Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 75522-MA

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF US$4.9 MILLION

FROM THE MIDDLE EAST AND NORTH AFRICA TRANSITION FUND

TO THE

KINGDOM OF MOROCCO

FOR A

MICROFINANCE DEVELOPMENT PROJECT

June 27, 2013

Finance and Private Sector Development Group

Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 5, 2013)

Currency Unit = Moroccan Dirham (MAD)

US$1 = MAD 8.52

MAD 1 = US$0.12

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AMC Associations de Micro-Crédit (Micro-Credit Associations)

BAM Bank Al Maghrib (Central Bank of Morocco)

CCG Caisse Centrale de Garantie (Central Guarantee Fund)

CDG Caisse de Dépot et de Gestion

CGAP Consultative Group to Assist the Poor

CM6 Centre Mohammed VI pour la Microfinance Solidaire

CMU County Management Unit

CPS Country Partnership Strategy

CQS Selection Based on Consultant's Qualifications

DAAG Direction des Affaires Administratives et Générales (Directorate of Administrative and

General Affairs)

DECDG Development Economics, Development Data Group

DPL Development Policy Loan

DPTF Deauville Partnership Transition Fund

DPTF OM Deauville Partnership Transition Fund Operations Manual

FM Financial Management

FNAM National Federation of Micro-Credit Associations

GDP Gross Domestic Product

GID Gestion Intégrée des Dépenses (Integrated Expense Management)

GNI Gross National Income

IBRD International Bank for Reconstruction and Development

IC Individual Consultants

IDA International Development Association

IFC International Finance Corporation

IFI International Financial Institution

IFMIS Integrated Financial Management Information System

IGF General Inspectorate of Finance

IMF International Monetary Fund

INTOSAI International Standards on Auditing

ISA International Standards on Auditing

IT Information Technology

IUFR Interim Unaudited Financial Report

J-PAL Jameel Latif Poverty Action Lab

M&E Monitoring and Evaluation

MAD Moroccan Dirham

MCA Millennium Challenge Account

MENA Middle East and North Africa

MFI Microfinance Institutions

MIS Management Information Systems

MoEF Ministry of Economy and Finance

MSME Micro Small and Medium Sized Enterprises

NCB National Competitive Bidding

OP Operations Policy

PAD Project Appraisal Document

PDO Program Development Objective

PEFA Project Economic and Financial Assessment

PFM Public Financial Management

PFS Project Financial Statements

PJD Parti de la Justice et de Développement (Justice and Development Party)

PMU Project Management Unit

PPP Purchasing Power Parity

QCBS Quality and Cost Based Selection

SBD Standard Bidding Documents

SME Small and Medium Enterprise

TA Technical Assistance

TF Trust Fund

UN United Nations

USAID United States Agency for International Development

USD United States Dollar

VAT Value-Added Tax

Regional Vice President: Inger Andersen

Country Director: Simon Gray

Sector Director: Loic Chiquier

Sector Manager: Simon C. Bell

Task Team Leader: Teymour Abdel Aziz

KINGDOM OF MOROCCO

Morocco Microfinance Development Project

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT .................................................................................................1

A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context ................................................................................. 3 C. Higher Level Objectives to which the Project Contributes .......................................... 8

II. PROJECT DEVELOPMENT OBJECTIVES ................................................................8

A. Project Development Objective (PDO) ........................................................................ 8

B. Project Beneficiaries ..................................................................................................... 8 C. PDO Level Results Indicators ..................................................................................... 11

III. PROJECT DESCRIPTION ............................................................................................11

A. Project Components .................................................................................................... 11

B. Project Financing ........................................................................................................ 13 C. Lessons Learned and Reflected in the Project Design ................................................ 14

IV. IMPLEMENTATION .....................................................................................................16

A. Institutional and Implementation Arrangements ........................................................ 16 B. Results Monitoring and Evaluation ............................................................................ 17

C. Sustainability............................................................................................................... 17

V. KEY RISKS AND MITIGATION MEASURES ..........................................................18

A. Risk Ratings Summary Table ..................................................................................... 18 B. Overall Risk Rating Explanation ................................................................................ 18

VI. APPRAISAL SUMMARY ..............................................................................................19

A. Economic and Financial Analyses .............................................................................. 19

B. Technical ..................................................................................................................... 19 C. Financial Management ................................................................................................ 19

D. Procurement ................................................................................................................ 20 E. Social (including Safeguards) ..................................................................................... 21 F. Environment (including Safeguards) .......................................................................... 21

Annexes

Annex 1: Results Framework and Monitoring...............................................................................22 Annex 2: Detailed Project Description ..........................................................................................25 Annex 3: Implementation Arrangements .......................................................................................28

Annex 4: Operational Risk Assessment Framework (ORAF) .......................................................40 Annex 5: Implementation Support Plan .........................................................................................43

i

PAD DATA SHEET

Kingdom of Morocco

Morocco Microfinance Development Project

PROJECT APPRAISAL DOCUMENT

Middle East & North Africa

Financial and Private Sector Development

.

Basic Information

Date: June 27, 2013 Sectors: Private Sector Development (100 percent)

Country Director: Simon Gray Themes: Private Sector Development, Micro and small

Finance

Sector Manager/Director: Simon C. Bell/ Loic Chiquier EA

Category:

C

Project ID: P144500

Lending Instrument: Investment Project Financing

Team Leader(s): Teymour Abdel Aziz

Joint IFC:

.

Recipient: Kingdom of Morocco

Responsible Agency: Ministry of Economy and Finance

Contact: Nouaman Al Aissami Title: Chief of Credit Division

Telephone No.: Email: n.alaissami@tresor.finances.gov.ma

.

Project Implementation Period: Start Date: July 31, 2013 End Date: July 31, 2017

Expected Effectiveness Date: July 31, 2013

Expected Closing Date: January 31, 2018

.

Project Financing Data(US$M)

[ ] Loan [ ] Grant [ X ] Other (Trust Fund Grant)

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost (US$M) : 5.9 Total Bank Financing :

Total Transition Fund

Financing (US$M) :

4.9

Financing Gap :

ii

.

Financing Source Amount(US$M)

BORROWER/RECIPIENT 1.0

IBRD

IDA: New

IDA: Recommitted

Other 4.9

Financing Gap

Total 5.9

.

Expected Disbursements (in USD Million)

Fiscal Year 2014 2015 2016 2017 2018

Annual 0.1 1.5 1.6 1.6 0.1

Cumulative 0.1 1.6 3.2 4.8 4.9

.

Project Development Objective(s)

The project objective is to promote access to finance to low income households and micro and small enterprises

through the promotion of a sustainable and inclusive microfinance sector.

.

Components

Component Name Cost (USD Millions)

Component 1: Strengthening the institutional, legal, regulatory, tax and

governance framework for microfinance

1.9

Component 2: Strengthening the market infrastructure, product innovation

and funding sources for microfinance

1.5

Component 3: Integrating Microfinance into a national financial inclusion

strategy

1.5

.

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ]

.

Does the project require any waivers of Bank policies? Yes [ ] [X]

Have these been approved by Bank management? Yes [ ] [ ]

Is approval for any policy waiver sought from the Board? Yes [ ] [X]

Does the project meet the Regional criteria for readiness for implementation? Yes [X] [ ]

iii

.

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X

.

Legal Covenants

Name Recurrent Due Date Frequency

Recruitment of additional procurement specialist and

additional financial management specialist

No four (4) months

after the Effective

Date

Once

Description of Covenant

The Project Management Unit (PMU) shall recruit, by not later than four (4) months after the Effective Date, an additional

procurement specialist and an additional financial management specialist each of whose qualifications, experience and

terms of reference shall be acceptable to the World Bank.

.

Team Composition

Bank Staff

Name Title Specialization

Teymour Abdel Aziz (TTL) Economist, TTL Financial Sector Development

Gabriel Sensenbrenner Lead Financial Economist Financial Sector Development

Peter McConaghy Junior Professional Associate Financial Sector Development

Philippe de Meneval Senior PSD Specialist Private Sector Development

Steve Wan Operations Analyst Operations

Abdoulaye Keita Senior Procurement Specialist Procurement

Khadija Faridi Consultant Procurement

Lamyae Hanafi Benzakour Financial Management Specialist Financial Management

Laila Moudden Operations Assistant Financial Management

iv

Hassine Hedda Finance Officer Disbursements

Suzanne Parris Program Assistant Operations

Jean-Charles de Daruvar Senior Counsel Legal

Maya Abi Karam Counsel Legal

Alexandra Sperling Legal Analyst Legal

Non Bank Staff

Name Title Office Phone City

.

Locations: The regions of Tanger-Tetouan, Taza-Al-Hoceima-Tatounate, Fez-Boulmane, Meknes-Tafilalt, Tadla-Azilal,

Doukkala-Abda, Rabat-Sale-Zemmour-Zaër, Casablanca, Oriental, Marrakech-Tensift-El Haouz, Chaouia-Ourdigha,

Gharb-Chrarda-Beni Hsen, and Souss-Massa-Draâ; and the provinces of Guelmin, Assa- Zag, Tantan and Tata.

Country: Kingdom of

Morocco

First Administrative

Division

Location Planned Actual Comments

.

1

I. STRATEGIC CONTEXT

A. Country Context

1. The wave of democratization that the Middle East and North Africa (MENA) region has

experienced since the start of the Arab Spring has also reached Morocco, although its experience

has been reasonably peaceful. In March 2011, King Mohammed VI proposed a broad and

comprehensive package of political reforms that garnered the support of the electorate in a

constitutional referendum held on July 1, 2011. The new Constitution sets the basis for a more

open and democratic society, provides mechanisms for the construction of a modern state of law

and institutions, and lays the foundation for extended regionalization. Transparent parliamentary

elections, held on November 25, 2011, were won by the Parti de la Justice et du Développement

(PJD), a party that had traditionally been in active opposition. The PJD formed, in early January

2012, a four-party coalition government, with Mr. Benkirane, the head of the PJD, becoming the

Head of Government.

2. In this context, Morocco’s unique experience reflects its political distinctiveness in the

region, even though many of the same grievances among the population exist (lack of economic

opportunities, corruption, widespread poverty, social inequality, unemployment). This

experience has shown that Moroccans seem more inclined to seek evolution within the system –

gradual change continuous with the country’s history and religious values.

3. The movements associated with the political transition and constitutional changes

represent real pressure on the Moroccan State for meaningful and quick change. While the

people seem to be willing to support the Government and its mandate, they are expecting and

indeed demanding that it breaks with the past and ushers in more credible and faster reforms,

notably in the areas of job creation and improvement of the quality of public services delivered.

If the Government can assume more ownership of the political process and genuinely deliver,

then this will go a long way to transforming the social and political landscape of Morocco.

4. Morocco made significant economic headway during the decade preceding the Arab

Spring. Growth averaged 4.8 percent over 2001-12, compared to 2.8 percent in the 1990s.

Inflation was less than 2 percent over the period. Gross domestic product (GDP) per capita

doubled to reach US$2,951 in 2012; unemployment declined from 13.6 percent in 2000 to 9

percent in 2012; absolute poverty decreased from 15.3 percent to roughly 8.8 percent between

2001 and 2008.

5. Morocco weathered the first round of the global financial crisis relatively well,

maintaining an investment grade rating since 2007. This reflected sustained efforts to implement

sound macroeconomic policies and ambitious structural reforms. Morocco liberalized a number

of sectors, including transport, energy, and telecommunications, and signed many Free Trade

Agreements, including with Europe. The financial sector was strengthened to support the new

dynamism of the nonagricultural sector and (although much still remains to be done) the

microfinance segment is among the most developed in the MENA region.

6. However, Morocco has confronted growing economic challenges in the second round of

the global financial crisis. Developments in the Euro area and continued high fuel and food

2

import prices are expected to put sustained pressure on fiscal and external balances. The current

account deficit is estimated to have reached 9.6 percent of GDP in 2012 from further losses in

terms of trade, and lower tourism receipts and remittances. The fiscal deficit deteriorated to 7.6

percent of GDP in 2012 and central government debt jumped to 58.8 percent of GDP. This fiscal

deterioration stems mainly from higher-than-expected expenditures, especially on food and fuel

subsidies, wages and salaries, and transfers to public agencies and state-owned enterprises.

Financing the deficit through classical external borrowing from multilateral and bilateral

creditors, along capital grants proved insufficient, which led the Government to raise US$1.5

billion bonds on international financial markets in December 2012. As a result, the central

government debt increased by 5.1 percentage points of GDP in 2012 to reach 58.8 percent of

GDP.

7. The recent shocks have left the Government with much smaller policy margins at a time

when the population has higher expectations for job creation and poverty alleviation.

Unemployment remains high (9 percent), especially among the urban youth, despite one of the

lowest participation rates (49 percent) among comparator countries. Four out of 5 unemployed

are urban, 2 out of 3 are youth aged 15-29, 1 in 4 jobless holds a university diploma. About a

quarter of the population–around 8 million people–is either in absolute poverty or under constant

threat of falling back into poverty. Seventy percent of poverty is still rural and in 2007 the urban

poverty rate was 4.8 percent compared to 14.5 percent in rural areas. Income of the poor has

been growing at a slower rate than the average income.

