JAPAN SOCIAL DEVELOPMENT FUND - GRANT PROPOSAL FY10 ROUND 29 A. Basic Information A.1 Beneficiary Country Lao People's Democratic Republic A.2 Grant Recipient Government of Lao PDR's Poverty Reduction Fund A.3 Name and Address of Implementing Agency Government of Lao PDR's Poverty Reduction Fund, c/o Ministry of Planning and Investment, Luangprabang Road, P.O. Box 4625, Vientiane Capital, Lao PDR A.4 Is the Implementing Agency a Government Yes entity? #(in case of joint implementation by government and NGO(s), please provide details on the legal status of each agency under Grant Implementation Arrangements below) A.5 Administrator International Development Association A.6 Grant Name ROUND 29 LAO PDR MOBILIZING ETHNIC COMMUNITIES FOR IMPROVED LIVELIHOODS & WELLBEING A.7 Grant Amount in USD (includes incremental 2,859,500 Bank costs) A.8 Does this grant proposal qualify for the No special allocation for Africa? B. Grant Development Objectives The objective of the proposed grant would be to pilot an innovative livelihood focused community-driven development (CDD) program in FIVE poverty reduction priority districts within TWO provinces (Huaphan in the North and Savannaketh in the South) enabling 28,800 households in ethnic communities in rural areas in Lao PDR to improve their livelihoods and wellbeing through group-based activities. C. Eligible Expenditures List all applicable eligible expenditures below in one or more categories as necessary. Eligible expenditures include consultant services (including audits), local training and workshops, small civil works, goods, sub-grants and incremental Bank costs. Category Amount (US. Dollars) Percentage of Percentage of Grant Expenditures to be Amount Financed CONSULTING 523,000 100% 18% TRAINING 542,500 100% 19% OTHER 1,400,000 100% 49% OPERATING COSTS 120,000 100% 4% GOODS 36,000 100% 1% Total Grant to Recipient 2,621,500 Incremental Bank Cost 238,000 8% Total Grant Amount 2,859,500 1 Grant Supplementary Information Section 1 - Administrative Information Trust Fund No. (For CFPTO Use Only) TF097786 Resubmission Yes JSDF Grant Type Project Sector Code Social Development Grant Approval Date (For CFPTO Use Only) 00000000 Task Team Leader Ms Helene Monika Carlsson Rex TTL Email hcarlsson@worldbank.org TTL Phone Number 455-784+ Was a JSDF Seed Fund used to prepare this Yes, a JSDF Seed Fund was used to prepare this grant - TF095163. grant? If so, please indicate the TF number. Section 2 - Details of the JSDF Grant Section 2.1 - Grant Components and Activities Briefly describe the specific activities (limit 300 words) to be carried out under each component Component 1 COMPONENT 1: FORMATION OF COMMUNITY SELF-HELP GROUPS AND CAPACITY BUILDING OF LOCAL SERVICE PROVIDERS Cost (USD) 692,500 This component will focus on forming self-help groups, with a focus on women's self-help groups (SHGs), in ethnic minority communities and building these groups' capacity to articulate their own needs and to successfully implement sustainable livelihood activities. This component will also train recent college graduates to serve as community facilitators, build the capacity and results-focus of local service providers and link available technical assistance with community needs. Rural livelihoods are predominantly linked to agricultural production which accounts for more than 80% of the Lao labor force. Most villagers are subsistence or semi-subsistence farmers engaged in rice-based farming, the collection of forest products, and livestock-raising. Thus it is expected that self-help-groups will focus primarily on agriculture-based livelihood activities, although opportunities to develop handicrafts or other micro-enterprises will be possible. Three sub-sets of activities are envisioned: (I) ENHANCING SOCIAL CAPITAL THROUGH FORMATION AND CAPACITY BUILDING OF SELF-HELP GROUPS: This activity would support the formation of SHGs, with a focus on establishing women's groups. Facilitation and training for community SHGs would be provided on livelihoods and nutrition improvements, participatory decision-making, financial literacy, and other aspects of the program. A village SHG can be either pre-existing or newly created in response to the pilot, and a village can have multiple groups. Criteria for group composition will be established to ensure the inclusion of marginalized and poor members of the community, and the fair and transparent distribution of livelihood benefits. (II) IDENTIFY & TRAIN COMMUNITY FACILITATORS: Based on the Government's Graduate Deployment Program, this activity will identify, train and deploy young graduates from pilot districts to facilitate local participatory development processes for improved livelihoods and nutrition. Facilitators will be responsible for supporting creation of community SHGs, for facilitating linkage of nutrition to livelihoods improvement, and for monitoring implementation of nutrition and livelihoods activities. (III) BUILD CAPACITY & INCENTIVES AMONG SERVICE PROVIDERS: This activity would train local service providers, including district officials and line ministry extension workers from Ministries of Health; Agriculture, Forestry and Fisheries; Commerce and Industry, and Lao Women's Union, to better respond to the needs articulated by the community SHGs. It would also provide incentives for service providers to actively support these groups, and include a results-based agreement between SHGs and service providers. Monitorable Deliverables/Outputs i) 200-300 SHGs formed /year; ii) Training & Deployment of 70 local graduates in participatory processes; iii) Increased capacity of local service providers to support community livelihoods 2 Component 2 COMPONENT 2: COMMUNITY ASSET CREATION FOR IMPROVED LIVELIHOODS Cost (USD) 1,244,000 This component will provide grants (average of $2,000 each) to eligible village SHGs through a competitive and participatory selection process, and support the planning and implementation and sustainability of livelihood activities. Activities under this component will focus on empowering participants with technical assistance and promote sustainability by building financial literacy and establishing links to markets. Three sub-sets of activities are envisioned: (I) PROVISION OF INPUT SUPPORT FOR PRODUCTION AND MARKETING THROUGH GRANTS & IN-KIND CONTRIBUTIONS: To access the sub-grant, villagers have to develop proposals with the assistance of graduate livelihoods facilitators that meet certain conditions (such as a minimum understanding of CDD concepts, links between nutrition and livelihoods, and a 10% minimum beneficiary contribution). Examples of investments which could be made with livelihoods sub-grants include purchase of livestock (buffaloes, chickens, pigs) for SHG management, purchase of agricultural inputs (seeds, fertilizer) to increase SHGs' production for own consumption and/or sale, purchase of equipment needed for collective handicraft production. Village representatives at khumban level will manage a competitive process for distribution of livelihood sub-grants and technical assistance based on proposals submitted by self-help groups. (II) EMPOWERING SELF-HELP GROUPS THROUGH TRAINING AND TECHNICAL ASSISTANCE: SHGs will be eligible to receive training and technical assistance to support the planning, management and implementation of proposed livelihood activities. This training would build on the training received under component 1, for the formation and capacity building of SHGs. District-level rosters of available technical assistance and trainings (from line ministries, private organizations and other donor projects) will be created to facilitate matching of appropriate livelihood support with SHG needs. Communities will have access to this information on available service providers to encourage transparency and accountability in the selection and delivery of training and TA. (III) PROMOTE SUSTAINABILITY THROUGH BASIC FINANCIAL LITERACY AND LINKS TO MARKETS: SHGs will receive basic training and support to improve their capacity to manage financial aspects of livelihoods activities and link their local production to markets using a value chain approach. Only about 40% of the Lao farms are currently producing some of their output for the market. Given the limited market access of many remote villages and low literacy levels of target groups (especially ethnic minorities and poor women), this sub-component will begin with a participatory assessment of self-help-group needs and opportunities. Facilitators will then work with SHGs to develop strategies for increasing financial literacy, access to credit and markets. Strategies are expected to be very preliminary and lay the groundwork for the development of stronger market linkages and access to micro-finance through partnerships with other agencies and organizations in future livelihoods interventions. Monitorable Deliverables/Outputs i) Approx. 