document of the world bank...sotugar tunisia’s credit guarantee agency ((société tunisienne de...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: ICR00004298

IMPLEMENTATION COMPLETION AND RESULTS REPORT

LOAN NUMBER 8081 (SEPTEMBER 07, 2011) AND LOAN NUMBER 8360 (MAY 22, 2014)

ON A

LOAN

IN THE AMOUNT OF EURO 34.8 MILLION AND EURO 72.6 MILLION

(US$50 MILLION AND US100 MILLION EQUIVALENT)

TO THE

GOVERNMENT OF TUNISIA

FOR AN

MNA MICRO, SMALL AND MEDIUM ENTERPRISE FINANCING FACILITY ( P124341 )

March 14, 2019

Finance, Competitiveness, and Innovation Global Practice

Middle East And North Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 8, 2019)

Currency Unit = Tunisian Dinar (TND)

TND 3.05 = US$1

US$1 = SDR 0.33

FISCAL YEAR

July 1 ‐ June 30

ABBREVIATIONS AND ACRONYMS

ACM Microfinance Supervisory Authority (Autorité de Contrôle pour la Microfinance)

AF Additional Financing

ANPE National Agency for the Protection of the Environment (Agence Nationale de Protection de l’Environment)

APL Adaptable Program Loan

CBT Central Bank of Tunisia

CGF General Control of Finances (Contrôle Générale des Finances)

CDC Deposit and Consignment Fund (Caisse de Dépôts et Consignations)

CDR Credit Registry (Centrale des Risques)

CPS Country Partnership Strategy

ESMS Environmental and Social Management System

FDI Foreign Direct Investment

FM Financial Management

GDP Gross Domestic Product

GoT Government of Tunisia

ICA Investment Climate Assessment

ICR Implementation Completion and Results Report

IFC International Finance Corporation

IFR Interim Financial Report

ISN Interim Strategy Note

ISR Implementation Status and Results Report

LEL Law on Excessive Lending

LLC Limited Liability Company

LOC Line of Credit

M&E Monitoring and Evaluation

MDTF Multi‐Donor Trust Fund

MFI Microfinance Institution

MSMEs Micro, Small, and Medium Enterprises

NPL Nonperforming Loan

PAD Project Appraisal Document

PAR Portfolio‐at‐risk

PCR Public Credit Registry

PDO Project Development Objective

PE Private Equity

PIE Project Implementation Entity

PIU Project Implementation Unit

PFI Participating Financial Institution

POM Project Operations Manual

ROA Return on Asset

SMEs Small and Medium Enterprises

SOB State‐owned Bank

SOTUGAR Tunisia’s Credit Guarantee Agency ((Société Tunisienne de Garantie)

TA Technical Assistance

TMM Average Money Market Rate (Taux Moyen Du Marché Monétaire)

TOC Theory of Change

VC Venture Capital

Regional Vice President: Ferid Belhaj

Country Director: Marie Francoise Marie Nelly

Senior Global Practice Director: Alfonso Mora

Practice Manager: Jean Pesme

Task Team Leader(s): Fadwa Bennani

ICR Main Contributor: Peter McConaghy

TABLE OF CONTENTS

DATA SHEET ............................................................................................................................ 1

I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ........................................................ 5

A. CONTEXT AT APPRAISAL ........................................................................................................... 5

THEORY OF CHANGE (RESULTS CHAIN) .................................................................................... 7

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ...................................... 11

II. OUTCOME ...................................................................................................................... 16

A. RELEVANCE OF PDOs .............................................................................................................. 16

B. ACHIEVEMENT OF PDOs (EFFICACY) ........................................................................................ 18

C. EFFICIENCY ............................................................................................................................. 27

D. JUSTIFICATION OF OVERALL OUTCOME RATING ..................................................................... 30

E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................. 30

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 35

A. KEY FACTORS DURING PREPARATION..................................................................................... 35

B. KEY FACTORS DURING IMPLEMENTATION .............................................................................. 36

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 39

A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................. 39

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 41

C. BANK PERFORMANCE ............................................................................................................. 43

D. RISK TO DEVELOPMENT OUTCOME ........................................................................................ 45

V. LESSONS AND RECOMMENDATIONS .............................................................................. 45

ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ............................................................ 49

ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 58

ANNEX 3. PROJECT COST BY COMPONENT............................................................................. 60

ANNEX 4. EFFICIENCY ANALYSIS ............................................................................................ 61

ANNEX 5. BORROWER, CO‐FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 62

ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) ...................................................................... 63

The World Bank MNA Micro, Small and Medium Enterprise Financing Facility (P124341)

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DATA SHEET

BASIC INFORMATION

Product Information

Project ID Project Name

P124341 MNA Micro, Small and Medium Enterprise Financing

Facility

Country Financing Instrument

Tunisia Investment Project Financing

Original EA Category Revised EA Category

Financial Intermediary Assessment (F) Financial Intermediary Assessment (F)

Related Projects

Relationship Project Approval Product Line

Additional Financing P146799‐TN‐MSME Development Project Additional Financing

17‐Apr‐2014 IBRD/IDA

Organizations

Borrower Implementing Agency

GOVERNMENT OF TUNISIA Caisse des Depots et des Consignations, Central Bank of

Tunisia

Project Development Objective (PDO) Original PDO

The project development objective is to improve access to finance for micro, small and medium enterprises in Tunisia, including through enabling creditworthy MSMEs to maintain access to credit.


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FINANCING

Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$)

World Bank Financing IBRD‐80810

50,000,000 49,761,455 45,120,812

IBRD‐83600

100,000,000 97,927,724 80,065,354

Total 150,000,000 147,689,179 125,186,166

Non‐World Bank Financing

Borrower/Recipient 0 0 0

Total 0 0 0

Total Project Cost 150,000,000 147,689,179 125,186,166

KEY DATES

Approval Effectiveness MTR Review Original Closing Actual Closing

14‐Jul‐2011 04‐Apr‐2012 23‐May‐2016 31‐Jan‐2017 31‐Jul‐2018

RESTRUCTURING AND/OR ADDITIONAL FINANCING

Date(s) Amount Disbursed (US$M) Key Revisions

05‐Jan‐2018 111.52 Change in Loan Closing Date(s)

KEY RATINGS

Outcome Bank Performance M&E Quality

Satisfactory Satisfactory Substantial

RATINGS OF PROJECT PERFORMANCE IN ISRs

No. Date ISR Archived DO Rating IP Rating Actual

Disbursements (US$M)

01 09‐Nov‐2011 Moderately Satisfactory Moderately Satisfactory 0


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02 04‐Jul‐2012 Moderately Satisfactory Moderately Satisfactory 0

03 18‐Mar‐2013 Satisfactory Satisfactory 30.70

04 05‐Aug‐2013 Satisfactory Satisfactory 39.66

05 18‐Oct‐2013 Satisfactory Satisfactory 45.21

06 05‐Jul‐2014 Satisfactory Satisfactory 45.21

07 05‐Jan‐2015 Satisfactory Satisfactory 45.21

08 06‐May‐2015 Satisfactory Satisfactory 45.21

09 24‐Nov‐2015 Satisfactory Satisfactory 64.19

10 24‐Jun‐2016 Satisfactory Satisfactory 83.38

11 05‐Feb‐2017 Satisfactory Satisfactory 103.09

12 07‐Aug‐2017 Moderately Satisfactory Moderately Satisfactory 105.26

13 07‐Mar‐2018 Moderately Satisfactory Moderately Satisfactory 121.40

SECTORS AND THEMES

Sectors

Major Sector/Sector (%)

Financial Sector 100

Banking Institutions 75

Other Non‐bank Financial Institutions 25

Themes

Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 150

Jobs 100

Enterprise Development 50

MSME Development 50

Finance 50

Financial Infrastructure and Access 50

MSME Finance 50


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ADM STAFF

Role At Approval At ICR

Regional Vice President: Shamshad Akhtar Ferid Belhaj

Country Director: Neil Simon M. Gray Marie Francoise Marie‐Nelly

Senior Global Practice Director: Loic Chiquier Sebastien Molineus

Practice Manager: Simon C. Bell Jean Pesme

Task Team Leader(s): Laurent Gonnet Fadwa Bennani

ICR Contributing Author: Peter McConaghy


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I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES

A. CONTEXT AT APPRAISAL

Context

1. The project sought to respond to ongoing economic and social instability associated with the Arab Spring revolutions that spread throughout the Middle East and North Africa. Tunisia was the first country to experience an unprecedented popular uprising in December 2010, driven largely by underlying social and economic disparities, government corruption, and frustration surrounding the lack of employment opportunities. While Tunisia enjoyed a 4.8 percent average gross domestic product (GDP) growth rate throughout the 2000s, growth benefitted connected elites.1 This was reflected in Tunisia’s inclusion outlook. In 2010, poverty rates ranged from a low rate of 8–9 percent in the Center‐East region and Grand Tunis to a high of 26 percent and 32 percent in the North‐West and Center‐West regions, respectively.

2. The revolution, in addition to the political crisis in neighboring Libya, had a negative impact on overall economic growth and macroeconomic stability. The economy contracted 1.9 percent in 2011, a significant revision downward from the 5 percent that was originally estimated. This was largely because of a 40 percent drop in tourism and a 20 percent decrease in inflows of foreign direct investment (FDI). In 2011, at the time of project preparation, the current account deficit was expected to widen to 6.5 percent of GDP (an increase from 4.8 percent in 2010) because of a deterioration of trade balances and lower demand for exports and a sharp decrease in remittances (Libya accounted for 10 percent of Tunisia’s total remittances in 2010).2 Unemployment stood at 18.9 percent in 2011 and 16.7 percent in 2012, significantly above the prerevolution levels of 13 percent.

3. The economic and political instability had a negative effect on Tunisia’s micro, small, and medium enterprises (MSMEs). With the current account deficit widening, MSMEs faced lower demand for their products, fewer opportunities to export their goods, and an increase in payment delays. This downturn was important to Tunisia’s overall economy because of the number of MSMEs in the country. According to data from the National Institute of Statistics, during the period of project preparation, enterprises employing less than 10 people accounted for nearly 87 percent of Tunisian companies. Large firms (100+ employees) accounted for only 2 percent of all enterprises. According to the data from the Tunisian Investment Authority, in 2011 alone at least 41 foreign companies shut down operations, leading to 2,800 lost jobs.

4. MSMEs were also negatively affected by restrictions in domestic economic policy. They were largely cut out from generous fiscal and financial incentives associated with the ‘offshore’ export‐oriented sector targeting foreign firms and the attraction of FDI. These incentives included a 10‐year tax holiday,

1 For more on World Bank Group analysis related to Tunisia and political connectedness, see: Rijkers, Bob, Antonio Nucifora, and Caroline Freund. 2014. ‘All in the Family: State Capture in Tunisia’. Policy Research Working Paper 6810. World Bank, Washington, DC. 2 The current account is a broad measure of an economy’s health. It consists of the balance of trade, net primary income (earning on foreign investment minus payments made to foreign investors), and net cash transfers. A negative current account indicates it is a net borrower from the rest of the world.