8. In the current political and economic environment, inclusive growth and job creation by

the private sector dominate the policy debates. With government increasingly financially

constrained, there are high expectations that SMEs and micro-enterprises can increasingly

contribute to private sector job creation in Morocco. The World Bank’s 2011 financial sector

flagship report showed that access to finance is a key constraint in areas underserved by

conventional banks, such as the informal sector.

9. Microfinance institutions (MFIs), by the very nature of their business model and cost

structure, are particularly well equipped to provide financial services to the informal sector.

Morocco’s MFIs have established a solid track record in expanding access to the informal sector,

despite problems resulting from an initial period of high growth without an adequate institutional

and governance framework. The recent consolidation of the sector, as well as other central bank

measures that led to improved governance, supervision, and more and better sharing of

information on the borrowers of microloans, paved the way for further expansion of access.

10. MFIs contribute significantly to the production of quality credit information on borrowers

in the informal sector. When these borrowers are seasoned and reach a critical size, they become

more attractive to traditional banks and can transition to the more productive formal sector where

they typically benefit from a better safety net. By enabling this transition, MFIs may also

contribute to net job creation, though only with long lags and in limited quantity. More

importantly, greater MFI penetration lays the foundation for a financial system less geared to the

few borrowers with valuable collateral, prominent supporters or implicit guarantees.

3

B. Sectoral and Institutional Context

11. Morocco has a well thought-out strategy for the sustainable development of its financial

sector, inspired by a drive to learn from and adapt best practices to the need of Morocco’s

modernizing economy. Over the past 20 years, important reforms of the institutional and legal

framework helped sustain the development of a capable financial industry. The sector is wide

open to international practices, with a view to balance financial sector stability objectives with

diversification and innovations that meet the needs of households and enterprises. Advances

include the governance of financial institutions and of regulatory authorities, oversight practices

and crisis preparedness, finance for small enterprises, capital market development, and financial

inclusion. The strategy aims to establish Morocco as a regional hub for the dissemination of best

practices in financial sector development, and Moroccan financial institutions have established

important beachheads in Africa. The strategy has been supported by Bank-financed development

policy loans (DPLs) and several Technical Assistance projects, as well as IFC investments in and

advisory services to the larger Microcredit Associations (Associations de Micro-crédit, AMC).

12. Financial inclusion is one of three dimensions of the strategy, with capital market

development, and continuous refinements of oversight standards and practices. The Bank has

partnered with Morocco on financial inclusion under successive financial sector DPLs, the

MENA MSME Technical Assistance Facility, and the Morocco MSME Development Project (to

ramp up the provision of guarantees to MSMEs). Several dimensions of a full-fledged financial

inclusion strategy have achieved consensus and are being launched. In particular, Bank Al-

Maghrib (BAM) has been working since 2007 with the national association of banks and finance

companies, and has launched an action plan that includes: a foundation for financial education; a

center for financial mediation; the licensing of a second credit bureau; the licensing of

intermediary banking agents for wider access to banking and payment services; dedicated bank

reporting to monitor inclusion; a financial literacy survey; and other initiatives to enhance

consumer protection and choice. However, the lack of a well-funded microfinance lobby

(FNAM) and the sector’s heterogeneity delayed a full integration of microfinance initiatives in

BAM’s plans. Accordingly, there is a need to take stock, and through a process of consultation,

achieve synergies, and mitigate implementation risk across various inclusion initiatives.

13. Despite limited institutional capacity from the industry association lobby, demand from

underserved segments of the population has led to the emergence of large microcredit

institutions. Indeed, Morocco leads in microcredit in the Arab world. The Moroccan

microfinance sector represents 40 percent of all microfinance clients across the region, 80

percent of branches, and 50 percent of MFI employment (Livre Blanc, 2012), for a share of Arab

World population of 10 percent. The Moroccan microcredit sector consists of 13 not-for-profit

associations (Associations de Micro Credit - AMC) with some 800,000 accounts and outstanding

loans of MAD 5 billion (0.4% of GDP; 0.7% of credit to the private sector) (MixMarket,

December 2012).1 The four largest AMCs account for 95 percent of the outstanding loans, and

the five smallest, 1 percent. With AMCs prohibited from collecting deposits, liabilities are 80

percent bank lines, 15 percent subsidized refinance facility for the ones not fulfilling bank

lending conditions (through Jaida – a private fund aimed at refinancing MFIs), plus government

and donor funds. In 2010, the sector’s equity/asset ratio was 25 percent and its return on equity

1 Not-for-profit status means that net earnings accrue entirely to equity and all activities are tax-exempt, incl. VAT.

4

was 15 percent.

14. The Microcredit Law of 1999 provided a framework for the nascent industry to take off.

The law established Jaida and attracted equity support from international donors. Government

sources (e.g., Fonds Hassan II) also contributed equity during take-off. In just four years, from

2003 to 2007, MFI loan portfolios grew 11 times and outreach four times, to 1.2 million accounts

(Consultative Group to Assist the Poor – CGAP 2010). Growth was driven by four leading MFIs

(Zakoura, Al-Amana, Fondation des Banques Populaires (FBP), Fondep) with 90% client

outreach. With the emergence of socially systemic AMCs, oversight responsibilities shifted from

the Ministry of Finance to BAM, which started to supervise the sector in 2007, although the

Ministry retained licensing power until 2012.

15. Unbridled growth overwhelmed not-for-profit governance arrangements, risk control, and

information systems. Starting in 2007, BAM inspections revealed alarming financial conditions,

sometimes from outright fraud. BAM’s interventions resulted in the clean-up of loan portfolios, a

pause in lending, and consolidation. Portfolio-at-risk greater than 30 days (PAR30) increased

from 2% in 2007 to 10% in 2009, and client accounts quickly dropped below 1 million, including

through paring back cross-borrowing.2 The sector and regulators had focused on quick gains

(building size and outreach) at the expense of qualitative actions to develop the literacy of the

client base, implement responsible lending practices, and introduce risk management and

commercial standards. In May 2009, Zakoura, Morocco’s leading MFI, reported a PAR30 above

30% and the authorities organized its absorption into FBP, backed by a large commercial bank.

16. The authorities and key financial stakeholders took swift action to stabilize the sector. In

addition to the Zakoura operation, local commercial banks have kept their financing lines, and

other financial backers have maintained their stakes or waived financial covenants. The

confidence of financiers was buttressed importantly by BAM’s close oversight of MFIs’

deleveraging measures, through slower growth and efforts to collect from delinquent or

fraudulent borrowers.

17. Stabilization was accompanied by the launch of root-and-branch reforms designed to put

the sector on a sustainable commercial and financial footing. BAM mandated a comprehensive

review of underwriting and credit appraisal, improvement of risk and internal controls, and

governance arrangements more in line with those of financial institutions. Assistance from key

donors, such as the Millennium Challenge Account or IFC, focused on introducing modern

banking practices, obtaining external ratings, developing human resource strategies, and better

meeting client needs.

18. Under BAM’s impulse, particular attention was paid to sector-wide information systems

to identify and control concentration risk and weed out risky borrowers. MFIs entered

agreements with the private credit bureau providing them access to the database at preferential

rates in exchange for information on client profiles. As of 6 June 2011, 50 percent of MFI clients

were in the credit bureau database, about a fifth of economy-wide records. With donor support,

the more advanced MFIs are in the process of updating their information management systems,

for example, in order to consult the database in real time or feed transactions initiated by MFI

2 40 percent of beneficiaries had loans from different institutions, with no integrated view of cross-borrowing.

5

agents on the ground directly into accounting and risk management systems.

19. The crisis and comprehensive reforms that followed have primed the sector for a phase of

more mature growth. Key stakeholders engaged in wide-ranging consultations that culminated in

the October 2012 First International Symposium on Microfinance in Morocco. The aim of the

Symposium was to present and discuss a white paper outlining a national strategy for

microfinance in a public forum. Workshops covered the job creation potential of microfinance;

integration of global best practices; from microcredit to microfinance; and funding needs.

20. In addressing the event, His Majesty the King endorsed the strategy and emphasized its

key principles: help the informal sector create jobs; develop new products and practices to reach

the underserved; incorporate best financial management and control practices; achieve synergies

by integrating the objectives of government policies across regions, types of income generating

activities, age or gender. The King also called on continued support from international entities.

21. As part of the national strategy, Parliament passed in 2012 important amendments to the

1999 microcredit law. One amendment formalizes a framework for the consolidation of micro-

credit associations, through acquisitions or mergers. This amendment introduces into law the

kind of operation that underpinned the resolution of Zakoura. The authorities have been

encouraging the smaller AMCs to consolidate in order to achieve critical mass. A larger AMC

can more easily partner with a bank to secure funding in exchange for distribution and outreach

services. It is expected that the promulgation of the new law will trigger such moves. A second

amendment allows AMCs to create finance companies under Morocco’s corporate law. The aim

is to attract new investors into the finance company, which in turn can borrow from banks at

more attractive terms than the AMC, given BAM’s tighter prudential rules. So-called

“transformation” into finance company would allow AMCs to secure more stable funding of

current assets, as well as increase capital to support future growth.

22. The 2012 law calls on the MoEF to regulate the costs that AMCs can pass through to

microcredit beneficiaries. This amendment came about during parliamentary review of the draft

amendment to the microcredit law and was not envisaged in the reform strategy. The industry

has worked closely with MoEF and BAM to devise a solution. The current proposal envisages an

all-in cost comprising staff costs, other operational expenses, funding costs, credit risk premia

(reflecting recent credit losses), remuneration of capital, plus a margin.3 The large MFIs have

indicated that attracting new investors in the context of “transformation” hinges on maintaining

the prior regulatory regime and generally the tax-free regime of not-for-profit entities (VAT

exemption).

23. Through “transformation” and other measures, the sector aims in the next ten years to

multiply by four the number of accounts (to 3.2 million), and by five the volume of credit (to 2%

of GDP). If reached, 40-50 percent of the population would be served, assuming 4-5

beneficiaries per account. Comprehensive financial inclusion would be well within reach given

overlap between these targets and parallel financial inclusion initiatives. The postal bank created

in 2009 as part of BAM’s inclusion plan already has in excess of 5 million accounts, although it

3 MoEF has regulated the all-in-cost of credit extended by banks and finance companies since 1997, and limits the

margin to 200 basis points.

6

does not yet offer lending services, but partners with a large MFI to this end. The commercial

banks are also developing inclusion tools (so-called “low income banking”) through partnerships

with telecom or remittance operators, with 3.5 million accounts opened in the recent past.

BAM’s targets under its financial inclusion plan are for two-thirds of the population formally

accessing banks by 2014, either directly or via intermediaries.

24. MFI stakeholders are working on other financial inclusion projects that are at various

stages of maturation. However, the design of transformational projects has been hampered by a

lack of knowledge management platforms and integrated information systems for analysis and

policy formulation. Stakeholders indicated that much data is available, and with suitable

granularity. However, the data is dispersed and highly unwieldy for analysis, outreach, and

policy. A leading industry advocate that attempts to conduct analysis has been the Centre

Mohammed VI pour la Microfinance Solidaire (CM6), which was established in 2007. Its

mission is to: train AMCs, including in the development of innovative products; studies and

outreach (it hosts the microfinance observatory); market access and basic management advice for

microenterprises; and financial education. The Centre aims to develop new products and design

common technology and information platforms that could provide industry-wide services,

especially to the small AMCs. For example, CM6 and Jaida are conducting background work to

assess the regulatory and technical feasibility of a mobile-banking platform that would be

common to all AMCs. However, CM6 does not engage in policy formulation or interface with

the regulatory authorities on behalf of the industry.

25. FNAM as the microfinance industry association has been absent from inclusion

initiatives. The 1999 law provided that all AMCs are members of FNAM to ensure a strong

interlocutor for the authorities in what was then a nascent industry. The mission of FNAM is to

represent the industry in the public arena and with oversight authorities, and spearhead sector-

wide initiatives. However, lack of resources since inception means that FNAM has no permanent

staff, nor offices, and is thus unable to fulfill its mandate. A critical factor preventing agreement

among FNAM members to develop the institution appears to have been heterogeneous

membership, with large and financially savvy MFIs at odds with small charitable MFIs. For the

past several years, a large commercial bank with an AMC subsidiary has been filling in for

FNAM on its own resources. The bank has also been trying to organize and provide basic

financial services to a loose grouping of smaller AMCs. FNAM estimates it would need a budget

of US$ 0.5 million per year to begin work. A key aim of the proposed project is strengthening

FNAM.

