Page 1 Savings And Credit Sector Strengthening And Rural Microfinance Capacity Building Technical Assistance (BANSEFI Phase I) Additional Financing Project (P106682) Note on Compliance with Safeguard Policies – September 19, 2007 Overview The Savings and Credit Sector Strengthening & TA Services Project (project cost: US$85.4 million; Bank finance: US$64.6 million) consists of four main components: Component 1: Consolidating sector institutions: Activities under this component focused on: (a) providing specialized technical assistance to the institutions to prepare them for certification, or in a worst case scenario, for liquidation; (b) training sector staff in key areas of accounting, risk management, credit analyses, governance, and management; (c) developing capacity within the sector for regulation and auxiliary supervision; and (d) testing a small pilot technology platform. This component is implemented by BANSEFI; Component 2: Expanding financial services in selected rural marginal areas: Activities under this component focused on: (a) providing technical assistance to institutions in marginal areas to deepen outreach; and (b) providing basic training and numerical literacy to poor, marginal and vulnerable communities. This component is implemented by SAGARPA; Component 3: Sector-related studies: Activities focused on studies relating to sector- wide issues, and aspects relating to the BANSEFI-implemented component and the SAGARPA-implemented component; and Component 4: Project Management: Activities focused on project implementation teams in BANSEFI and SAGARPA, and on installing a strong M&E system to inform sector development policy. The project closes on December 1, 2007. Given the successful implementation of the project activities, the Ministry of Finance, Government of Mexico, has requested an additional loan to finance scaling-up of activities under Component 2 only of the parent project at this stage. Under this component, the parent project assisted 33 entities, establishing or strengthening 194 points of service, and working with 240,000 members, of which 160,000 were new members enrolled under the project in the formal rural financial sector. The nature of the expected outcomes of the proposed project will remain the same, although the scale will be greater. This scaling-up will affect Component 2 as follows (compared with Phase I project targets): (a) project cost: up from about US$30 million to about US$60 million; (b) Bank assistance: up from about US$22 million to about US$43 million; (c) number of institutions receiving technical assistance: up from 21 to about 80 entities; and; (d) possible number of families brought within the formal rural financial sector: up from about 60,000 to about 440,000 families. No major changes from the parent project are proposed in terms of project objectives, design, approach, and implementation arrangements. The nature of technical assistance will remain the same for the scaled-up project activities, and the targeted beneficiaries will continue to be rural households in marginal areas, and institutions (rural financial entities) providing services for those areas. There are no new safeguard policies applicable to the additional loan. The proposed project is categorized as “C” (same as the parent project) considering its the environmental impacts, suggesting no need for an environmental assessment. The only safeguard policy that is triggered (same as for the parent project) relates to Indigenous Peoples OP4.10. Risks relating to Component 2, identified for the original project activities, continue to remain relevant, as do the proposed measures incorporated in the parent project design, which have proved to be effective in risk mitigation. SF10 Page 2 2 This note discusses the following: (a) approach of the parent project to compliance with IP Safeguard Policy (including consistency with the current IP Safeguard Policy OP4.10); (b) implementation successes and challenges for the future; (c) continued broad community support for the project activities; (d) the suggested approach to compliance with IP Safeguard Policy OP4.10 under the proposed AF project; and (e) disclosure aspects. Parent Project Approach to Compliance with Indigenous Peoples Policy (OD4.20) The parent project aims to strengthen the savings and credit sector entities in marginal areas that serve lower income segments of the market, and to improve access of rural communities to sustainable financial services. The geographical area covered under Component 2 of the parent project (Expanding Financial Services in Rural Marginal Areas) consists of marginal areas (as defined by CONAPO) in 10 states which were grouped into seven regions for technical assistance service procurement, as follows: (a) Chiapas (and adjacent marginal areas in the State of Tabasco); (b) Huasteca (marginal areas in the States of Hidalgo, San Luis Potosi and Veracruz); (c) Oaxaca; (d) Veracruz, excluding the Huasteca; (e) Guerrero; (f) Michoacan; and (g) Puebla (and adjacent marginal areas in the State of Tlaxcala). According to CONAPO data on rural marginal areas, a large proportion of the population in these areas consists of indigenous peoples of various ethnic groups (e.g., indigenous groups are between 70-90 percent of the population in Chiapas and Huasteca region). This population is not only poor, but has been subjected to different types of social exclusion that have limited their opportunities to participate in developmental projects. In accordance with the earlier OD4.20, Indigenous Peoples Participation Plans were prepared for each region on the basis of a social