Document of The World Bank Report No: ICR00001411 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37040) ON A CREDIT IN THE AMOUNT OF SDR 11.7 MILLION TO THE BANQUE DES ETATS DE L'AFRIQUE CENTRALE FOR A BEAC REGIONAL PAYMENTS SYSTEM PROJECT June 28, 2010 Finance and Private Sector Development Western and Central Africa Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective as of May 31, 2010 ) Currency Unit = C.F.A. Francs BEAC 534 CFAF = US$1 1.47 US$ = SDR 1 FISCAL YEAR January 1- December 31 ABBREVIATIONS AND ACRONYMS BCEAO Banque Centrale des Etats de l 'Afrique de l 'Ouest (Central Bank of Western African States) BEAC Banque des Etats de l 'Afrique Centrale (Bank of Central African States) BIS Bank for International Settlements CAEMU Central Africa Economic and Monetary Union CAS Country Assistance Strategy CEMAC Communauté Economique et Monétaire de l'Afrique Centrale COBAC Commission Bancaire de l 'Afrique Centrale (Central African Banking Commission) CORONOFI Comite Régional de Normalisation Bancaire (Regional Committee of Banking Normalization) CPSS Core Principles for Systemically Important Payment Systems DCA Development Credit Agreement EBPCS Electronic Bulk Payment Clearance System ECS Electronic Clearance System FSAP Financial Sector Assessment Program GDP Gross Domestic Product GPM Global Project Management IBCG Inter-Bank Card Group IBCS Inter Bank Card System IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IMF International Monetary Fund IT Information Technology NBFI Non Bank Financial Intermediary NMC National Monitoring Committee OHADA Organisation pour 1 'harmonisation du Droit des Affaires (Organization for the Harmonization of African Business Law) OMAC Office de Monétique de l'Afrique Centrale (Inter-bank card system regulator) PAD Project Appraisal Document PFI Participating Financial Institutions PMU Project Management Unit PRMS Payment Risk Management System RSC Regional Steering Committee RTGS Real Time Gross Settlement SMAC Société Monétique d'Afrique Centrale (Interbank card system operator) 2 UMAC Union Monétaire de l 'Afrique Centrale (Central Africa Monetary Union) UNDB United Nations Development Business VSAT Very Small Aperture Terminal WAEMU Western Africa Economic and Monetary Union Vice President: Obiageli K. Ezekwesili Country Director: Yusupha Crookes Sector Manager: Peter Mousley Project Team Leader: Andre Ryba ICR Team Leader: Andres D. Jaime 3 BANQUE DES ETATS DE L'AFRIQUE CENTRALE BEAC REGIONAL PAYMENT SYSTEMS PROJECT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design............................................... 5 2. Key Factors Affecting Implementation and Outcomes .............................................. 9 4. Assessment of Risk to Development Outcome......................................................... 19 5. Assessment of Bank and Borrower Performance ..................................................... 19 6. Lessons Learned........................................................................................................ 21 Annex 1. Project Costs and Financing.......................................................................... 23 Annex 2. Outputs by Component.................................................................................. 25 Annex 3. Economic and Financial Analysis ................................................................. 30 Annex 4. Bank Lending and Implementation Support/Supervision Processes............. 31 Annex 5. Beneficiary Survey Results ........................................................................... 32 Annex 6. Stakeholder Workshop Report and Result .................................................... 33 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 34 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 35 Annex 9. List of Supporting Documents ...................................................................... 36 4 A. Basic Information 3A-BEAC Reg Country: Africa Project Name: Payment System (FY03) Project ID: P072881 L/C/TF Number(s): IDA-37040 ICR Date: 06/30/2010 ICR Type: Core ICR Lending Instrument: TAL Borrower: BEAC Original Total XDR 11.7M Disbursed Amount: XDR 11.7M Commitment: Revised Amount: XDR 11.7M Environmental Category: C Implementing Agencies: BEAC Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 02/27/2001 Effectiveness: 04/08/2003 04/08/2003 Appraisal: 04/10/2002 Restructuring(s): Approval: 07/30/2002 Mid-term Review: 01/08/2007 02/05/2007 Closing: 12/31/2006 06/30/2009 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of No 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) Banking 40 40 Law and justice 2 2 Payment systems, securities clearance and settlement 52 52 Telecommunications 6 6 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 25 25 Legal institutions for a market economy 13 13 Other financial and private sector development 25 25 Regional integration 24 24 Technology diffusion 13 13 E. Bank Staff Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo Country Director: Yusupha B. Crookes Emmanuel Mbi Sector Manager: Peter J. Mousley Gerard A. Byam Project Team Leader: Andres D. Jaime Andre Ryba ICR Team Leader: Andres D. Jaime ICR Primary Author: Herminia Martinez F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project aims at improving the efficiency and security of the payment system in the Central African Economic and Monetary union. This will be achieved through ii establishing and installing an appropriate set of regional payment mechanisms to satisfy the evolving needs of all market sectors - consumer, retail, industrial, commercial, financial and government, - for making payments in a safe, sound, secure and timely manner with certainty and at an acceptable cost. Revised Project Development Objectives (as approved by original approving authority) Project objectives were not revised. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Electronic Bulk Payment Clearing System (EBPCS) Electronic payment system started Manual system with -electronic operations 5/09 Value delays of 3-4 weeks or Clearing System (378,000 quantitative or more. Retail transaction is operational in transactions totaling Qualitative) system is cumbersome, the third year of FCFA 3.8 trillion slow and risky the program (4) were cleared in 2008 ) Date achieved 06/09/2002 04/30/2009 06/30/2009 Comments Goals achieved. Electronic payments system operational and transactions are (incl. % cleared bank-to-bank in a maximum of 2 days (many in the day they are achievement) submitted for clearing). Continuation of PDO Indicator 1: Electronic Bulk Payment Clearing System Indicator 2 : (EBPCS) Payments cleared in -Delays in less than 2-days for payment clearing bank- to- bank and settlement transactions. have been Regulations require Manual system with significantly that client- to- Value delays of 3-4 weeks or reduced to a client transactions quantitative or more. Retail transaction maximum of (3) be cleared in a Qualitative) system is cumbersome, days for bank-to- maximum of 3 day slow and risky bank transactions and most and a maximum of transactions comply seven (7) days for with this rule. client- to- client Confirmation in transactions. (5C) ongoing surveys Date achieved 06/09/2002 04/30/2009 06/30/2009 Comments Regulations require customer to customer transactions to be completed in three (incl. % days and most transactions comply with this rule; customer-to-customer data to achievement) be confirmed by ongoing surveys. Continuation of PDO Indicator 1: Electronic Bulk Payment Clearing System Indicator 3 : (EBPCS) iii Use of non-cash instruments: regional program only started in 2009. Electronic clearing started in Manual system with -use of non-cash Cameroon in Value delays of 3-4 weeks or instruments November 2007; quantitative or more. Retail transaction increases by 30% the use of non-cash Qualitative) system is cumbersome, after third year of instruments slow and risky the program (4) increased by 28% between the end of 07 and Oct. 09, the last month for which data is available. Date achieved 06/09/2002 04/30/2009 06/30/2009 Comments System used by 45 banks, 3 Government treasuries; 3 postal savings institutions (incl. % and one microfinance institution. (Objectives 100% achieved). achievement) Indicator 4 : Real Time Gross Settlement System (RTGS) [2nd PDO indicator] -RTGS is RTGS became operational operational in -Large value 10/07. transactions are -Large transactions settled in real time. are settled in real (7) Large value transactions time. Value -BEAC has real are processed on a batch -BEAC has real quantitative or time visibility on basis with significant time visibility of Qualitative) liquidity position delays. commercial bank of commercial liquidity position. banks. (9) -Commercial bank -Liquidity position liquidity position of commercial centralized since banks is 2006. centralized. (8) Date achieved 06/09/2002 06/30/2005 06/30/2009 Comments Goals accomplished. RTGS operational in October 2007 and transactions settled (incl. % in real time (100% achieved). achievement) Continuation of PDO indicator 4: Real Time Gross Settlement System (RTGS) Indicator 5 : [cont. of 2nd PDO indicator] -The payments Transactions of the system enables the Douala Stock Large value transactions settlement of exchange and the Value are processed on a batch securities Central Africa quantitative or basis with significant transactions as Stock Exchange Qualitative) delays. required by the (Libreville) settled securities in RGTS starting in settlement system. 2009. Government iv (9) debt transactions settled in system starting in 2009. Date achieved 06/09/2002 06/30/2005 06/30/2009 Comments Goals accomplished. RTGS operational in October 2007 and transactions settled (incl. % in real time (100% achieved). achievement) Indicator 6 : Inter-Bank Card System (IBCS) [3rd PDO indicator] IBCS operational and the volume of card operations -IBCS became Value increases by 10% Only 6 of 32 banks in the operational in 2009. quantitative or per year thereafter sub-region issued cards. 