26. Microfinance donors are in various stages of evaluating the impact of their strategies and

planning possible follow-on projects. Donor activities are generally coming to a close or have

already been discontinued. In particular, MCA/USAID will close a wide-ranging microfinance

project (see table below) that began in 2007, with MAD 42 million in technical assistance to

finish disbursing by June 2013 and MAD 33 million in IT, management information systems and

risk control systems. The size of these projects (compared with the sector’s need for additional

capital of MAD 5 billion to support MAD 25 billion lending by 2023) suggests that substantial

investments in human capital, processes and systems may come to an end, with no replacement

contemplated at this stage. The Bank has conducted a series of consultations with microfinance

donors active in Morocco to coordinate efforts and better identify the Bank’s value added. A

7

brief summary of donor activities is provided below:

TA provider Beneficiaries Focus Duration Funding

Source IFC Al-Amana,

Fondep

Governance, Risk

Management

ongoing MENA MSME

Facility (50%

Cofinance)

MCA Ardi, Réseau

microfinance

solidaire

Marketing

Diversification of

funding sources

Geographical

coverage strategy

2007-13 80% USAID

The rest by

beneficiaries

MCA All MFIs Strengthening

internal controls,

improving risk

management and

organization of

MFIs

2007-13 80% USAID

The rest by

beneficiaries

MCA RMS, FONDEP-

MC

Change

management

2007-13 80% USAID

The rest by

beneficiaries

MCA Al AMANA

FONDEP-MC

Implementation of

Mobile Banking

Improving

customer

relationship

2007-13 80% USAID

The rest by

beneficiaries

GiZ CM6 Financial

education of

micro-

entrepreneurs

2011-13 GiZ

Banque de

France/AFD

CM6 Microfinance

observatory

2012 AFD

Source: World Bank staff interviews with donors and implementing agencies.

27. The MoEF asked the World Bank to be the implementation support agency for the proposed

grant under the MENA Transition Fund in light of its long-standing engagement with the

Moroccan authorities on financial inclusion issues. In addition, the Bank hosts the secretariat of

the G-20 Global Partnership for Financial Inclusion (GPFI) and develops policy documents with

the Financial Inclusion Expert Group for the GPFI. The Bank also has close links with and hosts

the Consultative Group to Assist the Poor (CGAP), the leading policy group on microfinance. A

financial sector DPL planned for end-2013 will include an important financial inclusion pillar

and the proposed grant will help inform the design of the DPL.

28. Morocco received considerable assistance from the donor community (see section III B

for additional details) and as such, incorporating core lessons and designing a project that

complements rather than duplicates other donor activities is of significant importance to the

overall success of the project.

8

C. Higher Level Objectives to which the Project Contributes

29. The proposed operation contributes directly to the objectives of the World Bank Group’s

Country Partnership Strategy (CPS) for Morocco (FY2010-2013) discussed by the World Bank’s

Board of Executive Directors on January 26, 2010. The CPS proposes three thematic pillars

aligned with the development priorities of the country. The first pillar states that the structural

transformation of the Moroccan economy will require a comprehensive and coordinated set of

policies in many areas, underpinned by a financial sector that better serves smaller firms and

microenterprises. The proposed operation is targeting precisely the financial inclusion of this

underserved segment of the Moroccan economy, as well as women, which have been amongst

the key beneficiaries of the Moroccan microcredit sector: of all microloans issued in Morocco,

55.3% have benefitted women and 46.9% have benefitted age groups between 30 and 49 years.

These objectives are also central to the MENA Regional Strategy, discussed by the Board in

January 2013.

30. The Government’s support for a strong and sustainable microfinance sector has been

endorsed in the First International Symposium on Microfinance in Morocco held in October

2012. At this public forum, the country’s microfinance strategy was introduced and discussed.

Workshops covered the job creation potential of microfinance; integration of global best

practices; product diversification away from credit-led models; and funding needs. In addressing

the event, His Majesty the King endorsed the strategy and emphasized its key principles: help the

informal sector create jobs; develop new products and practices to reach the underserved;

incorporate best financial management and control practices; achieve synergies by integrating

the objectives of government policies across regions, types of income generating activities, age

or gender. The King also called on continued support from international entities. The proposed

operation supports the roll-out of the national microfinance strategy by strengthening the

resilience and impact of the microfinance sector, both for lending to enterprises as well as

households for investment. Microloans to households are often the initial steps toward

consumption smoothing, which helps raise living standards and thereby worker productivity in

formal enterprises. MFIs also generate “self-employment” which helps alleviate the incidence of

absolute poverty in the informal economy.

II. PROJECT DEVELOPMENT OBJECTIVES

A. Project Development Objective (PDO)

31. The project objective is to promote access to finance to low income households and

micro and small enterprises through the promotion of a sustainable and inclusive microfinance

sector.

B. Project Beneficiaries

32. The project’s direct and indirect beneficiaries fall into five categories and reflect key

actors at different institutional levels within the microfinance sector in Morocco. Beneficiaries

are: i) industry regulators and policymakers including BAM and the Ministry of Finance; ii)

coordinating agencies/service providers including FNAM and the Centre Mohammed VI; iii)

microfinance institutions; iv) low-income individuals, particularly women, and v)

9

microenterprises and small businesses, including women-led firms.

33. Industry Regulators and Policymakers: The project will provide technical assistance

through diagnostic studies and policy development support on key legal, regulatory, and

governance issues affecting the microfinance sector. Policy support will also be provided to

promote innovation and regulate new product development such as mobile banking. The project

will also develop a financial inclusion strategy (based on stock-taking and impact evaluation

work) and provide assistance in disseminating this strategy accordingly. These activities will

benefit industry regulators and policymakers, most notably the BAM and the Ministry of

Finance, allowing them to develop an enabling environment that promotes efficiency, stable

growth, and access to finance for underserved people in Morocco.

34. Coordinating Agencies/Service Providers: This project seeks to provide FNAM the

capacity and strategy needed to become an effective and sustainable industry association.

Technical assistance provided through the project will allow FNAM to effectively coordinate

information amongst MFIs and engage with policymakers on key sectoral issues. Similarly, the

project also seeks to reinforce key service providers within the industry, most notably Center

Mohammed VI, which will benefit from project assistance to expand their role in financial

education, knowledge management, and research. Together these activities seek to strengthen the

market infrastructure surrounding MFIs through enhancing the capacity of coordinating agencies

and service providers.

35. Microfinance institutions: Microfinance institutions (MFIs) will benefit directly from

technical assistance and policy work designed to build common platforms to enhance the

efficiency of the sector. MFIs will benefit from technical assistance designed to mutualize back

office and other support functions, diversify and expand funding sources, and provide guidance

on transforming to finance companies. MFIs will also benefit from policy guidance on product

innovation, particularly mobile banking. More indirectly, MFIs will benefit through a

strengthened industry association (FNAM) and an improved regulatory and legal environment

through assistance provided to regulators and policymakers.

36. Low-income individuals, particularly women: The project seeks to enhance the ability

of low-income individuals, particularly women, to access quality microfinance services. Low-

income individuals will benefit from more efficient and strengthened MFIs, which can translate

into greater product offerings, expanded geographic reach, and more competitive pricing for

clients. They will also benefit from the development of a national financial inclusion strategy

that seeks to address gaps in financial access and usage, particularly for rural poor and the

poorest segments of society who are not served by banks or microfinance institutions. Low-

income individuals will also benefit from financial education training that is prioritized in this

project. Finally, low-income individuals will benefit indirectly through more effective legal,

regulatory, and governance environment for the microfinance industry developed through the

project.

37. Microenterprises and small businesses, including women-led firms: Microenterprises

and small firms will benefit from the project through a strengthened and more efficient MFI

sector. MFIs will be able to offer microenterprises and small firms more innovative product

10

offerings, more competitive pricing, greater geographical reach, and improved efficiencies when

accessing microcredit. Microenterprises and small firms will also benefit indirectly from the

policy guidance provided through the project to MFIs transforming into finance companies.

Transformation allows MFIs to tap into significantly more diverse funding sources, most notably

equity investments through shareholders. This additional funding will help MFIs serve

microenterprises that have larger financing needs than average MFI clients but are not yet served

by banks or non-bank financial institutions. Additional financing as a result of transforming will

also enhance the geographic reach through which MFIs can serve small firms.

Box 1: Inclusion of Gender in Project Design and Implementation

Microfinance is considered a successful example of gender-inclusive development. Globally 75% of

more than 205 million customers served by MFIs are women, including 82% of the 137.5 million

poorest clients (Microcredit Campaign Report 2012). In Morocco 27% of women have an account at

a formal financial institution (Findex 2012) while 43% of women have taken a loan (formal or

informal) in the past year. Approximately 46% (368,000) of total MFI clients are women in

Morocco. Women are viewed as key beneficiaries for MFIs because they are often responsible for

the well-being of the family, and thus seen as a conduit for conferring income and consumption

smoothing benefits to the greatest number of people. Microfinance also supports females’ economic

empowerment because it creates opportunities for business expansion and productive investment at

the household level, bypassing many socio-economic barriers that prevent women from participating

in the local economy. Qualitative and quantitative studies (e.g. those from Women’s World Banking)

have demonstrated that access to microfinance services empowers women through an increased

likelihood to own assets (land, houses, etc.), greater control over household assets, and an ability to

invest and grow in microbusinesses.

An impact evaluation in Morocco (Duflo et al 2011) estimated the effect of Al Amana opening 60

new branches in sparsely populated rural areas on credit allocation, consumption, and business

activity, among others. The main effect of improved access to credit was to expand the scale of

existing self-employment activities of households, including both keeping livestock and agricultural

activities. The evaluation revealed important limitations to female empowerment in rural areas in

Morocco. The studies found that only a small proportion of women borrow in rural areas. Out of

those women who borrowed there was little change with regards to bargaining power in the

household, decision-making, or mobility between villages.

Recognizing the gender-specific benefits of microfinance, as well as challenges outlined by the

recent impact evaluation (detailed above), this project seeks to mainstream gender into all activities.

All diagnostic work to be completed will incorporate gender analysis. For example, an assessment of

regulatory burdens on MFI growth will include gender-specific consideration and policy suggestions.

Policy guidance on product development will prioritize how to effectively innovate for female client

segments. The financial literacy activities will include specific modules on financial literacy of

women and girls, recognizing the differences in asset allocation and household bargaining power

women are subject to. An impact evaluation will be completed to measure the effect of existing

financial literacy efforts (mainly by BAM although also supported by MFIs) on the economic

participation of women. In addition, women will be placed at the center of the national financial

inclusion strategy, particularly for strategies addressing female microfinance access in rural areas.

Specific gender targets have been included and will be tracked by the M&E framework.

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C. PDO Level Results Indicators

38. The performance of the project will be assessed against the following indicators that will

also serve as project milestones:

Percentage of adults (and women) with an account at a formal financial institution,

including low-income households

Volume of outstanding microloans (USD mn)

Number of end-beneficiaries of MFIs, including low-income households,

microenterprises and small firms

Portfolio at Risk of MFIs

III. PROJECT DESCRIPTION

39. The project aims to support access to finance to low income households, micro- and

small enterprises through the promotion of a sustainable and inclusive microfinance sector. This

objective will be achieved through a comprehensive package of analytical work and technical

assistance aimed at supporting the enabling environment for microfinance and financial

inclusion. The program is structured around three core components: (i) strengthening the

institutional, legal, regulatory, tax and governance framework for microfinance, (ii)

strengthening the market infrastructure, product innovation and funding sources for

microfinance, and (iii) integrating microfinance into a national financial inclusion strategy. A

brief description of the respective components is included below (See Annex 2 for detailed

project description).

A. Project Components

Component 1: Strengthening the institutional, legal, regulatory, tax and governance

framework for microfinance (US$ 1.9 million)

40. This component aims to support activities contributing to the strengthening of the

institutional, legal, regulatory and governance framework of the microfinance sector. This

component aims to a) prepare an action plan to assess and reinforce the capacity of the National

Federation of Microcredit Associations of Morocco (FNAM) and b) support activities

contributing to the strengthening of the legal, regulatory, tax and governance framework of the

microfinance sector. This component will also finance goods, services, travel, and incremental

operating costs incurred by the PMU in the implementation and management of the project.

a) Prepare an action plan, including a comprehensive assessment to reinforce the capacity

of the National Federation of Microcredit Associations of Morocco (FNAM): FNAM is

the primary industry association responsible for development of the microfinance sector

in Morocco through policy guidance, MFI coordination, and engagement with key actors

including funders and regulators. The institutional capacity of FNAM needs to be

strengthened to ensure the sector can effectively restructure, expand, and respond to

changing regulatory and market conditions. The project will assist the FNAM in fulfilling

its core mandate of acting as the industry’s steering body by centralizing information and

disseminating studies, acting as an intermediate body between state regulating bodies and

12

microfinance institutions, developing and delivering services that address member’s

needs/issues, and providing support across all levels and in all regions and districts in the

country. FNAM also plays the role of an intermediary between Microfinance Institutions

and key stakeholders of microfinance services of Morocco, including the Government,

Central Bank, donors, development partners, financiers, investors and clients of

microfinance services.

This component will be implemented in two stages: First, an action plan will be prepared,

including a comprehensive assessment of the role, funding structure, statutes, governance

and capacity of the FNAM, measuring the gap between its current status and desired

future role, benchmarking it with other global best practice examples. In a second step, a

technical assistance program will be developed building on the recommendations of this

diagnostic, with the objective of transforming the FNAM into a proactive industry

organization and knowledge hub of the Moroccan microfinance sector.

b) Carrying out studies to inform the development of a modern legal, regulatory, tax and

governance framework for microfinance: This sub-component aims to support activities

contributing to the modernization of the legal, regulatory and fiscal framework for

microfinance, as well as the development of governance and risk management standards

for the microcredit sector. Activities will include, inter alia, studies that inform the

development of a tax policy adapted to the specific needs of the MFIs, review the cap on

borrowings for clients of MFIs, the regulation of remuneration of credit, reviews and

adapt the solvency and liquidity ratios of the MFIs, and strengthen the financial reporting

and regulatory oversight of BAM over MFIs. Improving the use of judicial and non-

judicial (arbitration, mediation) means for recovering unpaid loans will also be a key

activity of the project under this component.

