The World Bank Implementation Status & Results Report Afghanistan Access to Finance (P128048) Afghanistan Access to Finance (P128048) SOUTH ASIA | Afghanistan | Finance, Competitiveness and Innovation Global Practice | IBRD/IDA | Investment Project Financing | FY 2014 | Seq No: 11 | ARCHIVED on 02-Oct-2019 | ISR38209 | Implementing Agencies: MISFA, Ministry of Finance, Islamic Republic of Afghanistan Key Dates Key Project Dates Bank Approval Date: 26-Nov-2013 Effectiveness Date: 17-Apr-2014 Planned Mid Term Review Date: 01-Dec-2016 Actual Mid-Term Review Date: 15-Nov-2016 Original Closing Date: 31-Dec-2018 Revised Closing Date: 30-Jun-2021 pdoTable Project Development Objectives Project Development Objective (from Project Appraisal Document) The proposed Project Development Objective is to build institutional capacity to improve access to credit of micro, small and medium enterprises. Has the Project Development Objective been changed since Board Approval of the Project Objective? Yes Board Approved Revised Project Development Objective (If project is formally restructured) The PDO is to support access to finance for Micro, Small and Medium Enterprises, and ultra-poor households in selected communities. Components Table Name Improving access to financial services for micro and small enterprises:(Cost $41.90 M) Improving access to financial services for small and medium enterprises:(Cost $8.10 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Satisfactory Overall Implementation Progress (IP) Satisfactory Satisfactory Overall Risk Rating High High Implementation Status and Key Decisions A – Project Highlights The project rating for Progress towards achievement of the PDO remains “Satisfactory” in account of the significant achievements under components 1 and 2 of the project.  Completion of the Targeting the Ultra-Poor Program (TUP) in six provinces with a graduation rate of 87 percent on average. Six TUP projects have now been completed for 7,500 TUP households. The gender impact is substantial, with close to 6,200 women TUP 10/2/2019 Page 1 of 7 The World Bank Implementation Status & Results Report Afghanistan Access to Finance (P128048) beneficiaries to date. The TUP supports access to financial services for all (financial education with emphasis on the importance of savings), and at graduation, half of beneficiaries were linked with formal financial institutions and an even greater proportion actively save. The TUP project also helps them with market linkages, to expand their economic opportunities.  The recently-completed impact evaluation for one of the TUP provinces confirms that the project has already an impact on the livelihoods and access to finance for the targeted households, as well as other measured dimensions. Dissemination of results is ongoing. Dissemination events have been organized in World Bank offices in DC and in Kabul in June, A working paper, policy brief and blogs have been published.  Overall lending volume are lower and portfolio quality has deteriorated in 2019, compared to 2018, due to the economic slowdown and security situation which affects not only demand for loans by businesses but also lending decisions for financial institutions. However, the project is contribution to improving financing conditions for SMEs: loan maturity, collateral requirements, new products (e.g. Islamic finance). The profile of businesses getting financing is also evolving. Complementary TA also support capacity building of financial institutions the credit appraisal, risk management and loan monitoring, The disbursement rate currently stands at 62 percent. B- Planned/Ongoing activities within six months  Component 1: Two new TUP projects are ongoing Parwan and Nangarhar – targeting close to around 4,000 beneficiaries. The TUP projects will be completed by end-June 2021. The TUP program aims at sustainably “graduating” ultra-poor from safety net programs to income-generating activities and linking them with health and school facilities, microfinance programs and markets. The subcomponent that supports capacity building of the microfinance sector has experienced implementation delays, partly owing to the difficulty in attracting qualified consultants. Ongoing actions aim to improve the effectiveness of the procurement process to ensure that planned activities can be undertaken by MFIs in the agreed timeframe. The subcomponent will continue to support MFIs in developing products and services that support: agriculture and rural finance, youth entrepreneurship, and women finance. In parallel, MISFA will finalize a needs assessment for MFIs to scale-up their provision of digital financial services as an opportunity to reach out more efficiently to their clients, expand their networks to attract new clients and provide improved financial services.  