Document of The World Bank FOR OFFICIAL USE ONLY Report No: 58405-IN PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 106.7 MILLION (US$ 162.70 MILLION EQUIVALENT) TO THE REPUBLIC OF INDIA FOR THE RAJASTHAN RURAL LIVELIHOODS PROJECT December 14, 2010 Sustainable Development Department Agriculture and Rural Development Unit India Country Management Unit South Asia 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. CURRENCY EQUIVALENTS Currency Unit = Indian Rupees (`) `44.42 = US$1 US$ 1.5258 = SDR 1 FISCAL YEAR July 1 ­ June 30 ABBREVIATIONS AND ACRONYMS APIO Additional Public Information Officers BPCC Block Project Coordinator Committee BPL Below Poverty Line CAS Country Assistance Strategy CBO Community Based Organization CDD Community Driven Development CDO Cluster Development Organization (also known as Utthan Sansthan or US) CGCC Consortium of Group Combating Corruption CIG Common Interest Group CMIS Computerized Management Information System COM Community Operational Manual CRP Community Resources Persons CW Civil Works DC Direct Contracting DPCC District Project Coordinator Committee DPIP District Poverty Initiatives Project DPMU District Project Management Unit DPL Development Policy Lending EC Empowered Committee FMM Financial Management Manual GAAP Governance and Accountability Action Plan GAC Governance and Accountability GAP Gender Action Plan GC Governing Council GDSP Gross State Domestic Product GSDC Gross State Domestic Product ERR Economic Rate of Return ICB International Competitive Bidding IDA International Development Association IFAD International Fund for Agricultural Development IMR Infant Mortality Rate IUFR Interim Un-audited Financial Reports LIF Livelihood Investment Fund MCP Micro Credit Plan MFI Micro Finance Institution ME&L Monitoring, Evaluation and Learning MoU Memorandum of Understanding NCB National Competitive Bidding NGO Non Governmental Organization NREGA National Rural Employment Guarantee Act ii NRHM National Rural Health Mission NTFP Non Timber Forest Product NPV Net Present Value PDO Project Development Objective PDS Public Distribution System PFT Project Facilitation Team PIO Public Information Officers PIP Project Implementation Plan PM Process Monitoring PME Participatory Monitoring and Evaluation PO Producer Organization PP Procurement Plan PWD Public Works Department QBS Quality Based Selection QCBS Quality and Cost Based Selection QER Quality Enhancement Review RBI Reserve Bank of India RD Rural Development RFP Request for Proposal RGAVP Rajasthan Gramin Ajeevika Vikas Parishad RRLP Rajasthan Rural Livelihoods Project RTI Right to Information Act SAS Social Accountability System SBT Skills-based Training SC Scheduled Caste SGSY Swaranjayanti Gram Swarojgar Yojana SHG Self Help Group SIL Specific Investment Loan SPMU State Project Management Unit SSS Single Source Selection ST Scheduled Tribe TDF Tribal Development Framework TOR Terms of Reference US Utthan Sansthan (also known as Cluster Development Organization or CDO) UT Union Territory VRP Village Resource Person WCD Woman and Child Development Department Regional Vice President: Isabel M. Guerrero Country Director: N. Roberto Zagha Sector Director: John H. Stein Sector Manager: Simeon Ehui Task Team Leader: Nathan M. Belete iii Table of Contents 1. Strategic Context ................................................................................................................................ 1 A. Country Context ......................................................................................................................... 1 B. Sectoral and Institutional Context ............................................................................................... 1 C. Higher Level Objectives to which the Project Contributes .......................................................... 4 II. Project Development Objectives ........................................................................................................ 5 A. PDO ............................................................................................................................................ 5 1. Project Beneficiaries ............................................................................................................ 5 2. PDO Level Results Indicators .............................................................................................. 5 III. Project Description ............................................................................................................................. 6 A. Project components ..................................................................................................................... 6 B. Project Financing ........................................................................................................................ 7 1. Lending Instrument .............................................................................................................. 7 2. Financing Project Table ....................................................................................................... 8 C. Lessons Learned and Reflected in the Project Design................................................................. 9 IV. Implementation ................................................................................................................................ 10 A. Institutional and Implementation Arrangements ....................................................................... 10 B. Results Monitoring and Evaluation .......................................................................................... 10 C. Sustainability ............................................................................................................................ 11 V. Key Risks ......................................................................................................................................... 11 VI. Appraisal Summary .......................................................................................................................... 12 A. Economic and Financial Analysis............................................................................................. 12 B. Technical .................................................................................................................................. 13 C. Financial Management ............................................................................................................. 13 D. Procurement ............................................................................................................................. 14 E. Social ....................................................................................................................................... 14 F. Environment ............................................................................................................................. 15 Annex 1: Results Framework and Monitoring .......................................................................................... 17 Annex 2: Detailed Project Description .................................................................................................... 24 Annex 3: Implementation Arrangements ................................................................................................. 38 Annex 4: Operational Risk Assessment Framework (ORAF) ................................................................. 51 Annex 5: Implementation Support Plan .................................................................................................... 58 Annex 6: Team Composition .................................................................................................................... 59 Annex 7: Governance and Accountability ............................................................................................... 59 Annex 8: Economic and Financial Analysis ............................................................................................ 65 Annex 9: Access to Finance ..................................................................................................................... 71 PAD DATA SHEET India Rajasthan Rural Livelihoods Project PROJECT APPRAISAL DOCUMENT South Asia Agriculture and Rural Development Date: December 14, 2010 Sectors: General agriculture, fishing and forestry Country Director: N. Roberto Zagha sector (70%); Agricultural marketing and trade Sector Director: John H. Stein (30%) Sector Manager: Simeon Ehui Themes: Other rural development (P); Other Team Leader(s): Nathan Belete, environment and natural resources management (S); Reena Gupta Participation and civic engagement (S) Project ID: P102329 EA Category: B - Partial Assessment Lending Instrument: Specific Investment Loan (SIL) Project Financing Data: Proposed terms: Standard IDA terms with a maturity of 35 years, including a 10 year grace period. [ ] Loan [ X ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Amount (US$m) Total Project Cost: 183.80 Co-financing: Borrower: 21.10 Total Bank Financing: 162.70 IBRD IDA New 162.70 Recommitted 162.70 Borrower: Department of Economic Affairs, Ministry of Finance, Republic of India, New Delhi, India Responsible Agency: Rajasthan Gramin Ajeevika Vikas Parishad, an independent society under the Panchayat and Rural Development Department, Government of Rajasthan Implementing Agency: State Project Management Unit (SPMU), Rajasthan Rural Livelihoods Project; Fax #: +91-141 222 4754; Email: dpip@rediffmail.com Estimated Disbursements (Bank FY/US$ m) FY11 FY12 FY13 FY14 FY15 FY16 FY17 Annual 1.5 13 20 33 40 45 10.2 Cumulative 1.5 14.5 34.5 67.5 107.5 152.5 162.7 v Project Implementation Period: May 1, 2011 ­ October 31, 2016 Expected effectiveness date: May 1, 2011 Expected closing date: October 31, 2016 Yes · No Does the project depart from the CAS in content or other significant respects? If yes, please explain: Does the project require any exceptions from Bank policies? Yes · No Have these been approved / endorsed (as appropriate by Bank Yes No management? Is approval for any policy exception sought from the Board? Yes No If yes, please explain: Does the project meet the Regional criteria for readiness for · Yes No implementation? If no, please explain: Project Development Objective: To enhance economic opportunities and empowerment of the rural poor, with a focus on women and marginalized groups, in the 17 targeted districts of Rajasthan. vi Project Components 1. Institution Building and Social Empowerment - the objective of this component would be to help the poor mobilize themselves into Self Help Groups, and gradually develop their own capacity to initiate and expand sustainable livelihoods activities. 2. Community Investment Support - The objective of this component would be to support asset creation of SHGs and their federations and identify and support innovative approaches to improve the livelihoods of the rural poor. 3. Skills Development and Employment Promotion - The objective of this component would be to support beneficiaries to capture new employment opportunities through the establishment of a structured mechanism for skill development and job creation. 4. Climate Change Adaptation - The objective of this component is to develop and implement drought adaptation mechanisms and institutional models ­ at the state, district and local level - for a more effective delivery of assistance to drought-affected communities through improved coordination and leveraging programs (e.g., NREGA) currently delivered by the Government of Rajasthan. 5. Project Implementation Support - The component will facilitate various implementation, coordination, learning and quality enhancement efforts. Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Yes No Natural Habitats (OP/BP 4.04) Yes No Forests (OP/BP 4.36) Yes No Pest Management (OP 4.09) Yes No Physical Cultural Resources (OP/BP 4.11) Yes No Indigenous Peoples (OP/BP 4.10) Yes No Involuntary Resettlement (OP/BP 4.12) Yes · No Safety of Dams (OP/BP 4.37) Yes No Projects on International Waters (OP/BP 7.50) Yes No Projects in Disputed Areas (OP/BP 7.60) Yes No Conditions and Legal Covenants: Financing Agreement Description of Date Due Reference Condition/Covenant Schedule II Section 2 A Bi-Annual Project Reports November 30 and April 30 Schedule II Section 2 B Annual Audit Reports September 30 vii 1. Strategic Context A. Country Context 1. Key Development Issues. Rajasthan, located in the north-western region of India, is the country's largest state with an area of 350,000 square kilometers comprising 11 per cent of the total geographical area. There are 33 districts, 237 blocks and 41,353 villages. Its population of 57 million and Gross State Domestic Product (GSDP) of US$23 billion place Rajasthan eighth among the Indian states measured by both indicators. The state is overwhelmingly rural with more than three-quarter of its people residing in rural areas. Agriculture is largely dependent on rainfall making the state highly vulnerable to droughts. Recurring drought, a growing crisis in ground water supply, falling investment rates, and lowered public investment in infrastructure have all contributed to lowering growth rates and increasing economic volatility. The result is a high degree of clustering just above the poverty line. In 2000, it was estimated that 8.65 million people were living below the poverty line but trends indicate that raising the relevant poverty line income by 10 percent, raises the number of the poor by over 35 percent in both rural and urban areas (World Bank 2006). 2. Geography plays a key role in determining poverty and vulnerability in Rajasthan. The highest incidence of poverty and vulnerability among households occurs in Southern and Eastern Rajasthan. Human Development Indicators are the lowest in Southern Rajasthan, where vulnerability to periodic drought cycles has led to significant seasonal out-migration. Households in this region tend to be female-headed, tribal, vulnerable (disabled, elderly etc.), and are predominantly casual laborers working in the agriculture sector. 3. Despite rapid decline in poverty from 50 percent in 1970 to about 24 percent in 2005, the absolute numbers of the poor families still stand at more than 2 million as per the BPL (below poverty line) Census 2002. Global experience has shown that while general growth of the economy has positive impact on reducing poverty, it may not be sufficient to address the problem unless strategies are designed to directly target the poor. Government spending has, in the past, been concentrated in the North East and Western regions of Rajasthan. 4. Though there has been significant improvement in the literacy rate from 38.55 percent in 1991 to 61.03 percent in 2001, almost two-fifths of the population is still illiterate. Literacy levels are one-third the state average, and nearly two-thirds of households in this region have family members who migrate in search of work. Rajasthan has one of the highest proportions of Scheduled Caste (SC) and Scheduled Tribe (ST) populations in the country at 17.2 percent and 12.6 percent respectively (comparable figures at the national level are 16.2 per cent for SCs and 8.2 per cent for STs during 2001). B. Sectoral and Institutional Context 5. Slow Economic Growth. The GSDP growth rate was 6.2 percent during 1980-2000, one of the highest rates in the country. It was largely propelled by investment, labor productivity growth and diversification of the economy. Even though agricultural performance was relatively poor in 1990s, rapid growth in industry and services sustained the growth momentum human 1 development and poverty reduction. Since 1999, however, economic growth has faltered markedly, with per capita income growth rates nearly halved in the last five year compared to what it was during 1980- 2000. Droughts, accompanied by falling investment rates, have contributed to decelerating growth rate and deterioration of livelihood options for rural households. 6. A key poverty reduction strategy adopted by the Government of Rajasthan (GoR) has been to promote various projects and programs that focus on jobs, skills development, and wage and self-employment through a number of state and centrally sponsored schemes, as well as donor financed initiatives. Many of these government programs for rural poor have been implemented through various community-based models, such as SHGs 1 (Self-Help Groups) and CIGs 2 (Common Interest Groups). 7. The Department for Women and Child Development (WCD) has historically been the nodal agency for the promotion of SHGs in Rajasthan. Under the WCD umbrella, and the Government's Swaranjayanti Gram Swarojgar Yojana (SGSY) scheme, more than 350,000 SHGs have been formed in Rajasthan. However, the sustainability and quality of the SHGs has been mixed given that a) about 60% of the SHGs have been able to open bank accounts; and b) an even smaller number (44.1%) received loans from commercial banks in the form SHG-Bank linkage. In addition, it is estimated that less than 9% of SHG members in the state are clients of Microfinance Institutions.3 While the reasons for this poor performance are many, one central issue identified is the insufficient resources allocated by the different government schemes to focus on institution building during group formation. 8. The presence SHGs and microfinance institutions and clients are relatively thin in more than 60 percent of the blocks/districts targeted by RRLP, particularly in Southern Rajasthan. Similarly, about 53 percent of the districts targeted by the RRLP are "under-banked" 4 resulting in low-access to formal financial services leading to dependence on informal lenders for meeting the credit needs. Also, the existing loan products from the formal financial institutions are not aligned to the needs of the rural poor and hence there is need for investing in developing new financial product(s) which are more aligned to the cash-flow/income stream of the rural poor. 9. The RRLP intends to build on the lessons learned from the first phase IDA-financed Rajasthan District Poverty Initiatives Project (DPIP). As reported in the ICR, the main achievements of the DPIP were its ability to catalyze the formation of Common Interest Groups at the village level and to fund economic activities that enhanced the livelihood opportunities available to the target population. Approximately 18,000 CIGs received funding for creation of 1 A SHG (Self-Help Group) is an affinity-based group of about 15 households that is formed voluntarily to collectively support the social and economic interests of each member through inter-loaning of savings, leveraging capital from financial institutions, and improving access to different government services. 2 A CIG (Common Interest Group) is a group of about 10 households that come together voluntarily to undertake one single economic activity. The binding factor of a CIG is the common activity and not affinity as in the case of SHGs and therefore sustainability of the CIG model has proven to be much more precarious. 3 Total number of SHGs in the state is 360,689. Considering an average of 12 members per SHG, the total number of SHG members is 4,328,268. The total number of MFI clients, as Dec 2009, is approximately 800,000. Discounting for being clients of multiple MFIs the actual number of borrowers are estimated to be about 500,000; of which 80% (or 380,000 clients) happen to be SHG members. Hence, 380000/4328268 equals about 9% of SHG members are clients of MFIs. 4 Number of clients served per branch is about 20,000 and an average of 1-staff for every 5,000 clients (as against better off branches which serve an average of 10,000 clients per branch with staff to client ratio of 1:1000 to 1200). Also, there is large number of villages without bank branches in the "under-banked" districts. (Source: Rajasthan Microfinance Report 2010 by Center for Microfinance) 2 livelihood assets under the DPIP. Overall, the sample IRRs reported by the ICR at the CIG level suggest that the highest IRRs were from non-farm livelihood activities, which showed median rates of returns on investment of 126% over a five year period (however, anecdotal evidence suggests that non-farm livelihood activities are also the most difficult to sustain given the complexities in market linkages and the fact that the activity may not be indigenous to the target communities). The returns on dairying activities ranged from 25-36% and the returns on goat- rearing activities ranged from 8-9% when their earnings were extrapolated over a five-year period. For Natural Resource Management (NRM) activities, the ranges of IRRs are extremely varied from 3% return on investments to the maximum being 300% return on investments. 10. Some of the key challenges of the DPIP were insufficient focus on the empowerment element of CIG formation, deficiencies in project planning, lack of coordination between various stakeholders, frequent changes in project management staff and slow implementation at the outset of the project. This led to various shortfalls in the quality of group formation, as well as various other activities designed to enhance the voice and economic livelihoods of local communities. As such, the one central design modification from the DPIP to the RLLP will be the transition from the CIG to SHG model so as to enhance sustainability and viability of the community institutions established, as evidenced in other livelihoods initiatives undertaken by the World Bank and state governments throughout India. While focus will be on the creation of solid, sustainable SHGs, the RRLP will not only focus on the formation of new SHGs, but has also made provisions to upgrade interested CIGs and poorly performing SHGs. 11. The Project is committed to work with the poorer sections of the village and will follow a `BPL-plus' strategy. For this purpose, MORD rural poverty criteria being piloted for BPL 2011 census and NRLM guidelines, including automatic inclusion and exclusion of certain socioeconomic groups as per proposed Methodology for BPL survey 2011 will be followed. A new dimension of the RRLP that will involve close collaboration with the PRIs and GoR departments/programs will be to support household and community level livelihood options that are better adapted to resilience against the impact of climate change. There were some discussions initially for the RRLP to support provision of basic social infrastructure through community driven processes, however, the GoR was keen for the RRLP to focus on household level investments given the substantial resources available through different government schemes to address these issues 12. Rajasthan's performance in coverage of disadvantaged social groups, particularly SCs and STs, and active community participation through panchayats has been relatively good. However, there remains significant scope for better targeting, coverage and inclusion of the poorest beneficiaries; especially at the village level where local power relations and political economy often plays a role. Government programs linked with BPL lists and others like NREGA remain vulnerable to capturing by the dominant, rural elite and the non poor. These groups exercise their influence on local planning, resource allocation, beneficiary identification and decision making processes, based on their proximity and social affinity to officials and elected representatives. This, elite capture, not only crowds out the intended beneficiaries, but also demotivates the poor to participate in local community meetings and decision making processes. 3 13. Government Commitment. The GoR is keen to pursue its engagement with the World Bank in this sector as confirmed through its formal request for IDA financing for the proposed Rajasthan Rural Livelihoods Project (RRLP). Moreover, under the responsibility of the Department of Rural Development, it established a State Project Management Unit and an independent society chaired by the Chief Minister to oversee this and other poverty programs in Rajasthan. 14. In line with this request from the GoR, the Ministry of Rural Development (MoRD) of India has recently launched an ambitious National Rural Livelihood Mission 5 that intends to provide financial and technical assistance to states throughout India for the development of the SHG model. To this end, the GoR, MoRD and World Bank have had a series of discussions to ensure complementarity and synergy of all activities and institutional arrangements of the RRLP with the guidelines of the NRLM. Moreover, the independent society recently established by the GoR would be responsible for providing direct oversight and management responsibilities for the NRLM, & RRLP, amongst others. While NRLM and RRLP would continue to have their own administrative and management structure, the independent society would provide an overarching framework for supervision, monitoring and implementation of all livelihood projects. C. Higher Level Objectives to which the Project Contributes 15. The central vision of India's Eleventh Five Year Plan is to promote inclusive growth so that the benefits are shared by all people. In line with this vision, the key thrust in the India FY09-12 country strategy (CAS) is to provide support for programs that: (i) address rising inequality, (ii) ensure sustainable development, and (iii) enhance access to services by the poor. The project is also in line with the strategy adopted under the CAS that seeks to enhance the involvement of the World Bank in those states of India where the incidence of poverty, both in terms of absolute number of people and percentage of population, is high. In line with the challenges and goals laid out in the Eleventh Five Year Plan, the Bank's support to India is expected to be organized around three CAS pillars: inclusive growth, sustainable development, and better access to services. Through this project, it is envisaged that stronger local organizations, starting at the SHG level will provide alternative and effective channels for provision of diversified livelihood alternatives to the poor. 16. As part of the strategy for achieving inclusive growth, the Bank intends to focus on improving agricultural productivity and rural livelihoods as Rajasthan is endowed with huge stock of renewable and non-renewable natural resources, livestock, traditional craft and technology. Additionally, comparative advantage of production of some specific agricultural crops continues to offer considerable growth potential. Similarly, as part of the strategy for ensuring sustainable development, the Bank will support investments to help improve the management of natural resources and increase the resilience of Indian people and the economy to nature-related shocks. The proposed project will directly help towards the attainment of these higher-level CAS goals. 