Component 2: Strengthening the market infrastructure, product innovation and funding

sources for microfinance (US$ 1.5 million)

41. This component focuses on activities aimed at a) building common platforms improving

the efficiency and effectiveness of microcredit associations, b) building market infrastructure in

support of microenterprises, and c) promoting the strengthening and diversification of funding.

a) Promoting innovative common platforms and new products for MFIs. This sub-

component will support the development of common platforms, systems and products

aimed at improving the efficiency and effectiveness of MFIs. Activities will include

studies on the development of new products for the microfinance sector, the

development of a mobile banking platform for MFIs, which is expected to have a

transformational impact on the sector through the significant reduction of transaction

costs for cash transfers for low income households and microenterprises. Other

proposed activities include the development of a training and certification program for

officers of Microfinance Institutions.

b) Building market infrastructure for micro entrepreneurs: This sub-component will

support the development of market infrastructure aimed at facilitating microenterprises’

13

access to markets. Activities supported will include studies on how microenterprises

can improve the commercialization of their products, and the development of an

electronic platform allowing microenterprises to market their goods, or the

development of a e-project platform through which micro entrepreneurs can get

information on innovative business models, and supporting the development of a

micro-credit mediation function within the framework of BAM’s mediation center.

c) Strengthen and diversify funding sources: This sub-component aims to support

activities which would inform policymakers, regulators, supervisors and MFIs on how

the microfinance sector can diversify and strengthen its funding sources to ensure its

financial sustainability over the medium and longer term. Proposed activities include,

inter alia, studies aimed at assessing refinancing possibilities to MFIs and amend

existing regulations to allow MFIs tapping into new financial resources, and structuring

and designing a guarantee mechanism including all stakeholders. In a second phase,

this sub-component would, building on the findings of the aforementioned studies,

finance the design and structuring of mechanisms (e.g. stabilization fund, guarantees,

etc.) aimed to strengthen the financial sustainability and stability of the sector.

Component 3: Integrating Microfinance into a national financial inclusion strategy (US$

1.5 million)

42. This component aims to integrate the national microfinance roadmap into a wider,

comprehensive national financial inclusion strategy. In a first step, this component aims to

conduct a cross-cutting stocktaking exercise of all previous and ongoing activities aimed at

promoting financial inclusion, putting the microfinance sector in a larger financial sector

development context. This component will also finance the design and roll out of financial

literacy programs for low income households and microenterprises, the key beneficiaries of

microfinance, within the framework of the proposed ‘foundation for financial education’, which

is in the process of being rolled out under the leadership of BAM. This component will also

finance studies and impact evaluations assessing the effectiveness of public policies and private

initiatives aimed at promoting financial inclusion, as well as the impact of financial inclusion,

including microfinance, on employment creation, poverty reduction and growth.

43. In a second phase, this component aims to build on the findings of the aforementioned

activities to develop a comprehensive national financial inclusion strategy, to be developed in a

structured consultative process with all key public and private sector stakeholders, and develop

an action plan with specific objectives and targets to achieve the aims of the strategy, as well as a

clearly defined M&E framework to measure progress.

B. Project Financing

Project Cost and Financing

44. The proposed Investment Project Financing will be financed through a trust fund grant in

the amount of US$4.9 million from the MENA Transition Fund. The MoEF will provide an

estimated in-kind contribution of US$1 million. The project costs and financing are detailed in

the table below.

14

Project Components Project cost

(US$M)

Trust Fund

Financing

(US$M)

% Financing

Component 1: Strengthening the

institutional, legal, regulatory, tax

and governance framework for

microfinance

2.9 1.9 65.5

Component 2: Strengthening the

market infrastructure, product

innovation and funding sources for

microfinance

1.5 1.5 100.0

Component 3: Integrating

Microfinance into a national

financial inclusion strategy

1.5 1.5 100.0

Total Project Costs

Interest During Implementation

Front-End Fees

Total Financing Required

5.9

5.9

4.9

4.9

83

C. Lessons Learned and Reflected in the Project Design

45. The project design is reflective of key lessons from existing projects providing support to

the Moroccan microfinance both inside and outside of the World Bank Group. The project is also

reflective of recent analytical and research work on the microfinance sector.

46. Existing Development Projects to the Sector: The Millennium Challenge Corporation, as

part of a broader US$700 million global compact signed with the Government of Morocco, is in

its final year of implementing a US$42.6 million financial services project. Project activities

consisted mainly of providing technical assistance to MFIs to increase institutional capacity.

Assistance was provided to nearly every MFI in the sector and focused on strengthening

institutional capacity on topics including internal management (human resources, employee

skills training), systems development (MIS, internal audit, risk management, credit scoring), and

market development (new product development, expanding funding sources). Equally, the

International Finance Corporation (IFC) has a robust TA program with leading MFIs Fondep and

Al Amana that has recently focused on streamlining credit operations.

47. Lessons leant from these projects are three-fold. First, large MFIs have been relatively

successful at completing TA projects and have relatively robust internal and external procedures.

Thus, a project seeking to provide TA to these MFIs risks duplicating efforts. Any direct TA

provided to MFIs should focus on smaller MFIs that lack capacity and resources to grow and

sustain themselves. Second, there is a need to address the institutional, regulatory, and

governance framework that surrounds the sector for a number of these TA initiatives to prove

successful. For example, scoping and diagnostic work on mobile banking was completed with a

leading MFI (Fondation Banque Populaire) although currently there lacks a legal and regulatory

framework to support this. Finally, there is a significant need to deepen sectoral reforms through

increased coordination between MFIs and regulators through common platforms that promote

communication and policy dialogue. This can help reduce duplication, help market actors learn

from each other, and promote innovation and growth in the sector.

15

48. Analytical and Research Work in the Sector: This project is informed by recent research

work on the microfinance sector utilizing a variety of approaches, including randomized control

trials, financial diary research, qualitative focus groups and analytical studies.4 This research has

pointed out limitations in both impact and outreach of microfinance institutions. Impact

evaluations have pointed out that while microcredit access is crucial for low-income households

to smooth consumption, manage risks, invest productively, and respond to financial shocks, it

often has little impact on poverty alleviation.5 Similarly, improved data, for example global

Findex data and Finmark Trust Finscope’s surveys, have pointed out that despite exponential

growth in the microfinance sector, a significant majority of the world’s poor are not served by

formal financial services. For example, recent survey work completed by the Jameel Latif

Poverty Action Lab (J-PAL) pointed to the fact that only 2.5% of those in Morocco living on less

than US$2/day borrow from formal credit sources.

49. These research findings have led to a shift in industry thinking away from enhancing

MFIs alone towards an interest in developing the broader financial ecosystem. In addition to a

renewed focus on consumers (demand), this approach acknowledges the need for effective and

appropriate supporting functions such as credit bureaus or payment systems and rules that govern

the system. Ensuring adequate infrastructure and developing a policy and regulatory environment

that enables increased outreach in a way that meets the needs of poorer consumers, has become a

priority for governments and other stakeholders. The result has been a much more holistic view

of the sector and a more coordinated effort by government and industry to focus on increasing

financial inclusion and ultimately, making microfinance work better for the poor.

50. This project incorporates this recent research and subsequent shift in industry thinking by

focusing on the institutional change required at both the MFI level as well as the broader market

eco-system. Significant project resources are dedicated to diagnostic work, stock-taking, and

impact evaluation, recognizing the importance of understanding in scientifically rigorous way

current impediments to growth in the microfinance sector. Similarly, the project focuses on

changes to the legal, regulatory, and governance framework surrounding MFIs. These activities

provide strategic investments in an enabling environment that will allow MFIs and other

providers to overcome current market bottlenecks (for example, transformation or lending

limits). The project also focuses on building a national financial inclusion strategy, seeking to

coordinate diverse market actors towards promoting financial inclusion of all Moroccans. This

extends significantly beyond the purview of MFIs alone. Finally, the financial literacy

components in the project help ensure the project supports the direct financial needs of low-

income Moroccans themselves, embodying the recent research shift towards understanding client

needs. This project complements a related World Bank regional project “Enhancing

Microfinance Access amongst Women and Youth in MENA”, under preparation, focusing on

completing demand-side research and implementing financial literacy modules across Egypt,

Morocco, and Tunisia.

4 For example, national level FinMark Trust’s FinScope surveys www.finmark.org.za and Global Findex databases

www.data.worldbank.org/data-catalog/financial_inclusion; Also see, see Financial Access Initiative (FAI)

http://financialaccess.org/; Abdul Latif Jameel Poverty Action Lab (J-Pal) http://www.povertyactionlab.org/about-j-pal;

Innovations for Poverty Action (IPA) http://poverty-action.org/ 5 See: Bauchet, Jonathan et al. Latest Findings from Randomized Evaluations of Microfinance. Report. Washington: CGAP,

December 2011.

16

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

Institutions

51. The project will be implemented by the Ministry of Economy and Finance (MoEF). The

Ministry is in charge of the regulation of the microcredit sector: Its competencies include the

regulation of the maximum amount of microcredit (currently capped at 50,000 MAD); the

sector’s accounting framework; the maximum interest rate; asset/liability ratios, etc., in

consultation with the Micro-Credit Advisory Board (see Box 2). This overarching regulatory role

qualifies the MoEF as a well suited implementing agency for this cross-cutting project.

Box 2: Micro-Credit Advisory Board

The micro-credit advisory board is consulted on all matters related to the licensing and the

development of micro-credit associations. It is composed of the following members:

Representatives of the administration;

Representatives of professional associations;

Representatives of the National Federation of Micro-credit Associations (FNAM);

a representative of Bank Al-Maghrib;

a representative of the Moroccan Banking Association;

a representative of the Moroccan Association of Finance Companies.

The number, operating procedures and terms of appointment of members of the Advisory Board are

set by decree.

Implementation of Activities

52. The MoEF will be responsible for the implementation of all project components, in close

collaboration with FNAM, BAM and Centre Mohamed VI. The MoEF has ultimate

responsibility for the implementation of the project and exercises oversight functions including

approval of the Project Implementation Manual (PIM), work plan, and budgets, and oversight of

fiduciary implementation and progress towards implementation and results. Detailed

implementation arrangements are available in Annex 3.

53. The MoEF prepares an annual work plan describing activities, timeline, and budgets for

activity implementation. The MoEF has developed the PIM which describes the policies to be

followed for all project components. Any modification of the PIM requires the Bank’s no

objection.

54. Project Team: The Project will be implemented by Project Management Unit within the

MoEF, supported by a team of consultants. The MoEF will contribute an estimated in-kind

contribution of US$ 1,000,000 to support the implementation of this project (US$ 400,000 in

17

staff time and US$ 100,000 in other expenses [travel, material, etc.], US$ 500,000 in

contributions to project components).

55. Ad-hoc Advisory Committee: An ad-hoc advisory committee comprising

representatives from BAM, FNAM and Centre Mohamed VI has been formed to advise the

project based on ad-hoc briefings provided by the MoEF throughout the lifetime of the project.

The advisory committee provides strategic input and guidance throughout project

implementation. The committee provides technical expertise to project implementation and help

ensure the project is effectively addressing key regulatory, legal, governance, and market

development issues in order to successfully help the industry overcome market bottlenecks. The

committee also serves coordination and communication functions, ensuring all partners involved

are aware of progress and key lessons learned across project sub-components.

56. Coordination Activities: The project will be implemented in coordination with

complementary projects to take advantage of synergies between different donor-funded

activities. The team has undertaken consultations with a number of donors active in private and

financial sector development in Morocco, and this project has strong potential complementarities

with many planned and ongoing activities, including, among others, the Financial Sector

Strengthening Project of the USAID/Millennium Challenge Account (MCA). The MCA/USAID

project began in 2007 and provided MAD 42 million in technical assistance to MFIs and MAD

33 million in IT, management information systems and risk control systems. The MCA/USAID

project will finish disbursing in June 2013. This project has been designed to build on the

USAID/MCA project while minimizing duplication (see paragraph 46 for additional

information). The project has also been designed and will be implemented in close coordination

with the IFC.

57. This project also fits within a broader, long term engagement with the Moroccan

authorities aimed at expanding access to finance for households and MSMEs. The World Bank

has supported crucial institutional and legal reforms through a series of DPLs focusing on

financial inclusion and stability, and promoting enhanced access to financing to MSMEs though

the support of the national partial guarantee mechanism [MSME Development Project (Report

No. 68550-MA)], technical assistance in support of the MSME sector [MENA MSME Facility

(P124341)], as well as the regional project on “Enhancing Microfinance Access amongst Women

and Youth in MENA”.

B. Results Monitoring and Evaluation

58. The results framework for the project is centered around the PDO and specifies PDO

level and intermediate indicators which will be monitored to evaluate project performance

towards the objectives (see Annex 1). Primary responsibility for results monitoring will fall on

MoEF, which will present an M&E report to the World Bank on a quarterly basis.