analysis and a consultation process. This process takes into account the following factors: (a) there is no expected negative project impact; on the contrary the project will offer alternatives to access sustainable financial sector services under culturally suitable conditions; (b) there are no land tenure aspects involved in project activities; (c) the project provides technical assistance to rural financial institutions; therefore many of the traditional sections of IPDP are not relevant; (d) there are no IP lands or related natural resource issue; (e) there is no commercial development of IP natural or cultural resources; and (f) there is no physical IP relocation. Given the demand-driven nature of the project, the IP Participation Plans were prepared during project implementation by the technical assistance providers following the IP Framework approach, and considering the matrix provided below. Item Relevance Legal Framework Indigenous peoples ’ rights are protected under the Mexican Constitution and specifically detailed in the Indigenous Peoples Law. Mexico has signed the ILO 169 Agreement. Baseline Data Relevant information about socioeconomic conditions and cultural background are incorporated in the social analysis section. Land Tenure The legal framework protects indigenous peoples land tenure rights. The project does not involve land tenure. Participation The social strategy would propose alternatives to address social issues that can hinder indigenous peoples' participation and will design mechanisms to promote participation. However, participation is an option under the project's demand-driven approach. Mitigation No negative impacts are foreseen. Institutional Capacity Bidding documents for technical assistance consultants will include expertise in dealing with diverse ethnic groups. Schedule IP Participation Plans will be prepared for each region as scheduled in the project implementation plan. Monitoring and Evaluation Outcome reports will include a section on indigenous peoples’ participation in the project. Page 3 3 Social Analysis and IP Consultations. The IP Participation Plans were the result of two very specific processes: (a) social analysis for each of the seven regions; and (b) consultations with IP communities in each region. (a) Social analysis. This included: (i) a regional overview, pointing out the importance of the project in the region and an overview of its main features; (ii) socio-economic and cultural analysis, comprising analysis of basic demographic data, indigenous population, poverty conditions, productive activities, and social organizations; and (iii) ethnographic characterization, comprising an analysis of main ethnic groups in the region, their organizations, traditions and cultural perspectives. (b) Consultations with IP communities. Consultations with IP groups were carried out in each region using the workshop format, materials prepared, and lessons learned from the experiences in studies relating to predecessor regions. The consultations identified potential beneficiaries' perspectives on savings, credit, and technical assistance, as well as their perspectives on the mechanisms identified to enable their participation. The potential beneficiaries were also asked for their suggestions as to how materials and targeting mechanisms might be made more effective in achieving their participation in the project. The specific objectives of the above two processes were: (a) to identify mechanisms to ensure that indigenous populations can benefit from the project taking, into account its demand-driven approach; (b) to identify opportunities and overcome obstacles for the poorer and vulnerable population segments in marginal rural areas to participate in the project; and (c) to guide the efforts of the consultants providing technical assistance for the Expanding Financial Services in Rural Marginal Areas component. Preparation of IP Participation Plans. Following consultations, the recommendations were encompassed into actionable plans. This was done during project implementation through technical assistance providers. The TOR for the international technical assistance providers included: (a) a requirement to have team staff with experience in working with indigenous peoples; and (b) an annex with the Social Analysis, and results of the consultations held in each region. The consultants used these inputs to prepare IP Participation Plans to define and implement actions to promote indigenous participation. These plans were expected to consist of activities under three broad heads: (a) a communication campaign to make the rural population aware of the project and encourage participation; (b) an outreach strategy to link poor communities to rural financial entity services: and (c) identification of and support for community-based savings efforts. Consistency with the current IP Safeguard Policy OP4.10 The social analyses and consultations carried out during the preparation of the parent project, and the eventual operationalization of the outcomes of the assessment through formal incorporation of specific measures by the technical services providers into entity-specific territory-focused IP Participation Plans, meet the requirements of, and are consistent with, the current IP Safeguard Policy OP4.10. Implementation successes and challenges for the future Working with 20 existing institutions, the project technical assistance providers have established 72 new branches in marginal rural areas and strengthened the functioning of another 36 existing branches. In addition, 12 new institutions have been created with an additional 