5 The World Bank has been requested by the MoRD for approximately $1 billion of IDA financing to support the start-up and launch of the NRLM. 4 II. Project Development Objectives A. PDO 17. The project development objective of the proposed RRLP is to enhance the economic opportunities and empowerment of the rural poor, with a focus on women and marginalized groups, in the 17 targeted districts of Rajasthan. 18. This would be achieved through social inclusion and community mobilization, building sustainable member-based organizations of the poor, creation of linkages between these organizations with financial (banks and insurance companies) and other service providers, and supporting the development of both existing and new livelihood strategies for resilience to the impacts of climate change. 1. Project Beneficiaries 19. The estimated target population in the proposed project area is around 580,000 households, of which the project intends to target 400,000 rural families. While the first phase Rajasthan District Poverty Initiatives Project (DPIP) was implemented in 7 districts, the proposed RRLP will be implemented in 17 districts 6 (or about 51 blocks) in southern and eastern Rajasthan, including the 7 districts covered under the DPIP. 2. PDO Level Results Indicators 20. The key performance indicators for the proposed project include the following (details of all indicators can be found in results framework in Annex 1): · Increase in number of sources of household income reported in at least 70% of the targeted households7, 8 · Reliance on informal credit sources drops by 90% among members of grade `A' SHGs 9 · At least 70% of the 33,000 SHGs supported by the project are financially viable and institutionally sustainable 10 · At least 50% of grade `A' SHG members routinely participate in Gram Sabha and other village meetings 6 Banswara, Baran, Bhilwara, Bikaner, Bundi, Chittorgarh, Churu, Dausa, Dholpur, Dungarpur, Jhalawar, Karauli, Kota, Rajsamand, Sawai Madhopur, Tonk, and Udaipur. 7 This may be further qualified to include proportions of income from different sources, with reduced dependence on those sources that are more vulnerable, viz., agriculture, animal husbandry, forests and seasonal migration. 8 Annual income per household in DPIP (Phase I) recorded an increase of Rs 9,760 for livestock, Rs 6,736 for Land based and Rs 2,284 for micro-enterprise sub-projects 9 It is estimated that 70% of the project supported SHGs will obtain Grade A. Grading of the SHGs will follow the guidelines established in the PIP/COM. 10 Sustainability is defined both from an operational perspective i.e., being active (i.e. regular attendance at meetings, maintenance of books of accounts, and ensuring on-time repayment of loans), and financial perspective i.e., able to meet operating expenses from its own revenue and a governance structure that ensures independence and representation. 5 III. Project Description A. Project components 21. Based on the lessons of the first phase Rajasthan DPIP, the experiences of other livelihood projects in India, and numerous consultations held with stakeholders, the proposed project intends to support the following five components: 22. Institution Building and Social Empowerment ($51.2 million). The objective of this component would be to help the poor mobilize themselves into Self Help Groups, and gradually develop their own capacity to initiate and expand sustainable livelihoods activities. The project support would focus on facilitating the process of community mobilization and capacity building of the poor and providing necessary technical expertise and financial resources. The component consists of the following sub-components: (a) Establishment of Project Facilitation Teams (PFT): establishment of entities that support and facilitate activity implementation at the village level; (b) Community Mobilization: initiate area and village entry, identification of the poor, and help the poor organize themselves into self help groups (SHGs); (c) Facilitating Community Institutions: support the formation of SHGs, Cluster Development Organizations (CDO), producer organizations and Area Federations. (d) Capacity Building of Community Institutions: to facilitate knowledge dissemination and systems development to enhance the development and sustainability of community institutions. 23. Community Investment Support ($100.8 million). The objective of this component would be to support asset creation of SHGs and their federations and identify and support innovative approaches to improve the livelihoods of the rural poor. The component consists of the following sub-components: (a) Community Based Organization (CBO) Funds: provide livelihood grants to support formation and to enable them to undertake productive livelihood enhancing initiatives. Support federations to acquire facilities, equipment and other assets required to operate their business. This will enable the SHGs to leverage additional resources from financial institutions, the private sector and other government sources; (b) Partnership Development: engagement of sector support organizations to enhance viability of activities, linkages with the banking sector, sector support and value chain development; and (c) Innovation and Research: support for innovative pilot activities that have potential for scaling-up and replication such as improved seed varieties, agro-processing, agricultural insurance, among others. 24. Skills Development and Employment Promotion ($6.3 million). The objective of this component is to support beneficiaries to capture new employment opportunities through the establishment of a structured mechanism for skill development and job creation. This will be achieved through targeting unemployed youth (women and men), primarily between the ages of 18-35 years old, from targeted households within the project districts. 6 25. Climate Change Adaptation ($10.6 million): The objective of this component is to develop and implement drought adaptation mechanisms and institutional models ­ at the state, district and local level - for more effective delivery of assistance to drought-affected communities through improved coordination and leveraging various programs currently delivered by the Government of Rajasthan. It also aims to assess and recommend specific measures to strengthen the policy and incentive framework for supporting the process of adaptation in Rajasthan. There are two sub-components: (a) Planning and Implementation of Adaptation Approaches: design and implement adaptation approaches at the field level that can leverage additional financial support from governmental programs such as NREGA 11, watersheds and social forestry. Activities will be in three thematic areas: (i) community water resources management, (ii) diversification of farm and non-farm livelihoods and (iii) climate risk management tools. (b) Strategic Policy Support and Knowledge Development: provide inputs for the development of a strategic framework on climate change adaptation for Rajasthan. This will be undertaken through (i) review of the state's priorities on climate change and develop guidance for state policy support; and to (ii) identify a framework of opportunities for developing synergies in the ongoing government and non-government programs towards strengthening climate resilience. 26. Project Implementation Support ($14.9 million). The component will facilitate various implementation, coordination, learning and quality enhancement efforts. It comprises the following three sub-components: (a) Project Management: establish an efficient, effective and responsive entity for successful project implementation at the state, district and sub-district level; (b) Governance Management and Accountability: develop a governance and accountability framework to ensure that adequate and appropriate mechanisms are in place to monitor and support project implementation; and (c) Monitoring and Evaluation: develop a system that will support and inform project implementation. B. Project Financing 1. Lending Instrument 27. The lending instrument will be a SIL. A SIL provides the flexibility to build human and institutional capacity, construct infrastructure, and to support the gradual design and implementation of a regulatory reform agenda in the agriculture sector. A SIL also allows for close follow-up of defined activities and procedures and making adjustments where necessary, on the part of the authorities and the Bank. 11 NREGA is a powerful tool to support drought adaption. GoR is also generously endowed with resources under the NREGA to make a scalable impact through the program. It can be a vehicle for improving the sustainability of dryland farming, going beyond its basic social security dimension to contribute to restoring the productivity in natural resource based production systems through supporting wage labor investments that are otherwise non-economical for the individual or community investments at farm level that are in support of drought adaptation. 7 28. Special authorization from the Regional Vice President, as provided for under OP6.00/BP 6.00 Annex A, has been received with respect to the expenditure eligibility for financing food requirements. OP 6.00 recognizes that while some expenditure may not, in and of themselves, be productive, they may be deemed productive if they are a necessary part of a larger project that is designed to improve productivity. In this project, such expenditures, likely to be small, are essential to the livelihoods of the poor and help sustain the viability of the SHGs and the project as a whole. The proposed project's fiduciary arrangements are sound, and similar special authorizations were provided previously for the MP, Orissa, Bihar, and Tamil Nadu rural livelihoods projects, all of which are working well and without undue risk. Hence, the authorization arrangements have been made as provided for under OP 6.00, Annex A. 2. Financing Project Table 29. The total project cost has been estimated at US$183.8 million, out of which the Government share would be US$21.1 million (approximately `1 billion equivalent). The remaining US$162.7 million would come in the form of an IDA Credit. The financing share of the Bank is pegged at 88.5% of the total project cost. A Project Preparation Facility was also advanced for the preparation of the RRLP in the amount of US$825,000 (ref. Q6900). (US$ million) Components / Sub components GoR WB Total A. Institution and Social Empowerment A.1 Establishment of Project Facilitation Teams (PFTs) 2.0 15.4 17.3 A.2 Community Mobilization 2.0 15.4 17.4 A.3 Support to Community Service Providers 1.8 14.2 16.0 A.4 Information, Education and Communication (IEC) 0.1 0.4 0.5 Subtotal 5.9 45.3 51.2 B. Community Investment Support B.1 CBO Funds 11.0 84.4 95.4 B.2 Producer Organization Fund 0.2 1.3 1.4 B.3 Partnership Development 0.2 1.9 2.1 B.4 Innovation and Research 0.2 1.7 1.9 Subtotal 11.6 89.2 100.8 C. Skill Development and Employment Promotion 0.7 5.6 6.3 D. Climate Change Adaptation D.1 Knowledge Sharing and Policy Support 0.2 1.5 1.7 D.2 Planning & Implementation of Adaption Pilots 1.0 7.9 8.9 Subtotal 1.2 9.4 10.6 E. Project Coordination E.1 Project Management 1.7 12.8 14.4 E.2 Monitoring, Learning and Evaluation 0.1 0.4 0.4 Subtotal 1.7 13.2 14.9 Total Project Costs 21.1 162.7 183.8 8 C. Lessons Learned and Reflected in the Project Design 30. Key lessons learned from the Rajasthan DPIP project that are reflected in the proposed project design are as follows: · Importance of financial capital. About 15 to 20 percent CIGs have acquired additional assets through own/bank resources indicating business growth and more Groups are demanding more credit-bank linkages. This reflects a need for capability building of CIG's to bring them to a level where banks will have no hesitation to provide loans. · Sustained capacity building support. The project feels that a single orientation training as well as skills based training (SBT) is not sufficient and SBT should be repeated at some suitable interval of 6 to 9 months. The capacity building measures should also focus on skill development for employment creation. · More emphasis on convergence. Provision of assets alone is not adequate. These assets need to be put to productive use. This requires convergence and coordination with schemes related to social welfare, rural development and rural employment. · Market and area based livelihood planning. Providing income generating livelihood activities to groups of poor people (as CIGs) based on only on demand is not a viable proposition. Activity should be provided based on the livelihood activities as reflected in block level livelihoods plan and choice of livelihoods activities determined by market opportunities, institutional partnership and linkages. · Need for clustering of livelihoods. Creating sustainable livelihoods for the poor and moving them out of poverty needs investments beyond forming groups (CIGs) and providing income generating assets. Sustainability, among others, needs aggregation for `voice' and scale which requires clustering. · Non-farm livelihoods. Due to absence of other viable and feasible livelihood opportunities a large proportion of the project promoted investment in livestock and allied activities, petty trade and service activities, which are relatively low productive areas. The lesson is that the government and the development projects should focus on promotion of non-farm livelihoods of the poor. 31. Lessons from other livelihood projects. The RRLP builds not only on the experience of the past DPIP, but also on the on-going rich and varied experience from livelihood projects in Andhra Pradesh (AP), Tamil Nadu (TN), Bihar, Orissa and Madhya Pradesh (MP). The Government of India's own revised SGSY program, the National Rural Livelihoods Mission (NRLM), advocates an approach very similar to the RRLP concept. Key learning incorporated in the design, which differs considerably in design and approach from the original DPIP includes: · Establishment of an independent society staffed by professionally recruited technical specialists (similar to AP, TN, MP, Bihar and Orissa) · Focus on empowerment and capacity building and building sustainable community organizations through a SHG approach rather than simple creation of assets through CIGs (AP, TN, Orissa, MP, and Bihar) · District and block-level mapping of livelihood potential to support value chain addition at scale and establishment of producer companies to enable linkages with the private sector at a strategic level (MP, Orissa, TN) 9 · Focus on skills, migration and development of savings products for the poor to capitalize from remittances and wage labor on NREGA (Bihar) · Pilots on adaptation built into livelihood value addition (AP) · Strategic partnerships with state-level bankers and microfinance providers to ensure SHGs are linked from the start to institutional finance (AP, Bihar and Orissa) · Support for livelihood innovation forums and piloting during preparation (Bihar) IV. Implementation A. Institutional and Implementation Arrangements 32. The institutional arrangements for the RRLP have been designed to provide an enabling support platform starting from the community-level to the state capital. The primary agency responsible for the RRLP's implementation will be an independent umbrella society established by the Government of Rajasthan to implement various poverty initiatives called the `Rajasthan Gramin Ajeevika Vikas Parishad' (RGAVP). It will have a Governing Council (GC) chaired by the Chief Minister of Rajasthan to oversee the overall affairs and provide general policy and strategic direction to all activities undertaken by the society. Under the GC will be an Empowered Committee (EC) chaired by the Chief Secretary that will be responsible for providing direct oversight of all programs under the society. 33. The EC will delegate the day-to-day implementation of the RRLP to a State Project Management Unit (SPMU). The SPMU will ensure compliance of all legal agreements and execute the decisions taken by the EC. In each of the 17 project districts, the SPMU will establish a District Project Management Unit (DPMU) that will be the key implementation entity at the district and PFT levels for project activities. Finally, Project Facilitation Teams (PFTs) will be established at sub-block levels to implement all the community level activities. To ensure provision of required technical support and to facilitate cross-learning across districts, about 4-5 divisional units with each made-up of about 4-5 contiguous districts will be established and staffed with 3-4 subject specialists. B. Results Monitoring and Evaluation 34. The Monitoring, Evaluation and Learning (ME&L) system/framework for the RRLP is expected to serve as a tool for better management and decision-support, learning and accountability throughout the project period. The project intends to i) provide a clear picture of the project, showing the logical link between inputs, activities, outputs, and the sequence of outcomes; ii) outline an institutional/ governance structure for ME&L and the roles and responsibilities of stakeholders involved; iii) describe a strategy to track progress, measure outcomes, support the evaluation work, and enable continuous learning and improvement; and iv) provides information regarding what the project aims to achieve, identifies the critical processes and indicators, and how it will measure and report on results. 35. The ME&L system of RRLP would consist of the following broad components: i) concurrent progress monitoring; ii) process monitoring and pathway analysis; iii) results 10 monitoring; iv) participatory monitoring and evaluation; v) thematic studies and case-studies; and vi) impact evaluation. 36. Input-output monitoring will be supported by a web-enabled computerized MIS which will be an integral part of the ME&L system. Support in this area will cover i) initial assessment of management information requirements and potential for ICT automation; ii) software development; iii) customization; iv) field testing and system rolling out; and v) sustained technical support for maintenance, including further adaptation and refinement. C. Sustainability 37. The vision of the project is to invigorate, empower and enable 400,000 rural poor families of the State of Rajasthan to come-out of poverty with enhanced quality of life by mobilizing all poor families into self reliant institutions and promoting sustainable livelihoods as well as strengthening services delivery mechanism. 38. RRLP will follow the strategy of institution building of targeted households complemented by technical assistance for improving incomes, reducing costs, and reducing risks and vulnerability, identified by the households themselves in a Livelihood Plan. This strategy will motivate and support the households in augmenting their livelihoods in sustainable manner. 39. The project will enable the households in making investments effectively through opportunity/gap identification, demonstration, training and exposure, planning, and linkage with technical organizations, commercial organizations and service providers. Community institutions will form the bedrock of all interventions of the project. It must also be noted that vibrant community institutions would form an important outcome of this project that can potentially impact the livelihoods of the poor in Rajasthan for a long period of time. V. Key Risks 40. The overall risk to achievement of PDO is likely to be medium. The earlier DPIP was rated as moderately satisfactory at completion, and this proposed project builds on a solid base of knowledge and capacity on implementing successful livelihood schemes. The government is also fully committed to the operation and has agreed to hire in expertise from the market and retain high performing staff from the earlier phase to the proposed new operation. The table below summarizes main operation-specific risks and possible mitigation strategy. No. Risks Risk Mitigation Measures Rating 1. Bankers reluctant to High MoUs will be executed with the banks at state & district level. lend to SHGs due to State/ District/ PFT level capacity building workshops will be quality of SHGs organized every year for the bankers. The bankers would be involved in grading of SHGs as well as appraisal of their micro- plans. 2. Un-availability of Moderate The project has developed specific human resource strategy and competent human human resource manual which includes provisions to attract the 11 resource. best possible human resources available from the government and the open market. 3. Continuity and Moderate The organization structure has been designed to ensure good longevity of Project distribution of management responsibilities to not put too much Leadership at State, dependence on any key management position. Efforts would be District and PFT level. made to provide resource support and a conductive environment. 4. Elite capture, local Moderate Sensitization of project staff to anticipated social risks; indifference and sensitization and rapport building with PRI and community possible opposition to leaders from all social groups; promotion of social cohesion and explicitly pro-poor, social capital formation through PRA and the community pro-SC/ST and pro- resource persons; women interventions. VI. Appraisal Summary A. Economic and Financial Analysis 41. The economic and financial analysis for the project is summarized in Annex 8. Major benefits, quantified for the economic analysis, will come from; (i) diversified and increased livelihood income generated by recycling of livelihood investment funds by 33,000 project SHGs, (ii) improved access to multiple credit sources for at least 70% of the project SHGs, (iii) improved integration with markets and institutions for at least 10% of the project SHGs, and (iv) CDD-led participatory management of livelihood funds. In addition, there are indirect economic benefits stemming from improved social cohesion, sustainable community owned business institutions, new linkages for job and self employment and increased resilience to natural risks. It is, therefore, likely that quantifying direct project benefits alone understates the potential economic impact of the project interventions. 42. The economic rate of return (ERR) is estimated at 21.8% for the entire project. The project supported livelihood investments alone generated an ERR of 10.2%, which improves to 15.3% when benefits from improved access to multiple credit institutions targeting 70% of the SHGs are included. Project ERR further improved to 17.1% with the inclusion of benefits from improved integration with markets and institutions targeting 10% of the SHGs. Livelihood funds will be utilized by 33,000 SHGs, managed by 2,200 CDOs, and supported by field functionaries, to ensure higher probability of livelihood activities being continued/expanded/diversified during the project implementation period and beyond. Capturing CDD led sustainability benefits further improved the project ERR to 21.8%. Substantial improvement to the returns to project investments coming from the proposed credit and market linkages, and strengthened community institutions underline the importance of the holistic approach proposed in the project design. At full project development, annual incremental economic benefits, at 2010 prices, are projected at `1,960 million, contributed by livestock (58%), non-farm (28%), and agriculture (14%) sectors. Average annual incremental financial benefits realized across diverse livelihood activities varied from `5,780 (goat rearing) to `13,410 (dairy). 43. Sensitivity tests are carried out for escalation in costs, fall in livelihood benefits, livelihood sustainability risks in continuing activity cycles due to institutional failures, and implementation delays. On the cost side, increased project costs at 120% of the base costs 12 brought down the ERR to 16.1%. Implementation delays had brought down the ERR to 16.5% and reduced the NPV by `1,262 million. With 20% fall in the projected livelihood benefits, project ERR came down to 16.3%. Limiting the sustainability of livelihood activity cycles beyond project period to only 50% has brought down the ERR to just 17.1% and NPV came down by 64%. Timely and sequential implementation of the project interventions, strong community led village level institutions, integration with markets and linkage with credit sources are critical to maximize the returns to scarce project resources invested. Risk analysis considered key risk variables like cost escalation, fall in livelihood benefits due to institutional failures and implementation delays by considering jointly 25% increase in costs and 25% decrease in benefits on the ERR. The simulated ERRs ranged from 8.7 to 19.5% with a coefficient of variation of 12%. Hence, the expected ERR, estimated by the risk model at 14.1% is considered reasonably stable, since the probability of ERR exceeding 12% level is above 90%, as predicted by the risk model. B. Technical 44. In recent years, the World Bank has promoted livelihood projects in several states throughout India. They have demonstrated that community-driven development approaches are viable and effective options for catalyzing socio-economic change at the grassroots level and stimulating the rural economy. 