C. Sustainability

59. The sustainability of the project results will be achieved through adoption of policies and

programs informed by the diagnostic and capacity building work completed during the project. A

core focus of the project is to provide industry actors - regulators, government, MFIs, service

18

providers, and micro entrepreneurs – knowledge and capacity building to overcome sectoral

bottlenecks and impediments to growth. These bottlenecks include the institutional capacity of

FNAM, regulatory and legal impediments to MFI transformation and growth, information

asymmetries preventing access to finance amongst micro entrepreneurs, or the lack of a

coordinated strategy on financial inclusion. This project equips industry actors with the capacity

and resources needed to overcome such bottlenecks to promote growth and diversification in the

microfinance sector, to bridge microfinance with larger financial inclusion efforts, and to

promote an enabling regulatory and legal environment. These changes lay the foundation for

long-term future growth in the sector, particularly as the sector continues to mature and diversify

in terms of products offered, geographic reach, institutional capacity of MFIs, and the

prioritization of financial inclusion.

60. The project’s sustainability is further strengthened through the project’s focus on

expanding national financial literacy efforts. Financial literacy equips low-income beneficiaries

and micro entrepreneurs with the knowledge, skills, and motivation to make effective financial

decisions across a variety of contexts. This behavior is sustainable in that once financial literacy

skills are taught and adopted, they can be used over and over again across a variety of contexts.

Furthermore, there are many secondary benefits to financial education. More efficient financial

behavior can increase productive activity, which can promote private-sector development, job

creation, and innovation. Financial education also allows for more effective management of

household financial assets, which can help women specifically as they often play dual roles of

income generators and household financial managers.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Stakeholder Risk Moderate

Implementing Agency Risk

- Capacity High

- Governance Moderate

Project Risk

- Design Moderate

- Social and Environmental Low

- Program and Donor Low

- Delivery Monitoring and Sustainability Moderate

Overall Implementation Risk Moderate

B. Overall Risk Rating Explanation

61. The overall risk for this operation is moderate. There is a key risk associated with

ensuring the implementing agency’s capacity to implement the project, in part due to the lack of

full time dedicated staff working on the project and the PIU’s limited experience with the Bank's

19

procurement guidelines. The key risk with regards to project design is a possible conflict of

interest between implementing agents and industry actors, but is considered to be mitigated

through a well-designed and balanced institutional structure, promoting the effective

participation of key actors in various project components.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analyses

62. The Microfinance Development project is a comprehensive, demand-driven approach

aimed at increasing employment and incomes of poor segments of the Moroccan population

which are currently underserved by the Moroccan financial system. Economic benefits and

outcomes include:

Enhancing income generating activities and job creation though the

improved access to financing for microenterprises and small firms.

Positive spillover effects to the overall private sector by enhancing the

competitiveness of microenterprises and small firms.

Substantial growth in revenue and employment for microenterprises and

small firms though an improved market infrastructure.

Fiscal return for the government from taxation on incremental revenues,

income and employment.

63. The outcomes of capacity changes, incremental revenues, and employment effects

generated by this project would, as seen in other similar projects, be only visible atcompletion.

The project incorporates an M&E framework that aims to measure the impact of this project, as

well as the impact of other public policies on employment generation, poverty reduction and

growth.

B. Technical

64. The project is appropriate to Morocco’s needs and technically viable. It focuses on key

economic development priorities in the Government of Morocco’s economic and social

development strategy: The promotion of very small enterprises and the microfinance sector has

been endorsed by the highest levels of Government, most recently during the international

microfinance symposium held in October 2012 (see paragraph 30 for more information). The

design is informed by lessons learned from previous World Bank-financed projects and other

studies on the impact of the microfinance sector on poverty reduction, employment generation

and growth.

C. Financial Management

65. The implementing entity of the project is the MoEF. The financial management system

within the MoEF was appraised to determine if it complies with the requirements of the Bank in

respect to OP/BP10.00. The financial management assessment of the MoEF covered the areas of

accounting and financial management, as well as the reporting and auditing processes of the

20

project. The financial management system, including necessary arrangements to respond to the

needs of the financial monitoring of the project, satisfies the minimum requirements of the Bank.

66. The assessment concluded that the MoEF, strengthened by the hiring of an additional

financial management specialist by the Project Management Unit (PMU), will have sufficient

capacity to manage project financial matters and administer grant funds. The hiring of the

additional financial management specialist is a dated covenant and shall be completed by not

later than four (4) months after the Effective Date. The main responsibilities will include Project

budgeting, treasury, general accounting and reporting. The FM inherent risk for the country, the

entity, and the project is considered moderate.

67. Disbursement will be handled through the PMU at the MoEF following established

procedures.

68. The PMU within the MoEF ensures that interim unaudited financial reports for the

Project are prepared and furnished to the World Bank not later than forty five (45) days after the

end of each calendar semester, covering the semester, in form and substance satisfactory to the

World Bank. Financial flow of funds will come from the grant funds of the Transition Fund.

Flow of funds between the World Bank the MoEF will be organized according to the

Disbursement procedures of the Bank.

69. The MoEF shall have its Financial Statements for the Project audited in accordance with

the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial

Statements shall cover the period of one fiscal year of the Recipient. The audited Financial

Statements for each such period shall be furnished to the World Bank not later than six months

after the end of such period.

D. Procurement

70. Procurement for the Project will be carried out in accordance with the World Bank’s

Guidelines: Procurement of Goods, Works and non-consulting services under IBRD Loans and

IDA Credits and Grants by World Bank Borrowers dated January 2011 and Guidelines:

Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by

World Bank Borrowers dated January 2011 and the provisions stipulated in the Grant

Agreement.

71. Procurement under the project is mostly for the selection of consultants for study or local

market assessments, support for post-creation business development, development of training

product/curricula and tools for capacity building, technical assistance and strategic advice to all

microcredit stakeholders, capacity building to the FNAM and project management and

monitoring. It concerns also goods and services related to project management, organization of

training and other capacity building events under the 3 components. The project is proposed to

be implemented by a Project Management Unit (PMU) within the MoEF, comprising members

of the division in charge of credit institutions (“Division des établissements de credit”, DEC) of

the Directorate of treasury and external finance (“Direction du Trésor et des finances

extérieurs”), the Directorate of Administrative and General Affairs (“Direction des affaires

21

administratives et générales”) as well as additional specialists.

72. A capacity assessment of the DEC and the Directorate of Administrative and General

Affairs (DAAG) were conducted on January 14 and 23, 2013. Overall, it shows that the DAAG

through its division of Administrative and General Affairs and the procurement unit is well

staffed (in number: 16 public buyers) to carry out procurement activities. For procurement

execution and monitoring, the DAAG has adopted simplified Excel based electronic tools which

enormously facilitates both procurement process and contracts management. In addition, the

DAAG’s procurement unit staff has good experience of using the GID system for project follow

up and statistics data generation. However, the DAAG has very limited exposure to Bank

procurement procedures and its staff has not been trained in Bank procurement procedures in the

past. On the other hand, the DEC has experience in Bank funded operation in very recent years

but with no procurement involved.

73. The overall risk for procurement is considered substantial. This is because of: (i) the lack

or limited experience in Bank procurement procedures of the DEC and DAAG and their staff

working directly on project implementation; (ii) the absence of training in Bank procurement

procedures for those staff; and (iii) the availability of staff to work for the project will be partial

and therefore possibly cause delays in the project implementation.

74. To help mitigate the risk and facilitate project implementation, the following measures

have been implemented: (i) launch of the recruitment of an additional procurement specialist to

help carry out procurement and build capacities within the MoEF; (ii) organization of workshop

for procurement training for all staff involved in the project implementation; (iii) preparation of

Standard bidding documents (SBD) for National Competitive Bidding (NCB) complying with

procedures for NCB acceptable to the Bank; and (iv) preparation of an implementation manual

for the project. The hiring of the additional procurement specialist and shall be completed by not

later than four (4) months after the Effective Date. More details are provided in Annex 3.

E. Social (including Safeguards)

75. Social safeguard policies are not triggered, and the social impacts of this project are

expected to be positive.

F. Environment (including Safeguards)

76. Environmental safeguards policies are not triggered. The nature of most of the activities

will be procurement of services and other intangibles, with possible small scale goods or

equipment which are not anticipated to have any major or irreversible environmental impacts.

22

Annex 1: Results Framework and Monitoring

MOROCCO: Microfinance Development Project

Results Framework

Project Development Objective (PDO): The project objective is to promote access to finance to low income households and micro and small

enterprises through the promotion of a sustainable and inclusive microfinance sector.

PDO Level Results Indicators*

Co

re Unit of

Measure

Baseline

(Dec 2012)

Cumulative Target Values**

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Description

(indicator

definition etc.)

YR 1 YR 2 YR3 YR4

Indicator One: % of adults (and

women) with an account at a

formal financial institution,

including low income

households

Percent

increase

(percent female in

brackets)

0 (0) 2% (2%) 5% (5%)

10% (11%) 12% (15%) Bi-annually BAM PMU (MoEF) Access to formal

financial inclusion

is a core indicators

of relative

financial inclusion

levels in a given

country

Indicator Two: Outstanding

Microfinance Loan Portfolio

USD mn 550

(4’589’185

MAD)

560 570 580 590 Semi-

annually

BAM PMU (MoEF) Volume of

outstanding

microloans

Indicator Three: Number of

active loan accounts -

Microfinance

Number 804,000 830,000 900,000 1,000,000 1,100,000 Semi-

annually

BAM PMU (MoEF) This indicator

includes loan accounts held by

low-income

households, microenterprises

and small firms.

Indicator Four: Portfolio at Risk

- Microfinance

Percent 6.7% -- 6.6% 6.5% 6.4% Semi-

annually BAM PMU (MoEF)

23

INTERMEDIATE RESULTS

Intermediate Results (Component One): Strengthening the institutional, legal, regulatory, tax and governance framework for

microfinance

Intermediate Result indicator

One: Regulatory studies

completed

Number 0 0 1 2 3 Annually PMU (MoEF) PMU (MoEF)

Intermediate Result indicator

Two: Number of operational and

regulatory initiatives implemented

by BAM and other key

stakeholders

Number 0 0 0 1 3 Annually PMU (MoEF) PMU (MoEF)

Intermediate Results (Component two): Strengthening the market infrastructure, product innovation and funding sources for microfinance

Intermediate Result indicator

One: Number of alternative

microfinance products developed

and piloted (e.g. Islamic finance,

mobile phone banking, housing)

Number 0 0 1 2 3 Quarterly PMU (MoEF) PMU (MoEF)

Intermediate Result indicator

Two: Number of trainings to

micro entrepreneurs delivered

Number 0 500 700 900 1100 Semi-Annually

CM6 Centre Mohammed 6;

PMU (MoEF)

Intermediate Results (Component three): Integrating Microfinance into a national financial inclusion strategy

Intermediate Result indicator

One: Financial inclusion stock-

taking completed

Binary

(Yes/No)

No Yes Once BAM PMU (MoEF)

Intermediate Result indicator

Two: Evaluation completed of

existing financial inclusion

measures

Binary

(Yes/No)

No Yes - - Once BAM PMU (MoEF)

24

Intermediate Result indicator

Three: Number of beneficiaries

receiving financial literacy

training

Number 6,000

(4,099 from

CM6; 2,000

estimates

from BAM)

8,000 10,000 12,000 14,000 Semi-

Annually

CM6; BAM PMU (MoEF) Modules (class

room or interactive) that

enhance

knowledge and understanding of

financial concepts,

and the skills, motivation and

instill the

confidence to apply such

knowledge and

understanding in order to make

effective decisions

across a range of financial contexts

25

Annex 2: Detailed Project Description

Morocco: Microfinance Development Project

1. The project aims to support access to finance to low income households, micro- and

small enterprises through the promotion of a sustainable and inclusive microfinance sector. This

objective will be achieved through a comprehensive package of analytical work and technical

assistance aimed at supporting the enabling environment for microfinance and financial

inclusion. The program is structured around three core components: (1) Strengthening the

institutional, legal, regulatory, tax and governance framework for microfinance, (2)

Strengthening the market infrastructure, product innovation and funding sources for

microfinance, and (3) Integrating Microfinance into a national financial inclusion strategy. A

description of the respective components is included below.

Project Components

Component 1: Strengthening the institutional, legal, regulatory, tax and governance

framework for microfinance (USD 1.9 million)

2. This component aims to support activities contributing to the strengthening of the

institutional, legal, regulatory and governance framework of the microfinance sector. This

component aims to a) prepare an action plan to assess and reinforce the capacity of the National

Federation of Microcredit Associations of Morocco (FNAM) and b) support activities

contributing to the strengthening of the legal, regulatory, tax and governance framework of the

microfinance sector. This component will also finance goods, services, travel, and incremental

operating costs incurred by the PMU in the implementation and management of the project.

a) Prepare an action plan, including a comprehensive assessment to reinforce the capacity

of the National Federation of Microcredit Associations of Morocco (FNAM): FNAM is

the primary industry association responsible for development of the microfinance sector

in Morocco through policy guidance, MFI coordination, and engagement with key actors

including funders and regulators. The institutional capacity of FNAM needs to be

strengthened to ensure the sector can effectively restructure, expand, and respond to

changing regulatory and market conditions. The project will assist the FNAM in fulfilling

its core mandate of acting as the industry’s steering body by centralizing information and

disseminating studies, acting as an intermediate body between state regulating bodies and

microfinance institutions, developing and delivering services that address member’s

needs/issues, and providing support across all levels and in all regions and districts in the

country. FNAM also plays the role of an intermediary between Microfinance Institutions

and key stakeholders of microfinance services of Morocco, including the Government,

Central Bank, donors, development partners, financiers, investors and clients of

microfinance services.