8 banks Qualitative) (13 d and e). participating. Dates achieved were 6/30/05 and 12/31/06. Date achieved 06/09/2002 06/30/2005 06/30/2009 Goals partly accomplished. System became operational in 09 & 8 banks Comments participating. No major problems expected w/ participation of banks in the (incl. % region. However, as system became operational in 09, it is not yet possible to achievement) measure progress (50% achieved). Indicator 7 : Payment System Conforms to International Norms [4th PDO indicator] System design The implemented conforms to BIS system conforms Value principles and There was no regional to principles quantitative or implemented payment system. established by BIS Qualitative) system did not for payments deviate from systems (10) design; Date achieved 06/09/2002 12/31/2006 06/30/2009 Comments System design conforms to principles established by BIS for payments systems; (incl. % BEAC expecting confirmation from BIS (100% achieved). achievement) Indicator 8 : Beneficiary Satisfaction [5th PDO indicator] -Beneficiaries -Surveys underway. satisfied with -The decline in electronic clearing transaction time, system (4 13). and information -Improvement in gathered by BEAC the value for points to Value There was no regional money in the beneficiary quantitative or payment system. delivery of satisfaction. Qualitative) payments services Participating as perceived by financial beneficiaries institutions (PFIs) (banks; have invested in IT households, firms) upgrades to (6) participate in v payment system; Date achieved 06/09/2002 06/30/2006 06/30/2009 Comments Preliminary information suggests beneficiary satisfaction with clearing system. (incl. % Survey underway. Percent achievement difficult to determine in absence of achievement) clearing system survey information. Continuation of PDO indicator 8: Beneficiary Satisfaction [cont... of 5th PDO Indicator 9 : indicator] -Beneficiaries satisfied with electronic clearing system (4 13). -Improvement in the value for -participating Value There was no regional money in the institutions have quantitative or payment system. delivery of been willing to pay Qualitative) payments services for services. as perceived by beneficiaries (banks; households, firms) (6) Date achieved 06/09/2002 06/30/2006 06/30/2009 Comments Preliminary information suggests beneficiary satisfaction with clearing system. (incl. % Survey underway. Percent achievement difficult to determine in absence of achievement) clearing system survey information. Indicator 10 : Continuation of PDO indicator 8: Beneficiary Satisfaction [5th PDO indicator] -Card system still at an early phase and -Banks are difficult to assess satisfied with satisfaction. inter-bank card -Growth of deposit- system (13). taking instit. Value -the total number There was no regional customers not quantitative or of customers of payment system. directly related to Qualitative) deposit-taking project outputs in institutions the short term; increased from 3 customer data is to 8% of the being gathered in population (7) the ongoing survely. Date achieved 06/09/2002 06/30/2006 06/30/2009 Comments Preliminary information suggests beneficiary satisfaction with clearning. Survey (incl. % underway. Percent achievement difficult to determine in absence of clearing achievement) system survey information. vi (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Well functioning low value payments system Transactions exchanged among -Transactions financial among financial institutions and institutions and clearing entities clearing entities Value Retail transaction system are computerized computerized since (quantitative is cumbersome, slow and (after three years 2009. or Qualitative) risky from the start of -Banks made the program) (12) necessary -Banks proceed investments in IT with investments to make payment needed to make systems work. system work (17) Date achieved 06/09/2002 06/30/2005 06/30/2009 Comments (incl. % Transactions computerized (100% achieved). achievement) Indicator 2 : Well functioning Real Time Gross Settlement System (RTGS) -Payments are made in real time: -Transactions 90% of settled in real time. transactions settled -Transaction Large value transactions Value within 30 minutes volume rose from are processed on a batch (quantitative (11) FCFA 16 billion in basis with significant or Qualitative) -Transactions Nov-Dec 07 to 146 delays. volume increases billion in 08 & 160 by 10% annually billion in 09 (10% after third year of increase over 08). program. (11) Date achieved 06/09/2002 06/30/2005 06/30/2009 Comments Transactions settled in real time and BEAC avoids systemic defaults (100% (incl. % achieved). achievement) Continuation of IO indicator No. 2 Well functioning Real Time Gross Settlement Indicator 3 : System (RTGS) [2nd Intermediate Outcome Indicator] -No disruptions related to system Large value transactions -BEAC avoids Value since startup; small are processed on a batch systemic defaults (quantitative interruptions linked basis with significant in large value or Qualitative) to delays. system (17) telecommunications & elec. System vii remained operational even during March 08 riots in Yaounde when Govt., BEAC & business closed. Date achieved 06/09/2002 06/30/2005 06/30/2009 Comments Transactions settled in real time and BEAC avoids systemic defaults (100% (incl. % achieved). achievement) Continuation of IO Indicator 2: Well functioning Real Time Gross Settlement Indicator 4 : System (RTGS) [2nd Intermediate Outcome Indicator] -BEAC regulates system; participants -BEAC regulates met obligations; no Large value transactions systems efficiently liquidity issues. Value are processed on a batch (19) -Bank cash balance (quantitative basis with significant -Banks manage manag. efficiency or Qualitative) delays. their cash balances difficult to measure efficiently (18) because of oil- related liquidity in the region. Date achieved 06/09/2002 04/03/2005 06/30/2009 Comments Transactions settled in real time and BEAC avoids systemic defaults (100% (incl. % achieved). achievement) Indicator 5 : Well-functioning inter bank card system [3rd Intermediate Outcome Indicator] -two inter-bank -Inter-bank card card centers centers operating in operational after Libreville and the second year of Douala backup the program (14 d) since 2009. Eight - introduction of banks participating. Value Retail transaction system prepaid card - Banks and other (quantitative is cumbersome, slow and schemes for water financial or Qualitative) risky or electricity for institutions looking low-income into products that populations in 2 will benefit clients; countries after 3 prepaid card years from the schemes being start of the developed. program (15) Date achieved 06/09/2002 04/30/2009 06/30/2009 Comments System in place but not all banks participating yet and prepaid cards have not (incl. % been introduced ( 50% achieved). achievement) Indicator 6 : Global Project Management [4rd Intermediate Outcome Indicator] Value Working groups existed Regional Steering Comite Régional (quantitative at preparation Committee de Suivi viii or Qualitative) continues to established during include highly implementation qualified comprising representatives representatives of from participating participants remains institutions (16). operational and meets at least once a year. Date achieved 06/09/2002 04/30/2009 06/30/2009 Comments Regional Steering Committee which guided implementation has remained in (incl. % operation and provides needed guidance (100% achieved). The Committee will achievement) be transformed into a permanent monitoring committee. Indicator 7 : Telecommunications facilities [5th Intermediate Outcome Indicator] Telecommunicatio Value Systems in place. ns services (quantitative Entirely financed continue to or Qualitative) by BEAC. improve. Date achieved 04/30/2009 04/30/2009 Comments Telecommunications system has been upgraded and disruptions are declining (incl. % (100% achieved) achievement) Indicator 8 : Legal Framework in Place [6th Intermediate Outcome Indicator] Legal framework in place. (Règlement 02/03/CEMAC/UM AC/CM) was put in place in 2003 and Legal framework Value legal issues have Inadequate legal is conducive to (quantitative not been a framework. new system or Qualitative) constraint to the development systems development. Small redundancies related to reporting being eliminated. Date achieved 06/09/2002 06/30/2006 12/31/2003 Indicator table above includes the indicators in the Project Design Matrix but in a Comments different order, as the PAD matrix has a different presentation. Numbers next to (incl. % indicators refers to order in which indic. appear in the PAD Project Design achievement) Summary Matrix G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 12/13/2002 Satisfactory Satisfactory 0.00 2 04/23/2003 Satisfactory Satisfactory 0.00 ix 3 11/25/2003 Satisfactory Satisfactory 0.72 4 05/14/2004 Satisfactory Satisfactory 1.29 5 06/04/2004 Satisfactory Satisfactory 1.29 6 12/13/2004 Satisfactory Satisfactory 3.64 7 06/22/2005 Satisfactory Satisfactory 8.20 8 12/21/2005 Satisfactory Satisfactory 9.11 9 06/26/2006 Satisfactory Satisfactory 9.36 10 12/29/2006 Satisfactory Satisfactory 9.43 11 06/27/2007 Satisfactory Satisfactory 9.43 12 12/21/2007 Satisfactory Satisfactory 11.52 13 06/30/2008 Satisfactory Satisfactory 13.14 14 12/29/2008 Moderately Satisfactory Moderately Satisfactory 13.92 15 06/29/2009 Moderately Satisfactory Moderately Satisfactory 17.24 H. Restructuring (if any) Not Applicable I. Disbursement Profile x 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Regional Context The six member countries of the Central African Economic and Monetary Union, CAEMU (Cameroon, Chad, Central African Republic (CAR), the Republic of Congo, Equatorial Guinea (EG) and Gabon) share a common currency (the CFA franc -Coopération Financière en Afrique Centrale) a common central bank (Banque des Etats de l'Afrique Centrale, BEAC), a common bank supervisor (Commission Bancaire de l'Afrique Centrale COBAC), a common money market, a common external tariff, and a common set of business laws under the OHADA initiative (Organisation pour I'Harmonisation du Droit des Affaires). In the 1980s, poor macroeconomic management and mismanagement of banks, many in the public sector, led to economic decline and a financial sector crisis in most countries. The devaluation of the CFA franc in January 1994 supported by economic reform programs restored export-led growth. Most countries also implemented financial sector reform programs: banks were restructured or privatized and banking supervision strengthened with the creation of the regional banking commission. At appraisal participants viewed the payments system of the sub-region as a constraint to economic and financial sector development. This was raised in the Financial Sector Assessments of the two largest economies of the region, Cameroon (2000) and Gabon (2001). At the time of appraisal, there were 32 banks, many with common ownership, and 12 non-bank financial institutions in the sub-region. They had a total of 144 branches. The weakness of the payments system contributed to the use of cash for most retail transactions; the ratio of currency to M1 was a high 48.5 percent compared to 13.5 in the Euro zone. Non cash payment instruments were based on paper with checks accounting for 92 percent of the value of non- cash transactions. Less than 3 percent of the 16.5 million economically-active population in the sub-region had a bank account Rationale for Bank Assistance At the time of appraisal, Country Assistance Strategies for individual countries called for regional cooperation, and a Bank assistance strategy for the sub-region which gave priority to financial system integration and payment system reform was under preparation. Country Assistance Strategies for individual countries called for a regional approach in a number of areas: forestry conservation and transport development were being dealt with on a regional basis, and the Bank supported a single approach to bank restructuring and regional regulations for microfinance institutions. The Regional Integration Strategy for the sub-region was approved in January 2003 (Report No.25328). The strategy aimed at strengthening the ongoing integration in the Community, and was based on the premise that regional integration/cooperation can reduce poverty by strengthening the links among the poorer landlocked countries and their more prosperous coastal neighbors, and generally by helping to establish the basis for faster economic growth. A priority area in regional integration was financial sector integration. A Regional Integration Strategy (RIAS) for Sub-Saharan Africa which confirms the key premises of the 2003 document for Central Africa was submitted to the Executive Directors in March 2008 (Report No. 43022). The 5 second pillar of the Regional Strategy aims to strengthen institutional cooperation for economic integration, focusing, among others, on developing regional financial markets. The credit was made to BEAC, the regional Bank, which operated the existing payments system and would be largely responsible for project implementation and operations. Under its articles of agreement, IDA can provide financing to public international or regional organizations for the benefit of IDA members. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project aims at improving the efficiency and security of the payment system in the Central African Economic and Monetary Union. This will be achieved by establishing and installing appropriate regional payment mechanisms to satisfy the evolving needs of all market sectors - consumer, retail, industrial, commercial, financial and Government, - for making payments in a safe, sound, secure and timely manner with certainty at an acceptable cost. The Project Appraisal Document (PAD) noted the specific objectives of the reform of the payments system, as follows. (i) Strengthen the financial sector and its support to the economic development of the region; at the time of appraisal it could take over two months to clear a check drawn on a bank in Northern Cameroon and deposited in the South of the country. By reducing such delays, the reform should contribute to the development of banking activities. The reform will provide the opportunity to increase retail banking activity through the introduction of new fee-based products and services built on a widespread and convenient electronic access to the banks. (ii) Facilitate economic and trade relations in the sub-region with a view to strengthening regional integration by avoiding risky and costly transportation of cash and providing fast, secure and low-cost payment instruments. (iii) Develop the supply of basic banking services (payments, remittances and small credits) to a significant share of the population and in particular in the low income segments. Emphasis was placed on satisfying the needs of the low income population in conjunction with the development of micro-finance institutions and of electronic money (value stored on smart cards for instance). In this context the project would facilitate the provision of prepaid services for the purchase of water and electricity for low income people as the extension of service to this category of the population by utility companies is hampered by the high cost of billing and collection. (iv) Increase the efficiency and safety of payment mechanisms available to governments, businesses and the general population by promoting electronic payment instruments and electronic exchange of transactions. In particular, the costly and manual process of using cash for the payment of salaries, pensions, and utilities services will be transformed into electronic processes. 6 (v) Facilitate the implementation of monetary policy. Thanks to the centralization of the liquidities of financial institutions in a single account in BEAC's books and the real time processing and accounting of large value transactions, BEAC will have an instant view of the situation and a better capability to implement an effective monetary policy in the sub-region. Project indicators in Annex 1 to the PAD (Project Design Summary) are given in their entirety in the matrix at the beginning of this report. The key performance indicators given in Section A.2 of the PAD are given below. They are essentially the same as those that appear in Schedule 6 of the Development Credit Agreement (DCA). (i) Total number of deposit-taking institutions' costumers has increased from 3 to 8 percent of the population (ii) Real Time Gross Settlement System (RTGS) is operational (90% of transactions are made in less than 30 minutes).1 (iii) Transactions exchanged among financial institutions and clearing systems are fully computerized. (iv) Delays in payment clearing and settlement have been significantly reduced to a maximum of three (3) days for bank-to-bank transactions and a maximum of seven (7) days for client to client transactions (v) The Inter-Bank Card System (IBCS) is operational (vi) Two inter-bank card centers operational after second year of the program; thereafter the volume of card transactions increases by 10% each year commencing on June 30, 2004 (vii) The implemented payment system is conform to the principles established by the BIS for payments systems 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The project objectives and indicators were not revised. 1.4 Main Beneficiaries Project beneficiaries included a wide range of stakeholders. The PAD noted that well designed and implemented national and regional payments systems would result in tangible benefits to governments, financial institutions, enterprises and the rapidly increasing number of people using bank services including the poor, through a pilot e-money scheme. The project would improve the quality of payments services reducing costly float for enterprises and bank clients, by speeding up the circulation of funds, and increasing the efficiency of funds transfers. 1 This indicator does not appear in section A.2 of the PAD but does appear in the DCA (Schedule 6) and in the PAD Project Design Summary. 7 It would provide tools to financial institutions to enhance the monitoring of their treasury and cash management and mitigate credit and liquidity risks and reduce transaction. Specifically, benefits would accrue to: (a) governments, by reducing potential fraud, tax evasion, the cost of payments of salaries and pensions, and of maintaining excess liquidity; (b) financial institutions, by improving the quality of their services, which would widen their customer base; reducing processing and liquidity costs, and lowering risks; (c) firms, by improving and accelerating financial flows which would reduce risks and costs of operations; (d) bank clients, by providing them with better banking services (e) non-bank clients by providing them with a practical method for payments thus facilitating their access to vital services, such as electricity and water, that require prompt payment. 1.5 Original Components (as approved) The original project components are summarized in the PAD (Part C1). The project has eight main components to be developed and installed either at the regional or national level: (i) a Global Project Management (GPM) component that will coordinate and implement the reform process. The GPM is also responsible for providing stakeholders with all necessary information, communication and training programs; (ii) an Electronic Bulk Payment Clearing Systems (EBPCS) managing the exchange and clearing process of bulk payment transactions, including the transformation of paper instruments into electronic data. Identical electronic clearing systems will be installed in each country; (iii) a Real Time Gross Settlement mechanism (RTGS) enabling instant and final irrevocable settlement of individual large value and other time critical transactions,(cross-border and monetary policy operations for instance), the settlement of the payment leg of securities transactions, and the settlement of the multilateral balances of the clearing systems for bulk transactions (EBPCS); (iv) an Inter-Bank Card System (IBCS) served by a dedicated network infrastructure; it will also include a prepaid system for the poor for the payment of their consumption of water and electricity. (v) a Payment Risk Management System (PRMS) collecting all information regarding payment incidents for individuals and companies, enabling a better control over unreliable customers' operations, and providing access to critical information to credit institutions and banks; (vi) a Telecommunication infrastructure (TELECOM) in particular at the sub- regional level, in order to ensure high-quality, low-cost transfers of data and payment transactions among BEAC offices and all financial institutions' locations 8 (branches and head offices), and implement standards and norms to facilitate the interoperability of all payment systems. (vii) a Legal framework (LEGAL) component, to provide a robust legal basis for payments processing, clearing and settlement covering the rights and obligations of counterparts and intermediaries at all steps in the transaction flow including the methods for resolving disputes and claims; (viii) a Training Program (TRAIN) will be aimed at BEAC and commercial bank operators. Some training will be specific to the use of the RT GS, EBPCS and IBCS. Other will be focused on the more general issue of cash and liquidity management, etc. 1.6 Revised Components The project components were not revised. Much of the training which was to be carried out on the systems was done as part of the contract for the installation of the systems which turned out to be more efficient. Therefore the expenditures under the training component were lower than estimated at appraisal. The Risk Management System Component turned out to be more complex and costly than estimated at appraisal and is being implemented under the ongoing CEMAC Regional Institutions Support Project. 1.7 Other significant changes There were no other significant changes to the project. The project took longer to implement than estimated at appraisal, and the Closing Date of the credit was extended twice for a total of two and one half years, from December 2006 to June 2009. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The background analysis was sound. The project was generally well prepared and the appraisal team included staff with the required skills. The project benefitted from experience in the preparation of a payments system project for the West Africa Monetary Union (Credit 3424 of September 2000). A number of studies were carried out in preparation of the project in conjunction with an extensive consultation process. BEAC associated all stakeholders in the design and implementation of the new system's architecture (BEAC officials, representatives of the six Ministries of Finance, staff of Telecommunications Regulatory Authorities, CEOs and managers of all commercial banks, and bankers associations) which resulted in buy-in. The PAD notes that the discussions during preparation involved 500 representatives and experts from all stakeholders concerned in the sub-region and included senior experts from the Central Bank of Tunisia and BCEAO. World Bank staff was involved in the process, as was IMF staff. The project team included a senior financial sector specialist from the region and a payments specialist from the Financial Sector Network Anchor. The reviewers were senior financial 9 sector staff. The project design was validated in 2002 by a Regional Steering Committee, chaired by BEAC's Governor, and a document outlining the reforms was prepared and distributed to key stakeholders. The project design addressed needs and the design was on the whole appropriate and complete. The regional approach was the appropriate design for the development of the payment systems in the CAEMU member countries, which were part of a monetary union, and the alternative of developing individual systems more costly and suboptimal in terms of promoting regional integration. The project included eight components, but in fact three (telecommunications, training and legal) were part of the three main systems and could have been incorporated into those components as was done in the case of the West Africa project, mentioned above. The comprehensive approach was appropriate for the six countries that would benefit from the project and would result in significant economies associated with integration; the comprehensive nature was unavoidable as the three systems at the core of the project were necessary for the payments system to meet international standards. The project content was similar to that of the West African project. The design of the EBPCS and RGTS and card systems was detailed, but work on the CIP was preliminary. The implementation period was optimistic; it did not take into account the project complexity and that this was the first World Bank project to be carried out by BEAC. The project includes outcome indicators which were on the whole appropriate as discussed in Section 2.3 below, although the macroeconomic and sectoral indicators are not easily linked to the project in the short term. Arrangements were made at appraisal for the baseline data to be gathered early during implementation, and this was done, but with some delays. Implementation arrangements were in line with those of similar projects and were satisfactory, but they were not fully in place at the time of Board presentation. The arrangements included a Regional Consultative Committee as well as National Committees of stakeholders, which were in operation during preparation and thus in place at project startup. It also included a Project Management Unit located in BEAC to manage the day to day aspects of the project. Establishment of the Project Management Unit was a condition of effectiveness. The setting up of the Project Management Unit., delayed credit effectiveness by four months. CAEMU member governments, through BEAC, and key stakeholders were committed to the project. The lesson that a complex project such as this linking the banking systems of six countries required involvement from all stakeholders was incorporated in project design and in the implementation arrangements. As mentioned above, the BEAC led extensive discussions during preparation which resulted in widespread support among stakeholders; National Committees and a Regional Committee to help design and follow up the project contributed to the buy-in. Important risks were identified but some risks were not raised. The PAD identified inadequate commitment by BEAC and the risk that member Governments or institutions would feel underrepresented. Risks from components to outputs were also identified, such as difficulties with the new technology and the implicit requirement that banks make important investments in order to adopt the new technology. However, the fact that the project had complex procurement requiring customized bidding documents, and that BEAC had never 10 implemented a World Bank project was not raised as an issue. BEAC was the only counterpart to the Bank for the project. This was an exceptional situation because unlike a national institution, BEAC could not draw on the experience of other institutions in the country in dealing with the Bank. The formal and centralized nature of the decision making process at BEAC, which made decision-making slow, was not identified as a potential problem. Delays resulting from political changes at the regional level, such as a change in the Governor of BEAC, which were not related to commitment to the project and which resulted in some delays were unusual and would have been difficult to anticipate. Lessons Learned were taken into account in project design. These included the need (i) for consultation and stakeholder involvement given the complexity of developing and implementing a payments system, discussed above; (ii) for coordination in the implementation of components which was achieved by instituting a strong project management organization; (iii) for an adequate legal framework which was addressed by including a legal component in the project and (iv) for participating financial institutions to upgrade their systems; participating institutions created payments systems committees to manage and put in place the needed upgrades. The Quality Assurance Group rated quality at entry satisfactory (Sixth Quality at Entry Assessment (QEA6) dated June 2003). The operation responded to clients' demand and was consistent with the regional strategy; the participatory aspect of project preparation was rated highly satisfactory. The group noted that preparation of financial management aspects prior to Board presentation was inadequate, and fiduciary aspects were rated as marginal. 2.2 Implementation The support by BEAC, the strongest regional institution, helped ensure the program's success. The management of BEAC, including the Governor and Deputy Governor, gave the program its full support, and followed the progress, intervening when required. This probably avoided potential problems with participating banks and other stakeholders. BEAC appointed a strong project management team although there were staffing issues, particularly in the area of financial management. The Project Director was appointed early on but the recruitment of the technical team , delayed credit effectiveness by four months. Also, changes in senior management at BEAC (in July 2007 and January 2010) related to the membership of CEMAC impacted the project progress and the preparation of this ICR. Project implementation took longer than expected and the closing date had to be extended for two and one half years. Implementation delays were related principally to the lack of familiarity of BEAC with information technology procurement and inherent difficulties of dealing with six banking systems. The procurement process took longer than estimated and the installation and launching of the systems which more difficult than anticipated. It should be noted that there had been limited experience with projects entailing linking banking systems of different countries elsewhere. Also affecting project implementation was the four month delay in effectiveness discussed in the preceding paragraph. 11 Extensive consultation during preparation facilitated implementation. As discussed above, the project was prepared with considerable input from stakeholders. During implementation the consultative structures developed during preparation were maintained which permitted stakeholders to raise and resolve issues. Staff continuity in BEAC and the Bank helped ensure follow up. On BEAC's side, the project was managed by the same manager, and all key technical staff remained in place until all systems were operational, which facilitated implementation and allowed BEAC to develop in-house expertise. The project was appraised by one task manager who supervised the project until 2004. It was supervised by a second task manager until completion who was able to expand the dialogue with BEAC and which led to the preparation and approval of a broader project to support CEMAC institutions. IMF staff followed up progress in the installation of the payments system and coordinated with Bank staff throughout project implementation. Key problems were addressed by BEAC as they arose. BEAC adopted the principle of financing all additional costs associated with the program and promptly provided the resources as they became necessary. BEAC's direct contribution to the project more than doubled, from US$4.1 million estimated at appraisal to US$10.4 million at project completion. This figure underestimates BEAC's contribution as BEAC financed a major upgrade of its telecommunication system to meet all BEAC needs including that of the payments system. As the portion associated with the payment system could not be distinguished, these investments are not included in the US$10.4 million. The project was never at risk Delays in implementation made difficult the evaluation of results. BEAC requested a postponement of the ICR date to June 2011 to allow time to show the results of the project through ongoing surveys and for the card system financed under the project to be developed further. The Bank authorized an extension of the ICR deadline to June 2010, expecting that preliminary results of the surveys would be available. The results of these surveys are expected to be available in late August 2010. The Bank decided to proceed with the ICR preparation as it determined that there was enough data without the surveys to do an evaluation which meets the standards and fiduciary obligations of the Bank. The surveys will give better information on the assessment of beneficiaries, the number of bank accounts in the region and on the time required for payments clearance from one customer to another 2.3 Monitoring and Evaluation (M&E) Design, Implementation Key performance indicators for the three systems were measurable. The framework also included macroeconomic and sector indicators that cannot be readily linked to the project in the short term (M2/GDP) and a sector indicator (growth in the number of customers of deposit- taking institutions) which is also difficult to link to the project outputs in the short term. A beneficiary survey envisaged at appraisal was carried out in 2005; the selection process for this study was initiated after credit effectiveness resulting in delays in startup of the study which produced base line data for 2005. A follow up survey is being carried out now, as discussed above. Information on the Electronic Bulk Payment System and the Real Time Gross Settlement Mechanism is on the whole available at BEAC, and on the Inter-Bank Card System at the Inter-Bank card system operator (SMAC - Société Monétique d'Afrique Centrale).. 12 Interim targets suggested by QAG were not introduced in part because task teams believed that it would be difficult to measure progress before the systems were running. Follow up for the card component was transferred to the Societe Monetique d'Afrique Centrale (SMAC) in 2008. SMAC did not report regularly to BEAC or the Bank. 2.4 Safeguard and Fiduciary Compliance Financial Management was moderately satisfactory. During the early phases of implementation, project accounting was inadequate, which reflected the lack of familiarity of BEAC with bank practices, and of accounting practices of the person in charge. Another problem was linked with BEAC contributions to the project which for some years were not deposited in the project account but disbursed directly by BEAC. Bookkeeping and counterpart recording errors resulted in project audits being qualified. In 2006 a qualified financial management specialist was appointed to the project who has resolved most of the bookkeeping and accounting problems resulting from the errors of the previous years. The final project audit, for calendar year 2009, is underway. Procurement is rated satisfactory. The project required the procurement of three large information technology systems, and the bulk of project procurement was through the international competitive bidding method. BEAC had never managed Bank procurement, and although the process was initially slow, BEAC carried out the procurement of the systems without difficulties. BEAC has acquired considerable knowledge of procurement processes and is managing the procurement for all regional institutions in the ongoing CEMAC Regional Institutions Development Project. Disbursements were slow with respect to appraisal estimates. The disbursement delays were directly related to delays in the project startup and in procurement. Supervision reports do not note any particular issue with respect to disbursements. The available documentation does not record disbursement problems other than those associated with procurement. One hundred percent of credit funds were disbursed. There have been no issues in safeguard compliance. These were not applicable. 