500 community livelihood sub-grants and appropriate technical assistance delivered in 5 pilot districts over 3 years. Component 3 COMPONENT 3: PARTICIPATORY PRO-NUTRITION ASSESSMENT & ACTIVITIES Cost (USD) 441,000 Compared to other countries, Lao PDR has experienced very high and largely unchanged malnutrition over the past 15 years -- despite improvements in poverty reduction and increased household incomes. Prevalence of stunting of children under five years of age in rural areas among non Lao-Tai ethnic groups is significantly higher than among Lao-Tai ethnic groups, for some groups as high as 60%. Experience show that improved livelihoods and income do not necessarily translate into improved nutrition, in some cases the opposite is true, as villagers spend money on foods (such as sweets) that have low nutritional value. As well, rural communities are coping with significant change in agricultural landscapes as a result of increased market penetration (more cash crops), declining access to natural resources (declining use of non-timber forest products as a nutrition safety net). This component will promote the development of pro-nutrition livelihood activities and avoid any negative impacts from livelihood activities on community food security and nutrition. It will include concrete assistance, especially for women, to organize and act collectively for pro-nutrition community driven development. Two subsets of activities will be developed: (I) ENGAGE COMMUNITIES IN PARTICIPATORY ASSESSMENT & PRIORITIZATION of nutrition problems and solutions: Community consultations reveal that villagers have very limited capacity to judge whether their diets are adequate or not, what food items are missing or what solutions are needed to improve the situation. This sub-component would use the 'Triple A' methodology for participatory Assessment, Analysis and Action to help communities understand and assess their nutritional problems and solutions. The participatory assessment would reveal the type and extent of the nutritional problem and its 3 impacts, the analysis would expose main causes, and the action would be to identify a set of prioritized interventions (II) PROVIDE TRAINING AND SUPPORT FOR IMPLEMENTATION OF PRO-NUTRTION ACTIVITIES: This sub-component will enable self-help groups, focusing particularly on women, to link nutrition solutions to livelihoods improvements. Building on the findings from the Triple A process, the training will focus on helping villagers implement nutrition-livelihood activities. For example, ensuring that increased agricultural productivity translates into increased food availability at the household level (not just sold to market), or that increased incomes translate into improved dietary diversity (not just increased calories from 'junk' foods). Self-help groups will also be eligible to receive additional resources to implement pro-nutrition activities, such as establishing school vegetable gardens in connection with agricultural livelihood projects. Monitorable Deliverables/Outputs i) Participatory pro-nutrition assessment, training and activities implemented in 2 pilot districts; ii) Approx. 100 community livelihood sub-grants & appropriate TA delivered Component 4 COMPONENT 4: MONITORING AND IMPACT EVALUATION OF PILOT ACTIVITIES Cost (USD) 244,000 The grant would be implemented using PRF's existing implementation, monitoring and evaluation arrangements. This component will evaluate pilot impacts as well as efficacy of implementation and monitoring mechanisms, with lessons intended to inform the planned expansion of the Poverty Reduction Fund. Program design will enable systematic comparison of impacts and cost-effectiveness of providing livelihood grants alone, and providing livelihood grants with intensive nutrition training. As well, special studies will be undertaken to focus on particular thematic or operational innovations of the pilot. Three sub-sets of activities are planned: (I) Regular program MONITORING: Capacity-building of PRF systems for management and monitoring of livelihoods pilot program implementation (regular financial and implementation progress reports, audits, supervision and field visits, beneficiary satisfaction and utilization assessments, etc.) The grant would be implemented using the existing implementation arrangements of the PRF. The PRF is expected to establish a project management team, acceptable to the World Bank. (II) Rigorous IMPACT EVALUATION of livelihoods and nutrition improvement pilot: Baseline and final household surveys will be designed to assess livelihoods pilot outcomes, impacts and efficacy comparing different treatment groups (those receiving livelihoods sub-grants only, with those receiving livelihoods sub-grants and Triple 'A' nutrition training) and a control group. (III) SPECIAL STUDIES: to focus on particular thematic or operational innovations of the pilot such as assessing methodologies of self-help group formation and management (including the experiences of women-only vs. mixed-gender groups, of new group formation vs. supporting existing village associations), the financial sustainability of SHGs and access to credit, approaches for ensuring ethnically inclusive nutrition and livelihoods support, and participatory assessment of nutrition training. Monitorable Deliverables/Outputs i) Baseline and final household surveys, thematic & operational research and participatory assessments in 5 pilot districts; ii) PRF capacity for M&E of livelihoods improved; iii) annual audits Summary Description for Grant Agreement The Government of Lao PDR Poverty Reduction Fund (PRF) is the grant implementing agency. Grant financed activities would be implemented in five districts (including Viengthong, Huameuang, Xamtay, Phin and Nong) in two provinces (Huaphan and Savanneketh). Activities would be clustered into four components, including: (1) FORMATION OF COMMUNITY SELF-HELP GROUPS & CAPACITY BUILDING OF LOCAL SERVICE PROVIDERS: This component will focus on forming self-help groups (SHGs), with a focus on women's SHGs, in ethnic minority communities and building these groups' capacity to articulate their own needs and to successfully implement sustainable livelihood activities. The component will also train recent college graduates to serve as community facilitators, build the capacity and responsiveness of local service providers and link available technical assistance with community needs. (2) COMMUNITY ASSET CREATION: This component will provide grants (average of $2,000 each) to eligible village self-help groups through a competitive and participatory selection process, and support the planning, implementation and sustainability of livelihood activities. Activities under this component will focus on empowering participants with technical assistance, promote sustainability by building financial literacy, establishing links to markets and promote pro-nutrition livelihood activities. 4 (3) PARTICIPATORY PRO-NUTRITION ASSESSMENT & ACTIVITIES: Progressive reduction of poverty rates and increased household incomes in Lao PDR have not led to significant improvements in malnutrition over the past 15 years. This component will thus seek to ensure that livelihood sub-grants to SHGs have a positive impact on community nutrition. Participatory pro-nutrition assessment and activities will be introduced in targeted areas of the pilot to allow evaluation of the effects of linking community-based livelihood improvements with pro-nutrition activities. (4) MONITORING AND IMPACT EVALUATION OF PILOT ACTIVITIES: This component will evaluate pilot impacts as well as efficacy of implementation and monitoring mechanisms, with lessons intended to inform the planned expansion of the Poverty Reduction Fund. Program design will enable systematic comparison of impacts and cost-effectiveness of providing livelihood grants alone and providing livelihood grants with intensive nutrition training. As well, special studies will be undertaken to focus on particular thematic or operational innovations of the pilot such as assessing methodologies of self-help group formation and management, and the financial sustainability of SHGs and access to credit. Section 2.2 Incremental Bank Costs The costs of normal supervision are expected to be covered through the administrative