This component will be implemented in two stages: First, an action plan will be prepared,

including a comprehensive assessment of the role, funding structure, statutes, governance

and capacity of the FNAM, measuring the gap between its current status and desired

future role, benchmarking it with other global best practice examples. In a second step, a

26

technical assistance program will be developed building on the recommendations of this

diagnostic, with the objective of transforming the FNAM into a proactive industry

organization and knowledge hub of the Moroccan microfinance sector.

b) Carrying out studies to inform the development of a modern legal, regulatory, tax and

governance framework for microfinance: This sub-component aims to support activities

contributing to the modernization of the legal, regulatory and fiscal framework for

microfinance, as well as the development of governance and risk management standards

for the microcredit sector. Activities will include, inter alia, studies that inform the

development of a tax policy adapted to the specific needs of the MFIs, review the cap on

borrowings for clients of MFIs, the regulation of remuneration of credit, reviews and

adapt the solvency and liquidity ratios of the MFIs, and strengthen the financial reporting

and regulatory oversight of BAM over MFIs. Improving the use of judicial and non-

judicial (arbitration, mediation) means for recovering unpaid loans will also be a key

activity of the project under this component.

Component 2: Strengthening the market infrastructure, product innovation and funding

sources for microfinance (USD 1.5 million)

3. This component focuses on activities aimed at a) building common platforms improving

the efficiency and effectiveness of microcredit associations, b) building market infrastructure in

support of microenterprises, and c) promoting the strengthening and diversification of funding.

a) Promoting innovative common platforms and new products for MFIs. This sub-

component will support the development of common platforms, systems and products

aimed at improving the efficiency and effectiveness of MFIs. Activities will include

studies on the development of new products for the microfinance sector, the

development of a mobile banking platform for MFIs, which is expected to have a

transformational impact on the sector through the significant reduction of transaction

costs for cash transfers for low income households and microenterprises. Other

proposed activities include the development of a training and certification program for

MCA officers.

b) Building market infrastructure for micro entrepreneurs: This sub-component will

support the development of market infrastructure aimed at facilitating microenterprises’

access to markets. Activities supported will include studies on how microenterprises

can improve the commercialization of their products, and the development of an

electronic platform allowing microenterprises to market their goods, or the

development of a e-project platform through which micro entrepreneurs can get

information on innovative business models, and supporting the development of a

micro-credit mediation function within the framework of BAM’s mediation center.

c) Strengthen and diversify funding sources: This sub-component aims to support

activities which would inform policymakers, regulators, supervisors and MFIs on how

the microfinance sector can diversify and strengthen its funding sources to ensure its

financial sustainability over the medium and longer term. Proposed activities include,

27

inter alia, studies aimed at assessing refinancing possibilities to MFIs and amend

existing regulations to allow MFIs tapping into new financial resources, and structuring

and designing a guarantee mechanism including all stakeholders. In a second phase,

this sub-component would, building on the findings of the aforementioned studies,

finance the design and structuring of mechanisms (e.g. stabilization fund, guarantees,

etc.) aimed at strengthen the financial sustainability and stability of the sector.

Component 3: Integrating Microfinance into a national financial inclusion strategy (USD

1.5 million)

4. This component aims to integrate the national microfinance roadmap into a wider,

comprehensive national financial inclusion strategy. In a first step, this component aims to

conduct a cross-cutting stocktaking exercise of all previous and ongoing activities aimed at

promoting financial inclusion, putting the microfinance sector in a larger financial sector

development context. This component will also finance the design and roll out of financial

literacy programs for low income households and microenterprises, the key beneficiaries of

microfinance, within the framework of the proposed ‘foundation for financial education’, which

is in the process of being rolled out under the leadership of BAM. This component will also

finance studies and impact evaluations assessing the effectiveness of public policies and private

initiatives aimed at promoting financial inclusion, as well as the impact of financial inclusion,

including microfinance, on employment creation, poverty reduction and growth.

5. In a second phase, this component aims to build on the findings of the aforementioned

activities to develop a comprehensive national financial inclusion strategy, to be developed in a

structured consultative process with all key public and private sector stakeholders, and develop

an action plan with specific objectives and targets to achieve the aims of the strategy, as well as a

clearly defined M&E framework to measure progress.

28

Annex 3: Implementation Arrangements

MOROCCO: Microfinance Development Project

Institutions

1. The project is proposed to be implemented by the Ministry of Economy and Finance

(MoEF). The project will be implemented by the MoEF. The MoEF will be responsible for

management direction and oversight, financial management, and procurement.

Implementing Agency Assessment

2. The MoEF has been identified as the most qualified implementing agency to host the

Project Management Unit of the Morocco Microfinance Development project. The Ministry is in

charge of the regulation of the microcredit sector: Its competencies include the elaboration of the

legal and regulatory framework for the sector, the regulation of the maximum amount of

microcredit; the sector’s accounting framework; the maximum interest rate; asset/liability ratios,

etc., in consultation with the Micro-Credit Advisory Board and BAM. This overarching

regulatory role qualifies the MoEF as a well suited implementing agency for this cross-cutting

project.

3. The role of the MoEF as an implementing agency for this project has been fully appraised

by the World Bank during the appraisal mission in January 2013. A Project Management Unit

(PMU) has been established within the MoEF, and has been tasked to manage the day-to-day

implementation of the project. It is composed of the Project Director - an official staff from the

Ministry, assisted by the recruitment of a FM and procurement specialists who will reinforce the

officials supporting the PMU.

4. The Bank has assessed the staffing of the PMU during appraisal and provided

recommendations on how the PMU could be further strengthened. While official staff assigned

to the project is highly qualified, they will not be able to fully dedicate their time to this project

in light of their existing tasks in the Ministry. Hence, the team has suggested reinforcing the

capacity of the PMU through the recruitment of an additional FM and Procurement specialists to

strengthen the team and to provide support to the project. The Project Director will control and

supervise the work of the consultant to ensure ownership of the project by the Ministry. The

Administrative affairs (DAAG) within the MoEF will ensure support to projects. The detailed

functions, task and responsibilities of the PMU and its team members is outlined in the Project

Implementation Manual (PIM).

Implementation of Activities

5. The MoEF will be responsible for the implementation of all project components, in close

collaboration with FNAM, BAM and Centre Mohamed VI. The MoEF has ultimate

responsibility for the implementation of the project and exercises oversight functions including

approval of the PIM, work plan, and budgets, and oversight of fiduciary implementation and

progress towards implementation and results.

29

6. The MoEF prepares an annual work plan describing activities, timeline, and budgets for

activity implementation. The MoEF has developed a PIM, which can be modified subject to the

World Bank’s approval. The PIM describes the policies to be followed for all project

components.

7. Project Team: The Project will be implemented by leveraging the MoEF’s in-house

team with a team of local consultants. The MoEF will contribute an estimated in-kind

contribution of US$ 1,000,000 to support the implementation of this project (US$ 400,000 in

staff time and US$ 100,000 in other expenses [travel, material, etc.], US$ 500,000 in

contributions to project components).

8. Ad-hoc Advisory Committee: An ad-hoc advisory committee comprising

representatives from BAM, FNAM and Centre Mohamed VI will be formed to advise the project

based on ad-hoc briefings provided by the MoEF throughout the lifetime of the project. The

advisory committee will provide strategic input and guidance throughout project implementation.

The committee will provide technical expertise to project implementation and help ensure the

project is effectively addressing key regulatory, legal, governance, and market development

issues in order to successfully help the industry overcome market bottlenecks. The committee

also serves coordination and communication functions, ensuring all partners involved are aware

of progress and key lessons learned across project sub-components.

9. Coordination Activities: The project will be implemented in coordination with

complementary projects to take advantage of synergies between different donor-funded

activities. The team has undertaken consultations with a number of donors active in private and

financial sector development in Morocco, and this project has strong potential complementarities

with many planned and ongoing activities, including, among others, the Financial Sector

Strengthening Project of the USAID/Millennium Challenge Corporation (MCC). The

MCA/USAID project began in 2007 and provided MAD 42 million in technical assistance to

MFIs and MAD 33 million in IT, management information systems and risk control systems.

The MCA/USAID project will finish disbursing in June 2013. This project has been designed to

build off of the USAID/MCA project while minimizing duplication (see paragraph 46 for

additional information).

Trust Fund Arrangements

10. The Deauville Partnership Transition Fund (DPTF) has entered into a Financial

Procedures Agreement with the World Bank as the Implementation Support Agency. The Bank,

acting as Implementation Support Agency (ISA), will enter into a Grant Agreement with the

MoEF which according to the provisions of the DPTF Operations Manual and the TF Grant

Application is a Recipient Entity for the purposes of this grant.

Financial Management, Disbursements and Procurement

11. Public Financial Management: The Bank’s experience in Morocco and the main

conclusions of the 2009 PEFA indicate that the Moroccan public finance system is governed by

an elaborate legal and regulatory framework. The financial management risk of the Moroccan

30

public finance system is considered low.

12. Assessment of the Financial Management System: The Financial Management System

within the Ministry of Finance was appraised to determine if it complies with the requirements of

the Bank in respect to OP/BP10.00. The Financial Management System of the MoEF covered the

areas of accounting and financial management, as well as the reporting and auditing processes of

the project. The financial management system, including necessary arrangements to respond to

the needs of the financial monitoring of the project, satisfies the minimum requirements of the

Bank.

13. General framework: The project is financed by the Transition Fund for US$ 4.9 million

and by the Moroccan Government for US$ 1 million in kind contribution. The total estimated

project cost is US$ 5.9 million. The project will be executed in a period of four years.

Risk Analysis: Inherent risk Risk Rating Mitigation of risk Risk rating

after

mitigation

Country level The Moroccan public finance system is

governed by a complex legal and regulatory

framework that offers guarantees of high

reliability and transparency.

Morocco’s compliance with rules and

regulations and existing accountability

arrangements provide an adequate framework

for the use of public funds and public financial

management (PFM) is considered broadly

transparent.

Low

Project level The Ministry of Economy and Finance has

long experience with the World Bank at the

county and project levels. The PIU is based at

the Ministry. Its Staff are fully qualified but

will not be assigned full-time to the Project as

they have other tasks within the Ministry.

Moderate

A Project Management

Unit will have a consultant

for Financial Management

and Procurement that will

work closely with the

Director of the PMU.

Capacity building of

financial management

staff of the project.

Close monitoring by the

World Bank financial

management team

A Project implementation

manual acceptable to the

World Bank to ensure that

project activities are

covered in their entirety

and that the risk level is

mitigated.

Low

Inherent risk before mitigation Substantial Inherent risk after mitigation Moderate

31

Control Risks

14. The assessment concluded that the MoEF, strengthened by the hiring of an additional

financial management specialist by the Project Management Unit (PMU), will have sufficient

capacity to manage project financial matters and administer grant funds. The hiring of the

additional financial management specialist shall be completed by not later than four (4) months

after the Effective Date. The main responsibilities will include Project budgeting, treasury,

Risks Rating Mitigation of risk

Rating after

mitigation of

risk

Budget

Low

Accounting

The accounting system is based on accounting

regulations applicable to public institutions

(Royal Decree n° 330-66, April 21, 1967)

BO. n° 2840, April 26, 1967, p. 452) ; relating

to the maintenance of public accounting in

accordance with General Code of accounting

Standards.

Low

Financial Reporting

The Implementing agency is using GID to

administer its accounting.

The financial reporting for the project can be

extracted from GID.

While presenting the funds to the MoEF to be

budgeted, the split of the grant into

components will be clearly presented to allow

the bank funds to be reported in GID by

components.

Moderate The FM consultant will

extract the report from GID

and will ensure that

complementary information

requested in the financial

report, if not able to extract it

from GID, are completed in

an excel spreadsheet and

reviewed and submit it to the

Director for approval and

submission to the Bank.

Low

Funds Flow

Financial flows come from the World Bank

and in kind contribution from the counterpart

The flow of funds from the World Bank are

organized according to the Bank's

disbursement procedures

Low

Internal control

No formalization of the internal control

functions within the Ministry.

Substantial An implementation Manual

details the control

environment to be applied for

this project.

The external auditor of the

project will submit a report on

internal control

Moderate

Auditing Delay in submitting audit report.

Moderate The Bank team will ensure the

auditor, its term of reference

are acceptable to the Bank and

that the audit work is started

timely to deliver the required

report within the deadlines.

Low

Inherent risk before mitigation Substantial Inherent risk after

mitigation

Moderate

32

general accounting and reporting. The FM inherent risk for the country, the entity, and the

project is considered moderate.

15. Support to PMU: The Project Director will be assisted by a specialist in procurement

and a specialist in financial management. The Directorate of General and Administrative affairs

(DAAG) within the MoEF will ensure support to the project while the FM consultant will

strengthen the DAAG capacity, and will assist in ensuring good management of funds, and

timely production of the required financial reporting.