81 branches. In other words, 153 new points of service have been established in marginal areas, while 36 existing branches have been improved and modernized: a total of 189 points of service can be credited to the project. All of this has been achieved while: (a) maintaining a strong focus on indigenous peoples ’ participation; (b) promoting women participation; and (c) building capacity (discussed below). Of the 160,000 new members inducted into the formal financial system under the SAGARPA component, 54% are women, and 26% are indigenous people. Page 4 4 IP Participation. The strategy of having Indigenous Peoples Participation Plans prepared by the technical service providers working with project-assisted entity managements and IP groups to focus on IP populations within the entity operational territory has worked very well. Some interventions used by the entities to secure better IP and vulnerable groups ’ participation are provided below: (a) To deploy bilingual promoters who understand IP practices and customs; many of the branches located in majority indigenous zones have bilingual staff and in some cases the manager hails from an IP community; (b) To adapt products to better respond to the needs of these specific groups; (c) use bilingual radio stations and materials in native languages as a part of the promotional effort, and participate in community festivals and fairs as part of the awareness strategy; (d) To have recourse to mobile banking and design of new routes to penetrate the marginal and isolated areas; (e) To establish alliances with Federal and State social programs for rural and marginal areas, such as Instituto Estatal de la Mujer in Chiapas, SEDAFOP in Tabasco, Oportunidades in Huasteca, Comisión Nacional para el Desarrollo de los Pueblos Indígenas (Guerrero), SEDESOL (Guerrero), Secretaría de la Mujer (Guerrero), and FOMMUR (Puebla); (f) To introduce life insurances with a special focus on housewives; (g) To promote women savings through an incentive regime; (h) To design strategic plans with traditional indigenous base cooperatives; (i) To develop strategic alliances with social and producers organizations to convert these into a new financial entity with IP membership base (Oaxaca). (j) To create audio material in indigenous languages, and disseminate through tapes, local bilingual radio, and community loudspeakers; (k) To design of credit scoring tools in indigenous languages (Michoacan); (l) To establish new group savings and credit approaches such as (Veracruz and Michoacan); and (m) To carry out training on saving and credit products through bilingual staff. In all cases, existing traditional and cultural structures have been incorporated in operating mechanisms and in mechanisms to promote savings and credit: community committees are agencies of representation in the financial institutions; the community assembly is the principal agency in charge of decision making; and the culture of the “tequio,” another form of community support, has, in many cases, enabled the implementation of branches or other types of installations of the savings and rural credit system. Consultants have taken into account these typical characteristics of potential members and this has helped in meeting targets for IP population participation, reaching an average 26 percent of the total. Women's Participation. In all regions, the target for assisting women, originally set at 30%, has been exceeded, and is consistently above 50%. Strategies for assisting women include home visits and agreements with agencies and/or programs that specialize in assisting women: in Chiapas, Oaxaca, and Guerrero, the state institutes for women were also involved. Small gifts have been used as incentive for savings. The modalities for assisting women include credits for productive activities, commercial activities and consumption and to expand micro- businesses. The gender equity strategy has motivated the development of incentives to increase men’s participation in support-based groups typically considered “feminine;” there are currently mixed groups and in some cases groups of men only, which operate successfully. Capacity Building. Training covers two target groups: (a) training and technical assistance of consultants to savings and credit agencies; and (b) training to beneficiary organizations so that they can manage their own savings and credit mechanisms, especially support-based groups and community organizations. (a) Organizations : Training given to cooperatives (many IP-based) and other organizations to give them guidance on savings and credit activities was successful, Page 5 5 resulting in: (i) the creation of sections specializing in savings and credit in productive cooperatives; (ii) expansion into rural areas and assistance to indigenous communities by several agencies that formerly operated only in urban areas; (iii) expansion of the number of members and opening to customers; and (iv) consolidation of specialized instruments and products to assist target groups. (b) Communities : With regard to support-based groups and community organizations, training has enabled their creation and development. However, a focused effort is required in aspects of co-responsibility and appropriation by these organizations. The next stage would carry out training aimed at the beneficiaries themselves so that they can understand their role as members and the obligations and rights that this entails, and reinforcing an understanding of the rules of the cooperatives, especially regarding interest charged to members for productive activities and assistance to “clients” who are not members