budget and fee provision. Under exceptional circumstances, if additional resources are needed to facilitate community participation or NGO collaboration under particularly difficult conditions, incremental Bank costs can be requested up to 9 percent of the total grant amount. Amount requested in USD 238,000 Lao PDR is a low income country with very low capacity - including both weak administrative and technical capacity to implement governmental programs and weak human and social capital in many rural areas. Testing the potential of the proposed pilots under these circumstances will require a significant amount of Bank staff and consultant support, especially in the first year when program design will be finalized and when implementation will be initiated. The team therefore requests 8% of the grant amount, calculated as 4% for each of the first year and 2% for each of the remaining two years. In general, the disbursement rate of World Bank activities in Lao PDR is high; but such disbursements rates are only possible when accompanied by active supervision. Section 2.3 - Rationale and Participatory Approach Briefly present (a) the origin and rationale for the proposal; (b) participatory activities which led to the proposal concept; (c) its innovative features in responding rapidly to the needs of the poor and vulnerable groups; (d) describe the intended beneficiaries and provide an estimated number of beneficiaries and cost per beneficiary. RESPONDING TO THE NEEDS OF VULNERABLE GROUPS IN REMOTE ETHNIC COMMUNITIES: Lao PDR is one of the poorest countries in East Asia. While the number of people living in poverty has decreased significantly during the last decade, considerable discrepancies remain particularly between ethnic groups and geographical areas. In reality, not everyone has benefited from reduced poverty and development efforts. The country consists of some 47 different ethnic groups. The incidence of poverty is 25 percent among the Lao-Tai (considered the majority group) compared to 54, 40 and 46 percent among Mon-Khmer, Hmong-lu Mien and the Chine-Tibet ethno-linguistic families respectively. Social and poverty differences based on gender are substantially higher among the ethnic minority communities than in lowland communities and/or among the dominant ethnic Lao-Tai groups. By focusing on ethnic communities in remote underserved areas and having a strong gender focus, this proposal responds directly to the vulnerable communities' need for improve livelihoods and wellbeing. The extensive consultative process allowed the voices of ethnic minority groups in remote areas to inform the proposal design, and ensure that the particular needs, constraints (and opportunities) facing these groups drove the grant inputs. LINKING IMPROVED LIVELIHOOD TO SUSTAINED NUTRITION STATUS: Experience shows that improved livelihood and income do not necessarily translate into improved nutrition. In some cases the opposite is true as additional income is spent on 'junk' food and/or nutrition rich food is sold at the market, rather than being consumed by the family. The proposal focus on nutrition responds to the concern that changes in livelihoods may negatively impact villagers' nutrition status. Coupled with already high levels of malnutrition in the country, and a drastic change in the agricultural landscape (for example by concessions) the pilot pro-nutrition focus is designed to ensuring that livelihood improvements also translate into nutrition improvement. The nutrition component would thus empower villagers to understand their village and family nutrition problems and needs, thereby allowing them to make inform decisions, as well as provide additional grants to implements pro-nutrition activities. JSDF Seed Funds supported participatory - bottom-up - village consultations that heavily influenced the design of the proposal. As well, the proposal draws on other participatory consultations undertaken by the World Bank and other donors in Lao PDR during the last three years. While different in scope and context, the consultations all have in common the 5 conclusion that villagers would like additional support to improve their livelihood and well-being. Specifically, seed funds from the JSDF supported consultation in 12 villagers (including 11 ethnic minority villages) in Savannakhet Province (in the South) and Huaphan Province (in the North). These provinces were selected because they are home to a large proportion of ethnic minorities, they are very poor, remote and underserved (for example, the high-land areas in Savannakhet are among the poorest in the country). The consultations focused on the definition of the objectives, components, and how community groups can participate in the implementation of the JSDF Grant and through which mechanisms. In each village, both a men's and a women's focus group discussion was held, as well as a brief transect walk to identify significant features in the village landscape, and an interview with the village leadership. Villagers also did a livelihood ranking exercise, brainstormed about problems, barriers and solutions to livelihood improvements. Some of the conclusion from these village consultations include: villagers are interested in learning new techniques to improve their livelihoods, provided they are accompanied by material support and access to financing; villagers would like to find ways of increasing income through existing activities (increasing yields, quality, quantity); and villagers need to understand more about nutrition and food in order to take advantage of development benefits. Villagers also noted that access to credit and markets are important to their livelihoods. In addition, the JSDF Seed Funds also supported nutrition focused village consultations in four villages in Huaphan Province. These consultations included villagers' self evaluation of their nutritional status, identification of food sources, food consumption frequencies and food value, and discussion around villagers' vision of how their nutrition status can be improved. The village self-evaluation revealed that villagers are aware of their sub-optimal growth and physical weakness and indicated a readiness for more investment in nutrition. With regards to food sources and consumption, villagers noted that food sources are diverse but are undergoing different forms of transition, and that while the mainstay of diets is rice, increasingly sweets, cakes and other cheap and processed foods are becoming daily food items, especially for children. Villagers seem to have low knowledge of what foods are good to eat and how to start healthy into pregnancy. Traditional knowledge, beliefs and practices are prevalent. But at the same time, the consultations revealed that villager are eager to learn what foods are good to eat, and how to make pro-nutrition investments. The proposal also responds to participatory consultations undertaken as part of the 2008 World Bank evaluation of three different Community Driven Development (CDD) approaches in Lao PDR, and draws on earlier consultations for participatory poverty assessments. Specifically, the proposal responds to qualitative study of 32 randomly selected villages, and focus groups discussions with beneficiaries in 14 villages which had received support from CDD livelihood activities during 2004-2006. These consultations concluded that while the PRF has been successful in improving service delivery and local infrastructure; other CDD programs targeting livelihood improvement have shown poor results. A key and recurring source of failure: subsidized micro-finance-based support delivered without corresponding technical assistance often led to poor targeting, limited livelihood impacts, and unsustainable financial incentives with recipients either burdened with debt or defaulting on repayment. While these models of livelihood programs have been largely unsuccessful, participants in focus group discussions conducted for the evaluation nonetheless consistently identified support for livelihoods as their priority for poverty reduction. Responding to the expressed interest, and unmet demand of rural villagers for livelihood activities, this proposal intends to design and test alternative community wellbeing and livelihoods models by linking capacity building, grants and technical assistance. INNOVATE IN A LOW-CAPACITY ENVIRONMENT: Lao PDR is a low-income, low-capacity country with a history of centralized planning and limited experience with participatory approaches. In this context, from the GoL's perspective implementing any CDD approach is already innovative