Document of The World Bank Report No: ICR00003319 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-46130 TF-56903) ON A CREDIT IN THE AMOUNT OF SDR 50.4 MILLION (US$75.0 MILLION EQUIVALENT) TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SECOND COMMUNITY DEVELOPMENT AND LIVELIHOOD IMPROVEMENT PROJECT July 27, 2015 Agriculture Global Practice Sri Lanka Country Unit South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective September 2014) Currency Unit = Sri Lankan Rupees SLR 130.75 = US$1 1.54US$1 = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan CAS Country Assistance Strategy CDD Community Driven Development CKD Chronic Kidney Disease CM Community Mobilizer CP Community Professional CPLTC Community Professionals Learning and Training Centre CRP Country Partnership Strategy CPS Community Resource Person DDD Department of Divineguma Development DDO Divineguma Development Officer DPMU District project management unit EDO Economic Development Officer EMP Environmental Management Plan FM Financial Management FMR Financial Monitoring Report GAAP Governance and Accountability Action Plan GDF Gemi Diriya Foundation GDP Gross Domestic Product GOSL Government of Sri Lanka GRM Grievance redress mechanism IBRD International Bank for Reconstruction and Development IA Impact Assessment ICRR Implementation Completion and Results Report IDA International Development Association IDPs Internally displaced persons IL Investment Lending ISR Implementation Status Report MDGs Millennium Development Goals MED Ministry of Economic Development M&E Monitoring and Evaluation ML&E Monitoring, Learning and Evaluation MIS Management information system MOU Memorandum of Understanding MTR Mid Term Review NWS&DB National Water Supply & Drainage Board NGO Non-Governmental Organization O&M Operation and Maintenance ii OTG One-Time Grant PAD Project Appraisal Document PDO Project Development Objective PG Producer Group PMU Project Management Unit PS Pradeshiya Sabha SAC Social Accountability Committee SCDLIP Second Community Development and Livelihood Project TSP Technical Service Provider TTL Task Team Leader VDP Village Development Plan VO Village Organization VSCO Village Savings and Credit Organizations VDP Village Development Plan Vice President: Annette Dixon Country Director: Francoise Clottes Global Practice Senior Director: Juergen Voegele Practice Manager: Shobha Shetty Project Team Leader: Pushina Kunda Ng’andwe ICR Team Leader: Pushina Kunda Ng’andwe iii DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA SECOND COMMUNITY DEVELOPMENT AND LIVELIHOOD IMPROVEMENT PROJECT CONTENTS     A. Basic Information……………………………………………………………………v B. Key Dates ................................................................................................................... v  C. Ratings Summary ....................................................................................................... v  D. Sector and Theme Codes .......................................................................................... vi  E. Bank Staff .................................................................................................................. vi  F. Results Framework Analysis .................................................................................... vii  G. Ratings of Project Performance in ISRs ................................................................. xiii  H. Restructuring (if any) .............................................................................................. xiii  1. Project Context, Development Objectives and Design ............................................... 1  2. Key Factors Affecting Implementation and Outcomes .............................................. 9  3. Assessment of Outcomes ......................................................................................... 16  4. Assessment of Risk to Development Outcome ....................................................... 322  5. Assessment of Bank and Borrower Performance ................................................... 333  6. Lessons Learned ..................................................................................................... 366  7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 39 Annex 1. Project Costs and Financing .......................................................................... 41  Annex 2. Outputs by Component -CDLIP.................................................................... 42  Annex 3. Economic and Financial Analysis…………………………………………..45 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 56  Annex 5. Impact Beneficiary Survey Results ............................................................... 57  Annex 6. Stakeholder Workshop Report and Results………………………………....64 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 64  Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders………………77 Annex 9. List of Supporting Documents ...................................................................... 78  Annex 10: Calculation of Weighted Rating .................................................................. 79  iv A. Basic Information Second Community Development and Country: Sri Lanka Project Name: Livelihood Improvement Project Project ID: P087145 L/C/TF Number(s): IDA-46130,TF-56903 ICR Date: 10/27/2014 ICR Type: Core ICR Democratic Socialist Lending Instrument: APL Borrower: Republic of SRI LANKA Original Total XDR 50.40M Disbursed Amount: XDR 48.34M Commitment: Revised Amount: XDR 50.40M Environmental Category: B Implementing Agencies: Ministry of Economic Development (MED) Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 02/05/2008 Effectiveness: 01/22/2010 12/11/2009 05/13/2013 Appraisal: 04/27/2009 Restructuring(s): 02/14/2014 Approval: 09/10/2009 Mid-term Review: 04/29/2013 04/22/2013 Closing: 03/31/2014 09/30/2014 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory v C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Moderately Satisfactory Government: Unsatisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time Yes None (QEA): (Yes/No): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agro-industry, marketing, and trade 10 10 General agriculture, fishing and forestry sector 20 20 Other social services 50 50 Sub-national government administration 10 10 Water supply 10 10 Theme Code (as % of total Bank financing) Gender 14 14 Participation and civic engagement 25 25 Rural non-farm income generation 16 16 Rural policies and institutions 17 17 Rural services and infrastructure 28 28 E. Bank Staff Positions At ICR At Approval Vice President: Annette Dixon Isabel Guerrero Country Director: Francoise Clottes Naoko Ishii vi Practice Manager/Sector Shobha Shetty Gajanand Pathmanathan Manager: Project Team Leader: Pushina Kunda Ng'andwe Meena M. Munshi ICR Team Leader: Pushina Kunda Ng'andwe ICR Primary Author Sati Achath F. Results Framework Analysis Project Development Objectives (from Financing Agreement) The objective of the APL was to enhance incomes and quality of life of poor households in the poorest divisions in the territory of the Recipient through: (i) empowering the poor and developing and strengthening institutions of the poor; (ii) improving access of the poor to basic infrastructure and social services and providing support for productive activities; and (iii) developing policies, rules, systems, procedures and institutional arrangements to enable the Recipient to transfer funds directly to communities and local governments. Revised Project Development Objectives (as approved by original approving authority) The revised PDO was to enhance incomes and quality of life of the poor households in the poorest divisions in the country while building capacity of government agencies, local governments and community organizations for service delivery and overall project implementation. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years At least average 30% incremental increase in income against base year for 50 % of Indicator 1 : targeted households by the end of project. Value quantitative or 0.00 30% 20% 39.9% Qualitative) Date achieved 18-May-2010 3/31/2014 3/31/2014 30-Sept-2014 Target exceeded- IA found that at least 50% target households had increased income Comments by 39.9%. Achievement was 199.5%. (incl. % Source: Baseline and impact assessment. achievement) At least 70 % of targeted households utilizing improved community intra-village Indicator 2 : infrastructure and social services for intended purposes. Value quantitative or 0.00 70% 76.28% Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 vii Comments Target exceeded- 108.9% (incl. % Source: Survey conducted by M&E unit achievement) At least 70 % of Pradeshiya Sabhas have implemented inter-connectivity sub- Indicator 3 : projects in accordance with the agreed rules. Value quantitative or 0.00 70% 100% Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded- 142.8 % . (incl. % Source: MIS Data and thematic studies achievement) At least 60% of villages (Village Organizations) are utilizing inter-connectivity Indicator 4 : infrastructure for intended purpose. Value quantitative or NA 60% 83% Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 st Comments New indicator added at 1 restructuring. (incl. % Target exceeded -138 %. achievement) Source: PS and PIU progress reports Indicator 5 : Establish O&M Unit and O&M fund in 60% project Pradeshiya Sabhas. Value quantitative or NA 60% 100% Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 Comments New indicator added at 1st restructuring. (incl. % Target exceeded-166 % achievement) Source: MIS Data and reports from Pradeshiya Sabhas . At least 70% of Pradeshiya Sabhas have developed Participatory process (CAP) and Indicator 6 : downward accountability mechanism (GAAP) including score cards as included in the Institutional Strengthening Plan. Value quantitative or 0 70% 72% Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded- 102.8% (incl. % achievement) Source: MIS Data At least 50 % of project villages benefit from linkages with other government Indicator 7 : program including infrastructure. Value quantitative or 0 50% 58% Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded- 116% (incl. % Source: Impact Assessment. achievement) viii At least 50 % of Phase I and Phase II Village Organizations are rated as A or B and Indicator 8 : providing services based on Village Development Plans II. Value quantitative or NA 50% 75% 66% Qualitative) Date achieved 18-May-2010 3/31/2014 3/31/2014 30-Sept-2014 Comments Target substantially achieved- 88% (incl. % Source: MIS data. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years At least 80 % prioritized and approved sub-projects are completed (and ratified by the Indicator 1 : Maha Sabha), operated and maintained by VOs. Value (quantitative 0 80 96 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded-120% (incl. % Source: MIS Data achievement) At least 80 % of VSCOs (Phase 1 & 2) with an on-time repayment rate of 95 % and Indicator 2 : above, and PAR of less than 5%. Value (quantitative 0 80 69.9 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments (incl. % Target substantially achieved - 87.3 % achievement) Source: MIS data. Indicator 3 : 70% of Village Savings and Credit Organizations covering operational costs. Value (quantitative NA 70% 59% or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 st Comments New indicator added at 1 restructuring. (incl. % Target substantially achieved – 84.3 % achievement) Source: MIS data At least 65 % of households in the poor and poorest category as identified through participatory identification of poor and poorest methodology have accessed at least one VSCO loan and Indicator 4 : engaged in the economic activities (Phase 2). Value (quantitative 0 65 53 or Qualitative) ix Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target substantially achieved - 81.53 % (incl. % Source: MIS data. achievement) Indicator 5 : 80,000 project households’ livelihoods get direct benefit from VSCOs. Value (quantitative NA 80,000 80,3913 or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 st New indicator added at 1 restructuring. Comments Target exceeded. 100.4%. (incl. % Source: MIS data achievement) At least 75% of the special group beneficiaries targeted (disabled, one-time grantee) Indicator 6 : have benefitted from livelihood funds and started either employment and/or income generating activities (Phase 2). Value (quantitative 0 75 89 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded. 118% (incl. % Source: MIS data achievement) At least 50 % of decision-making positions (Chairperson or Treasurer of % of positions Indicator 7 : various sub-committees) are occupied by women, at village level Value (Quantitative 0 50 67 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded. 134% (incl. % Source: MIS data achievement) At least 50 % of eligible youth received skills enhancement and have been linked to Indicator 8 : employment (includes Phase 1 and 2). Value (Quantitative 0 50 51 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded. 102% (incl. % Source: MIS data achievement) 70% of planned & approved Interconnectivity sub-projects within PS have been Indicator 9 : completed. Value (Quantitative NA 70 57 or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 st Comments New indicator added at 1 restructuring. x (incl. % Target substantially met: 81.4% achievement) Source: MIS data At least 50% of PS are linked with relevant line agencies and Provincial Council Indicator 10 : Technical units for O&M backup support for constructed infrastructure under the interconnectivity program. Value (Quantitative NA 50% 50% or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 New indicator added at 1st restructuring. Comments Target achieved -100% (incl. % Source: MIS data achievement) Indicator 11 : At least 100 partnerships established and linked with the producer groups. Value (Quantitative NA 100 381 or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 Comments New indicator added at 1st restructuring. (incl. % Target exceeded. 381% achievement) Source: MIS data. At least 60% of PGs meet their operational expenses from regular sources of cash Indicator 12 : flows. Value (Quantitative NA 60% 85% or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 Comments New indicator added at 1st restructuring. (incl. % Target exceeded. 141% achievement) Source: MIS data VSCOs leverage at least US$ 1 million from Samurdhi Banks and the Commercial Indicator 13 : Banks for their member clients. Value (Quantitative NA 1.00 2.03 or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 Comments New indicator added at 1st restructuring (incl. % Target exceeded. 203% achievement) Source: MIS data. Project Grievance redressal system functioning and [80% of] complaints received are Indicator 14 : addressed within agreed service standards. Value (Quantitative NA Yes Yes or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target Achieved (incl. % Grievance redress system was effective and 80% complaints received were addressed. achievement) Data was verified by the independent impact assessment xi Community Operational Manual is revised by participatory process annually to address Indicator 15 : policy changes and incorporating recommendations of governance team assessments process monitoring and other field feedback forum. Value (Quantitative NA Yes Yes or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target achieved (incl. % Source: MIS data achievement) At least 70 % of GAAP [process monitoring] recommendations implemented by project Indicator 16 : management though taking actions. Value (Quantitative NA 70 57 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target substantially achieved. 81.4% (incl. % Source: MIS data achievement) At least 80 % of GAAP recommendations implemented and % reviewed annually with Indicator 17 : the representatives of the communities. Value (Quantitative NA 80 74 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target substantially achieved. 92.5 % (incl. % Source: MIS data. achievement) Quarterly Progress Reports (QPR) and Quarterly Implementation Monitoring Matrix Indicator 18 : (QIMM) prepared using data primarily from web-based MIS. Value (Quantitative NA Yes Yes or Qualitative) Date achieved 5/13/2013 3/31/2014 30-Sept-2014 st Comments New indicator added at 1 restructuring. (incl. % Target achieved. achievement) Source: MIS data and PMU information Indicator 19 : Percent of VOs involved in delivering government livelihoods programs. Value (Quantitative 0 40 67 or Qualitative) Date achieved 18-May-2010 3/31/2014 30-Sept-2014 Comments Target exceeded. 167.5% (incl. % Source: MIS data. achievement) At least 40% of Gama Neguma and Samurdhi villages receiving and managing direct Indicator 20 : funds are planning, implementing, and maintaining sub-projects according to the rules set out in the COM. xii Value (Quantitative NA 50 40 75 or Qualitative) Date achieved 18-May-2010 3/31/2014 9/30/2014 30-Sept-2014 Comments Indicator was revised at 1st Restructuring. Target exceeded. 187.5% (incl. % Source: MIS data achievement) Participatory process and social accountability tools (GAAP and CAP) as developed by Indicator 21 : the project are practiced by at least 40% of GN demonstration and Samurdhi villages covered under Phase II. Value (Quantitative NA 50 40 75 or Qualitative) Date achieved 18-May-2010 3/31/2014 9/30/2014 30-Sept-2014 Comments Indicator was revised at 1st restructuring. (incl. % Target exceeded. 187.5% achievement) Source: MIS data G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 05/23/2010 Satisfactory Satisfactory 11.96 2 12/13/2010 Satisfactory Satisfactory 17.93 Moderately Moderately 3 06/08/2011 23.56 Unsatisfactory Unsatisfactory Moderately Moderately 4 12/12/2011 36.63 Unsatisfactory Unsatisfactory 5 06/14/2012 Moderately Satisfactory Moderately Satisfactory 41.48 6 12/17/2012 Moderately Satisfactory Moderately Satisfactory 45.13 7 06/08/2013 Moderately Satisfactory Moderately Satisfactory 55.60 8 10/16/2013 Moderately Satisfactory Moderately Satisfactory 60.37 9 04/20/2014 Moderately Satisfactory Moderately Satisfactory 71.47 10 09/13/2014 Moderately Satisfactory Moderately Satisfactory 74.47 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Changes in PDO and indicators, 05/13/2013 Yes MS MS 51.61 intermediate outcome indicators. Change in policy xiii ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions environment led to changes in project components, some intermediate outcome indicators, implementation arrangements, reallocation of credit proceeds, and changes in the funding ratio for sub- projects. The lending instrument was also changed from APL to SIL. Extension of closing date, further revisions to two 02/14/2014 No MS MS 65.47 intermediate outcome indicator targets, and additional revisions to funding ratio. xiv 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal At appraisal, Sri Lanka had just emerged from almost 30 years of armed conflict with increased optimism about future prospects for economic growth and poverty reduction in the country. The country was faced with an immediate challenge of managing transition arrangements for about 300,000 internally displaced persons as well as a fragile macro- economic situation exacerbated by the global financial crisis that negatively impacted much of South Asia. There were considerable regional disparities in terms of per capita income levels, poverty rates and structure of various provincial economies, which heightened concerns that failure to bring lower-income provinces into the country’s economic development framework could potentially deepen income disparities and add to social tensions creating obstacles for Sri Lanka’s future growth potential. Poverty in the country was on a rapid decline largely on account of strong economic growth, with the poorest area, the Southern Province, halving its poverty from 28 percent to 14 percent in 2006/7. Economic growth had been strong since 2003, averaging 6.3 percent per annum, however, poverty incidence in the rural areas remained very high, nearly double that of urban areas. The urban poor accounted for 7 percent of the nation’s poor, the rural poor for 82 percent and the estate poor for 11 percent. Un-even growth outcomes were associated with uneven poverty outcomes. The vast majority of the poor lived in rural areas and depended on agriculture for their food and livelihoods. Lack of connectivity to markets was identified as a major constraint with many small-holder farmers disconnected from the market, unaware of the changing opportunities and largely ignored by agribusinesses as sources of raw materials. Income growth was further hampered by poor road linkages, limited storage facilities and absence of wholesale markets to take advantage of economies of scale. Similarly, unemployment rates reflected the same regional disparities, and were higher in the rural sector, for youth generally and young women in particular. Poverty and unemployment rates were especially high on estates where average monthly incomes of households were the lowest in the country. At the same time, it was critical for Sri Lanka to continue its poverty reduction efforts throughout the country, and not lose momentum gained in achieving the Millennium Development Goals (MDGs). In 2003, the Government of Sri Lanka (GoSL) was faced with a similar poverty and equity challenge, recognized the need for innovative solutions to address rural poverty and took a policy decision to adopt and implement the Community Driven Development (CDD) approach through the Gemi Diriya Adaptable Program Loan (APL). The approach enabled the development of policies, rules, systems, procedures and institutional arrangements that permitted the Government to transfer funds directly to communities and provide them with technical and other support on a demand driven basis. The selection of the APL instrument was recognition that sustainable community development was a process and outcomes of sustainable poverty reduction could not be achieved quickly and required a gradual process of scaling up. IDA committed support for 12 years with a phased approach of progressive geographic expansion and policy deepening. Phase I focused on empowering communities, 1 developing accountable and demand-responsive local governments and community federations and networks for market linkages. An independent evaluation of the first phase of the project showed that: 90 percent of community members reported feeling empowered and having a sense of ownership over the project; 98 percent repaid loans with their savings and made new investments and about 50 percent households indicated an improvement in their economic and living conditions. The approach proved extremely successful in transferring control over decision-making and financial resources to rural communities, and building community institutions that empowered and enabled negotiation with government and private sector on an equal footing. The Gemi Diriya model filled a void created by an absence of local government system below the Pradeshiya Sabha (PS) level for achieving the major rural development goals of the government. Phase II was expected to focus on support for the national poverty reduction program of the Government by testing a model of local area development in about 10 PSs to provide efficient services aimed at addressing issues of accessibility and connectivity that hampered sustainable livelihoods in lagging regions. It was also expected to provide technical support to existing local level agencies – Divisional Secretary, Samurdhi officials and other local level officials – to implement the national program using the successful CDD approach adopted from Phase I. Phase III would have fully institutionalized appropriate mechanisms developed in Phase I and II at the national level in other government programs. The APL program envisaged that phases II and III would be initiated independently of the previous phase and each phase would begin when the readiness criteria for expansion were satisfied. In the case of Phase I, compliance with all five performance triggers1 to move to Phase II had already been met or exceeded by the government. At the end of the 12 year period, the program was expected to leverage overall impact of expected public resources towards poverty reduction; and further assist communities to access rural financial institutions, increase transparency and link communities directly to markets. The three phases of the APL taken together were expected to ensure that processes and institutions continued beyond the life and scope of the project, when external support would have gradually been phased out. For its part, GoSL’s poverty response was anchored in the Mahinda Chintana (MC) 10 year development framework (2006) that emphasized achievement of equitable growth and reduction of regional disparities. It was followed up with the launch of an additional flagship program called Gamaneguma whose objective centered on the development of the village as part of an integrated total village development program. GoSL planned to 1 The five performance triggers were: (1) At least 60% of VOs in the first two years of Phase I have accessed funds and completed at least one sub-project; (2) At least 30% of women participate in decision making by holding management positions in the first two years of Phase I; (3) At least 50% of community members have contributed 20% or more toward capital cost of community infrastructure activities; (4) At least 50% of members of project villages covered during the first two years of Phase I have benefitted from project interventions; and at least 60% of these beneficiaries belong to the poorest households; and (5) At least 25% of the Divisions covered in the first two years of Phase I have established participatory sub- committees and the local government level with 30% elected representatives and 70% representatives of community organizations. 2 mainstream the CDD approach country-wide through its national flagship Gamaneguma program. In response to the Government’s request to replicate the model in additional geographical areas of the country that strengthened local government and other national level agencies such as Samurdhi Authority in line with the goals of Gamaneguma, the Bank committed to support the scale up of what was already proven a highly successful community-led model. The Bank approved a second phase that was aimed at consolidating achievements of Phase 1 and applying lessons to the Gamaneguma program through a specific project component for this purpose. The Bank brought unique accumulated cross-country and cross-regional experience in aggregating livelihood activities and federating of producer groups to ensure scale and quality that were required for sustainability of investments and institutions. Phase II expected IDA support to play an additional role of developing capacity of local institutions, in particular, Pradeshiya Sabhas, as key partners in the local development process, catalyzing support to consolidate the participatory and transparent resource allocation at the local government level. Total investment was US$75 million and the project was consistent with the 2008 Country Assistance Strategy (CAS) that re-framed IDA’s assistance in alignment with MC, wherein the three pillars were equitable development, accelerated growth and strengthening of public service delivery. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the APL was to enhance incomes and quality of life of poor households in the poorest divisions in the territory of the Recipient through: (i) empowering the poor and developing and strengthening institutions of the poor; (ii) improving access of the poor to basic infrastructure and social services and providing support for productive activities; and (iii) developing policies, rules, systems, procedures and institutional arrangements to enable the Recipient to transfer funds directly to communities and local governments. The key PDO indicators were:   (i) At least 30 % increase in incremental income against base year for 50 % of targeted households by the end of project. (ii) At least 70 % of households benefiting from improved social community infrastructure and social services sub-projects. (iii) At least 70% of Pradeshiya Sabhas have implemented intra- and inter- connectivity sub-projects in accordance with the agreed rules and in a demand- driven way. (iv) At least 70% of Pradeshiya Sabhas have developed participatory process and social accountability mechanism including positive score cards as included in the Institutional Strengthening Plan. (v) At least 50% of Project villages benefit from linkages with other government program such as nutrition, youth, agriculture, environment, Samurdhi livelihood and disability. 3 (vi) At least 50% of Village Organization Federations and Village Savings and Credit Organization federations are rated as A and/or B, and are providing the services for livelihood promotion to their members. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was revised, along with the PDO indicators, during the May 2013 Level 1 restructuring. A number of intermediate outcome indicators were revised both during the May 2013 restructuring and the February 2014 restructuring. The revised PDO was to enhance incomes and quality of life of the poor households in the poorest divisions in the country while building capacity of government agencies, local governments and community organizations for service delivery and overall project implementation. The revised key PDO indicators were: (i) At least average 20% incremental increase in income against base year for 50 % of targeted households by the end of project; (ii) At least 70 % of targeted households utilizing improved community intra- village infrastructure and social services for intended purposes; (iii) At least 70 % of PS have implemented inter-connectivity sub-projects in accordance with the agreed rules; (iv) At least 60% of villages (VOs) are utilizing inter-connectivity infrastructure for intended purpose; (v) Establish O&M Unit and O&M fund in 60% project PS; (vi) At least 70% of PS have developed participatory process (CAP) and downward accountability mechanism (GAAP) including score cards as included in the Institutional Strengthening Plan; (vii) At least 50% of project villages benefit from linkages with other government program including infrastructure; and (viii) At least 75 % of Phase I and Phase II VOs are rated as A or B. 1.4 Main Beneficiaries The project planned to reach 220,000 households (780,000 persons) in Phase II, and 425,000 households (205,000 households from Phase I) in aggregate, comprising approximately 1.7 million persons. At the end of the project, approximately 220,000 households (872,000 persons) in Phase II, and approximately 420,000 households (1.72 million persons) benefitted from project activities in both phases. The primary intended beneficiaries can be categorized into 4 groups. (a) Poor and vulnerable households including women, youth and extremely poor individuals who were to benefit through access to” affordable credit to take up income generating activities; productive and social infrastructure for market access and social empowerment; skills development loans for youth for increased employment opportunities; and one time grants 4 for the most vulnerable to initiate productive activities and encourage participation in savings and credit groups. (b) Select estate communities, considered to be amongst the most vulnerable groups in the country, were to benefit from rehabilitation and construction of new infrastructure that would improve their living situations. (c) Small and marginal farmers that formed Producer Groups (PGs) were to benefit through linkages to line agencies, agro-processors and private sector and access inputs, technical services and markets for high productivity and prices. (d) Pradeshiya Sabhas and some federated institutions (that were dropped during the May 2013 restructuring) were expected to benefit through institutional strengthening and support to sustain completed infrastructure sub- projects and private related goods generated through savings and credit activities respectively. Secondary beneficiaries included project staff as well as government employees of the Samurdhi department who were to receive training in the implementation of the CDD approach to rural development. 1.5 Original Components (as approved) The project consisted of five components as follows: (a) Intra-village Development; (b) Inter-village Connectivity Development; (c) Public, People and Private Sector Partnerships; (d) Project Management and Monitoring; and (e) Convergence and Policy Support. Component A: Intra-Village Development (US$59.40 million): This component was expected to build institutional capacity of pro-poor local institutions, and fund village development and livelihood-related investments at the village level. It had two sub- components: (a) Development and Strengthening of Village Organizations and Estate Communities (VO), to help develop and strengthen self-reliant and self-managed people’s organizations, including sub-project planning and implementation support; and (b) Village Development Fund, with bulk of the funds getting transferred to the VOs as sub-grants to finance capacity building, community infrastructure and social services, and livelihood support activity sub-projects. Roughly 60 percent of the Village Development Fund was to be utilized for community infrastructure sub-projects such as roads, drinking water, and multi-purpose building (which were to have community contribution of 30 percent of the sub-project cost); 10 percent for capacity building sub-projects, and the remaining 30 percent for livelihood support sub-projects through Village Savings and Credit Organizations (VSCO). Component B: Inter-village Connectivity Development (US$30.0 million): This component was expected to promote inter-village development to consolidate and sustain investments generated at the village level; and consisted of three sub-components: (a) Strengthening of Pradeshiya Sabha Institutions – to plan, implement and manage their inter-village and cluster development investments; (b) Establishing the Pradeshiya Sabha Inter-village Connectivity Fund to finance inter-village infrastructure and social service subprojects, and for PS capacity building through Institutional Strengthening Plans. Roughly 95 percent of the fund would be utilized for infrastructure activities; and (c) 5 Developing the inter-village federation and community resource center which consisted of strengthening of village organizations vertically as federations (VO federations, VSCO federations, and economic activity federations) and financing livelihood and productive infrastructure activities through the federated institutions. Component C: Public, People and Private Sector Partnerships (US$4.40 million): This component was expected to: (a) support and strengthen the project teams, public sector agencies and other stakeholders at the national, provincial, district, divisional and cluster level in operationalizing the CDD approach to respond to the needs of the poor; and (b) provide livelihood and business support for: (i) strengthening the capacity of the federations to market their products and services and to form linkages with the private sector through provision of technical assistance, training and the undertaking studies; and (ii) pilot innovative ideas which needed experimentation, learning, and incubation and had potential for scale-up and replication. This also involved the development of new economic activities with value-added products for livelihood improvement, and the provision of access to information technology and communications to rural communities. Component D: Project Management and Monitoring (US$7.8 million): This component was expected to facilitate overall coordination, planning, implementation, compliance check and quality, learning and monitoring of the project at the national, provincial level and district level. Component E: Convergence and Policy Support (US$3.40 million): This component was expected to provide technical assistance to Gamaneguma and Samurdhi programs to adopt the CDD approach; and improve pro-poor orientation and fund the Village Development Plans of demonstration villages.  1.6 Revised Components At the time of May 2013 Level 1 restructuring, project components were revised as follows: Component A: Intra-Village Development (US$61.44 million): Three specific changes were made to this component (the revised Financing Agreement retained the language of the original Financing Agreement as it was deemed sufficiently broad): (a) Village Organizations were restructured to focus more on enhanced livelihood and market linkage for PGs; (b) More emphasis was placed on leveraging additional financial resources through formal bank linkages to supplement limitations in financial lending capacity of the VCSOs; and (c) The number of village infrastructure sub-projects and community contribution were reduced. Sub-projects were reduced to a maximum of 4 sub-projects per VO while contribution was reduced to 20% for the first village infrastructure and 10% for subsequent ones. Contribution for estate communities was made notional and reduced to 5%, all of which encompassed labor, cash and materials. Component B: Inter-village Connectivity Development (US$21.94): Three specific changes were made to this component: (a) The number of inter-village infrastructure sub- projects in the targeted PSs was reduced to fund only those that could be completed before 6 project closure and community cash contribution was removed in favor of in-kind contribution; (b) Funds were allocated for establishment of O&M Units in all project supported PSs and provisions made to allow for central procurement 2 and direct contracting for complex sub-projects in difficult terrain; and (c) Activities relating to inter- village federation and community resource center development and financing livelihood and productive infrastructure activities through the federated institutions were dropped as second-generation community institutions (federations) were discontinued. Component C: Public, Private and People Sector Partnership (US$5.5 million): Two specific changes were made to this component: (a) Activities related to supporting and strengthening the participating agencies in operationalizing the CDD approach to respond to the needs of the poor were moved to Component D; and (b) Activities related to the PGs were scaled up in place of federated entities, which were discontinued Funds were also allocated for creating productive partnerships with public, private and Small Medium Enterprise sectors engaged in agricultural research, extension services, input supply services, processing, retail value chain and export. Support was to be further strengthened through strategic financial partnerships with commercial banks. Component D: Project Management and Monitoring (US$10.0 million). This component was refocused to support a strategic unit for Project Management that strengthened professional accountability of district level staff to provide required facilitation to village organizations. Component E: Convergence and Policy Support (US$6.12 million): Apart from the transfer of activity from Component C to facilitate community access and support from line agencies and the improvement of project staff capacity to carry out their functions effectively, two new activities were added: (a) mainstreaming the project into government established Divineguma and Samurdhi programs; and (b) Strengthening Village Organizations on sustainability activities and linking them with government agencies as part of exit strategies and convergence with government programs for public service support. 1.7 Other significant changes The first restructuring approved in May 2013 brought about significant changes that aimed to align the project with GoSL’s proposed institutional change and policy orientation. The changes included the following: 2 This was in cases where materials were scarce or there was an advantage of economies of scale for communities to select this option. 7  The lending instrument was changed from an APL to SIL (now IPF) to account for changes in the policy environment as policy related performance triggers3 necessary to move to the next phase of the APL were unattainable  The Gemi Diriya Foundation, which was the responsible agency for project implementation, was dissolved and replaced with a Project Management Unit (PMU) under the Ministry of Economic Development (MED) in line with Government’s plans for a centralized governance structure that would oversee rural development programs across the country  Results Framework: PDO was revised along with outcome and intermediate indicators to better articulate the PDO and align with significant changes in component activities  Additional safeguard policies were triggered4 in anticipation of potential risks related to the implementation of inter-connectivity subjects  Credit proceeds were reallocated across components and disbursement categories to reflect changing needs of activities  The funding ratio was revised upwards to 80% and 70% from 75% and 65% for development and operating costs respectively to accommodate the reduction in community contribution The changes to the Company Act (1996) during that period affected the registration status of Village Organizations, most of which did not have the financial and technical resources to comply with the new regulations. As a result, the company registration for the majority of VOs which operated as Village Companies was abolished (with the exception of 14 VOs that continued to operate as Village Companies) and this left them with no legally recognized status5 Further changes were made in a Level-2 restructuring that was approved in February 2014 which included the following:  Funding ratio was further revised to 100% for all categories of expenditure following Government’s decision to discontinue counterpart funding for the project 3 Performance triggers included establishment of Federation of Village Organizations that were functional and linked to private sector and other partners; issuance of a government order adopting the village level institutional mechanisms and procedures at the national level. These triggers ran counter to Government’s policy approach as federations were discontinued for preference towards a more centralized institutional mechanism that followed a top down approach. 4 Safeguard policies triggered were OP/BP 4.04-Natural Habitats, OP/BP 4.09- Pest Management, and OP/BP 4.12- Involuntary Resettlement - World Bank Restructuring Paper Report No. 74372-LK 5 The Company Act (1996) was amended in 2013 to standardize administrative and reporting requirements for all firms/companies regardless of size. This escalated transaction costs which could not be met by the majority of VOs. The 14 VOs that took the decision to continue operating as Village Companies were high performing communities that were able to cover the high costs. The remaining VOs were registered under the Ministry of Economic Development, which was not legal form of registration – World Bank Supervision Reports 8  A number of project activities were scaled back and further changes made to the Results Framework to revise two intermediate indicator targets6 in line with implementation timeline and revised funding ratio.  Project closing date was extended by six (6) months from March 31, 2014 to September 30, 2014 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The project design built on major lessons and experiences that emerged from the first phase of the program. It was the continuation of a long term program involving a three-phase Adaptable Program Loan (APL), each covering a 4 year period, considered to be the most effective modality in supporting rural development policy and institutional development for the long term. An APL was the appropriate instrument because it signaled a commitment to a long term partnership with the Bank especially as systems were still considered to be fragile and the country was slowly emerging from a conflict situation. Further, the project’s approach required flexibility in implementation to build on lessons from subsequent phases, which an APL was well suited for. As part of preparation, main issues related to the sector where analyzed in depth including the impact of the global financial crisis on the economy and the state of the Estate Sector. The Government’s strategies7 to deal with emerging issues were also taken into account in the design. Key lessons from Phase 1 that enhanced community commitment, scaled up results through peer-to-peer exchanges, enhanced capacity and empowerment through simple procedures and guidelines supported by a flexible service delivery approach were 6 The project had originally planned to support 560 Producer Groups. However, since the funding constraint affected seasonal activities planned, the number was scaled down to 429. Planned activities for partnership programs with the private sector were also scaled down due to the funding constraint. In addition, 427 intra-village sub-projects that had been planned for construction had to be dropped because of the unlikelihood of completing the projects within the project period. The revision in targets were for: (i) Intermediate Indicator C-2: At least 60% of PGs meet their operational expenses from regular sources of cash flows which was revised to 50%, as considerable effort would be required to strengthen producer groups sufficiently in the short period; (ii) Intermediate Indicator B-1: 70% of planned & approved Interconnectivity sub- projects within PS have been completed was revised to 60%. 7 GoSL’s response to rural poverty at the time was based on the Mahinda Chintana (MC) 10-year Development Framework (2006) which placed particular emphasis on achievement of equitable growth and reduction of regional disparities. Government’s commitment was further cemented through an additional flagship program known as Gamaneguma whose overall objective was to develop the village as a center for national development through an integrated total village development program. (PAD, Page 3) 9 all incorporated into the design. Lessons were also taken from regional and international experiences8 of CDD operations in India, Nepal, Indonesia and Brazil. Government’s interests to mainstream the project’s activities into the national program (Gamaneguma) were acknowledged at project design and a number of alternative approaches were considered to facilitate this9. Based on the key lessons that emerged from Phase 1, it was assessed that governance systems and capacities were too weak and risky for such an undertaking, and the flexibility, speed and autonomy of the Gemi Diriya Foundation was what was critically needed to pilot a new infrastructure model, build capacity of stakeholder agencies and deliver private goods that could generate higher incomes for poor communities. To align with Government’s long term strategic vision however, it was agreed that a gradual phase out process for the Foundation would be implemented in which it would continue to play an implementing agency role during Phase 2 with provisions made to transfer some functions to Government agencies, build capacity to deliver services efficiently and promote the CDD approach – a transition that was expected to see the Foundation close down at the end of Phase 210. It was planned that by the end of year 3 of the second phase, both GoSL and IDA would jointly carry out two independent evaluations to assess readiness of the Samurdhi Authority and Federation of VOs to take over implementation of Phase 3. Phase 3 envisaged sufficiently capacitated Samurdhi Authority and Federation of VOs to provide support services and implement project activities. Findings from the evaluation were to form the basis of discussion and agreements with GoSL on implementation arrangements of the project for the remaining APL period and the kind of role that Gemi Diriya Foundation would play until Government agencies and community institutions fully graduated to take full responsibility. The PDO was relevant, appropriate and consistent with the project’s planned activities and with the Government’s long term rural development strategy. The indicators were both qualitative and quantitative and made adequate provision to support evidence of impact. 8 Projects lessons incorporated in project design where from India’s Andhra Pradesh Rural Poverty Alleviation Project, Madhya Pradesh District Poverty Initiatives Project; Nepal Poverty Alleviation Project; Indonesia KDP Project and Brazil Poverty Alleviation Program. 9 At design, it was considered to mainstream Gemi Diriya within the Gamaneguma program and transfer implementation to the line Ministry and Samurdhi Authority, however, integration of the program within the Ministry of Nation Building/Samurdhi Authority was rejected in the absence of evidence to support strong governance systems and capacity. It was also considered to implement only intra-village activities but lessons from the previous phase demonstrated a need to go beyond village level investments and adopt a comprehensive development approach to ensure sustainability of investments and optimize impact. Implementation through Pradeshiya Sabhas only was also rejected because earlier lessons showed that they were not the best mediums for delivering private goods. (PAD, Page 10) 10 The Government’s interest in scaling up and mainstreaming the project’s approach was to bring consistency among its 3 main national poverty reduction programs (Gemi Diriya. Gamaneguma and Samurdhi)and utilize its agencies and manpower to ensure long term sustainability of the Gemi Diriya Program (PAD, Page 10) 10 Although, indicators for convergence signaled gradual transition towards Government systems, the absence of a comprehensive and sequenced transition plan with specific milestones (including a capacity building plan for government staff expected to take over project activities as well as Foundation milestones towards handover functions) appears to have been a shortcoming in the design. Risk Assessment. The main risks identified at appraisal were linked largely to the addition of the inter-village connectivity sub-component and the transfer of implementation responsibilities to Samurdhi Authority which were considered to be substantial. Identified risks included political interference with CDD and project management; weaknesses in fiduciary management at the Pradeshiya Sabha level; governance failures at community level and ineffective grievance handling mechanism at the Foundation level. The project prepared a Governance and Accountability Action Plan (GAAP) and Conflict Analysis Framework with mitigating measures to address identified risks. The risks that materialized during implementation were managed appropriately and those that were unanticipated such as Government’s decision to dissolve the Foundation mid-way through implementation were also addressed through project restructuring. Adequacy of participatory processes and Government Commitment: The project was prepared in a highly participatory manner. Government officials, the Bank, beneficiaries, and other stakeholders were meeting regularly during project design which resulted in important project inputs such as the M&E framework and community operational manuals. GoSL had demonstrated a high level of commitment at the time of project design and a strong belief in the project’s key principles which had been incorporated in the national Gamaneguma flagship program. Similarly, Samurdhi (social safety net) program had adopted participatory targeting methodologies and expanded credit benefits to wider community members. In addition, the Government had requested IDA support to test the inter-connectivity model using local government structures that would build capacity of local officials to implement the rural development programs using CDD approach. 2.2 Implementation Implementation began well after effectiveness in December 2009, the program was well received and recognized by many at the national and local levels. The implementation modalities had been designed during a reform minded period of the country’s history. The Gemi Diriya Foundation (“GDF” or “Foundation”) served as a facilitation hub that attracted youth, competitively hired and developed skills that were transferable after the program ended. GDF was set up as a company with the hope that it could implement its activities with minimal political interference. This choice of program delivery was a source of concern especially among government employees who were unhappy about the wages and per diems paid to GDF staff through the soft loan obtained by GoSL. Although the Foundation was considered to be effective and was viewed by the Government as a service delivery model that was desirable, it was also regarded as ultimately unaffordable if the 11 program was to scale up nationally 11 . Following national elections of May 2010, the Foundation was transferred to the Ministry of Economic Development which replaced the previous Ministry of Nation Building. The Government was moving towards a more centralized approach to rural development and was keen to consolidate its victory and end to civil conflict by minimizing all forms of political dissent. The empowerment model - the need to increase voice and demand for good governance – associated with the CDD approach appeared to run counter to government’s goal of centralizing decision making. There was an expressed Government urgency to accelerate integration of GDF into regular government apparatus that created uncertainties about timing and process of transition and thereby negatively affected implementation. Subsequent erosion of GDF functionality and eventual removal of Project Director only served to further aggravate the situation. Interim arrangements that brought in Director General of Samurdhi Authority to oversee project implementation with Samurdhi staff filling up vacant project positions would probably have been considered adequate had attention been paid to getting the right officers with required skills and qualifications to handle project activities. The transitional arrangements were far from smooth, affected staff morale and saw the departure of experienced and well trained GDF staff. All of these factors led the project implementation to be downgraded to “Moderately Unsatisfactory”. At the time of the Mid-Term Review carried out in April-May 2013, the above-mentioned issues and other concerns were reviewed, including:  GOSL’s policy changes which rendered the institutional model on which the APL was based inoperable  Policy implications of the Divineguma Act (2013)12 on continued existence of VOs  Discontinuation of the federation approach aimed at providing the longer term support to VOs and VSCOs  Major risks which needed innovative approaches to make the project work under the prevailing situation and as governed by government policies  Slow progress on the pilot program to support PS and the uncertainty of completing project activities within the scheduled times It was agreed to restructure the project as documented in Sections 1.6 and 1.7. Other factors that affected implementation were erratic and delayed release of counterpart funding as 11 PPAR: Investing in Social Capital: Lessons from two decades of village development in Sri Lanka – IEG (December 2014) 12 The Divineguma Act came into effect on January 11, 2013. The Act was designed to promote community development through support to community institutions. It built partially on livelihood development models that have been develped in Sri Lanka over the past years, aimed to integrate procedures established under Samurdhi, and introduced new structures and procedures. The Divineguma program had essentially replaced Gamaneguma whose objectives were ‘folded’ into the new Act. 12 well as the lack of a dedicated Project Director to focus solely on project activities13. The operation of another CDD approach for the North-East that was fully mainstreamed into government structures served to fuel negative government perception of the Gemi Diriya model and further diminished support and commitment14. In hindsight, the project should have developed a strong communication strategy that would have kept higher authorities well informed of results and enhanced buy-in to the bottom-up approach. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E design. The project had a well-developed results-based participatory Monitoring, Evaluation and Learning (ME&L) system with a strong focus on project processes, results, impact and outcome in addition to input and output monitoring. The project had also developed a robust web-based management information system (MIS), to regularly monitor results and compliance at village, divisional and district level. The PAD provided for specific project outcome indicators and intermediate outcome indicators to assess progress in meeting the PDO and implementation targets. M&E implementation. Data on the indicators developed during project preparation was collected regularly at VO level by community mobilizers who fed the data into web-based system. Project level activities were monitored and tracked through a village monitoring matrix with data collected by community professionals for each village and updated monthly. The village matrix covered all key indicators that provided an assessment of overall village performance and was used as a basis for village grading15. Data were closely monitored by the PMU and the actual figures were compared with the target values. The PMU was able to generate ministerial progress reports, quarterly progress reports, supervision mission reports as well as annual reports from MIS database. Adjustments were made to outcome and intermediate indicators in line with project restructuring carried out and detailed in sections 1.6 and 1.7. M&E utilization. Appropriate data collected from the monthly, quarterly, and annual progress reports was evaluated and used for decision-making regarding certain activities. The extent of data collection was very detailed but was not fully optimized for decision making. There were specific examples in which efficiencies were gained in the use of M&E 13 The project Director for the Gemi Diriya Project was also in charge of 3 other donor funded projects (including 2 other WB projects) which affected timeliness of decisions to keep progress on track. 