2.5 Post-completion Operation/Next Phase In August 2008, BEAC established the Payments Directorate under the General Directorate of Operations as part of a reorganization of the institution. The Directorate includes qualified staff, including many from the Project Management Unit, which runs and ensures maintenance of the EBPCS and RTGS systems. The directorate has a work program for expansion of existing systems and has begun the process of selection of consultants for the implementation of a Risk Management System. BEAC has maintenance contracts with the suppliers of the equipment and software for the Electronic Bulk Payment and the Real Time Gross Settlement Systems. As mentioned above, SMAC, the central operator for the inter-bank card system, and the regulator OMAC have been in operation since 2008. 13 The implementation of the project helped establish a good working relationship between BEAC and the Bank and served as a vehicle for discussion of policy and institutional reforms in the financial sector and more broadly for regional institutional reforms. In 2009, IDA approved financing for a CEMAC Regional Institutions Support Project (SDR 31.5 million) to BEAC. The project includes financing to implement the Risk Management System. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The relevance of objectives is high. The project design reflected an appropriate diagnosis of the priorities for financial sector integration and modernization. The project objectives were at the time of appraisal and are still aligned with the World Bank strategy for the sub-region, spelled out most recently in 2008. The second pillar of the Regional Integration Strategy for Sub- Saharan Africa aims to strengthen institutional cooperation to promote economic integration, focusing, among others, on developing regional financial markets. Ease of payments throughout the CAEMU facilitates trade and thus economic integration. The design is relevant. The project design reflects considerable preparatory work and is the appropriate approach in a region with a common Central Bank and currency. The comprehensive nature of the design was also appropriate. Internal difficulties in member countries during project implementation (e.g., Cameroon, Chad) did not affect implementation of the project and confirms the soundness of design. Implementation support was relevant. Bank's implementation assistance focused on support on technical aspects and procurement, and a payment system specialist participated in many of the supervision missions. Delays in procurement suggest that more could have been done to build BEAC's capacity particularly in the early phases of implementation. The project served as an important vehicle for dialogue on regional integration issues. 3.2 Achievement of Project Development Objectives The project has already achieved part of its development objective of improving the efficiency and security of the payment system in the Central African Economic and Monetary Union. Of the three key systems to be put in place, the two largest, the electronic payments system and the large value system are functioning well and key performance indicators have been met: the speed of clearing checks and other instruments has fallen from three to four weeks within a country or more before the project to less than 2 days bank-to- bank. New instruments such as cash cards have been introduced which are facilitating doing business in the region. Banks have consolidated their accounts in BEAC into a single account, which has improved BEAC's knowledge of the liquidity position of banks. These developments, along with other key reforms, have contributed to improvements in the formulation and implementation of monetary policy. The card system began operations in 2009, and eight banks have joined the system. Two performance indicators (the establishment of the system and of two card centers) have been met, but it is not possible to measure growth, the third indicator, as the system was only put in place in 2009. The systems supported 14 under the project are increasing the speed and security of monetary transactions in the region and will in the medium term contribute to increased trade and thus integration. The legal framework to enable the system operate has been put in place as has the telecommunications infrastructure planned under the project. The systems were designed to meet the guidelines of the Bank for International Settlements (CPSS-Core Principles for Systemically Important Payment Systems). There has been an increase in the use of non cash instruments in the region with the share of currency in M1 declining from 45 percent in 2000 to 34 percent in October 2009, the last month for which information is available. The outcomes and rating of the key components are summarized in the paragraphs that follow. The results of the Electronic Bulk Payment Clearing System (EPBS) are rated satisfactoryrated satisfactory. KPIs relating to the speed for clearing of transactions between banks and the electronic system linking of banks and the compensation centers were met. The system was put in place in May 2009 later than initially estimated in part because of installation took longer than expected. The system has operated without interruptions since its startup. Transactions between banks and the compensation system are done electronically. Bank to bank transactions are generally cleared the day they are submitted for clearing. The system regulation requires that check clearance between customers be done in a maximum of three days, and most transactions meet the regulation. Additional information on customer to customer transactions will become available in the surveys. The EBPS was introduced in phases, with the first national system installed in Cameroon in 2007 and the regional system beginning operations in May 2009. Some 378 thousand transactions for a total of FCFA 3.8 billion were made between the start of operations of the regional system in May 2009 and the end of the year. At the end of 2009, 58 institutions participated: 45 banks; three government treasuries; three postal savings institutions, and a microfinance institution. Other microfinance institutions are using the system through participating commercial banks. The regional program began in 2009, but the compensation system of Cameroon, the largest economy in the region began operations in November 2007 with the other country systems' entering in operation in 2008 (Gabon, Republic of Congo and CAR) and 2009 (EG and Chad). The use of non-cash instruments in the region increased by 28 percent in the almost two years between the end of 2007 when the Cameroon system began operations and October 2009, the last month for which data is available, compared to the indicator objective of 30 percent three years after the startup of the regional program. BEAC consultations with the users indicate that they are generally satisfied with the EBPS. This is not surprising given the results; banks are paying for the services. The information with respect to the consumers will be provided by the ongoing beneficiary surveys. Anecdotal evidence suggests that while most customers are satisfied with the system, small clients in isolated areas may be paying high fees for regional transfers; these problems are likely to be reduced as the large number of financial institutions with transfer capabilities becomes known. Banks and other system participants have requested periodic training of their staff and BEAC is looking into the design of a permanent training program. The significant decline in the time to clear payments is doubtlessly facilitating trade and should be particularly helpful in stimulating activities in the region of small enterprises which had to conduct business in cash. The payments system has expedited government payment for services in 15 Cameroon, Gabon, and the Republic of Congo whose treasuries participate in the compensation system. The expected outcomes of the Real-Time Gross Settlement System (RTGS) component have been met. The component is rated satisfactory. The RTGS system started operations in September 2007; all transactions are done in real time, exceeding the KPI objective that 90 percent of transactions be settled within 30 minutes. The bulk of large volume transactions in the region pass through the RTGS. The volume of operations increased ten-fold in the first year of operation, from FCFA 16.5 trillion between the start of operations in November 2007 to the end of 2007 to FCFA 146.5 trillion in 2008 and FCFA 160 trillion in 2009,a 10 percent increase in the second year of operations (a project indicator). The liquidity of commercial banks was centralized in 2006, and BEAC has real time visibility of the liquidity position of banks. The system operates every business day, and there have been no disruptions related to the system since startup. Short interruptions have been linked to the telecommunications and electricity systems; the RTGS remained operational during the March 2008 riots in Yaoundé when the Government, BEAC and business closed. The system has 61 participants including 45 commercial banks, three national treasuries; three postal savings institutions; the Douala Stock exchange, the Central Africa Stock Exchange (Libreville) and the Office of Government Debt. The treasuries of three other countries participate through intermediaries. Inter Bank Card System component is rated moderately unsatisfactory. Two key indicators (start of operations and location of two offices) were met, but the system still has limited participation. No major problem is expected with participation of banks in the region, but as the system was just began operations in 2009, it is not possible to measure growth and the component is thus rated moderately unsatisfactory. Inter-bank card centers in Libreville and Douala have been established (a KPI) and eight banks are participating with other large banks expected to join this year. The institutional structure for the inter-bank card system was put in place and consideration is being given to streamline the structures to increase their efficiency. The central operator SMAC with headquarters in Libreville and the regulatorOMAC in Yaoundé, Cameroon began operations in 2008. The card system began operations in 2009Banks are issuing cash cards which have facilitated business for small businessmen and enterprises and are studying the development of water and electricity cards which was a project