Component 2 This component will be fully utilized by end-June 2020. Equity funding of US$ 5.6 million into ACGF has been completed. Ongoing TA activities will build the capacity of financial institutions in key areas such as credit risk management, agriculture finance, and overdraft loan appraisal and monitoring. An SME scorecard is being piloted to enhance the efficiency of loan applications process. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance -- High High Macroeconomic -- High High Sector Strategies and Policies -- High High Technical Design of Project or Program -- High High Institutional Capacity for Implementation and Sustainability -- Substantial Substantial Fiduciary -- Substantial Substantial Environment and Social -- Low Low Stakeholders -- Moderate Moderate Other -- -- -- Overall -- High High Results 10/2/2019 Page 2 of 7 The World Bank Implementation Status & Results Report Afghanistan Access to Finance (P128048) PDO Indicators by Objectives / Outcomes Improving Access to Financial Services for Micro and Small Enterprises IN00733568 ►Graduation rate of TUP beneficiaries (graduation criteria: stabilized and diversified income) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 87.00 87.00 50.00 Date 30-Apr-2013 31-Dec-2018 30-Jun-2019 31-Dec-2020 Value unchanged. This is the average for the completed TUP subprojects. This value will be updated only Comments: in June 2021 at the completion of the two new TUP subprojects. IN00733570 ►Percentage of TUP households that are linked to FIs and savings groups at graduation (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 46.00 46.00 50.00 Date 20-Aug-2018 31-Dec-2018 30-Jun-2019 31-Dec-2020 Value unchanged. This is the average for the completed TUP subprojects. This value will be updated only Comments: in June 2021 at the completion of the two new TUP subprojects. Improving access to financial services for small and medium enterprises IN00733569 ►Outstanding SME Loan Portfolio - ACGF (Amount(USD), Custom) Baseline Actual (Previous) Actual (Current) End Target Value 19,300,000.00 26,655,211.00 21,844,446.00 30,000,000.00 Date 31-Dec-2012 30-Sep-2018 30-Jun-2019 31-Dec-2020 As of June 30, 2019, the volume of outstanding SME loans guaranteed by ACGF through its three lending partner institutions is $21.8m (down from $25.7m at Q12019 and close to the Q42017 level). SME lending Comments: has been significantly affected in 2019 by the deteriorated security situation and the political uncertainty which has implied both a lower demand for loans by SMEs and lower risk appetite by financial institutions. Intermediate Results Indicators by Components 1- Improving Access to Financial Services for Micro and Small Enterprises IN00733572 ►Direct Project Beneficiaries (TUP) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 52,500.00 52,500.00 72,450.00 10/2/2019 Page 3 of 7 The World Bank Implementation Status & Results Report Afghanistan Access to Finance (P128048) Date 30-Jun-2013 31-Dec-2018 30-Jun-2019 31-Dec-2020 Value unchanged. This value will be updated once the selection of beneficiaries for the two new TUP Comments: subprojects is completed. IN00733574 ►Female TUP participation (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 82.00 82.00 60.00 Date 30-Jun-2013 31-Dec-2018 30-Jun-2019 31-Dec-2020 Value unchanged. This value will be updated once the selection of beneficiaries for the two new TUP Comments: subprojects is completed. IN00733576 ►Percentage of TUP beneficiaries in Balkh that have saved in the past four weeks and/or took a loan for investment purpose (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.80 0.80 28.00 10.00 Date 30-Sep-2016 31-May-2018 30-Jun-2019 31-Dec-2020 Financial inclusion improves relatively more than any other outcome measured, as measured by an index of financial inclusion (savings behavior, account holdings, and access to credit if needed) which increased by 2.38 SD, compared to the control group. This is partly explained by a low level of financial inclusion among control households, and is consistent with the structural focus of the program on supporting financial engagement, from helping open bank accounts to promoting savings behavior. Comments: The likelihood that a household saved anything in the last four weeks increases by 26 percentage points from a control group level of 2% (at the end of the program). Savings over this time increased by USD 70 PPP (USD 19 nominal) in the treatment