14 It was reported that Ministry of Economic Development had made informal announcement of major restructuring of the project and amalgamation of Gemi Diriya and Re-Awakening Projects – Implementation Support Mission Aide Memoire (June 2011) 15 Village grading system covers key indicators that include; gender and inclusiveness of poorest in decision making positions; support to one time grantees; capacity building support and livelihood support to beneficiaries, youth employment and skills development support, infrastructure progress and VSCO performance. Ratings range from A, B C and D, with the lower two grades (C and D) indicating poor performance and weak villages. 13 data such as the Village grading process which became fully automated using data uploaded into the MIS at the cluster level and verified through random field sampling. This proved to save time on a process that took longer when physical visits were to be made to over 2000 villages. 2.4 Safeguard and Fiduciary Compliance Environmental Safeguards. The overall compliance of OP/BP 4.0 (Natural Habitats); OP/BP 4.01 (Environmental Assessment); and OP/BP 4.09 (Pest Management) was satisfactory. Environmental Management Plan (EMP) for both intra-village and inter- connectivity sub-projects were well prepared with implementation levels recorded and included in the MIS. This facilitated documentation and pro-active tracking of environmental safeguard implementation in the field. Social Safeguards: The project maintained a very good data base on land acquisitions from 2009. Most of the lands used for small scale infrastructure development activities were obtained from government agencies, especially the land released from respective Divisional Secretariats. The project adopted the popular ‘voluntary land donation’ system to meet the land requirements for infrastructure projects. In order to ensure due diligence in social safeguards, a grievance redress mechanism (GRM) was established and implemented throughout the project period. The GRM system included a number of institutional structures starting from village level to project level. The observations and findings of independent reviewers showed that the GRM mechanism was functioning well at the village level. Overall, there were no serious adverse social impacts or violation of safeguards principles. The PMU submitted quarterly reports on land donations and prepared safeguards due diligence reports. Both environmental and social safeguards compliance was assessed as Satisfactory. Fiduciary Compliance. The financial management performance rating of the project was Moderately Satisfactory for much of the project life, with the exception of an upgrade to Satisfactory during the third supervision mission as it was assessed that financial management systems at community and project levels were operating satisfactorily. Financial management information system was in place and reporting, internal controls and audits were on track with a few identified issues to be improved overtime. IUFRs were generally received on a timely basis. Annual external audits were unqualified until FY11. While subsequent audit reports had a qualified opinion, the qualifications reported were generally not considered to be serious. However, by the fifth supervision mission, the rating was again downgraded to Moderately Satisfactory due to general weaknesses in financial record keeping, reporting and internal controls. Deficiencies continued throughout the remainder of the project period and the rating was further downgraded during the final supervision mission to Moderately Unsatisfactory, mainly due to allegations that surfaced 14 concerning misuse of project funds in Badulla District from a funds transfer mechanisms adopted in the later stage of the project16, which were later proven to be true. Procurement Arrangements. Procurement of all works, goods and technical services under the project followed the Procurement Guidelines “Procurement under IBRD Loans and IDA Credits”. There were lapses in procurement carried out by agencies mainly at the sub-national level. This was mainly due to lack of knowledge and capacity to handle sub- projects. Post reviews were carried out every year during the project period with no mis- procurement issues identified during reviews. The overall procurement performance was Moderately Satisfactory. Overall, fiduciary compliance is rated as Moderately Satisfactory over project implementation duration. 2.5 Post-completion Operation/Next Phase The project was originally designed as part of a three phase APL but was restructured during implementation to conform to Government’s desire for continued support of the rural development agenda through its own implementation structures. At the time of ICR discussions, the Divineguma Development Department (DDD) - established by the Divineguma Act (2013) and housed under then Ministry of Economic Development (MED) - was envisaged to be the main implementing vehicle for all rural development projects supported by the Government and donor partners. The department was expected to continue supporting the VOs through its cadre of Divineguma Development Officers (DDO) recruited at each GND. An Administrative Order was issued in July 2014 to initiate the process of registering all Gemi Diriya VOs under the department as part of government’s long term sustainability strategy to secure community assets. However, the process was subject to the finalization of the DDD’s own structure, procedures, operational modalities and bye-laws which remained under preparation. Following the presidential election held in January 2015, a new Government came into power and ministerial portfolios changed. The MED was abolished and the DDD moved to the newly established Ministry of Housing and Samurdhi. Following MED’s dissolution, it remained unclear whether further action was taken to register the VOs under any legal form, and whether the DDD as a national program was to remain the Government’s main framework for rural poverty reduction. Still, benefits of the CDD approach and the achievements of the project were widely acknowledged by the new Government. 16 In August 2014, the Bank team carried out a fiduciary review in Badulla district to review fund transfers that had taken place in light of allegations of misuse of funds. Observations indicated that fund transfers and the management of such funds in 59% of the sampled VOs were violated in various elements related to procedures, guidelines, principles and internal controls applicable to the project. An independent audit of the district carried out by the Government confirmed Bank findings. In April 2015, the Bank declared ineligible expenditures for transactions amounting to US$ 170,213.76. The request for refund was sent to the Government and was pending official response – Fiduciary Review Report (September 2014) 15 The sustainability of VOs is debatable in the current environment of unclear policy direction regarding rural development. The new Government has only been in power for a few months and is still in the reorganization process of its administrative setup. At the time of project closure, 1,842 VOs out of 2044 VOs were functioning while 202 VOs were inactive. There was urgent concern expressed about funds that were in the Bank accounts of inactive VOs and the associated risks of misappropriation in the absence of systematic oversight of activities and lack of support to revive and keep community activities going. The sustainability concerns also extended to the intra-village infrastructure sub-projects that were to be maintained by communities. While operations and maintenance funds had been set up at community level, there was a clear and felt need for sustained technical services beyond minor issues that seemed to be difficult for the VOs to address. However, with regard to water supply projects, majority of VOs had registered their schemes with the National Water Supply and Drainage Board (NWSDB) for continued technical assistance and support. MoUs were signed by the majority of VOs. VOs that maintained registration as Village Companies continued to operate independently of project and Government support since 2010. Sustainability of these entities was less of an issue because as legally recognized entities subject to regulations applicable under the Company Act, they continued to meet their obligations. The project had made notable effort to support PGs and linked them with line agencies and private sector agro-processors for technical inputs and support. However, their operations were still in the nascent stages and required concerted support, particularly in strengthening their institutional functioning. Their sustainability was not ascertained as there was no clear strategy for their continued support. The inter-village connectivity sub-component implemented by local government structures established O&M Units for each Pradeshiya Sabha along with building facilities and equipment, provided an O&M fund, and established O&M committees together with an implementation plan. This was considered very innovative. Capacity building for strengthening O&M setup was linked with PS institutional programs and the result was commitment from all participating PSs to allocate a minimum 10% of their annual budgets towards operation and maintenance activities. Nine out of 11 PSs obtained Provincial Council approval for the 2014 budget allocation with a minimum of 15% towards operations and maintenance. (b) Follow-on project: No follow-on project is planned. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Relevance of Objective. Relevance of the project’s objective remains High. Creating opportunities for marginalized communities to improve their living conditions and to access additional services was at the core of the Divineguma Act (2013) and continues to be central to Sri Lanka’s poverty reduction strategy. The new Government has indicated plans to 16 develop a National Policy Framework that would deal with the critical challenges the country faces and embark on social and economic reform that would lead to prosperity for all citizens. Amongst areas identified are support to small holder farmers in terms of access to inputs and improved pricing systems; support for the non-farm sector; support for women empowerment and vulnerable groups; youth employment; and support for development and regulation of micro-finance. The project remains consistent with the current Bank Country Partnership Strategy CPS (2012 – 2016) which envisions increased support for improving livelihoods among the disadvantaged groups and agricultural productivity. The PDO remained highly relevant even at the stage the Level 1 restructuring was approved. Relevance of Design and Implementation. The design, including significant adjustments made in the process of implementing the project, served to further embed the program into government structures. The eventual dissolution of the Gemi Diriya Foundation prior to project closing and the adoption of the participatory approach in the planning and implementation of the Samurdhi safety net program and a range of other rural development programs was a low risk strategy. However, during implementation, the decision of the government to merge the project’s activities into its own integrated village development program accelerated the demise of the Foundation. The establishment of a Project Management Unit under the-then Ministry of Economic Development along with the creation of Divineguma Development Department under the same ministry were seen as a natural bridge for CDD knowledge transfer and continued sustainable support to project communities. The DDD is now a part of the newly established Ministry of Housing and Samurdhi. The project design of intra- and inter-village social and community infrastructure development, the creation of VOs, VSCOs, and Producers’ Organizations to address issues relating to access to inputs, including credit, and markets, was both innovative and successful. The participatory approach to local level development has been vindicated under this project and the earlier phase. Although the project design and implementation arrangements may undergo further changes, the core project principles of transparency, participation and direct fund transfers to communities which had substantially underpinned project implementation up to the June 2013 restructuring and beyond until project closing, and contributed to the main achievements of the project, would most likely be embedded in any new design or implementation arrangement proposal. Although there were factors that affected implementation as mentioned in Section 2.2, the project implementation arrangement was responsive to achieving the project objective throughout the project implementation period. Rating: Given these considerations, the relevance of objective, design, and implementation is rated as Substantial, for both the pre- and post-restructuring phase. 3.2 Achievement of Project Development Objectives As the original project objective was formally revised at the time of restructuring in June 2013, the project outcome was assessed against both the original and revised project objective. Separate outcome ratings (against original and revised project objectives) were weighted in proportion to the share of actual credit disbursements made in the periods 17 before and after approval of the revision. Based on the two ratings as shown in Annex 10, the overall achievement of the project is rated as Moderately Satisfactory. I. PDO Achievement before restructuring The objective of the APL was to enhance incomes and quality of life of poor households in the poorest divisions in the territory of the Recipient through: (i) empowering the poor and developing and strengthening institutions of the poor; (ii) improving access of the poor to basic infrastructure and social services and providing support for productive activities; and (iii) developing policies, rules, systems, procedures and institutional arrangements to enable the Recipient to transfer funds directly to communities and local governments. The project’s achievements in terms of PDO indicators before restructuring are given in Table 1 below: Table 1: Summary of project achievements Indicator Target Actual Value 1.At least average 30% incremental increase in income 30% To determine this against base year for 50 % of targeted households by the value after Impact end of project Assessment 2. At least 70 % of targeted households utilizing 70% 43% improved community intra-village infrastructure and social services for intended purposes 3. At least 70 % of PS have implemented inter- 70% 36% connectivity sub-projects in accordance with the agreed rules 4. At least 70% of Pradeshiya Sabhas have 70% 36% developed participatory process and social accountability mechanism including positive score cards as included in the Institutional Strengthening Plan. 5. At least 50% of Project villages benefit from 50% 50% linkages with other government program such as nutrition, youth, agriculture, environment, Samurdhi livelihood and disability. 6. At least 50 % of VO federations and VSCO 50% 40% federations are rated as A or B and providing services for livelihood promotion to their members Source: Project MIS Data The project was able to empower the poor, develop and strengthen institutions of the poor and facilitate access to credit: Prior to level-1 restructuring, the project had formed 1,010 Village Organizations (VOs) under Phase II and continued to support 1,034 VOs established under Phase I. All Phase I (100%) VOs and 97% of VOs under Phase II had accessed Village Development funds (VDF) to undertake investments in social, economic and community infrastructure. Overall the program had supported 1990 Village Savings and Credit Organizations comprised of about 38,700 small groups that managed savings of about US$3.2 million and issued loans to the tune of US$38 million. 918 VSCOs 18 established under Phase II made up of about 19,200 small groups (75% female) generated over US$1 million in savings and issued loans up to US$7.5 million. About 6,600 most vulnerable members of communities had benefited from one time grants and about 5,700 (86%) had initiated income generating activities. All VSCOs had set up loan security funds to protect loan portfolio from potential default risks resulting from death or unforeseen circumstances. This was part of the overall strategy to strengthen community financial institutions’ asset base and maintain financially viability for the long term. Prior to restructuring, 60% of VOs met their operational costs from regular cash flows (fees, profits etc). While the income assessment was to be conducted at the end of the project period, 42% of targeted households were actively participating in VSCO activities and 80% of these households had taken loans for agricultural purposes while remaining loans had been distributed for non-farm activities. In addition, a Memorandum of Understanding had been signed with the Bank of Ceylon to facilitate credit linkages and 95 bank officers/executives were positioned at various bank branches to provide preferential treatment to project clients. Bank of Ceylon had also provided bulk loans to 5 VSCOs for on-lending as a pilot measure. At the time of restructuring, 19% of VO members had obtained credit through this link and leveraged about US$400,000 in additional loans. Support to VOs for livelihood activities and strengthening of savings and credit were continued post restructuring. Federation of Village Organizations were established but limited in function due to absence of clearly defined mandates and plans. The project supported the development of second generation institutions called Federation of VOs to further provide technical services to member VOs. Institutional development funds were released to support federation activities that covered all VOs under Phase I and were expected to support the phase out plan by progressively being handed additional responsibilities of facilitation and technical service support to VOs. Core business activities had been initiated using non- project funds and concerns had been expressed about how some transactions were carried out. At restructuring, 40% of VO Federations and VSCO Federations were assessed to be functioning well (rated A or B) and providing services for livelihood promotion to their members (PDO – 6, achievement was 80% of target). There was not full understanding and internalization of the Federation Manual by the project staff and GDF Board. Additional capacity building for sub-committees was still required. As a result, federations did not fully evolve to be considered as the critical bridge required to link communities with lower government tiers. Rather, they were perceived as a parallel entity competing for resources with local authorities, something that the Government was not keen to continue promoting. Emergence of functioning Producer Groups as focus shifted away from Federation of VOs. In place of Federations, the Government was interested and more receptive to promoting Producer Groups and providing ongoing support through the Divineguma Program. The project initiated the formation of 144 Producer groups (PGs) covering over 8600 households and immediately linked 112 groups to government agency line support services. Through the Divineguma Program, 20 PGs received project funding to implement business plans and the VSCOs provided additional funding of US$5 million to paddy and maize producers that resulted in a US$21 million contribution to the national coffers. A number of linkages between agriculture producers and private and public sector 19 organizations were established that included facilitation of provision of dairy development packages (materials and technical advice) in seven (7) project districts by the Department of Animal Production and Health. The project also collaborated with the Department of Agriculture by introducing improved technology packages for maize production and facilitation of extension support to small farmers for passion fruit and seed paddy production. Technical support from the Department of Agriculture led to market linkages that secured forward sales contracts for tomato farmers, production and marketing arrangements for ornamental fish export with a private sector company and mechanized paddy production with a private enterprise. At the time of project restructuring, MIS data showed that 50% of VOs benefitted from government programs and private sector linkages (PDO-5, achievement was 100% of target). Support to PGs was continued post restructuring and additional groups were facilitated and supported. Community Professional Learning and Training Centers (CPLTCs) were established to provide facilitation support to VOs through the engagement of Community Professionals (CPs). The centers were developed as localized sources of technical support for communities and relied mainly on service charge derived from CP employment to cover their operational costs. Although the project had invested in training CPs, many of the skills acquired were not well matched with jobs outside the project and so many were largely confined to project activities as their sole source of income. This business model proved to be unsustainable for the Centers as they required a large number of CPs to be deployed to meet their monthly operational costs. While the decision to discontinue with the Centers made financial sense, the project still maintained the use of CPs within the VOs as they had proven to be a valuable resource for sustaining community operations with minimal project support. At the time of restructuring, 1890 CPs were trained and actively linked to VOs providing facilitation services. The project continued to support CP facilitation services in VOs especially those that were considered to be weak performing villages while more mature and advanced VOs were able to sustain CPs by providing salaries through funds generated from revolving fund activities. This was considered a more sustainable approach compared to the prior business model and continued to be supported post restructuring. Communities identified and prioritized intra-village infrastructure to expand access to services and improve quality of life. The project supported the consolidation of village infrastructure sub-projects under Phase I and expanded construction of sub-projects to new communities under Phase II. A total of 8,298 intra-village sub-projects over both phases were initiated and about 74% had been completed. A total of 4,619 sub-projects were completed out of 4,744 initiated under Phase I representing 97% completion rate for Phase I. Under Phase II, the project embarked on 3554 infrastructure sub-projects and had handed over 1,513 (42%) to communities after completion and certification. An additional 676 completed sub-projects were in the final stages of the certification process awaiting official handover. Sustainability of infrastructure was a source of concern even prior to restructuring and the project promoted the importance of organized O&M systems to ensure sustainability. 1381 O&M accounts were established by VOs in seven (7) districts and work was progressing to cover all VOs before the end of the project. MIS data indicated that 43% of targeted households were utilizing community infrastructure (PDO-2, 20 achievement was 61% of target). Support for completion of sub-project activities post restructuring were ongoing. Pilot activities were initiated with Pradeshiya Sabhas (PSs) to test the inter-connectivity component. A total of 4 (out of targeted 11 PSs) had initiated 23 sub-projects out of which 18 were completed. The pilot had experienced several delays related to fund curtailments and poor planning to jumpstart construction works on time. In spite of this, an additional 6 PSs were provided support to implement a proposed 46 sub-projects. Given substantial delays experienced in the pilot phase, the project decided to fund only 37 inter-connectivity sub-projects (of which 11 had been appraised, 4 started and 12 were at final design stage). Funding had been released to all PSs for setup of O&M funds which led to the establishment of O&M Units under the pilot program. According to MIS data, 36% of PSs (4 out of 11) had implemented inter-connectivity sub-projects according to agreed rules at the time of restructuring (PDO- 3, achievement was 51% of target) and support was continued post restructuring to fully complete all sub-projects. Institutional development of PSs was quite successful in improving citizen engagement. The project was particularly successful in capacity building of PSs including refurbishing and re-arranging of PS internal building spaces, training of staff and allocation of staff for zonal coordination to work alongside communities on inter-connectivity sub-projects. The intervention was observed to be stronger in the new PSs compared to PSs that implemented the pilot activities. The interventions enabled PSs to evolve into service centers for their communities with better working environments. GIS mapping was being utilized to locate sub-projects and new initiatives were in place for asset management procedures. The project established websites and MIS systems for 6 PSs which were being regularly updated and e-libraries were setup in all PSs providing essential educational services mainly to school children. Digital weighing machines were introduced for serving vendors at weekly fairs to promote fair pricing. The success of the intervention led some Provincial Councils to make provisions within their budgets for replication of the model to cover other PSs. MIS data showed that about 36% of PSs developed participatory processes and social accountability mechanisms including positive score cards as included in the Institutional Strengthening Plan (PDO- 4, achievement was 51% of target). Activities were continued post restructuring. The project successfully developed policies, rules, systems and procedures but was not fully successful in mainstreaming these into the institutional structures that could have allowed government to transfer funds directly to communities and local governments. At project design, Samurdhi Authority and Federation of VOs were identified as the vehicles through which implementation of project activities would be anchored following the phase out of GDF. The project successfully developed operational manuals and tested systems and procedures that ensured focused resource allocation and systems of accountability for the use of resources by communities. Prior to restructuring, Samurdhi Authority was given jurisdiction over the implementation of CDD approach in a number of pilot and Samurdhi villages to study the dynamics in facilitation by government officials of the planning units at the district level and the officials of the Samurdhi Authority. Implementation of project activities was found to be very slow as government officials had to contend with additional 21 functions from their daily responsibilities alongside project activities. There was no incentive mechanism in place to prioritize project activities and administrative steps taken to request officials to facilitate village level activities did not yield the desired result. Project staff were deployed to pilot and samurdhi villages to work alongside Samurdhi officials and implement project activities. The collaboration was superficial as project staff largely facilitated processes and supported communities to implement activities in those areas. At the time of restructuring, Samurdhi Authority had not integrated CDD approaches into their operations and were not sufficiently capacitated to carry out similar project activities. The ability to fully mainstream CDD approaches into government institutional structures for direct support to communities was at the core of performance triggers17 meant to move the project into Phase III of the program. At the time of restructuring, Phase II had only partially succeeded in its horizontal and vertical expansions. 