The World Bank Comoros Financial Inclusion and Stability Project (P166193) Appraisal Environmental and Social Review Summary Appraisal Stage (ESRS Appraisal Stage) Public Disclosure Date Prepared/Updated: 03/17/2020 | Report No: ESRSA00193 Mar 17, 2020 Page 1 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) BASIC INFORMATION A. Basic Project Data Country Region Project ID Parent Project ID (if any) Comoros AFRICA P166193 Project Name Comoros Financial Inclusion and Stability Project Practice Area (Lead) Financing Instrument Estimated Appraisal Date Estimated Board Date Finance, Competitiveness Investment Project 3/23/2020 5/14/2020 and Innovation Financing Borrower(s) Implementing Agency(ies) Ministre des Finances, du Banque Centrale des Budget et du Secteur Comores Bancaire Proposed Development Objective(s) Public Disclosure To increase access to financial services and to promote financial stability and integrity. Financing (in USD Million) Amount Total Project Cost 20.00 B. Is the project being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No C. Summary Description of Proposed Project [including overview of Country, Sectoral & Institutional Contexts and Relationship to CPF] This project is designed to support financial sector development that is consistent with inclusive growth. Specifically, the project aims “To increase access to financial services and to promote financial stability and integrity” through investments and support to improve payment systems, access to financial services, and institutional capacity of the supervisor to promote financial sector stability and integrity. More specifically: Component 1 aims to support payment system infrastructure development and financial Inclusion. The proposed investments will lead to building the foundation for an efficient and inclusive financial system in Comoros. First, the sub-component 1.1, aims to automate interbank transactions (checks and wires), hence, it will finance the Mar 17, 2020 Page 2 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) establishment of the Automated Transfer System (ATS+) and TA to support its procurement, and to establish and build its unit’s capacity. Sub-component 1.2, aims to establish and develop digital payment interoperability by financing the national retail payment switch, its operating costs in the initial year, TA for its procurement, creation of its unit, capacity building for stakeholders ((Banque Centrale des Comores (BCC) and participants, including the switch implementation group), and its implementation. Sub-component 1.3 will provide support infrastructure for the national payment system, which includes network access, data centers and emergency sites, a core banking system for BCC, and sub-component management and procurement support. Sub-component 1.4, aims to facilitate access and usage of digital financial services through: the design and implementation of a financial and digital literacy program with a sub-focus on women; support to and monitoring of financial institutions’ efforts to provide access to BTAs; hardware and software for financial institutions to develop agent banking and merchant networks; hardware and software with operating cost support, capacity building for the digitalization of financial institutions to support digital payments; support to Government and institutions with large reoccurring transaction flows, including agriculture and remittances, to support digital payments; hardware and software for the pension fund, and capacity building; and and payment system regulatory and oversight framework support. Component 2 aims to enhance financial stability and integrity. On stability, the project will finance a banking supervision application for financial surveillance, a resident advisor to assist the supervisory unit, and a diagnostic and upgrade of the public credit registry. On integrity, the project will finance TA to enhance the integrity of the Comoros financial system as informed by the NRA. As it is likely that the NRA will conclude with recommendations with a wide ranging scope, only reforms specific to the integrity of the financial system will be supported in this IPF. Additionally, the project will finance capacity building for the reinforcement of the financial analysis of suspicious transactions by Public Disclosure banks and the Financial intelligence unit. Component 3 will support project management and consultants to support project implementation and Monitoring and Evaluation (M&E), along with support for the management of the payment systems’ governance bodies. Moreover, it will finance: a project coordinator; procurement consultant; accounting, audit, and environmental and social safeguard support; BCC capacity building in digital financial services; and M&E support. It will also provide financing for capacity building for the National Payments Council. D. Environmental and Social Overview D.1. Project location(s) and salient characteristics relevant to the ES assessment [geographic, environmental, social] The Project Development Objective (PDO) is to increase efficiency in delivery of financial services, increase financial access and promote financial stability. PDO level results (i) Access (increase in per capita volume of transactions processed through electronic payment systems) – the project will increase efficiency in the delivery of financial services by putting in place an ATS to process electronic ACH payments and provide Real Time Gross Settlement transactions, and a national switch to facilitate interoperability across financial institutions; (ii) Financial access (number of Individuals with a Basic Transaction Account) –the project will promote financial access through the design and roll out of BTAs with farmers, allowing many to have their