and pushing the boundary. In the EAP Region, adapting CDD to livelihood improvement is also relatively new. GENDER ISSUES AT THE CENTER: This proposal further innovates by placing women at the center of livelihood improvement activities, recognizing the key role women play as producers and households' food providers. FOCUS ON LINKS BETWEEN LIVELIHOOD IMPROVEMENTS AND NUTRITION STATUS: As well, the proposal innovates by mainstreaming a focus on nutrition into the proposed livelihood improvement activities, thereby responding to persistent high levels of malnutrition in the country, rapid changes in the rural space, and addressing the concern that improved incomes may lead to worsened nutrition status. The pilot will support innovative CDD approaches in FIVE of the GoL's 47 poverty reduction priority districts within TWO provinces: Huaphan in the north and Savannakhet in the south. In both provinces other World Bank projects are active and the Poverty Reduction Fund has established local participatory processes. By design, the PRF operates in some of the most marginalized and remote ethnic communities of these provinces, and will seek to respond directly to their needs. To promote a better understanding of the pilot's impact in different settings, a diverse set of districts have been selected, 6 including districts that are hot-spots for malnutrition, that are home to non-Lao majority ethnic communities, and that have high incidences of poverty. Priority would be given FIRST to ensure that non-Lao ethnic groups are included in pilot program activities, and SECOND that women are given voice and opportunity to benefit from pilot program activities. The projected impact of the grant would include improved livelihood, well-being, voice and empowerment among the most vulnerable segments of Lao society, including non-Lao ethnic communities, remote rural households, and female-headed households. The grant would also contribute to improved government and community capacity to implement CDD-livelihood activities and participatory approaches. It is expected that khumban-level committees of village representatives will allocate livelihood and/or nutrition sub-grants of an average amount of $2,000; thus, the total number of sub-grants would be 70 ($1.4M/$2,000). Assuming an average of 8 members per group of livelihood sub-grant recipients with 5 dependents each (corresponding to the average Lao household size of 6 persons), each sub-grant is expected to reach 48 beneficiaries. Thus, there will be an estimated number of 28,800 sub-grant beneficiaries over three years. THE COST PER BENEFICIARY of the sub-grants would be $48 ($1.4M/28,800). The total cost per beneficiary of the grant amount ($2,621,500/ 28,800) would be $91. It is, however, expected that indirect impacts of improved livelihoods and nutrition will reach more broadly throughout the populations of pilot districts. Section 2.4 - Sustainability Indicate the mechanism for sustainability of the proposed activities after the completion of the grant. This should include a description of the exit strategy and mechanism for long-term sustainability with specific measures and cost. The PRF is working towards transformation into a national program, which would give it a clear mandate and responsibilities for all khumban and village level planning activities, for provision of small-scale local infrastructure, and for coordination of poverty reducing activities. The pilot, if successful, would provide the basis for integrating livelihoods and nutrition/life-skills programming throughout the country. This transformation would help ensure the program's longer-term institutional sustainability. If the PRF becomes the designated government body for delivery of the activities listed above, it is expected that the government will reallocate resources for poverty reduction that it currently provides to line ministries, to PRF program activities. The likelihood of longer-term financial sustainability also will be strengthened through use of government revenues from the Nam Theun 2 Hydropower Project, and through greater involvement of other donor agencies in what would become Lao PDR's flagship poverty reduction program. The proposed pilot is designed to end after three years, but is expected to leave behind a robust and tested institutional capacity for delivery of community livelihoods and nutrition support programs. Section 2.5 - Safeguard Issues Describe any significant adverse impacts related to environment and social safeguard policies, and how they will be addressed. The activities to be piloted would likely have little or no adverse environmental or social impact. Sub-grant selection would be subject to screening against a 'negative list' of ineligible activities, including activities that may cause adverse environmental or social impacts. Screening, if conducted properly, would eliminate most safeguards risks, e.g., land acquisition or restricted access to resources, conversion of natural habitat or forests for agricultural purposes, or use of pesticides. Pilot design will explicitly promote active engagement with non-Lao ethnic communities, with specific facilitation and monitoring arrangements provided to ensure that they can benefit in a culturally appropriate manner. Because the potential for minor adverse impacts cannot be completely eliminated, safeguards-related policy provisions in the existing PRF operations manual will be adopted or adapted as necessary. Section 3 - Linkage to Country Strategy and Associated Bank Financed Operation 7 Section 3.1 - Country/Sector Background Provide any specific information related to country and sector strategies which may support this proposal. The proposal directly responds to three key development issues in Lao PDR, including: persistent and high incidence of poverty particularly in remote areas and among non-Lao ethnic groups despite strong aggregate economic growth; persistent and high levels of malnutrition (with a stunting prevalence of over 40% in 2006, amongst the highest in the EAP region); and weak capacity for participatory community driven approaches to development. By supporting livelihood improvements and communities' empowerment, the proposed Grant is in line with the Government's National Growth and Poverty Eradication Strategy (NGPES)'s policies of promoting affordable, community-based solutions and of supporting rural development. The proposed grant is also in line with the principles and policies of the National Socio-Economic Development Plan 2006-2010, which among others aims at (i) promoting participation of the poor in making decisions about their future, which is seen as being essential for their empowerment; (ii) fostering decentralization as a means to ensure sustained participation of the people, including the poor and women in local affairs; and (iii) promoting informed participation of the poor through improved top down and bottom-up flows of information, communication, and education. By addressing the issue of malnutrition the proposed Grant is supporting the National Nutrition Policy which seeks to accelerate the reduction of malnutrition among all ethnic groups and associated morbidity and mortality risks. This proposal is entirely consistent with the aims and objectives of the Lao PDR Country Assistance Strategy (CAS). It is directly supportive of the first CAS pillar which aims to sustain growth by promoting rural development. It is also directly supportive of the second CAS pillar which focuses on improving social outcomes and reducing vulnerability. The pilot activities also aim to contribute to the third CAS pillar that addresses strengthening the capacity of line ministries to implement the objectives of the National Socio-Economic Development Plan. Section 3.2 - Bank Financed Operation the Grant will Complement LA - Poverty Reduction Fund Project, Project ID: P106188, Board Date: July 8, 2008 PROJECT DEVELOPMENT OBJECTIVE: The Project Objectives are: (khumban) Financing community infrastructure activities, and other community public capital investments endeavors and training activities at the village level; (ii) Building local capacity at the village level in poor districts to manage public investment planning and implementation; and (iii) Strengthening the capacity of local institutions to support participatory decision-making at the village, khumban, and district levels. COMPONENTS: The Poverty Reduction Fund Project (PRFP) has three main components: i) VILLAGE SUB-PROJECT GRANTS: This component finances grants for eligible infrastructure sub-projects identified by the