45. The first phase of the project addressed needs of the vulnerable by organizing them into Common Interest Groups (CIG) built around a common activity. The project provided funds to their activities based on the sub-proposals and thereafter the CIGs federated and were organized into producer organizations. On the basis of the experience in phase 1, this phase needs to continue to address issues of low income and lack of integration with markets, as well as devise strategies to take the pressure off land dependency (approximately 75 % of workforce depends on land). The project will also need to diversify the rural livelihoods portfolio to further minimize vulnerability. As such, the project will adopt a strategy to include investments in processes that build the "voice" (empowerment) of the rural poor, and simultaneously build access to productive assets and thereby provide a platform for scaling-up of livelihoods activities. It's also envisaged that the scale of the activities will enable the poor to negotiate and bargain with market actors for better economic gains and subsequently, negotiate with service providers (government, private sector, civil society) for better service delivery. C. Financial Management 46. The proposed Project will be implemented by the state government through a newly formed state society called Rajasthan Gramin Ajeevika Vikas Parishad (RGAVP) with an appropriately defined governance structure. SPMU, 17 DPMUs and about 110 PFTs will support the implementation. The financial management framework will include the financial and administrative rules of the society, the project financial management manual and the community operational manual together with the MOU/ agreements with/between the CDOs, SHGs, area federations and producer organizations. These documents lay down the overall financial control framework for the project. It has been agreed to have appropriate financial staff at the state, district and PFT levels that will also assist in capacity building at CDO and SHG levels. The accounting at the project level will be carried out using an off the shelf accounting package. The 13 design of the chart of accounts will allow the project expenditures to be classified by project components /sub-components/activities and generate periodic financial reports. The project would be subject to internal and external audit, which would focus on the efficiency of field operations and certifications of financial statements respectively. 47. The Bank would provide a Designated Account with a fixed ceiling of up to US$13 million for the project. The disbursements will be made on quarterly basis through interim unaudited financial reports for the actual expenditure incurred during a particular quarter. While the withdrawal applications will be prepared and submitted by the project, the funds will be disbursed to the state government, which will transfer them to the society. The state government will make adequate provision for the requirement of funds on yearly basis in the state budget. D. Procurement 48. The procurement arrangements for the RRLP envisage community-level procurement as well as procurement through district-level units and multiple producer organizations spread across the state. The project is familiar with the Bank's procurement procedures due to their earlier association with Bank funded projects. 49. The RRLP Project Implementation Plan and the procurement manual developed for the project specify the proposed procurement arrangements for the project. The procurement manual and adequacy for the project implementation will be reviewed and communicated at the time of pre-appraisal. It was agreed that the project will submit the procurement plan for the first 18 months before the pre-appraisal mission. The Procurement Plan (PP) will be updated at least annually to reflect project implementation needs. 50. The procurement arrangements for RRLP for all goods and works will be in accordance with World Bank guidelines for procurement (May 2010), and Procurement of all consulting services will be in accordance with `Guidelines for Selection and Employment of Consultants by the World Bank Borrowers' (May 2010). All civil works, goods and services would be procured using India-specific Bank's model documents as well as the formats of the community procurements specifically approved for the Project. 51. A brief summary of the project procurement arrangements are provided in Annex 3. Additional details are available in the project files. E. Social 52. The GoR conducted a social assessment study to hold consultations with the targeted beneficiary communities, particularly scheduled castes (SCs) and scheduled tribes (STs), and design suitable social, gender and tribal inclusion mechanisms for RRLP. The key findings highlighted by the study are: lower levels of health and education indicators, high incidence of poverty and vulnerability, fragmented social capital and weak social cohesion, caste hierarchies and social discrimination, tribal marginalization and exclusion, limited women's rights and freedom, gender discrimination in public and private spheres, and marginalization of the poor from local self governance processes. Based on the social assessment study and feedback from 14 stakeholder consultations a social inclusion and community mobilization component, a tribal development framework (TDF) and a gender action plan (GAP) has been prepared. 53. The social inclusion and empowerment measures included under component one will: i) identify and target areas with highest concentration of poverty and vulnerability; ii) promote pre- implementation consultations, participatory social learning and rapport building with local communities; iii) document locally prioritized exclusion, gender and tribal development priorities; iv) identify the poorest households through a participatory beneficiary selection process; v) mobilize poor women from SC, ST and other vulnerable groups in self-managed community institutions; vi) and build capacity of the community institutions on institutional, livelihood and a range of social development, accountability and empowerment themes. Overall, this component will identify, institutionalize and empower women from poor households, not only to participate in project components and access project benefits, but also to articulate, negotiate and advocate their key development concerns and priorities with local governance structures, government agencies and the market. 54. The project triggers OP 4.10 on Indigenous Peoples, since nearly all the project districts have some tribal population, and the southern Rajasthan districts of Banswara, Udaipur, Chittorgarh, and Dungarpur are predominantly or significantly tribal. The TDF includes provisions for prioritized targeting of designated tribal areas; engagement of dedicated staff for TDF implementation; community disclosure of TDF; pre-mobilization consultations with tribal communities and leaders; tribal focused information campaign; tribal representation and participation in all community institutions and their executive positions and committees; intensive technical assistance and handholding in preparation and financing of microcredit and livelihood plans; targeted information dissemination and grievance mechanisms; periodic community feedback and consultations; and sensitization of project staff and partners on engaging with the society and culture of tribals in Rajasthan. 55. In addition to internal monitoring, periodic external audits will be undertaken on TDF implementation. OP/BP 4.12 is not applicable as the project components do not involve an infrastructure component and are not expected to involve land acquisition/donation. The TDF and the Gender Action Plan are based on field consultations in 24 villages spread across 12 development blocks of 6 project districts, including the predominantly southern tribal districts. The TDF was presented and disclosed through two district stakeholder workshops and one state level workshop. These documents have been disclosed on the website of the Department of Rural Development and Panchayati Raj and in the Bank's InfoShop. F. Environment 56. An environmental assessment study was undertaken by the Government of Rajasthan through a consultant for the proposed RRLP. The study identified the following key environmental issues concerning livelihoods: frequent drought, depletion of ground water, low soil fertility, and lack of fodder resources. The impact of these issues on livelihoods gets exacerbated in the context of climate change and variability. The project design includes a component on climate change adaptation that focuses on capacity building of communities and wider stakeholders on climate change and undertaking community based pilot activities on 15 climate resilience. The Environmental Management Framework of the project addresses the identified issues through a detailed strategy and procedures for environmental appraisal of community investment plans to identify and integrate required mitigation measures, capacity building to enable the adoption of mitigation measures, and the promotion of environment friendly activities through a pilot intervention. 57. The RRLP triggers the following safeguard policies of the World Bank: Environmental Assessment (OP 4.01), Forests (OP 4.36), and Natural habitats (OP 4.04). The necessary measures to ensure compliance with the triggered safeguard policies as well as with the relevant laws and regulations of the Government have been included in a negative list of activities not to be supported, and, in the environmental guidelines (EGs) developed as part of the EMF. In addition to periodic internal monitoring, independent external audits will be undertaken twice during the project duration to check compliance, assess cumulative impacts and identify ways of strengthening implementation of the EMF. Public consultation was part of the development of the EMF ­ field consultations were held in 31 villages in seven project districts. The EMF was disclosed through two stakeholder workshops organized at the regional and state levels. It is also planned to be disclosed through the website of the Department of Rural Development and Panchayati Raj, Government of Rajasthan and in the Bank's InfoShop. 16 Annex 1: Results Framework and Monitoring India: Rajasthan Rural Livelihoods Project (RRLP) Project Development Objective (PDO): To enhance the economic opportunities and empowerment of the rural poor, with a focus on women and marginalized groups, in the 17 targeted districts of Rajasthan. Core Cumulative Target Values** Data Responsibi PDO Level Results Unit of Baselin Source/ lity for Description (indicator Frequency Indicators* Measure e YR 1 YR 2 YR3 YR 4 YR5 Methodolog Data definition etc.) y Collection There is evidence that with Indicator One: Annual, Households/ increase in savings and Increase in number of sources External Percent mid-term Periodic enhanced support for of household income reported 0 0% 5% 30% 50% 70% M&E household and end-of- sample enterprise activities, there is in at least 70% of the targeted agency 12,13 project surveys diversification in sources of households household income Indicator Two: As households get linked PFT/ Reliance on informal credit SHGs/ semi- with financial institutions, Percent external sources drops by 90% among 24%15 30% 45% 60% 75% 90% Annual structured reliance on informal credit reliance M&E members of grade `A' interviews sources is reduced agency SHGs 14 SHG self- An SHGs ability to continue Indicator Three: At least 70% of the 33,000 scoring and to meet and inter-loan among 30- SHGs supported by the project Percent 17 PFT CRPs/ members reduces external 40% 40% 50% 60% 70% 70% Annual are financially viable and SHGs facilitated PFTs dependence. institutionally sustainable16 institutional assessment Indicator Four: Quarterly/ Gram Attendance and participation At least 50% of grade `A' Percent in village meetings provides six-monthly Panchayat SHG members routinely women CRPs/ an opportunity for women to < 5% 5% 20% 30% 40% 50% (correspond records/ participate in Gram Sabha and SHG PFTs express their views on issues ing with Review of other village meetings members that concern them. GS) records 12 This may be further qualified to include proportions of income from different sources, with reduced dependence on those sources that are more vulnerable, viz., agriculture, animal husbandry, forests and seasonal migration 13 Annual income per household in DPIP (Phase I) recorded an increase of Rs 9,760 for livestock, Rs 6,736 for Land based and Rs 2,284 for micro-enterprise sub-projects 14 It is estimated that 70% of the project supported SHGs will obtain Grade A 15 Source: CmF, 2010 16 Sustainability is defined as being active (i.e. regular attendance at meetings), financially viable (i.e. taking and repaying loans) and a governance structure that ensures independence and representation. 17 based on case studies; exact values to be determined 17 INTERMEDIATE RESULTS Intermediate Result (Component One): Institution Building and Social Empowerment Cumulative Target Values** Data Responsibili Core Unit of Source/ Description (indicator Results Indicators* Baseline Frequency ty for Data Measure YR 1 YR 2 YR3 YR 4 YR5 Methodo- definition etc.) Collection logy All grade `A' SHGs (70% of SHG-Bank linkage is the SHG total) obtain financial Percent 18 sustainable route to financial 44% 45% 50% 60% 65% 70% Annual records/ PFT/ DPMU assistance/credit from banks SHGs empowerment of SHGs/ its MIS members SHG This indicator captures the At least 70% of grade `A' records/ SHGs/ PFT/ within group dynamics of SHG members avail credit Percent Six- 19 questionnai process loan distribution among from inter-loaning within their SHG 34% - 35 45 55 70% monthly/ re survey monitoring members ­ whether or not groups members annually Process agency majority members are monitoring benefiting from credit. CDO self- Funds management is the At least 80% of the CDOs in assessment/ primary function of CDOs, Annually the project villages manage Percent PFT PFT/ DPMU and being able to do this 0 - 50% 70% 80% 80% from Y2 (project) funds efficiently20 CDOs facilitated efficiently indicates their onwards assessment maturity of CDOs Area federations at the PFT At least 70% of the CDOs Annually CDOs/ External level will sustain only if they report receiving services from Percent 0 - - 50% 60% 70% from Y3 FGD with M&E are perceived as providing their respective PFT-level CDOs onwards CDOs agency value-added services to their Area Federations constituents, viz., CDOs Intermediate Result (Component Two): Community Investment Support Funds for SHGs will be At least 80% of the grade A routed through CDOs; % Annually SHGs have accessed credit Percent SHGs receiving credit from 0 - 30% 40% 60% 80% from Y2 CMIS PFT support from the CDO SHGs CDO indicates its efficiency onwards 18 Source: various, cited in CmF, 2010 19 There are no reliable studies undertaken in this regard; one study cited in CmF, 2010 states that only in 34% groups, more than 10 members availed credit. 20 Includes transfer of funds to SHGs as per RRLP's business standards 18 Cumulative Target Values** Data Responsibil Core Unit of Source/ Description (indicator Results Indicators* Baseline Frequency ity for Data Measure YR 1 YR 2 YR3 YR 4 YR5 Methodo- definition etc.) Collection logy SHG/ `Productive activity' defined Review of as any activity that is likely At least 50% of grade A SHG External Percent SHG to result in an increase in members obtain credit support 24%21 30% 35% 40% 45% 50% Annually M&E SHGs records and income in the short- to for productive activity agency FGD with medium-term (6 months ­ 2 SHGs years) At least ten viable and `Sustainable' PO defined as Annually External sustainable Producer Number of being active, financially 0 - - 3 8 10 from Y3 SPMU M&E Organizations (POs) are POs viable and having a sound onwards agency established governance structure Intermediate Result (Component Three): Skills Development and Employment Promotion At least 17,000 youth A direct result of the (including more than 50% SPMU/ project's interventions for Annually MIS (?)/ women) from the project Number of external enhancing employable skills 0 - 3000 7000 12000 17000 from Y2 Project villages are placed in youth M&E and providing jobs to rural onwards records appropriate jobs as a result of agency youth project efforts Intermediate Result (Component Four): Climate Change Adaptation Project At least 3 pro-poor adaptation Annually SPMU/SSO Number of reports/ approaches identified and 0 - - 1 2 3 from Y3 or specialist approaches Thematic evaluated for scale up onwards agency studies Intermediate Result (Component Five): Project Implementation Support Project management has satisfactorily addressed Audit DPMU / statutory audit findings Percent 0 100% 100% 100% 100% 100% Annually Reports SPMU according to agreed RRLP business standards Project management takes and records all necessary actions M&E DPMU / related to findings of regular M, Percent 0 100% 100% 100% 100% 100% Annually Reports SPMU E and L reports that it receives in a timely manner, as per 21 Studies in Rajasthan have indicated that only 24% of the SHG members who avail loans use it for income generation activities 19 RRLP business standards All the complaints received by the Complaints Handling unit ON LINE DPMU / in the SPMU have been Percent 0 100% 100% 100% 100% 100% Annually SYSTEM SPMU addressed, according to agreed RRLP business standards 20 Monitoring, Evaluation and Learning (ME&L) 58. The ME&L system of RRLP would consist of the following broad components: i) concurrent progress monitoring; ii) process monitoring and pathway analysis; iii) results monitoring; iv) participatory monitoring and evaluation; v) thematic studies and case-studies; and vi) impact evaluation. Provided below is a brief description of the ME&L system components and institutional arrangements for review and coordination. 59. Concurrent progress monitoring. The purpose of this component is to assess progress in implementation against timescales, and resource use against budgets. It will report on progress of implementation and expenditure on a quarterly and annual basis. Concurrent monitoring will consist of two parts: · input-output monitoring (updated monthly, reported quarterly and annually) to be undertaken by project implementation and management units; and · sample survey (quarterly basis), to be undertaken by external M&E agency for validation of internal reports. 60. Process monitoring and pathway analysis. Process monitoring will deal with critical processes which are directly related to the project's objectives, viz., identification of the poorest, formation of SHGs, preparation of livelihood development plans and so on. It will be combined with `pathway analyses' to more systematically study and analyze the factors leading to achievement or non-achievement of project intermediate outcomes and impacts. Process monitoring responsibilities will be divided between internal and external, and specific formats and checklists developed to facilitate process monitoring by internal staff members. To deal with the constraints of lack of capacity for undertaking such assignment, an external agency would be hired for capacity building of project team. 61. Results monitoring. To track efficiency and effectiveness of the project interventions in translating into desired results, achievement of results will be continuously monitored. While the MIS would be able to track immediate results, tracking of intermediate outcomes would be done by an external M&E agency, which would also validate findings of input-output monitoring on a quarterly basis. This will enable assessment of deviations, if any, and identification of causal factors, so that appropriate measures may be devised to minimize observed variances. 62. Participatory monitoring and evaluation. Participatory M&E (PME) tools will be developed and used extensively at SHG, CDO and Area federation levels for, depending on stage of institutional maturity, sensitization, capacity building, planning and self-assessment of institutional capabilities. CRPs/ local NGOs will be brought on board to facilitate use of the tools, to be developed by the SPMU with assistance from a specialized external agency. Suggested methods include self-scoring by CBOs, and PFT-facilitated institutional assessment. Results of self-scoring exercises will be integrated within the project MIS, and indices developed for assessment of institutional maturity. These, along with sample-based PFT facilitated assessment of institutional capabilities will be used to develop SHG/CDO/AF capacity building strategies. 21 63. Thematic studies and case-studies. Thematic studies would supplement and complement other monitoring components through validation of information on indicators of the results framework, as well as provide analytical inputs which go beyond routine monitoring functions. The need for thematic studies would emerge as the project progresses and from the findings of the process monitoring and external quality monitoring. Specialized agencies with expertise in areas to be studied would be invited for planning and conduct of these studies, to be supervised by the SPMU. The studies would generally be evaluative in nature, but may also capture good practices of the project. In addition, the project would proactively undertake documentation of processes, case-studies, best practices and lessons learnt from project experience. Documentation would be for internal learning as well as for disseminating project experiences to other stakeholders; it would be a continuous process throughout the project duration and across all the project personnel. 64. Impact Evaluation. The objective of the Impact Evaluation would be to establish the net contribution of the project to the sustainable livelihoods of the targeted families "before" and "after" the project and/or "with" and "without" the project. It is proposed that a quasi- experimental time-series design would be used for the project impact evaluation. As necessitated by the nature of the project outcomes and impacts, an appropriate mix of quantitative and qualitative methods would be adopted for the evaluations. The indicators in the results framework would be central to the assessments and therefore guide development of methods, tools and analysis protocols. 65. The baseline would be the first assessment for ascertaining the benchmarks against which project progress in respect of key results, outcomes and impacts would be measured. It will be used for determining the pre-project conditions in project and non-project (or `control') areas, and findings from the baseline study would be used to inform and/or fine tune project strategy and interventions. An external agency will be contracted to undertake this study. 66. The mid-term and end-of-project evaluations would measure changes with respect to the baseline at mid-term and end-of-project respectively. Mid-term evaluation will involve a comprehensive assessment of the outcomes of project interventions, and the final evaluation will focus on the project's overarching objectives/ PDO. In addition, it would assess sustainability of institutions supported by the project, and resultant changes in social, economic and political empowerment of targeted households. 67. Action learning, documentation and reflection. Internal learning is crucial for the project to be responsive to the changing context of the project as it progresses. The effectiveness of internal learning would depend upon the degree of institutionalization of learning among the various levels of project organization and the community. 68. Institutional Arrangement for ME&L. ME&L responsibilities would be distributed across all the project units and staff. However, primary responsibilities at each level would rest with ME&L specialists: · ME&L Coordinator and MIS Coordinator at the state level; · ME&L Specialist and MIS Specialist at district level; and · Designated ME&L staff member at the cluster/PFT level. 22 69. Among the institutional mechanisms that will be employed for project monitoring and review, there will be zonal review teams consisting of SPMU specialists, peer reviews by PFTs, internal review missions headed by the SPD/APD, and review and coordination committees at the state, district, block and Gram Panchayat levels. 70. Besides full-time staff, the SPMU will hire the services of specialized agencies to undertake the following activities: a) design, development, operation and maintenance of project MIS; b) capacity building in ME&L in general, and process monitoring in particular; c) results monitoring and sample-based validation of findings of concurrent monitoring; d) design and piloting of participatory M&E tools for institutions, and PME training e) thematic studies; and f) mid-term and end-of-project evaluation studies 23 Annex 2: Detailed Project Description India: Rajasthan Rural Livelihoods Project (RRLP) 71. The overall design of the project and the specific components within it have drawn on both the positive and negative lessons from the first phase of Rajasthan DPIP as well as the design of second generation livelihood projects being implemented in India. To strengthen social empowerment of the poor the project design has adopted the SHG approach, which is now standardized in all the livelihood projects in India. Similarly the savings and inter-loaning component (which was not part of the earlier CIG model), will enhance the sustainability and longer term financial viability of the community institutions at the village level. The investments made at the community level by the previous project were limited to only directly financing assets purchased at the household level. This resulted in difficulties in accessing finance by community groups for upstream investments to integrate value chains and link up with market players in the private sector. Additional provisions have been made to overcome this shortcoming of the previous project. 