36% of PSs had managed to implement at least one inter-village subproject; 40% of VOs had formed network of federations and were implementing activities; 36% of PSs had received positive scores in community performance assessment; and 54% of PSs had established MIS systems and websites that were updated regularly. The remaining triggers related to the operation of Federations of VOs and adoption of the CDD model at the national level could not materialize as originally envisioned. The revision of the lending instrument at restructuring from an APL to a SIL was an indication that the second phase of the Gemi Diriya Program could not fully achieve the requirements for successful take off of the final phase of the program. As a result, Phase II fell short of meeting the overall objectives of the three phase Program. Rating: Based on these achievements and considerations, project’s DO achievement prior to restructuring is rated Modest. II. PDO Achievement after restructuring The project’s achievements in terms of PDO indicators after restructuring are given in Table 2 below: Table 2: Summary of project achievements Indicator Target Actual Value 17 Performance triggers for Phase III were based on achievement of both horizontal and vertical scale up of activities. Horizontal triggers were: (1) At least 50% of PSs and villages covered during the first two years of implementation have accessed funds and implemented at least one cluster/village level sub-project as per agreed rules and procedures; (2) at least 70% of VOs covered under Phase I have formed network of federations and linked to private sector and/or other partners for value addition/employment activities. Policy Change/Vertical triggers were: (1) Issuance of a government order adopting the village level institutional mechanism and procedures as described in the COM at the national level; (2) at least 50% of PS covered during the first two years are updating and sharing information through web-based MIS on utilization of public funds maintaining transparency and accountability (as agreed in PS institutional Strengthening Plan); (3) at least 50% of VOs and PSs covered during the first two years have received positive scores in community performance assessment. 22 At least average 20% incremental increase in income against 20% 39.9% base year for 50 % of targeted households by the end of project At least 70 % of targeted households utilizing improved 70% 76% community intra-village infrastructure and social services for intended purposes At least 70 % of PS have implemented inter-connectivity sub- 70% 100% projects in accordance with the agreed rules At least 60% of villages (VOs) are utilizing inter-connectivity 60% 83% infrastructure for intended purpose Establish O&M Unit and O&M fund in 60% project PS 60% 100% At least 70% of PS have developed Participatory process 70% 72% (CAP) and downward accountability mechanism (GAAP) including score cards as included in the Institutional Strengthening Plan At least 50 % of project villages benefit from linkages with 50% 58% other government program including infrastructure At least 75 % of Phase I and Phase II VOs are rated as A or B 75% 66% and providing services on VDP II Source: Impact Assessment and Project MIS Data The details of the project’s major outcomes and achievements are as follows: Access to credit through Village Savings and Credit Organizations resulted in productive investments that contributed to increased income for targeted households: VSCO loans directly supported 80,391 households through livelihood activities and the majority (83%) of whom were women while 81% were from the poor and poorest categories indicating the effectiveness of the project’s targeting mechanism. Impact Assessment (IA) conducted by Resources Development Consultants (PVT) Ltd in 2014 showed similar trends that 82% of women had accessed loans and at least 77% of borrowers were from the poor and poorest categories. 60% of loans disbursed were for agriculture activities while 28% went towards self-employment. According to the IA, VSCO support helped borrowers to diversify livelihood activities through new investments, reduced credit costs through low interest rates, low transaction costs, and increased returns to income generating activities due to timely availability of credit. The additional benefits directly contributed to improving efficiency and eventually increasing household income levels. The IA showed a 39.9% incremental increase in income against base year for 50% of targeted households (PDO-1: target of 20% exceeded). The findings were based on household surveys conducted with the same sample villages where the baseline survey had been undertaken. The survey sample covered 2520 randomly selected households (Treatment – 2080; Control – 440) in all the 9 districts where the project operated and used additional survey tools such as FGD and KII for qualitative analysis. Community Infrastructure contributed to improved quality of life through improvement of access to markets and other services: By the end of the project, 4526 community sub- projects were completed that included multi-purpose buildings, rural roads, water supply schemes, minor irrigation works, sanitation and culverts. Project MIS data showed that at least 76% of targeted households were accessing and making use of the sub-projects (PDO- 2: target of 70% exceeded). Almost 60% of infrastructure sub-projects were road 23 development projects that resolved several issues for communities such as transportation of products to markets and also provided easy access to fields, schools and health centers. In terms of cost-effectiveness, the thematic study on infrastructure conducted by the PMU showed that the cost of construction for 1km of road was 9% cheaper compared to government engineering department 18 and the quality of construction was found to be higher. The IA found that the level of satisfaction of households on the infrastructure development was very high (97% surveyed were satisfied with services provided to them). FGDs carried out for the IA indicated that main benefits from roads mentioned by communities included lower transportation costs for outputs and inputs used in crop and livestock production, time saved in all journeys, safer passage of children to school and better access to health facilities. New bridges and culverts had “opened” new areas of land and allowed expansion in planted areas. Capacity of local governments and community organizations for service delivery improved: The institutional development fund made available to Pradeshiya Sabhas proved to contribute positively to their engagement with communities. Capacity development for both PS staff and the community office bearers were undertaken in eleven PSs, with more than 380 training programs undertaken on a range of relevant topics of the Community Operational Manual (including procurement, social audit, infrastructure development, among others). Six PSs also participated in peer to peer knowledge exchange visits. All of the PSs were provided with funding to implement inter-connectivity sub-projects and the IA verified that all (100%) had implemented sub-projects in accordance with the agreed rules (PDO-3: target of 70% was exceeded). The engagement of support from Technical Service Providers, while at times challenging due to lack of experience and weak technical TSP skills, broadened their abilities for expanding collaboration to deliver needed services to the communities. Coordination efforts also incorporated implementation inputs from communities that enabled beneficiaries to directly participate in the service delivery channel and strengthened relationship and trust with local authorities. Thematic study conducted by the Project Management Unit and MIS data indicated that at least 83% of villages were utilizing interconnectivity infrastructure (PDO-4: target of 60% was exceeded) for improved market access as well as improved access to schools and hospitals. The institutional development fund supported capacity building of PS staff, establishment of procedures and systems for better service delivery and the establishment of O&M fund and Unit at each PS (PDO-5: target of 60% was exceeded) in which an average monthly contribution of Rs 2,500 was deposited into the fund in the beginning. By the end of project, all the PSs had approved a designated percentage of the annual budget towards O&M fund. According to the IA, Provincial Councils for all participating Pradeshiya Sabhas approved an average 13% of PS budget allocation for O&M fund. 18 Cost for construction of 1km of concrete rural road in Rs. Million: SCDLIP – 4.72; Pradeshiya Sabha – 5.00; Provincial Council Engineering Services Department – 5.20: Source: PMU Thematic Study on Infrastructure 24 The institutional development fund also brought about an improved attitude towards local development planning. Participating PSs began collecting community proposals as part of their annual budget preparations and in 2013, allocated substantial amount of financial resources for prioritized proposals submitted by the respective communities. A thematic study on PS Institutional Development carried out by the PMU involving all PSs showed that at least 40% of community inputs/proposals were included for implementation in the annual budget. The project team also provided training to 14,000 Economic Development Officers on the CDD approach as part of the long term sustainability strategy expected through the Ministry of Economic Development. Improved efficiency of service delivery: PS Institutional funds contributed to better service delivery through provision of better equipment and introduction of new systems. Installation of software packages for accounting, revenue collection, inventory, water- billing etc., led to an increase in monthly revenue collection by 45% and a reduction in unpaid water tariff by 30%. Resource mapping using GIS has been integrated for decision making in selecting priorities for government investments and especially for monitoring of physical progress of the interconnectivity infrastructure projects. Improved performance has led to improved ranking for all 11 PSs in the Government’s PS grading system. MIS data shows that 72% of PSs developed participatory process (CAP) and downward accountability mechanism (GAAP) (PDO-6: target of 70% was exceeded). Community score-cards system used in CAP also supported improved service delivery at PS level, while GAAP was used as a tool to identify governance and corruption related risks. Each PS established a website that included a grievance redress option and feedback mechanism to inform public about actions taken for complaints received, measures which contributed to strengthening governance mechanisms. Linkages established with Government Programs: Village institutions have not only been important for productive benefits but also for a number of linkages with other government social programs. Four MoUs were signed for promoting institutional level convergence with Government stakeholders prominent in provision of technology packages including Department of Agriculture (for rice and maize); Department of Export Agriculture (for pepper and cinnamon); Department of Animal Production and Health (for Dairy) and Tea Small-Holding Authority (for Tea). 433 producer groups that were funded to support common interest income generating activities for 44,800 households benefitted from these linkages. MIS data showed that PGs representing 58% of villages benefitted from both public and private sector support (PDO-7: target of 50% was exceeded). Notable contributions were made towards commodities/sectors of national importance such as dairy, maize, paddy19 and tea. The project also facilitated introduction of value adding farm 19 In the 2013 cropping season, farmers invested about US$44,000 of VSCO loans in paddy seed cultivation and generated a revenue turnover of more than 250 percent.- Source: Thematic Study on Producer Groups (2014) - PMU 25 equipment such as paddy transplanters, milking machines, pruning machines for pepper and multi chopper for compost preparation in collaboration with private companies. Further, majority of PG members received a higher margin of return by engaging in collective activities for input purchasing and transportation as well as marketing. Productivity enhancement programs implemented with support from government and private sector stakeholders showed great impact on productivity and farmers income20. Further, the project was able to leverage public sector funds for building financial capital that enabled village organizations access additional funds for livelihood activities. A MoU was signed with the Bank of Ceylon that enabled an additional $2.03 million in capital to be accessed by VOs thus providing additional credit to communities (Intermediate Indicator C-3: target of $1 million was exceeded) Limited success in strengthening Village Organizations for continued support to project beneficiaries: The project adopted a two-pronged approach of helping build sustainable economic units along with extending the contribution of ‘Divineguma’ livelihood program in collaboration with government line agencies. Capacity building activities included conducting 104 training programs on farm productivity improvement and household income enhancement for 6200 VO members of which 70% were women. The trainings involved substantive collaborative arrangements with line ministries and private sector organizations, covering seasonal crops, fruit production, livestock development and other rural/ agricultural enterprises. 1,830 Community Resource Persons were supporting VOs in their respective activities. However, much of the success in terms of achievement of outcome indicators is linked primarily to the effectiveness of VOs in carrying out their activities. MIS data showed that only 66% of VOs were graded A or B (PDO-8: target of 75% substantially met) and even a lower percentage (59% according to the impact assessment) were able to cover their operating costs through VSCOs. According to the IA, about 70% of VSCOs (Intermediate indicator A-2: target of 80% substantially met) had an on-time-repayment rate of 95%. Rating: Based on these achievements, project’s DO rating after restructuring is rated Substantial. 3.3 Efficiency 20 One experiment conducted by Department of Census and Statistics with producer groups in Mahiyangana in 2013 Yala season with 500 maize farmers on the technological package provided by the Dept. of Agriculture. The target maize yield was 7 MT per ha and achievement of yield was 9.37 MT per ha, which was 34% higher than the expected yield/ha. When it is compared with the national average of 5 – 6.25 mt per ha, it was 50% – 80% higher and the average income increase was Rs 84,370 per ha per famer on the basis of Rs 30/Kg of selling price. With support from Department of Agriculture and University of Wayamba project was able to introduce some of the crops new geographical areas (passion fruit and pine apple). The study conducted by the project and the MIS data shows that, 68 ha of new pineapple cultivation and 212 ha of Passion fruit cultivation were started with project support. 26 This project achieved substantive outcomes across all components despite loan restructuring and changes to component design over the implementation period. Estimates indicate that overall project financial rate of return is nearly 24% over the full life of the project. Economic returns are lower at 22.4% mainly due to high rates of input subsidy in cereal crops and internally fixed prices for marketed output. A summary of Internal Rates of Return and NPVs is given in the table below: ICR Estimation Project Analysis NPV IRR PAD Financial 5,303.97Mn 23.66% NA Economic 5,000.71Mn 22.39% NA Detail of the methodology and approach of this analysis is contained in Annex 3. In summary, the IRR estimates above were based on conservative assumptions including all Phase II project costs (including retrospective financing of Phase I elements, mobilization and management costs), fixed level of returns from investments in livelihoods, infrastructure, convergence activities and capacity building at 2014 levels. Net tangible incremental benefits from VSCO loan investments, physical infrastructure such as roads, bridges, irrigation and health benefits from improved drinking water supply and sanitation. Net incremental benefits from investments in micro-finance (VSCO funds) are generated under Component A2: Village Development Fund – Livelihood Support Fund. The table below summarizes the disbursement profile of funds with an estimated 73% of funds allocated to crop and livestock enterprises: Analysis of project MIS, Thematic Studies and field visits established that average productivity gains from access to VSCO loans were in the region of 20% across various cropping systems. Farmers also attributed lower unit costs of production to more efficient and timely acquisition of inputs and better terms of sale independent of informal credit agreements. 27 The MIS estimates for example that there were over 92,000 loans made to crop enterprises under Phase two. This analysis builds on the net incremental benefits of these increases in yield and cost reduction per unit area and multiplies by average farm size and the number of total beneficiaries. The two example below illustrate how increases in yield of paddy (the most widely grown staple) and onions (a high value vegetable) in combination with lower costs, increase returns to family labor. Paddy rice yields, costs and returns: Intensive irrigated onion production yields, costs and returns: The other significant generator of tangible incremental benefits derive from investments under Components A2: Community and Social Infrastructure Fund and B2: PS Inter- connectivity Fund.. Investments under A2 consist of small roads that improve access to villages, farms and social infrastructure, bridges, causeways, rehabilitated irrigation, drinking water supply and sanitation projects. VO communities with project support completed over 4,500 sub-projects over the four year implementation period. Incremental net benefits from roads, bridge sand irrigation are estimated through analyzed improvement in producer surplus from crop models that predominate in each project District. Discussions with farmers established that there were economic benefits from reduced post- harvest losses, lower input costs and better farm gate prices. Benefits from drinking water and sanitation investments were estimated in terms of physical time saved collecting water and economic gains from improved healthy days worked. PS Inter-connectivity Funds were deployed in larger infrastructure projects like wide-span bridges and longer connecting roads of around 1-2Km. At total of around 260Km of high quality roadways were installed over the project implementation period. A similar model of productivity, cost and sales price improvement was applied to PS roads and bridges, once again correlated with the main crops grown in each project District. Infrastructure investments delivered under CDD are estimated to be significantly lower cost that when constructed by Government institutions. The Phase One EFA21identified 21 Phase One ICR, 31 Dec, 2018, p16. 3.4 Efficiency 28 saving that averaged 36% while the infrastructure Thematic Study22 states cost reductions of around 10% in comparative studies. This study uses a conservative estimate of a cost reduction/saving of 20% of CDD delivered on all infrastructure projects. This benefit is accounted for as lower cost element equally divided over the first four years of the project.. Field surveys also established that CDD community based infrastructure was better built, better located, longer lived and has lower O&M costs than Government Agency built infrastructure. These benefits are not quantified in this analysis and add to the conservative nature of investment appraisal. The table below summarizes investments made under A2 Village Infrastructure Fund and includes the numbers of direct and indirect beneficiaries, project cost and community contribution: Source: Project MIS and Thematic Study As the Phase I and II PADs suggest, capturing all financial and economic benefits for project designs such as these presented difficulties. Many of the benefits are intangible and may only be captured by detailed social/income surveys over longer time frames. Significant proportions of project funding have been devoted to capacity building and training at the VO, PS and project management levels. Much of this activity is captured in project development objectives and thematic studies that concluded the project. No attempt is made in this analysis to capture economic benefits of capacity building and training. However, the implicit value of this investment is in the assumptions regarding sustainability and longer-term durability of project components to deliver incremental benefits into the future. Institutional and Administrative Efficiency: The premature dissolution of Gemi Diriya Foundation mid-way through project implementation, in favor of a Project Management Unit setup under the Ministry of Economic Development, resulted in some efficiency losses as the change process was protracted with slower progress in implementation activities during that period. As the PMU settled into its implementation role, project activities accelerated as there were dedicated teams in place to oversee critical aspects. In spite of administrative procedures being marred by delays in counterpart funding and Government’s eventual decision to cut out counterpart funding for the remainder of the 22 Thematic Study: Infrastructure, SCDLIP 10th Sept 2014, p70 29 project period starting from January 2014, the PMU was responsive to adjusting expectations to the changing operational landscape. Rating: Overall, Efficiency is rated as Substantial for the project (both pre- and post- restructuring phases). 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory Based on the above factors, the overall outcome for the pre-restructuring phase is rated as Moderately Unsatisfactory, primarily due to the low PDO achievement against the original targets. The outcome for post-restructuring phase is rated as Satisfactory. The split-rating based on the share of the loan disbursed in the pre- and post-restructuring phase is Moderately Satisfactory. Details of the calculation are provided in Annex 10. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Poverty Impacts. The project contributed to improving livelihoods and reducing poverty levels amongst beneficiaries. According to results observed in the IA, about 15% of beneficiaries categorized as poor at baseline have moved up to middle income status, while 50% of households categorized as very poor have moved into the poor category. In terms of the most vulnerable groups, the Impact Assessment showed that 24% of the One Time Grantees (OTGs) were able to improve their income generating ability and access VSCO funds. Many were elderly beneficiaries, others were widowed and still required long term support through public social safety net programs. Gender Aspects. The project created a considerable impact on female members in terms of their participation in the program. Access to VSCO loans has allowed women to engage in profitable agricultural activities and inculcated an entrepreneurial culture among them. A high percentage of women (67% against a project target of 50%) had taken up decision making roles in various committees of the VOs. Their active participation in the project led to increased confidence levels in promoting unity and being instrumental in the resolution of conflicts and gender-based violence in their communities. Social Development. The project’s targeting mechanism was considered to be effective. The independent impact assessment found that at least 85% of the poorest and poor beneficiaries were included in project activities. Out of these, approximately 35% of the poorest were able to occupy decision making positions in community institutions. VSCOs had minimized dependency on conventional money lenders and the various financial products offered, served to create a form of social insurance among the poor. (b) Institutional Change/Strengthening. Capacity building fund for village organizations helped to building capacities of village institution and members. Specifically it contributed to increasing the leadership and 30 financial management skills of women and youth. Capacity of PS staff and the community office bearers was strengthened through more than 380 training programs undertaken on a range of relevant topics including procurement, social audit, and infrastructure development. The placement of Project Facilitators at local level also contributed towards enhancing participation of PS staff in various programs and interaction with communities. (c) Other Unintended Outcomes and Impacts (positive or negative)  Producer Group interventions led to new crops being cultivated on a commercial level, such as pineapple in Polonnaruwa district and passion fruit in Hambantota district.  Due to communities’ abilities to demonstrate high quality of construction works through implementation of intra-village sub-projects, they were contracted by Divisional Secretariats to carry out additional construction works. This was a supplementary source of income for communities that received contracts.  Challenges experienced in collaborating with Technical Service Providers, particularly delays experienced in release of funds to cover construction costs led to price escalations resulting in higher cost for construction of select sub-projects. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops The ICR noted that the independent assessment carried out by RDS was based on a sound methodology however, more could have been done in deepening discussions around conclusions of findings. Thematic studies carried out by the PMU supplemented analysis based on using mixed method of quantitative analysis of MIS data and qualitative analysis through key informant interviews and focus group discussions of randomly sampled VOs. While income impacts were obtained through the independent survey, the project had a good MIS system and reliable collection of data on which the thematic studies provided good assessments of overall progress towards achievement of the PDO. The main highlights of the Impact Assessment are presented below:  71% (as against targeted 50%) of the HH showed average 20% or more incremental income compared to the Base Line average. Per capita income increased from Rs 3,669 to Rs 9,164 in Samurdhi VOs compared to baseline treatment VOs representing 150% increase. Same pattern was observed in demo VOs (235%), phase II VOs (133%) and phase I VOs (116%). The per capita income change in control areas over the project period was lower (106%) between baseline control and end project control in the Samurdhi VOs. 76.28% of HHs were utilizing improved community intra-village infrastructure and social services for intended purposes which surpassed the target of 70%. HHs utilizing facilities and services were 92.74% for roads, 87.83% for bridges, 94% for multi-purpose buildings, 82% for community water supply and 72% for sanitary facilities.  100% of Pradeshiya Sabhas implemented inter-connectivity sub-projects, and about 90% of them were road development according to the needs of the community.  The project was able to implement 463 community managed water supply schemes in 11 districts. Two water schemes in Hoberiyawa (connecting 5 villages) and Millaththewa in Polonnaruwa and Badulla districts had especially contributed to reducing Chronic Kidney Disease (CKD) case load. Almost 695 households in the 31 project area of the tea estate sector were provided sanitation facilities to improve their conditions. 83% of the villages were utilizing inter-connectivity infrastructure for intended purposes, compared to the target of 60%  100% of the project PS established O&M units and setup O&M funds, and 72% of the PSs adopted Governance Accountability Action Plan (GAAP) and Community Assessment Process (CAP) CAP and GAAP as self-control and self-improvement mechanism by implementing action plans.  A higher percentage of producer groups in every district benefitted from grouping and linking with private and public agencies in different ways such as increased accessibility to timely quality inputs, better pricing for their products, training opportunities and adoption of new technologies which led to increased productivity and income and reduced production and marketing costs. 