indicator. Payment Risk Management System was not put in place. A small component of the project, it was to develop a system to collect all information regarding payment incidents for individuals (US$0.5 million was assigned to it), and no performance indicators were included in the PAD or the DCA. The system turned out to be more complex and costly than initially estimated; costs increases were partly due to the revaluation of the EURO during the project period but it also reflected the information obtained when the detailed design of the system was done after appraisal. The process of selection of consultants for the system is underway now. 3.3 Efficiency It is difficult to estimate an economic rate of return for a project of this nature, and there is no data that would allow a valid comparison between payment systems. However, the appraisal 16 premise that putting in place a single system for the whole region is the least cost solution for the development of the regional payments system remains valid. The total cost of the project was 30 percent higher than appraisal estimates in US dollar terms. As mentioned earlier, BEAC financed the increased costs. The cost of the two main components was three times higher in US dollar terms (twice in FCFA) than estimated at appraisal while the cost of the card component is below appraisal estimates. The cost of project management was below appraisal estimates. The increased cost of the RTGS and electronic payment systems reflects the devaluation of the US dollar against the FCFA which is pegged to the Euro in the period of implementation and an underestimation of costs at the outset as there was no precedent for estimating costs for a payment system linking six countries; the West African payments system project had similar problems. Financial arrangements are in place for cost recovery in all systems. BEAC charges an annual fee as well as a transaction fee for the RTGS and the Electronic clearing system. The ICR team estimates that the annual payment by participating institutions for the RTGS system, which has been in operation over a year, was some FCFA 410 million in 2009. 3.4 Justification of Overall Outcome Rating Rating: moderately satisfactory The project outcome is rated moderately satisfactory. The project continues to be relevant and a priority in achieving the regional integration objectives. Also, the project has already achieved part of its development objective of improving the efficiency and security of the payment system in the Central African Economic and Monetary Union, which is a large region with dispersed population centers. Of the three key systems to be put in place, the two largest, the electronic payments system and the large value system are functioning well and key performance indicators have been met: the speed of clearing checks and other instruments has fallen from a manual system where transactions could take three to four weeks to settle to settlement of many transactions the day they are presented for clearing. New instruments such as cash cards have been introduced which are facilitating doing business in the region. Commercial banks have a single account with the central bank and BEAC has better knowledge of the liquidity positions in the banks. The centralization of accounts along with other reforms, has contributed to the application of monetary policy. The card system began operations in 2009, and eight banks are participating in the system. The growth of the system, an outcome indicator, cannot be measured yet In addition, to provide the necessary support for the new payments system, the legal framework was revised and the telecommunications infrastructure upgraded. While difficult to measure, investments likely represent the least cost solution for a six country monetary union, and user charges are being paid by system participants. The systems were designed to meet the standards for payments systems of the Bank of International Settlements. The project accomplishments justify at least a moderately satisfactory rating. The project has not been rated fully satisfactory because we are not yet able to measure the results of the card system and the beneficiary survey findings are not yet available. 3.5 Overarching Themes, Other Outcomes and Impacts 17 (a) Poverty Impacts, Gender Aspects, and Social Development The project is not primarily focused on poverty issues although faster transactions and increased intra-regional trade will indirectly help the poor in the longer term. The poor will be directly affected by the introduction of prepaid cards for water and electricity being considered and by the prepaid cards (electronic wallets) which are already issued and which facilitate the transfer of funds particularly by low-income persons who do not have bank accounts. Also, savings and loan institutions whose clients are mostly the poor are participating in the clearing system directly or indirectly through other institutions while three postal savings institutions which are often the sole access to financial services in the rural areas are also participating in the system. The new systems expedite payments to the members of these institutions which are small enterprises and low income individuals who are often suppliers of services, and make the transfer of money more secure. Participation by the Treasury Departments of Cameroon, Gabon and the Republic of Congo results in expedited payments by these governments for services, often provided by small enterprises. (b) Institutional Change/Strengthening The project has had a positive impact on integration by creating an institutional framework to manage payments across the region which is working well. The project contributed to creating and developing the capacity of the institutions that manage the systems. BEAC established a Payments Directorate to manage the payment systems and a Regional Monitoring Committee has remained in place. Payments systems generally contribute to institutional strengthening of all banks although it is particularly helpful in the case of smaller banks and financial institutions which do not have ready access to information systems. The introduction of the payment system required that all banks and financial institutions update their information technology to be able to participate in the system. The project also helped introduce an inter-bank card system with international standards which did not exist in the participating countries before. Banks as well as microfinance institutions are exploring ways to issue cards adapted to their customers' requirements including credit, debit and prepaid cards. (c) Other Unintended Outcomes and Impacts (positive or negative) The project required extensive consultations at startup and the structures developed during preparation led to the establishment of a Regional Monitoring Committee and active follow up by key stakeholders. The implementation of the payments system project allowed for the development of closer relations between BEAC, the strongest institution in the region, and other regional institutions, and contributed to the identification of a broader program covering regional institutions where BEAC remains the borrower and executing agency. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops NA 18 4. Assessment of Risk to Development Outcome Rating: Moderate In general, telecommunications and financial sector infrastructure system development is largely irreversible and once in place, is likely to remain. With regard to the EBPCS and the RTGS specifically, the risk that there will be detrimental changes to the systems is small. The main technical challenges have been overcome, and the advantages are clear to BEAC and other stakeholders resulting in strong ownership. Structures are in place to manage and monitor the systems. With respect to the inter-bank card system, eight banks have already joined the system, and others, including large international banks, have indicated a willingness to participate; the system should be sustainable, but it is too early to make this judgment. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: satisfactory As mentioned earlier, the project was technically solid and remains strategically relevant although there were some limitations resulting from the lack of experience in designing this type of project. The project was designed and reviewed by staff with the technical expertise in financial and payment systems from the Africa Region and the Financial Sector Network Anchor. Project preparation entailed a long consultation process which helped ensure that the solutions took into account the local requirements. The main shortcoming were the underestimation of total costs and of the time required to procure and implement the systems. This did not affect implementation as BEAC was able to cover the overrun, and it has not affected the project justification which likely remains the least cost solution for the development of the regional payment system. Another shortcoming was in the area of implementation arrangements; theProject Management Unit and management systems were conditions of effectiveness, which delayed effectiveness by four months. (b) Quality of Supervision Rating: moderately satisfactory The project was supervised by two task managers; the first task manager worked from the Country Office in Cameroon for part of the period he supervised the project. Payments specialists were involved in project supervision throughout the period. The second Task Manager visited the project every six months and findings were recorded in the Implementation Status Reports and in Aide Memoires. Supervision of the financial management and procurement aspects of the project was done by staff from the Resident Mission in Cameroon; the project entailed procurement of three large systems and required considerable follow-up by the Task Manager and procurement staff. The financial management officer commented on audits, but there are no records of financial management supervision. A follow-up operation was developed as part of the supervision of the ongoing project. The 19 project was technically complex and the focus of supervision was in putting systems in place. The interim indicators suggested by QAG were not developed; in discussions for this report, task teams indicated that the only meaningful measures of outcomes were those that could be obtained at project completion. Task teams worked to ensure that two planned surveys were carried out, the first was conducted at the beginning of the project (2005 data) and the second is being conducted now. The January 2007 mission was a midterm review and this could have been an occasion to review and revise indicators, but the team believed the indicators were appropriate even if only available at the end of the project. The rating is moderately satisfactory because it is likely that more support on procurement and financial management was needed given that BEAC was a new bank client. Also, although recognizing that outcomes can only be measured at the end of the project, current practice calls for formalizing indicator monitoring during project implementation. (c) Justification of Rating for Overall Bank Performance Rating: satisfactory Overall Bank performance is rated satisfactory. A strategically important and technically complex project was implemented without major difficulties by a Borrower that had no experience with the Bank, and this speaks to the competencies of the Borrower but also to the nature of Bank preparation and follow-up. The cost estimate problems of the appraisal report and the monitoring issues during supervision do not justify lowering the Bank rating. 