16. Procedures and policies: The MoEF has a manual of procedures for the DAAG unit but

doesn’t have a manual of accounting and organizational procedures. Hence, to allow a good

implementation of the project, a PIM outlines the procedures to be applied for the funds and the

level of controls to be applied.

17. Budgeting: In Morocco, each Ministry prepares its own budget and submits it to the

MoEF for approval through the “Loi de Finance”. In the case of grants, they can also use an

alternate way “le fond de concours” when it needs to be budgeted during the year. The MoEF

will ensure that the Budget is well presented and that the separation of the funds in the different

budget lines will allow identifying the grant component. This will allow the funds budget

presentation for this grant to be presented in Gestion Intégrée des dépenses (GID) accordingly,

and hence, extract the financial reporting directly from the system.

18. Accounting: An acceptable cash based accounting system with the outline of budget

components is operational according to the regulations described in the public accounting law.

The transactions in terms of commitments and disbursements are reflected in the well-

functioning Integrated Financial Management Information System (IFMIS) named GID.

19. The overall principles for project accounting are outlined below: (a) Books of accounts

for the project will be maintained on cash basis principles. Maintaining the reporting financial to

reflect all the transaction flow of funds and issuing of the interim unaudited financial report

(IUFR) each semester; and (b) Project accounting will cover all sources and utilization of project

funds. This will include payments made and expenditures incurred.

Financial Management Reporting of the Project:

20. The PMU within the MoEF ensures that interim unaudited financial reports for the

Project are prepared and furnished to the World Bank not later than forty five (45) days after the

end of each calendar semester, covering the semester, in form and substance satisfactory to the

World Bank.

21. Interim Unaudited financial report (IUFR) will be extracted from GID and complementary

information requested will be maintained on an excel spreadsheet. GID allows to extract the

commitments and disbursements of the project, but not to present the commitment by categories.

GID will allow the extraction of the commitment and disbursements by component only. Hence,

this complementary information will be prepared by the FM specialist who will compare the

information prepared with the total of the component extracted from GID to ensure accuracy.

The head of the Administrative and Financial Management Unit will review and approve and

33

submit it to the PMU Director for approval and submission to the Bank. The FMR’s include, in

addition to a summary of project progress the following:

- Summary of funding sources and uses of funds

- Uses of funds by project component and by project category

- Cash withdrawal

- Cash forecast

22. The Bank guidelines on financial monitoring will be communicated to the project. A

sample of FMR to use for the project has been agreed on and annexed to the manual of

implementation of the project. Interim Unaudited Financial Reports and Annual Financial

Statements will be used as a financial reporting mechanism and not for disbursement purposes.

23. Controls: In Morocco, the rules governing funds commitment and payment authorization

are clear, well known, and enforced. The control framework is based on the segregation of duties

between the Commitment (ordonnateur) and payment (comptable).

24. The MoEF does not have the internal control procedures formalized. Hence, a Project

Implementation Manual (PIM) has been prepared in order to document the control environment.

The PIM describes, among others: controls mechanisms, transfer and accountability mechanisms

for beneficiaries.

25. Fiduciary responsibility for control of budget execution and monitoring is assigned to the

General Inspectorate of Finance (IGF). The Budget Directorate within the MoEF plays an

important role in controlling transactions financed by external donors.

26. External Audit: Audit Arrangements. Annual Project financial statements audited by

auditors acceptable to the Bank will be submitted to the Bank within 6 months after the end of

each Fiscal Year. The audit will be comprehensive and cover all aspects of the Project (i.e., all

sources and utilization of funds, and expenditures incurred). The audit will be carried out in

accordance with International Standards on Auditing. The Project team will provide the auditor

with access to project related documents and records, and information required for the purposes

of the audit. The implementing agency will retain an auditor acceptable to the bank to perform an

annual audit in accordance with International Standards on Auditing (ISA or INTOSAI), as

issued by the international Federation of Accountants and with terms of reference acceptable to

the Bank. The audit terms of reference should be acceptable to the Bank.

27. Audited Project Financial Statements (PFS) will be submitted to the Bank on an annual

basis. PFS will include: (i) a statement of sources and utilization of funds or Balance sheet,

indicating funds received from various sources, project expenditures, and assets and liabilities of

the project; (ii) schedules classifying project expenditures by components, expenditure

categories; and (iii) a statement of reimbursement made on the basis of statements of

Expenditure (SOEs).

28. The MoEF shall have its Financial Statements for the Project audited in accordance with

the provisions of Section 2.07 (b) of the Standard Conditions. Each such audit of the Financial

Statements shall cover the period of one fiscal year of the Recipient. The audited Financial

34

Statements for each such period shall be furnished to the World Bank not later than six months

after the end of such period.

29. Staffing: In addition to the PMU staff, the recruitment of an additional FM and an

additional Procurement specialist is important to strengthen the team and to provide support to

the project. The Project Director will control and supervise the work of the consultant to ensure

ownership of the project by the Ministry.

Funds flow and disbursement

30. Financial flow of funds will come from the grant funds of the Transition Fund. Flow of

funds between the World Bank and the MoEF will be organized according to the Disbursement

procedures of the Bank. The funds after their budgeting in the “Loi de Finance” will be

transferred to MoEF according to Bank disbursement guidelines and according to the method

agreed on the Disbursement Letter. Disbursement will be handled through the PMU at the

MoEF following established procedures.

31. The payment justifications supporting documents will be sent to the Directorate of

Budget (MoEF) for verification, approval and then electronically submitted to the Bank.

The MoEF have the below options:

a) Pre-finance the expenses, and grant disbursement will be made based on documentary

evidence or on presentation of statement of expenditures (SOEs) prepared in compliance

with the World Bank disbursement procedures. The Head of the PMU will provide

documentary evidence and SOE, which will be submitted to the Budget

Directorate/MoEF, External financing department, which will review eligibility and

electronically submit them to the World Bank for reimbursement.

b) Direct payment: The Head of the PMU will prepare documentary evidence in compliance

with the World Bank disbursement procedures and will submit them to the Budget

Directorate/MoEF. The Budget Directorate/MoEF, External financing department, which

will review eligibility and electronically submit the Direct payment request to the World

Bank for processing.

c) Advance: The Head of the PMU will open a designated account and can request an

advance on the project. Once documentary evidence and statement of expenditures

(SOEs) in compliance with the World Bank disbursement procedures are submitted them

to the Budget Directorate/MoEF to justify the advance usage, it will be reviewed by the

Budget Directorate/MoEF for accuracy and will submit the justification to the World

Bank. A replenishment request of the designated account will be then submitted

electronically. The head of the PMU will be responsible for submitting monthly

replenishment applications with appropriate supporting documentation. Authorized

signatories, names, and corresponding specimens of their signatures will be submitted to

the Bank prior to the receipt of the first Withdrawal Application.

The disbursement procedures are outlined in the PIM.

32. The minimum application size for direct payment and reimbursement will be the

equivalent of 20% of the Advance ceiling amount. The Bank will honor eligible expenditures

35

completed, services rendered and delivered by the Project closing date. A four months' grace

period will be granted to allow for the payment of any eligible expenditure incurred before the

Grant Closing Date.

33. Statement of expenditures (SOE): During implementation, necessary supporting

documents will be sent to the Bank in connection with contract that are above the prior review

threshold, except for expenditures under Contracts with an estimated value of: (a) US$ 300,000

or less for goods and non-consulting services; (b) US$ 100,000 or less for Consulting Firms; (c)

US$ 50,000 or less for Individual Consultants, operating costs and training, which will be

claimed on the basis of SOEs. The documentation supporting expenditures will be retained at

Project Management Unit and will be readily accessible for review by the external auditors and

periods Bank implementation support missions.

34. In summary, the proceeds of the grant would be disbursed in accordance with the

disbursement procedures of the Bank and will be used to finance project activities through the

disbursement procedures currently used, that is Direct Payment, Reimbursement and Advance,

accompanied by appropriate supporting documentation (Summary Sheets with records and/or

SOEs) in accordance with the procedures described in the Disbursement Letter and the Bank's

“Disbursement Guidelines”.

35. e-Disbursement. The Bank has introduced e-Disbursement for all projects in Morocco.

Under e-Disbursement, all transactions will be conducted and associated supporting documents

and SOEs scanned and transmitted online through the World Bank’s Client Connection system.

The use of e-Disbursement functionality will streamline online payment processing to (i) avoid

common mistakes in filling out WAs; (ii) reduce the time and cost of sending WAs to the Bank;

and (iii) expedite the Bank processing of disbursement requests.

36. Planning of Implementation Support: Implementation support missions will be

conducted every six months based on the risk assessment of the project. The missions’ objectives

will include: (i) ensuring that strong financial management systems are maintained for the

project throughout its life; and (ii) semi-annual review of IUFRs, review of annual audited

financial statements and management letters.

Procurement

General

37. Procurement for the proposed project would be carried out in accordance with (i) the

World Bank’s Guidelines On Preventing and Combating Fraud and Corruption in Projects

Financed by IBRD Loans and IDA Credits and Grants, known as the ‘Anti-Corruption

Guidelines’ dated October 15, 2006 and revised in January, 2011; (ii) the ‘Guidelines:

Procurement of Goods, Works, and non-consulting services under IBRD Loans and IDA Credits

and Grants by World Bank Borrowers’ (known as Procurement Guidelines) dated January 2011;

(iii) the ‘Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA

Credits and Grants by World Bank Borrowers,’ (known as Consultant Guidelines) dated January

2011; and (iv) all the accompanying standard bidding documents for any new procurement and

the provisions stipulated in the Grant Agreement. The various items under different expenditure

categories are described in general below. For each contract to be financed by the grant, the

36

different procurement methods or consultant selection methods, the estimated costs, prior review

requirements, and agreed time frame are set out in the Procurement Plan. The procurement

procedures and Standard Bidding Documents (SBD) that will be used by the recipient has been

included in the PIM, which includes specific and detailed sections regarding Procurement.

77. Procurement under the Project is mostly for the selection of consultants for study or local

market assessments, entrepreneurship training for Microcredit beneficiaries, support for post-

creation business development, development of training product/curricula and tools for capacity

building, technical assistance and strategic advice to all microcredit stakeholders, capacity

building to the FNAM and project Management and Monitoring along with drafting a national

financial inclusion strategy. It concerns also goods and services related to project management,

organization of training and other capacity building events under the 3 components. The project

is proposed to be implemented by a Project Management Unit (PMU) within the MoEF,

comprising members of the division in charge of credit institutions (“Division des établissements

de credit”, DEC) of the Directorate of treasury and external finance (“Direction du Trésor et des

finances extérieurs”), the Directorate of Administrative and General Affairs (“Direction des

affaires administratives et générales”) as well as additional specialists.

Category Amount of the

Grant Allocated

(expressed in USD)

Percentage of Expenditures to be Financed

(inclusive of Taxes)

Goods, non-consulting

services, and consultants’

services, Training and

Operating Costs under the

Project

4,900,000

100%

TOTAL AMOUNT 4,900,000

38. National Competitive Bidding (NCB) procedures adjusted as indicated below will be

used for all Goods and Non-Consulting Services contracts estimated to cost less than the

equivalent of US$ 3,000,000. To ensure broad consistency with the Procurement Guidelines, the

following provisions will apply when using NCB under this project. Said procedures shall ensure

that, inter alia:

a) The bidding documents include explicitly the bid evaluation method, award criteria and

bidder qualification criteria;

b) Technical, administrative and financial envelopes are opened immediately after the bid

opening session has started and prices are read aloud;

c) The bids are evaluated on the basis of the price and any other criteria expressed either in

pass/fail terms or in monetary terms;

d) Contracts are awarded to the qualified bidder who has submitted the least-cost evaluated

and substantially responsive bid as stipulated in the bidding document; and

e) Standard bidding documents and bid evaluation reports found acceptable by the Bank are

used.

37

39. Moreover, it has been agreed with the beneficiary that each contract financed from the

proceeds of this grant shall provide that suppliers, contractors and subcontractors shall permit the

Bank, at its request, to inspect their accounts and records relating to the bid submission and

performance of the contract and to have said accounts and records audited by auditors appointed

by the Bank. The deliberate and material violation by the supplier, contractor or subcontractor of

such provision may amount to “obstructive practice”.

40. The procedures and standard bidding documents (SBD) of the beneficiary adjusted to

be acceptable by the Bank will be used under National Competitive Bidding (NCB). Thus prior

to issuing the first call for bids, a draft SBD to be used under NCB procurement must be

submitted to the Bank for approval.

41. Procurement Plan: A Project Procurement Plan dated June 13, 2013 in a format

acceptable to the Bank has been prepared and will be updated at least once a year. The

procurement plan for the first eighteen (18) month period has been agreed upon. The

procurement plan shall indicate which contracts shall be subject to the Bank’s prior review. All

other contracts shall be subject to Post Review. No Works contracts are contemplated under the

project.