72. Experiments in the previous project and other livelihood projects in India have shown that absolute poverty can be overcome by a family through equipping a member with skills and job creation in the urban sector. A separate component for employment promotion support has therefore been added to the project to ensure that such opportunities are fully available to the rural poor. In line with the policy of strengthening governance within the project design and project management, several new elements such as a community managed Social Audit Committee (to monitor the end use of money), Procurement Committee, Loan Recovery Committee, have been included in the design and management of community level institutions and project management structures and processes. Project Area and Scope 73. There are a total of 33 districts in the State of Rajasthan. The first phase of the DPIP was implemented in seven districts, while the second phase project proposes to utilize an extension approach and implement its activities in 17 districts and 9000 villages (including those supported in first phase). The estimated population in the proposed project area is around 580,000 households, of which the proposed project intends to target 400,000. Project Targets 74. The project will target all the poor households in the project area. A participatory beneficiary selection exercise will be conducted at the beginning of the community mobilization process in each village (as referred to in the PIP). This will define the selection of poor households for project support, and will be matched with the existing GoR's Below Poverty Line (BPL) list. Households meeting the poverty and well-being criteria will be identified as poor and will be included for project support. The project beneficiary list in each village will include all the BPL families and those additionally identified as poor, if any, in the beneficiary selection exercise. This list will be presented to the Gram Sabha for its endorsement. 24 75. It is estimated that the project will cover approximately 400,000 rural poor families through direct project support by helping to organize them into SHGs in the selected project villages. All the SHGs will receive financial support for rural productivity investment purposes. These will be further federated into a) cluster-level organizations, termed Community Financial Organizations, to facilitate access to financial services including credit, insurance and remittance services; and b) about 17 producer organizations that are activity based business entities. The project also proposes to facilitate 17,000 rural youth drawn from the identified poor families for skill building and job placement. Project Phasing 76. In the first year, the project will focus on establishing systems and processes to achieve intensive coverage of project area and ensuring proper capacity & institution building. The strategy includes exposure visits for SHG members & community leaders as well as project staff to learn good practices on various facets of the project including social mobilization, capacity & institution building and use of resources by similar projects both within and outside the State. 77. SHG formation will be completed by the 4th year and the formation of 2200 Utthan Sansthans (federation of SHGs at the village-level, also known as Cluster Development Organizations) will also be completed by the end of 4th year. Identification and training of various resource persons (incl. PFT staff, and Village Resource Persons) will be completed during the 1st and 2nd years. RRLP Phasing of Project Activities 1st 2nd 3rd 4th 5th No. Activity Total Yr Yr Yr Yr Yr 1 Districts 17 17 2 Establishment of PFT 34 76 110 3 Village Entry (percent) 18 65 17 100 4 SHGs in the Fold of the Project 2550 19398 9684 1368 33000 5 Cluster Development 340 1123 646 91 2200 Organization (Utthan Sansthan) 6 PFT Area federation 17 38 55 7 Producer Organization 8 9 17 8 Skill Upgrading & Training 680 5100 5100 6120 17000 9 Groups Linked with Banks 1785 13579 6779 958 23100 Project Approach 78. The project will promote a community institutional model which builds on the success of the first phase, while taking into consideration experiences and lessons learned from other rural livelihoods projects supported by the Bank. The basic unit of the community-based institutional model will be the Self-Help Group (SHG) which are small groups of poor, formed on the basis of similar gender, social affinity and common livelihoods, in each village. Each SHG will have 10 ­ 20 members. The project will provide intensive, hand-holding support to the SHGs in order to help them become vibrant, self managed and sustainable organizations, founded on the principles 25 of mutual trust and self-help among the members. Each SHG will follow a clearly laid-out sequential path of gradual development that will include responsible management of group funds through savings and inter-lending. At different stages of project support, each SHG's capacity will be rigorously assessed and rated against institutional performance standards. 79. When at least three SHGs are formed in a given village, they will be federated into a US (Utthan Sansthan, which means village level organization). The US will serve as the forum for all the SHG members, but its initial focus will be to cater to the members' microfinance needs. All the SHG members will be the members of the general body of US. The US will be the second tier of community institution to be built within the proposed project. In the first general body meeting of the US, the executive committee will be established. 80. The executive committee will have 10-15 members with sufficient women participation. The office bearers (chairperson, vice chairperson, two bank signatories) of the US shall be elected from among the executive committee members. The US will be a legally registered entity. The elections to it shall be held every three years. The US will decide the group savings and member fees and then open its own bank account, including the following: · approval of livelihood grant; · resource allocation; · managing SHGs' financial assistance; · assessing and approving SHGs Livelihood Plans; · facilitating SHG-Bank linkages with commercial banks; and · monitoring the implementation of livelihoods plans. 81. In addition to the above activities, the US will also be catalyst for raising various social issues of non inclusion of the poor, gender participation, establishing norms for social accountability, and conflict resolution within and across SHGs. 82. The social capital developed and strengthened through the above process of formation and capacity building of SHGs and USs will serve as the foundation and building block for planning and implementing of common livelihoods activities. As demonstrated in the first phase, viable business activities will be identified and linked with a wider market to provide the poor with sustainable opportunities for increasing their household incomes. 83. The project will also facilitate SHGs to federate into higher level business entities such as producer companies/cooperatives to access higher levels in a particular sectoral value chain and take advantage of economies of scale. Roles and Responsibilities of Community Institutions Community Membership & Supporting Level Key Functions Project Inputs Office Bearers Functionaries Organization Self Help Will be based on Membership: Community These groups Groups activity but initially Men/Women from Mobilizer, will be provided will be doing thrift poor and Book keeper, with support in 26 and revolving their disadvantaged CRPs and developing internal savings for households will be para- group norms, providing credit to mobilised to form professionals financial each other. affinity and activity management groups known as capacity, SHGs. The group development of membership will be of solidarity and minimum 10 aceess skills, households. credit and services from a Office Bearers: A variety of President, a secretary, service and two bank providers. signatories. These SHGs will be provided with support to be federated into Community Development Organization (US) and will be further progressed into the Producer Organisations. Community Will provide the Membership: Community These US will Development SHGs technical Minimum of Three (3) Mobilizer, be the main Organizations assistance for SHG- SHGs forms a US. If Book keeper, receipents of the (CDOs / USs) Livelihood Plan in a village 3 SHGs CRPs and project Facilitate access to cannot be formed then para- resources financial and it can join nearby US. professionals (livelihood technical resources Office Bearers: grant) which from the project, President, Secretary will be on-lent financial institutions. and two bank to SHGs for Take-up specific signatories. funding social and economic economic activities requiring activities to collective action. enhance livilihoods of the target population. Area Provide US with Membership: All the 2 Functional Federations technical assistance, SHG members (300- Coordinators capacity building and 350 SHG, when more Accountant facilitate convergence than 600 SHGs, 2 Book Keeper between CBOs and Federations) 27 different agencies of OfficeBearers: development like President, Vice- local governments President, Secretary and line agencies. and Two Bank Signatories. Arrange bulk finance for the US from commercial banks and support formation and promotion of livelihood based organizations and activities requiring linkages with commercial sector organizations. Facilitate access to a broad range of financial services particularly credit, insurance, and remittances services. Producer's, Purchase or Membership:Members Production The project will Organizations procurement of inputs will come from Managers, promote for production different SHGs and Accountant livelihood based will receive technical and Marketing activity groups Local processing and and financial support Officer and federations storing of inputs and in areas of input and of members outputs output procurement, who have extension services, similar Marketing and selling technical assistance livelihoods in of produce services and sectors such as marketing services. dairy, Develop commercial agriculture, and direct Office Bearers: Board fisheries, relationships with of Directors. handloom etc. private, cooperative and public sector agencies. 84. The above-mentioned institutional model will also be used to create a pool of community-based service providers in the areas of technical extension and identification of youth for skill training. These service providers in turn will be linked to the private sector for providing inputs, marketing outputs and job creation in urban areas for the youth drawn from poor households. The service providers will be supported for their roles through training and capacity 28 building by the project, but operate as village-level entrepreneurs. The institutional building process is shown diagrammatically in the figure below. Community Institutional Building Process PRA & Situation Analysis Participatory Beneficiary Selection Identification & Assessment of existing SHGs & Formation of New SHGs Registration of SHG S avings and Inter lending Formation and Registration of CDO/US Transfer of financial assistance to CDO/US Transfer of First Grant to SHGs and formulation of SHG LP First grading assessment of SHGs Grading of CDO/US Assessment of SHG -LP by CDO/US Financial assistance to CDO Second Livelihood Grant to SHG Second grading assessment of SHGs Formation of Higher Level Federation Project Components Component 1: Institution Building and Social Empowerment 85. The RRLP seeks to address the lack of empowerment amongst the poor which is a significant cause of their poverty. Individually, the poor lack voice and often do not receive the necessary support to improve their life and livelihoods. The RRLP will follow the tested model 29 of forming community institutions at various levels and for different purposes to help them access and utilize financial and other support services to make them livelihoods activities more sustainable and productive. In order to achieve these objectives, the following sub-components have been identified: Subcomponent 1: Establish Project Facilitation Teams 86. This sub-component will support establishment and operations of the field based project facilitation unit called Project Facilitation Teams (PFTs). The PFTs will provide support to the initial social mobilization and beneficiary identification processes in the villages and subsequently intensive, hand-holding support to SHGs/USs throughout the process of the latter's formation and capacity building. The project will eventually engage about 110 PFTs each comprising five specialists. One PFT will be in charge of about 300-350 SHGs. The project will also provide training to PFT staff: the orientation training at the beginning, and annual subject matter trainings in subsequent years. In addition, exposure trips will be organized to enable PFTs to share experiences to further enhance their skills and capabilities. Subcomponent 2: Community Mobilization 87. SHGs are the base of the community institutional pyramid. SHGs are the village-level groups of the poor. The SHGs promoted by the project follow the standard SHG parameters of forming around some affinity and mutual trust basis, same gender (i.e. men or women), regular savings, and inter-loaning initially for small consumption needs. Livelihoods experience of various livelihood projects supported show that the SHGs start off by engaging in savings and credit work through rotating their own money, but then start to engage in specific pre-agreed livelihood activities. 88. One SHG will have a minimum of 10 members. New groups as well as existing groups would be brought under the Project and graded based on criteria set out. These groups will be provided support in developing group norms, financial management capacity, and development of solidarity and access skills, credit and services from a variety of service providers. SHGs would be organized to work on an individual/common livelihood activity. The livelihood activity is selected based on beneficiaries' assessment of market opportunities, natural resources, and their own skills and aspirations. 89. The SHGs formed in each village will be further federated into USs. The US' are the second tier of community institution to be built within the project. Each US will have as its members all the SHG members in the village and will be managed by an elected body drawn from the SHGs. The initial role of the US will be to act as an intermediary organization for the channeling of livelihood support toward productivity enhancement to the SHGs. It will also take up issues of common concern to the membership of the SHGs in a village, such as common social issues and conflict resolution amongst and within SHGs. The formation and strengthening of USs will be initiated once at least three SHGs are formed in a village. The USs will also have separate subcommittees to address issues of social accountability, community procurement and fiduciary norms. 90. After about one month or 2-3 meetings of a SHG, the PFT will ensure that the SHG is conducting regular meetings, collecting savings, has a bank account, etc. These groups will be 30 treated as functional groups and entitled to become the member of US and receive livelihood investment support for funding economic activities to enhance livelihoods excluding the items on the negative list, as described in the Community Operations Manual. A minimum of three functional groups will form a US. All the SHG members will be the members of the general body of the US. The US will be managed through an elected executive committee through representation from member SHGs on a rotational basis. After opening the bank account, the US will be entitled to receive a livelihood grant from the project for on-lending to SHGs for livelihood enhancement activities. The PFT will support individual groups for systematic livelihood planning. At this stage, SHG members will be required to plan for livelihood enhancement activities and formulate a SHG Livelihood Plan. This Plan will be funded from the project and external sources. 91. This component will also support training and part of operational cost of village level service providers who will provide assistance to SHGs and USs. Few types of community level experts are envisaged like Community Resource Persons (VRPs), Para-professionals, community mobilizers, SHG-Bookkeepers. VRPs and SHG Bookkeepers will primarily help USs and SHGs keep accounts. Community Animators mobilize new SHGs as the project expands, and strengthen weak SHGs. Given the significance of financial management within the SHGs and USs, the VRPs services in ensuring social and financial accountability will be critical, given the initial low capacity of the poor. VRPs will be jointly selected by the PFTs and SHGs from within a cluster of villages, and receive training from the project in various functions. 92. Para-workers are village-level technicians whose skills and knowledge can be tapped by SHGs when they implement livelihood plans in different sectors. They would include para- veterinarians, experienced farmers, and construction foremen. The para-workers will provide services, on a fee, to SHG members as and when requested by them. The project will provide training to the para-workers to help them further develop their technical capacity as well as better serve the needs of the poor clients. Component 2: Community Investment Support 93. The objective of this component is to develop the capacity of SHGs to start livelihoods initiatives, and to strengthen their business operations through producer based federations, companies, and cooperatives. Mechanisms to identify and support innovative approaches to help the rural poor to organize themselves around livelihood based businesses will also be supported in this component. In addition, the component will facilitate and promote people-private sector partnerships (PPP) through facilitating linkages with commercial banks and the private business sector. This component will have four sub-components. 94. The proposed project will facilitate the community to `invest' both financial and other resources in their own livelihoods. This investment will be partly financial as these community institutions at different levels will be provided livelihood grants that the SHGs will inter-loan amongst its members for livelihood enhancement activities. The proposed project will also invest in training of households, developing linkages with governmental and private agencies, provide support of sectoral specialists and foster innovations so that the financial investments are utilized 31 well. In order to achieve these objectives, the following three sub-components have been conceived: · Community Investment Funds (livelihood grants for inter-loaning amongst SHG members) · Partnership Development · Innovations and Research Subcomponent 1: Community Investment Funds 95. SHG Fund. Under this fund, SHGs will receive livelihood investment support through the US when they reach a certain level of maturity, as measured by pre-defined milestones in the PIP. This grant is envisaged to be a further incentive and investment to the SHG for the purposes of them undertaking productive livelihood activities with these funds and those they collect from each other's weekly deposits. The specific use (ie. agriculture, dairy production, sewing machine, etc) of this livelihood grant, and the group's savings, will be demand driven by its members. The experience gained by the SHGs and documented in their bookkeeping records of livelihood activities and inter-loaning, will be instrumental for the SHG to access credit from financial institutions given the proof of their capacity to manage funds and implement livelihood activities. The livelihood grants and their savings will enable SHGs to leverage funds from the banking system and/or other government sources to scale-up the different livelihood activities that each member is undertaking. The eligible activities/expenditures will exclude items specified in a negative list in the Community Operations Manual. 96. Livelihood Investment Fund. The Livelihood Investment Fund (LIF) will be released for those SHGs that have matured and are functioning well. This will be assessed through a well defined grading process to be undertaken after six months of formation of SHG. SHGs would be graded on the basis of regular meetings, regular member attendance, regularity of savings, timely repayment of loans, updated books of accounts, utilization of funds by members and knowledge of members about loan procedure to be followed under the project. Groups that score 75% and above would be given Grade A and be entitled to receive livelihood investment support based on their plan. The others would receive intensive support from the project and be graded again after two months. This information would be recorded in project MIS. SHG Grading (minimum requirements) Criteria for receiving first · Opening of bank account tranche · Regular meeting attendance · Regular savings Criteria for receiving second · Preparation of livelihood tranche plan (in addition to first trance · Updated records (book requirements) keeping) · Fund utilization 97. This fund would be approved on the basis of a Livelihood Plan of the SHG. This would be released as a grant from the Project to the US. The US will give this as livelihood investment support to the SHG for livelihood enhancing/generating activities. The PFTs will work very 32 closely with the USs and SHGs in formulating this livelihoods plan based on the local resources and markets. There would be a negative list of activities/expenditures that would not be supported by this fund. 98. CDO Fund: Experience shows that poor households borrow money at very high rates in case of an emergency. In the context of Rajasthan food, fodder and health are the main reasons to borrow in times of distress. This often leads to dispossession of productive assets and loss of livelihoods. RRLP will support USs to allocate dedicated resources for financing food expenditures and to ensure that resources for livelihood assets are not compromised. Under this arrangement, poor households will be encouraged to contribute savings towards a US Fund. In times of emergencies or natural calamities, loans may be given to member households. USs would also be able to use these funds to make bulk purchases of food & fodder and distribute as in-kind loans. Subcomponent 2: Partnership Development 99. This sub-component will support activities and services that improve the quality of service provision by private, public sector, and civil society service providers. The subcomponent will support technical assistance for major livelihood activities such as agriculture and livestock/dairy through strategic public-private partnerships through contracted services with research organizations, private sector, and technically competent civil society organizations. These sector support organizations will provide technical know-how, critical market linkages, and capacity building support to community organizations mobilized and formed by the project. The specific activities under such outsourced technical assistance would include a) capacity building of SHG Federations and bank linkage, b) technical know-how and linkage building for value chain investments, c) technical training systems development in agriculture, dairy, handicraft, among other sectors for community organizations and para-workers, and d) establishing market linkages for sustainable buyback of producer organization products 100. Value Chain Development. The project will support SHGs engaged in the common livelihoods activity to form a federation i.e., producer organization to leverage on economies of scale to access wider markets and make collective investments in value addition. A federation will start with mature SHGs and in a size that is economically viable. An established federation would later invite other SHG members from the area to join as the groups' capacities and interests grow. Such livelihoods federations will legally take the form of either Producer Companies or Cooperative Societies, depending on which Act the federation will be registered with. The individual SHGs engaged in specific livelihoods will become shareholders or cooperative members under the livelihood federation. 101. The project will provide a grant in 2 tranches to each PO upon approval of its business plan to fund the income generating/enhancing activities. The PO will use the grant money to raise additional funding from commercial banks on commercial terms and to use the funds for income producing purchases and activities. The one time grant is required to demonstrate the business model of the producer company and in the process increase the risk appetite of the commercial banks and other financial institutions that are reluctant to provide a line of credit to the federations based on their business plan. 33 Subcomponent 3: Innovation and Research 102. The project will support innovative pilot activities that have potential for scaling-up and replication. Over the period of implementation in the project many opportunities typically present themselves that have the potential for being integrated into the project. Key activities that could be supported include the piloting of innovative approaches for building business based federations of the rural poor, new methods of linking up the poor to modern markets, organizing of forums and platforms that promote innovations and market linkages with new partnerships. Component 3: Skills Development and Employment Promotion 103. The objective of this component is to enable the project beneficiaries to capture new employment opportunities arising out of the overall growth of the Indian economy, through the establishment of a structured mechanism for skill development and job creation. The project would identify suitable partners for implementation of this component. These partners would be contracted to provide short duration vocational training opportunities to the unemployed population, particularly the youth drawn from poor households, in the project area. 104. The training, which will cover such skills that are required by growing service and industry sectors of the wider economy, will be conducted by selected professional institutions, which will also be responsible for finding employers for the trainees. The purpose of training is for job creation for the youth. Hence the project will facilitate through various mechanisms, such as accreditation, and partnerships with industry bodies job placement for the trained youth. Activities such as organization of district and state level job fairs will be executed by the project. In addition, post-placement surveys will be conducted to determine post placement needs of the migrants and tailor make the trainings and services required by such segments of the target group. Component 4: Climate Change Adaptation 105. The climate of Rajasthan ranges from arid to semi-arid to sub-humid. The state encompasses ten agro-climatic zones, with a high degree of heterogeneity in average rainfall. Over the last 100 years, on average every district has experienced drought of some form for 50% of the time. High resolution climate projections are not yet available to predict how different zones of Rajasthan will be affected by climate change. However, the impact of climate change is likely to be immediate and more severe compared to other states, given the fragile situation of natural resources in the state. Available climate modeling data indicate that the South Asia Region's climate is projected to become harsher, with increased average temperatures, longer dry spells, increased intensity of short rainfall events, and increased variability in space and time of monsoon rains. These effects can vary across the districts and even blocks. 