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duty‐free imports, fast trade procedures, and free repatriation of profits. This ‘offshore’ sector coexisted with a restrictive local ‘onshore’ economy characterized by pervasive barriers to entry and limited competition.3

5. At the time of project preparation, Tunisia faced a difficult financial sector outlook. Tunisia’s financial sector was relatively small and dominated by banks.4 Banks faced limited profitability (the spread between deposits and credit rates were low at around 2.4 percent) and high levels of nonperforming loans (NPLs)—estimated at 12 percent in 2010. The three largest banks were public and represented 37 percent of total deposits. Weak corporate governance standards were pervasive among these banks. Bank boards were generally not playing their role of providing robust managerial oversight and strategic decision making. Risk management procedures, internal controls, and audit structures were below international standards. For example, banks were conducting financial reporting according to Tunisian standards rather than International Financial Reporting Standards.

6. The revolution placed additional pressure on banks regarding liquidity and credit risks. The decrease in tourism and slowdown of economic activity caused deterioration of the balance sheets of large banks. A stress test conducted by the World Bank Group in April 2011 found capital adequacy falling below the 8 percent regulatory threshold, prompting the Central Bank of Tunisia (CBT) to ask for recapitalization plans.5 During this period Tunisian firms, in large part because of economic and political unrest, were facing financial destress, overall deleveraging, and a difficult time accessing formal credit markets. Based on 2014 data from the World Bank Group’s Investment Climate Assessment (ICA), 33 percent of small firms and 37 percent of medium‐size firms rate access to finance as a major or severe constraint. Collateral requirements were estimated at 180 percent of the loan value making credit products inaccessible to a majority of households and small firms.

7. The project sought to respond to Tunisia’s economic and financial sector challenges through providing a liquidity facility or line of credit (LOC) to the banking sector with targeted financing objectives for small and medium enterprises (SMEs). The project would contribute positively to growth and employment objectives through providing financing to SMEs, which formed the backbone of the Tunisian economy. The facility was well placed to serve, through the banking sector, principle sectors where SMEs were active and experience financial destress, namely small‐scale retail industry (including textiles, leather, and woodworking production) and manufacturing for exports, including automobile components, electrical and mechanical equipment).6 Strict eligibility criteria focused on asset quality, adherence to prudential standards, and track record in serving SMEs would help ensure effective performance of the facility, in addition to incentivizing these institutions to serve smaller clients and in doing so expand financial markets in Tunisia. The project supported instilling responsible operational standards of financial institutions in Tunisia through the eligibility criteria set. In doing so this was to have

3 For additional information on economic policy to develop Tunisia’s export orientation, see Chapter 1 of: Issa, Djibrilla. 2014. Investment Climate Assessment: Enterprises' Perception in Post Revolution Tunisia. Washington, DC: World Bank. 4 Financial depth was measured at 115 percent of GDP, smaller than in regional peers (Egypt, Morocco, Jordan). 5 Cognizant of the financial sector’s challenges in post‐revolutionary Tunisia, the CBT adopted, during this period, several countercyclical measures aiming to support access to finance. This included a significant increase in collateralized short‐term loans to banks, a reduction in mandatory reserves, and successive cuts to CBT reference rates. The CBT also adopted a circular allowing banks to avoid NPL classification resulting from restructured loans arising from financial difficulties. 6 For more on the sectoral composition of small firms in Tunisia, please see Chapter 1 of the 2014 ICA.


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a positive effect on oversight of the banking sector, particularly given that the facility was managed by the CBT.

Higher‐Level Objectives

8. The project was fully aligned with the strategy of Tunisia’s Interim Government during the period of project preparation. This strategy centered on mitigating the negative economic impact of the revolution through fiscal and monetary measures, including fast tracking public investment projects and increasing social assistance to vulnerable populations and lagging regions. The CBT during this time reduced reserve requirements for banks from 10.5 percent to 2 percent, while providing a substantial amount of short‐term loans to banks to increase liquidity and lending to businesses.

9. The project was directly aligned with the World Bank Group’s priorities in Tunisia during a period of significant fluidity. The Country Partnership Strategy (CPS) (FY10—FY13) (Report number 50223‐TUN) envisaged three strategic pillars: (a) employment, growth, and competitiveness; (b) sustainable development and climate change; and (c) improving the quality of service delivery. By providing a LOC to promote MSME finance, the project directly supports pillar one of the CPS and supported overall growth and employment outcomes of the private sector. In addition, the CPS specifically highlighted the need for financial sector reform including strengthening regulatory and oversight practices, improving the quality of Tunisia’s public credit registry (PCR), and encouraging innovative financing sources for SMEs. The project responded directly to introducing credible and innovative financing sources for SMEs through provider downscaling.

10. Recognizing the importance of updating the World Bank Group’s priorities considering the 2011 revolution, the World Bank Group adopted a flexible approach during project preparation. During this time, the World Bank Group’s priorities focused on charting a new path to support its citizens through employment opportunities and addressing regional disparities. Policy documents during this period stressed the importance of ongoing support to the financial sector to ensure stability and accessibility of resources for economic growth. The Interim Strategy Note (ISN) for Tunisia (FY13–FY14) (Report No. 67692‐TN), discussed by the Board on July 3, 2012, was organized around three pillars: (a) laying the foundation for renewed sustainable growth and job creation; (b) promoting social and economic inclusion; and (c) strengthening governance, voice, transparency, and accountability.

11. The operation was congruent with pillar (a) and (b) of the ISN. An SME LOC provides needed capital to small businesses for productive investment that can lead to employment creation and quality firm‐level expansion. It also supports creditworthy MSMEs who are facing deleveraging and economic difficulties associated with Tunisia’s post‐revolutionary context. In addition, and as described in section B, the project coupled financial support with robust technical assistance (TA) activities designed to strengthen the capacity of regulators to respond to deficiencies in the financial sector.

Theory of Change (Results Chain)

12. The project’s theory of change (TOC) was developed for the Implementation Completion and Results Report (ICR) and is an analytical synthesis found in project preparation documents and through relevant stakeholder consultation. It is as explained in the following paragraphs.


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13. Due in part to the Arab Spring revolutions and its negative impact on Tunisia’s economy, MSME development became an important priority to further economic opportunity and create jobs. Unemployment across the Middle East and North Africa was above all other world regions and hovered at approximately 10 percent, with much higher rates for women (16 percent). Three out of four working‐age women did not participate in the labor force, constituting 80–90 percent of the Middle East and North Africa’s inactive workers. Because most enterprises in Tunisia are MSMEs, they were an important entry point to promote economic inclusion.7

14. There was a need to address the liquidity and stability challenges the revolution posed for Tunisia’s financial sector. The downturn in economic activity caused an increase in unpaid loan ratios in 2011, linked in part to SME payment defaults, thus placing a strain on the banking sector that was marked by relatively poor asset quality. NPLs were relatively high at 12 percent at the end of 2010. This compounded the issue of MSME access to finance in Tunisia.8

15. The original project provided EUR 34.8 million (US$50 million) as a LOC to banks and leasing companies and to existing and new MSME clients. While not processed as an emergency operation, the project was approved by the World Bank Group’s Board of Executive Directors on July 14, 2011, nine months after it was reviewed at the concept stage. This suggests the World Bank’s commitment to responding with alacrity to the shifting economic and financial sector situation in Tunisia. The LOC was to also include creditworthy MSMEs who were affected in the short term by falling demand or delayed payments through supporting loan reprogramming or refinancing by participating financial institutions (PFIs). Operational and selection criteria was set to encourage PFIs to target the underserved segment of the MSME market. These criteria included legal status, profitability and asset quality of the institution, commitment and track record in serving the SME segments, and adherence to prudential standards.9 The end beneficiaries of the project were MSMEs applying for new loans.

16. The LOC was coupled with a package of nonfinancial support, through the Tunisia MSME TA facility, a US$1.4 million advisory facility managed jointly with the International Finance Corporation (IFC). This facility provided comprehensive advisory support to improve the development and financing of MSMEs through improving enabling environment regulations, supporting financial institution in addressing supply and demand barriers preventing them from serving MSMEs, and supporting MSMEs themselves to improve overall productivity and investment. Through this facility the World Bank Group strengthened policy, legal, and infrastructure reforms, notably through trainings on corporate governance of state‐owned banks (SOBs) by the CBT, reforming the secured lending regime and developing a credit information system for the microfinance sector. The facility also supported the CBT on emerging policy issues including microfinance sector reform and the development of digital financial services. The facility

7 Word Bank analysis suggests that most formal jobs in emerging markets are SME jobs – 7 out of 10 formal jobs are created by SMEs – and this rises to 9 in 10 jobs in some low‐income countries. See: Bell, Simon and Ghada Teima. 2015. Small and Medium Scale Enterprise Action Plan. Quick Lesson Series Number One: SME Community of Practice. Washington, DC: World Bank. 8 Structural challenges further plagued efficient financial intermediation in Tunisia and had an impact on MSME finance. These factors included underdeveloped credit information systems, the lack of a moveable collateral regime, deficiencies in the bankruptcy regime, and limited banking sector competition. 9 As outlined in the Project Appraisal Document (PAD), the project was compliant with internal World Bank Group policy on projects involving financial intermediation, referred to as OP 8.30 and OP 10.02. This policy exists to ensure that the project supports sustainable financial sector development by eliminating any possible distortions against competitive lending practices and preventing potential financial sector instability through project financing.


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was subject to an external evaluation completed by Maxwell Stamp in July 2018. The evaluation found the facility to be highly effective and a rare opportunity to work on structural issues facing MSME finance across the Middle East and North Africa region in a systematic manner.10 See annex 6 for more information on the Tunisia MSME TA Facility. See Box 1.

17. The TOC is represented visually as shown in figure 1.

Figure 1. TOC

Source: Author’s production at time of ICR preparation.

18. The LOC and TA were also complemented by policy lending aiming to improve the enabling environment for MSME finance. A 2011 budget support operation (US$250 million Governance and Opportunity Development Policy Loan ‐ Report No. 61627‐TN) included a pillar on the financial sector and a prior action related to corporate governance practices for credit institutions based on international best practices. The objective of the measure, and reflected in the broader GoT program in 2011, was to improve the capacity of Tunisia’s financial sector to contribute to growth and job creation which had been undermined by (a) weak governance and (b) inadequate instruments and institutions.11

Box 1: World Bank Group Response for MSMEs in the Arab World

Responding to the historical political and economic transitions since the Arab Spring, the World Bank Group set up the MSME TA facility which provided a comprehensive package of financing and support for the Middle East and North Africa region. It included:

A Regional Adaptable Program Loan (APL) which made financing available to 10 countries in the region. Loans under this APL could include either an LOC component or a contingent credit (risk sharing) component, subject to relevance of individual markets;12

10 This evaluation report is not public. Contact the ICR author for information queries related to the report. 11 The review by the Independent Evaluation Group of the ICR (No. ICR14156) found the operation contributed to improving corporate governance standards amongst Tunisia’s banks, albeit at a slower pace than initially planned. By end 2012, 17 out of 18 banks had 2 independent board members (against a target of 100 percent compliance). IEG’s review is available for public download here: http://documents.worldbank.org/curated/en/959121474906205528/pdf/000020051‐20140626002750.pdf 12 Tunisia, Morocco, Jordan, Lebanon, Egypt, Saudi Arabia, Kuwait, Iraq, West Bank/Gaza, and Yemen.