of the cooperative. Since project effectiveness, the preparation and implementation of the IP Participation Plans was reviewed at least once every year. The ISR rating on compliance with this Safeguard Policy has been “Satisfactory” throughout. The most recent review of these aspects was carried out by a Senior Social Scientist in May 2007, and the “Satisfactory” rating was maintained. No specific management actions relating to this Safeguard Policy were identified by any mission. Recommendation for the Scaled-up Project . In light of the reviews carried out by the Bank team for the parent project, two key recommendations emerge for the additional financing project: (a) focus on individual level training on rights and responsibilities and functioning of organizations where these are established under the project; and (b) improve the documentation of project accomplishments and lessons learned in the project with respect to indigenous communities. This has been done by the technical assistance providers for the various entities, and consolidated by SAGARPA, on an as-and-when basis rather than as a part of the regular monitoring and evaluation process. Broad community support for the project It is clear from a review of the original project preparation reports that indigenous communities manifested broad support for the project. During project implementation, this broad community support was continually checked through the multiple consultations. Recommendation for the Scaled-up Project . The project will ensure continued consultations by project’s technical service providers, entity managements, and SAGARPA core team with IP communities as a part of the implementation process, and by the Bank team as a part of its regular review process. This approach will monitor broad community support for the proposed project during implementation. Suggested Approach to Compliance with IP Safeguard Policy OP4.10 For the Proposed AF Project The process of social analysis and consultations during the parent project preparation, and the preparation and implementation of IP Participation Plans at the entity level has been tested, found to be responsive to the needs of the IP populations, and has successfully integrated them into the formal rural financial sector. This process was focused on the seven regions covered under the parent project, and which house 72% of the Mexican IP population. During implementation of the parent project, indigenous representatives routinely participated in meetings and consultations with technical service providers and entity staff, and their concerns have been reflected in the refinements of the IP Participation Action Plans in the areas of market penetration, training, and outreach aspects. The scaled-up project has three very specific attributes: (a) theoretically, it covers the entire country, and therefore adds another 22 states with 28% of the remaining IP population to the project area “generally”; (b) practically, it is demand-driven with an offer of technical Page 6 6 assistance to about 80 entities whose locations are yet to be determined (about 35 entities are expected to belong to the seven regions already covered under the parent project – these could include some entities that were late entrants under the parent project and would continue to receive technical assistance under the proposed additional financing project; and about 45 new entities could be from any of the new 22 states); and (c) the concentration of IP population in the new 22 states is thin and widely dispersed: 8 states have less than 1% IP in their population, 7 have less than 2%, 4 have less than 4%, three have 11-15%, and only one has 29%. It is very likely that some project entities may not even have IP populations in their area of operation and, therefore, may not require an IP Participation Plan. Given the complexity of the project, and the nature and scale of the proposed project’s potential effects on IP, the project will do the following: (a) at the macro level, it will continue to use the detailed and comprehensive social analyses carried out for, and the consultation outcomes from, the seven regions covering 72% of the Mexican IP population; and (b) at the micro/entity-level, the project will follow an IP Framework approach as discussed below. IP Framework. The proposed approach will have the following main features. (a) Entities in states covered under the parent project. These states will continue to use the detailed and comprehensive social analyses carried out for, and the consultation outcomes from, the seven regions covering 72% of the Mexican IP population. Indigenous Peoples Participation Plans will be up-dated for existing parent project entities, and prepared for new entities located in these regions, should there be a presence of IP population in the new entity’s area of operation. The process will incorporate best practices already tested to ensure that the project continues to benefit the IP population. (b) Entities in states outside the parent project regions. Entities in these states will use the parent project social analyses, consultation outcomes, some sample IP Participation Plans with an evaluation of achievements as parent project experience to enrich their understanding of the social and IP aspects, and prepare Indigenous People Participation Plans should there be a presence of IP population in their area of operation. The process will involve doing an incremental social analysis and IP consultations. For (a) and (b) above, the entities are grouped into three categories, and the attached matrix summarizes the application of the IP