first formal account at a financial institution or with a Mobile Network Operator (MNO); (iii) Financial Stability (decrease in Non-Performing Loans) – the project will help increase financial stability captured by a reduction in the NPL ratio through activities centered around bolstering Mar 17, 2020 Page 3 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) credit risk management practices at financial institutions and the capacity of judges, court clerks, bailiffs and. The project will be implemented in the three small islands of the Union of the Comoros, which are Ngazidja, Mwali, and Ndzouani. Union of the Comoros is an island nation with an estimated population of 832,347 in 2018, of which half of the population is under the age of 15. Typical of small island states, Comoros faces geographical isolation, is densely populated, and has limited resources, a small domestic market, a narrow export base, and a high dependence on food imports and remittances. In comparison with most African countries, Comoros is relatively homogeneous in ethno- linguistic and religious terms. Nevertheless, there are significant socio-cultural differences in Comorian society (mainly between the three islands) that constrain national solidarity and reinforce inter-island political and economic competition. D. 2. Borrower’s Institutional Capacity The Ministry of Finance (MOF) will be the signatory of the IDA Credit, but the Banque Centrale des Comores (BCC) will be the governmental entity responsible for project implementation. The Project Management Unit (PMU) will be the structure already in place at the BCC. The BCC does not have any capacity in Environmental and Social Framework (ESF). Given the expanded scope of the Environmental and Social Framework (ESF) and the client’s unfamiliarity with the new ESF, the project need to hire a Environmental and social specialist to support the implementation of E&S measures described into the ESF documents such as the Environmental and Social Commitment Plan (ESCP), the Labor Management Procedures (LMP) and the Stakeholder engagement Plan (SEP). II. SUMMARY OF ENVIRONMENTAL AND SOCIAL (ES) RISKS AND IMPACTS A. Environmental and Social Risk Classification (ESRC) Low Public Disclosure Environmental Risk Rating Low The environmental risk classification (ESRC) for the Project is low under the World Bank ESF because there is negligible or minimal environmental risks associated with the project and negligible impacts likely to be generated from the project activities, which include proposed financial reform to update legal and regulatory and technical assistance with financing of equipment and materials. The project will have limited rehabilitation of infrastructures under Sub-component 1-3, mainly the rehabilitation of existing data center emergency room to house Equipment and material at the Central Bank of Comoros (CBC). Social Risk Rating Low The social risk classification for the Project is low under the World Bank ESF because the social risks associated with and impacts likely to be generated from the project activities are likely to be minimal or negligible. It is expected that these project activities will have essentially positive social impacts to reduce population vulnerability and security through the improvement of the financial system and services. In fact, the project will contribute to improve population security in their localities with the payments system in Comoros which is predominated by using of cash across all sectors of society and the economy. There are limited proposed rehabilitation of infrastructures which could lead for negative risks Occupational Health and safety of workers, community health risk (HIV/STI) due to labor influx (even minor), which will be site specific and manageable. However there are no identified key social risks related to land access, cultural heritage. Furthermore, in line with the WB GBV Good Practice Note, the Bank has undertaken a GBV risks screening of potential risks and impacts induced by the project and the GBV risk has been rated as low. One potential risk is the potential exclusion of vulnerable groups from fully participating/benefiting from access to and usage of financial services (under component 1). Specific measures have been developed in the SEP. The Client Mar 17, 2020 Page 4 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) capacities and institutional and legal framework on social risk management and the variety of issues covered under this ESF stream do not yet duly respond to ESF requirements. B. Environment and Social Standards (ESSs) that Apply to the Activities Being Considered B.1. General Assessment ESS1 Assessment and Management of Environmental and Social Risks and Impacts Overview of the relevance of the Standard for the Project: The project does not involve any activities that have significant environmental nor social risk or could generate significant and irreversible environmental or social impacts. The aim of the project is to strengthen the financial sector with reform to update legal and regulatory frameworks and technical assistance with financing of equipment and material. It does involve limited rehabilitation of physical infrastructure which will be site specific and will have limited risks. Thus no key environmental and social risks related to physical and geographical issues biodiversity; land access, occupational and community health, cultural heritage, have been identified. Environmental and social risk and impacts that have been identified during the preparation of the project mission are: weak capacity of the client to assess and manage environmental and social risks and impacts, in relation to ESS1; potential risks related to labor conditions (working hours, wages, Occupational Health and Safety) in