4. Assessment of Risk to Development Outcome Rating: Substantial The risk that achievement of the development outcomes will not be sustained are considered significant. The main risks to project sustainability stem mainly from policy implications of the Divineguma Act on the functioning of village organizations and their institutional and infrastructure sustainability. Implications of the Divineguma Act (2013): At the time of ICR, the Divineguma Act remained the official policy orientation for rural development in Sri Lanka. About 15,000 graduate students were employed as Economic Development Officers and a review carried out by IEG in 2014 observed that their training was inadequate, remuneration was low and the rotating nature of their services had potential to undermine the approach to support well informed, pro-poor community assistance 23 . While its design incorporated some CDD elements, Divineguma primarily followed a supply driven approach in which communities were end-recipients of services (including financial) as determined through department structures of DDD. The Act did not define the level of participation at which community input could be made. The operational modalities and guidelines had still not been clarified at the time of the ICR. In the absence of well-defined regulatory framework that could foster effective engagement of communities at critical junctures, there is a risk of limiting the degree of freedom to which communities would have control over their assets and are able to manage their own funds. This restriction could jeopardize the key principles of the project and adversely affect community activities. Non-regulation of financial services: No Independent Prudential Regulator was provided for under the Divineguma Act. Section 35 of the Act removed the Divineguma financial services from the supervision of the Monetary Board of the Central Bank of Sri Lanka by 23 “Investing in Social Capital: Lessons from Two Decades of Village Development in Sri Lanka – A Project Performance Assessment of the Gemi Diriya Project in Sri Lanka (2004-2010)” Independent Evaluation Group (2014) Page 23. 32 stating that the Banking Act and the Finance Business Act would not apply. This was considered risky for the Village Savings and Credit Organizations (VSCOs) that were envisaged to promote competitive financial services that could eventually link to the formal lending system as it limited opportunities for leveraging additional resources. Lack of legal registration for VOs: VOs were expected to be registered through the DDD. As institutions with participatory activities involving financial transactions requiring structured oversight, VOs’ continued lack of legal status left them vulnerable to misuse, misappropriation of funds and at risk of increased and unmanageable loan defaults. The situation was even more critical for inactive VOs that had unutilized funds in Bank accounts where powerful community members could take advantage of the lapse in project monitoring to syphon funds. Sustainability of Community Intra-Village Infrastructure: As already mentioned, maintenance of infrastructure sub-projects implemented through local government structures were mainstreamed into provincial budgetary provisions of Pradeshiya Sabhas. However, sustainability of intra-village infrastructure depended largely on the operation and maintenance (O&M) capacity of responsible communities. Most of the VOs had established O&M funds although additional funding support was still required for some technical services. Without systematic linkages to relevant line agencies/departments for continuous support, long term maintenance of sub-projects could be jeopardized. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The Bank's performance in the identification, preparation, and appraisal of the project was moderately satisfactory. During preparation and appraisal, the Bank took into account the adequacy of project design and all major relevant aspects, such as technical, financial, economic, and institutional, including procurement and financial management. Several alternatives were considered for the project design. In addition, major risk factors and lessons learned from Phase 1 as well as international and regional experiences in rural sector were considered and incorporated into the project design. Project preparation was carried out with an adequate number of specialists who provided the technical skill mix necessary to address sector concerns and a good project design. The Bank provided adequate resources in terms of staff weeks and funds to ensure quality preparation and appraisal work. The project was consistent with the CAS and government priorities in the sector at the time. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal. While the team was cognizant of Government’s interests for implementing future rural development programs through government systems and agreements had been made to 33 phase out GDF at the end of project period, there was no transition plan developed in terms of how this process would be operationalized. This transition plan along with a clearly developed communication strategy could have been used as a basis for ensuring consistent engagement with higher level officials and could have potentially minimized negative speculation associated with the project. As a result the quality at entry is rated Moderately Satisfactory. (b) Quality of Supervision Rating: Moderately Satisfactory The Bank's performance during project implementation was moderately satisfactory. The Bank allocated sufficient budget and staff resources, and the project was adequately supervised and closely monitored. The task team regularly prepared Aide-Memoires, alerted the government and MED about issues identified during project execution and facilitated prompt corrective action. The last nine months of implementation saw more frequent support missions to assist with the project team’s accelerated completion plan. While the PMU was appreciative of the collaboration with the Bank, it stated in its PCR that the Bank Team did not pay adequate attention to developing an exit strategy for VOs, however, supervision reports indicate that the issue was extensively discussed with the counterpart and adequate guidance provided to initiate the process but project team did not follow through on recommendations made. The Implementation Status Reports (ISRs) realistically rated the performance of the project both in terms of achievement of development objective and project implementation. On the other hand, during four years of implementation, Task Team Leader (TTL) of the project changed four times. However, all TTLs had been core team members and while their beliefs and styles of managing the project varied, there was consistency in understanding the issues faced by the project and what was required to address these. The problems affecting the project surfaced shortly after effectiveness and while there were efforts made to manage the issues that emerged, action could have been taken much earlier to restructure the project and create adequate space to negotiate a smoother transition. Thus, rating for quality of supervision is Moderately Satisfactory. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory With a Moderately Satisfactory rating for both quality at entry and for quality of supervision, overall Bank performance is rated as Moderately Satisfactory. 5.2 Borrower Performance a) Government Performance Rating: Moderately Unsatisfactory 34 The government had shown commitment at the time of project preparation. However, with the change in the political environment in the country following the May 2010 elections, government commitment towards the project significantly declined. In the late stage of implementation, Government took a decision to suspend counterpart funding to the project prompting a project restructuring to revise funding ratio to 100% IDA financing. Still, GoSL requested an extension of the closing date so that activities could be completed and project funds fully exhausted. Delayed approval of project budget, in spite of changes to the funding ratio, negatively affected many implementation activities such as producer group activities that were curtailed. There were protracted delays in the decision to dissolve GDF, which further contributed to delays in restructuring the project. The Government did attempt to make a final push for a smoother transition and discussed a possible 3 month extension up to December 31, 2014. This did not materialize and an official request was not made to the Bank. Since 2012, supervision reports showed that the Bank made several requests to the Government to provide legal recognition to VOs through registration, however, the process was prone to delays and postponement until the Divineguma Act came into effect. Still, the Divineguma Department had not completed preparation of its bye-laws and guidelines which left the majority of VOs with no legal status and therefore, vulnerable. At the time of the ICR, the VOs created under the project did not have any legal standing. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory. Major changes happened in the first year of project implementation when the Project Director changed three times and a number of experienced staff also left the project. Many vacancies remained unfilled for a long time. The replacement of GDF with Project Management Unit under MED saw retention of staff from Phase 1 who were familiar with the CDD model and project management. Overall, the PMU did have dedicated and qualified staff who collaborated with the Bank team and carried out most aspects of project management in compliance with Bank procedures and guidelines. Fiduciary ratings remained conservative due to the nature of the project and level of risk exposure involving multiple transactions of over 2000 village organizations. PMU’s district project management unit (DPMU) and PS level structure PIU staff were generally highly committed and motivated. Their valuable inputs played a major role in the project’s achievements. The project did not have a full time project director, as he was also appointed as the project director for 3 other donor funded projects which created issues with respect to provision of timely decisions and the need to have focused attention given the tensions that existed with senior government officials. The project had built on previous experiences of Phase 1 and had a feedback and communication mechanism that worked well internally but was not externalized to inform and engage higher officials about project results. In spite of repeated offers to support the project team to develop a communication strategy that would assist 35 them in effectively engaging higher level officials, the project team did not follow through. This contributed to the continued negative perception of the project at the high level. While the fiduciary requirements were largely in compliance and FM and Procurement were rated MS for a long time, the allegation of misuse of funds that emerged at the tail end of the project necessitated downgrading the rating to MU as this indicated weaknesses in internal control systems. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory The wane in Government commitment and the slow response in budget approval caused significant implementation delays. Government was also not able to address the legitimacy issue of VOs even when requested to consider alternative options while the Divineguma bye-laws were still under finalization. These deficiencies were overcome by the successful implementation of the project by the changing project implementing agencies resulting in substantial realization of the PDO. Given that the overall outcome of the project is rated as Moderately Satisfactory, the overall Borrower Performance has been rated as Moderately Satisfactory. 6. Lessons Learned The project went through a cycle of changes during its implementation but emerged with important lessons that could potentially inform the future design of similar operations in the country as well as outside. The lessons are given under two broad categories: Lessons for the Sri Lanka Country Program Effective implementation of a project that is expected to be integrated into Government Structures requires a clear implementation plan (prepared at design) to facilitate a smooth transition: Although it had been agreed at the time of project preparation that the Gemi Diriya Foundation would be dissolved at the end of Phase 2 operation, there was no clear strategy and implementation plan of how this process would be undertaken. This plan, if prepared, could have been used as a basis for keeping higher authorities informed about the transition process and to allay any concerns on the operations of the Foundation. Development and implementation of a Communication Strategy could increase ownership and buy-in from uncertain Stakeholders: The project had done well in developing internal communications systems particularly at the community level (Communication tree), however, the project's engagement with senior government officials was weak and thus, was unable to effectively show its potential for results. It is important to ensure that good coordination mechanism is in place with the line ministry and political authorities are well informed about the project objectives and principles from the beginning to get maximum support from line ministry and political authority. 36 It is important to deepen understanding of institutional and governance analysis for countries in transition: The May 2010 election brought about political change in Sri Lanka and with it, critical changes to the design and implementation modalities of the SCDLIP. The preparation process could have benefitted from a better understanding of the implications of institutional and governance systems, and could have incorporated this analysis into the risk assessment and tied it into an effective communication strategy and transition plans. The perception of parallel structures can create tensions in the implementation of a CDD approach: The Gemi Diriya Foundation was felt to be the most suitable agency to continue supporting communities under the second phase as well as to test out a new approach within the project. The key term here is flexibility, which is critical in a demand driven approach. The level of flexibility required is often seen as ill-matched with Government structures that already exist to carry out similar functions. For future projects, it will be important to establish a middle ground in which clearly articulated complementarities are well defined for future convergence. Long term sustainability of investments requires consistency in approach and long term commitment from key stakeholders. Weaknesses in ownership of the Gemi Diriya program adversely affected community enthusiasm and trust in project functions. The erosion of community trust could create challenges of sustaining long term impacts of investments made. Lessons for CDD Operations Participatory planning, decision making and sense of ownership impacted heavily on project achievements. The project had a strong participatory approach on planning, decision making and implementation. The preparation of community manuals through a participatory process with communities provided clear direction of how to implement community projects. As sub-projects and community level activities were prioritized with strong beneficiary participation, community commitment was extremely high. Community contribution, for the time it remained part of the project design prior to restructuring, was highly regarded as having contributed to the strong sense of ownership that beneficiaries had over project investments. Community Professional (CP) model emerged as a strategy for sustaining village level activities. The project was successful in building localized capacity at community level to address many of the immediate challenges faced by VOs regarding guidelines and procedures of how to implement village activities. CPs were considered to be potential substitutes for the eventual phase out of project staff facilitation. However, incentives for CP engagement were directly linked to VOs abilities to pay for services, something which could only be done through efficiently functioning VSCOs who could provide continuous source of funding to maintain such services. The mix of public and private goods in CDD operations is challenging in the absence of linkages to local authorities and federation of societies to anchor activities related to 37 public and private good service delivery. The decision to combine public and private goods at design was done with the expectation that the activities would be mainstreamed into two institutional setups of Samurdhi Authority and Federation of VOs for support of public goods and private goods services respectively. When the two institutional structures did not fully mainstream VO activities due to the restructuring, it placed the burden of a dual responsibility mainly on VOs, which proved to be extremely challenging and unsustainable for the long term. It is critical that a project of this nature works through these institutional settings to address these challenges and minimize the inherent risk of funding both types of activities. Estate Sector benefitted greatly from infrastructure support but revolving fund system required a different approach. The Gemi Diriya Project was the only project in the rural development sector to fully support the Estate Communities. Estate communities had been largely neglected and support was successful in delivering much needed infrastructure services that created the appropriate platform for other government services to reach them. Health specialists began to provide advocacy services once sanitation facilities were improved as they saw potential for greater impact in creating awareness about hygiene practices, which was not possible before. This demonstrated scope for estate communities to be organized to tap into additional government services. However, the revolving fund as implemented in other non-estate VOs was not as effective in Estate communities because of the extremely low levels of literacy. A very different approach for revolving fund is needed for these communities as capacity is insufficient to sustain operations for the long term. Governance and Social Accountability tools were successfully mainstreamed into project activities enabling devolution of power over local resource management to communities and empowerment to have direct control over resources and decision making. The project created social capital through local institutions in a participatory, accountable and responsive manner. Social capital was further promoted through increased transparency in decision making induced by the project through Community operational Manual, social audits, Governance and Accountability Action plan (GAAP), Community Assessment Process (CAP) and grievance redress systems from grass root to project level. These issues of voice and accountability were critical for deepening participatory processes at rural village level and ensuring sustainability of project created assets. Producer Groups were successfully linked to Government supported programs as well as private sector firms. In place of Federation of VOs, the project refocused support for small farmers organized around common interest activities and successfully managed to link them to government programs mainly supporting the livestock sector (dairy) as well as private sector agro-processors. Small and marginal farmers began to engage in contract farming, out-grower schemes and were accessing critical technologies and inputs to improve productivity. However, continuous engagement required mechanisms and support systems to be in place and functioning to minimize risks of failure. Ideally, Federations of VOs would have played a facilitative role of long term institutional connection, business monitoring and sustaining of market and other linkages. If PGs were to fail due to the absence of institutional support and oversight, the greater burden would fall on VOs and 38 VSCOs capacity to sustain because proper functioning of PGs contributed to a healthier financial portfolio for VOs. With a possible successor project, more could have been done to focus on institutional building for these groups to consolidate benefits gained, optimize income generation and reduce failure risks. VOs that had implemented both private and public good type of intra-village infrastructure were better positioned to maintain infrastructure for the longer term. Implementing infrastructure projects such as water supply schemes along sub-projects such as roads and culverts, allowed VOs to collect monthly user fees directly from beneficiaries that supplemented funds collected for maintenance of public goods infrastructure. O&M fund accounts were significantly larger for VOs that had combined water supply schemes and public goods infrastructure sub-projects than for VOs that had only implemented public good type of infrastructure providing the former with more financial flexibility to address O&M issues as needed. VO model and approach demonstrated complementary benefits to Government poverty reduction programs. The VO structure together with various capacity building programs combined efforts to improve social development as reflected in empowerment, gender equity, rural leadership, social capital, and social harmony. The government organizations which were servicing the rural development and poor and youth, had easy access through VO platforms to provide services thereby creating complementary benefits for rural development. CDD approach demonstrated community abilities to find voice, create social capital and establish institutions that could be used to efficiently target beneficiaries for resource allocation. VOs emerged and filled a critical gap between communities and the lowest level of local governance (Pradeshiya Sabhas) and were well placed to become the most suitable conduit for last mile service delivery. CDD approach through VOs and VSCO mechanisms put in place thrived because of project oversight, original transparency mechanisms developed, core principles incorporated and the capacity built. It is essential for these elements to be in place for institutionalization or scaling up of activities and equally important, the need to constantly monitor and dialogue with communities and authorities on the limits of community group independence and allowing downward accountability. Institutionalization and provision of legal status would have been a great opportunity to mainstream tried and tested approaches through local government structures. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower expressed concern about the overall rating of Moderately Unsatisfactory. The ICR noted that the project made substantial achievements in attaining and exceeding most of the targets set for performance assessment. The achievement was primarily driven by a very strong project design that successfully developed policies, rules, systems and procedures that were mainstreamed into overall implementation. While the prevailing policy environment was not the most conducive, strong commitment from the project implementing agency compensated for Government shortcomings and contributed to 39 delivering an MS project for achieving the PDOs. Therefore, Government rating is maintained as Moderately Unsatisfactory. However, the overall Borrower performance is rated as Moderately Satisfactory based on considerations of the achievement of the PDO. (b) Co-financiers N/A (c) Other partners and stakeholders N/A 40 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Percentage of Estimate at Actual/Latest Estimate Percentage of revised at Components restructuring Estimate (USD (USD Appraisal restructuring (USD millions) millions) millions) Component - A 59.40 59.83 58.71 98.8% 98.1 % Component - B 30.00 18.20 16.53 55.1% 90.8 % Component - C 4.40 3.71 3.64 82.7% 98.1% Component - D 7.80 11.33 11.22 143.8% 99.0% Component - E 3.40 7.28 6.97 205% 95.7% Total Baseline Cost 105.00 100.35 97.07 92.4% 96.7% Physical Contingencies Price Contingencies Total Project Costs Front-end fee PPF Front-end fee IBRD Total Financing Required 105.00 100.35 97.07 92.4% 96.7% (b) Financing Appraisal Estimate at Actual/Latest Type of Co Estimate restructuri Estimate Percentage Source of Funds financing (USD ng ( USD (USD of Appraisal millions) millions) millions) International Bank for Reconstruction and 75.00 77.54 /* 99% Development 74.26 Borrower (GOSL) 18.00 14.84 14.84 82.4% Community 12.00 7.97 7.97 66.4% Total 105.00 100.35 97.07 92.4% 41 Annex 2. Outputs by Component -CDLIP · Component Outputs A 1. 1. 94% of VOs formally registered, receiving funds and effectively implementing Developing village priorities. and 2. 65% of decision making positions of committees and sub committees are held by Strengtheni women and youth respectively ng of Village Organizatio ns and Estate Communitie s A2. Village Developmen t Fund Category of Sub Projects (Intra-village) Bridges, Culverts Building Projects Drinking Water and Causeways Development Total No of Completed Sanitation Irrigation Others Road Component No of A- Intra- Sub 263 225 170 84 652 2,845 444 4,683 Village Infrastructur Projects Development e Started No of Sub Projects 253 219 104 82 645 2,836 429 4,568 Comple ted Percent age of sub 96.2 97.33 61.18 97.62 98.93 99.68 96.62 97.54 projects 0 complet ed (%) 1. 75% VOs that have been graded as category A or B. 2. 100% of VOs submit monthly progress reports within the agreed time period Institutional 3. 99% of CRPs are deployed and trained. Development 4. 73% (691) of sustainable VOs built. 5. 