The World Bank Inclusive Regulations for Microfinance (P149677) REPORT NO.: RES42537 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE INCLUSIVE REGULATIONS FOR MICROFINANCE APPROVED ON JULY 25, 2014 TO THE ARAB REPUBLIC OF EGYPT FINANCE, COMPETITIVENESS AND INNOVATION MIDDLE EAST AND NORTH AFRICA Regional Vice President: Ferid Belhaj Country Director: Marina Wes Regional Director: Najy Benhassine Practice Manager/Manager: Jean Pesme Task Team Leader: Ghada Ahmed Waheed Ismail The World Bank Inclusive Regulations for Microfinance (P149677) ABBREVIATIONS AND ACRONYMS AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism FIGI Financial Inclusion Global Initiative FRA Financial Regulatory Authority MFIs Microfinance Institutions NGOs Non-Governmental Organizations PDO Project Development Objective PMU Project Management Unit PPFs Private Pension Funds SMEs Small and Medium Enterprises BASIC DATA Product Information Project ID Financing Instrument P149677 Investment Project Financing Original EA Category Current EA Category Approval Date Current Closing Date 25-Jul-2014 30-Jun-2020 Organizations Borrower Responsible Agency Arab Republic of Egypt The Financial Regulatory Authority Financing (in USD Million) FIN_SUMM_PUB_TBL SUMMARY Total Project Cost 0 Total Financing 0 The World Bank Inclusive Regulations for Microfinance (P149677) Financing Gap 0 DETAILS-NewFin3 Project Development Objective (PDO) Original PDO The project development objective (PDO) is to strengthen the regulatory and institutional framework of the microfinance sector in Egypt. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-17864 26-Aug-2014 26-Aug-2014 28-Sep-2014 30-Jun-2020 4.00 3.85 .15 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Inclusive Regulations for Microfinance (P149677) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. Project Status a) The Restructuring proposes to: (i) extend the closing date of the Inclusive Regulations for Microfinance project (Grant No. TF017864) by 12 months, from June 30, 2020 to June 30, 2021; and (ii) revise the Results Framework Indicators upwards. This will be the second extension of closing date after it was extended from October 31, 2018 (original closing date) to June 30, 2020. This extension was approved by the Middle East and North Africa Transition Fund Steering Committee on a no-objection basis on June 9, 2020. b) Project implementation is progressing well and remains on track to achieving its development objectives. Two of the five PDO indicators have met the current end-target of June 30, 2020, while the remaining three are close to achieving their targets. Of the eight intermediate indicators, six have met their end-targets, of which four have exceeded them, and the remaining two indicators remain on track. All result indicators targets are expected to be met by the proposed extension date of June 30, 2021. Moreover, with the proposed extension period, some results framework indicator targets are being revised upwards. c) Both the Progress towards achievement of Project Development Objectives and Overall Implementation Progress are rated “Satisfactory” in the June 2020 Implementation Status and Results Report and have been consistently rated as such throughout the life of the project. Disbursement stands at US$3.85m (96.25 percent) as of June 2020. The Project Management Unit (PMU), Finance Regulatory Authority (FRA), is responsive and performing well. d) The project has witnessed consistent improvements in implementation of key activities. The microfinance active portfolio increased from EGP 4.5 billion and 1.8 million active borrowers as of December 2016 to EGP 16.5 billion and 3.1 million active borrowers (of which 2 million female borrowers) as of Dec 2019. This was mainly driven by the progress under this TA which supported the establishment of a microfinance supervisory department at the FRA, PMU, to regulate the sector. Main deliverables of strategic importance are as follows: (i) Developing the Management Information System (MIS) software to help FRA effectively monitor the microfinance industry in Egypt. The system was extended to cover all non-bank financial services as well. (ii) Releasing the micro-insurance guidelines and coordinating with relevant stakeholders at the micro insurance platform. (iii) Providing technical assistance to FRA to discuss options on developing priorities and proposals for private pension funds legislation and regulation in relation to governance, investment, risk management and supervisory powers and approach, along with a linked focus on the actuarial legislation and regulations. (iv) Training and capacity building to Microfinance Unit staff and to MF auditors. (v) Licensing to Non-Governmental Organizations (NGOs) using Electronic payment systems upon providing financing and collection activities through e-payment service providers, as well as benefiting from mobile payment systems in financing and collection activities. (vi) Issuing Consumer Protection Guidelines for microfinance institutions (MFIs) covering the seven principles, all driven from the already existing regulations and as such, are binding. In addition, FRA has issued the financial consumer protection guidelines for other non-banking financial sector (capital market, insurance, private insurance funds, mortgage finance, financial leasing, factoring, securitization). Financial consumer protection guidelines will contribute to transparency and will provide non-banking financial products and services at reasonable cost and high quality. (vii) Designing a capacity building plan for the Microfinance Unit staff based on their