42. Procurement of Goods and non-consulting Services: Procurement of Goods and Non

consulting services comprising the acquisition of equipment, material and office supplies for the

PMU, logistics for workshops, capacity building events among others, will be carried out using

the following methods:

a) National Competitive Bidding (NCB): Each package estimated to cost less than the

equivalent of US$ 3,000,000 may be procured on the basis of NCB procedures as found

acceptable by the Bank. Bidding documents acceptable to the Bank will be used.

b) Shopping: Goods and non-consulting services estimated to cost US$ 500,000 or less may

be procured using Shopping procedures.

c) Direct Contracting: Under circumstances which meet the requirements of paragraph 3.7

of the Procurement Guidelines, goods, non-consulting Services and works may be

procured in accordance with the paragraph 3.7 of the Procurement Guidelines using the

Direct Contracting procurement method.

43. Selection of Consultants: Consultants services comprise mostly the selection of

consultants for study or local market assessments, entrepreneurship training for Microcredit

beneficiaries, support for post-creation business development, development of training

product/curricula and tools for capacity building, technical assistance and strategic advice to all

microcredit stakeholders, capacity building to the FNAM and project management and

monitoring along with drafting a national financial inclusion strategy. It concerns also goods and

services related to project management, organization of training and other capacity building

events under the 3 components. The following Bank methods and corresponding standard

documents will be used:

38

a) Quality & Cost Based Selection (QCBS) for all types of consultant services.

b) Least-cost Selection. Services for assignments which meet the requirements of paragraph

3.6 of the Consultant Guidelines may be procured using the Least-cost Selection method

in accordance with the provision of paragraphs 3.1 and 3.6 of the Consultant Guidelines.

c) Selection Based on Consultant’s Qualifications (CQS). Services estimated to cost less

than US$100,000 equivalent per contract may be procured in accordance with the

provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines.

d) Single Source Selection. Under circumstances which meet the requirements of paragraph

3.8 of the Consultant Guidelines for Single Source Selection, consultant services may be

procured in accordance with the provisions of paragraph 3.8 through 3.11 of the

Consultant Guidelines, with the Bank’s prior agreement.

e) Individual Consultants (IC). Services for assignments that meet the requirements set forth

in the paragraph 5.1 of the Consultant Guidelines may be procured under contracts

awarded to individual consultants in accordance with the provision of paragraph 5.2 and

5.3 of the Consultant Guidelines. Under the circumstances described in paragraph 5.6 of

the Consultant Guidelines, such contracts may be awarded to individual consultants on a

sole-source basis.

44. Short lists may be composed entirely of national consultants for contracts of less than

US$ 200,000 equivalent per contract, complying with the remarks mentioned above.

Publication of Results and Debriefing

45. Online (UN Development Business, and /or Client Connection) publication of contract

awards would be required for all Direct Contracting, and the Selection of Consultants for

contracts exceeding a value of US$ 200,000. All consultants competing for an assignment

involving the submission of separate technical and financial proposals, irrespective of its

estimated contract value, should be informed of the result of the technical evaluation (number of

points that each firm received) before the opening of the financial proposals. The beneficiary

would be required to offer debriefings to unsuccessful bidders and consultants should the

individual firms request such a debriefing.

Fraud, Coercion, and Corruption

46. All procuring entities, as well as bidders, suppliers, and contractors shall observe the

highest standard of ethics during the procurement and execution of contracts financed under the

project in accordance with paragraphs 1.16 and 1.17 of the Procurement Guidelines and

paragraphs 1.23 and 1.24 of the Consultants Guidelines.

Frequency of Procurement Supervision

47. Supervision of Procurement by the World Bank is an integral part of Project

39

implementation support and monitoring. In addition to the prior review supervision to be carried

out from the Bank’s Rabat office, it is recommended that two implementation support missions

take place during a year to visit the project and to carry out post review of procurement actions.

48. Based on the risk associated with procurement (substantial), as mitigation measures, the

following actions have been implemented:

a. Initiation of recruitment of an additional procurement specialist to help carry out

procurement and build capacities within the MoEF. The hiring of the additional

procurement specialist shall be completed by not later than four (4) months after the

Effective Date;

b. Organization of workshop for procurement training for all staff involved in the

project implementation (MoEF);

c. Preparation of Standard Bidding Documents for NCB in accordance with the

Procurement Guidelines and found acceptable by the World Bank for Goods and

Non-consulting Services.

d. Adoption of a Project Implementation Manual. The manual describes procurement

procedures, responsibility sharing and document flow among the parties involved in

Project implementation. The annex of the PIM also comprises all standard bidding

documents that will be used under the project.

e. Preparation of the procurement plan for the first eighteen (18) months.

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Annex 4: Operational Risk Assessment Framework (ORAF)

MOROCCO: Microfinance Development Project

Stage: Approval

Project Stakeholder Risks Rating Moderate

Description:

(i) Agencies receiving technical assistance may not have the

institutional capacity to effectively absorb project resources.

This may prevent effective translation of capacity building to

changes to institutional policies and procedures and may

prevent project outputs from being attained.

Risk Management: The project will only extend technical assistance to entities which are considered to be

sufficiently prepared of integrating the changes. In a number of components, TA is preceded by a

diagnostic effort to measure the status quo and highlight structural aspects/ weaknesses which need to be

addressed before any assistance can be provided.

Resp: Bank Stage:

Preparation/Implementation

Due Date : 31-Jan-

2018 Status: In progress

(ii) A number of donors supporting the microfinance sector in

Morocco are engaged in capacity building work, leaving a

potential risk of duplication/ lack of coordination

Risk Management: The Bank has conducted extensive consultations with key donors engaged in

Morocco’s microfinance sector during project preparation, and will continue to do so throughout the

implementation period to ensure that this projects contribution is harmonized and complementary with

existing initiatives and activities.

Resp: Bank and

Client Stage:

Preparation/Implementation

Due Date : 31-Jan-

2018 Status: In progress

(iii) There is a risk that the MFIs might not be supportive of the

proposed capacity building of the FNAM, other MFIs or

microenterprises.

Risk Management: Project outreach during both preparation and implementation phases will focus on

clearly communicating project activities and proposed benefits to participating MFIs and other financial

institutions serving low-income communities in Morocco. The project has been developed in close

consultations with MFIs, which have provided useful inputs to the project’s design.

Resp: Bank and

Client Stage:

Preparation/Implementation

Due Date : 31-Jan-

2018 Status: In progress

Implementing Agency Risks (including fiduciary)

Capacity Rating: High

41

Description: The MoEF may not have the necessary dedicated

resources to act as primary implementing agency, and its

capacity to implement the project might be hampered due to the

lack of experience of managing World Bank grants

(procurement and financial management) and technical

expertise in microfinance.

Risk Management: The WB team has assessed the institutional capacity of the MoEF and identified

certain areas on which the PMU could need support (financial management, procurement). The MoEF has

agreed to reinforce the capacity of the PMU, and the WB will monitor the adequate staffing of the PMU

throughout project implementation.

Resp:

Bank

Stage:

Preparation/Implementation

Due Date : 31-Jan-

2018 Status: In progress

Governance Rating: Moderate

Description : There is the potential for conflict of interest of a

member of the steering committee (FNAM) as a representative

of MFIs, with a risk of prioritizing interests of financial service

providers over other industry actors (government, clients, etc).

Risk Management: The Bank is aware of this risk, but believes that their inclusion into a broader based

steering committee comprised of the MoEF, BAM and potentially more members significantly mitigates

this risk. The team will continue to monitor this risk throughout project implementation.

Resp: Bank

and Client

Stage: Preparation and

Implementation

Due Date : 31-Jan-

2018 Status: In progress

Project Risks

Design Rating: Moderate

Description : Technical assistance provided is not truly

responsive to the needs of the industry and as a result, policies

and procedures are not modified over the long-term

Risk Management: The Bank has held extensive consultations with industry regulators, government, and

key players to identify market gaps and determine what is needed in the way of technical assistance to

expand access and usage of microfinance services. Similarly, preparatory missions have included meetings

with key market players to determine how to best deliver technical assistance and implement each project

component. These sessions will allow a project design that provides TA in a manner that is responsive to

institutional concerns, thereby promoting long-term sustainability.

Resp: Bank and

Client

Stage: Preparation and

Implementation

Due Date : 31-Jan-

2018 Status: In progress

Social & Environmental Rating: Low

Description: Gender Inclusivity: Project components may not

adequately support microfinance access and usage amongst

women; activities may not fully account for specific access and

usage challenges facing female microfinance clients.

Risk Management: Dedicated resources will be placed into each project components to focus specifically

on ensuring they are gender-inclusive. For example, under component three dedicated TA will be provided

to MFIs to enhance their ability to serve women clients. Under component 3, data and diagnostics will be

accumulated specifically to provide a snapshot of women’s access to microfinance. The financial inclusion

strategy will prioritize extension of financial services amongst women and develop action plans from this

prioritization accordingly.

Resp: Bank and

Client

Stage: Preparation and

Implementation

Due Date : 31-Jan-

2018 Status: In progress

Program & Donor Rating: Low

Description : Donor Coordination, Commitment, and

Integrating into Existing Work: A number of donors supporting

the microfinance sector in Morocco are engaged in similar

capacity building work; risk of duplication

Risk Management: Microfinance remains an important donor priority in Morocco. Donor activities over

the past ten years have yielded significant dividends. The microfinance industry in Morocco is the largest in

the region and boasts a strong regulatory system and robust market infrastructure. As such, the risk of lack

of donor interest is considered low. There is, however, risk of duplication. Consultations with donors have

been undertaken (and will continue throughout project implementation) to ensure activities are not being

duplicated and that there is a strong synergy between existing work and proposed activities.

42

Resp: Bank Stage: Preparation and

Implementation

Due Date : 31-Jan-

2018 Status: In progress

Delivery Monitoring & Sustainability Rating: Moderate

Description: Institutions receiving technical assistance

(FNAM, MFIs, etc.) may find it difficult to sustain changes

beyond the duration of immediate assistance.

Risk Management: TA activities will be delivered with sustainability in mind, implying a significant focus

on integrating skills and knowledge into ongoing institutional processes and procedures. Attention will be

placed on training local staff to provide ongoing training to other staff members. Strong oversight and

project management can help identify potential sustainability issues throughout the life of the project and

move forward solutions accordingly. Similarly, all institutions the project will be provided capacity

building and TA to have extensive experience in microfinance (e.g. MFIs and FNAM). Thus, the capacity

and mandate to continue with newly adopted practices exists.

Resp: Bank

and Client

Stage: Preparation and

Implementation

Due Date : 31-Jan-

2018 Status: In progress

Overall Risk Following Review

Implementation Risk Rating: Moderate

Comments: The overall risk for this operation is moderate. There is a key risk associated with ensuring the implementing agency’s capacity to implement the project, in part

due to the lack of full time dedicated staff working on the project and the PMU’s limited experience with the Bank's procurement guidelines. The key risk with regards to

project design is a possible conflict of interest between implementing agents and industry actors, but is considered to be mitigated through a well-designed and balanced

institutional structure, promoting the effective participation of key actors in various project components.

43

Annex 5: Implementation Support Plan

MOROCCO: Microfinance Development Project

Strategy and Approach for Implementation Support

1. The World Bank will support the implementation of this project through a combination of

fiduciary and technical support, technical assistance, and coordination. These activities will be

implemented through a combination of Bank staff and consultants.

2. Fiduciary and technical support. World Bank fiduciary staff in the Bank’s Rabat office

will provide routine supervision of FM and procurement activities. Review and clearance of the

Implementation Manual, interim financial reports, withdrawal applications, and procurement

actions will provide the basic necessary controls during implementation. In addition, technical

assistance and guidance will be provided when necessary on fiduciary issues, which are

anticipated to most likely be on procurement issues. Technical support will be provided by Bank

staff and local consultants at key design and implementation decision points, including

adjustment of design features during the course of the project.

3. Technical assistance - policy. Providing ongoing, just-in-time technical assistance to the

Government of Morocco on policies and programs concerning the development of the

Microfinance sector is an integral part of this project. The Bank will employ staff and

consultants, including staff from the anchor Financial and Private Sector Development Global

Practices and CGAP, to support technical assistance needs.

4. Coordination: The Bank will maintain coordination with other national entities and

international agencies concerned with financial sector development, particularly in the areas of

the development of the Microfinance sector and financial inclusion, to ensure continued synergy

and complementarity with other interventions.

Implementation Support Plan

5. Technical inputs needed: The PMU might require technical inputs during project

implementation. In addition, technical inputs on the design of the M&E system, as well as

training to PMU staff on M&E principles and implementation might be required. The World

Bank will provide implementation support in these areas if needed, in close collaboration with

key partners, including the IFC and CGAP.

6. Fiduciary requirements and inputs: the PMU will hire a FM and procurement specialists.

World Bank fiduciary staff will provide implementation support including capacity building

where needed.

What would be the main focus in terms of support to implementation during:

Time Focus Skills Needed Resource

Estimate

Partner Role

Throughout

project

Operational Aspects

(TBS)

Project

Management,

Procurement,

44

Selecting consulting

firms/ WB staff

Measure project

outcomes

Financial

Management

Microfinance

Measurement and

Evaluation

Skills Mix Required

Skills Needed Number of Staff Weeks Number of Trips Comments

M&E Specialist

Fiduciary Specialists

1-2 weeks of time for each 1-2