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A US$41 million TA facility focusing on (a) policy and legal reforms; (b) capacity‐building and advisory services to financial institutions, and (c) support to MSMEs; and support to innovative and high potential SMEs through partnerships with providers of business services, risk capital, and mentoring services. This TA facility was managed jointly with the IFC, which focused on advisory services directly to financial institutions.

The project was financed by the regional APL of the Middle East and North Africa MSME Facility which was approved by the World Bank Board of Executive Directors on July 14, 2011, the same day the Tunisia operation was approved. The MSME Facility was the overall framework for World Bank Group engagement on access to finance and enabling environment issues facing MSMEs. Its objective was to catalyze financing, risk sharing, and TA to address policy, legal, institutional, capacity, and information constraints holding back MSME access to finance in the Middle East and North Africa region. This would contribute to improvements in MSME employment, competitiveness, and incomes. The APL was the IBRD financing mechanism for the MSME Facility. Only one additional project was approved under the APL, the Morocco MSME Development Project, on June 28, 2012.13

Project Development Objectives (PDOs)

19. Given that the project was part of the APL, its PDO was presented at three levels as follows:

Middle East and North Africa MSME Facility. To catalyze financing, risk sharing, and TA to address policy, legal, institutional, capacity, and informational constraints holding back MSME access to finance in the Middle East and North Africa region and thereby support improvements in MSME employment, competitiveness, and incomes.

APL. To improve access to finance for MSMEs in the Middle East and North Africa region.

Project. To improve access to finance for MSMEs in Tunisia, including through enabling previously creditworthy MSMEs to maintain access to credit.

Key Expected Outcomes and Outcome Indicators

20. The main outcome of the project, as measured by the PDO‐level indicators, was an increase in the MSME finance portfolio of PFIs by at least 20 percent within five years and an increase in the number of new MSME borrowers in PFIs by at least 10 percent within five years. The project’s sustainability was emphasized by how the portfolio of PFIs changed through the period of project implementation and whether participating firms were successful in accessing finance. The project also sought to promote access to finance among previously creditworthy MSMEs who had entered into payment arrears because of economic difficulty. The project also tracked eight intermediate indicators focused on assessing overall financing flows, number of active loan accounts, risk management (portfolio‐at‐risk [PAR] over 90 days), and financial performance (return on assets [ROA] of PFIs).

21. The project also supported broader financial sector development objectives by providing creditworthy MSMEs with an ability to obtain loans and generate credit history which would feed into Tunisia’s credit registry. By making available a liquidity facility specifically for MSME finance, it provided a credible incentive platform for serving smaller firms considered riskier and less attractive (because of high administration and screening costs associated with serving them). A structural challenge facing

13 Report No. ICR00004419.


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Tunisia’s financial sector at that time was the lack of competition in the banking sector with a narrow range of products focused mainly on larger corporate clients, in addition to poor risk management standards. The TA made available to Tunisian authorities during the period of project implementation advanced a broader financial sector strengthening agenda that covered inclusion, integrity, and stability elements and complemented project financing.14

Components

22. The project financed one component: a financial intermediary loan that would support access to finance for MSMEs and encourage PFIs to serve MSMEs despite an environment marked by economic distress and financial sector vulnerabilities (including liquidity shortages and emerging credit risks). The PAD included information related to capacity building (policy/regulatory levels in addition to financial institutions and MSMEs themselves); however, the project itself did not finance these activities as the Government did not borrow for TA. Rather, TA was provided through the MSME TA facility in addition to contributions from other donors.

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE)

Revised PDOs and Outcome Targets

23. An additional financing (AF), presented to the board in March 2014, expanded the LOC by EUR 72.6 million (US$100 million) and included a component on microfinance for micro entrepreneurs and mezzanine finance for larger SMEs (through long‐term loans through bonds convertible to equity). See paragraph 34 for additional detail. As a result, the PDO did not change; however, the results indicators reflected scaled‐up project activities and were revised accordingly.

Revised PDO Indicators

24. With regard to PDO‐level indicators

The increase in the total number of MSME loans in PFI portfolios was revised upward from 10 percent to 13 percent. This indicator has a zero baseline at project approval.

The increase in the total volume of outstanding MSME portfolio of PFIs was revised upward from 20 percent to 25 percent. This indicator has a zero baseline at project approval.15

25. The intermediate‐level indicators at the AF stage were organized by subcomponent reflecting the overall changes in project design. Eight new indicators were added. These related to the number of

14 Regarding long‐term results, the LOC promoted economic activity and job creation including in vulnerable regions of Tunisia.

While the economic and social impact data was not included in the core Results Framework, the CBT captured data on the impact of project financing, job creation, sales turnover, economic output by sector, geographic region, and by gender. 15 Both PDO‐level indicators were calculated from a zero baseline, reported by financial institutions, and amalgamated and reported on by the CBT to the World Bank Group. Both the total number and volume of MSME loans were calculated as a fraction of the total number and volume of the loan portfolio of PFIs. Through regular implementation support missions, the World Bank Group team provided capacity building to the CBT to ensure accurate understanding of the methodology and reporting of the data. Evidence of this capacity building was provided in ISRs and aide‐mémoires.


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loans to women‐led SMEs, in addition to the volume and number of loans pursued under the microfinance (Subcomponent 1.2) and patient capital (Component 2). The added indicators also focused on operational performance, specifically assessing the PAR of the participating MFIs and an indicator related to the ROAs/equity.

26. Specific indicators were modified as follows:

The number of MSME loans financed by the line of credit increased from 250 to 379 (intermediate indicator 1).

Volume of MSME loans financed by the line of credit increased from US$50 million to US$110 million (intermediate indicator 2)

Volume of financing from the line of credit to PFIs increased from US$50 million to US$110 million (intermediate indicator 3).

The number of participating PFIs increased from 4 to 9 (intermediate indicator 4).

The number of active MSME loan accounts in PFIs increased from 9,200 to 125,000 (intermediate indicator 5).

The volume of outstanding MSME loans in PFIs increased from US$1.65 billion to US$4.0 billion (intermediate indicator 6).

The percentage of the PAR >90 days had a baseline of 24 percent and revised to a specific figure of 21.6 percent rather than a general note of ‘same or better than baseline’ (intermediate indicator 13).

The ROA of PFIs was maintained at 1.20 or better (intermediate indicator 15).

27. New intermediate indicators were added as follows:

Loans to women‐led SMEs, as a percentage of Subcomponent 1.1. Baseline was 12 percent and the target was 13 percent (intermediate indicator 7).

Volume of microfinance loans from the line of credit. Baseline was 0 and target was US$25,000,000 (intermediate indicators 8).

Microfinance loans to women financed by the line of credit. Baseline was 50 percent and target was 60 percent (intermediate indicator 9).

Patient financing operations financed under Component 2. Baseline was 0 and target was 15 (intermediate indicator 10).

Volume of patient financing operations financed under Component 2. Baseline was 0 and target was US$15,000,000 (intermediate indicator 11).


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The percentage of PAR >90 days in the microfinance sector was added. The baseline was 0 and the target was 3 percent (intermediate indicator 15).

ROAs/equity. The baseline was 3.00 and target was to be maintained at 3.00 (intermediate indicator 16).

Revised Components

28. While the AF was approved by the World Bank Board in March 2014, it was made effective only in February 11, 2015. The AF introduced two new financing instruments to the project: microcredit through microfinance institutions (MFIs) and long‐term patient capital for larger SMEs. The single component of the parent project was divided into two subcomponents: Subcomponent 1.1, which corresponds to the single component of the parent project, and Subcomponent 1.2, which provided financing to the microfinance sector. The AF included a second component covering the SME patient financing.

29. The AF added one project implementation entity (PIE), the Deposit and Consignment Fund (Caisse des Dépôts et des Consignations, CDC), a sovereign wealth fund established by the GoT in the postscript of the revolution. The Microfinance Supervisory Authority (Autorité de Contrôle Pour la Microfinance, ACM), the national microfinance regulator, was added as a coordinator of the credit going to MFIs, although it was not considered an official PIE and as such was not part of the formal fiduciary arrangements (passing of funds was still coordinated through the Ministry of Finance and CBT).

Other Changes

Not applicable.

Rationale for Changes and Their Implication on the Original Theory of Change

30. Changes introduced by the AF enriched the TOC of the project by expanding the number of financial instruments provided under the project, specifically by adding microfinance and patient capital financing. This helped address the range of financing needs facing entrepreneurs in Tunisia, from primarily informal microbusinesses to large SMEs requiring long‐term finance for working capital and investment needs (patient capital). This contributed to creating a continuum of support over the life cycle of a firm under the project. The changes also provided financial support to the microfinance sector that had benefited from regulatory and market reforms, notably by making operational a 2011 law that put in place a regulatory framework in line with internationally recognized standards for MFIs.

31. Microfinance, the provision of quality financial service to low‐income households, was seen as an important tool to support productive investment in vulnerable households and microenterprises in Tunisia during this time. The Tunisian microfinance sector was the third largest in the Middle East and North Africa region and was dominated by Enda Inter Arabe, an international non‐profit established in 1990. The sector also included approximately 299 small MFIs that were unsustainable, lacked professional operational and credit assessment standards, and were largely dependent on funding from the Banque Tunisienne de Solidarité, a SOB with poor credit assessment and collection standards.


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Box 2. Financial Exclusion Estimates in Tunisia

A 2015 World Bank Group report noted that despite 12 million bank and postal accounts registered, there remains an estimated demand for microfinance services ranging between 2.5 and 3.5 million individuals and their income‐generating activities, or 30 percent to 40 percent of the adult population, and between 245,000 and 425,000 formal businesses, or more than half of the estimated enterprises in Tunisia. a Global evidence points to the importance of microfinance services to promote access to basic services (housing, education, and so on); spur income generation and employment; and help manage economic shocks.

SME financing remained limited and largely short term with both supply and demand constraints preventing otherwise creditworthy enterprises from accessing credit. A November 2010 report from the G20 Experts Group on SME finance led by the IFC indicated a potential financing gap of US$247 million for Tunisia. It also noted the need for debt financing from nonbank microfinance providers because of their inability to intermediate deposits. The microfinance sector, the third largest in the Middle East and North Africa region at the time of project preparation, required regulatory and institutional reform to meet potential market demand.

Source: Chehade, Nadine, Alice Negre, and Peter McConaghy. 2015. Financial Inclusion Snapshot in Tunisia: Low‐Income Households and Micro‐Enterprises. World Bank Group Report No. 96222.

32. The microfinance subcomponent of the project complemented changes in the legal and regulatory framework that allowed for the emergence of for‐profit microfinance companies in line with the new microfinance law passed in 2011. This law did not allow Tunisia MFIs to take deposits. As such it was critical that they had access to external funding. The subcomponent was also designed to demonstrate the financial soundness of for‐profit MFIs to the financial markets, thus prompting eventual financing from Tunisian banks.