different roles, skills, and capacities. The capacity building plan sets learning priorities for different levels of staff members. (viii) Conducting training to 479 NGO-MFIs of category C on accounting principles and on rules and regulations of Microfinance, two principles of Consumer Protection, as well as awareness session on consumer protection The World Bank Inclusive Regulations for Microfinance (P149677) guidelines and distributing a printed copy from regulations and Consumer Protection guidelines to each NGO representative to build the platform of complaints handling culture. (ix) Organizing a study tour to Uganda for nine participants in May 2016 (which included Board of Trustees of FRA's Microfinance Department and the Microfinance Unit, staff members from the FRA, as well as representatives from the Egyptian Microfinance Union (Association) and MFI representatives) to learn and understand the existing microfinance regulatory framework in Uganda and its alignment with microfinance best practices. (x) Supporting the legal and regulatory reform for Non-Bank Financial Services, aiming at enhancing financial inclusion. Under this subcomponent, the World Bank supported FRA by reviewing the Private Pension Funds (PPF) draft law, its relevant directives and FRA board-level regulation and supervision in the PPF sector. A World Bank mission worked with FRA on developing priorities and proposals for the development of legislation and regulation to improve private pensions under FRA supervision in relation to governance, investment, risk management and supervisory powers and approach, along with a linked focus on the actuarial legislation and regulations. A presentation which summarizes the progress and key issues and suggests next steps was developed and shared with FRA which will revert on the desired size and scale of the engagement going forward as there were a range of options. (xi) A local resident advisor was hired under the project to work with FRA on drafting a new insurance law taking into consideration all the recent developments, drafting the executive regulations, directives, and decrees, and drafting a working guide/manual for the insurance companies operating in the Egyptian market. WB Global team will review the draft law upon completion. (xii) The project has supported FRA's continuous efforts in organizing workshops throughout Egypt on the licensing process and on completing the required periodic reports. 2. Rationale for Restructuring The extension of Project closing date will: (i) ensure sound technical assistance resources are available to FRA to respond to the COVID-19 outbreak. This includes conducting a stress testing to quantify potential impact of the crisis on MFIs and propose possible measures to be taken; (ii) ensure fulfilling the market’s need for new awareness programs and professional guidance for the use of mobile and electronic payments, much needed for loan disbursement and repayments, in particular in the context of COVID-19 outbreak; (iii) allow for the capacity building of MFIs to enable them to provide recently licensed services and applications including microfinance leasing services and the use of Nano- finance; (iv) ensure sound technical assistance resources are available to FRA to conduct awareness sessions on the principles of consumer protection guidelines complementing Egypt’s Financial Inclusion Global Initiative (FIGI) program1 that were developed earlier through the project by FRA in April 2019 and addressing increasing demand for technical assistance on NGOs activity guidelines, through field missions related to compliance and examination in different governorates; (v) develop work guides, training programs and specialized field inspections to ensure further commitment and application of accountability and transparency requirements, regarding money laundering and the financing of terrorism Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) controls in microfinance institutions; (vi) ensure FRA implement amendments of the Microfinance Law No. (141) for the year 2014 1The proposed country program aims to promote financial inclusion through technical assistance and capacity building on payments and digital financial services in collaboration with Ministry of International Cooperation, Ministry of Communications and Information Technology, Central Bank of Egypt, I-score, FRA, Micro, Small and Medium Enterprise Egypt, and Egypt Post. Egypt has been selected as a priority country by the Bill and Melinda Gates Foundation, funding the FIGI program. The World Bank Inclusive Regulations for Microfinance (P149677) to broaden the scope of the law to include Small and Medium Enterprises (SMEs) as well. The changes aim to enhance access to finance to SMEs and regulate the Non-Bank Financial Institutions financing SMEs; and (vii) ensure that the World Bank Group maintains a credible platform to advance inclusive finance sector dialogue. There are no overdue interim Unaudited Financial reports or overdue project annual audited financial statements. The latest audit report for the fiscal year ending December 31, 2019 was received and is satisfactory to the Bank. All requirements of Bank Policy and Bank Directive on Investment Project Financing for closing date extension have been met: (a) the PDO remains achievable; (b) the performance of the Borrower remains satisfactory; (c) the World Bank and the Recipient agree on actions that will be undertaken to complete the project on time; (d) the project is not subject to suspension of disbursements; and (e) there are no outstanding audit reports and the audit reports are satisfactory