106. The above changes could result in decreasing surface and ground water availability, flash floods, degradation of soil resources, decrease in crop yields, greater vulnerability to crop pest outbreaks, and declines in forest and pastureland ecosystem, goods and services, thus rendering agricultural and herding communities extremely vulnerable to weather related losses of life, livelihood, and food security. Given this scenario, adaptation to climate variability and climate change is at the forefront of development concerns in the state and requires adjustments in the 34 social, economic, and natural resource management systems. Therefore, RRLP offers a significant opportunity to address the vulnerabilities of communities being affected by climate variability and climate change in Rajasthan while deciding the livelihood options by the individual members of SHGs or SHGs as a whole. 107. The objective of the Climate Change Adaptation Component of the RRLP is to develop and implement drought adaptation mechanisms and institutional models ­ at the state, district and local level - for a more effective delivery of assistance to drought-affected communities through improved coordination and leveraging programs currently delivered by Government of Rajasthan. It also aims to assess and recommend specific measures to strengthen the policy and incentive framework for supporting the process of adaptation in Rajasthan. 108. A strategy for building climate resilience for poor households in rural Rajasthan would entail providing a menu of options for support. None of these individual options is new, and many civil society organizations and research institutions are already working on them; furthermore, a number of flagship state government (such as the watersheds and NREGS) are implementing some of these options. Rather, it is the explicit attention to building synergies by combining options that may be new, and approaching each of them within a wider resilience planning framework at multiple scales: on-farm, at wider landscape level, and at regional level beyond the immediate locality. Such options include: · On-farm measures to enhance resilience, including adoption of drought-adapted crop varieties and more water-efficient crop mixes and irrigation technologies, and greater use of integrated crop-livestock systems; · Community-based management of common-pool resources, including forests, pastures, groundwater, through strengthening of institutions for collective action within panchayats, and introducing innovations such as water budgeting; · Participatory planning at the level of panchayati raj institutions to make optimum use of opportunities through public programs such as NREGA to create common assets that contribute to area-based resilience; and · Support and facilitation for migrant wage laborers and their families in sending communities, in order to reduce the risks and improve the returns to migration (e.g. ID cards, skills training and placement services, legal aid, access to shelter and health insurance, etc.). · Support to communities to transfer the risk to sector based livelihoods due to climate change through agricultural and weather insurance products 109. While keeping the above strategic principles in perspective, it was agreed with the Government of Rajasthan to include the following two subcomponents in the Climate Change Adaptation Component of RRLP: i) Planning and Implementation of Adaptation Approaches; and ii) Strategic Policy Support and Knowledge Development. 35 RRLP's Climate Change Adaptation Schema Climate Change Community Water Diversification of Climate Risk Adaptation Resources Farm and Non-Farm Management Strategies Management Livelihoods Support Tools Planning and Implementation of Adaptation Approaches Sub-components Strategic Policy Support and Knowledge Development Subcomponent 1: Planning and Implementation of Adaptation Approaches 110. The objective of this subcomponent is to design and implement adaptation approaches at the field level that can be leveraged by governmental programs such as NREGS, watersheds and social forestry. Activities will be in three thematic areas: (i) community water resources management, (ii) diversification of farm and non-farm livelihoods and (iii) climate risk management tools. The activities will be implemented in geographical areas selected on the basis of criteria such as, districts where government programs such as watersheds and NREGS are ongoing; scarcity of natural resources; strong district administration that places value on convergence; and highly mobilized communities. The subcomponent will cover 3-5 drought- prone pockets that are selected from the most affected districts in consultation with the Department of Rural Development and SPMU, using but not limiting to the above criteria. 111. Based on experiences with community planning under the ongoing successful state programs, the process of developing integrated adaptation plans will be introduced within communities with a view to identify high priority interventions through a participatory planning process. Subsequently, technical and financial assistance packages corresponding to these plans will be identified taking into account activities already being delivered by governmental programs. Such an approach would enable convergence across government departments and programs and improve the chances of delivering a more effective overall package to communities. The additional assistance required for an effective package (e.g. with marketing, credit products, seed supply, etc.) will be done either by linking the community to the relevant existing programs operating in the state, when possible, or by providing the needed assistance directly. 112. The interventions will also be selected as to target community groups with different socio-economic status, since different approaches apply ­ and need to be tested - for these groups. Special attention will be given to monitoring and disseminating the results. Community- level interventions will be complemented by capacity building and other technical assistance to the selected communities and other key stakeholders at the local (for selected locations), district (for the pilot districts), and state level to help create an enabling institutional and policy framework for climate change adaptation. Subcomponent 2: Strategic Policy Support and Knowledge Development 113. The objective of this sub-component is to develop a strategic framework on climate change adaptation for Rajasthan. This will be undertaken through (i) Review of the state's priorities on climate change and develop guidance for state policy support (ii) Identify a 36 framework of opportunities for developing synergies in the ongoing government and non- government programs towards strengthening climate resilience. If deemed appropriate and valuable to the Government of Rajasthan, a state climate change action plan may be considered through technical assistance support and a proactive stakeholder engagement process in this subcomponent. Stakeholder workshops, technical and monitoring reports, training programs and dissemination materials are included in this subcomponent. 114. The management of this component of RRLP is under the State Project Management Unit (SPMU). The state environment coordinator will be responsible for the day-to-day technical and managerial oversight of the activities and may be assisted as necessary. The above activities will be strategically planned by the state project director in coordination with the Secretary and Principal Secretary, Department of Rural Development. Additionally, the field based work will be planned in collaboration with the district administration responsible for NREGA and state watersheds programs to allow their engagement from the beginning and pave the way for scale up and convergence through the governmental set-up at a later stage. The activities will likely involve the recruitment of consultants and experienced civil society and private sector organizations that have the required competencies and are interested to partner with the Government of Rajasthan to demonstrate a replicable package of innovative adaptation interventions. Component 5: Project Implementation Support 115. The component will facilitate various governance, implementation, coordination, learning and quality enhancement efforts in the project. It comprises the following three sub-components: Subcomponent 1: Governance Management 116. This sub-component will support various measures related to the overall governance of the project to ensure: i) transparency with regards to project fund use and business processes; ii) proper and speedy response to grievances related to project implementation in compliance with rules and regulations; and iii) information dissemination targeting relevant Government agencies, as well as general public, in accordance with the project requirements and in conformity with the Right to Information Act (2005). A governance and accountability plan (GAC) has been prepared that provides the basic framework for all the actions required (see Annex 8). Subcomponent 2: Project Management 117. The objective of this sub-component would be to establish an efficient, effective and responsive management system to implement all the project activities (details are provided under Annex 3 for Implementation Arrangements). Subcomponent 3: Monitoring and Evaluation 118. This sub-component will support project monitoring and learning activities, including baseline studies, mid-term review, and impact studies. Computerized financial management and management information systems will be established at SPMU, DPMUs, and PFTs to ensure close monitoring of fund flow and implementation progress (details are provided under Annex 1 for Results Framework). 37 Annex 3: Implementation Arrangements India: Rajasthan Rural Livelihoods Project (RRLP) 119. In order to successfully implement the proposed RRLP, dedicated support units at the state, district and sub-district levels will be set up. These units will be staffed with professionally competent and dedicated human resources drawn from the Government and from the market. Society 120. In light of the forthcoming National Rural Livelihoods Mission and other government supported poverty reduction programs, the Government of Rajasthan has established an independent society for the implementation of the proposed RRLP, among other programs. The name of the society is the Rajasthan Gramin Ajeevika Vikas Parishad' (RGAVP) and it will consist of a Governing Council (GC) and an Empowered Committee (EC). 121. General Body. The Honorable Chief Minister of Rajasthan will be the President of the General Body and Honorable Minister of Rural Development & Panchayati Raj will be the Vice- President. The Principal Secretary, Rural Development & Panchayati Raj is the Convener. The Secretary, Rural Development is the Member Secretary/ Co-Convener of the Governing Council. 122. Empowered Committee. The Chief Secretary will be the President and Additional Chief Secretary (Development) will be the Vice-President. Heads of departments like Rural Development, Finance, Forest, Agriculture, Women and Child Development would be members. State-level 123. The SPMU would be the executing arm of the RGAVP for the proposed RRLP and would be headed by the State Project Director (SPD) who would also be operationally and managerially in charge of the organization structure established at the district and lower levels for implementation of the project. The SPD will be supported by a team of state-level specialists and managers for different functions. The specialists will be responsible for supporting and building up the project in key areas such as agriculture, youth for development, market linkages, environmental monitoring and sustainability, prioritizing gender and special disadvantaged groups. In addition, project management functions such as M&E, financial management, procurement management, human resource development and personnel, project administration, communications and other functions would have dedicated specialists responsible for these functions. The key functions of the SPSU would be as follows: a) Implement the policies outlined by the RGVAP b) Recruit, orient and train the project staff. c) Establish a platform for information exchange within the project. d) Guide the Districts to work in accordance with the spirit and principles of RRLP. e) Ensure speedy arrangement and disbursement of funds. f) Monitor the work being done in the field g) Establish norms for partnership with NGOs and other agencies. h) Ensure timely reporting of state level activities. i) Coordinating with WB, GOI and GoR for smooth functioning of the Project. j) Grievance and Redressal 38 ORGANOGRAM OF THE SPMU State Project Director Addl. Dir./Dy. Director Additional Director Finance Controller (HR& Admin) (Project Coordination) Coordinators- Capacity Development and Training Dy. Director/ Manager Coordinators- Micro finance (Finance) · HR& Admin Livelihood · Public Relation Gender and Social Development Environment & IEC M&E Coordinators- MIS Procurement Agriculture Livestock Audit Accountant Micro Enterprise Public private Partnership Divisional Level Coordinator Agriculture Livestock Micro Enterprises Tribal Development (1) District-level 124. In each project District, a District Project Management Unit (DPMU) will be responsible for the implementation of the project. The DPMU will be headed by District Project Manager (DPM), who will be assisted by a team of 6 project staff at full strength responsible for specific themes and functions such as social mobilization, agriculture, microfinance, gender, livelihood, environment, as well as for fiduciary and M&E functions. The key functions of the DPMU would be as follows: · Prepare annual district plan · Guide the PFTs to work in accordance with the spirit and principles of RRLP · Facilitate the coordination of the PFTs with relevant Sector Support Organizations · Facilitate the team building process of PFTs and help PFTs resolve intra-PFT conflicts and issues · Timely release of grant to USs and producer organizations · Support for formation of producer organizations · Support to PFT for selection of VRPs 39 · Coordinating with local authorities and banks · Support to PFT in the relevant subjects like livestock development, business development for higher level linkages · Monitor the work being done in the field · Maintenance of records and MIS · Arrangement and sensitization for job fairs · Ensure speedy disbursement of funds, both for village level implementation, as well as for administrative purposes · Ensure timely reporting of district level activities · Grievance and Redressal ORGANOGRAM OF THE DPMU District Project Manager Coordinator Coordinator Manager Coordinator Coordinator Livelihood & Community Mobilization Coordinator (Fin) HR & Admin Microfinance Environment & Capacity Building M&E Accountant Accountant Coordinator Office Office MIS Assistant Assistant Cashier Computer Computer Computer Operator Operator Operator Sub-District level 125. At the sub-district level the primary institutional arrangement will be the Project Facilitation Teams (PFTs). A PFT would consist of four team members, each having a specialized function. One of the experts will act as Coordinator and take the overall management and coordination responsibility of the unit. PFT members would be selected competitively and will either be government staff on deputation or recruited from the market. The mandate of the PFTs will be to facilitate the whole project implementation process cycle at village and village- cluster levels, including village PRA, social mobilization, and formation of groups and federations. In addition the PFTs will assist the groups to establish linkages with banks for 40 financing and market linkages for input supply and output marketing. The key functions of the PFTs would be as follows: · Village entry and mobilization in villages. · Support for participatory beneficiary selection process. · Identification of existing SHGs in the village. · Sensitization for formation of SHGs · Gradation of SHGs · Support the SHGs to develop SHG-LP. · Support for formation of USs · Strengthening of SHGs and USs · Facilitation and support to SHGs for implementation of activities · Identification and selection of VRPs · Facilitation to US for identification of Para ­workers. · Facilitation and support for skill mapping of jobseekers. · Maintaining databank of job seekers and employers. · Arrangement and sensitization for job fairs. · Sensitization of Primary Producers for federating in a Producer Organizations. · Support of formation of producer organizations. · Ensure timely reporting of PFT level activities. · Coordinating with local authorities and banks. · Marketing and linkage support to the community. · Maintenance of records and MIS · Grievance and redressal ORGANOGRAM OF THE PFT Project Facilitation Coordinator Coordinator Coordinator Coordinator Community Mobilization Coordinator Livelihood & Microfinance & Capacity Building MIS & Accounts Environment Computer Messenger Operator 41 Human Resource Strategy 126. The successful implementation and achievement of the objectives of the proposed project needs competent, dedicated and motivated human resources. For this purpose, a comprehensive HR Manual has been developed that outlines the overall human resources strategy for the project. This manual sets out the following: a) Process of recruitment; b) Compensation package, incentives and reward; c) Staff contract policy; d) Training and Capacity Building; e) Performance appraisal system; f) Disciplinary control system; and g) Grievance Redressal Mechanism. 127. To coordinate and execute the HRD related policies for the RRLP there will be a dedicated officer at the State Unit level. The project intends to build a team of the best available human resources in the development sector; the project will recruit staff from various government departments and the open market. An independent HR agency will carry out the recruitment of all the professionals hired from the market. So far as the recruitment of government officials from various departments for this project is concerned, the special selection process of the Government of Rajasthan will be followed in this case. 128. Developing learning mechanisms in the project. The following is proposed for developing a systematic learning and capacity building mechanism for all stakeholders. The project will ensure a comprehensive induction process for all those joining the project ­ aimed at bringing in fresh and innovative ideas from the new recruits. An induction process will lay the foundation for staff to share the organizational vision and inculcate a sense of ownership for the project. The project will also meet the capacity needs of project management and facilitating agencies like the State Unit, District Unit and PFTs. The capacity building activities have been designed to build the capacities of various service providers', specialized agencies and internal teams would be engaged to impart training. 129. Promoting cross-learning within the organization through scheduled staff meetings at all levels, encouraging informal project related discussions among staff, writing case studies of best practices in the project, documenting learning and disseminating them in different project forums, and establishing a structured system for information dissemination will be undertaken. In this regard, Table 6.5 provides an outline of the capacity building plan for development of human resources under the proposed project. Capacity Building Plan Programs Participants Key Contents Tools Sensitization Community Instititions, Innovative project Workshops, Programs PRIs, PFT and district level approaches and Key campaigns stakeholders. Project principles, including Institutional Developemnt, Livelihoods and Social Empowerment themes Orientation/ Newly recruited Project Project principles, Training on Induction Management Staff (State, community manual, COM, Field 42 Programs District and PFT team Participatory placement/ members) methodologies, village SHG formation immersion Livelihood plan process, programs Awareness Empanelled appraisers Key Project Principles, Workshops and Programs outsourced technical project institutional Field visits. service providers, resource model, project processes agencies, partners, bankers, Thematic Specialists in district unit, Social mobilization and Separate /Performance safeguards, livelihood modules on Training planning, marketing, each thematic Programs micro finance, institution areas, building, experiential entrepreneurship, learning, procurement, accounts, thematic monitoring workshops and discussion forums. Skill Building External Resource Accounting and On the job Programs Persons, Project Staff; monitoring, planning, training, field Ajeevika Mitras. community monitoring based training and reporting, conflict resolution, joint appraisal mechanisms, negotiation skills, operation maintenance,Leadership and managerial skills. Financial Management 130. The financial management arrangements of the proposed project will be adequate to account for and report on sources and uses of project resources and meet Bank's fiduciary requirements subject to compliance with the financial management framework detailed herein. The project will be implemented by a newly created society (a legal entity) created by Rajasthan state government called Rajasthan Gramin Ajeevika Vikas Parishad (RGAVP). RGAVP will have a State Project Management Unit (SPMU), 17 District Project Management Units (DPMUs) and about 110 Project Facilitation Teams (PFTs) at the sub district level. The SPMU will undertake the overall responsibility for management and implementation of the Project and will be headed by an IAS Officer. 131. Fund Flow and Disbursement Arrangements: The Bank would provide a Designated Account with a fixed ceiling of up to US$13 million for the project. The disbursements will be made on a quarterly basis through interim unaudited financial reports for the actual expenditure incurred by the project during a preceding quarter. While the withdrawal applications will be prepared and submitted by the SPMU, the funds will be disbursed by the Bank to the state government (through Comptroller of Aid Accounts and Audit (CAAA)), which will transfer 43 them to the SPMU within a week of the receipt of funds. The state government will make adequate provision for the funds required by the project on yearly basis. 132. SPMU will receive funds from the State government. It will maintain these funds in a separate bank account for the project. SPMU will incur expenditures from this account as well as transfer funds to the DPMU bank accounts on a quarterly basis or as and when required. DPMU will be responsible for transfer of funds to the USs, PFTs and producer organizations. 133. Accounting Policies, Procedures and Systems: The SPMU, DPMUs, PFTs and producer organizations will be the accounting centers for the project. The SPMU and DPMUs will maintain their books of account on an off the shelf accounting package on a cash basis following the double entry principle of accounting. 134. The detailed financial management processes including budgeting, funds flow, internal control framework, accounting, financial reporting and audit arrangements of the project have been described in the financial manual of the project. The community operations manual lays down the operational and fiduciary arrangements at the level of USs and SHGs. 135. All funds released to the DPMUs and PFTs will be treated as inter unit transfers until expenditures are incurred at these levels. Financial controls for the Project including readiness filters/indicators to be fulfilled for release of funds at each level are documented in the financial manual and community operations manual. DPMU will be responsible for transfer of funds to USs. These funds will be accounted for as grants (expenditures) in the books of DPMU. USs will maintain accounts for the funds received from the project for onward lending to SHGs as well as for managing their loan portfolio; and will prepare regular financial statements. SHGs will use the livelihood grant for funding economic activities to enhance livelihoods including expenditures on goods such as dairying, goat rearing, etc. but excluding on the items listed in the negative list, as described in the Community Operations Manual. In the initial year of the project when the USs are yet to be formed, DPMUs will transfer funds directly to the SHGs (in exceptional cases only); and the related databases will be handed over to the USs when they are operational in the related village. 136. The actual end use of the livelihood grants to each and every SHG/SHG members will not be tracked, however, the project has put in place rigorous monitoring mechanisms to assess the overall performance of the SHGs and impacts of the grants for contributing towards the overall improvement of their livelihoods. Various necessary mechanisms have been documented in the different procedures manuals (Community Operations Manual, FM manual, etc), including adequate FM capacity, financial reporting, internal audit reviews, external audits and social audits, so that there would be a proper oversight over the grant administration and thereby obtaining an assurance that funds have been used for intended purposes. The social audits undertaken by the communities will be an important source to monitor the utilization of funds, operational efficiency, sustainability, and ensure accountability. 