relation to ESS2; need to conduct an energy audit and prepare an energy efficiency plan to address resource efficiency related to the operation of the data center in relation to ESS3; minor potential risks of spread of infection diseases (STI/HIV), limited risk of Gender Based Violence (GBV) in relation to ESS4 due to labor influx (even minor); potential neglect of vulnerable groups like women, people with disabilities, or people in remote areas in relation to ESS10. ESS5, ESS6, ESS7, ESS8 and ESS9 have Public Disclosure been assessed as currently not relevant. Mitigation measures have been planned to manage the identified risks related to ESS1. In line with ESF requirements, the Borrower has developed : (i) an Environmental and Social commitment plan (ESCP) which could be adjusted during the project life keeping with the evolution of environmental and social risks and impacts; (ii) a draft Stakeholder Engagement Plan (SEP); (iii) a draft Labor Management Procedures (LMP); and (iv) an accessible and operational Grievance Mechanism (GM) and a checklist Environmental and Social Management Plan will be implemented for the minor rehabilitation of the premises of the Central Bank of Comoros (CBC) to house IT equipment and materials. An energy audit will be conducted to identify opportunities for energy efficiency. ESS10 Stakeholder Engagement and Information Disclosure Stakeholder engagement is a critical tool for social and environmental risk management, project sustainability and success. Project activities require real commitment of different stakeholders. In its component 1.1. the project plans to establish a National Payment Council and a formalized collaboration between the telecom regulator and the central Bank (BCC). Success of such collaboration requires identification of the clear interests of all parties and the implementation of accountability system, as well as the establishment of an effective monitoring mechanism which is often missing in the implementation of previous projects. Mitigation measures have been planned to manage the identified risks related to ESS10. In consultation with the Bank, the BCC prepared a draft Stakeholder Engagement Plan (SEP) which involve all identified stakeholder of the project, including most influential stakeholders as well as most vulnerable, which will be cleared and disclosed as Mar 17, 2020 Page 5 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) early as possible, and prior to Appraisal. The client will seek stakeholder feedback and opportunities for proposed future engagement, ensuring that all consultations are inclusive and accessible (both in format and location) and through channels that are suitable in the local context. If major changes are made to the SEP, a revised SEP should be publicly disclosed. The borrower will engage in meaningful consultations with all stakeholders throughout the project life cycle paying particular attention to the inclusion of vulnerable and disadvantaged groups. BCC will provide stakeholders with timely, relevant, understandable and accessible information, and consult with them in a culturally appropriate manner, which is free of manipulation, interference, coercion, discrimination and intimidation. As part of the environmental and social assessment the BCC will maintain, and disclose, a documented record of stakeholder engagement, including a description of the stakeholders consulted, a summary of the feedback received and a brief explanation of how the feedback was taken into account, or the reasons why it was not. Grievance mechanism (GM). The project has developed as part of the SEP a project specific GM, proportionate to the potential risks and impacts of the project. B.2. Specific Risks and Impacts A brief description of the potential environmental and social risks and impacts relevant to the Project. ESS2 Labor and Working Conditions ESS2 is currently assessed as relevant as the Project will require the recruitment of direct workers (PIU worker, and technical assistant), contracted worker (number not yet well defined), and other contractors which will raise the importance of the respect of the right of the workers. This is also a need for fair recruitment as the administration in Public Disclosure the Comoros is reputed for recruitment tainted with a system of favoritism, nepotism and conflict of interest. The Union of Comoros has a clear legal framework governing the right of workers (the law of 18 February 1984 which established the Labor Code). This code preserves the worker's essential interests (trade union rights, employment contract, health and safety). In addition to this national framework, the project will implement measures to ensure non-discrimination and promote gender sensitivity in the recruitment process of workers. Therefore, requirements of Paragraphs 9 to 30 (working conditions and management of worker relationships, protecting the work force, grievance mechanism, occupational health and safety (OHS)) of ESS2 will apply to direct workers; requirements of Paragraphs 9 to 33 of ESS2 will apply to contracted workers; requirements of Paragraphs 17 to 20 (Protecting the Work Force) will be applied to prevent chlid labor and forced labor. The Borrower has developed and will implement (i) Labor Management Procedures (LMP) and (ii) worker’s Grievance Mechanism (GM) which will capture all workers complaints and (iii) will launch sensitization program related to the availability of worker’s Grievance Mechanism (GM) and to the respect of code of conduct to prevent and address any harassment, intimidation and/or exploitation within the project. All staff hired by the project will be required to sign and adhere to the standardized code of conduct. ESS3 Resource Efficiency and Pollution Prevention and Management