33. The patient capital component aimed to address the lack of long‐term finance in Tunisia and develop domestic debt capital markets. At the time of the AF, bank loans and corporate bonds that were issued did not exceed six to seven years. SMEs had accumulated too much short‐term debt which prevented them from growing and being profitable. The activity introduced a new financial product which was attractive as it was a quasi‐equity instrument that did not require collateral. The instrument was used as a tool to help restructure SMEs and meet long‐term working capital needs.

34. The patient capital component provided US$15 million of financing in the form of bonds issued by SMEs that are convertible to equity after a period of 10–12 years. The investments were made in partnership with private equity funds whose role was to strengthen the capital base of beneficiary SMEs. The instrument was an attractive long‐term financing option (banks loans and bonds issued rarely exceed six to seven years) mainly because of the absence of well‐developed capital markets in Tunisia. The component’s design also stimulated the venture capital (VC) market by generating deal flow for VC partners. The instrument allowed SMEs a flexible financing instrument to meet working capital needs. The inflation rate during the period of AF preparation hovered at 5 percent and dropped to 4.2 percent by July 2015, reflecting prudent monetary policy and lower food prices.16

35. The proposed changes capitalized on the satisfactory performance of the first LOC. The first loan was fully disbursed. From December 2011 to December 2013, the total number of MSME loans in PFIs increased by 9.85 percent, while the volume of these loans increased by 12 percent. This represented 98.5

16 Gressani, Daniela and Taline Koranchelian. 2015. Tunisia: Article IV Consultation, Sixth Review under the Stand‐By Arrangement, and Request for Rephasing. International Monetary Fund.


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percent and 60 percent of the original PDO indicators at the time of project approval. PFIs granted mainly medium‐ and long‐term loans taking advantage of the longer maturity of the credit line. At the time of AF an impact effort suggested that the credit line generated 1,538 new jobs, leveraging TND 105.5 million in investments and TND 221 million in addition turnover (38 percent for exports). These figures were declarative based on responses from projects that had already received funding.

36. In addition to the satisfactory performance of the project, the difficult economic outlook and ongoing liquidity and credit risks were cited as the overall justification for the AF. During the preparation of the AF, half of Tunisia’s 21 banks did not comply with prudential liquidity ratios (the average ratio was 81 percent versus the required minimum of 100 percent). Economic growth forecasts remained subdued during this period while expansionary policies placed additional pressure on overall fiscal deficits further threatening the overall economic outlook in Tunisia. The International Monetary Fund’s 2015 Article IV Consultation notes that Tunisia’s economy was resilient in a context marked by prolonged political transition, but that the NPL ratio was high (reaching 15.8 percent in 2015) and that capital adequacy ratios for the banking sector stood at 9.5 percent, below the regulatory threshold of 10 percent.17

Box 3: Project Pricing Principles

The project underwent an OP10 review during project preparation which ensures that the project does not contradict the World Bank Group’s ongoing financial sector policy dialogue with national authorities and does not promote unsustainable practices. These often include working with unsound financial institutions, unsustainably priced loans to sub‐borrowers, poor client selection, or ineffective loan contract enforcement. Selection criteria was defined strictly in the operational manual and focused on adherence to prudential ratios (liquidity, capital requirements, below 12 percent total NPL), financial performance (for example, positive return on assets and equity), and sector experience (10 percent of total loans served by MSMEs).

In accordance with World Bank Group OP 10, pricing for the LOC to PFIs and final borrowers was set competitively and incorporated the cost of mobilizing resources, administrative costs, financial risk (including credit risk, liquidity mismatch, and sector‐related risks). PFIs under the project competitively determines rates to enterprises following standard credit evaluation practices as outlined in the project operations manual. The assessment found the CBT was incompliance with OP10 guidelines and had a long‐track record of administering external credit lines and strictly implements the conditions set in the loan agreement. In addition, the specific CBT unit in charge of managing the project, the Payment Services and External Resources Department, does not interfere in the lending policies of beneficiary financial institutions, and had the capacity to perform the monitoring roles of the operation.

Pricing was set within the context of Tunisia’s yield curve for local currency pricing and overall sector risks at the time of project preparation. Loans to banks and leasing companies were provided to PFIs at the Average Money Market Rate (Taux Moyen Du Marché Monétaire, TMM), approximately 4 percent, before the AF and TMM+ 1.75 percent, approximately 6 percent after the AF. The final cost to borrowers in the banking sector was an average of 7.66 percent (with a spread between a minimum of 5.48 percent and 8 percent). The average cost of financing to end beneficiaries in the leasing sector was 9.96 percent (with a spread between 7.25 percent and 12 percent). Banks perceived the cost of financing post AF to be high, particularly given that the line had to serve SMEs with a maximum of outstanding credit of TND 7,000,000 and broader deterioration of Tunisia’s growth and investment climate outlook during the period of project implementation (see section III B for more information).

There is a law on excessive lending (LEL) in Tunisia which places an upper limit of 8 percent on the interest rate charged by the banking sector. The impact evaluation conducted directly after project closure found that the excessive interest rate prevented risk‐based pricing for smaller enterprises considered to have high transaction

17 Gressani, Daniela and Taline Koranchelian. 2015. Tunisia: Article IV Consultation, Sixth Review under the Stand‐By Arrangement, and Request for Rephasing. International Monetary Fund.


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costs and a high‐risk profile, for whom an interest rate of 13–14 percent would seem more reasonable. The World Bank Group is involved in ongoing capacity building with the CBT and Ministry of Finance to reform the LEL to allow for risk‐based pricing which can serve to expand access to finance for smaller firms.

Pricing for the patient capital component was originally set at TMM+1.75 percent and the average cost of long‐term financing was approximately 7.45 percent (Min: 6.21 percent; Max: 9.75 percent). Data accumulated during the ICR preparation mission suggested this pricing was favorable given market conditions and incentivized the use of the instrument given it was an innovative and new market instrument.

In line with cost of financing for the microfinance sector, the average cost of capital provided by participating MFIs was 29 percent, ranging from 22 percent to 36 percent. These prices make it possible for the sector to cover the high cost of risk and the operational and structural costs related to the distribution of microcredit. Microcredit, despite high rates, is an extremely complementary offer of banks and leasing since this sector allows financial inclusion and access to credit for part of the population that does not have access to other FIs.

II. OUTCOME

A. RELEVANCE OF PDOs

37. The relevance of the project’s objective is rated High.

Assessment of Relevance of PDOs and Rating

38. The project became an increasingly important tool in post‐revolutionary Tunisia given economic and social uncertainties. Job creation and private sector‐led development became increasingly important policy priorities during the period of project implementation. GDP growth was 2.3 percent in 2014, well below potential (according to International Monetary Fund estimates). The unemployment rate remained high at 15.2 percent in 2015, and the current account deficit increased to 8.8 percent in 2014, the highest since the 1980s.

39. The project was highly relevant to the World Bank Group’s strategy. The project supported the ISN’s focus on laying the foundation for renewed sustainable growth and job creation (focus areas one) in addition to promoting social and economic inclusion (focus area three). The ISN notes that Tunisia’s banking sector, already performing poorly before the revolution, was negatively affected by the economic downturn, particularly the drop in tourism, a sector which was the source of NPLs for many Tunisian banks. While the CBT provided liquidity support to banks, in 2011, credit rationing was cited as a major factor during this period given uncertainty around continuing monetary easing tools because of fiscal constraints. Between 2010 and 2014, the average capital adequacy ratio of the banking system declined from 11 percent to 9.7 percent, because of an increase of NPLs, from 12.5 percent before the revolution to 16 percent in 2014. The project, and particularly the MSME TA facility, provided an important common platform to work with the IFC on advancing financial sector reforms.

40. In 2012, the same year the project became effective, the constituent assembly government prepared a development plan that included ensuring social peace and security in the short run and included banking sector reforms in the medium term. TA activities under the MSME TA facility were implemented in parallel and in complementarity with the project and supported this development plan. Specific activities included work on corporate governance in the banking sector, supporting senior authorities on restructuring SOBs, and improving banking sector stability through improved prudential


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oversight. During this period extensive work was done on financial inclusion, most notably through modernizing the legal framework for the microfinance sector, setting up a credit registry for microfinance, launching policy dialogue surrounding digital financial inclusion, improving analytical data on financial exclusion, and rolling out financial education initiatives, in collaboration with the Enhancing Microfinance Amongst Women and Youth in the Middle East and North Africa Project.18

41. During this period, work also advanced regarding financial infrastructure, specifically on modernizing the credit bureau law and on a secured transactions law paving the way for the introduction of a moveable collateral registry. With support from the Consultative Group to Assist the Poor, a microfinance strategy was also developed in 2011 to support Tunisia policymakers post revolution in ensuring sectoral reforms and instruments were in place to further develop the microfinance sector.19 See annex 6 for a summary of technical assistance activities during project implementation. Feedback received by financial sector authorities and industry players including the CBT, ACM, and PFIs during ICR preparation stressed the quality and relevance of this TA, as evidenced by financial sector development being featured in high‐level policy documents (see paragraph 45).

42. The overall development objectives and scope of activities are congruent with the World Bank Group’s current CPF covering FY16–FY20. The CPF is underpinned by the GoT’s ‘Note d’Orientation Stratégique’ that outlines a vision for Tunisia’s future which relies on the private sector to lead economic growth and job creation. Accordingly, Pillar I focuses on strengthening economic and fiscal management and improving the business environment for private sector‐driven job creation and innovation. One explicit objective under this pillar focuses on financial sector development, specifically expanding access to financial services for MSMEs with a focus on women and youth entrepreneurs.

43. The operation supported the World Bank Group’s strategy toward inclusion of women and development of lagging regions. Pillar II of the CPF focuses on reducing rural disparities and enhancing economic opportunities in rural areas. Given that 29 percent of the LOC went to underdeveloped interior regions (representing TND 55,200,000) the project supported reduction of the gap in economic opportunities and living standards across regions. A total of 44 percent of the companies financed by the LOC are headed by women, facilitated in large part because of the project’s microfinance component. A total of 5,353 women benefited from the credit line covering the entire program. Overall the operation provided clear evidence of the alignment of its PDOs to the current CPF objectives.

44. Access to finance for MSMEs remains a challenging topic in Tunisia moving forward. According to a recent survey effort completed by the IFC, only 15 percent of MSMEs had taken out bank loans, while 58 percent reported unmet demand for bank financing.20 The Tunisian equity market is relatively vibrant, although the private equity (PE) and venture capital (VC) market remains underdeveloped and few private investors exist in the seed and start‐up investment stages. In 2014, Tunisia’s share in total PE and VC investments in Middle East and North Africa (which amounted to US$1.5 billion) was only 2 percent, lower than regional peers such as Egypt (6 percent) and Jordan (3 percent), but consistent with the Maghreb

18 P144655, ICR number 00003647. 19 Coordinated Vision for the Development of Microfinance in Tunisia 2011‐2014. Available here: http://www.acm.gov.tn/upload/1410792769.pdf 20 IFC (2014). Market Assessment of the Financial Needs of Very Small, Small, and Medium Enterprises in Tunisia.