Framework. (c) Terms of Reference for the technical assistance support. These will indicate to the prospective technical assistance providers the need to: (a) incorporate staff in the assignment team with the capacity to carry out social analysis and prepare IP Participation Plans; (b) do a quick screening to ascertain the presence of IP populations in the entity’s operational territory; and (c) if IP population is present, carry out an incremental social analysis and consult with the identified potential indigenous beneficiaries to prepare an IP Participation Plan which would include output and outcome indicators. SAGARPA will provide appropriate guidance to the technical assistance providers to carry out the incremental social analysis and also prepare the IP Participation Plans. (d) Implementation and monitoring of IP Participation Plans. The technical assistance consultant will implement the IP Participation Plans, and will present progress reports every six months. SAGARPA will review these reports and suggest remedial actions, where necessary. The SAGARPA core team, as established under the parent project, will undertake field visits and, in consultation with indigenous communities, review implementation of the IP Participation Plans. The Bank team, as a part of its regular review process, will also assess compliance. Page 7 7 Where the technical consultant indicates absence of IP communities during its screening process, and does not prepare an IP Participation Plan, this fact will be verified by SAGARPA, and spot-confirmed by the Bank during its review missions. Disclosure Aspects Since the processes leading to the development of the IP Participation Plans under the original project are consistent with the requirements of OP4.10, and the regional studies relating to the parent project are already disclosed, the only action required of the borrower would be to disclose the agreed IP Framework in-country. The approach to technical assistance under the AF project will continue to be demand-driven. The institutions in the marginal rural areas and technical service providers are required to communicate and interact with each other to reach a mutual agreement on the working arrangements for each TA contract. The work plan provided in the proposal of each technical service provider will include a list of institutions with whose management it has reached an agreement to work. At this stage, therefore, neither the technical assistance providers nor the location of the institutions to be assisted by the AF project is known. Premature disclosure could result in disseminating the IP Framework in areas where the project may have no intervention at all, possibly raising IP community hopes for participation in the project. The locations are expected to be known by December 31, 2007 when the four technical assistance assignments are expected to be awarded. This date is firm since the Request for Proposal for this procurement has already been issued. The section on the IP Framework, which is embedded in the Project Operational Manual, will be disclosed at the office of each project-assisted entity by January 15, 2008, and also on the website of each technical assistance provider. These two sets of documents, the IPDPs for the Phase I project seven regions and the IP Framework, have been refer enced in the legal agreement, as well as disclosed in the Bank’s Infoshop. Page 8 8 M A T R I X S U M M A R I Z I N G T H E A P P L I C A T I O N O F T H E I P F R A M E W O R K T O P R O J E C T E N T I T I E S T y p e o f P r o j e c t E n t i t y R e v i e w e x i s t i n g S o c i a l A n a l y s e s a n d C o n s u l t a t i o n O u t c o m e s R e v i e w P a r t i c i p a t i o n P l a n s a n d t h e i r O u t c o m e s f o r P a r e n t P r o j e c t E n t i t i e s C a r r y o u t I n c r e m e n t a l S o c i a l A n a l y s i s w h e r e i n i t i a l s c r e e n i n g r e v e a l t h a t I P e x i s t i n e n t i t y t e r r i t o r y ( s e e n o t e ) C o n s u l t w i t h E n t i t y M a n a g e m e n t a n d I P c o m m u n i t y r e p r e s e n t a t i v e s U p d a t e I P P a r t i c i p a t i o n P l a n s b a s e d o n A c t u a l O u t c o m e s P r e p a r e a n e w I P P a r t i c i p a t i o n P l a n E n t i t i e s a s s i s t e d u n d e r P a r e n t P r o j e c t i n t h e o r i g i n a l s e v e n r e g i o n s - 1 0 s t a t e s Y E S Y E S N O Y E S Y E S N O E n t i t i e s r e c e i v i n g t e c h n i c a l a s s i s t a n c e f o r t h e f i r s t t i m e , a n d l o c a t e d i n t h e o r i g i n a l s e v e n r e g i o n s - 1 0 s t a t e s Y E S ( a s r e l e v a n t b a c k g r o u n d i n f o r m a t i o n ) Y E S ( a s r e l e v a n t b a c k g r o u n d i n f o r m a t i o n ) N O ( s i n c e p a r e n t p r o j e c t r e g i o n a l s o c i a l a n a l y s e s i s d i r e c t l y r e l e v a n t t o t h e e n t i t y r e g i o n / s t a t e ) Y E S N O Y E S E n t i t i e s r e c e i v i n g t e c h n i c a l a s s i s t a n c e f o r t h e f i r s t t i m e , a n d l o c a t e d i n t h e 2 2 n e w p r o j e c t s t a t e s Y E S ( a s g e n e r a l b a c k g r o u n d i n f o r m a t i o n ) Y E S ( a s g e n e r a l b a c k g r o u n d i n f o r m a t i o n ) Y E S ( s i n c e n o s o c i a l a n a l y s i s h a s b e e n c a r r i e d o u t f o r t h e s e n e w p r o j e c t s t a t e s ) Y E S N O Y E S N o t e : T h e i n c r e m e n t a l s o c i a l a n a l y s i s w i l l b e f o c u s e d o n s o c i o - e c o n o m i c a n d c u l t u r a l a s p e c t s , a n d e t h n o - g r a p h i c c h a r a c t e r i z a t i o n Page 9 9