ESS3 is relevant for the project. Indeed the project does not expect to finance any civil works or other activity which involve use or production of chemical products, or development and emissions of hazardous and non-hazardous chemical pollutants in the solid, liquid, or gaseous phases, nuisance odors, noise, vibration, radiation, Mar 17, 2020 Page 6 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) electromagnetic energy, and the creation of potential visual impacts. A Solid Waste Management Plan for the limited civil works related to rehabilitation of existing data center emergency room will be implemented by the enterprise with disposal site for waste materials to be approved by the municipality. The project should conduct an energy audit and prepare an energy efficiency plan to address resource efficiency related to the operation of the data center in six months after effectiveness. ESS4 Community Health and Safety ESS4 is assessed as relevant to the Project. Indeed, it is identified limited risk of Gender Based Violence (GBV), and minor potential risks of spread of infection diseases (STI/HIV) due to labor influx (even minor) during rehabilitation of the premises of the CBC to house IT equipment and materials. To manage and mitigate the identified risks related to ESS4, the project has integrated into ESCP, and Stakeholder Engagement Plan (Plan de Mobilisation des Parties Prenantes, PMPP) training for communities on STI/HIV, GBV but also on child protection.The project will prepare, adopt and implement a Gender-based Violence (GBV) sensitization activities. The project will ensure that the code of conduct is included into all bidding documents and all worker’s contracts. The project will ensure that a GM adapted to GBV is operationalized for the project. ESS5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Public Disclosure ESS5 is not relevant for the Project. Indeed the project does not have any components that require land acquisition or resettlement, either temporary or permanent, or restrictions on land use. ESS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources ESS6 is not currently relevant to the Project. The project will not finance activities which could impact forests or other natural resources. ESS7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities ESS7 is not relevant to the Project. Based on information available at concept stage, there are no groups that meet the ESF criteria for Indigenous Peoples/Sub-Saharan Historically Underserved Traditional Local Communities in the project area of influence. ESS8 Cultural Heritage ESS8 is not relevant for the Project. There will not be any activities in the project which will have impact on cultural heritage. ESS9 Financial Intermediaries Mar 17, 2020 Page 7 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) ESS9 is not relevant for the project. There are no specific activities related to Financial intermediaries. C. Legal Operational Policies that Apply OP 7.50 Projects on International Waterways No OP 7.60 Projects in Disputed Areas No III. BORROWER’S ENVIRONMENTAL AND SOCIAL COMMITMENT PLAN (ESCP) DELIVERABLES against MEASURES AND ACTIONs IDENTIFIED TIMELINE ESS 1 Assessment and Management of Environmental and Social Risks and Impacts Update, adopt, and implement the Environmental and Social Commitment Plan (ESCP); 08/2020 Update, adopt, and implement the Environmental and Social Management plan (ESMP) Check list (or environmental and social screening tools) for the minor rehabilitation of the premises of the Central 08/2020 Bank of Comoros (CBC) to house IT equipment and materials. Public Disclosure ESS 10 Stakeholder Engagement and Information Disclosure Update, adopt and implement the SEP 08/2020 ESS 2 Labor and Working Conditions Finalize, adopt, and implement the Labor Management Procedures (LMP) 08/2020 ESS 3 Resource Efficiency and Pollution Prevention and Management Conduct an energy audit and prepare an energy efficiency plan to address resource efficiency related 12/2020 to the operation of the data center. ESS 4 Community Health and Safety The project will prepare, adopt and implement a GBV sensitization activities. The project will ensure 12/2020 that the code of conduct is included into all bidding document ESS 5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not relevant ESS 6 Biodiversity Conservation and Sustainable Management of Living Natural Resources Not relevant Mar 17, 2020 Page 8 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) ESS 7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities Not relevant ESS 8 Cultural Heritage Not relevant ESS 9 Financial Intermediaries Not relevant B.3. Reliance on Borrower’s policy, legal and institutional framework, relevant to the Project risks and impacts Is this project being prepared for use of Borrower Framework? No Areas where “Use of Borrower Framework” is being considered: Not applicable IV. CONTACT POINTS Public Disclosure World Bank Contact: Nicholas Timothy Smith Title: Financial Sector Specialist Telephone No: +1-202-473-6 Email: nsmith2@worldbank.org Contact: Brinda Devi Dabysing Title: Senior Financial Sector Specialist Telephone No: 5259+2503 Email: bdabysing@worldbank.org Borrower/Client/Recipient Borrower: Ministre des Finances, du Budget et du Secteur Bancaire Implementing Agency(ies) Implementing Agency: Banque Centrale des Comores V. FOR MORE INFORMATION CONTACT Mar 17, 2020 Page 9 of 10 The World Bank Comoros Financial Inclusion and Stability Project (P166193) The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects VI. APPROVAL Task Team Leader(s): Nicholas Timothy Smith, Brinda Devi Dabysing Practice Manager (ENR/Social) Senait Nigiru Assefa Cleared on 16-Mar-2020 at 12:59:40 EDT Public Disclosure Mar 17, 2020 Page 10 of 10