66% of office bearers of VOs who maintain satisfactory ratings in community assessment 1. % OTG beneficiaries received the one time grants = 94% Onetime 2. % of OTG beneficiaries managed to qualify for VSCO loans – 29% Grant and 3. % of OTGs started income generating activities (success rate) – 91% Skill 4. % of youth obtained skill development training through Skill development loans Development programme – 58% 42 5. % of youth circles actively functioning – 57% 6. % of youth employed through skill development programmes - 59% 7. % of youth paid back the skill development loan borrowed – 44% 8. % of females accessed SD loans – 36% 9. % of employability after skill development training – 72% 1. % of VSCOs ranked under A & B grades – 64 2. % of VSCOs covered their operational expenses – 73 3. % of VSCOs maintained PAR below 5%- P1-27, P2- 73 VSCO 4. % of Poor HHs benefited through VSCOs- 60 Livelihood 5. % of Youths benefited through VSCOs- 21 6. % of bank linkages formed- 265 7. % Beneficiary HHs obtained credit insurance- 61 Category of Sub Projects Bridges/C-ways Water project Total sub projects Trade Fairs Buildings / Irrigations Component 2 - Inter- Road Connectivity Village Development No of Sub Projects Started 47 10 8 1 1 67 No of Sub Projects 47 10 8 1 0 66 Completed Percentage of sub projects 100 100 100 100 - 98.51 completed (%) 1. % of Producer Groups Formed – 101 (433) 2. % of Producer Groups Funded – 101 (433) 3. % of Producer Groups ranked under A & B grades – 48 (211) Component 3 - Public, 4. % of Poor HHs benefited through PGs – 69 People and Private Sector 5. % of Producer HHs have been trained for technology – 92 (64341) Partnerships (Producer 6. % of farmer conferences conducted – 70 (35) Groups) 7. % of PGs Established Partnerships and linked (Technical/ Input/ Marketing/ Financial) – 85 (368) 8. % of PGs covered their operational expenses – 63 (273) 1. % of VOs received project funds on time – 68% (640 out of 948) Component 4 - Project 2. % of projects documents (ie.QPR) delivered on time - 78% (14 out of 18) Management 3. Establishment and functioning of a MIS for the project – Yes (100%) 43 1. % Number of Samurdhi and demonstration villages become “A and B” graded villages (82%) 2. % of Samurdhi and demo villages receiving and managing direct funds, planning, implementing, and maintaining sub-projects according to the rules set out in the COM (84%) Component 5 - Convergence and 3. % of demonstration and Samurdhi villages applied CAP and GAPP Policy Support covered under Phase II (89%) 4. % of infrastructure sub-projects completed under Samurdhi and Demo programs (79 %) 5. % producer groups formed and funded under Samurdhi and Demo programs ( 85%) 44 Annex 3: Economic and Financial Analysis Introduction The second phase of the CDLIP was launched with GOSL acceptance of the design and approach of the project and granted title of Second Community Development and Livelihood Improvement Project (SCDLIP). The CDD approach remains the primary vector of intervention with an emphasis on a graduation of autonomy through capacity building and training from village to local government level with the Pradeshiya Sabha (PS). Inter village connectivity development with an emphasis on larger infrastructure, installed operation and maintenance programs and capacity building at PS Zonal level was included as an enhanced component from March 2010. Consistent with APL Program goals, the project development objectives of Phase II is to enhance incomes and quality of life of the poor households in the poorest divisions in the country while building capacity of government agencies, local governments and community organizations for downward accountability and overall project implementation. As with Phase I, no ex-ante estimation of rate of return to the project investments was made in the PAD. The original justification of this was the demand driven nature of community– led investment design of the project and the fact that empowerment and strengthening of communities and institutions targeted by the project was difficult to quantify for cost- benefit analysis purposes. Section IV Appraisal Summary of the PAD outlines areas of intervention and anticipates significant economic and social benefits. Annex 11: Economic and Financial Analysis (EFA) in the PAD focuses on income impacts in a number of agriculturally based activities but makes no attempt to aggregate these in a cost benefit analysis. The ICR Phase I Annex 3 EFA provides a detailed analysis of project costs and benefits based on contributions from productivity gains in agricultural activities funded through VSCO loans. Financial contributions from infrastructure are based on estimated cost savings in construction and increased economic life when community based construction projects are compared with Provincial Roads Development Authority Estimates. Aggregated benefits are estimated to provide returns of 31.7% and 30.2% for financial and economic IRRs respectively. The project has supported intra-village development interventions in about 652 GNDs (about 942 villages), inter-village development in 10 PS Zones and further strengthened Phase 1 village organizations. Project activities have benefit approximately 220,000 households (872,000 persons) of Phase II. Phase II of the CDLIP included the five main project components: (a) Intra-village Development; (b) Inter-village Connectivity Development; (c) Public, People and Private Sector Partnerships; (d) Project Management and Monitoring; and (e) Convergence and Policy Support. The total investment allocated was US$ 105 Mn, which included US$ 18 Mn from GOSL, US$ 75 Mn form IDA and US$ 12 Mn from the communities. However, after restructuring the project in 2013, the allocation of investment was changed as 45 US$ 77.54 Mn from IDA; US$ 14.84 Mn from GOSL and US$ 7.97 Mn from the communities and cancelled the proposed third phase of the CDLIP. Estimation and Methodology Benefits are quantified by identifying tangible financial and economic impacts in three of the five project components: Intra-village Development, Inter-Village Connectivity Development and Public, People and Private Sector Partnerships. The latter focusing on development of Producer Groups, institutional capacity building, training and “convergence” with local Government, National institutions and the private sector. Tangible benefits are analyzed in Intra-Village Development under component A2: Village Development Fund sub-components Community and Social Infrastructure (roads, bridges, irrigation, culverts, water distribution and sanitation projects) and Livelihood Support Fund (One Time Grants, Skill Development Fund and VSCO loans through VOs). Benefits accruing from Component B: Inter-Village Connectivity Development derive from sub-component: Infrastructure Sub Projects which includes roads, bridges and some new irrigation infrastructure. Benefits accruing from Component C: Public and Private Sector Partnerships are allocated to Producer Group productivity gains resulting from the disbursement of grants (based on the number of members per group) typically used for collective investments in buildings, specialist equipment and in the case of tea, major rehabilitation or replanting. Under- pinning the assumed productivity gains are significant intangible benefits from training and collaboration with National institutions and the private sector. Investment amounts for each sub-component are derived from a combination of project based COSTAB which estimates total aggregate spending and individual component spending from Thematic Studies and project MIS. The project underwent two significant restructuring events during implementation, which have complicated matching aggregate disbursement with component implementation on the ground. In some cases restructuring required the switching of funds from component to component and significant delays in some implementation schedules. This analysis aims to unify these changes through the allocation of component expenditure (and hence implementation) on a pro rata percentage of total expenditure on an annual basis over the implementation period. Similarly, where the total numbers of beneficiaries are known but need to be allocated over the implementation period, the disbursement schedule is used to determine annual increases in beneficiary numbers. Data Sources The data for this cost benefit analysis was gathered form numerous sources. They include: Project audited accounts, project MIS database, nine thematic studies compiled by senior project staff, Project Completion Report (Borrower’s Report) and an externally commissioned Impact Assessment Report IAR). The latter is the main external independent perspective of the project and specifically required to assess “impact” in terms 46 of physical delivery and socio-economic changes. The delivered report presented a statistical analysis of a broad ranging questionnaire but did not provide detailed analysis of ground level interventions or impacts. Data could not be disaggregated or attributed to subcomponent investments and was largely unusable for cost benefit analysis. Additional data was gathered from ICR field trips, secondary agricultural data publications and case studies used to supplement gaps in the IAR. Assumptions for EFA Total project costs are included in Sri Lankan Rupees converted at annual average exchange rates and total 11,692.249 M Rs. or a revised USD total of $100.35m. Detailed component breakdown is provided in Annex 1. The conversion of financial to economic prices was done through the use of parity prices for internationally traded inputs and outputs and a Standard Conversion Factor (SCF) for non-tradable inputs and outputs with the exception of labor costs where a SCF of 0.8 was applied. Project Component Benefits Village Development Fund (VDF) The VDF has a total budget allocation of 5,355.8M Rs, which represents 45.84% of total project expenditure. Of the four sub-components, this analysis focuses on the two elements that generate significant tangible benefits. These are: the Community and Social Infrastructure and Livelihood Support Fund. The Community and Social Infrastructure Fund This sub-component totals 3,589.91M Rs or 30.7% of total project costs and was disbursed over the implementation period in stages into a variety of infrastructure categories determined by committees within Village Organizations (VOs). This analysis focuses on tangible benefits generated from investments in: Rural Roads, Irrigation, Drinking Water Projects, and Sanitation. MIS data estimates total expenditure on all community-generated projects of 2,163.05M Rs of which 31.2% was contributed by communities in cash or in kind. No attempt is made to disaggregate this contribution in EFA terms. However, the majority of contributions will be in the form of labor and the likely effect of applying a SCF of 0.8 to this will be to increase the economic returns of such investments. Rural Roads This analysis relies on the project MIS and Infrastructure Thematic Study for main infrastructure and beneficiary drivers used to derive incremental net benefits of these investments. A total of 2,771 sub-projects were completed with a total road length of 468Km completed. Total cost is 1,362.09M at an average cost of 2.91M per Km. Beneficiary Households (HH) are estimated at 128,305 (Direct) and 341,724 (indirect). There was no clear consensus on how to allocate either costs or benefits to indirect beneficiaries in discussions with project staff. At the project level there was some resentment from VO members to outside use of infrastructure that they had contributed 30% of the costs and all of the maintenance. However, there will clearly be economic benefits generated by indirect beneficiaries that need to be captured. For this analysis it is assumed that 50% of indirect beneficiaries are included in the aggregate net benefits. 47 Financial and economic benefits are calculated by aggregating total rural road length in each Project District. To this, a four-crop model made up of the predominant crops prevailing in each District is applied. The impact of a new or improved road is estimated by calculating changes in planted area (also a function of land-use intensity), improvements in productivity, reduction of post-harvest losses and an effective increase in the farm gate price. The latter is implied in the model where output prices for commodities like paddy and maize are fixed by National agencies. In this case an increase in the farm-gate price is a reflection of a reduction in transport coats of marketable crops and inputs. The model estimates incremental benefits for the road catchment over a 20-year period. Estimated beneficiaries number 172,154 with an annual incremental benefit of 82.45M Rs. Irrigation Investments Project MIS estimates a total of 77 irrigation projects covering 2,087Ha over 5 Project Districts. It is assumed that the majority of these are rehabilitation of existing infrastructure and are not additional area. The financial model assumes that four crops (paddy (75%) maize (10%), onions (10%), and bananas (5%)) are grown over the entire area. It is assumed that productivity in increased by 30% in terms of yield. Costs associated with harvesting and processing are also increased to reflect higher yield. Once the full area has been planted, annual incremental benefits are 176.6M Rs and a total of 4,266 direct and 5,226 indirect beneficiaries or an incremental benefit per beneficiary of 18,674 Rs. Drinking Water Projects MIS estimate a total of 84 Drinking Water Projects established over the implementation period. It is estimated that there are 5,753 direct and 2,523 indirect beneficiaries covered by the investment. Benefits accruing from water distribution investments accrue from health improvements, operational and maintenance fees and an estimate of time saved per beneficiary per day. Improvements in health are estimated using Daily-Adjusted-Life- Years (DALY), a WHO metric that aims to quantify “one lost year of healthy life” valued at per capita GDP. In this example DALY data for Diarrheal diseases is taken from the WHO data set for Sri Lanka. DALYs for diarrhea in Sri Lanka are estimated to be 153 per 100,000 of population. This number is scaled down to a number of project beneficiaries as a proportion of the total population and multiplies by per capita GDP in Rs. Incremental benefits are derived by assuming that the incidence of disease is reduced by 70% once water is treated. Time save per beneficiary is estimated at 1.5 Hrs per day and valued at 800Rps per day as the opportunity cost of labor. Total annual incremental benefits reach a maximum of 20.1M Rs per year. Sanitation Projects MIS records a total of 405 sanitation investments targeting 13,689 direct and 10,466 indirect beneficiaries and investment of 186M Rs. Health benefits are calculated in the same way as above estimating project DALY values. Annual net benefits are estimated at around 17M Rs annually. Cost Savings Under the CDD Approach Combined analysis from Phase I and Phase II indicates significant cost saving delivered under CDD project identification and management. Saving originate from better 48 management materials, reduced supervision costs and the use of competitively prices community labor and in-kind contributions. Average cost savings are assessed at an average of 20% compared to conventional construction methods managed by local and National Government Agencies. Savings are aggregated with PS projects under Inter- Village and summarized below. Livelihood Support Fund (LSF) The LSF had a total budget of 1,304M Rs which represents 11.16% of the total project budget. The fund has three main micro-finance components; Village Savings and Credit Organizations (VSCOs) One Time Grants (OTG) and Skill Development Loans. VSCOs As with the Infrastructure fund, VSCOs are administered through the Village Organization (VO). VSCO funds are directly allocated out of the VDF with a maximum set at 1M Rs per village or 25% of the total VDP fund. The number of active VSCO funds corresponds directly to the number of operational VOs. Phase II of the project resulted in 946 active VSCOs by September 2014. These VSCOs had by then disbursed 1,066.06M Rs in nine project Districts. This loan book has expanded to 2,182.59M Rs, which reflects a loan utilization rate of 204% or a complete recycling of initial funds. Initial loans were limited to 10,000 Rs per applicant and increased thereafter to a maximum of 50,000 Rs then to an upper limit of 100,000 Rs per applicant. VSCO loan products cover four main types: Agriculture, Animal husbandry, small industries and others. A total of 135,475 loans have been disbursed with 70% allocated crop agriculture, 4% to livestock, 21% to small industries and 6% to others. This analysis will focus on the estimated returns from agriculture i.e. crops- Maize, onions, paddy and banana distributed in area 25%, 12.5%, 50% and 12.5% respectively. Animal husbandry loans are assumed to go to dairy production exclusively. A lack of detailed data for small industries and others prevent inclusion in this analysis. Crop models for each of the four selected crops have been built using data collected from field visit case studies and published farm management handbooks. Establishing direct financial benefits exclusively from access to VSCO funds is problematic. This is because of complex interactions between multiple project interventions (VO capacity building, community based infrastructure and social cohesion developed through collective management of funds.) There are however common threads to VSCO loan member’s response that support an estimated increase in productivity (yield) of around 20%24. A higher degree of certainty in obtaining credit allows better planning of farming activities. Once established as a VO and VSCO member, the process of applying and receiving loans is much easier and quicker than with a commercial bank. VSCO interest rates are set at 18% - considerably higher than some commercial loans, yet VSCO prefer to borrow from their own fund. The interest is put back into the fund and 24 Thematic Study on Micro Finance, PMU, 10th November 2014, p34: VSCO loan analysis. 49 increases the total amount available to borrow on the next occasion. Most crop loans are used to fund mechanized land preparation, improved seed and fertilizer. Rapid access to funds allows timely access to these inputs allowing farmers to plant and carry out operations at critical times. Crop input loans are generally paid back once the crop is harvested, i.e. over a three – four moth period for each crop in the season so accumulated interest is not a large proportion of total costs. An alternative to VSCO funds and commercial banks are traditional moneylenders. Typical interest rates are around 20% per month and require significant pledges of collateral including title to land. Informal loans are commonly linked to input suppliers and product buyers with loan recovery in shares of produce sold. This system of loan recovery in-kind frequently costs more that informal interest rates. The opportunity cost of this financial alternative is not included in the analysis but clearly forms an element of cost and risk reduction. Capacity building and book keeping training has increased financial literacy and instilled knowledge in financial management and farm budgeting. VSCO loan recipients have a clear idea of what their costs and revenues are and have adapted crop choices to reflect higher returns. Crops like vegetables and bananas are more capital intensive and more risky to grow if planning and marketing are not well planned. The returns are significantly higher though demonstrating significant returns to growers. Benefits to VSCO members growing maize Average farm size for all crop enterprises is assumed to be 0.5 Ha and farmers are assumed to use hybrid seed in combination with correct levels of fertilizer. Maize farmers typically do not use herbicides preferring instead to use manual labor ridging rows of crops and high plant populations to encourage canopy closure as soon as possible. Fertilizer applied to maize is subsidized by the GOSL effectively halving the real cost. Maize prices are also fixed at 32 Rs per Kg, which is very close to the import parity price. The subsidy will increase returns to farmers but lower the overall project EIRR. Returns to Paddy farmers Case studied with producers support an estimated 20% increase in yield across seasons. Fertilizer subsidies effectively reduce the real cost to a sixth of the import parity prices 50 boosting returns to farmers. Sri Lanka is close to self-sufficiency in rice production with imports limited to specialty varieties from Thailand and India. Paddy prices are fixed by the Paddy Board at 40 Rs per Kg which is below the implied import parity price including duty. Farmer’s incremental income is 42,158 Rs per Ha with costs of production around 13% lower as unit output rises proportionately more than input costs. Benefits to Onion Growers Conversations with vegetable producers during the ICR field visit in October 2014 confirm the realistic assessment of a 20% increases in yield. Moreover, access to VSCO funds and training provided an incentive to switch from less profitable crops to high value crops like onions. Annual per Ha incremental benefits are 119,150 Rs per Ha, returns to family labor are significantly higher than opportunity costs and unit input costs fall by around 16.6%. Vegetable crops are more labor and management intensive. Crops require careful management of water availability under rain-fed conditions and good knowledge of pest and disease management. Banana Grower Benefits Banana growing if done intensively, provides the highest returns to labor and per Ha. It is however a capital-intensive crop to establish requiring one-year lead-time before yields delivers cash flow. Investment costs for establishment of over 350,000 Rs per Ha require financing in excess of VSCO loan limits so savings or access to additional credit will be required for areas of one Ha and over. Dairy Producer Benefits The dairy benefic calculation needs to take into account a transition from a traditional “free- range” farming system where cattle are allowed to roam and graze what fodder they can find to a semi-intensive management system that include exotic crossbred types, specifically grown fodder, bought in feed, careful veterinary management and detailed record keeping. Producers have used VSCO loans to achieve this transition and increase productivity considerably. Productivity is measured in milk yield in liters per cow per day, fat content in milk (milk quality), active economic life span, and number of lactation days 51 per calving, interval between claves and the value of calves sold. Where manure is not immediately recycled in fodder production, this also has a value. Improved breeds also require permanent shelter from the elements, access to clean water and continuous veterinary attendance. Producers also need to invest in milk collection equipment that can be sterilized to minimize contamination and wastage due to poor storage. The model used in estimating returns to producers integrates these factors including elements that depreciate buildings and equipment and allow for cow replacements net of cull cow values. The GOSL is actively supporting the expansion of dairy production in the country and has set a base price of 50 Rs per liter of milk. Where farmers are skilled and manage heard genetics and nutrition, prices are higher due to higher levels of both fat and solids not fat in the milk. Dairy processors are willing to pay a premium for this and offer higher prices. GOSL also offers to supply approves crossbred cattle at a maximum purchase price of 30,000 Rs per head. Cattle purchased on the open market but also from approved breeders can cost over 40,000 Rs per head. Farmers interviewed during the ICR mission said they would clearly purchase animals under the subsidy if available and through a complicated approval system. Many simply went to the open market and bought the best quality animals they could find fully aware that the marginal extra cost would be rapidly recovered through higher yields and quality. The model provides for cattle replacements over the-20 year project cycle so net cash flow varies depending on the regularity of replacement. Over the 20 year estimated cycle, average incremental net benefits of improved semi-intensive dairy production are 45,618 Rs per animal per year. Aggregate net benefits from VSCO investments are derived from assuming that 5% of loans from the fund are allocated to livestock and 70% of this is allotted to dairy production. One Time Grants OTGs were designed as a specifically pro-poor micro-finance product allocated by VO committees out of a specifically allocated fund. Typically the fund was 5% of LSF and has been distributed to levels approaching 96% across 948 Phase II VOs. Total grants disbursed during Phase II totaled 151.15M Rs to 7,744 individuals. One of the main objectives of the intervention was to provide a financial “leg-up” to poorer individuals or HH and allow them to become credit-worthy and eligible to join VSCO lending groups. Thematic study estimates suggest 38% of OTG recipients go on to VSCO membership and progressing on from there to entrepreneurial success. Financial returns to OTGs are very difficult to model due to lack of detailed data. For this analysis it is assumed that each OTG invested generates modest additional revenue of 5,000 Rs per year over the 20-year cycle. This will be an over estimate in some cases but if leveraged against progress to VSCO access, feasible. Annual cash flows are estimated to reach 38.7M Rs at full implementation. Skill Development Loans SDLs were dispersed through 946 active VOs with a total value of 279.79M Rs to 11,456 recipients. This provides an average loan of around 26,000 Rs per recipient. The majority 52 of loans were taken out for training in driving (40%), IT skills (21%) and dressmaking (20%). Each loan of just under $200 has limited purchasing power to accumulate significant technical skills in the semi-rural context and the occupations derived reflect this. Many of the drivers qualified to operate three wheeler taxis often driving for a “commission” based wage paid by the owner of the vehicle. As with OTGs, if the loans are able to leverage even modest increases in daily wages, the returns can be significant when extrapolated over the life of the project. In this analysis the hypothesis is that daily wages are increased by 50 Rs per day. When this is aggregated to an annual incitement (22,500 Rs) and multiplied by total recipients less the loan repayment, annual net cash flows reach 44.5M Rs per year. Inter Village Connectivity Projects: Roads The analysis of PS investments follows the same methodology as for investment through Community and Social Investment fund. In this component 11 significant road investments were undertaken providing 258 Km roads. Bridges and culverts were excluded from this analysis. In the same way, four crop models were allocated to each PS Zone depending on prevailing cropping patterns in the region. The number of direct and indirect beneficiaries was used to establish a cropped area or “catchment” served by the road. Productivity factors were then applied to each crop in the form of yields increases, area increases, reductions in post-harvest losses and increases in price (or reductions in cost). Aggregates net incremental benefits for all roads reach 17.81M Rs per year at full implementation. Combined Cost Saving using CDD management for Intra and Inter village infrastructure Comparative analysis of infrastructure construction costs in both Phase One and Phase Two, estimate reductions of between 10% and 36% under CDD management. This analysis used a conservative estimate of 20% cost reductions on combined infrastructure investment of 3,420m Rs. This total saving of 684m Rs. spread evenly over the four years of project implementation averaging 138m Rs per year. Focus groups and field trip discussions also stated that building quality is significantly higher, physical location more efficient, management costs lower and longer productive economic life. Public and Private Sector Partnership – Producer Groups Funding for PGs evolved out of the first major restructuring in 2011-12 when implementation methodology moved away from the development of VOs and VSCOs into wider federations. PGs emerged from component C3 Inter Village Institutional livelihood Promotion into more specifically supported value chains, training and convergence with activities and services provided by State institutions and the private sector. A total of 433 PGs were formed under a budget of 221.3M Rs with an estimated total beneficiaries of 44,797. Commodity chains include: Dairy, Maize, Paddy, Pepper, Fruit, Tea, Floriculture and Vegetables. This analysis is based on the predominant commodities of maize, paddy, vegetables, dairy and tea value chains. Crop models are similar to those used in the infrastructure and VSCO incremental contribution calculation. 53 The PG concept is based on the success of VSCO in mobilizing motivated group activities, block grants to initiated intensification, access to appropriate training and active linkage to other financial institutions, markets, national institutions and private sector participants. To qualify for PG status, VSCOs needed to be graded either A or B – in other words, already demonstrating high levels of financial discipline, profitability and sustainability. PG funds are leveraged by well-organized and motivated groups with established abilities to manage and lend funds. Each group consists of around 50 individuals who were granted operational funds on the basis of 6,000 Rs each. This capital has been invested in collective assets such as pruning and harvesting equipment in tea and pepper groups, communal marketing buildings and bulking equipment in dairy PGs and mechanized rice transplanting in paddy groups in cooperation with machinery suppliers. The formation of motivated groups has provided a focus for commercial marketing activities like milk processors who cooperated in the provision of bulking equipment, transparent pricing on the basis of milk quality and regular milk collection activities. To simplify the analysis and provide a broad estimate of PG contributions to incremental net benefits, the number of value chains was reduced to five. Data from case studies contained in the Livelihood Thematic Study25, MIS, ICR field trips and focus groups are used to establish with/without project yields and revenues. These were then aggregated by the number of beneficiaries and the disbursement schedule over two years. Because of restructuring and delays in disbursement PG activities did not start until mid-2012 so there little in the way of concert physical data to support much of PG activities and the potential revenues over the project period. Annual estimates of incremental net benefits from PGs are 112.50M Rs. B. Rates of Return Analysis Overall project economic rate of return is 22.39% and project financial rate of return 23.66% over the full 20-year life of the project including all Phase II costs including MIS and Management. This is based on conservative estimates of static component outputs at 2014 levels. ICR Estimation Project Analysis NPV IRR PAD Financial 5,303.97Mn 23.66% NA Economic 5,000.71Mn 22.39% NA 25 Thematic Study Report on Livelihood Development, p44, PMU, 10th Oct 2014 54 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Darshani De Silva Senior Environmental Specialist GENDR Senior Rural Development Seenithamby Manoharan GFADR Specialist Mio Takada Rural Development Specialist GFADR Senior Rural Development SASDL - Barbara Verardo Specialist HIS Bernadeen Enoka Financial Management Specialist GGODR Wijegunawardene Miriam Witana Procurement Specialist GGODR Rohan G. Selvaratnam Operations Analyst GPSOS Parmesh Shah Lead Rural Development GFADR Specialist/ Former Task Team Leader Frauke Jungbluth Sr. Rural Development GFADR Economist Abimbola Adubi Sr. Sr. Agricultural Specialist/Former GFADR Task Team Leader Samanmalee Kumari Receptionist SACSL Sirimanne Mohamed Ghani Razaak Senior Social Development GSURR Specialist Pushina Kunda Ng'andwe Senior Rural Development GFADR Specialist/Task Team Leader Sitaramachandra Machiraju Senior Rural Development GWASP Specialist G. W. Anjali U. Perera Procurement Analyst GGODR Vitharanage Sunethra Chandrika Procurement Specialist GGODR Samarakoon Vichitrani Liyana Consultant Gunawardene GFADR Mokshana Nerandika E T Consultant GENDR Wijeyeratne Meena M. Munshi Senior Economist/FormerTask LLIOS Team Leader Henry K Bagazonzya Sector Manager. SASFP Jayantha De Mel Consultant GGODR 55 C.S Renjit Community Development GFADR Specialist/Consultant (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY06 3.78 347.48 FY07 9.12 81.00 FY08 19.83 111.034 Supervision/ICR FY09 56.57 303.07 FY10 18.93 61.59 FY 11 48.04 161.44 FY 12 44.76 232.41 FY 13 50.34 311.98 FY 14 48.10 289.81 56 Annex 5. Beneficiary Survey Results The objective of the impact assessment was to estimate tangible effects of project interventions and to evaluate post-project qualitative and quantitative changes delivered by project components. Impact on Household Economy District data used in this report covers all VO batches implemented in Phase I (Batch 0 to 4) and Phase II (batch 5 to 9). The entire analysis and assessment is based on three groups: Project facilitated VOs, Samurdhi VOs and Demonstration VOs.  