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region.21 Current the World Bank Group engagement supports the improvement of the overall enabling environment for early stage equity finance, in addition to innovative financing solutions to continue to support MSMEs.

B. ACHIEVEMENT OF PDOs (EFFICACY)

45. The project objective was nearly achieved and as such overall efficacy is rated Substantial. The rating is justified by the substantial increase in MSME lending of PFIs through three different financing sources: microfinance, SME finance through the banking and leasing sector, and long‐term SME finance through the project’s patient capital activities. The successful implementation of these instruments allowed credit‐constrained MSMEs access to capital to productively invest in their businesses and expand private sector markets throughout Tunisia. The project activities strengthened Tunisia’s financial sector by making it more inclusive. It provided liquidity‐constrained banks and leasing companies with access to credit during a period of significant economic turbulence. What follows is a presentation of existing data on project performance linked to how the project achieved the PDO.

Assessment of Achievement of Each Objective/Outcome

Project Performance Against Stated Results

46. Against stated development indicators, the project was successful in operationalizing a well‐used LOC program to facilitate MSME finance in Tunisia. The project financed a total of 12,048 beneficiaries, of which 11,131 were microfinance clients and typically considered completely excluded from the formal financial system. The main indicators used to judge the performance of the project were increases in the total number and volume of MSME loans in the portfolio of PFIs. By project closure, the total number of MSME loans in PFI portfolios increased by 79 percent, exceeding the established target of 13 percent (PDO‐level indicator 1) by 600 percent. The substantial achievement of this indicator is because of the nascent microfinance market in Tunisia rather than setting the results indicator too low. During AF commercial MFIs were in the process of being established from scratch22 and the regulatory framework was still being finalized. It was difficult to accurately estimate the operational outreach of these new institutions, which were large dependent on publication of a series of executive regulations23 but their proportional application through the newly created independent ACM.

47. By project closure the total increase in volume of outstanding MSME portfolio was 23 percent against a stated target of 25 percent (PDO‐level indicator 2). Table 1 provides a synthesis of project results indicators against intended targets.

21 MENA PE Association (2014). MENA PE and VC Report 2014. The bulk of investment went to UAE (55 percent) and KSA (21 percent). Available at : https://www2.deloitte.com/content/dam/Deloitte/xe/Documents/finance/me_fa_9th_MENA_Private_Equity_and_Venture_Capital_Annual_Report_2014.pdf 22 With the exception of Enda Inter‐Arabe, which operated under a specialized licensing regime since 1995. 23 MFIs are regulated by decree‐law no. 2011‐117, dated November 5, 2011, amended by law no. 46 of July 24, 2014, 22 and by five consecutive orders issued between 2012 and 2014.


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Table 1. PDO‐level Indicators

Number

Name Baseline Original Target

Formally Revised End

Target

Actual End Achievement

Percentage of Indicator Met

1

Increase in the total number of MSME loans in PFI portfolio (%)

0 10 13 79 600

2

Increase in the total volume of outstanding MSME portfolio of PFIs (%)

0 20 25 23 92

48. Intermediate indicators were relatively well achieved, particularly considering the significant devaluation of the Tunisian dinar during the period of project implementation. Intermediate indicators tracked outreach (number and volume of loans across each financing instrument), gender disaggregation, financial performance, and sector stability (PAR). Of the 16 intermediate indicators tracked during project implementation, eight were exceeded including the number of participating PFIs (180 percent achieved), the number of MSME loans financed by the banking and leasing sectors (252 percent achieved), the number of loans to women‐led SMEs (123 percent achieved), and the number of microfinance loans financed by the LOC (112 percent achieved). Two were nearly achieved (number and volume of patient financing operations). Four indicators related to the volume of financing were not achieved due to the depreciation of the dinar during project implementation. Two indicators were not achieved.

49. The performance of the LOC is impressive when accounting for monetary policy during the period of project implementation. The Tunisian dinar depreciated by nearly 30 percent between effectiveness of the AF in February 2015 and project closure in June 2018. This placed considerable pressure on disbursement, as the total volume of the loan was much higher in real terms. It also placed economic pressure on SMEs themselves whose purchasing parity of goods went down in real terms when dealing with imported products or foreign suppliers. Given this depreciation, the four intermediate indicators outlining the volume of loans financed across subcomponents did not meet targets set as they were outlined in U.S. dollars in the Results Framework. However, given the depreciation, performance assessed by volume is still considered strong. By way of example, by project end US$53 million of financing facilitated through the banking and leasing sector. This represented TND 162,314,454 as of July 31, 2018. Using the exchange rate in at the time of project effectiveness (Feb 11, 2015) of 0.52 TND/1 dollar the total financing volume would have been US$84,403,516, 76 percent of the indicator met. Table 2 provides a synthesis of intermediate project results indicators against intended targets.


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Table 2. Intermediate Results Indicator

Number Name Baseline Original Target

Formally Revised Target After AF

Actual End

Achievement

Description

of Achievement

Percentage of

Indicator Met

1

Number of MSME loans financed by the line of credit (Subcomponent 1.1)

0 250 379 917 Exceeded 241

2

Volume of MSME loans financed by the line of credit (Subcomponent 1.1); calculated in US$, millions

0 50 110 53 Not achieved, affected by depreciation of Tunisian

dinar

48

3

Volume of financing from the line of credit to the PFIs (Subcomponent 1.1); calculated in US$, millions


dinar

48

4

Number of participating PFIs (banks and leasing companies; Subcomponent 1.1); calculated in US$, millions

0 4 9 14 Exceeded 156

5

Number of active MSME loans financed by the line of credit (Subcomponent 1.1: banking and leasing sectors)

0 250 337 917 Exceeded 252

6

Volume of outstanding MSME loans financed by the line of credit (Subcomponent 1.1); Calculated in US$, millions.24


dinar

48

7

Loans to women‐led SMEs (Subcomponent 1.1) (percentage)

12 n.a. 13 16 Exceeded 123

8 Microfinance loans financed by the line of credit (Subcomponent 1.2)

0 n.a. 10,000 11,131 Exceeded 112

9 Volume of microfinance loans from the line of

0 n.a. 25,000,000

15,906,000

Not achieved, affected by

64

24 As noted in paragraph 52 and annex I, this indicator was negatively affected by the depreciation of the Tunisian dinar. The Tunisian dinar depreciated 27 percent between approval of the AF and project closure. The total financing volume in TND at the time of project closing was TND 162,314,454. Using the exchange rate in at the time of project effectiveness (February 11, 2015) of TND 0.52 per US$1 the total financing volume would have been US$84,403,516, 76 percent of the indicator met.


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Number Name Baseline Original Target

Formally Revised Target After AF

Actual End

Achievement

Description

of Achievement

Percentage of

Indicator Met

credit (subcomponent 1.2); Measured in US$25

depreciation of Tunisian

dinar

10 Microfinance loans to women financed by the line of credit (Subcomponent 1.2) (percentage)

50 n.a. 60 47 Not achieved 78

11 Patient financing operations financed under Component 2 (number)

0 n.a. 15 14 Nearly achieved

93

12 Volume of patient financing funded under Component 2 (amount, US$)

0 — 15,000,000

13,000,500

Nearly achieved

87

13 Portfolio at risk >90 days for MSMEs (weighted by asset size); Measured by percentage

21.60 0 21.60 26.10 Not achieved 83

14 Portfolio at risk ‐ microfinance

3.00 0 3.00 0.79 Exceeded 379

15 Percentage of project‐supported institutions that are reporting on the portfolio‐at‐risk indicator.

25 0 50 100 Exceeded 200

16 Return on Assets of PFIs 1.20 1.20 1.20 1.30 Exceeded 108

50. The project benefitted from the broad‐based participation of financial institutions across diverse segments of Tunisia’s financial sector, notably leasing, banking, microfinance, and private equity. Overall 17 financial institutions participated in the program against an intended target of 9 set out in the Results Framework. Under the first LOC, six banks (BTE, BFPME, UBCI, BIAT, Amen Bank, ATB) and three leasing companies (ATL, Tunisie Leasing, CIL leasing) participated in the program.26 The AF expanded the reach of the program to cover microfinance (three participating institutions—Advans Tunisie, MicroCred Tunisie, and Enda Tamwheel), patient capital (mezzanine financing program with seven partner private equity institutions), in addition to continuing support to the banking and leasing sector (eight banks and six leasing companies participated by program end). By market share the eight banks

25 This indicator was negatively affected by the depreciation of the Tunisian dinar. Using the exchange rate at the time of project effectiveness (February 11, 2015), the total financing volume under the microcredit component would have been US$25,064,000, exceeding the target indicator. 26 Acronyms are as follows: Banque de Tunisie et des Emirats, Banque de Financement des Petites et Moyennes Entreprises, Banque Internationale Arabe de Tunisie, Arab Tunisian Lease.


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participating represent 63 percent of outstanding credit in the banking sector, while the three MFIs represent over 75 percent of the TND 700,00,000 in outstanding credit in the microfinance sector.27 At the time of project closure, the LOC served 12,148 beneficiaries and boasted a disbursement rate of 100 percent (US$125,190,000 at time of project closure).28 This broad‐based participation, in addition to satisfactory performance as measured by outreach and percentage shift of the MSME loan portfolio, suggests the importance of the program.

51. The project met a diverse set of financing needs for MSMEs in Tunisia. Nearly 75 percent of total financing (11,426 beneficiaries) financed productive investments, while 24 percent of total financing volume went to financing business creation activities (592 beneficiaries). The breakdown of commitments by type of credit remained the same before and after the AF. Nearly 99 percent of business creation activities was financed by banks and leasing companies (representing TND 51.7 million), while 60 percent of all financing related to project extension was financed by banks and leasing companies (representing TND 91.5 million).

52. The patient capital component financed companies investing in productive expansion of business in addition to meeting working capital needs. A total of TND 25.6 million was invested through the patient capital component. Equally the microfinance subcomponent also financed microenterprises looking to expand business activity through productive investment. A total of 98 percent of the LOC that was invested into microfinance activities, or TND 34.6 million representing 11,131 beneficiaries, supported this business expansion. Microfinance also financed 156 start‐up firms. A total of 21 percent of microentrepreneurs financed by the project were on at least their second loan with the same MFI.

Impact of Project Activities on Tunisia’s Financial Sector Outlook (presented by component)29

Subcomponent 1.1 Banking and Leasing

53. The project provided liquidity and exchange rate risk mitigation to the leasing and banking sector. It was a countercyclical tool to support banking sector liquidity given the negative overall outlook facing the banking sector. This outlook was the result of the economic slowdown during this period, the depreciation of the Tunisian dinar, the security situations, and the heavy reliance on informal markets. During this period, financial stability deteriorated in Tunisia. There was an increase in NPLs, from about 12.5 percent in 2011 to 16 percent in 2014 and an increase in provisioning ratios, from about 44 percent to about 60 percent. The banking sector’s liquid assets declined from 28.8 percent of total assets in 2012 to 4.9 percent in 2017. In 2014, all three SOBs, six banks out of the 21 banks (covering 42 percent of banking assets), fell below the new minimum capital requirements introduced in 2013 (down to three banks in 2014, all state‐owned).30 The interest rate cap applied by the CBT placed additional strain on

27 For detailed statistics, see the quarterly microfinance barometer published by the ACM in addition to the annual report of the CBT. They are available on their websites. 28 Note the difference between the original amount ($150,000,000) and the actual amount disbursed ($125,186,166) as outlined in the data sheet is due to exchange rate fluctuations between the value of the Euro to the US dollar during the period of project implementation. From the period of project effectiveness (April 4, 2012) to project closure (July 31, 2018) the value of the Euro fell 11%. In addition, USD $1,898,356 of project funds were cancelled. 29 Data used in this section are taken from the evaluation exercise completed in September 2018 after project closure. It is based on self‐reported data from the PFIs and validated by the CBT, ACM, and CDC. 30 For more evidence on the banking sector outlook, see: Mazarei, Adnan and Vitaliy Kramarenko. 2018. Tunisia: 2017 Article IV Consultation and Second Review under the Extended Fund Facility. International Monetary Fund.