villages, such as access and transport infrastructure; schools and nurseries; clinics etc. ii) LOCAL CAPACITY BUILDING: This component supports the PRF objective of empowering communities by training them in assessing their own needs, in discussing them with the district, and in implementing and supervising the construction of public infrastructure. The component also reinforces capacity at the district and provincial level via training sessions and targeted assistance/incentives mechanisms to improve ownership of PRFP infrastructure. iii) NATIONAL PROJECT MANAGEMENT: This component finances the cost of staffing, managing, monitoring, reporting and operating the PRF. Section 3.3 - Rationale for Grant Funding versus Bank Lending Briefly describe why the proposed JSDF activities could not be financed under the Bank-financed operation or by other sources. From the client perspective, a JSDF grant is highly desirable as a source of timely support for innovation in program design and piloting of new activities. Both PRF and GoL would prefer to direct the country's limited allocation of IDA resources to ongoing projects or programs that are less experimental in nature.The PRF is working towards transformation into a national program, which would give it a clear mandate and responsibilities for all khumban and village level planning activities, Section 4 - Grant Implementation Arrangements 8 Section 4.1 - Name and Government of Lao PDR's Poverty Reduction Fund, c/o Ministry of Planning and Investment, Address of Implementing Luangprabang Road, P.O. Box 4625, Vientiane Capital, Lao PDR Agency Please provide the rationale for the selection of the implementing agency Briefly describe the organization's mission, country/sector experience, program of activities, sources of financing, and evidence of financial management capacity to assure appropriate use of JSDF funds. If the grant will be implemented by more than one entity, briefly describe the responsibilities of each implementing agency. The PRF is a Government Agency and a legal entity under the Prime Minister's Office. It receives support from the World Bank and Swiss Agency for Development Cooperation (SDC). The team selected the PRF as the implementing agency based on a number of reasons, including: STRATEGIC OPPORTUNITY: Created in 2003 with the support of the World Bank, the PRF is the largest CDD program in the country. It is recognized as the most efficient tool of the Lao government to implement its National Growth and Poverty Eradication Strategy (NGPES). Working with the PRF is therefore a strategic way of influencing the broader poverty reduction agenda in Lao PDR. The proposal seizes a timely opportunity to influence the planned expansion of the Poverty Reduction Fund (PRF), the largest CDD-based program in Lao PDR. Specifically, PRF is planning for national expansion and broadening its operating scope from small-scale infrastructure and public service delivery to include activities that support livelihood improvement. The Government of Lao PDR is therefore seeking evidence-based guidance and support for testing scalable livelihood improvement models. By piloting different models for livelihood improvements and contributing to building capacity in the area of participatory and gender-based community driven development, the proposal aims to influence this expansion of the PRF. SYSTEMS IN PLACE: The PRF is already receiving financial and technical support for local infrastructure delivery by the World Bank through the Poverty Reduction Fund Project. The World Bank and the PRF has a strong and solid working relationship. Working with the PRF, will allow the pilot to draw on the PRF's systems (including fiduciary, managment etc.) GOOD IMPLEMENTATION PROGRESS: A World Bank and SDC review in December 2008 of PRF's implementation progress to date, concluded that the PRF is successful in the implementation of the project, including in terms of fiduciary performance. With the support of the proposed capacity building component (which is essential), the team believes that the PRF will have the capacity to implement the proposed pilot. The PRF operates in the poorest villages of the GoL's 21 'first priority districts for poverty reduction' in seven provinces with an annual budget of more than US$ 6.5 million funded by grants from the World Bank and from the Swiss Agency for Development and Cooperation (SDC). If the PRF is expanded, it is expected that all (or at least a significant portion) of the national budget given to other line ministries for village and khumban-level infrastructure and services, including livelihood support, would be channeled through the PRF. If PRF becomes a national program, other donor agencies are likely to join the World Bank and SDC in supporting its activities. The JSDF livelihood and nutrition pilot would draw from the existing annual subproject cycle as outlined in detail the PRF Operation Manual. The current subproject cycle includes: (1) Villager Needs Priority Assessments (with separate inputs from men's and women's groups) in all target districts; (2) selection of village representatives (one man, one woman neither holding an official office) to participate in Khumban and District prioritization meetings to develop consolidated list of proposals from area villages; (3) design and feasibility assessments of proposed subprojects (with PRF technical assistance); (4) District Decision meeting of village representatives, PRF and line ministry staff to allocate funding for subprojects; (5) transfer of funds from PRF to village representatives for subproject implementation; and (6) monitoring and evaluation of subproject implementation. N/A Other institutions (if any) involved in grant implementation. If sub-grants are a component, describe how they will be managed. The grant will be implemented using the existing implementation arrangements with PRF. However, while for the PRF's infrastructure and service delivery grants, allocation is at the district level; PRF livelihood grants will be disbursed to khumban level management committees of village representatives, with the self-help groups (to the extent possible) managing the sub-grants. Following the existing PRF model, based on the number of villages, their poverty level and the population of each khumban, a khumban livelihood budget allocation will be calculated at the beginning of every annual cycle of the pilot and will 9 average around $6,000 (annual budget for sub-grants divided by total number of khumbans). Meetings will be organized at village and at khumban levels during which villagers and their elected representatives select the livelihood projects which will be implemented with this budget allocation (estimated 3 projects per khumban of $2,000 each, but village representatives will decide on how to divide funds between different livelihood project proposals in each khumban). Accountability meetings are organized several times per year during which khumban team members report to villagers on how funds were used and on progress of project implementation. Section 4.2 - Consultation with Other Development Partners Describe consultations with Japanese embassy, JICA, as well as other MDBs (e.g., ADB, IDB, AfDB, EBRD) in the design of grant activities (indicate names of officials contacted at Japanese embassy and dates). Explain the division of labor among the various partners in order to avoid overlap between programs. The present PRF program is supported primarily by the World Bank, with additional support provided by The Swiss Agency for Development Cooperation (SDC). The SDC representative has been consulted, and has expressed an interest in continued involvement in the design of the pilot. The Bank's pilot preparation team consulted with a representative of the Japanese Embassy in Vientiane (Ms. Akemi Ishikawa, advisor for economic and social development) on October 15, and again on October 22, 2009. Ms. Ishikawa, a former rural development officer within JICA, indicated strong support for the proposed pilot, and expressed a desire for continued involvement as the program evolves. At present, there is no indication of overlap between the proposed pilot and other donor-supported programs. The proposed pilot activities are broadly supportive of objectives espoused by a multi-donor working group focusing on poverty reduction in upland areas. There is a potential risk that demands for technical inputs generated by the pilot could divert attention from other non-PRF-related donor programs operating in some of the same districts. The capacity of district agents to provide