137. The producer organizations will be required to maintain proper books of accounts, prepare financial statements, and get them audited in accordance with the provisions of the Act under which they are registered. Funds released to them will be accounted for as advances until 44 they submit periodical expenditure statements to the Project in the agreed formats. Other fund releases to NGOs, service providers including training and capacity building agencies will be based on terms and conditions of the respective contracts. 138. Each accounting centre will compile financial information provided by the constituents in agreed formats. DPMUs will electronically send the quarterly financial information to the SPMU, which will be responsible for validation and consolidation of financial data. The summarized unaudited interim financial reports will be submitted to the Bank on a quarterly basis within 45 days of the end of the quarter. The reporting formats (IUFRs) will be agreed upon and included in the financial manual. 139. The Staffing Structure for the financial management functions at the SMPU, DPMUs and PFTs; and the capacity building measures for the USs and SHGs have been agreed and described in the financial manual. 140. External Audit: The external audit of the project will be carried out by a firm of chartered accountants appointed on competitive basis as per Bank procurement procedures. The terms of reference for the external audit will be agreed with the Bank and documented in the financial manual. The annual audit report shall be submitted to the Bank within six months of the closure of the financial year; and will consist of (i) audit opinion, (ii) annual financial statements and (iii) management letter highlighting significant issues to be reported to the management. In addition, an audit report for the Special Account for the project would also be submitted by GoI within six months of the close of the financial year. 141. Internal Audit: The project will appoint, within 6 months of effectiveness, independent firm(s) for carrying out internal audit of the project including covering USs, SHGs and producer organizations. The TOR for Internal Audit have been agreed with the Bank and documented in the financial manual. The firm would be appointed based on a competitive process as per Bank procurement procedures. 142. Oversight at Community Level and Public Disclosure: A social audit will be undertaken by the community to monitor the utilization of funds, operational efficiency and accountability. A process of building transparency will be encouraged by development of necessary monthly reports, which would be displayed on the notice board of the US. 143. At the levels of CDO, SHG and producer organizations, all financial decisions will be recorded in the minute books and access to books and records will be available to all members to ensure that transparency and oversight functions are maintained. Necessary financial information including funds released to SHGs, CDOs and producer organizations; and annual audit report of the project will be made available in public domain through the project's website. This audit reports will also be disclosed for public review on Bank's external website as per Bank's new Access to Information Policy. No. Action to be completed By when 1 To finalize the formats for interim unaudited financial By negotiations reports. 45 2 The Bank team to review and finalize the community By negotiations operations manual (received recently from the project) with the project team 3 Installation and roll out of the accounting software in January 31, 2010 SPMU; and finalize and submit the action plan to the Bank for installation and roll out of the accounting software in DPMUs 4 Appoint internal and external auditors for the project Within 6 months of the effectiveness Procurement 144. Procurement of all goods and works under the project will be undertaken in accordance with the World Bank Guidelines (Guidelines for Procurement under IBRD loans and IDA credits-May 2004, revised October, 2006, May 2010) and procurement of all consulting services will be in accordance with `Guidelines for Selection and Employment of Consultants by the World Bank Borrowers' (May 2010), the agreed aspects of which are detailed in the Procurement Manual prepared for the project. 145. Community Procurement Guidelines as described in the Procurement manual and the Community Operations Manual will be followed at the community level, and recommended post review arrangements for CDD projects, based on the World Bank "Guidance Note For Management Of Procurement Responsibilities In Community-Driven Development Projects" dated December 2009 will be followed for fiduciary assurance. 146. All civil works, goods and services would be procured using India-specific Bank's model documents as well as the formats of the community contracts specifically approved for the Project. 147. Selection of Consultants: For selection of institutional and individual Consultants for providing services, the project will use QCBS, QBS, Selection based on Consultants' Qualification, Fixed Budget Selection, Least Cost Selection, Single Source Selection, and Selection of Individual Consultants as appropriate, subject to approval by the Bank. For service contracts, World Bank Standard Bidding Documents will be used. 46 Prior Review Thresholds Prior Review Thresholds Proposed Procurement Method Thresholds Proposed (USD million) (USD million)* CDD QBS Shop- Local Least ICB NCB QCBS CQS & ping Bid- Cost SSS ding# Goods 0.3 0.3 <0.3 <0.03 NA Works 5.0 5 <5 <0.05 <0.05 Consul- 0.2 for firm NA NA NA NA default <0.1 <0.1 TBD ting 0.05 for individuals Services SSS: all # Applicable only as an option for community based procurement of construction works as per provisions in World Bank "Guidance Note for Management of Procurement Responsibilities in Community-Driven Development Projects" dated December 2009. *If a transaction comprises several packages, lots or slices, the aggregate, estimated value of contracts determines the applicable threshold amount 148. Procurement Plan and Procurement Arrangements: The project Procurement Plan covering the first 18 months implementation prepared by RRLP will be reviewed by the Bank before appraisal. This plan will be updated annually to reflect the latest circumstances. While no contracts under ICB are being envisaged, special conditions* as mentioned below will be applicable and SBDs agreed between Task Force of GoI and World Bank and as amended will be used for NCB contracts. 149. NCB will be conducted in accordance with paragraph 3.3 and 3.4 of the Guidelines and the following provisions: · Only the model bidding documents for NCB agreed with the GOI Task Force (and as amended for time to time), shall be used for bidding; · Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission of bids; · No special preference will be accorded to any bidder either for price or for other terms and conditions when competing with foreign bidders, state-owned enterprises, small scale enterprises or enterprises from any given State; · The criteria to be used in the evaluation of bids and the award of contracts shall be made known to all bidders and not be applied arbitrarily · Extension of bid validity shall not be allowed without the prior concurrence of the World Bank (i) for the first request for extension if it is longer than four weeks; and (ii) for all subsequent requests for extension irrespective of the period (such concurrence will be considered by the Bank only in cases of Force Majeure and circumstances beyond the control of the Purchaser/Employer); · Re-bidding shall not be carried out without the prior concurrence of the Bank. The system of rejecting bids outside a pre-determined margin or "bracket" of prices shall not be used in the project; · Rate contracts entered into by Directorate General of Supplies and Disposals will not be acceptable as a substitute for NCB procedures. Such contracts will be acceptable however for any procurement under the Shopping procedures; · Two or three envelope system will not be used; 47 · No negotiations are allowed, even with the lowest evaluated responsive bidders. · Within two weeks of receiving the Bank's "no objection" to the recommendation of contract award, the client shall publish in the RRLP web site the results identifying the bids and lot numbers and the following information: Name of the winning bidder, and price it at which contract awarded, as well as the duration and summary scope of the contract awarded. · If after publication of results of evaluation SPMU receives protests /complaints from the bidders, and if as a result of analysis of such protests SPMU changes its contract award recommendation and the Bank accepts such changes, then the revised contract recommendations containing all the above details shall be published within 2 weeks in the RRLP website 150. The Procurement plan indicates contracts subject to prior and post review. Procurement methods and Prior Review Thresholds agreed with the Bank include and specify thresholds for procurement methods and prior review. For contracts to be financed under the project, different procurement methods, the estimated costs, prior review requirements, and time frame will be agreed between the Borrower and the Bank in the Procurement Plan. 151. Risks and Mitigation Measures. Procurement risk for the project is assessed as "Moderate", essentially on the grounds that projects' implementing team is conversant with the Banks' procurement regulations and procedures due to its earlier involvement in the DPIP project of the State. However, the States' regulatory system is limited to Financial Management Rules which do not significantly detail the procurement methods, conditions, systems and service levels. The varied and inconsistent levels of capacity for procurement administration at the district level and the non-availability of procurement data in regular and timely manner could be another cause for concern and will warrant that adequate measures are in place to mitigate the associated risks. The following are list of key mitigation measures: · a procurement manual is developed with procurement guidelines for community and project levels and formats to guide procurement and thresholds based methods for goods, works and services. The manual also describes the proposed systems and delegated authorities along with procurement management and administrative mechanism as well as SBDs, bidding formats, protocols for planning & scheduling along with an illustrative list of packages. Usage of the Procurement manual needs to be systematically disseminated up to the District level and subsequently up to the community level by procurement training that could be undertaken by the district level staff. The Manual will be reviewed and ensured that Bank's concerns for transparency, fairness, economy and efficiency are met; · a Procurement Consultant will be hired at state level, for coordinating the dispersed procurements at the District levels; · prior and post review arrangements will be put in place with enhanced monitoring arrangements including establishment of a Procurement monitoring team; and · a Complaints handling Mechanism will be developed and put in place as part of the Procurement system being developed. 48 Environment 152. The RRLP triggers the following safeguard policies of the World Bank: Environmental Assessment (OP 4.01), Forests (OP 4.36), and Natural habitats (OP 4.04). The environmental assessment study undertaken by the Government of Rajasthan through a consultant for the proposed RRLP identified the following key environmental issues concerning livelihoods: frequent drought, depletion of ground water, low soil fertility, lack of fodder resources. An Environment Management Framework (EMF) has been developed for the project that comprises a detailed strategy and procedures for environmental appraisal of activities to be promoted at SHG, US or producer organization levels, institutional arrangements, capacity building and monitoring to enable the adoption of mitigation measures, and the promotion of environment friendly activities through a pilot intervention. 153. Environmental appraisal will help assess the adverse environmental impacts of any proposed community investment plan. This exercise will be undertaken as part of the livelihood plan/cluster investment plan/business plan development process by the field-level project facilitation teams (PFTs) with the participation of the SHGs/USs/POs. Environmental Guidelines (EGs) have been prepared for the likely livelihood activities stating the potential impact, required mitigation measures, and the possible government schemes for convergence. 154. The EMF includes a plan to demonstrate/showcase the feasibility and advantages of good environmental practices in livelihood activities and to identify the type and level of intervention required for scaling up. This will be implemented at a pilot scale covering 6 villages in each project district. The process of development of the EMF involved extensive field consultations in seven project districts as well as regional and state level stakeholder workshops. Disclosure of the EMF through the website of the Department of Rural Development and Panchayati Raj, Government of Rajasthan and on the Bank Infoshop has been undertaken. 155. Periodic internal monitoring of the implementation of the EMF will be undertaken by the project staff at district and state levels through both desk review and field visits and includes a focus on assessing cumulative environmental impacts of the livelihood interventions. Independent external audits are proposed twice in the project duration and include an assessment of cumulative environmental impacts. A set of performance indicators has been developed to monitor the effectiveness of EMF implementation. 156. The EMF is comprehensive and its effective implementation should ensure that the Bank's safeguards requirements will be met in full. There are unlikely to be environmental risks that go beyond the coverage of the safeguards policies. Social 157. The project triggers OP 4.10 on Indigenous peoples, since nearly all the project districts have some tribal population, and the southern districts of Banswara, Udaipur, Chittorgarh, and Dungarpur are predominantly or significantly tribal. Based on the social assessment, the GOR has finalized a tribal development framework (TDF), which includes a range of provisions 49 targeting informed participation and inclusion of the tribal communities through the project cycle across all project components. 158. These provisions are: prioritized targeting of designated tribal areas, engagement of dedicated staff for TDF implementation, community disclosure of TDF, pre-mobilization consultations with tribal communities and leaders, tribal focused information campaign, capacity building support for ensuring informed tribal participation in community institutions (SHGs, committees and federations), tribal representation in membership, executive positions and committees across all community institutions; intensive technical assistance and handholding in preparation and financing of microcredit and livelihood plans; grievance mechanisms, engagement with PRIs and tribal development department, community feedback and periodic consultations, reservation for tribals in project staff and sensitization of project staff and partners on engaging with the society and culture of tribals in Rajasthan. 159. In addition to internal monitoring, periodic external audits will be undertaken on TDF implementation. The TDF and the GAP are based on field consultations in 24 villages, 12 development blocks in 6 project districts, including the predominantly tribal districts. The TDF was presented and disclosed through two stakeholder workshops and one state level workshop. These documents are being disclosed on the website of the Department of Rural Development and Panchayati Raj and on the Bank InfoShop. 160. The gender action plan includes project interventions on: preparation of a gender policy for the project society; ensuring improved gender balance in project staffing and community resource persons; gender sensitization of project staff, partners and PRIs; women focused community mobilization and institution building; gender sensitization of men within project as well as PRI processes; supporting innovative projects on gender equity and expansion of women's rights and freedom; supporting young women in skill development and employment; and comprehensive capacity building of women's institutions around social development, accountability and empowerment issues. 161. The social development staff in the SPMU (state), division (South Rajasthan), DPMU (district) and PFTs (block) will supervise the implementation of the social inclusion mechanisms and strategies on gender and tribal inclusion. The TDF will be anchored with a senior staff at SPMU. A dedicated full time staff will be engaged to supervise TDF implementation in the designated tribal areas of South Rajasthan, and support tribal inclusion in other project districts by working with the SPMU social coordinator. Periodic reporting will be done on implementation of the TDF by the SPMU. Semi Annual audit of TDF implementation is planned through an external agency. The key monitoring indicators on TDF implementation will be incorporated in the project M&E and the MIS. Community monitoring including social audits will be institutionalized at the US level across the project districts. 162. The key social risks that go beyond the coverage of Bank's social safeguard policies relate to capturing of project processes and benefits by dominant upper castes and local indifference and possible resistance to i) interventions which are proactively and explicitly pro- poor and positively discriminating for the SC and ST; ii) exclusively targeting, educating, mobilizing and empowering women; iii) institutionalization of the poor to advocate and demand 50 rights and entitlements and assert in local governance processes. The social inclusion mechanism, tribal development framework and gender action plan involve specific interventions responding to these risks. 51 Annex 4 Operational Risk Assessment Framework (ORAF) Project Development Objective(s) To enhance economic opportunities and empowerment of the rural poor, with a focus on women and marginalized groups, in the 17 targeted districts of Rajasthan. This would be achieved through social inclusion and community mobilization; building sustainable member- based organizations of the poor; creation of linkages between these organizations and financial (banks and insurance companies) and other service providers; new livelihood strategies that are adaptable to climate change. PDO Level Results Indicators: 2. Reliance on informal credit sources drops by 90% among members of grade A SHGs 24 22, 23 1. Increase in number of sources of household income reported in at least 70% of the targeted households 3. At least 50% of grade A SHG members routinely participate in Gram Sabha and other village meetings 4. At least 70% of the 33,000 SHGs supported by the project are financially viable and institutionally sustainable Risk Category Risk Rating Risk Description Proposed Mitigation Measures Low The risk that some NGOs may feel that their role The Bank has already held multiple rounds of Stakeholder will be diminished by the proposed program and meetings with GoR where the project has been Project Stakeholder Risks hence may not support the program. discussed in detail and project documents have been revised accordingly. The project design has undergone changes SHGs will be formed on a representative basis, following learning from the RDPIP and in line ensuring that the poor and socially excluded are with best practices from other livelihood represented. The leadership of SHGs will be projects. regularly rotated amongst its members. High Problem of recruiting senior, professional staff The Government will (a) establish an independent Capacity and retaining them for the project society for project management with its own Implementing Agency Risks 22 This may be further qualified to include proportions of income from different sources, with reduced dependence on those sources that are more vulnerable, viz., agriculture, animal husbandry, forests and seasonal migration 23 Annual income per household in RDPIP recorded an increase of `9,760 for livestock, `6,736 for Land based and `2,284 for micro-enterprise sub-projects 24 It is estimated that 70% of the project supported SHGs will obtain Grade A 52 norms and regulations; and (b) the project will Calibre and capacity of the SPMU staff and engage the services a professional HR agency to project staff at district / block levels prepare norms/standards for recruitment and management of professionals and recruit technical staff on a national basis and also undertake the hiring for this project High Weak capacity of USs to manage loan portfolio It has been agreed that USs will need to qualify predefined parameters demonstrating adequate capacity to account and manage the funds. Oversight arrangements in the form of internal audit and social audit will additionally help to continuously identify the areas for improvement. Capacity building measures have been incorporated in project design. Governance High Risk associated with weak governance and poor The society will have an executive committee, management of the newly created state society which should meet once every quarter to review its operations. The Bank will also review project performance at regular intervals and provide recommendations for strengthening the functioning of the society. High Risks associated with management of a CDD The society model provides flexibility and project of this nature with a highly decentralized autonomy in engaging suitably qualified staff to structure, with funds flowing to more than manage the Project. The project design 30,000 SHGs. incorporates adequate internal audit and social audit arrangements to identify implementation weaknesses on continuous basis and take corrective measures in a timely manner. The Society will work also within the framework of the checks and balances established under the GAAP and follow a participatory mechanism to ensure inclusion of all targeted beneficiaries. Fraud & Corruption Medium - I Potential for misuse of funds by SHG federations The project will provide improved controls through regular monitoring and field visits by the state unit. Project will also test mobile phone/smart card technology to record all savings 53 and loans transaction with SHGs/Federations, which will provide a basis for streamlining the financial functions better. The project will introduce joint implementation cum fiduciary reviews by an independent firm, which would additionally help in establishing a relationship of the quality of output with the funds spent. FM High Most of the USs and SHGs will be newly created Service standards have been agreed for release of and may have no experience or capacity to funds to US and SHGs and Producer Organizations manage the loan portfolio. once the readiness filters are fulfilled. Medium ­ I SPMU, DPMU and USs would be learning as the The internal control processes have been project moves forward; as they may not have the documented in the financial manual and prior experience required by the project. community operations manual for the project. Low Delayed flow of funds from the state government It has been agreed that the state government will to the society make adequate budget provision for the project's requirement on annual basis and shall provide the funds to the project within one week of their receipt from the Bank. Medium - I The SHGs will mainly be newly created and they Necessary mechanisms have been agreed through will be widespread throughout the participating procedures manuals (Community Operations districts, thereby making it impossible to for Manual, FM manual, PR Manual), adequate FM SPMU or DPMUs to personally monitor their capacity, financial reporting, internal audit reviews, progress. external audits and social audits that there would be a proper oversight over the loan administration and thereby obtaining an assurance that funds have been used for intended purposes. MOU between US and SHG will lay down the framework for use of livelihood plans as well as remedies available to the US in case of non- compliance. A range of social audit tools will also be used to monitor use of funds for intended purposes at the SHG level, including continuous 54 monitoring by PFTs. Procurement Medium ­ I The proposed project being implemented across As part of the preparations, RRLP at the State level all Districts of the States and the lack of a State will develop a Procurement Management manual, level Procurement Management framework broadly based on GoR FMRs, but meeting the Bank leading to a plethora of procurement procedures procurement principles. The use of this manual for and adopting of norms which are not consistent all procurement will be mandatorily conditional for in practice. all implementing agencies. The manual will emphasize participation of beneficiary communities in procurement implementation and monitoring. High Overall low levels of procurement management Successful experiences from other livelihoods capacity among participating entities and the projects in Community based Procurement will be general risks attached to fraud and corruption drawn for enhancing the horizontal assurance of applies to procurement at all levels in such a the integrity of procurement process. RRLP will highly dispersed project also be tasked to commission sample based procurement post reviews every year for vertical assurance of the process. Dedicated team will be established at State level for procurement capacity management at district level and for complaint handling. A tailor made training program, if necessary in regional language(s) as well, will be developed for appropriate dissemination of the procurement manual. · Design Medium ­ L Since current 2007 BPL list does not include all Project Risks the poor, there is a risk that targeting of beneficiaries might not occur correctly and Project would use participatory beneficiary selection therefore impact the implementation process process at the village level to ensure identification and inclusion of the left out poor and vulnerable groups. Medium ­ I Cultural barriers prevent women forming or This is an issue in certain regions of Rajasthan, joining Self Help Groups however the southern tribal belt of Rajasthan has active NGO supported SHGs operating and the project will study how these models are working and replicate the strategy. In addition, the project will bring in resource persons from SEWA 55 Ahmadabad to assist in developing a women's empowerment strategy. Low Rapid expansion of Project Districts from 7 The 7 original districts will be the `pilot" districts (RDPIP) to 17 (RRLP) during preparation and activities will build on successful cluster federations. The additional new districts will be clustered around the original district and act as "training/capacity building" resource for new groups/federations Medium ­ L Lack of financial sector support for SHGs Project will convene stakeholder meetings with banking and insurance sectors and ensure state- level financial inclusion targets are met. Low The move from a CIG-based model to an SHG- The financing model has changed from being grant- based model. Previous projects across different based to becoming loan-based. Funds will be states in India have shown that SHGs are better tracked better under this new system. performers than CIGs and have higher accountability. Social and Medium ­ I Frequent drought has an adverse impact on The project design includes a component on Environmental livelihoods. climate change adaptation that focuses on capacity · building of communities and wider stakeholders on climate change and undertaking community based pilot activities on climate resilience. Medium ­ I Disregard for environmental aspects will impact Design and implementation of Environmental livelihood sustainability. Management Framework that includes: simplification of the environmental appraisal process, a negative list and environmental guidelines that ensure compliance with the triggered safeguard policies and with relevant laws and regulations, emphasis on internal monitoring along with external audit, assessment of cumulative impacts, demonstration of the feasibility and advantages of good environmental practices in livelihood activities through a pilot. Medium - I Elite capture and local indifference and Sensitization of project staff to anticipated social opposition to project interventions will reduce risks and project mechanisms to mitigate them; 56 the project effectiveness across the project Pre-implementation consultations, sensitization components, as inclusion of the poorest is a core and rapport building with PRI and community objective of the project leaders from all social groups; Consultations with government and NGOs to understand the socioeconomic and political environment of the area; promotion of social cohesion and social capital formation through PRA exercises and the community resource persons; participatory beneficiary selection and endorsement by the Gram Sabha, community feedback and periodic consultations, comprehensive community sensitization and capacity building on poverty, gender and tribal exclusion issues. · Program and Donor NA NA NA · Delivery Quality NA NA NA Overall Risk Rating at Overall Risk Rating During Medium ­ I Medium ­ I The earlier DPIP was rated as moderately satisfactory Comments Preparation Implementation at completion, and this proposed project builds on a solid base of knowledge and capacity on implementing successful livelihood schemes. The government is also fully committed to the operation and has agreed to hire in expertise from the market and retain high performing staff from the earlier phase to the proposed new operation. 