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banks to adequately price the risk associated with serving the SME sector.

54. Against this backdrop, participation in and performance of the LOC by banks was substantial. Across eight participating banks 25 percent of the total volume of the LOC was channeled through the banking sector (TND 56.6 million out of TND 220 million). Approximately 55 percent of the credit allocated by the banking sector went to underdeveloped regions in Tunisia. Participation in the program by banks continued despite an increase in pricing during project implementation.31 Pricing was made clear to PFIs throughout project implementation and was in line with or more expensive than market rates, suggesting that the project did not introduce any pricing distortions in the market but rather was a tool to improve overall market discipline (see box 3).

55. The project provided a credible platform for banks to extend the maturity of their liabilities/financing positions. The project offered loans to participating banks with a 12‐year maturity and a 3‐year grace period. The average tenor of loans provided to MSMEs by banks was 6 years with a 1.2‐year grace period. The maturity of credit facilitated suggests additionality of the LOC as compared to what was available in the market.

56. Additionality was built into the project design, because of the eligibility criteria which encouraged banks to further downscale to serve smaller enterprises. Under the LOC, banks could not serve enterprises with more than TND 7,000,000 in credit outstanding from regulated financial institutions. Banks interviewed during ICR preparation expressed that this maximum was cumbersome and did not reflect their core business. This forced banks to use credit scoring tools more intensively to not have a negative effect on the overall NPL or provisioning rates in their portfolio. The outstanding loans provided to an SME could not exceed TND 1,500,000, or TND 3,000,000 in the case of financial restructuring. This encouraged banks to serve a larger number of clients. Banks expressed the need to relax these restrictions and encourage the line to allow a financing volume more in line with traditional small enterprise financing which hovers around TND 4,000,000.32 Reporting standards were rigorous for the relative size of the loans provided by the banking sector.

57. The operation provided significant financial resources to Tunisia’s leasing sector. Tunisia’s leasing sector, with nine institutions, accounted for 15.5 percent of private gross fixed capital formation in 2010.33 SMEs form an important aspect of the loan portfolio of leasing companies. Leasing companies interviewed during ICR preparation communicated that short‐term credit to SMEs form over 75 percent of their loan portfolio. The sector has recorded significant growth in recent years. The outstanding assets in the leasing sector accelerated significantly in 2017, increasing from TND 761 million to TND 187 million.34

58. Leasing companies heavily used the LOC. Approximately 46 percent of total financing under the operation was used by the six leasing companies participating in the project (TND 102 million out of TND 220 million). A total of 801 out of the 12,048 beneficiaries were leasing clients. The average loan in the

31 The cost of credit to banks and leasing companies was the interbank rate, or the average money market rate (taux moyen du marché monétaire, TMM), for the original loan (approximately 4 percent) and TMM + 1.75 percent for the cost of the AF (approximately 6 percent). 32 Self‐reported data by banks consulted during ICR preparation mission. 33 See 2017 ICA. 34 CBT annual report.


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leasing sector was TND 452, 446 with an average maturity of 4.34 years. Loans provided by leasing companies were primarily medium term in nature and went to finance industrial equipment, assets related to business investment, and real estate assets used by SMEs. Nearly 33 percent of financing through leasing companies went to lagging regions (representing TND 18.1 million). Most of the leasing contracts under the LOC was used to finance vehicles for small companies.

59. A very small number of loans under the LOC was classified as financing the restructuring of SMEs that had encountered financial difficulty. By project closure, restructuring benefitted only two beneficiaries representing TND 0.37 million (0.2 percent of engagements). The PAD made explicit reference to the project supporting, otherwise creditworthy, MSMEs affected in the short‐term by falling demand and payment delays. Stakeholder consultation during ICR preparation suggested that the operational guidelines on how to serve SMEs facing financial distress could have been made more explicit in the Project Operations Manual (POM) and throughout implementation.

60. Overall, the LOC was successful in intermediating credit to MSMEs through the banking and leasing sectors. By project closure, banks and leasing companies financed over TND 160 million to MSMEs comprising 854 loans using medium‐term maturities averaging over three years. This exceeded overall results targets in terms of number of loans and suggests strong utilization of the LOC and ability of the LOC to respond to the liquidity needs of PFIs. A total of 99 percent of the new business financing and 60 percent of project extension financing were facilitated through the banking and leasing sectors (see figure 2). Through the project, banks and leasing companies were able to extend credit maturities and provide more medium‐term loans to SME beneficiaries.

Figure 1. Breakdown of Commitments by Type of Activity Financed

Source: Author’s calculation, based on data compiled from result assessment completed September 2019.

Creation

Extension

Renovation

Other

‐

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

Banks Leasing CDC IMF

Creation 21,619,429 30,066,802 ‐ 624,683

Extension 25,493,336 65,991,740 25,600,000 34,652,902

Renovation 6,039,936 6,968,204 ‐ ‐

Other 3,270,277 ‐ ‐ ‐

TND


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Figure 2. Total Financing Facilitated Broken Down by Category of PFI


Subcomponent 1.2: Microfinance

61. Performance of the microfinance subcomponent was substantial. The microfinance component of the LOC was responsible for 11,131 of 12,048 beneficiaries served by the overall project (92 percent) with an average loan size of TND 3,900. Approximately 50 percent of the total registered limited liability company (LLC) MFIs participated in the program. Enda Tamwheel, the largest LLC MFI in the sector, was the largest user of the LOC with TND 25,000,000 in total credit allocated. Advans Tunisie and Microcred Tunisie, two emerging MFIs with quality credit ratings and management practices in line with international standards, used the line significantly less, and allocated TND 17,200,000 and TND 6,000,000 in credit, respectively. The total volume of microfinance loans was TND 48,200,000 with 42 percent of these loans going to interior regions (TND 20,244,000).

62. The microfinance subcomponent provided external financing sources at a time of significant sectoral change with the introduction of for‐profit LLC MFIs run according to international standards. The financing was facilitated during a period when two out of the three MFIs were building their balance sheet from scratch.35 External resources were difficult to acquire during this time and complicated by the substantial foreign exchange risk carried during the period of project implementation. The repayment period provides further evidence of additionality. As cited by the ACM during ICR preparation, given that loans were provided for less than two years but that repayment is over 12 years, there is significant value‐added in recycling project funds back into the core business of MFIs.

63. It was the first time the ACM (microfinance regulator) coordinated an external financing line and it was used to ensure that MFIs were reporting to the credit registry and as an additional tool to monitor sectoral growth through the results indicators focused on risk (PAR 30) and sustainability (ROAs).

35 Microcred Tunisie and Advans Tunisie.

CCT CMT Leasing RefinancingConvertible

Bonds

Banks 677,932 10,025,342 45,525,018 78,737

Leasing 102,851,106 291,590

CDC 25,600,000

IMF 35,268,085

‐

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000TN

D


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Component 2: Patient Capital Financing

64. The patient capital component of the project introduced an innovative financing source which responded to long‐term financing needs of larger SMEs. The component completed 14 investments for a total financing volume of TND 25.6 million through seven partnerships with private equity firms. A total of 87 percent of the LOC was used (TND 25,600,000 out of TND 28,250,000). The CDC positioned the investment line as an instrument to consolidate assets and promote growth of SMEs. The project achieved 87 percent of its total financing volume target (US$13,050,000/15,000,000) and 97 percent of its target related to the total number of patient financing operations financed (14 of 15).36 The program introduced a new financing solution in Tunisia with an accent on stimulating local equity investment markets in addition to the corporate bond markets among medium‐sized enterprises. See figure 3 for a breakdown of various transactions.

65. The subcomponent was successfully able to mobilize or crowd‐in private sector finance. The subcomponent mobilized TND 49 million in investment through partner private equity firms, which represents a leverage effect of a magnitude of 2. According to the CDC data, firms participating in the program increased their sales figures by 39 percent in one year, with many of them using this long‐term funding to push into new international markets. A synthesis of transactions is presented in table 3.

Table 3. Synthesis of Financing Mobilized Under Component 2

SME Private Equity

Partner CDC Investment

Amount Pricing Disbursement Date

Prisma ACP 1,000,000 TMM +2.5% March 24, 2016

Omniacom Afric Invest 2,500,000 TMM + 2% June 24, 2016

Excelplast Amen CAP 1,500,000 TMM +2.25% September 15, 2016

Plasticum ATD SICAR 2,300,000 TMM +2% November 09, 2016

PC Retail Afric Invest 1,500,000 TMM + 2.25% November 09, 2016

Gourmandise Afric Invest 2,000,000 TMM + 2.5% February 03, 2017

Gabes SAC Sicar Amen 2,500,000 TMM + 2.5% February 03, 2017

LMB Afric Invest 1,000,000 TMM+2.25% August 07, 2017

LGR ACP 1,800,000 TMM+2.25% December 11, 2017

Servicom Ind CDC G 2,500,000 TMM+2.5% January 22, 2018

Novarino CDC G 2,000,000 TMM+2.25% April 11, 2018

Medianet Afric Invest 1,500,000 TMM=2.5% June 26, 2018

Magal Die Casting ATD SICAR 1,500,000 TMM=2.5% July 30, 2018

GCER Capsa Capital P 2,000,000 TMM=2.5% July 30, 2018

25,600,000

66. The component had respectable diversification variation with regard to both sectors and geography. A total of 57 percent of the financing volume went toward industrial manufacturing projects. The remaining sectors that were financed included telecommunications (14 percent), health and social services (7 percent), commerce (15 percent), and services (7 percent). More than 50 percent of transactions were completed in regions outside the capital, including Sfax, Gabès, Bizerte, Monastir, Zaghouan, and Sousse. See figure 3 and 4 for sectoral and geographical representation.

36 As noted in annex I, the total volume of financing was negatively affected by the depreciation of the Tunisian dinar.


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Figure 3 and 4. Geographical and Sectoral Distribution of Approved Patient Capital Finance


Justification of Overall Efficacy Rating

67. Based on the fact the operation achieved its project development objective, as established by performance of the LOC and evidenced by the results indicators across project components, the overall efficacy rating is Substantial.