technical inputs will be assessed during detailed program design. The team has consulted with the Japanese embassy (see above for details) Section 4.3 - Monitoring and Evaluation List and quantify the performance indicators (maximum 5) and explain how the grant activites willl be monitored and evaluated against these indicators. Please use outcome-level indicators in line with the project objectives (e.g., productivity enhancement; increased access to social and community services and infrastructure; and improvement in the living conditions of the poor and vulnerable groups). Please indicate targets and performance indicators for monitoring the measures. Indicators Base Value Base Date Target Value Target Date 1. HOUSEHOLD To be established by 04/01/2010 5% annual increase in 03/31/2013 CONSUMPTION baseline household beneficiary household (POVERTY INDICATOR) survey consumption (comparing households in pilot treatment group with control group) 2. HOUSEHOLD INCOME To be established by 04/01/2010 5% annual increase in 03/31/2013 (VULNERABILITY baseline household household income INDICATOR) survey (comparing households in pilot treatment group with control group) 3. PARTICIPATION IN To be established by 04/01/2010 10% increase in 03/31/2013 SELF-HELP GROUPS baseline household participation in (SOCIAL CAPITAL survey community-based INDICATOR) self-help groups based on index of social capital factors to be developed (comparing households in pilot 10 treatment group with control group) 4. WOMEN'S To be established by 04/01/2010 10% increase in 03/31/2013 EMPOWERMENT baseline household women's participation (GENDER INDICATOR) survey in local livelihoods decision-making index of empowerment factors to be developed (comparing households in pilot treatment group with control group) 5. PRO-NUTRITION To be established by 04/01/2010 25% of program 03/31/2013 LIVELIHOOD CHOICES baseline household beneficiaries develop (NUTRITION survey livelihood activities INDICATOR) with a pro-nutrition impact (comparing households in pilot treatment group with control group) Section 4.4 - Risk Affecting Grant Implementation See attached Risk Assessment Sheet Section 4.5 - Retroactive Financing If retroactive financing is envisaged, the automatically generated grant agreement will specify the grant approval date as default retroactive financing date. This date can be manually set in the grant agreement to a later date but not earlier, if desired. Is retroactive financing needed? No Retroactive financing amount, if needed. Section 4.6 - Financial Arrangements This section should be filled out in consultation with the Financial Management Specialist. Are interim unaudited financial reports required? If yes, A fiduciary assessment of the Poverty Reduction Fund by the indicate frequency. Note: These reports should normally be World Bank, concluded that fiduciary arrangements are used to support disbursement. satisfactory and on par with World Bank standards. Rather than creating a separate system, the proposed grant will rely primarily on the same financial arrangements as the Poverty Reduction Fund. As such, interim un-audited financial reports are required quarterly. IFRs are to be submitted within forty-five days of the following quarter. Procurement will be carried out in accordance with the World Bank's Procurement and Consultant Guidelines, May 2004, revised October 2006. A procurement plan will be prepared during the grant preparation process. Describe the audit requirements. Starting with the date the Grant is effective, external audits are required annually by an independent auditor acceptable to the World Bank. The audit reports shall be submitted to the World Bank within 6 months after the end of each fiscal year. 11 Section 4.7 - Disbursement Arrangements This section should be filled out in consultation with the Finance Officer. Will advances to a Designated (e.g., Special) Yes, advances to a Designated Account will be required. Account be required? What is the proposed ceiling for advances? (This The specific amount for the JSDF grant will be determined at project can be a specific amount or a period if interim appraisal, authorized in an additional instruction to the grant agreement unaudited financial reports are used to support (the disbursement letter) and specified in the operations manual. disbursement). If a Designated Account will not be used, specify N/A how disbursements will be made (e.g., direct payments, reimbursement for prefinanced expenditures). Specify the type of documentation that will be Disbursement will be traditional method, which include direct payment provided to support disbursements, e.g., interim and replenishment of Designated Account on SOE basis. unaudited financial report, SOE, or copies of records (e.g., actual invoices). Section 4.8 - Additional Obligations Covenants drafted by the lawyer can be inserted in this space when, exceptionally, any additional obligations of the Recipient need to be specified. N/A Section 5 - Financing Plan N/A Section 6 - Detailed Cost Table Please consult with Procurement Accredited Staff on the proposed procurement methods. See attached Cost Table Section 7 - Technical Review & Clearances Section 7.1 - Technical Review SDV Technical Reviewer (Please insert comments below) SDV Technical Reviewer: Comment on a) technical feasibility/appropriateness of the grant from the SDV perspective; b) relevance of the proposal to JSDF requirements for innovative approaches to provide direct benefits to disadvantaged/marginalized groups. Directions for TTLs: Indicate in capital letters, after each comment, where in the proposal the comment has been reflected. Please provide tab and field references. I had the opportunity to review the proposal for JSDF funding that was prepared awhile back, which I thought was a good proposal. This one is much improved. The PRF facilitates villagers to construct much needed basic infrastructure, which increases well-being improves livelihoods and reduces poverty. But as we heard in Beijing, not just basic public goods and village infrastructure, but more community-managed direct investments in economic enterprises are still demanded by villagers. This proposal does a very good job at building on the strengths of the PRF to examine ways to expand the menu and allow investments in livelihoods, so the PRF can scale up and sustain activities proven to be most beneficial. The objective of this grant and its potential impact is very relevant and significant. This proposal definitely deserves funding. That said I have a few comments, many based on a limited understanding of the conditions and possibilities existing in Lao PDR and others based simply on my experiences elsewhere. These are presented not for revisions to the proposal which is already very good but rather for consideration, either now or during (one hopes) implementation in the near future. Risks: I say that the proposal deserves to be funded even though I would suspect that the risks are higher than "Negligible or 12 Low." THE RISK RATING HAS BEEN INCREASED TO MODEST RISK. Technical Approach from a Country/Sector Viewpoint: The proposal seems to be very much in line with both Lao PDR and Bank priorities, as stated in the CAS. In that the grant will fund activities directly related to and complementary of PRF activities and which will, to the extent they are successful, be scaled up with the planned expansion of the PRF nation-wide. The contribution to the possible impact of the PRF is great. Not only does the grant fund activities that are linked but the PRF also assures that management systems, including for financial management, at the various levels, are in place and functioning satisfactorily. This is important and simplifies what will be challenging anyway given that it will be carried out in very low capacity areas with mostly non-Lao/Tai ethnic minorities groups. Innovative Approaches to Provide Direct Benefits to Disadvantaged and Marginalized Groups: All activities are targeted at 'disadvantaged' groups, non-Lao/Tai ethnic minorities and especially women's groups. Though I understand the interest in testing models/approaches as input into the expansion of PRF, given the difficulty of the proposed activities, I wonder why 1) all grants to groups for micro economic enterprises are directed at women, who it is said are primary producers, food providers etc., and 2) linked to pro-nutrition activities and indicators/outcomes. One might consider initial grant for economic activities with pro-nutrition AAA and based on indicators agreed and achieved additional grant funds for new