The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) REPORT NO.: RES47889 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ACCESS TO LONGER TERM FINANCE FOR MICRO, SMALL AND MEDIUM ENTERPRISES PROJECT APPROVED ON NOVEMBER 18, 2016 TO ARGENTINE REPUBLIC Finance, Competitiveness And Innovation Latin America And Caribbean Regional Vice President: Carlos Felipe Jaramillo Country Director: Jordan Z. Schwartz Regional Director: Robert R. Taliercio Practice Manager/Manager: Yira J. Mascaro Task Team Leader(s): Ana Maria Aviles, Daniel Ortiz del Salto The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) BASIC DATA Product Information Project ID Financing Instrument P159515 Investment Project Financing Original EA Category Current EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Approval Date Current Closing Date 18-Nov-2016 30-Nov-2021 Organizations Borrower Responsible Agency Argentine Republic Banco de Inversión y Comercio Exterior (BICE) Project Development Objective (PDO) Original PDO The Project Development Objectives (PDO) are to improve access to, and strengthen the framework for the provision of, longer term finance for eligible micro, small and medium enterprises. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-86590 18-Nov-2016 20-Apr-2018 05-Oct-2018 30-Nov-2021 50.00 43.49 6.51 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Access to Longer Term Finance for Micro, Small and Medium Enterprises Project aims to improve access to, and strengthen the framework for the provision of, longer term finance for eligible micro, small and medium enterprises (MSMEs). The Project was approved by the Board of Directors on November 18, 2016 and became effective on October 5, 2018 with an IBRD loan in the amount of US$50 million. The project consists of three components: (a) credit line intermediated by Banco de Inversión y Comercio Exterior (BICE) to participating financial intermediaries (PFIs) for on-lending to MSMEs; (b) technical assistance and capacity building, and (c) project management. The final beneficiaries of this Project, the MSMEs, will benefit from access to longer-term finance, as well as from improvements in financial infrastructure that will facilitate access to credit. 2. The project has a Satisfactory overall Implementation Progress (IP) rating. The Project implementation has made a remarkable progress despite the challenges the country is facing during the pandemic. A key factor for the current project progress is the strong engagement shown by the government authorities and technical staff at BICE, Ministry of Productive Development, and the Secretariat of Strategic Affairs under the President (SAE) with the project and its activities. BICE as implementing entity continues improving its performance, including a Moderately Satisfactory performance rating in procurement and social safeguards, and a Satisfactory performance rating in project management, environmental safeguards, monitoring and evaluation, and financial management. Moreover, there is no outstanding audit report for this Project; and all the audit reports received for the project were considered satisfactory to the World Bank. As of October 2021, the project has disbursed US$43.5 million, accounting for 87 percent of the total loan proceeds. 3. The Project Development Objective (PDO) is rated Moderately Satisfactory and the positive trend is expected to continue. Two out of three PDO indicators have already been achieved; the remaining one is expected to be achieved before the new closing date. The project has made important progress during the last few months in both the line of credit (Component 1) and the technical assistance and capacity building activities (Component 2). As of October 2021, US$29.8 million has been on-lent to 112 MSMEs and about US$6 million of subloans are currently in the process to be approved. In addition, the government authorities continue making efforts to facilitate access to finance for MSMEs; the process of reopening the offer of subloans in local currency has finalized, and BICE is currently working with financial intermediaries to channel subloans to MSMEs to finance leasing operations. Additionally, the technical assistance and capacity building component is also making satisfactory progress. The Project has supported the strengthening of BICE by improving its risk management systems, including credit risk, and by proving related training for its technical staff. Moreover, the Ministry for Productive Development, technical counterpart for this component, keeps advancing in the implementation of four key areas for promoting access to finance: (i) The development of the new MSME platform; (ii) the development of the Data Repository (Legajo Único); (iii) Secure transactions and the improvement of the MSME Electronic Credit Invoice Regime, and (iv) Insolvency. The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) 4. The current overall risk rating of the Project is considered Moderate. The risks towards the achievement of the PDO compared to previous months have decreased. The adequate coordination between key government institutions, the allocation of fiscal space to conduct the project activities, the constant