Signed and submitted by: Task Team Leader: Ms Marialisa Motta 04/05/2006 Approved by: Regional Safeguards Coordinator: Mr Ronald N. Hoffer 04/05/2006 Comments: Sector Manager: Mr Gerardo M. Corrochano 04/05/2006 Comments: 1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in-country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons. Page 6