groups or expansion of a group's activities are provided....incentive the nutrition achievements. I think having some grants to groups only for economic activities and some only for pro-nutrition AAA and some for both is an unnecessary complication in already difficult circumstances, even if it might be interesting to study. GRANTS WILL BE AVAILABLE FOR BOTH LIVELIHOOD AND PRO-NUTRITION LIVELIHOOD ACTIVITIES. GIVEN THAT THE PILOT WILL INFLUENCE SCALE-UP TO NATIONAL COVERAGE, THE TEAM DOES NOT WANT TO LIMIT GROUPS TO ONLY WOMEN SHGs. HENCE, WOMEN'S SHGs WILL BE PROMOTED BUT THE PILOT WILL NOT BE RESTRICTED TO WOMEN SHGs ONLY. THE TEXT HAS BEEN CHANGED TO BETTER CLARIFY HOW THE SHGs AND SUB-GRANTS WILL OPERATE (COMPONENT 1). Links between Livelihoods and Nutrition: I think the link is essential and the approach is innovative, I think it would be simpler and more innovative to focus on this link in all activities and to incentive nutrition gains by increasing economic assistance for groups which obtain the agreed upon gains. BECAUSE OF THE EXPECTED RESOURCE INTENSITY OF THE PRO-NUTRITION COMPONENT, COUPLED WITH WEAK CAPACITY IN LAO PDR, THE TEAM AND PRF BELIEVE IT IS MOST APPROPRIATE TO INTRODUCE THE PRO-NUTRITION COMPONENT IN SELECTED DISTRICTS ONLY WITH THE POSSIBILITY OF EXPANSION OF COVERAGE DURING 2ND AND 3RD YEARS OF THE PILOT. THIS SELECTIVE APPROACH WILL ALSO ALLOW US TO BETTER EVALUATE IMPACT OF THE PRO-NUTRITION COMPONENT. TA, Training and Management: This is where I might be out on a limb...it seems the proposed set-up is rather top heavy at the national and provincial levels. I assume the supervision of local facilitators; reporting; and systems for the evaluation for performance are all in place through the PRF. THE BUDGET HAS BEEN CHANGED TO MAKE THE PROPOSAL LESS TOP-HEAVY (SEE REDUCTION IN INTERNATIONAL TA TO PRF HQ AND COORDINATORS AT PROVINCIAL LEVEL). DUE TO WEAK CAPACITY IN COUNTRY, HOWEVER, CONSIDERABLE TA IS NECESSARY FOR THE PILOT TO BE SUCCESSFUL. Various Other Issues for Consideration: 1. Experiences with newly formed groups, especially groups formed 'quickly' and for a government project, with funds involved, operate much differently than investments in solid pre-existing village groups. I would be careful and I suggest this is an issue where some study and comparison might be more worthwhile than comparing between pro-nutrition activities and without or between women-only groups and mixed groups. AS PART OF THE M&E SPECIAL STUDIES, THE TEAM PLANS TO ANALYZE THE EXPERIENCE WITH GROUPS. 2. There is talk of 'financial literacy,' which is of course very important. I was under the impression that illiteracy among women in Lao DPR and especially among non-Lao/Tai ethnic women was rather high. What can be done and expected with respect to 'financial literacy'? Expectations need to be realistic. COMPONENT 2 WILL ADDRESS ISSUES RELATED TO FINANCIAL LITERACY. THE FINANCIAL LITERACY RATE IS EXTREMELY LOW AND EXPECTATIONS WILL BE SET AGAINST THAT. 3. Similarly with respect to links to markets and value chains, given that the grants to groups are expected to be rather modest. Again this is an area that is very important however rudimentary the exercise, but expectations of what can be done and accomplished are probably best spelled out for those of us who might not be able to calibrate for the Lao situation, especially in non-Lao/Tai settings. COMPONENT 2 HAS BEEN REVISED TO ACCOMODATE THIS COMMENT. 4. With improvements to service providers, will some attempt be made to demand-drive this too and to build in local participatory monitoring of service delivery with standards set and agreed upon and even perhaps contracts executed between villages or groups and the providers? This might be interesting to try even if in only some locations and in a very simple manner. ATTEMPTS WILL BE MADE TO INCREASE ACCOUNTABILITY AND TRANSPARENCY BETWEEN SERVICE PROVIDERS 13 AND SHGs INCLUDING GIVING SHGS POSSIBILITY TO 'PURCHASE' DESIRED TA USING THEIR LIVELIHOOD GRANTS (SEE COMPONENT 1 AND 2). 5. There is mention of limitations or risks due to 'unsustainable financial incentives' and 'access to credit.' In this proposal these are not directly addressed. THIS PROPOSAL DOES NOT DIRECTLY ADDRESS ACCESS TO CREDIT, AS THIS IS NOT AN AREA WHERE THE PRF HAS A COMPARATIVE ADVANTAGE. THE PROPOSAL, HOWEVER, WOULD SEEK TO BUILD CAPACITY AND LAY A FOUNDATION IN THE AREA OF SAVINGS GROUPS, SHGs' ABILITY TO BANK ETC. WHICH CAN BE BUILT UPON AT A LATER STAGE. Indicators: The indicators seem reasonable, though I am not sure if the first can be proven with what I assume is a small sample in less than three years. Indicators pointing to increased consumption are possible. On the second indicator, if I do not misread it, it seems to indicate that an objective of the grant is not simply to allow village groups to expand and improve on what they are doing but rather to venture into new micro-enterprises. THIS INDICATOR HAS BEEN REVISED TO FOCUS ON MEASURING HOUSEHOLD INCOME DIRECTLY SO AS TO CAPTURE BOTH IMPROVEMENTS TO EXISTING LIVELIHOODS AND INTRODUCTION OF NEW LIVELIHOODS. Conclusion: If it is not already clear, let me restate that the proposal as is deserves funding in my opinion. That said I would only focus on women's groups (since they will include their husbands and families anyway). I would link grants to groups for micro enterprises and economic activities directly to pro-nutrition activities and improvements. I would actually incentive the achievement of nutrition improvements by providing additional resources to successful villages or groups. I would look hard at the link to the PRF and see if there are any economies possible in apex management allowing for more local facilitation and training. I would also look at those limited areas where "empowerment" might play itself out in service agreements or contracts between villagers and local providers, both government and private, perhaps even allowing village groups to purchase services needed. Directions for TTLs: Please provide the name and area of specialization of the SDV Technical Reviewer. Vic Bottini, Sr. Social Development Specialist, EAP Thematic Technical Reviewer (Please insert comments below) Thematic Technical Reviewer: Comment on a) the technical approach from a country/sector viewpoint and b) the relevance of the proposal to JSDF requirements for innovative approaches to provide direct benefits to disadvantaged and marginalized groups. Directions for TTLs: Indicate in capital letters, after each comment, where in the proposal the comment has been reflected. Please provide tab and field references. Thanks for the opportunity to learn a bit about Laos and CDD activities there. I read your JSDF proposal with great interest and think we've put together some innovative interventions, particularly the explicit linkages between livelihoods improvements and nutritional gains. Here are my comments, which I hope you'll find useful in further refining the proposal. Relevance of the proposed activities: In targeting both disadvantaged ethnic minorities and women, in an effort to mainstream their inclusion in participatory approaches to rural development and improved livelihoods, the proposed JSDF is highly relevant in its approach. Furthermore, the proposal demonstrates the weaknesses to date of various livelihoods approaches in effectively tackling chronic malnutrition, particularly childhood stunting and sets out a strategy to linkages livelihoods explicit to nutritional gains. This too is highly relevant and can, if successful, serve as a template for future CDD intervention in Laos as the government considers a nationwide expansion of CDD. Livelihoods and Agriculture: Given that agriculture drives nearly 40% of Laos' GDP and absorbs 80% of its labor force, combined with a population that is nearly 70% rural, I think your discussion of livelihoods (and their improvement) needs to bring out more of the linkages with agriculture. THE LINKAGES TO AGRICULTURE HAVE BEEN FURTHER HIGHLIGHTED (COMPONENT 2) Outreach to prospective beneficiaries: Component 1 would be enhanced by including a budget line item for a communication strategy to reach out to and inform potential participants in the project. The training and use of graduate facilitators (as noted in the 2nd subcomponent) would be a principle element of this strategy, yet you might also include other forms of media (e.g., radio, pamphlets, etc.), as well as the incorporation of NGOs active in the project territory as additional means of 'getting the message out'. BUDGET LINE FOR COMMUNICATION STRATEGY ADDED TO