Demographic characteristics of the study population Project Management Information System (MIS) and Project Appraisal Document (PAD) state project target populations for Phase I are 870,612 (201,177 HHs) and Phase II 821,094 (200,249 HHs) respectively. Household management by gender varies across project Phases and management treatment. Male-headed HH represented from 75% to 85% HH across all project treatments. This compared to 88% in control villages which is non- significant at 5% confidence intervals. It appears that project interventions targeting gender re-balancing have not made significant differences under this measure.  Access for basic services and facilities Focus Group Discussions (FGD) established that a significant majority of community members are highly satisfied with infrastructure developed under the project. Survey results indicate that overall 76% of beneficiaries utilizing infrastructure and services with utilization rates observed for roads at (92%), bridges (87%), water supply (82%) and sanitary facilities (72%) respectively. These investments have direct positive influences on communal livelihoods. The average distance to and time spent reaching rural tarred roads is reduced by 391m and 3.63 minutes respectively. Similarly, average distance travelled to reach concrete road is reduced by 272m and by 2.27 minutes. Average distance travelled to reach carpet road has reduced by 519m and by 6.5 minutes. Control sample estimates reduced distance and time to improved roads at only 27m and 0.46 minutes which, accumulatively over the life of improved roads will have significant economic benefits. These distance and time reduction elements were stated as significant when compared against the control at a 5% confidence interval. Improvements in income and wealth ranking are reflected in changes to housing stock in the project area. Changes were assessed in terms of progressive improvement between building classifications (slum, semi-permanent, permanent and multi-story) within the project area and control villages. Upward progression in building quality was found to be significant at 5% confidence intervals and closely correlated with incremental income improvements from project activities. Indirect benefits to HH included building and land asset value appreciation close to improved roads, bridges and infrastructure. Poverty levels The IAR adopted an Income and Expenditure approach to poverty line assessment. Survey results estimate that 24% and 26% of HH were below the National Poverty Line (NPL) in 57 Phase I & II respectively under income analysis. Correspondingly, 28% and 25% of HH in Phase I & II were below the NPL when classified under the expenditure approach. Head Count Index (HCI) The IAR estimates that HCI has fallen from 43% to 26% and from 32% to 29% using income and expenditure approach respectively when levels are compared to Phase I baseline data. The control area shows diverging trends with a reduction in HCI from 48% to 42% under income analysis and an increase in HCI from 33% to 36% using expenditure parameters. The most significant element of this analysis is a 17% reduction in HCI using income analysis in project villages over both implementation phases. Per capita Monthly income and expenditure Per capita monthly income and expenditure analysis shows highest income in Samurdhi VOs (Rs 9,164) followed by Demo VOs (Rs 8,437), phase II VOs (Rs 8,288) and Phase I VOs (Rs 8,211 . Per capita income has increased from Rs 3,669 to Rs 9,164 in Samurdhi VOs compared to baseline treatment, an increase of 249%. The same pattern is observed in Demo VOs (235%), Phase II VOs (133%) and Phase I VOs (116%). Per capita income change in control areas over the project period is somewhat lower at 106% between baseline control and end project control. Community Infrastructure Development and Social Services The expected target for utilizing improved intra village infrastructure at the end of the project period was 70 % (Result Framework Analysis). IAR survey indicates about 76% of the target population is benefiting from infrastructure development, 6% above the RFW target. Capacity Building IAR survey results from FGDs highlight high levels of community achievement and satisfaction with the implementation and management of community funds and infrastructure. It was found that levels of HH satisfaction with infrastructure development was very high at about 97% Construction Management FGDs confirmed close compliance with Community Operation Manual (COM) at all levels across all project Districts. FDGs highlighted early stage delays due to poor availability of construction Technical Service Providers (TSPs). Intervention by senior PMU/DPMU staff rectified this problem and facilitated the identification of appropriately qualified TSPs. Progress of infrastructure sub-projects All together 157 community infrastructure sub- projects were on going as at 30th September 2014 and the progress of most of them are more than 85% and the project staff are of the view that these sub projects can be completed within a time frame of two months. Effectiveness of Operation and Maintenance fund Management. In most of the water supply projects, O&M committees are functioning well and tariff collection are providing funds for regular water delivery and O&M. In many villages the 58 Village Committees have signed Memorandum of Understanding (MOU) with NWS&DB which will enable the VOs to get assistance when necessary. Major Impacts of Infrastructure Projects: Rural roads developed under project: Nearly 60% of infrastructure sub-projects are for road development. Most of the communities have chosen construction of rural roads, culverts and bridges as their first priority, which includes tarred as well as concrete roads. All sub-projects have included a variable percentage of community input (between 10 and 20%) in-kind in the form of cash, labor and materials. The main benefits from roads mentioned by communities include lower transportation costs for outputs and inputs used in crop and livestock production, times saved in all journeys, safer passage of children to school and better access to health facilities. New bridges and culverts have “opened” new areas of land and allowed expansion in planted areas. Community water Supply schemes: Totally 463 community water supply projects have been implemented in the project area, all managed by the community themselves. Main improvements sited are: time saved in collecting water, improved health, higher levels of community sanitation/cleanliness and time freed for other income generating activities. Sanitation Projects: Totally 695 sanitation sub projects have been implemented with extended coverage to the estate sector. Irrigation Sub projects: The project has implemented 164 irrigation sub-projects consisting of new/rehabilitation of tanks, agro wells, lift irrigation schemes and rehabilitation of canal and related structures with 8,340 direct and 12,154 indirect beneficiaries. Irrigation projects provide water to 200 Ha of new and 1,900 Ha of existing lands, consisting of paddy, maize, banana and other crops. Many irrigation canals were in poor condition and rehabilitation has provided assured supplies of water thereby increasing cropping intensity and yields. Implementation of irrigation sub-projects have helped communities immensely, farmers as well as non-farmers who are involved in the livestock production. One Time Grantees and their economic advancement Among OTGs nearly 37 % in phase I and 24% in phase II have graduated to VSCO loans averaging Rs 2,100 and Rs 4,270 respectively. Others were not able to get VSCO loans due to their inability to comply with compulsory savings in small groups. Among the OTGs, about 51% are female and 49% male in Phase I and 44% female and 56% male in Phase II. Among recipients of OTGs about 4% in Phase I and 35% in Phase II hold decision- making positions in the VOs. This is a remarkable achievement for community members who did not have any power or economic status prior to the project. Subsequently poorer members have become engaged in both economically rewarding livelihood activities and the decision-making process of the community. Skill development 59 Based on the VOs studied for the IAR survey and FGD, 4,813 unemployed youths were in the sample. Of these, 950 are in Phase I sample and 3,863 in Phase II sample. A estimated 57% of unemployed youth have obtained SDLs. Out of SDL receivers, 60% females and 40% males in phase I and 64% males and 36% females in phase II VOs. Average SDL has ranged from Rs 201,850 to Rs 351,527. Repayment rate of SD loans in Phase I is higher than Phase II as indicated in table 46. Ninety eight percent (98%) of SDL receivers are directed for Vocational Training. The perception on skill development training is obtained from HH survey and among the respondents, 78% marked the training as highly useful and 20% rated as useful and 2% mentioned that SD training is not useful. Formation of Village Savings and Credit Organization (VSCO) The permanent sub-committee on livelihoods delegates management of Savings and Credit Fund to the VSCC. The total number of loans disbursed in sample VOs is 18,015. About Rs 201 Mn worth loans disbursed to 29 VOs in phase I and Rs 340 Mn loans disbursed to members in 164 VOs in phase II. The average loan amount disbursed by VO in phase I and phase II is Rs 128,364 and Rs 252,609 respectively. Up to now, Rs 136 million in phase I VOs and Rs 208 Mn in phase II VOs have been recovered from the loan recipients. It is important to note that 29 VOs in phase II are able to generate an interest income of Rs 27 Mn and Rs 31 Mn by 164 VO in phase II Seventy eight percent of loans were disbursed to women in Phase I and 82% in Phase II and for poor and the poorest, 71% and 4% respectively in phase 1 and 77% and 3% respectively in Phase II. The total loan amount issued was Rs. 261 Mn. Phase I loans are used for a variety of livelihood activities including agriculture (76%), self-employment and micro enterprises (15%) and livestock production (5%). Phase II loans were increased to self-employment (28%), crop-based agriculture (60%) and the balance to livestock production. A majority of beneficiaries rated VSCO loan as a useful credit scheme irrespective of the type of project implementation (project, Samurdhi and demonstration). Some respondents stated that VSCO interest rates were too high in comparison to commercial banks (18% c.f. 8%), that loan sizes were too small for commercial investments and that, requirements that loans be specifically for development rather than consumption were limiting. Efficiency of VSCO The VSCO strategies have helped the members to increase income from numerous ways; reduce the cost of credit (low interest, low transaction cost, no transport cost), increase agricultural income due to timely availability of credit, presence of appropriate grace periods, close credit supervision on IGAs, lower transaction cost, etc. The revenue generated from loans is invested back into village to fulfill the credit needs. The demand for VSCO loans continues to increase as this scheme is easily accessible, less cumbersome, and quick in their delivery and the interest rate being reasonably low when compared to traditional means of borrowing. Impact Analysis of Inter-Village Connectivity Development Infrastructure investments implemented in selected PS Zones using the guiding principles of participatory planning and CCD have been very successful under SCDLIP. Capacity 60 building activities have empowered communities and PS staff to plan, construct and maintain significant infrastructure projects that have translated into real economic and practical gains for communities. Projects under SCDLIP management have provided “Best Practice” examples that are now being emulated in other PS Zones that were not included under this project umbrella as models in project management. Assessment on forward and backward linkages with Public and Private Institutions (technology, marketing and value addition) Producer Groups provide a focal point for progressive producers in identified value chains to link-up with Government Agencies, private service providers and commercial agricultural companies to exploit greater efficiencies and economies of scale. PGs were identified from VO graded as A & B with well-managed VSCO loan books. Block grants were provided on a per capita basis for the acquisition of collective assets for processing, harvesting and marketing activities. PGs were formed with a focus on existing viable value chains that could be leveraged by greater coordination, more efficient aggregation and technological advances. Value chains included paddy rice, maize, fruits, black pepper, tea, dairy and high value vegetables. Benefits can be broadly classified into gains in higher market or sales prices, better quality/lower losses, group purchase of inputs, better coordinated marketing, and tea rehabilitation not possible under VSCO loans alone. In the same way, these gains in market efficiency allowed by access to block grants, were leveraged by more efficient use of VSCO funds creating a vitreous cycle of higher margins and faster re-cycling of loans. Analysis of Impact on Cross-Cutting Issues Gender and Institutional Development Empowerment of women is one of the central tenets of the CDD methodology and was clearly represented the IAR survey and FGDs. Discussions revealed a steady evolution of group dynamics and changing attitudes at allowed women an equal role in HH decision- making, VO Committee management and recipients of VSCO loans. This was confirmed by the sample survey data. In the majority of VOs, women occupy either all or greater proportion of the key positions and contribute to decision making regarding village improvement. RF indicator A7 indicates a score of 67% as opposed to the target of 50%. In particular, young females play a significant role in decision making over village development as office bearers. Women also facilitate household livelihood development through VSCO in which they hold key positions. They obtain loans for agriculture, livestock and self-employment. Women are now public figures better known and have improved status in the family and the society as active partners capable of contributing to and influencing the village development process. Before the project, they were largely house-bound and had a limited social space only. The most active female members have been appointed as CRPs or CCRPs, and are paid by VSCO. Inclusion of the Poor and Vulnerable 61 Improved socio-economic position of the poor and vulnerable (VO FGDs indicated at least 50% OTGs have emerged out of poverty, RF, higher rate of progress). The poorest of the poor and the vulnerable families including widows and disabled have been included in the benefit stream of the VO which allocated 5% of the total VDF for this purpose. This has contributed in a substantial way to poverty reduction of this particular group. Convergence: Mainstreaming SCDLIP At the National level the project has contributed in a positive way to implement the Safety Home Garden Program initiated by the Ministry of Economic Development. The project has trained Development Officers (DOs) who can be utilized for scaling up of this approach. As a result of knowledge level convergence process, Government officers are well aware of the Community Driven Development (CDD) tool. As such it is evidenced that SCDLIP has assisted adoption of the CDD approach at the time of Divineguma establishment. Village level convergence has been made through the linking of village organizations to public and private agencies in various ways such as input supply, training, marketing, and new technologies. Around 381 partnerships have been developed by producer groups as a result of this convergence and today these producer groups are benefitting from those partnerships. The government has created a conducive environment through institutional and policy reform in order to sustain project benefits and the objective indicators set under this component have achieved results exceeding the target. 62 Annex 6. Stakeholder Workshop Report and Results N/A 63 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Introduction: The Community Development and Livelihood Improvement Project (SCDLIP) functioned directly under the Ministry of Economic Development to assist to implement the poverty reduction and regional development strategy of the Government of Sri Lanka (GOSL) within the post-conflict development scenario. It followed Community Driven Development (CDD) approach with a main focus on economic and social empowerment of the village communities and to assist them to manage resources and take decisions prudently. The sustainable livelihood development framework identified to build five major asset categories or an ‘Asset Pentagon’ (i.e. human, financial, physical, natural, and social capital) and type of capital (or capital endowments) in VOs to use by the community within the vulnerability context to achieve the targets in economic and social development. Evaluation of Institutional Development – CDLIP: All the VOs have invested the Capacity Building (CB) Funds (Rs 456.56Mn) on the components of the institutional development, Office management, VO registration, implementation of village development activities, and capacity building of VOs for livelihood development. The members of the executive committee and the permanent sub committees in the VO, who play leadership roles in the CDLIP programme, have been given in-depth knowledge on CDLIP principles, methodology, and procedures. The responses from the community revealed that they were highly satisfied about the various types of knowledge gained through the entire capacity building programmes conducted during the project period. The responses generated through FGDs confirmed that, majority of the beneficiaries strongly accepted that at the end of the IEC campaigns, the village members have taken proper understanding about the CDD model, its dynamics, and implementation modes of the CDD model at the village level, community responsibilities and rules of the games. According to the Key Informant Interviews (KIIs) conducted with the village level officials, they have explained that this concept was a novel idea for them because it was a bottoms- up approach of development to transfer funds directly to the VOs. Further, they have categorized that this was an important concept to change the vicious cycle of dependency as well as empower the people. The social auditing is an independent and continuous evaluation of all the activities of the village organizations for ensuring compliance with project principles and Golden Rules. The FGDs confirmed that the functioning of social audit committees was highly effective, following the guidelines designed. Performance of Functioning of VOs: In the CDLIP, community leaders are selected through the trust and consensus of the community. This is the essence of building leadership and the social capital among the community members. Women have become more confident in operationalizing all functions in the VOs through greater empowerment. As a result, the level of gender based violence has shown a downward trend, according to the responses received from the FGDs held. 64 Social development concerns itself with promoting the inclusion of poor, vulnerable and excluded groups (especially youth and women); strengthening social cohesion and the capacity for collective action towards development; and enhancing the capacities of communities to hold accountable the institutions that serve them. The project has mobilized such groups by ensuring the proactive participation to the village level development activities of VOs. Based on the FGDs, the community members have satisfied with the inclusions of the poor, women and youth for the development activities and they have been empowered and benefited from the development process of the VOs. The results from the FGDs revealed that 63% of VOs are meeting their operational expenses. The role of CRPs played was strengthened through coordination with other stakeholders. There is a policy direction to the CDLIP to make the arrangements to integrate with the DDD to functioning of 1842 VOs and sustain the revolving funds (i.e. VSCO fund, O&M fund, Skill development fund, sanitation fund and the producer group fund) built among VOs. One Time Grants (OTGs) to the Poorest of the Poor: The objective of the sub- component of one time grants under the Livelihood Support Fund was to help increase income and improve the livelihoods of the community members, some women and men in the villages are too poor and vulnerable to start up livelihood improvement activities. Requiring such people (for example, especially poor women, widows, disables, elderly, landless etc.) the same conditions of contributions would run a risk of making them indebted and more vulnerable. The CDLIP allocated Rs 250.77 Mn (Rs 99.62 Mn for the Phase I VOs and Rs 151.15 Mn for the Phase II VOs) for 1842 active VOs of 11 districts covering 5% as OTGs. In those villages, LKR 237.52 Mn (95%) was invested among 18,342 OTGs, out of 19,333 number of beneficiaries. It was reported that 17,178 one time grantees (94%) started the income generation activities. As key objectives of the CDLIP, all the poorest of the poor and vulnerable families in the selected VOs have been formed into small groups and linked to the loan disbursement process of the VSCOs and 38% OTGs were graduated as VSCO borrowers from the status of OTGs. Youth and Skill Development: The CDLIP as a regional development project that adopted holistic development approach, included a skill development (human capital) component. During the Phase I and II of the project, the project invested LKR 496.75 Mn as direct funds to implement skill and youth development programs within villages, benefitting 28,541 number of youth as skill development loan borrowers. Apart from that, LKR 3.04Mn of project funds invested to organize and implement many youth development programmes including career guidance programmes, job fairs, and youth camps, benefitting 11,456 number of youth as participants. Cumulative impact created an outcome of 33,674 number of youth employment that is 16,634 number of youths though skill development loan program and 17,040 number of youth through job linking programs. Village youth development demonstrated excellent inclusion principles. Females, disabled, and vulnerable community of the village participated in the youth development activities, overall 38% female youth out of all youth in the village benefitted from the skill development loan program 65 Micro Finance and Livelihood Development: The VSCOs functioned as a competitive community managed micro finance entities in project villages with the provision of required financial capital on easy and concessionary terms, for the poor, and the non- bankable village communities to implement their income generation activities in profitable and sustainable manner. VSCO has achieved a remarkable progress. The membership has increased up to 235,448 and the VSCOs have distributed financial benefits for 202,198 (86%) members. The loan distribution has become 86%. Also VSCO has efficiently utilized their funds and has disbursed loans worth of Rs 7718.04Mn. The funds utilization capacity is 251%. The accumulated revolving fund of VSCOs was maintained with the strength of Rs.4052.4 Mn to cater to the micro finance needs of the VSCO members in 11 districts. The financial sustainability of VSCOs is mainly depended upon their profitability levels. By ensuring its sustainability, the majority of VSCOs (69%) generated profits and converted them as profit earning centers. In the meantime, VSCO has directed 4208 members through building bank linkages with commercial banks and they have obtained Rs 261.12mn worth of bank loans for their members to invest further in income generating ventures either through advancing new technologies or linking with niche markets or introducing new products or expanding the existing product base of the VOs. According to analyses made, based on the responses of beneficiaries collected through FGDs conducted, 77% of members have received new skills through this program and while the networking capacity has increased by 59% and shifting from subsistence farming to commercial farming was increased by 77%. In addition, the findings of the economic analysis conducted for the thematic report on livelihood development, it was convinced that the majority of VSCO investments have maintained as profitable ventures in agri- businesses by improving the status for obtaining higher returns (i.e. higher IRR and lower payback period). Further, the VSCO as an economic entity, it has created IRR as a process to create economic benefits for the members of the society as a sustainable venture of building financial capital. In this context, majority of VSCO beneficiaries have responded that the VSCO has created tremendous benefits for the members and they are highly satisfied about the functioning and benefits generated by the VSCOs. Producer Groups and Livelihood Development: There are 433 PGs functioning in the VOs in 11 project districts, by investing Rs 221.3 Mn. The productivity improvement technologies and capacity building programmes made created direct and indirect effects on productivity enhancement and household income. According to the study, the majority of households (64%) have increased their income through agriculture related investment and the majority of beneficiary households (235,448) have taken VSCO loans to invest in new agricultural ventures and activities and to develop existing agricultural activities. Out of that, 44,797 beneficiary HHs (19%) were engaged in PG activities. The net income changes were observed in Food Grain Crops, Animal Husbandry, Horticultural Crops, Perennial Export Crops and Non-Agricultural activities, with a clear planning process implemented. CRPs need to play a role in linking up with all stakeholders to obtain financial capital, technology, market links, and promoting value and supply chains for PGs. The line agencies provided hand holding support to the PGs. Linking PG with the model of 66 Divineguma ensures the review of progress and the coordination part of related line agencies. . Transferring new technologies to the remote villages was one of the most important options experienced in the project. There were innovations in introducing community based technologies through the CDLIP. In particular, introduction of ‘Paddy Trans-planters and motorized weeders’ was an innovation, adopting among farmers in the first time in the history of Sri Lanka, by the CDLIP through the PGs established. It was observed that the overall achievements of the three RF indicators, relevant to livelihood development programmes of the CDLIP were higher than the target. Considering the situation above, at the final World Bank mission fielded in June-July, 2014, the livelihood development sector was achieved the ratings of ‘satisfactory’ Finally, the PGs are performing multi-functional tasks in product and market integration process by promoting PPP initiatives for making a novel approach in livelihood promotion among VOs in Sri Lanka, through integration with forward and backward linkages. The all stakeholders should have a paramount responsibility to sustain the entire process by operationalizing community based approaches to create an environment for improving investment at VO level. It eventually assists to generate viable investment initiatives for the community in VOs in particular and generate viable opportunities for improving regional development based economic growth in the country in general within the post- conflict development scenario. Convergence and policy Support: The convergence and policy support component of the CDLIP assists the GOSL in developing an enabling policy environment and also in undertaking strategic communication on the CDD model to policy level stakeholders. The objective of the convergence component is to open up opportunities for the selected government and the local agencies to develop policies, rules and procedures and institutional arrangements, allowing to transfer the required funds directly to local governments and communities to operationalize the CDD model with empowering the communities and promote beneficiaries as partners in