57 Annex 5: Implementation Support Plan India: Rajasthan Rural Livelihoods Project (RRLP) 163. The overall supervision strategy for the proposed RRLP will draw heavily from the lessons learned from the India health sector DIR report and best practice in supervising CDD and livelihoods project's in other countries. The project will use a combination of project monitoring tools and systems developed to ensure depth in supervision, reduce corruption and strengthen governance, physical supervision by Bank teams with expert staff, third-party monitors, a complaints handling mechanism and physical, financial and technical audit. 164. Key lessons from the DIR incorporated in the supervision strategy are: (a) the need for comprehensive site visits/physical verification by Bank-managed teams; (b) independent verification of project activities; (c) follow up on detailed fiduciary issues highlighted in aide- memoires; (d) strengthening of prior and post-reviews of contract procurement to highlight fiduciary red flags such as collusion and price-fixing; (e) verifying authenticity of bidders; (f) reconciling payments with contracts; and (g) supervising large numbers of decentralized low- value procurement. Supervision teams will also consist of fiduciary (procurement/FM) specialists who will visit the project. 165. The project will also have an in-built social accountability mechanism at the level of Community Institutions (SHG, US) which will emphasize transparency and local level accountability in terms of decision making and grievance redressal. Issues that cannot be dealt with at the community level will be referred to the project's Grievance Redressal system within the SPMU. 58 Annex 6: Team Composition India: Rajasthan Rural Livelihoods Project (RRLP) NAME TITLE UNIT Task Team Leader (TTL) & Nathan M. Belete SASDA Senior Rural Development Economist co-Task Team Leader (TTL) & Reena Gupta SASDA Natural Resources Management Specialist Geeta Alex Program Assistant SASDO Juan Carlos Alvarez Senior Counsel LEGES Sridhar Dabbiru Finance Assistant CTRDM Samik Sundar Das Senior Rural Development Specialist SASDA Winston Dawes Operations Officer SASDA Hemant Jain Portfolio Officer CTRLC Jacqueline Julian Senior Program Assistant SASDO Vijay Kalavakonda Senior Insurance Specialist GCMNB Kalyani Kandula Consultant, Environment SARDI Kalesh Kumar Senior Procurement Specialist SASPS Priti Kumar Senior Environmental Specialist SARDI Sitaramachandra Livelihoods/Microfinance Specialist (ETC) SASDA Machiraju Arun Manuja Senior Financial Management Specialist SARFM Robin Mearns Lead Social Development Specialist SDV Varsha Mehta Consultant, Monitoring and Evaluation SASDA Van Vu Nichols Portfolio Officer CTRTF Daniel P. Owen Senior Social Development Specialist (peer reviewer) ECSS4 Shilpa Phadke Agriculture Economist SASDA Deborah Ricks Program Assistant SASDO Lalitha Sairam Financial Analyst CTRDM Brenda Lee Scott Information Assistant SASDO Daniel M. Sellen Sector Leader (peer reviewer) AFTAR S. Selvarajan Consultant, Economic and Financial Analysis SASDA Rohan Selvaratnam Operations Analyst SASDO Biswajit Sen Senior Rural Development Specialist SASDA Balagopal Senapati Procurement Specialist SARPS Parmesh Shah Lead Rural Development Specialist SASDA Kumar Amarendra Consultant, Social Development SASDS Narayan Singh Varun Singh Social Development Specialist SASDS Rajiv Sondhi Senior Finance Officer CTRFC Sandra Sousa Program Assistant SASDO Varalakshmi Vemuru Senior Social Development Specialist (peer reviewer) SDV Ai Chin Wee Senior Operations Officer SASDA 59 Annex 7: Governance and Accountability India: Rajasthan Rural Livelihoods Project (RRLP) 166. The Governance and Accountability (GAC) framework for the project will build upon existing good governance policies and constitutional provisions for tackling corruption in the state. The framework emphasizes on supporting the implementation of the Right to Information Legislation within the project and strengthening risk management and accountability mechanisms in the project. 167. The objective of the GAC is to strengthen overall of governance of the project to minimize risks related to deviation in processes and misutilization of project funds. The GAC will therefore comprise (i) project specific actions that support transparent systems and processes for procurement, financial management and reporting; (ii) systems and processes for free and wider access to information and oversight by all stakeholders, project beneficiaries and civil society; and a monitoring system that will ensure that the agreed project principles and rules of engagement governing implementation of the project activities are followed. The key GAC related risks and mitigation measures associated with this project are: Key GAC Risks Mitigation Measure Lack of Transparency All activities undertaken will involve decisions to be taken involving all those directly concerned and the process followed would be open, clear and accessible to all. Also, the information generated by the project will be shared regularly. Exclusion and Equity The project will ensure participation of all stakeholders. Each Issues decision taken would follow a participatory process and there would be no imposition at any level. Participatory management of SHGs will ensure that the poor and socially excluded are represented at all levels of the decision making process. Weak Institutional At each level the responsibilities will be mutually and collectively Capacity, Lack of Team owned. Training will be imparted to project staff for various tasks Work and associated with the project. Each stakeholder is responsible for Accountability decisions and actions taken. Record-keeping will be given priority and records will be audited to ensure transparency and accountability. Delay in Decision Project will develop an efficient and responsive grievance re-dress Making mechanism based on a responsive administration, with provisions of online tracking/monitoring in a time bound manner. Non-adherence to There will be process monitoring at all levels of the project. CMIS accepted business will also play a large role in tracking the flow of funds and its use. processes and standards 168. The GAC recognizes that mitigating and tackling mismanagement and misuse in the project will be governed and dealt as per the existing polices and constitutional provision in Rajasthan and India. Two of the constitutional provisions or legal acts that will be applicable to project are i) The Right to Information Act; and ii) The Prevention of Corruption Act, 1988. In addition, other 60 constitutional provisions related to fraud and corruption as appropriate will be adopted by the project. 169. The policy and legal enforcement provisions above for mitigating and tackling fraud and corruption will cover all the stakeholders including project implementation agencies and community institutions (individually or institutionally). 170. Transparency and Disclosure. The Right to Information (RTI) 25 will be one of the main tools through which transparency and disclosure will be ensured in the project. For the implementation of RTI, the project will follow the provisions as outlined in the Right to Information Act, 2005. The system and guidelines that will ensure implementation of RTI are detailed in the project operational manuals. The Project Implementation Plan (PIP), Chapter 10, has articulated in detail on how RTI Act will be implemented for the project. 171. The project is preparing various detailed operational manuals which would outline the rules of business for project implementation and monitoring of outcomes. The rules and processes related to recruitment of project staff, procurement, financial management, and implementation will be available in the public sphere. 172. Public Disclosure: A social audit will be undertaken by the community to monitor the utilization of funds, operational efficiency and accountability, and related monthly reports would be displayed on the notice board of the US. 173. At the levels of US, SHG and producer organizations, all financial decisions will be recorded in the minute books and access to books and records will be available to all members to ensure that transparency and oversight are maintained. Necessary financial information including funds released to SHGs, USs and producer organizations; and annual audit report of the project will be made available in public domain through the project's website. These audit reports will also be disclosed for public review on the Bank's external website as per the new Access to Information Policy. 174. With the intention of allowing greater access to information and suo moto disclosure, all the information will be displayed on the project website including disclosure of various operational manuals, mid-term review reports, safeguards information as well as information on the procurement process. 175. To ensure better transparency at the sub-district and village level the PFT and the community (SHGs/VDCs/Producer organizations) will disseminate information through wall writing, display boards etc., giving details about funds flow, activities to be implemented and proceedings related to decisions taken by their institutions. 25 The State of Rajasthan has a State Information Commission. Right to Information (RTI) legislation is operational across all government departments with the objective of enhancing transparency and accountability for reducing corruption arising out of asymmetric information flow. Each public office has a designated Public Information Officer and Assistant Public Information Officer Structure. 61 176. As a part of the project's communication and transparency strategy, the project will publish quarterly newsletters and compile other publications containing case-studies, best practices, and news reports, for reaching out to various stake holders. These publications will be shared with the concerned departments, district and sub-district level offices and CBO's. These publications will also be hosted in the project web-site. 177. Independent Monitoring. Various key activities and processes of the project would be reviewed by a specially contracted independent individual or agency who will conduct research and thematic studies on specific issues. The studies will not only be evaluative in nature but will also capture the good practices of the project. These studies will be published and hosted in the public domain. 178. Audited financial reports of the project will be posted on the website of the RRLP. 179. A peer review exercise is an important tool for independent monitoring that leads to internal learning. Selective members of PFT and DPMU would form the Peer Review Team which would visit PFT operation area of another district and review the project on pre-decided parameters and methodologies. This exercise will also include the some parameters of the GAC : · Timely assessment of CBOs · Timely transfer of funds · Proper display of information · Utilization of funds for intended purpose. · Timely disposal of complaints and RTI applications. · Record keeping · Proper maintenance of progress 180. Social Accountability System. The central objective of Social Accountability System (SAS) would be to make the primary stakeholders an integral part of the overall GAC. Developing appropriate SA tools will be a critical step in the initiation of a SAS. Simple, flexible and yet useful tools and processes like community score cards, social audit mechanisms by the village general assembly etc., would be developed to enable the beneficiaries to enhance their participations in project monitoring. It is envisaged that strengthening the beneficiaries' participation in village general assembly will empower communities and enhance demand side of local governance by better participation in formal Gram Shaba. In the results framework one of the key PDO level indicator is "at least 50% of grade A SHG members routinely participate in Gram Sabha and other village meetings". The project will be developing a detailed Social Accountability System with a clear implementation strategy during the first year of project implementation. 181. Grievance and Complaints Handling System. The project will establish a Grievance and Complaints Handling System that will include: · A complaint registration and coding system will be developed at all the levels of project management (SPMU/DPMU/PFT). Online complaints handling system will be introduced at the Projects website; 62 · A toll free telephone number will be established for the registration of complaints. This number will be displayed by the project in all possible mediums and more importantly at the village level and CBOs; · According to the nature and seriousness of the complaints the complaints will be prioritized. Consequently a team comprising members of different PFT teams and disciplines will be formed to enquire by giving equal opportunity to the complainant and report in a prescribed time; and · The decision will be taken based on the findings of the enquiry team and the same will be communicated to the complainant. · Community level institutional building processes include complaints handling and conflict management issues at the SHGs and CBO level. 182. Monitoring of GAC implementation. The project will form a review committee comprising the State Project Director, Additional Project Director, Public Information Officer, Coordinator M&E and finance controller at the SPSU that will meet at least bi-annually or as and when required to review the progress and status of pending enquiries. This committee will review cases and agree on ways to dispose them efficiently. This will be of tremendous value in reducing backlog and also send a strong message about the efficiency of the implementation mechanisms that enforce integrity within project. 183. The GAC mechanism that is inbuilt into the project design is presented below and this matrix will be monitored during project implementation and supervision and will serve as the Governance and Accountability Action Plan for the project: GAC Tools proposed in Level Actor Mechanisms project design Project Website with full State Project disclosure of key information Display Board, Posters etc District/Community Project/Community Disclosure Policy or State Project System Disclosure and Project State Project Transparency Newsletter/publications Records of key meetings, All Project & decisions, accounts, Community procurement etc Radio programs State Project Application of RTI Act District/PFT/Community Community Project Implementation State Project Business Plan and various manuals Processes and Community Operational State Project Service Manual Standards Micro-planning District/PFT/Community Community 63 Social Audit Manual Project Community Complaints Complaint Registration Project Public Handling/ and Coding System Grievance Toll free number for Project Public Redress registering complaints Funds flows directly to State Project community based on achievement of specific Financial milestones Controls External Audit State/District/PFT/US Project Internal Audit State/District/PFT/US Project Standard Accounting State/District Project System Recruitment through third State Project party Human HR Performance State Project Resource and Appraisal System Staff Performance Based State Project Incentive Recruitment Audit State Project Social Audit Community Community/3rd party Community Score Cards Community Community GAAP Review State Project Community Committee Based Community Institution Community Project/3rd Party/ Monitoring Grading System Community Peer Review Community Project/3rd Party/ Community Process Monitoring State 3rd Party Consortium of Groups State Project Anti-corruption Combating Corruption Review of departmental State Project proceedings Sanctions Policy Constitutional provisions State Project and legal acts as may be applicable Repeated training on FM, State/District/PFT/Community Project Procurement and governance practices Participation and Capacity Multi-stakeholder State Project Building governing committees Leadership rules (election, Community Project, tenure, rotation) Community 64 Standard eligibility State Project criteria and technical standards for bidders and Procurement service providers Ex-post review of State/District/PFT/Community Project procurement 65 Annex 8: Economic and Financial Analysis India: Rajasthan Rural Livelihoods Project (RRLP) 184. Project Coverage: The project targets CDD led sustainable improvements in the livelihood security of 400,000 poor rural households in 9000 villages from 17 districts of Rajasthan through social inclusion and community mobilization; financing demand driven livelihood investments for livelihood activities through 33,000 SHGs; linking at least 23,100 SHGs with multiple sources of credit; establishing 34 producer organizations benefiting at least 3300 SHGs to integrate with markets; and developing skills and finding job placement for 17,000 unemployed rural youth26. 185. Project costs. The total project cost is US$ 183.8 million, including contingencies, which is distributed by (i) institution and social empowerment (28%), (ii) strengthening community based/producer organizations and partnership linkages (54%), (iii) skill development and employment generation (3%), (iv) climate change adaptation (8%), and (iv) project coordination (8%). 186. Database. The assumptions and approach for the EFA (Economic and Financial Analysis) is based on the data compiled from multiple sources 27 like; DPIP ICR, livelihood investment evaluation and impact assessments covering 5570 sample households from 140 villages, supplemented with RRLP PIP, and social assessment report and other secondary published data/documents. Project costs and benefits are estimated at 2010 prices over a period of 15 years with 12% as the opportunity cost of capital for estimating the rate of return to project investments. 187. Project benefits. Major benefits, quantified for the economic analysis, will come from; (i) diversified and increased livelihood income generated by recycling of livelihood investment funds by 33,000 project SHGs, (ii) improved access to multiple credit sources for at least 70% of the project SHGs, (iii) improved integration with markets and institutions for at least 10% of the project SHGs, and (iv) CDD led participatory management of livelihood funds. In addition, there are indirect economic benefits stemming from improved social cohesion, sustainable community owned business institutions, new linkages for job and self employment and increased resilience to natural risks. It is, therefore, likely that quantifying direct project benefits alone understates the potential economic impact of the project interventions. 26 Project Implementation Plan (Sep. 29 2010 Version) of Rajasthan Rural Livelihood Project, Rural Development and Panchayat Raj Department, GoR; Project Information Document (PID), Rajasthan Rural Livelihood Project, World Bank, New Delhi, Sep 30, 2010; 27 Implementation Completion and Results Report of Rajasthan District Poverty Initiatives Project, June 20, 2008; Impact Assessment of the District Poverty Initiative Project of Rajasthan, Institute of Development Studies, Jaipur, 2008; Project Implementation Plan (Sep. 29 2010 Version) of Rajasthan Rural Livelihood Project, Rural Development and Panchayat Raj Department, GoR; Draft Social Assessment of Rajasthan Rural Livelihood Project, Institute of Development Studies, Jaipur, 2010; DPIP Rajasthan Evaluation Report and Excel Sheets: Non-Farm Livelihoods, Animal Husbandry and Natural Resource Management Activities, December 2007 66 188. Livelihood investment benefits. About 400,000 rural poor households will access revolving livelihood funds (RF) through 33,000 SHGs28. In this 30% of SHG members will operate with the livelihood investment project funds; 60% will have additional access to multiple sources of funding; and the rest 10% will have linkages with producer organizations to have access to multiple funding sources, as well as markets and technology. Benefits from livelihood investments are quantified for these three categories of SHG members. Incremental benefits are quantified separately for major livelihood sectors- livestock, agriculture and non-farm, each represented by two dominant T-1 Projected choice of livelihood investment portfolio in RRLP livelihood activities and Weighted aggregated for the project as a Livelihood Loan Size annual gross whole. Based on DPIP impact Livelihood Sectors Loans (Rs) margin (Rs) evaluation, the livelihood portfolio Livestock Sector 50% 16920 8830 Goat Rearing 30% 13800 5780 of SHGs in RRLP is expected to Dairy 20% 21600 13410 have livestock (50%), non-farm Non-Farm Sector (30%) and agriculture (20%) sector (Trading/Services) 30% 22620 10800 related activities (DPIP Impact Agriculture Sector Report, 2010) 29. Six dominant (Crops/Land development) 20% 17130 8120 Overall 292000 18670 9280 livelihood activities namely dairy and goatery for livestock; trading and services for non-farm; farming and land development for agriculture sectors are identified for which, crop budgets and activity models are formulated for three scenarios namely limited credit (30%), adequate credit (60%) and adequate credit with access to markets and technology (10%). Average loan size varies from 13800 for goat rearing to Rs22,620 for non-farm livelihood activities. Weighted average annual gross financial margin for the livelihood activities varies from Rs 5780 for goat rearing to Rs13,410 for dairy based livelihood activities. While non-farm livelihood activities generate income immediately, the gestation period varies from 3 to 6 years for realizing the potential benefits in others, particularly in case of dairy activities. 189. Project led sustainability investment funds will be Rs3,630 million for 33,000 SHGs. DPIP mobilized 36% more funds through government and bank sources (RRLP PID and DIPP ICRR, 2010) 30. Under RRLP, bank linkage is significantly strengthened, to ensure at least 70% of SHGs with access to banks for mobilizing additional funds for livelihood loans. It is conservatively assumed that about 23,100 SHGs will be able to mobilize and sustain additional funds through bank linkages and other government sources to the tune of Rs 2541 million, matching with the project led livelihood investment funds. At least 10% of the SHGs will get benefited through 34 producer organizations along with the bank linkages. 30% of SHGs will operate within the project livelihood funds. 28 Major source of quantifiable benefits will come from the CDD-led livelihood investment initiatives. While the participating households will be self selected based on the pre-defined criteria, choice of investment activity will be participatory driven and both are unknown for ex-ante economic analysis. Expected choice of livelihood investment portfolio and associated distribution of project beneficiaries under RRLP is projected based on the RDPIP and ongoing similarly designed project experiences. 