COMPONENTS 1 AND 3. Project Indicators: Your indicator for household consumption is fairly straightforward. As for the remaining indicators: (i) What constitutes 'diversified income sources'? You also want to raise incomes overall (at least under some of the types of 14 sub-grants: see my comments below on types of livelihoods sub-grants). I'd make this more explicit as an indicator. THIS INDICATOR HAS BEEN CHANGED. (ii) How do you intend to measure participation? You'll need to go beyond simply attendance at meetings; this, in essence, is trying to capture increases in social capital, so you may find that the development of an index across several factors/ elements of participation could be useful. (iii) Similar comments as (ii) above in regard to womens' participation; as well as explicit attendance at meetings, this could include women in leadership roles, ratio of women to men across all SHGs, etc. THE INDICATORS HAVE BEEN CHANGED. AN INDEX ACROSS SEVERAL FACTORS WILL BE USED. Menu of possible sub-grant activities: The use of a short negative list in regard to minimizing safeguard and other risks (as you are proposing) is good practice. However, the proposed menu of possible activities (i.e., a positive list) begs the question of who determines what gets on this list. Perhaps by investing more effort up front on: (i) participatory diagnostics with the community SHGs; (ii) adequate communication of the objective of the grant's activities to the SHGs; and (iii) understanding of the existing budget constraint (i.e., maximum funding levels per SHG), open selection by the SHGs of their subproject would be a more effective strategy, in that it would maximize ownership of the eventual sub-grant. A NEGATIVE LIST ONLY WILL BE USED. SHGs WILL PROPOSE POSSIBLE SUB-GRANT ACTIVITIES, BUT SELECTION OF ACTIVITIES WILL INCLUDE A TECHNICAL FEASIBIITY ASSESSMENT. Types of livelihoods sub-grants: I'd make the distinction between two types of livelihoods sub-grants: (i) subsistence largely for own consumption and linked directly to your nutrition goals of Component 3; and (ii) marketable surplus subprojects that would improve both the quality and quantity of agricultural production, with an explicit market orientation, and with indirect links to use of the projected increase in income to improve household nutrition. Additionally, there is little mention of markets or access to them; how do you intend to raise incomes of those who would choose a marketable surplus sub-grant? THE TEAM AND PRF WOULD LIKE TO KEEP THE PILOT AS SIMPLE AS POSSIBLE AND THEREFORE PREFER TO USE ONLY ONE KIND OF GRANT. WITH REGARDS TO MARKET ACCESS, COMPONENT 2 INCLUDES SPECIFIC ACTIVITIES DESIGNED TO IMPROVE ACCESS TO MARKETS. Subproject cycle: this needs some clarification in the proposal. CYCLE WILL BE DEFINED IN MANUAL, BUT EXISTING PRF CYCLE WOULD BE FOLLOWED AS MUCH AS POSSIBLE. TEXT HAS BEEN CHANGED TO CLARIFY THIS (SECTION 25) Will the SHGs manage sub-grant funds directly? This is not made clear in the proposal, but direct control of the funds would be preferable. Also, I'd recommend you: (i) indicate in your summary description of the components that the current PRF operational manual will also be applicable for the activities under the grant; and (ii) specify that the outcomes of the proposed grant would also serve as inputs to revise and extend the PRF Operational Manual, in advance of its upcoming expansion nationwide. TO THE EXTENT POSSIBLE, THE SHGs SHOULD MANAGE THE SUB-GRANTS THEMSELVES. THE LINKS TO THE PRF OPERATIONAL MANUAL HAVE BEEN HIGHLIGHTED IN THE PROPOSAL AND RISK ASSESSMENT (SECTION 24). SHG counterpart contributions: The proposal does not indicate whether participants in SHGs would also contribute (in-cash or in-kind) to the total cost of each subproject. Global experience does show that both empowerment and sustainability are improved when such beneficiary contributions are required as part of the overall financing package of the subproject. I'd recommend that at least 10% of the total subproject cost be carried by the SHG itself. SHGs ARE EXPECTED TO CONTRIBUTE TO EACH SUBPROJECT (COMPONENT 1). ONE OF THE SPECIAL STUDIES IS EXPECTED TO ANALYZE ASPECTS RELATED TO SHGs CONTRIBUTION. Grants vs. loans: One could expect that financial markets are relatively thin in rural Laos, but it would be useful to state this if it is so. This said, given the earlier findings regarding subsidized microcredit, it is not clear how a full subsidy as an alternative would yield substantially better outcomes. The 2008 Evaluation of CDD in Laos (including the PDF) notes that loans to households for livelihoods activities have been unsuccessful, due to loan default and elite capture (due to below-market interest rates and non-transparent lending procedures) . Yet, if loans in this case proved to be unsuccessful, simply opting for grants in the future could tend to exacerbate elite capture. Opting for grants rather than loans also does not resolve the problem of proper use of the funds obtained. Engagement of the financial sector will be key to the sustainability of many of the livelihoods activities; while the sub-grants can be viewed as a 'one shot' capital infusion, the viability of these interventions will lie in the SHGs' ability to access external capital in the future. AS THIS PILOT IS TARGETING ETHNIC MINORITIES AND WOMEN, WHO TEND TO BE AMONG THE POOREST, PROVIDING GRANTS (RATHER THAN LOANS) IS EXPECTED TO INCREASE THE INCLUSION OF THESE GROUPS. ALSO, THE PRF DOES NOT HAVE THE CAPACITY TO PROVIDE AND MANAGE MICRO-CREDIT. HOWEVER, THE TEAM WOULD LIKE TO USE THE JSDF TO BUILD SHGs CAPACITY TO BANK THEMSELVES, BY PROVIDING FINANCIAL LITERACY TRAINING AND LINKS TO OTHER ORGANISATIONS (SUCH AS LAO WOMEN'S UNION) THAT DO PROVIDE CREDIT. ACTIVITIES TO THIS EFFECT ARE PLANNED UNDER COMPONENT 2. 15 Technical assistance: Pre-qualification of the technical service providers (as you are proposing) will help to ensure that adequate TA is available to the participating SHGs. I'd recommend you go a few steps further by: (i) including the roster of pre-qualified service providers into your communication strategy, as a means of informing the SHGs of available TA; and (ii) delegate the choice of the service provider to the SHG. This could also include a results-based agreement between the SHG and the TA provider(s) that ties satisfactory provision of services (as verified by the SHG itself) to the payment for services rendered. You may even consider the possibility of a 'risk contract' with the service providers vis-à-vis subproject proposals which they assist SHGs in preparing. This would put in place an incentive mechanism to maximize the quality of livelihoods proposals from SHGs. AT PRESENT THE SUPPLY OF SERVICE PROVIDERS IS STILL SMALL AND THE SPACE FOR NGOS LIMITED. HOWEVER, THE TEAM INTENDS TO PROMOTE A RESULTS-BASED RELATIONSHIP B/W SERVICE PROVIDERS AND SHGS AND WILL EXPLORE FURTHER HOW THIS CAN BE DONE GIVEN THE LAO CONTEXT. Is US$2,000 per sub-grant sufficient: Average subproject cost to date under the PRF is about US$8,300, and this has largely been for infrastructure. Using your numbers from the proposal, about US$450 would be available to each member of the SHG, on average, amounting to about 25% of per-capita GDP. This seems rather low; what would this effectively translate into for the members of the SHG? Some examples in the proposal would help to illustrate how this level of capital will contribute to improved livelihoods. THE TEAM AND PRF BELIEVE THE $2,000 SUB-GRANT IS APPROPRIATE. HOWEVER, DURING THE FIRST YEAR OF PILOT IMPLEMENTATION THE SIZE OF THE SUB-GRANT WILL BE ASSESSED. ADDITIONAL EXAMPLES OF LIVELIHOOD ACTIVITIES HAVE BEEN ADDED TO THE PROPOSAL (COMPONENT 2 AND 3) Directions for TTLs: Please provide the name and area of specialization of the Thematic Technical Reviewer. Edward Bresnyan, Sr. Rural Development Specialist, Agriculture and Rural Development Operations, LAC Section 7.2 - Clearances and Comments Team Member Mr Mohamed I. Diaw CHANGED Team Leader Ms Helene Monika Carlsson SUBMITTED Rex Finance Officer Mr Junxue Chu CLEARED FM Specialist Ms Nipa Siribuddhamas CLEARED Procurement Specialist Mr Ahsan Ali CLEARED Country Lawyer Mr Jorge Luis Alva-Luperdi CLEARED Sector Manager Ms Jeeva A. CLEARED Perumalpillai-Essex Country Director Ms Annette Dixon CLEARED TF Coordinator Ms Kunthary de Gaiffier CLEARED Team Leader Ms Helene Monika Carlsson SUBMITTED Rex TF Program Team Ms Yolaine E. Joseph CLEARED Manager Ms Magdolna Lovei CLEARED Window Manager Ms Yolaine E. Joseph APPROVED Program Manager Mr Roberto Tarallo TACT 16