5.2 Borrower Performance (a) BEAC Performance Rating: satisfactory Senior BEAC management strongly advocated for the project providing leadership in advancing the project and ensuring buy-in by all stakeholders. It also provided the resources required to ensure completion of the main components of the project. BEAC management took time to understand the difficulties with project accounting (which did not involve fiduciary issues) but when it understood the problem, it appointed a very qualified accountant. Also, changes in BEAC's senior management (the Governor and key senior staff have been changed twice) have had an impact on the project. (b) Implementing Agency or Agencies Performance Rating: moderately satisfactory The Project Unit was headed by a committed BEAC director who remained in charge until the end of project implementation and managed a complex operation successfully. Staff was qualified except for the accounting problem mentioned above. The staff of the Unit has now been transferred to the Directorate of Payments, except for the credit card specialist who has moved to the Inter-Bank Card management body. There were no substantive procurement 20 problems despite the complexity of the processes, and the bookkeeping errors which were corrected did not entail substantive fiduciary issues. However, the initial project accounting problems, problems of continuity and the lack of staff and information at the end of the project make it difficult to rate the project unit management satisfactory. (c) Justification of Rating for Overall Borrower Performance Rating: satisfactory Borrower performance is rated satisfactory. This rating is justified because of BEAC's leadership and support of the project, and the performance of the Project Management Unit in ensuring that the complex procurement of the project (which made the project possible) be carried out. 6. Lessons Learned Payment systems are technically complex and can take a long time to implement. The projects require Bank and Government teams with specialized skills both in designing the project and throughout supervision. Because of their technical elements these projects can take time to implement and the Bank norm of four years for project disbursements may be too short. Projects covering all countries of a regional monetary union are the most efficient approach to putting in place a payment system. There may also be some advantages to the regional approach in upgrading payments systems for economic groupings that do not have a single central bank. Leadership from a strong regional institution, where feasible as in this case, and stakeholder involvement are critical to the success of regional projects in general and of this project in particular. The reputation and leadership of BEAC in the region facilitated the preparation and follow up of the project and reduced potential conflicts with stakeholders. The extensive consultation process also ensured buy in by stakeholders. Payment system projects need to be developed in collaboration with the IMF. The IMF was involved throughout the design and implementation phase as mentioned in Sections 2.1 and 2.1 above. The capacity in financial management and procurement should be in place before the startup of the project. This applies to all projects, but it is particularly important for technically complex ones and those to be implemented by institutions which have no prior experience in Bank projects. The delays in putting in place the team at BEAC delayed the startup of the project. 21 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Awaiting BEAC report (b) Cofinanciers NA (c) Other partners and stakeholders NA 22 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Percentage of Components Actual (USD millions) Appraisal PROJECT MANAGEMENT 5.00 4.77 SUPPORT 95.4% ELECTRONIC BULK 2.60 8.15 PAYMENT SYSTEM (EBPS) 313.3% LARGE VALUE PAYMENT 4.20 12.29 SYSTEM (RTGS) 292.6% BANK CARD SYSTEM 4.00 2.73 68.3% RISK MANAGEMENT 0.50 0.36 72.0% TELECOMMUNICATIONS 1/ 1.80 LEGAL 1/ 0.30 TRAINING 2/ 1.30 .81 62.3% AUDITS 0.40 .17 42.5% UNALLOCATED (PPF) 1.10 .48 43.6% Total Baseline Cost 21.20 Physical Contingencies 1.40 Total Project Costs 22.60 29.76 131.7% 1. The telecommunications and legal components were financed entirely by BEAC; BEAC has indicated that because the telecommunications program was multipurpose and it is not possible to disaggregate the costs relating to the payments system. 2. Training mostly included in the contracts for the EBPS and RTGS systems. 23 (b) Financing Appraisal Actual/Lates Type of Estimate t Estimate Percentage Source of Funds Cofinancing (USD (USD of Appraisal millions) millions) Borrower Parallel 4.10 10.8 263.4 International Development n/a 14.50 17.5 a/ 120.7 Association (IDA) Private Commercial Sources n/a 4.00 1.5 b/ Total 22.60 29.8 b/ 131.8 Sources: total cost: BEAC; IDA financing: IDA disbursed figure a / IDA figure changes because of exchange rate fluctuations. b/ Private financing includes only expenditures financed through BEAC but paid by the participating institutions. c/ figure excludes telecommunications and legal components financed entirely by BEAC 24 Annex 2. Outputs by Component The summary below provides information on outputs by component and includes the assessment of outcomes of the three payments systems components. Project Component 1: Global Project Management This component output is rated satisfactory. The component aimed to coordinate and implement the reform process. The GPM was also responsible for providing stakeholders with all necessary information, communication and training programs. The consultative process which was established during preparation and which involved national committees and a regional committee chaired by the Governor of BEAC was maintained during implementation. This facilitated the sharing of information and ideas and decision- making. Project management was the responsibility of a project unit at BEAC which subsequently became the Payments Directorate. The project unit itself had difficulties as discussed in the body of this report, but the overall project management arrangement calling for extensive consultations worked well. Project Component 2: Electronic Bulk Payment System The results of the EPBS are rated satisfactory. The component comprised the installation at the regional level and in each country of an electronic bulk payments clearing system to process bulk transactions generated by all payment instruments (e.g., checks, card, credit orders). This required that paper instruments be transformed by commercial banks into electronic data and images before the clearing process. The KPI's for this component listed in the DCA were: (i) Delays in payment clearing and settlement have been significantly reduced to a maximum of three days for bank-to-bank transactions and a maximum of seven days for client-to-client transactions and (ii) Transactions among financial institutions and clearing systems are fully computerized. Other indicators in the Project Design Matrix were: (iii) use of non-cash instruments increases by 30% after third year of the program) (iv) Beneficiaries are satisfied with the new system; use of non-cash instruments increases by 30 percent after the third year of the program (v) Improvement in value for money in payment services as perceived by the beneficiaries (banks, households firms). KPIs relating to the speed for clearing of transactions and the electronic linking of banks and the compensation centers were met. The system began operations in May 2009 later than initially estimated in part because the installation took longer than expected. The system has operated without interruptions since its startup. Transactions between banks and the 25 compensation system are done electronically. Most bank-to-bank transactions are cleared the day they are submitted for clearing but in any case no more than two days after submission. Regulations call for customer to customer clearance within three days, and most transactions comply with this regulation (surveys will confirm results). The information on delays has been provided by the Payments System Unit of BEAC. The EBPS was introduced in phases, with the first system installed in Cameroon in 2007 and the regional system beginning operations in May 2009 (time of startup by country given in the table below). Some 378 thousand transactions for a total of FCFA 3.81billion were made between the start of operations of the regional system in May 2009 and the end of the year. At the end of 2009, 58 institutions participated: 45 banks; three government treasuries; three postal savings institutions, and a microfinance institution. Other microfinance institutions are using the system through participating commercial banks The regional program began in 2009, bjt, t tYhe compensation system of Cameroon, the largest economy in the region began operations in November 2007 and non-cash instruments increased by 25 percent from December 2007 to October 2009 the last month for which data is available (less than two years), compared to the indicator objective of 30 percent three years after the startup of the regional program. BEAC consultations with the users indicate that these are satisfied with the EBPS. This is not surprising given the results, users have willingly paid for the services; a regional survey is underway to obtain data on beneficiary satisfaction with the system. Users have requested periodic training of their staff and BEAC is looking into the design of permanent training program. The significant decline in the time to clear payments is doubtlessly facilitating trade and should be particularly helpful in stimulating activities in the region of small enterprises which had to conduct business in cash. The payments system has expedited payments of government salaries and of other services in Cameroon, Gabon, and the Republic of Congo whose treasuries participate in the compensation system. The ongoing surveys should provide additional information on the impact of the reduction of costs and time for clearing payments. The introduction of the system required the standardization of financial documentation such as checks and transfers as well as the introduction of a legal framework (component 5). EBPS Transactions May to December 2009 Country Startup Participant Checks Transfers Date s # # FCFA # FCFA 000 billion 000 billion Cameroon 11/26/07 17 347 945 247 687 Gabon 04/21/08 12 206 706 61 190 Congo 09/01/08 10 81 352 26 120 CAR 10/06/08 05 21 30 8 18 Equatorial 02/23/09 05 14 77 4 15 Guinea Chad 03/30/09 09 19 587 26 83 Regional 05/25/09 58 1 5 4 48 26 Total 58 690 2204 378 1164 Project Component 3: Real-Time Gross Settlement System (RTGS) The expected outcomes of the Real-Time Gross Settlement System (RTGS) component have been met. The component is rated satisfactory. KPIs for this component were. (i) RGTS system is operational and 90 percent of transactions are settled within 30 