communication between the government and the World Bank teams, and the completion of procurement processes that are now under implementation have contributed to reduce the project risks. By the end of the project, the line of credit is expected to be fully disbursed and the technical assistance activities that are under implementation are expected to be completed as planned. B. Rationale for Restructuring 5. The government authorities have requested a 7-month extension of the project closing date from November 30, 2021 to June 30, 2022. An extension would allow BICE to complete the disbursement of the total amount allocated for the line of credit component and to the Ministry of Productive Development to complete the technical assistance activities under component 2. In addition, the restructuring will allow to revise the results matrix to increase the end targets of the line of credit component due to the project extension, and to better reflect the indicators and end targets related to the technical activities that are currently in progress. Finally, the restructuring will allow the project to reallocate loans proceeds from the project management component to the line of credit component serving MSMEs and fully utilize loan proceeds. II. DESCRIPTION OF PROPOSED CHANGES 6. The proposed level II restructuring seeks to adjust the project to reflect the following changes: (a) Closing date. Extension of the closing date for seven months, from November 30, 2021 to June 30, 2022. This would be the first extension of the project. (b) Reallocation between Disbursement Categories: Reallocate US$645,000 of the loan proceeds (Loan No. IBRD- 86590) from Category 3 related to Component 3 to Category 1, related to the credit line Component 1.1 The cost of these components will be adjusted accordingly. (c) Disbursements estimates. The disbursement estimates will be updated with the actual amounts for Fiscal Year (FY) 21 and the new estimates for FY 22. (d) Results framework. The end targets of the line of credit will be increased from US$51 million to US$54 million in total volume, and from 154 to 210 in terms of number of MSMEs considering that the project extension will allow a greater use of the revolving funds of the credit line2. The indicator related to the credit guarantee fund (FOGAR) will be dropped since that activity was implemented by the government before the project became effective. In addition, the indicator related to the reforms of the regulatory framework for secure transactions will be dropped and 1 In section IV. Reallocation Between Disbursement Categories, the revised amount of component 1 also reflects the front-end fee of US$125,000; therefore, the revised amount for component 1 will be US$45,145,000. 2 As of September 30, 2021, US$29.8 million has been on-lent to 112 MSMEs. In addition, US$16 million are in process to be approved and disbursed to MSMEs. The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) replaced by a new indicator linked to the development of an action plan to support and encourage a greater use of the Electronic Credit Invoice3. Finally, the description of the indicators related to the new SME platform, the Data Repository (Legajo Único), and insolvency will be adjusted to better reflect the technical activities that are currently in progress. (See Results Framework) (e) Implementation Schedule will be adjusted in line with the new closing date. 3The World Bank is providing technical assistance to the Ministry of Productive Development to conduct a diagnostic of the challenges and opportunities of the use of the Electronic Credit Invoice in Argentina with specific recommendations to encourage and strengthen its use. The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Line of credit 44.50 Revised Line of credit 45.14 Institutional capacity building Institutional capacity building of of BICE, financial infrastructure BICE, financial infrastructure 4.55 No Change reforms, credit guarantee fund, 4.55 reforms, credit guarantee fund, and capacity building for and capacity building for MSMEs MSMEs Project management 0.82 Revised Project management 0.18 TOTAL 49.87 49.87 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-86590 Effective 30-Nov-2021 30-Jun-2022 30-Oct-2022 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-86590-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: MSME Sub-loans under Part 1 44,500,000.00 29,710,877.00 45,270,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GO,CS,NCS, TRN Part 2 4,550,000.00 644,517.73 4,550,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: GO,CS,NCS,TRN,OP Part 3 The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) 825,000.00 37,312.56 180,000.00 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: Interest Rate Cap or Collar Premium 0.00 0.00 0.00 Total 49,875,000.00 30,392,707.29 50,000,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2017 0.00 0.00 2018 0.00 28,125,000.00 2019 2,000,000.00 0.00 2020 39,000,000.00 0.00 2021 6,000,000.00 1,368,781.14 2022 3,000,000.00 20,506,218.86 . The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) . Results framework COUNTRY: Argentina Access to Longer Term Finance for Micro, Small and Medium Enterprises Project Project Development Objectives(s) The Project Development Objectives (PDO) are to improve access to, and strengthen the framework for the provision of, longer term finance for eligible micro, small and medium enterprises. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 Improve access to, and strengthen the framework for the provision of, longer term finance for MSMEs Ratio of the average portfolio maturity of MSME sub-loans under the project, over the average 0.00 >1 >1 >1 >1 portfolio maturity of PFI’s MSME lending portfolio not financed under the project. (Text) Rationale: Action: This indicator has been This indicator has been adjusted to reflect the new closing date. Revised BICE has a dedicated unit for risk management of second tier operations, with improved capacity No Yes Yes Yes Yes for quantitative and qualitative analysis of risks (Yes/No) Rationale: Action: This indicator has been This indicator has been adjusted to reflect the new closing date. Revised The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 SME platform operated by SEPYME No No No No Yes (Yes/No) Rationale: Action: This indicator has been This indicator has been adjusted to better reflect the description of the activity that is supported by the Project and to reflect the new closing date. Revised PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 Component 1: Line of credit Volume of Bank Support: Lines of 0.00 4,100,000.00 39,000,000.00 44,100,000.00 54,000,000.00 Credit - SME (Amount(USD)) Rationale: Action: This indicator has been The project extension would allow a greater use of the revolving funds; therefore, this indicator has been revised to increase the final target of the line of Revised credit from US$51 to US$54 million. Number of sub-loans provided by selected PFIs to MSMEs with 0.00 15.00 105.00 128.00 210.00 Project funds (cumulative) (Number) Rationale: Action: This indicator has been The extension allows a greater number of subloans provided by using the revolving funds of the credit line; therefore, this indicator has been revised Revised to increase the final target of subloans from 154 to 210, and to reflect the new closing date. The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 Percentage of MSME beneficiaries that feel project sub-finance 0.00 0.00 0.00 75.00 75.00 reflected their needs (Percentage) Rationale: Action: This indicator has been This indicator has been adjusted to reflect the new closing date. Revised Component 2: Institutional capacity building, financial infrastructure reforms, MSME support Draft proposal for reform of the legal, regulatory, and institutional framework for secured transactions No No Yes Yes Yes submitted to the Ministry of Treasury (Yes/No) Rationale: Action: This indicator has been This indicator has been adjusted to better reflect the description of the activity that is supported by the Project related to secure transactions, and to Marked for Deletion reflect the new closing date. Credit guarantee fund (FOGAR) is No No Yes Yes Yes operationalized (Yes/No) Rationale: Action: This indicator has been This indicator will be deleted since the Project is not implementing an activity to support FOGAR to be operative. However, activities related to secure Marked for Deletion transactions are being supported as part of the Project. Insolvency regulatory framework amendments proposed to the No No Yes Yes Yes National Excecutive Power. (Yes/No) The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 Rationale: This indicator has been adjusted to reflect the work the Project is supporting related to the insolvency framework for SMEs. The Project is supporting the Action: This indicator has been government to prepare a proposal with a set of suggestions to reform the Insolvency Framework that will be submitted to the government authorities Revised (Minister of Productive Development and/or Head of Cabinet of Ministers). Design and implementation of the Data Repository (Legajo Único No No No No Yes Financiero y Económico) (Yes/No) Rationale: This indicator has been adjusted to better reflect the scope of the activity that is supported by the Project and to reflect its new name (Legajo Único Action: This indicator has been Financiero y Económico). The Data Repository (Legajo Unico) platform would centralize the main economic and financial indicators of natural and/or Revised legal persons registered in the SME Registry. An action plan to support and encourage a greater use of the Electronic Credit Invoice developed No Yes and under implementation (Yes/No) Rationale: The Ministry of Productive Development and the World Bank teams agreed to include, as part of the technical assistance component, a secured Action: This indicator is New transaction related activity to support and encourage a greater use of the Electronic Credit Invoice in Argentina. An action plan, with a timeline and assigned responsibilities, will be developed and implemented. Under the project, the activities recommended to be prioritized will start implementation. IO Table SPACE The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515) The World Bank Access to Longer Term Finance for Micro, Small and Medium Enterprises Project (P159515)