to the World Bank. II. DESCRIPTION OF PROPOSED CHANGES Change in closing date. Extension of the closing date by 12 months, from June 30, 2020 to June 30, 2021, in response to a request received from the Recipient. Change in the results framework. The changes in the results framework have been discussed and agreed with the Recipient. It is proposed to revise (i) the end-target date to June 30, 2021 in line with the proposed extended closing date for all indicators and (ii) the end-target values upwards for the following indicators: Revised Indicators* End-target End-target Jun. 30, 2020 Jun. 30, 2021 Intermediate Indicator 4: Number of staff of MFIs trained 800 1,550 Intermediate Indicator 5: Microfinance sector reports disclosed by FRA 20 22 Intermediate Indicator 6: Number of training programs for Microfinance Unit 20 27 Staff Intermediate Indicator 7: Number of staff and clients trained 600 4,800 Intermediate Indicator 8: Number of awareness and consumer protection 16 21 initiatives launched and implemented by FRA *Note: All other indicator end-target values remain unchanged. Only change is the end-target date. Change in implementation schedule. The implementation schedule, taking into account the proposed extension, has been discussed with the PMU and actions agreed upon are as follows: - Conduct a stress test to test the resilience of the MFIs against the different adverse financial scenarios. This is vital to support FRA’s role in their regulation and supervision of microfinance markets in the wake of the COVID-19 crisis to advise on possible measures to be taken including also developing necessary work guides (June- July 2020); - Awareness programs and professional guidance to MFIs on the use of mobile and electronic payments, and Nano-finance, and to enable them to provide microfinance leasing services recently launched (June 2020- March 2021); - Conduct training programs and specialized field inspections to ensure compliance and commitment and application of accountability and transparency requirements, regarding money laundering and the financing of terrorism AML/CFT controls in microfinance institutions (September 2020- March 2021); The World Bank Inclusive Regulations for Microfinance (P149677) - Conduct training to ensure compliance with recently launched financial consumer protection guidelines (September 2020-March 2021) Change in disbursement estimates. The disbursement estimates have been revised to reflect the proposed extended closing date (see IV. Detailed Changes). II. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ The World Bank Inclusive Regulations for Microfinance (P149677) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE New regulatory framework effective for MFIs, including NGOs-MFIs Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No Yes Yes Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Number of MFIs licensed by FRA under the Microfinance Law Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 964.00 1015.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Number of NGOs engaged in microfinance activities Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 953.00 1000.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Number of Microfinance beneficiaries under the Microfinance law Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 3113945.00 3000000.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Female MFI beneficiaries of Microfinance loans Unit of Measure: Percentage The World Bank Inclusive Regulations for Microfinance (P149677) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 65.13 70.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Intermediate Indicators IO_IND_TABLE Issuance of the Microfinance Regulations by FRA Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No Yes Yes Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Frequency of meetings of the Microfinance NGOs Oversight board Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 14.00 16.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Microfinance Unit established and operational at FRA Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No Yes Yes Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Number of staff of MFIs trained Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 1450.00 1550.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Microfinance sector reports disclosed by FRA The World Bank Inclusive Regulations for Microfinance (P149677) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 17.00 22.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Number of training programs for Microfinance Unit staff Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 26.00 27.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Number of staff and clients trained—workshops, study tours, and capacity building events Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 4500.00 4800.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 Number of awareness and consumer protection initiatives launched and implemented by FRA Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 19.00 21.00 Revised Date 28-Sep-2014 28-May-2020 30-Jun-2021 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-17864 31-Oct-2018 30-Jun-2020 30-Jun-2021 30-Oct-2021 The World Bank Inclusive Regulations for Microfinance (P149677) OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Expected Disbursements (In US$) Fiscal Year Annual Cumulative 2015 500,000.00 500,000.00 2016 511,953.33 1,011,953.33 2017 789,274.16 1,801,227.49 2018 547,031.51 2,348,259.00 2019 592,071.28 2,940,330.28 2020 909,587.69 3,849,917.97 2021 150,082.03 4,000,000.00