the rural development process. a) National, Institutional and VO Level Convergence and Knowledge Convergence: National level convergence programmes (ie. Home garden campaigns, north-south dialog, Training of 14,000 EDOs, participating Deyata Kirula exhibitions etc.), institutional level (ie. Technology transfer through state and private stakeholders) and VO level (ie. establishing bank linkages) convergence programmes and knowledge convergence (ie, best cases, documenting research reports, building business linkages, conducting farmer conferences, producing video documentary, and radio programmes) assisted to generate new knowledge on CDD approaches and disseminated them through various mode of print and electronic media to push the frontier of knowledge. b) Investment in Samurdhi and Demo VOs and Issues Identified: The CDLIP has invested from three different fronts in Samurdhi and Demo VOs, namely capacity building, livelihood development and infra structure development. During the first two years in operation (2010-2012), utilization of funds was around 14%, which was 67 increased up to 90% during the second two year period (2013-2014) in operation due to changes in structure, introduction of join facilitation of both government and project staff in Samurdhi and Demo VOs, and internalizing the VO operations in Samurdhi VOs through the nearest PIU. Further, promoting investment in producer groups was also activated and increased investment in VOs for building technology for enhancement of productivity. c) Convergence and Policy Support Possibilities with the Divineguma Development Department (DDD): The CDD approaches have been operationalized under the convergence programme in 102 Samurdhi VOs in 7 districts and 45 Demo VOs in 2 districts. In these Samurdhi and Demo VOs, building state and private linkages in business, marketing, bank, and technology service providers are very vital for livelihood development. The rich experience gained through CDD approaches, best cases identified, effective facilitation process operationalized and positive results generated through the Samurdhi and Demo programmes as show cases need to mainstream with the national development progrmmes. In line with the policy directives given by the Secretary, Ministry of Economic Development, it is imperative to develop appropriate policy and strategic operational options to integrate with the DDD to sustain the gains in CDD approaches operationalized in the CDLIP. However, 102 Samurdhi VOs are already integrated by the DDD. Financial Management: The Government of Sri Lanka entered into an agreement with the World Bank to implement Community Development and Livelihood Improvement Project (CDLIP) –Phase II initially for four and half years with an IDA loan of USD 75 million. The Financial Management arrangements in the CDLIP has established and institutionalized as per the financial Management (FM) manual. The project has successfully developed rules and regulations for carrying out operations in financial management and incorporated them in various manuals such as FM Manual and Community Operational Manuals (COMs). The required authorities in financial management were decentralized into the DPMU levels. The levels of controls were developed and approval limits at various levels were also clearly established. System of budgetary control and planning is in place, expenditures are tracked against the budget and variations (if any) properly reported. An efficient appraisal and monitoring system was implemented. First financing agreement was signed on 22nd.October.2009 for the SDR 50.4 Mn. (USD 75.0Mn.) and revised financing agreement was signed on 12th.September.2013. The percentage of disbursement of IDA was changed by this revised agreement and APL was converted as Investment Lending (IL). Accordingly, the CDLIP was extended by for six months from 31.03.2014 and IDA 100% financing was effective from 01.01.2014. The expenditures have been classified as two categories and five components, specified in the agreement. The project planned to invest USD 105 million and it was changed to USD 100.35 million by the final amended agreement. As at 30th, September, 2014, a total of USD 96.47 million was invested to project activities and it is 96% achievement of the total. A proper computerized accounting system is placed in the CDLIP. All annual audits done on time, reports were submitted to the Donor and 68 Government before the due dates. No major incidents of misappropriations or misconduct in financial dealings at every level of the project. Government Commitment and Performance: The GOSL was really committed to achieve the objectives of the CDLIP in line with the ‘Mahinda Chintana – Future vision’ at the time of designing of the CDLIP on poverty alleviation and regional development and very supportive throughout the period of implementation of the project and restructuring of the project which was suited to the today’s post-conflict development scenario. The strategies have been formulated and changed the structure of the CDLIP to function smoothly. Accordingly, the Gemidiriya Foundation (GDF) has been changed structurally to a PMU to function the project directly under the Ministry of Economic Development (MED). For these purposes, the Secretary and Additional Secretaries and other key staff members of the MED, have assisted in numerous ways at different stages of the project particularly designing, implementation, monitoring, and progress reviewing. In addition, Secretary of the Treasury and the Ministry of Finance and Planning and the Director General, External Resources Department (ERD) and Director General, Department of Project Management and Monitoring proposed numerous changes to function the project in line with the CDD approaches. The District Secretaries, Divisional Secretaries, Director (Planning) and Grama Niladharis played their role in giving support to organize and facilitate the CDD process for the District Project Management Units (DPMUs) and district staff of the CDLIP, operating in districts, in Divisional Secretariat Division areas and in the villages respectively. The Assistant Directors appointed (by the CDLIP) in each project district maintained very cordial relationships for coordination & implementation of project components with respective government officials. The political leadership in each project district has given the fullest cooperation for implementing the project components. In particular, monthly progress reviews of the project were regularly conducted at the District Development Committee (DDC) level and the Divisional Development Committee (DAC) levels. Those forums were used to guide the project team with strategic options to expedite the implementation and perform the project functions efficiently . a) Performance in Implementing Agencies  Ministry of Economic Development and its Officials: The CDLIP was operating under the MED and its progress was reviewed periodically as part of the Government review process. The relationship with the Ministry and its officials is marked as a mutually supporting relationship with the required autonomy granted undisturbed. The facilities and privileges enjoyed by the project staff as a foreign funded project within the management circular No 33, (2007), which is the government approved procedure for selection of key posts, payment of salaries and other service conditions, was seen compatible with other foreign funded projects. The project was able to create an understanding that the dedication and commitment with the capacity of the CDLIP staff and the results generated justify the facilities accorded to the staff. The exposure visits were arranged for the Ministry officials to the CDLIP project districts and VOs to observe and understand the dynamics of these CDD projects. The leadership of the 69 Secretary of the MED supported by the project staff paved way for the incorporations of proven procedures to major policy implementation processes.  Recognition of the CDLIP and its Staff: The M&E system of the CDLIP was recognized and published in the ADB web site in the Asia Pacific Community Practitioners of Managing Development Results. The award for the best practice for supervision and implementation support won by CDLIP/Gemidiriya Task Team of the World Bank among 270 bank projects (2010) and the Gemidiriya winning the national Excellence Award in Human Resource Development performance evaluations (2010), conducted by the IPM, Colombo. The above evidence is a tribute to the untiring efforts and dedication of the professionally recognized, and committed staff at all levels oriented with pro poor attitudes and working ethics as a CDLIP Family. The CDLIP engaged with estate and private sector stakeholders to provide the necessary services for livelihood promotion. In particular, the Department of Agriculture, Department of Export Agriculture, Tea Small Holding Development Authority, Department of Animal Production of Health, Botanical Garden etc. were closely associated with the CDLIP as service providers in terms of provision of new technology packages for productivity enhancement in the respective agriculture and livestock sectors. b) Relationship with the World Bank The relationship with the World Bank both its head office and country office in Colombo was considered of very cordial and supportive to the CDLIP, especially because of the institutional development model followed. The relationship among the Bank head Office, country office in Colombo and the CDLIP was seen as a triangle with bank and project staff holding hands strongly protecting the shared project interests through strong collaboration and commitment in poverty alleviation and pro- poor growth. There was a strong feeling of trust that there is no other agenda other than the common interests in both parties of the Bank and the project. The very candid and transparent manner with which the functions were carried out left no room for breakdowns. The common challenges encountered were boldly and professionally dealt with by all parties concerned. In addition, during the 10 support missions conducted throughout the project period, from March 2010 to September, 2014, the Bank teams were able to obtain good access to the project sites and engage with the communities and stakeholders as well as information needed to measure and observe the progress of the project. The intellectual treatment to respond to project assessments by the able leadership of the task team leaders appointed during the phase II of the CDLIP from the bank side, fostering the intellectual support from the Bank Board, Senior Vice Presidents, Sector Directors and Sector Managers who took time to visit the CDLIP sites in project districts and discuss with the Communities in their villages and stakeholders to identify issues and observe results generated through project interventions on the ground reflects the source of inspiration for collaboration. 70 When the CDLIP was designed and operated, three main negative issues were identified, namely the mode of registration of all VOs as companies for operating by very poor and disadvantaged groups; No clear-cut strategy for exiting from the project and political sustainability of the CDD approaches; and mainstreaming the process was not considered, after completion of the project. Once the CDLIP was initiated and established in 2004, the World Bank has not paid adequate attention for the above three main issues and likely effects of mechanisms proposed. As a result, there was a greater vacuum in the CDLIP process to be filled. Further, maintaining sustainability and mainstreaming of the CDLIP process is the main issue to be resolved in future. c) Borrower’s Ratings on the World Bank’s Performance The performance of the World Bank is reflected in the event of the task team winning the award for the best practice for supervision and implementation support among 270 bank funded projects of the Agriculture and Social Development Programme of the World Bank in 2010. This event marks a culmination of a process of a high degree of collaboration between the World Bank Team and the GOSL partners which created a series of events of history in the journey of the CDLIP. The World Bank has sent 10 support and review missions during the period from March 2010 to end Sept, 2014 to Sri Lanka to facilitate the process and penetrate to sources to information worth probing in a transparent and trustworthy manner covering larger sample of VOs and well represented gatherings of community members and staff to review project performance worked well. The relationship of the three key agencies i.e. the Bank headquarters, the Country office of the World Bank and the Project Management Unit (PMU) as a triangle is very important to implement the project agreements, and concepts, and smooth implementation of programmes and compliance of the conditions laid down. Lessons Learned with the CDLIP  Project design as a Paradigm Shift: The phase II of the CDLIP was well designed and implemented to achieve the goals of the project. Among the design elements, cost sharing, direct transfer of funds to the communities, fixed budget envelope and milestone-based disbursement, devolution of O&M to the communities, simple and transparent rules of engagement, women empowerment through following the inclusion principle and independent & autonomy of the guardians of rules have strong positive impacts for smooth implementation of the CDD approaches. a) Emergence of rural youth leadership through CRPs as Catalysts: The VOs of the CDLIP have been able to produce strong, energetic and vibrant youth leaders particularly women through appointing them as Community Resource Persons (CRPs) in respective VOs as a novel concept in Sri Lanka to become as ‘Catalysts or Change Agents’ in community based rural development and livelihood promotion. Their practicality and familiarity with the ground realities in community and livelihood development is a strong positive factor for coordination of all functions, stakeholders and activities in the VOs. 71 b) Demand driven approach in identification of sub projects: The VDP is the central document for planning and executing the proposals in VOs where issues, community priority-based needs have been identified and solutions have been proposed by the community themselves. Accordingly, the demand is created by the community and no outsider can influence the decisions. The decisions are taken by the active participation of 80% or more of the members at the Maha Sabha. This aspect has been one of the key successful lessons learnt in the CDLIP process. c) Building Strong Social Capital in VOs:The resources available in the rural sector to improve the livelihood of people and optimum usage of the available resources are constraints due to lack of technical knowhow, absence of peer review, lack of financial capital, poor infrastructure, lack of proper organization of communities, absence of informed rules of common conduct, etc. The success of the CDLIP is the possibilities to eliminate these constraints through the formation of strong community based village level organizations (ie. VOs & VSCOs) and providing a hand holding facilitation support from the project staff till they become confident about their own capabilities. d) Empowering the rural poor The VOS structure has promoted the development of leadership within the village and it has given more opportunity to share the responsibility among a large number of members of the VO. With proper guidance and commitment, communities are capable of surmounting any obstacles and reaching their goals. The communities who did not have the chance to voice their concerns now have greater opportunity to take part in decisions that make their destiny productive and lucrative. e) Governance & participatory democracy Report card and social audit systems provide strong social accountability and governance mechanisms that strongly assist in village development process and these innovations have provided clear guidance to the members of VOs and the staff of the CDLIP. The Community Report Card can be used as a powerful monitoring tool through which the village community will collectively exert social control on the performance of these teams and alert them for desirable changes. Non negotiable principles and ten golden rules play a vital role in implementing good governance and democratic principles within the VOs. f) Possibility of linking with future Rural Development programmes The public company model underwent transformation in 2013, consequent to government policy changes in favor of establishing voluntary VO model. Accordingly, the Board of Directors became as Executive Committee. Although a few VOs opted to remain in the company mode, majority of VOs decided to register as village organizations, under the MED. Under the company model, the generally stated reasons by the people pointed out as the cumbersome procedures needed to follow, the cost incurred in annual audit, possibilities to gain benefits for lower taxing in maintenance cost (i.e. Electricity, water etc.). Further, the possibility of government channeling development funds to the registered VO – backed by certain VOs with similar experiences already – provided what seemed a credible incentive to change the organizational mode and compromise on organizational autonomy. g) Convergence with the Sustainable Rural Development There is a need for clarifying policy issues at the project formulation stage. The project design did indicate the potential value of analyzing the project experience to initiate policy dialogue and 72 institutional reforms in favor of autonomous, self-governing local organizations and the government creating conducive and effective regulatory framework. It seems such developments were foreseen probably on the assumption that Phase II would continue to register similar successes as the grant-aid-facilitated pilot project and Phase 1 and that it would progress along similar direction even under conditions of government officers (Development Officer, Samurdhi Officer) playing the facilitator role similar to the project officers ’ Recommendations and Policy Implications a) Village Development Plan: It is needed to design a new considering the balance requirement of development needs and activities considering the ‘Asset Pentagon’ developed in the villages within the holistic development model of the post-conflict development scenario. The VDP should include the essential development plans for institutional development, infrastructure development, livelihood development, skill development and environmental management for the villages. These plans have to be submitted to the Divisional Secretary or the DDD and made arrangements to periodically review and update. b) Livelihood development: In considering the Village Development Plan (VDP), it is required to develop a possible livelihood development option for each and every household in the VO, depending on their resource base, improvement possibilities of existing livelihood development programmes, and establishment of new livelihood options on their skills and other capacities built. Once the household level preliminary planning is done, it is possible to develop a comprehensive VDP, as a demand driven livelihood plan for the village. c) Village Savings and Credit Organization (VSCO): It was observed that some VSCOs are functioning profitably by maintaining a healthy income level through generating interest income, by covering their monthly expenses. The interest rates of formal financial institutions and Samurdhi banks show a downward trend and revision of interest rate policy of VSCOs may be required to match with the current trend and attractive to borrow loans for promoting investment in livelihood development. d) Institutional Development: Functioning of Maha Sabah is at a satisfactory level. However, size of the village, nature of employment of members and location of households act as a barrier of obtaining the minimum 80% of attendance. Innovations are needed to cater to location specific needs that support the sustainability of VOs. The social accountability approaches introduced by CDLIP play a major role in promoting sustainability of VOs and capacities SAC and procurement committees have to be further strengthening to deal with various socio- economic backgrounds of the communities. Further, training and capacity building of CRPs are prime needs to strengthen their services to the VOs. The process adopted to achieve a totally independent, self-reliant and politically neutral environment for project implementation by CDLIP at village level is innovative and commendable. However, strategic changes in the present approach are needed to link with local governments 73 and other public sector institutions to support project implementation without damaging the basic principles of CDLIP. e) Social Infrastructure Development: The O&M of the recently built infrastructure should be maintained to sustain the investment made among VOs. For this purpose, it is required to conduct a periodic review and appoint vigilant group for identification of any damages within the community for maintaining the infrastructure sustainably. It is recommended that identifying the balance needs of infrastructure in VOs and incorporate them into the proposed new VDP in the particular village for additional funding from the other sources to cater to the village needs of infrastructure. f) Project Management: The MIS of the CDLIP is fully automated and delivered the required outputs/reports for all the stakeholders on time. The data and other information should be protected through evolving some mechanisms for sustainability of the MIS through the DDD. Otherwise the investment made on MIS will be in vain and the data for future use for further planning purposes may not be protected. g) Sustainability: The CDLIP has generated a wealth of information on CDD approaches in rural and livelihood development. However, it is necessary to pass this knowledge to the next generation who involve in future community and livelihood development and maintain the longer term sustainability. Accordingly, it is required to design a programme for transferring the knowledge gained to the wider forum of policy makers, development practitioners and other stakeholders through initiating well organized advocacy programmes. The CDLIP is having a well talented and energetic resource pool for developing and practicing CDD models and approaches on mobilizing the communities on rural and livelihood development from the project implementation at the grass-root level to the Project Management at the national level. Further, it needs to link up with the DDD, which is the premier organization established with the objectives to promote CDD models and approaches for community development and livelihood promotion. The sustainability of VOs could be maintained with introducing a normal and simplified structure with an executive committee and the accountability committee and with a coordinating support of the CRPs. Once the project intervention is over eventually there are 4 main revolving funds are remained in each VO, namely: VSCO fund, skill development fund, O&M fund, and sanitation fund to be sustained. The maintaining and operating these funds sustainably with facilitation and coordination of DDD officials is necessary for creating better use for generating opportunities for livelihood promotion for communities. In terms of convergence, there should be a forum for documenting and disseminating the results, lessons and best cases of convergence among stakeholders of government officials to replicate the best lessons and avoid the bottlenecks in future similar kind of programs of CDD nature. In addition the expert knowledge developed through the 74 CDLIP process need to be used for future DDD programs as a sustainability measure to practice in the DDD. Government Comments on Draft ICR Department of External Resources Ministry of Policy Planning, Economic Affairs, Child, Youth and Cultural Affairs The Secretariat (3rd Floor), P.O. Box 277, Colombo 00100, Sri Lanka No. ERD/WB/SCDLIP June 14, 2015 Dear Ms. Clottes, Second Community Development and Livelihood Improvement Project “Gemidiriya” Implementation Completion and Results (ICR) Report – Request for GoSL views This refers to your letters dated June 11, 2015 and June 25, 2015 addressed to us along with the draft Gemidiriya ICR on the above. It is observed that the project has achieved a higher rate of disbursement of 96 percent of the commitment. Further, the indicators with respect to the project development objectives and the intermediate outcomes have closer or exceeded the targets as stipulated in the results framework, and as a result project’s outcomes have been rated “moderately satisfactory”. However, the borrower’s performance has been rated as “moderately unsatisfactory” in the ICR which seems to be somewhat misleading. The main reason behind this rating, as indicated in the ICR, was the delay occurred in formalising the village organisations established under the Gemidiriya project and having them registered under a formal government authority. As you are well aware, the then government vision was to streamline all village organizations which was committed to poverty alleviation under one organization in order to facilitate national poverty alleviation program in a very effective and sustainable manner. Accordingly, it was required to have Gemidiriya village organizations registered under “Divineguma” Act and there were some delays in the transition period and also pre and post-election period. This was a policy decision taken by the then government and borrower performance of the aforementioned project should not be based on the implementation delays of those policy decisions. Furthermore, it is appreciated if the World Bank will objectively explain the criteria that they have used with weighted average ratings in the ICR in order to avoid the reader misleading on the performance of the project. 75 We shall therefore be thankful if you review the ratings given for the Borrower’s/Government’s performance and rate it as “moderately satisfactory”. It is noted that the ICR may carry some recommendations in that respect considering the experience from other countries too. Your understanding and cooperation in this regard is very much appreciated. Sd/- R.M.P. Ratnayake Director General Copy to: 1. Secretary, Ministry of Policy Planning, Economic Affairs, Child, Youth and Cultural Affairs 2. Director General, Department of Project Management and Monitoring 76 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders N/A 77 Annex 9. List of Supporting Documents  Project Implementation Plan  Project Appraisal Document for Sri Lanka: Second Community Development and Livelihood Improvement Project (SCDLIP) - Report No: 47060-LK  Project Restructuring Paper for Sri Lanka: Second community Development and Livelihood Improvement Project (SCDLIP) – Report No. 74372-LK  Project Restructuring Paper for Sri Lanka – Second Community Development and Livelihood Improvement Project (SCDLIP) – Report No. 84666-LK  Aide Memoires, Back-to-Office Reports, and Implementation Status Reports.  Project Progress Reports.  Borrower's Evaluation Report dated November 2014  Project Completion Report  Thematic Studies on Institutional Development – Project Management Unit  Thematic Study on Micro Finance – Project Management Unit  Thematic Study on One Time Grants – Project Management Unit  The Thematic Study on Skill Development and Employment Thematic Study Report on Livelihood Development – Project Management Unit  The Thematic Study on Infrastructure Development, PS Interconnectivity & Environmental and Social Safe Guard.- Project Management Unit  The Thematic Study Report on Convergence and Policy Support – Project Management Unit  Thematic Study on Financial Management – Project Management Unit  Impact Assessment of Community Development and Livelihood Improvement Project – Resources Development consultants (Pvt) Ltd (2014)  Project Performance Assessment Report: Investing in Social Capital: Lessons from two Decades of Village Development in Sri Lanka (2004-2010) Independent Evaluation Group - Report No. 92788  Divineguma Strategic Options Draft Note – World Bank *including electronic files 78 Annex 10: Calculation of Weighted Rating Against Original Against Overall PDO Revised PDO 1 Rating Moderately Satisfactory Unsatisfactory (based on a (based on a Substantial Substantial rating on all Relevance, Modest three Efficacy, and attributes) Substantial Efficiency rating) 2 Rating value 3 5 3 Weight (% 69.5% (US$51.61 30.5 % 100% disbursed M out of US$74.26 (US$22.65 before/after M) M out of PDO change) US$74.26 M) 4 Weighted 2.085 1.525 3.610 value (2 x 3) 5 Final rating Moderately (rounded) Satisfactory (3.610 rounded up to 4.0) Value for each rating: Highly Satisfactory=6, Satisfactory=5, Moderately Satisfactory=4, Moderately Unsatisfactory=3, Unsatisfactory=2, and Highly Unsatisfactory=1 79