group from USD 4 PPP (USD 1 nominal) among control households. Overall savings increases by USD 106 PPP (USD 31 nominal) from USD 5 PPP (USD 1 nominal). IN00733578 ►Percentage of TUP beneficiaries in Balkh who own accounts at financial institutions (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.00 1.00 29.00 10.00 Date 30-Sep-2016 31-May-2018 30-Jun-2019 31-Dec-2020 While almost no control households have access to a formal bank account (1%), this increases by 28 Comments: percentage points among TUP recipients - at the end of the program. IN00733580 ►Outstanding Microfinance Loan Portfolio (Amount(USD), Custom) Baseline Actual (Previous) Actual (Current) End Target Value 92,400,000.00 121,444,933.00 112,041,131.00 132,000,000.00 Date 30-Apr-2013 31-Dec-2018 30-Jun-2019 31-Dec-2020 Comments: Both USD and AFN amounts will be monitored, as USD amounts are affected by an external factor - the AFN/USD exchange rate. Dec 2018 (previous): AFN 9.18 billion June 2019 (actual) AFN 8.99 billion 10/2/2019 Page 4 of 7 The World Bank Implementation Status & Results Report Afghanistan Access to Finance (P128048) Like the rest of the financial sector, the performance of the microfinance sector has been affected by the political environment and security situations. As of end-June 2019, outstanding microfinance loans amounted to AFN 10.3 billion (US$ 129 million), down 8.5 percent compared to the previous year. The number of active borrowers has slumped to below 158,000 (down 24 percent) over the same period. The portfolio at risk over 30 days has surged to 8.1 percent (up from 5.3 percent in 2018Q2), mostly due to deterioration of business conditions. Overall MISFA’s MFI partners had an outstanding loan portfolio of US$112 million as of end-June, thereby representing 87 percent of total outstanding microfinance loans. MISFA’s partners account for a similar market share in terms of the number of active borrowers. While the rest of the sector contracted, MISFA’s portfolio increased by 3.8 percent between 2018Q2 and 2019Q2. Portfolio quality has decreased, reflecting overall operating environment, but remains well-above sector average at 4.7 percent as of end- June 2019. IN00733581 ►Number of financial institutions that introduced new processes, policies, or products to improve financial services for households and MSMEs (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 5.00 6.00 7.00 Date 26-Nov-2013 31-Dec-2018 30-Jun-2019 31-Dec-2020 2 - Improving access to financial services for small and medium enterprises IN00733571 ►Number of active loan accounts - SME (ACGF) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 709.00 492.00 534.00 709.00 Date 28-Feb-2013 30-Sep-2018 30-Jun-2019 31-Dec-2020 Despite lower guarantee volume, the number of active SME loan accounts is increasing, highlighting the Comments: improving access to finance for more SMEs. IN00733573 ►Outstanding SME loan portfolio - female (ACGF) (Amount(USD), Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 102,718.00 40,778.00 750,000.00 Date 28-Nov-2014 30-Sep-2018 30-Jun-2019 31-Dec-2020 With the repayment of previous loans to women-owned SMEs, their share in the SME loan portfolio has actually decreased. Ongoing actions aims to improve the outreach of the facility to more women-owned Comments: SMEs. IN00733575 ►Portfolio at Risk - SME (ACGF) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1.41 3.30 14.30 3.50 Date 31-Dec-2012 30-Sep-2018 30-Jun-2019 31-Dec-2020 PaR 30 days has increased substantially to 14.3 percent. Partial repayments are ongoing. The PaR 90 Comments: days is significantly lower. IN00733577 10/2/2019 Page 5 of 7 The World Bank Implementation Status & Results Report Afghanistan Access to Finance (P128048) ►Number of PFIs (working with ACGF) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 2.00 3.00 3.00 5.00 Date 31-Dec-2012 30-Sep-2018 30-Jun-2019 31-Dec-2020 Discussions are ongoing to acquire more PFIs. Comments: IN00733579 ►Pay Out Rate (ACGF) (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 2.00 2.40 0.85 5.00 Date 31-Dec-2012 30-Sep-2018 30-Jun-2019 31-Dec-2020 Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P128048 IDA-H8940 Effective USD 50.00 50.00 0.00 28.08 17.18 62% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P128048 IDA-H8940 Effective 26-Nov-2013 11-Jan-2014 17-Apr-2014 31-Dec-2018 30-Jun-2021 Cumulative Disbursements 10/2/2019 Page 6 of 7 The World Bank Implementation Status & Results Report Afghanistan Access to Finance (P128048) Restructuring History Level 2 Approved on 19-Nov-2018 Related Project(s) There are no related projects. 10/2/2019 Page 7 of 7