29 DPIP Rajasthan Evaluation Report and Excel Sheets: Non-Farm Livelihoods, Animal Husbandry and Natural Resource Management Activities, December 2007 30 Project Information Document (PID), Rajasthan Rural Livelihood Project, World Bank, New Delhi, Sep 30, 2010; Project Appraisal Document (PAD) of Rajasthan Rural Livelihood Project (Sep 30 2010 Version), World Bank, New Delhi; Implementation Completion and Results Report of Rajasthan District Poverty Initiatives Project, June 20, 2008 67 190. The incremental benefits for livelihood investments are quantified for three scenarios of SHGs as described below (see table T-2 below as well); (i) Scenario 1: all 33,000 SHGs operate only with the project livelihood funds; (ii) Scenario 2: only 9,900 SHGs (30% of total) operate with the project livelihood funds and rest 23,100 SHGs (70% of total) have additional funding sources through bank linkages, and (iii) Scenario 3: while 9,900 SHGs operate with project funds, 19,800 SHGs operate with multiple credit sources through bank linkages, and the remaining 3,300 SHGs have access to both multiple credit and integrated markets. 191. Based on the average loan size, about 292,000 loans are projected to support livelihood income security in about 73% of the targeted households in the project villages. While 23% of the livelihood loan beneficiaries will operate within the project livelihood funds, 65% will be benefited by more credit from banks. About 12% of the project beneficiaries will have access to both adequate credit from multiple sources as well as improved access to markets and technology through community led business institutions. 192. Using the livelihood investment data for 292,000 beneficiaries, annual incremental financial benefits are assessed for three SHG scenarios, first by six major livelihood activities, then aggregated for three major livelihood sectors before aggregating for the project as a whole using the livelihood investment as weights. Annual incremental economic benefits from livelihood investments are projected at Rs 1318 M (for scenario-1); Rs 2472 M (for scenario-2) and Rs 2613 M (for scenario-3) at full project development to be realized from year-7 onwards. 193. CDD-led management benefits. Project interventions are designed with the community taking centre stage of the livelihood development process, supported by community mobilizers and pro-poor dominated village institutions and decision making bodies. It is expected that livelihood funds will be utilized by 33,000 SHGs, managed by 2,200 CDOs, and supported by over 6000 field functionaries, to ensure at least 25% increase in the proportion of livelihood activities being continued, five more years of activity implementation and/or expanded/diversified during the project implementation period and beyond. This difference is captured and attributed to the community led management of livelihood funds. T-2: RRLP: Project Investment Analysis Summary (2010 prices) 194. Economic analysis. The ERR NPV FRR NPV economic rate of return is (Rs M) (Rs M) Sources of project benefits estimated at 21.8% for entire Livelihood Investments 10.2% (315) 10.8% (239) project. The project supported livelihood investments alone Plus Bank Linkages 15.3% 603 15.8% 824 generated an ERR of 10.2%, which Plus Organizational linkages 17.1% 1,007 17.6% 1,221 improves to 15.3% when benefits Plus CDD led sustainability 21.8% 2,806 22.6% 3,369 from improved access to multiple Overall Project 21.8% 2,806 22.6% 3,369 credit institutions for 70% of the SHGs are included. Project ERR further improved to 17.1% with the inclusion of benefits from improved integration with markets and institutions targeting 10% of the SHGs. Capturing CDD led sustainability benefits further improved the project ERR to 21.8%. Substantial improvement to the returns to project investments coming from the proposed credit and market linkages, and 68 T-3: RRLP: Summary of Sensitivity analysis strengthened community institutions underline the Scenarios for the project ERR NPV, importance of holistic approach proposed in the Rs M project design. At full project development, annual Base Level 21.8% 2,806 Escalation in costs incremental economic benefits, at 2010 prices, are Costs at 120% of the base level 16.1% 1,351 projected at Rs 1960 M, contributed by livestock Risks in livelihood investment returns (58%), non-farm (28%), and agriculture (14%) Benefits at 80% of the base level 16.3% 1,193 sectors, under the assumption of 75% Sustainability of production cycles sustainability for the continuance of community Limited to 50% beyond project period 17.1% 1,023 Cost escalation and risks in livelihood benefits combined led recycling of livelihood funds. Costs and benefits by 15% each 12.7% 203 Delayed implementation 195. Sensitivity analysis. Sensitivity tests are Benefit lagged by one year 16.5% 1,544 carried out for escalation in costs, fall in livelihood Switching values for costs and benefits independently benefits, livelihood sustainability risks in Escalation in costs by 39% 12.0% 4 continuing activity cycles due to institutional Fall in Benefits by 28% 12.0% 3 failures, and implementation delays. On the cost side, increased project costs at 120% of the base costs brought down the ERR to 16.1%. Implementation delays had brought down the ERR to 16.5% and reduced the NPV by Rs 1262 M. With 20% fall in the projected livelihood benefits, project ERR came down to 16.3%. Limiting the sustainability of livelihood activity cycles beyond project period to only 50% has brought down the ERR to just 17.1% and NPV came down by 64%. Timely and sequential implementation of the project interventions, strong community led village level institutions, integration with markets and linkage with credit sources are critical to maximize the returns to scarce project resources invested. 196. Risk analysis considered key risk variables like cost escalation, fall in livelihood benefits due to institutional failures and implementation delays by considering jointly 25% increase in costs and 25% decrease in benefits on the ERR. The simulated ERRs ranged from 8.7 to 19.5% with a coefficient of variation of 12%. Hence, the expected ERR, estimated by the risk model at T-4 RRLP Risk analysis summary 100% NPV, 80% Rs M IRR probability 60% Expected value 654 14.1% 40% Standard deviation 516 1.7% Minimum (1,059) 8.7% 20% Maximum 2,176 19.5% 0% Coefficient of variation 0.788 0.120 8% 10% 12% 14% 16% 18% 20% Probability of negative outcome 10.1% 0.0% Figure 1 RRLP: Cumulative distribution of ERR 14.1% is considered reasonably stable, since the probability of ERR exceeding 12% level is above 90%, as predicted by the risk model (Fig.1). 197. Financial analysis. At full project development, annual incremental financial economic benefits, at 2010 prices, are projected at Rs 2226 M, contributed by livestock (57%), non-farm (29%), and agriculture (14%) sectors. The estimated FRR for the project is 22.6% with NPV of Rs 3369 M at 2010 prices over a project life of 15 years (T-2). The minor difference between the project FRR and the ERR is due largely to the difference between the financial and economic 69 costs of the project as well as the prices of the inputs. Financial returns are estimated for the major livelihood activities likely to be taken up by the project beneficiaries. Average annual incremental financial benefits projected for diverse livelihood activities varied from Rs 5780 (Goat rearing) to Rs 13410 (Dairy). 198. Employment benefits. Need based skill development is targeted to find job placements for 17,000 rural unemployed youth at a cost of Rs 15,000 per job created. Evidences in similar bank funded projects in South Asia reveals that developing viable linkages for job and self employment through community led institutions are both cost efficient and cost effective and generate more jobs annually than any other public funded employment generation programs. In Tamil Nadu CDLIP, annual growth in youth employment in project villages is 10.3% as compared to just 2% for the state. Youth unemployment rate came down from 6.3% to 5.6% in the SIPP-I project villages in Bangladesh. In Sri Lanka Gemi Diriya Phase-I, annual decrease in youth unemployment in project villages was 4.2% as compared to 2.2% for the country. In all the cases, the community led skill development and job placement was significantly cost efficient as compared to other public spending programs in the region. Employability development and job placement for unemployed rural youth in Rajasthan is critical since the state has witnessed doubling of youth unemployment rate during 2000-05. 199. Poverty reduction. Averaged across livelihood activities, the project beneficiaires will generate incremental gross margin of Rs 9280 per livelihood loan of Rs 18670, which will be realized in about five years if livelihood investment cycle is continued. With this annual incremental financial benefit levels, at least one member of the project benefited households will go above poverty line 31. Based on the projected livelihood loans, it is expected that about 292,000 persons will go above poverty line in about five years. Limiting the continuance of livelihood investment cycle to only 75% of the beneficiaires, the poverty in the project targeted households will be reduced by 11% during the project period, which is about three times faster than the poverty reduction for the state as a whole. 200. Better targeting. Community led participatory, inclusive and transparent decision making will lead to efficient delivery of the funds for community management of livelihood development. Dominant role for the community in managing their funds will have two impacts: One, efficient delivery of funds and two, efficient targeting of beneficiaries. Evidences in South Asia region32 show that public funds targeting rural development, end up losing on an average about 30 to 40% as leakage before reaching the intended use, which increases the cost and reduces the cost-efficiency of targeted programs. Similarly, various estimates for ineffective targeting of beneficiaries ranged from 27% to 47% across public funded rural poor targeted program. 31 Per capita monthly income cutoff level to be above poverty line is Rs 670 at 2010 prices for rural Rajasthan. (Ref: Report of the Expert Group to review the methodology for estimation of poverty, Planning Commission, Government of India, Sep 2009). 32 Source: Government and Rural Transformation: Role of Public Spending and Policies in Bangladesh, Mohinder S. Mudahar and Raisuddin Ahmed, The University Press Limited, 2010. 70 201. Efficient delivery of community funds. RRLP will strengthen village institutions to implement the designed project interventions. Optimum utilization of created institutional infrastructure and social capital in the project villages helps in reducing the delivery cost of community funds while enhancing the efficient use of public funds. The project proposes to disburse Rs 4718 M towards community investment support and to mobilize Rs 5649 through bank linkages both of which will form the T-5 Cost Efficiency of Community Funds Delivery in RRLP revolving fund to support the livelihood Project Costs Unit Amount investments. The cost of project Project coordination costs @ Rs M 594 coordination and institution and social Institution & Social empowerment @ Rs M 2066 empowerment to manage the community Community Investment support Rs M 4718 investment funds is estimated at Rs 2660 Bank Linkages # Rs M 5649 Cost of Delivering Community Funds M. Based on this, cost of delivering With 1st cycle of RF Rs 0.26 community funds (one rupee) to the With 2nd cycle of RF $ Rs 0.16 project villages is Rs 0.26, which will @ Excluding the cost of supporting skill development and climate change come down to Rs 0.16 with second # adaptation interventions. As projected in RRLP PAD, Para 72 in Page.32. recycling of RF during the project $ RF recycling ratio is l.6 as observed in CDLIP implementation in Sri Lanka implementation period. With repeated recycling of these funds the delivery cost will become much more efficient as compared to other public funded social safety net programs. More importantly, the delivered funds will be managed, operated and utilized by the community themselves 71 Annex 9: Access to Financial Services India: Rajasthan Rural Livelihoods Project (RRLP) Background 202. In Rajasthan, proportion of farmer households not having access to credit from formal financial institutions is 47.6%. About 14 districts, predominantly the RRLP districts, have been found to have credit gap of 97.8% - 95.2%. As a result informal channels such as money lenders, friends, and relatives play a significant role in lending to farmer households. Sources of Credit - Rural Rajasthan 11% Commercial Banks (incl. RRBs) 22% 5% Cooperative Banks Professional Money Lenders 17% 12% Agriculture Money Lenders Relatives & Friends 33% Other Informal Sources Agri./ Doctor, Co-op. professional Relatives lawyer society Bank money lender Trader & friends etc. Others Rajasthan 1.3% 5.9% 27.0% 36.5% 19.2% 6.9% 1.8% All India 2.5% 19.6% 35.6% 25.7% 5.2% 8.5% 0.9% Source: NSS (59th Round)-Report on Indebtedness of Farmer Households Access to Formal Financial Services for the Rural Poor in Rajasthan 203. Savings. Demand for savings is very high. It is estimated that more than 72% of the rural families and over 90% of urban families do some form of savings. The poor save money as cash in pocket/house, SHGs and with chit funds/committees. Savings in the form of recurring deposits in banks or post office and buying insurance is very meager to non-existent33. The savings of 33 Cash flow studies conducted by CmF in 2006. 72 SHGs as deposits in the banks is estimated to be about US$38 million, as on March 2010. The average savings per head, in SHGs, works out to less than Rs 692 (or US$15) which is about 2- 3% of BPL income level. 204. Credit. As per NSO survey (59 th round), 66% of overall rural population and more than 80% of BPL population in Rajasthan depend on informal channels for credit. The credit from informal sources comes at a very high cost (i.e. 32 ­ 60% annual interest). It is estimated that a very small proportion of BPL population in Rajasthan currently have access to any form of formal financial services i.e., savings and credit and a still smaller number of people have access to insurance and other risk management products. 34 Between 1997-98 and 2009-10, about 159,000 SHGs (or an estimated 1.91 million members) have received cumulative bank loan of about US$190 million. SHG Bank Linkage and Savings Performance in Rajasthan Total Number of SHGs (as on March 360,689 2010) Total Number of SHGs (as on March 217,000 2010) with Bank Account Total Number of SHGs received 159,161 bank loans (i.e., linked to Banks) (as on March 2010) % of SHGs with bank account 73.0% received bank loans % of SHGs, on average, receiving 9.5% bank credit annually (as part of SHG Bank Linkage) Average credit disbursed per SHG US$1199 Average loan per head (approximate) US$100 Total savings of SHGs in the Bank US$38.3 million Average savings per head (in SHGs) US$15 Source: Various (incl. SLBC Report and Rajasthan Microfinance Report 2010 205. Microfinance Institutions (MFIs) in Rajasthan. Since starting their operations in 2007, MFIs have grown rapidly both in terms of number of MFIs (from 5 to 22) and in terms of outreach. MFIs have combined clients in excess of 800,000 (as on December 2009) and the outstanding credit of MFIs is estimated to be about US$112 million, surpassing that of SHG- Bank linkage which is about US$107 million, as on March 2010. MFIs are also concentrated in certain pockets leading to clients being members of multiple MFIs. It is estimated that the client overlap between MFIs could be in excess of 60 percent, meaning the actual number of MFI clients is approximately 480,000 ­ 500,000 (or 60% of 800,000) clients. Of the 480,000 MFI 34 Rajasthan Microfinance Report 2010 by Center for Microfinance, Jaipur 73 clients about 380,000 (or 80%) are estimated to be SHG members or less than 9 percent of SHG members in the State are clients of MFIs.35 206. Remittances and insurance. For more than 66% of poor in Southern Rajasthan, major focus area of the RRLP, income from migration accounts for more than 54% of the household income.36 Remittances are predominantly done through informal channels (i.e. friends and relatives). Formal channels such as post-offices and banks are very small or non-existent. Similarly, access to formal insurances products is weak. The proposed project will invest in building last-mile service delivery architecture, wherein the Federation of SHGs will act as a bridge/facilitator between the financial institutions and the SHG clients. Experience from other rural livelihood projects clearly demonstrates the value proposition of such partnerships between community institutions and commercial financial institutions. 207. Huge demand-supply gap exists in terms of financial services credit: On average, a poor family needs about US$320 of credit every year to meet their consumption and small working capital needs. This translates into total annual credit demand of US$128 million for 400,000 households targeted by the project. If sustainable livelihood is to be ensured and people have to be brought out of poverty, then a family would need at least US$1200 credit (cumulative) over a period of 2-3 years. If the demand is to be seen within the overall framework of livelihood finance then the microcredit market, for the project area alone benefitting 400,000 households, can be estimated to be in excess of US$ 0.7 to 1.0 billion including investments in "value-chain" development. The current annual microcredit disbursement is US$65-70 million; the project investment (RRLP) over five years is about US$180 million leaving a substantial gap which needs to be addressed by harnessing multiple channels including commercial financial institutions like Banks and MFIs. Experience and Learning from DPIP 208. The success of DPIP has been in a) creation of assets by the poor; b) positive & high returns on investments (IRR in excess of >50 percent on average) 37; c) linkages to markets, particularly on the dairying, and handicrafts; and d) building a cadre of trained resource persons at the Village level i.e., village resource persons (VRPs). 209. The inability of CIG members to raise loans for subsequent investments, challenged the ability of the program to achieve sustainability beyond the project phase. Under the RDPIP, the CIGs were unable to raise loans for expanding/growing their existing business or for financing the working capital needs. Over the last 7 years, CIG members were able to raise less than US$10 million via loans from banks as against a total investment by the project in excess of US$100 million (i.e., leverage ratio of less than 0.10). Experiences from other livelihood projects in states like Andhra Pradesh, Bihar and Tamil Nadu, clearly demonstrate that investing in building good quality groups (i.e., SHGs), particularly those that demonstrate a good savings and credit culture, discipline (exhibited by regular meetings and maintaining good records/book- 35 As on March 2010, there are in total 360,689 SHGs. Considering an average of 12 members per SHG there are in total an estimated 4,328,268 SHG clients in the State. 36 Rajasthan Microfinance Report 2010 37 Source: Impact Evaluation Report, Rajasthan DPIP 74 keeping) and sound investment/livelihood practices, are able to raise loans from commercial banks and other financial institutions. Financial Inclusion Agenda for RRLP 210. The RRLP will be investing in developing more than 350,000 to 400,000 "bankable" and "credit worthy" clients in some of the most backward regions and districts (i.e., Southern Rajasthan) of the State. The project will be investing substantially in financial literacy and financial counseling prior to channeling projects funds for kick-starting livelihood activities. In addition, the project will support the linkage of SHGs with commercial banks for accessing loans. 211. The project will also engage with formal financial institutions in a strategic manner. The project proposes to address the gap in access to financial services by way of: a) changing the design from a CIG-based model to an SHG-based approach to facilitate greater access to fromal credit. b) investing in building people's institution and human social capital38 and federations of SHGs at the cluster level and PFT area level; c) promoting financial literacy & counseling, thrift-based groups and promoting financial discipline 39; and d) providing livelihood grants to the federation of SHGs at the cluster-level to · promote risk taking by members of the SHG by way of facilitating investments in income generating activities (IGAs) · invest in developing new types of financial products like food credit, nutrition credit, education savings amongst others · invest in trying out new delivery mechanisms by way of leveraging ICTs including mobile platform for improving and increasing access to financial services for the poor. Description and Design 212. Investing in institution and capacity building of the SHGs and Federation of SHGs at cluster and area level. a. Self Help Group (SHG) ­ is the base of the pyramid wherein members of the SHG meet at regular intervals (weekly/fortnightly/monthly) and engage in regular savings and inter- loaning (i.e., thrift and credit activities). Via this process, the SHGs develop the ability to work and trust each other, address the financial and social needs of the members via collective efforts, and develop financial disciplines of savings, borrowings and timely loan repayment. b. Cluster Development Organization (CDO) ­ is a federation of 5 ­ 15 SHGs. All members of the SHG are also members of CDO. The CDOs are tasked with specific roles which include governance; evaluating the livelihood plans prepared by the SHGs; and facilitating funding/investment needs of SHGs (incl. SHG-Bank linkage). The loans to 38 Human social capital includes a cadre of bookkeepers and para-professionals at the village-level, and professional staff as part of the project facilitation team which operate at the cluster level. 39 Financial discipline is promoted by way of promoting regular savings by members of the SHG, inter-loaning amongst the members of the group, ensuring on-time repayment, and maintaining good records or book-keeping of the financial transactions. 75 SHGs for livelihood investments or IGAs are also channeled through the US. Please refer to Community Operation Manual for details. c. PFT Area-level organization, is a federation of USs at the PFT-level or which provides the economy of scale (membership of about 3000 ­ 4000 SHG members) which can be leveraged to improve access to financial and social services. 213. Livelihood grants in support of livelihoods/income generating activities will directly flow to the USs as a grant. The USs in turn will revolve these funds amongst their SHGs. The SHGs will in turn will on-lend the money to its members at commercial interest rates for livelihood/income generating activities. The key objective of this model is two-fold: a) to ensure sustainability post project40; and b) the USs and SHGs will be able to raise additional funds by leveraging their respective corpus. 214. The cost of project funds to the ultimate borrower (i.e. SHG member) will be comparable to the cost of funds obtained from other formal channels. The Project Implementation Plan (PIP) and the Community Operations Manual (COM) clearly reflects that minimum cost of project funds to SHG members and microenterprises will be at market (interest) rate. This is to ensure that the project does not create any distortions in the rural finance markets. 215. Livelihood grants in support of livelihoods/income generating activities will flow to the USs and subsequently to SHGs in at least two tranches and against pre-agreed set of triggers/indicators. The reasoning behind the proposed arrangements are: a) ensure institutions are ready to handle the money flowing through them; b) adherence to minimum financial management standards, including financial/credit discipline; and c) incentivizing good performance as against promoting a culture of entitlement. 216. Funding to cluster-level organization limited to capacity building, start-up costs related to setting-up of office, and working capital for 12-months.The cluster level organizations are required to generate their own revenue by delivering service to USs and SHGs. The cluster level organization per se will not be involved in on-lending activity but will mobilize funds on behalf of its members i.e., USs and SHGs. The management & governance of cluster level organization will be similar to that of Producer Company i.e., governance functions will rest with SHG members and management functions will be handled by a professional team. 40 In the RDPIP, the money was given as a grant to the beneficiaries, as a result on completion of the project the members found it difficult or irresponsible to raise additional money to support the working capital needs for ongoing livelihood activities and also were constrained to grow their livelihoods in absence of new funds. The RRLP proposes to address this gap by developing sustainable financing model. 76 Fund Flow and Criteria Estimated Time Period Stage Activities/Criteria Bank account is opened and SHG is SHG formed registered SHG members demonstrate regular End-of 3 months SHG mid-way savings, inter-loaning and repayment culture Grading of SHGs In the 3rd month onwards CDO After at least three Grade A SHGs are formation will start CDO formation formed in the village After 6 months from the 1st Tranche of livelihood formation of SHG or 8th grant funds released to SHGs graded A are eligible to receive livelihood grants. month CDOs Minimum 3-months after the 1st Tranche 2nd Tranche of livelihood SHGs will go through a second round is released grant funds released to of grading, based primarily on the CDOs as per Livelihood submission of Livelihood Plans (LPs). Plans of SHGs 12 ­ 18 months since Formation of Higher-level At least 30 CDOs are formed and/or the formation of SHG Federations 2,500 to 3,000 households have been mobilized into SHGs 77