C. EFFICIENCY

Assessment of Efficiency and Rating

68. The project’s efficiency rating is Substantial, reflecting both analysis related to economic efficiency and additionality and implementation efficiency. The project was efficient in financing productive MSMEs, shifting the total volume of outstanding portfolio of PFIs toward MSMEs, counterbalancing financial sector outcomes affecting stability and inclusion metrics, and generating significant employment opportunities.


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Implementation Efficiency

69. The Project Implementation Unit (PIU) managed by the CBT provided significant efficiencies over the choice of other potential implementing agencies. The CBT has significant experience in managing the LOC and during project implementation was managing several similar lines from international donors. At the time of project preparation, the CBT was managing US$367 million across six credit lines. The CBT provided credibility in communication with PFIs, including to produce from PFIs the comprehensive reporting required by the LOC. Their ability to coordinate with colleagues from relevant banking supervision departments assisted significantly in ascertaining eligibility criteria and ensuring that the operational metrics of the LOC were maintained despite a shifting financial sector context during project implementation.

70. The microfinance component was coordinated by the ACM, which took on this role because of its commitment to the sound refinancing position of MFIs and was not a formal PIU. Neither the CBT, ACM, nor CDC charged administration fees against the project, despite significant time dedicated to reporting and supervision. This assisted in decreasing administrative costs. Three implementing agencies allowed for a degree of specification. Each agency was able to focus on their core specialization resulting in more efficient implementation and an improved focus on quality.

Financial and Economic Additionality

The project was successful in shifting the total number of MSME loans in the portfolio of PFIs by 79 percent (increasing from TND 7,252 million to TND 8,911 million). This is 600 percent more than the originally forecasted amount of 13 percent in the project Results Framework. If PFIs relied only on project financing to inculcate this shift, the result would have been an increase in the total loan portfolio to TND 7,702 million. There is thus a multiplier volume of 1.16 times, or TND 1,209 million, in amount financed by the PFIs willing to shift resources other than those financed using the project into MSMSE lending. This is evidence that during project implementation additional resources were invested in MSME lending among PFIs.

The project had a clear evidence of crowding in private sector financing. Through the project’s innovative patient capital financing facility, TND 49,00,000 was able to be crowded in among the 14 participating SMEs, a leverage effect of two. Among the investee companies, sales turnover increased 34 percent because of their ability to introduce new products and expand to new markets, particularly export‐oriented markets, which had an immediate positive effect on the volume of contracts outstanding. The CDC data suggest that 459 jobs were created, and 64 percent of investments were in regional centers. See figure 5.


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Figure 5. Geographic Repartition of Financing Mobilized through Patient Capital


The PFIs served MSMEs in a financially sustainable manner. With an average interest rate of 7.66 percent for banks, 9.96 percent for leasing companies, 7.45 percent for mezzanine finance, and 29.04 percent for the microfinance sector, the ROAs of PFIs was 1.20.37

The operation had significant economic additionality, specifically the outcome of the loan on economic development metrics. These include the following:

o An evaluation assessment of the operation found the LOC directly created a total of 7,655 jobs. This is based on declarative data from 358 companies financed across leasing, banking, and patient capital components. These 358 companies created 2,619 jobs. Extrapolating this across the 917 enterprises financed by the various project components, on average 5,206 direct jobs were created. Given on average that each beneficiary SME has 29 employees, on average each beneficiary would have created 12 new jobs through banking sector loans and 4 new jobs in the leasing sector. With regard to patient capital, the average SME served with financing has 89 employees and created 32 new employees according to the investment. The project met overall expectations with regards to job creation as outlined in the AF project document, where it is noted that the original loan and AF was supposed to create 7,438 jobs (outlined in annex VII, economic and financial analysis).

o Self‐reported data from enterprises suggest that for each Tunisian dinar of financing, the LOC resulted in TND 1,053 of realized business investment, suggesting that the LOC was successful in creating TND 394,600,000 in total investment. The banking sector activity under the project was responsible for 48 percent of the total investment and represented a 3.3 to 1 leverage effect. A total of 33 percent of this investment was produced in interior regions (total value of TND 130,218,000). Annex

37 The ROAs, which measure the total net income divided by total assets, provide an indication of how efficient a financial institution is at generating earning.

36, 36%

7, 7%

14, 14%

7, 7%

14, 14%

22, 22%

Larger Tunis Area Center North Noth West North East South


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VII of the AF document suggests the project would create US$144,447,673 in additional investment, or TND 430,454,066 at the March 2019 exchange rate. The project met 92 percent of this project which is substantial given the 27 percent depreciation of the Tunisian dinar during implementation of the project’s AF.

o The credit line is estimated to have generated TND 905 million additional turnover of which 13 percent was destined for exports (TND 121.4 million). The banks represent the strongest lever in increasing sales figures through the LOC, followed by the patient capital facilitated by the CDC. The CDC allowed its patient financing to support large‐size SMEs whose share in the export represents the major part of their activity. Annex 7 of the AF document purports the project would create US$330,793,905 in additional turnover, or TND 985,765,837 at the March 2019 exchange rate. The project met 92 percent of this project which is substantial given the 27 percent depreciation of the Tunisian dinar during implementation of the project’s AF.

o The turnover assessment by subcomponent is as follows:

TND 1,000 of financing granted by the banking sector would generate an additional turnover of TND 8,454, of which TND 0.299 is for export (4 percent).

TND 1,000 of financing granted by the leasing sector would generate an additional turnover of TND 2,698 of which TND 0.087 is for export (3 percent).

TND 1,000 of financing granted by the CDC would generate an additional turnover of TND 5,836, of which TND 3,729 is exported (64 percent).

D. JUSTIFICATION OF OVERALL OUTCOME RATING

71. The overall outcome is rated Satisfactory based on high relevance of the PDO and substantial efficacy and efficiency, as presented in table 4.

Table 4. Overall Outcome Rating

Overall Outcome Rating Relevance of PDO Efficacy Efficiency

Satisfactory High Substantial Substantial

E. OTHER OUTCOMES AND IMPACTS (IF ANY)

Gender

72. The gender impact of the LOC was significant. A total of 44 percent of the enterprises financed by the credit line are headed by women representing 5,353 women. In line with global trends, credit to women was smaller than credit to men, representing 16 percent of the total volume of the LOC for a total of TND 36.3 million. The addition of microfinance to the operation significantly enhanced gender outcomes. Almost 47 percent of total financing volumes under the microfinance subcomponent of the project were allocated to women, representing TND 16.3 million. On average, approximately 50 percent


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of microcredit clients in Tunisia are women. The microfinance component thus performed nearly in line with sectoral averages.

73. The addition of microfinance to the operation significantly enhanced gender outcomes. Almost 47 percent of total financing volumes under the microfinance subcomponent of the project were allocated to women, representing TND 16.3 million. On average, approximately 50 percent of microcredit clients in Tunisia are women. The microfinance component thus performed nearly in line with sectoral averages. Microfinance is considered a gender‐inclusive development intervention. Women are viewed as key beneficiaries of MFIs because they are often responsible for the well‐being of the family and thus seen as a conduit for channeling income and investment to the greater number of people. Qualitative and quantitative studies have demonstrated that the access to microfinance services empowers women through an increased likelihood to own assets (land, houses) and an ability to invest and grow microbusinesses.38

74. Loans to women‐led SMEs in the banking and leasing sector exceeded expectations set during project design. The banking sector financed 27 percent of the total financing to women representing 17 percent of the total volume of the LOC (TND 9,700,000), 131% of the intended target value. It is estimated that 11 percent of businesses in Tunisia are run by women, suggesting that banks and leasing companies outperformed well with regard to promoting access to finance for women using the LOC. A total of 21 percent of loans financed by the leasing sector went to women, representing TND 7.3 million, approximately 10 percent of total credit outstanding by leasing companies under the LOC. Leasing loans to women were on average 70 percent the value of loans to men. Nearly 8 percent of total financing under the patient capital instrument went to women entrepreneurs.

Figure 6. Gender‐disaggregated Results from the LOC


38 For more, see: Cull, Robert, Tilman Ehrbeck, and Nina Holle. Financial Inclusion and Development. Washington, D.C.: Consultative Group to Assist the Poor.

Banking Leasing CDC Microfinance

Male 46,865,972 95,570,585 23,600,000 18,981,899

Female 9,732,647 7,280,521 2,000,000 16,286,186

‐

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

TND

Financing by gender of borrowers


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Institutional Strengthening

75. Institutional strengthening contributed to the satisfactory performance of the project. The project provided a platform for the PIEs to improve their ability to report on the financial and economic performance of the existing financing programs. Stakeholder consultations during ICR preparation suggests that the project reporting was significantly more rigorous than for similar projects financed by other donors. The project benefitted from multiple layers of reporting including interim financial reports (IFRs) and annual audit reports by the General Control of Finances (Contrôle Générale des Finances, CGF) at the Ministry of Finance. Furthermore, the IFRs captured performance impact data including all results indicators in addition to detailed information on sectoral breakdown of loans financed and employment generated. The degree of specificity and richness of information reported provided an opportunity for the PIEs to improve reporting standards because of the operation. The project thus had a positive effect on the quality of financial sector reporting by prudential authorities (ACM, CBT) in addition to the CDC.

76. At the level of financial institutions themselves, institutional strengthening was critical to the ability of PFIs to successfully assess risk and allocated credit decisions to MSMEs throughout project implementation. Adhering to the eligibility criteria in participating in the LOC and financing eligible MSMEs had a positive impact on bank downscaling outcomes and improved the risk management, marketing, and human resources necessary to sustainably finance SMEs. Throughout the project, the PFIs also received training on environmental and social screening considered to be more comprehensive than domestic sector standards.

77. Institutional strengthening was also reinforced through the comprehensive TA program provided in parallel to the operation. This TA program provided capacity building to the CBT on improving overall financial stability (provisioning of NPLs, restructuring of NPLs, and so on); transparency (pricing review in the context of maximum effective interest rate); and inclusion objectives (national financial inclusion strategy, improved to credit reporting systems, and so on). TA was also provided to the ACM during this time for putting in place a credit reporting system. This helped participating LLC MFIs assess credit worthiness of final borrowers, prevention of over indebtedness, and broader reporting on sectoral outreach and financial and social performance by the ACM. This TA reinforced the performance of the LOC and advanced institutional strengthening necessary for broader sectoral development efforts toward additional financial inclusion of MSMEs.

Mobilizing Private Sector Financing

78. The project was successful at directly mobilizing private sector financing. The patient capital fund was designed to combine this long‐term debt with VC funds that injected a minimum of 30 percent equity into each enterprise. By project closure, through 14 transactions totaling TND 25 million, seven private equity funds had participated in the project component, investing TND 49 million, nearly double the IBRD resources placed into the project. In addition, as part of the project design, funds were invested through long‐term corporate bonds issued by the medium‐size enterprise beneficiary. This contributes to a positive overall credit rating of these firms and can act as a demonstration effect for further issuances subscribed to by large institutional investors (pension funds, insurance companies, and so on).