minutes. Other indicators were (ii) transactions volume increases by 10 percent annually after third year of the program (ii) BEAC has real time visibility of liquidity position of banks and (iii) liquidity of commercial banks has been centralized. The RTGS system started operations in September 2007; all transactions are done in real time, exceeding its objective that 90 percent of transactions be settled within 30 minutes. Virtually all large volume transactions in the region pass through the RTGS. The volume of operations increased ten-fold in the first year of operation, from FCFA 16.5 trillion between the start of operations in November 2007 to the end of 2007 to FCFA 146.5 trillion in 2008 and FCFA 160 trillion in2009 (10 percent increase). BEAC has real time visibility as BEAC has real time visibility of liquidity position of banks and the liquidity of commercial banks was centralized in 2006. The system operates every business day, and here have been no disruptions related to the system since startup. BEAC has set up a backup system which uses SWIFT, the system used for foreign exchange transactions. Small interruptions have been linked to the telecommunications and electricity systems, and the RTGS remained operational during March 2008 riots in Yaoundé when Government, BEAC and business closed. The system has 61 participants including 45 commercial banks three national treasuries; the financial services of three postal services; the Douala Stock exchange, the Central Africa Stock Exchange (Libreville) and the Office of Government Debt. The treasury of three other countries participates through intermediaries. The system has 61 participants including 45 commercial banks three national treasuries (Cameroon, Gabon and Congo) and the financial services of three postal savings institutions; the Douala Stock exchange, the Central Africa Stock Exchange (Libreville) and the Office of Government Debt. The treasury of three other countries participates through intermediaries. The national treasuries of Chad, Equatorial Guinea and RCA participated through other intermediaries. BEAC bills all members who pay a onetime membership fee when they join the system; an annual quota paid once a year and a user fee every three months which vary according to use. Component 4: Inter Bank Card System Inter Bank Card System component is rated moderately unsatisfactory. The system began operations in 2009 and the KPI that the Inter-Bank Card System be operational was met, as was the indicator that two inter-bank card centers be established. In addition, the institutional structure for the inter-bank card system was put in place. The central operator (Société Monétique d'Afrique Centrale) with headquarters in Libreville and the regulator (Office de Monétique de l'Afrique Centrale) in Yaoundé, Cameroon began operations 2008. The system 27 is at an early phase and the volume of card operations criteria cannot be measured.. Eight banks are participating in the system. Banks are issuing cash cards which have facilitated business for small businessmen and enterprises. The prepaid card schemes for water or electricity are being discussed now. Component 5: Payment Risk Management System Payment Risk Management System was not put in place. A small component of the project, it was to develop a system to collect all information regarding payment incidents for individuals (US$0.5 million was assigned to it), and no performance indicators were included in the PAD or the DCA. The system turned out to be more complex and costly than initially estimated; costs increases were partly due to the revaluation of the EURO during the project period but it also reflected that the detailed design of the system had not been done before appraisal. It is being put in place now Component 6: Telecommunication infrastructure: The component comprised of the introduction of the telecommunications infrastructure in particular at the sub-regional level, in order to ensure high-quality, low-cost transfers of data and payment transactions among BEAC offices and all financial institutions' locations (branches and head offices), and implement standards and norms to facilitate the interoperability of all payment systems. The investments and activities planned under this component were inputs into the main systems being developed under components 2-4. All activities envisaged under the project were carried out including the strengthening of the VSAT network linking BEAC's national and local offices; communication links in the six capital cities to connect commercial bank head offices and BEAC national Directorates using existing landlines. The activities under this component were financed in their entirety by BEAC. Component 7: Legal framework. The component would help develop the legal basis for payments processing, clearing and settlement covering the rights and obligations of counterparts and intermediaries at all steps in the transaction flow including the methods for resolving disputes and claims. As in the case of the telecommunication infrastructure component, legal activities were an input to other activities, performance indicators were not linked to this component. The legal basis for the payments system has been set up as expected. The regional Legal framework approved by the council of Ministers in March 2003 (Règlement 02/03/CEMAC/UMAC/CM) became effective on July 1, 2004. The legal framework harmonizes national legislation which deals with the payments system and appoints BEAC as the supervisor of the system. The activities under this component were financed in their entirety by BEAC. The 2003 legal framework includes legislation with respect to: - harmonization of the regulations on checks - establishing a common legal framework for payment instruments such as electronic transfers, automatic debits and pre-paid payment cards 28 - definition of payment systems and particularly of safeguards to reduce their systemic risk - a regional system to prevent, manage and deter payment incidents In addition, the Regional Committee on Banking Normalization established in 2003 (Comite Régional de Normalisation Bancaire), issued regulations on such matters as information exchange formats, checks, transfers, account numbering systems and CMC7 line formats. Component 8: Training Program The training component aimed at strengthening BEAC and commercial bank operators. Most training was included in the contracts for the systems and was carried out satisfactorily. 29 Annex 3. Economic and Financial Analysis It is difficult to estimate an economic rate of return for a project of this nature, and data that allows valid comparisons between systems is not readily available. However, the appraisal premise that putting in place a single system for the whole region is the least cost solution for the development of the regional payments system remains valid. Benefits from a modern payments system that cannot be readily quantified include (i) increased competition among financial institutions which reduces costs, better service to clients and reduced transaction costs to consumers; (ii) improved efficiency in cash management: a decrease in payment delays for participating banks and their clients which were involved in a lengthy clearing process will enable them to use funds that were tied up for productive uses and (iii) the reduction of risk exposure of the banking community because of the real time gross settlement system. The total cost of the two main components was two times higher in FCFA than estimated at appraisal three times higher in US dollars than estimated at appraisal. This reflects the devaluation of the US$ against the Euro in the period of implementation and an underestimation of costs at the outset as there was no precedent for estimating costs for a payment system linking six countries. The increase in costs resulted in increased BEAC and private financing for the two main systems. The costs of the card system were lower than anticipated at appraisal. The financial arrangements call for cost recovery in all systems. BEAC charges an annual fee as well as a transaction fee for the RTGS and the Electronic clearing system. The ICR team estimates that the annual payment by participating institutions for the RTGS system, which has been in operation for more than one year is at present some FCFA 410 million 30 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Andre Ryba Lead Financial Sector Specialist AFTFS Task Manager Senior Payments System Payments system Charlie Garrigues FSD Specialist specialist Claudine Morin Senior Counsel LEGAF Counsel Guy Joseph Malembeti Procurment Secialist AFMCM Procurement Financial Fridolin Ondodbo Financial Management Specialist AFMCM Management Supervision/ICR Andres Jaime Financial Sector Specialist AFTFPS Task Manager AFTFS- Jonathan Isaac Darboux Financial Sector Spec. Financial Sector HIS Payments systems Charlie Garrigues Consultant AFTFW specialist Kouami Hounsinou Messan Procurement Specialist AFTPC Procurement Financial Fridolin Ondobo Financial Management Specialist AFTFM Management 31 (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 FY01 1 82.19 FY02 19 109.37 FY03 10 69.17 FY04 0.24 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00 Total: 30 260.97 Supervision/ICR FY01 0.00 FY02 0.00 FY03 11 52.27 FY04 16 81.06 FY05 20 95.96 FY06 23 102.93 FY07 20 85.76 FY08 8 78.29 FY09 7 0.00 Total: 105 496.27 Annex 5. Beneficiary Survey Results NA 32 Annex 6. Stakeholder Workshop Report and Result NA 33 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR BEAC sent to the Bank a preliminary draft report on the project outputs which served as input for the preparation of this ICR, but a final report has not yet been received. 34 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 35 Annex 9. List of Supporting Documents World Bank 1. Project Concept Document for a BEAC Regional Payments System, February 2001. 2. Project Appraisal Document on a Proposed Credit to the Banque des Etats de l'Afrique Centrale for a BEAC Regional Payment System, July 9, 2002 (Report No. 24411) 3. Development Credit Agreement (BEAC Regional Payment System Project) between the International Development association and Banque des Etats de l'Afrique Centrale of August 16 2002 4. Aide Memoires, Back-to-Office Reports, Project Supervision Reports, Implementation Status and Results Reports 5. Regional Integration Assistance Strategy of January 2003 (Report No.25328) 6. Regional Integration Assistance Strategy for Sub-Saharan Africa, March 25, 2008 (Report 43022) 7. Quality Assurance Group, Sixth Quality at Entry Assessment, BEAC Regional Payments System. BEAC and Other 8. Comite Régional de Suivi, Compte Rendu du Comite du 05 Novembre 2007 9. Comite Régional de Suivi, Fonctionnement du Système de Gros Montants Automatise (SYGMA), 6 Juillet, 2009 10. Comite Régional de Suivi Etat d'Avancement du Système de Telecompensation en Afrique Centrale (SYSTAC) , 6 Juillet 2009 11. Comite Régional de Suivi, Relance du Projet Centrale des Incidents de Paiement (CIP) 12. BEAC, Enquête de Base auprès des Usagers des Systèmes de Paiement et de Règlements des Pays de la CEMAC, 2005 13. BEAC, Unité de Gestion du Projet, Rapport de Suivi Financier (2007-2009) 14. BEAC, Unité de Gestion du Projet, Rapport, Exécution du Project, Mars 2007 36