79. The project design reinforced the indirect facilitation of private sector financing. The project was able to increase the total number of MSME loans in the PFI portfolio by 79 percent (for a total of TND


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220,328,000 in total financing disbursed) while maintaining a PAR in line with sectoral standards (21 percent for the banking sector and below 2 percent for the microfinance sector). Financial institutions will continue to serve these customers with financial products, drawing on their own sources of financing after project closure (deposits, corporate bonds, and refinancing facilities from the CBT). The project boasted clear criteria incentivizing banks to downscale to serve smaller enterprises (through, among others, profiling of MSMEs in terms of size and turnover and maximum MSME exposure to existing credit with regulated financial institutions). In doing so this forced financial institutions and banks, to seek out smaller enterprises with higher risk profiles than what they were used to serving. This was particularly difficult in Tunisia given the (a) economic downturn, (b) CBT circulars updating provisioning ratios, (c) high levels of NPLs in the banking systems, and (d) perceived riskiness of SME clients including because of payment delays.

Poverty Reduction and Shared Prosperity

80. The project design and implementation reflect economic theory related to the effect of private and financial sector development on growth and poverty reduction channels. A well‐developed financial system, measured by its level of financial intermediation, has a positive correlation with growth, employment, poverty and, through this, a reduction in inequality. GDP growth is also positively correlated with access to credit and the opening of bank branches.39 As a result, countries with advanced levels of financial development have seen the proportion of those living in poverty decrease more rapidly and their Gini coefficient improve. See figure 7.

Figure 7. Correlation Between Financial Intermediation and GDP Growth and the Population living on < US$1 per Day

Source: Beck, Maimbo, Faye, and Triki. 2011. Source: Beck, Demirguc‐Kunt, Levine. 2007. Extracts from the study Financing Africa, 2011. African Development Bank, World Bank, BMZ

81. The project has a positive impact on poverty outcomes. This was done in part by integrating microfinance into the project design during the project’s AF in 2014. Nearly 92 percent of project

39 There is a two‐way causal relationship between the financial system development and economic growth. According to economic theory, financial system development impacts growth through increased capital accumulation and improved productivity, two key elements of GDP growth. In addition, access to savings promotes investment. The resulting economic growth stimulates employment and reduces poverty. See Pasali, Selahattin Selsah. 2013. “Where is the Cheese? Synthesizing a Giant Literature on the Causes and Consequences of Financial Sector Development.” Policy Research Working Paper 6655, World Bank, Washington, DC.


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beneficiaries were served by microfinance clients (11,131 of 12,048), representing 16 percent of the total loan volume under the project. The job creation outcomes for microfinance is somewhat less clear. Microfinance by nature finances income‐generating activities typically in the informal sector. It allows a microentrepreneur to manage life cycle needs and invest productively in family structures.40 Tunisia‐specific studies on microfinance suggest that one microcredit leads to 0.2 jobs being created.41 During ICR preparation it was confirmed by consulted MFIs that this ratio was commonly used. This barometer suggests that 2,450 jobs were created through the 11,131 microenterprises served by the LOC. Regardless, the volume of microfinance activity under the project is a positive indication that the operation had positive benefits for poverty reduction and shared prosperity impact.

82. The project had impressive outreach in lagging regions, also suggesting the project’s utility in addressing poverty reduction and shared prosperity outcomes.42 A total of 25 percent of the total financing volume went to MSMEs operating in lagging regions for a total financing volume of TND 55.2 million. Banks and leasing companies were particularly active in lagging regions accounting for 36 percent and 32 percent of the volumes of these credits, respectively. See figure 8.

Figure 8. Share of Project Financing Mobilized to Lagging Regions


40 For more on the link between poverty and financial inclusion, see Financial Inclusion and Development: Recent Impact Evidence, Consultative Group to Assist the Poor Focus Note no. 92, 2014. 41 This ratio is based on industry norms for the Tunisian microfinance sector and based on stakeholder consultation during ICR preparation. It is also the ratio used in an evaluation report conducted on an entrepreneurship support program (‘Bidaya’) at Enda Tamweel, Tunisia’s leading MFI. See: Promouvoir l’Auto‐Emplois des Jeunes en Tunisie. Swiss Agency for Develompent and Cooperation, May 2016. 42 Tunisia has been characterized by significant regional imbalances, with coastal regions developing most quickly, and hinterland regions are lagging. Lagging regions refers typically to the countries North‐West and Center‐West regions, where poverty rates are 26 percent and 32 percent, respectively.


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Other Unintended Outcomes and Impacts

83. The operation supported access to finance outcomes for youth entrepreneurs. Nearly 18 percent of the total financing volume of the LOC went to youth (30 or under), representing 2,119 beneficiaries. These loans total TND 8,200,000; however, they represent only 3.7 percent in volume of the LOC. The microfinance sector financed 74 percent of the total amount of financing to youth served under the project (TND 6,130,000). Banking, leasing, and patient capital financing to youth was marginal. Nearly 3 percent of the total banking credits went to youth (TND 1,400,000) and 9 percent of total leasing credit went to youth (TND 600,000).

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME

A. KEY FACTORS DURING PREPARATION

84. The 2011 revolution and its associated economic and political uncertainty was the most pressing factor affecting project preparation. During this time, GDP growth was expected to drop from 5 percent to 1.5 percent, largely because of reductions in FDI and tourism. This had the effect of increasing unemployment to an estimated 15 percent. Given that the revolution stemmed from demands for economic and social opportunity, there was an urgent need to support Tunisia with intervention that would promote economic growth and job opportunities thereby contributing to social gains. While the project was not considered formally an emergency operation there was a need to act quickly in line with Government aspirations to create economic opportunity for Tunisian citizens in a volatile context.

85. This context was made more complex given the political economy during project preparation. There was an interim government during this period which had requested the World Bank to adopt a flexible approach suited to the economic and social challenges facing Tunisia. In this light, it was recognized that certain elements of the CPS were no longer relevant and that there was a need to take a different approach to support Tunisia post revolution. The CPS was being revised during project preparation, with an updated strategy document to be approved after the election of a new Government. An ISN was discussed by the World Bank Group’s Board of Executive Directors one year after project approval, on July 3, 2012.

86. The fluid and rapidly changing country and sector context influenced the program design. An APL structure was used to finance the operation, noting that MSME finance remained a key issue throughout the Middle East and North Africa region. Under the APL, financing was made available to Tunisia, Morocco, Jordan, and Lebanon. The APL structure was designed to facilitate follow‐on funding to be approved at the Regional Vice President level assuming the ‘no objection’ from the World Bank Group’s Executive Directors. Egypt was also provided an estimated APL allocation under a future round of financing. Tunisia and Morocco were the only two countries in the Middle East and North Africa region to ultimately make use of the APL platform.

87. The APL integrated global policy discussions in making the LOCs effective. For example, the World Bank Group’s 2013 Independent Evaluation Group assessment ‘World Bank Lending for Lines of Credit’ argued that increased liquidity through debt financing to banks and other MSME lenders alone may be insufficient to change lender behavior. The APL provided a platform through which the World


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Bank Group was able to leverage scarce grant funding to support MSME finance. Tunisia leveraged US$1,398,686 from this TA facility for work directly supporting project outcomes, most notably with regard to setting up a credit registry for the microfinance sector, and banking sector reform (corporate governance training, reviewing excessive interest rate law, and promoting banking sector competition through improved transparency).

88. The APL also provided a platform for Tunisia to leverage funding from other donors. At the time of project preparation Tunisia was in discussion with the African Development Bank, Kreditanstalt für Wiederaufbau‐led Sanad fund, and the Islamic Development Bank for similar projects through the APL platform.

89. The need to move quickly may have affected the choice of implementing agency in addition to project design. While the external resources department of the CBT possessed the technical capacity to manage the LOC and the ability to liaise with the banking supervision department, any potential complications of a CBT, acting as a PIU given its mandate as regulator and insurer of overall financial stability and monetary policy, was not discussed in the PAD. Given that Tunisia lacks an apex organization43 and the significant institutional fluidity at the time of project preparation, the CBT was a reasonable choice as a PIE.

90. Acknowledging the need to introduce instruments to spur long‐term behavior change toward MSME finance among the PFIs, the project design included a component on future possible contingent credit. The World Bank Group team made an initial assessment of Tunisia’s credit guarantee agency, (Société Tunisienne de Garantie, SOTUGAR), recognizing the role that risk sharing plays in improving long‐term behavior change at the level of financial institutions themselves. It was determined during project preparation that SOTUGAR lacked dynamic risk pricing and overall risk management capacity necessary to meet the World Bank Group’s requirements to play such a role. Given the need to move quickly it was decided that a new loan proposal under the APL could potentially finance SOTUGAR if they made appropriate improvements to their operational and management systems. The contingent credit guarantee instrument was never used during project implementation.

B. KEY FACTORS DURING IMPLEMENTATION Effect of Weak Economic Recovery and Macrofiscal and Financial Sector Outlook

91. While macroeconomic stability was maintained during project implementation it remained very fragile and post‐revolutionary economic recovery remained timid. Economic growth averaged 1.7 percent per year from 2011 to 2017 compared to 4.5 percent per year in the five years before the revolution. Recurrent protests, political fragility, and spillovers from Libya and regional instability,44 all had a negative effect on growth and recovery. Tunisia recorded a record current account deficit of 10.1

43 Apexes are generally institutions that provide wholesale financing mechanisms that channel funds, with or without supporting technical services, to retail financial institutions in a given market. They are generally set up by authorities with assistance from international development agencies to expand access to finance for underserved markets, including households and MSMEs, in developing countries. For more, see: Consultative Group to Assist the Poor Donor Brief. 2002. Apex Institutions in Microfinance. World Bank Group. 44 Affecting notably security, migration flows, and illicit economic activity.


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percent in 2017, increasing steadily from 7 percent in 2011 during project approval.45 At project closure, in July 2018, inflation reached over 7 percent, driven by depreciation of the Tunisian dinar; administered price increases (fuel, tobacco, telecommunications); and increased public sector wages. Unemployment during this period remained at 15 percent and disproportionately affected women (one in five) and university graduates (one in four). To protect reserves and support exports, the CBT allowed the exchange rate to evolve in line with fundamentals in 2017. This resulted in a nearly 30 percent depreciation of the Tunisian dinar versus the Euro. This depreciation had a negative effect on project disbursements.

92. The project took on heightened importance given the strain placed on Tunisia’s financial sector during the period of project implementation. The CBT’s refinancing of commercial banks reached a record TND 13 billion at the beginning of March 2018 after having more than doubled in 2017. This refinancing window was used to inject liquidity in the banking sector as net foreign outflows of the banking sector increased and represented approximately TND 3 billion in 2017. Banks used this low‐cost refinancing to purchase treasury bills, seeking a haven to invest money, and take advantage of record sovereign bond issuances. Lending to MSMEs became more expensive (estimated at 13 percent in 2017, well above nominal GDP and in breach of the excessive lending rate) and inflation increased. In response, the CBT widened its interest rate corridor in December 2017 and raised the policy interest rate by 75 basis points (bps) to 5.75 in March 2018, three months before project closure. As a result, the cost of liquidity increased, as reflected by the interbank rate (increasing from 3.5 percent in March 2012 to 5.8 percent in March 2018).

93. This challenging macroeconomic outlook and country context had several notable effects on project implementation:

Counterpart coordination, capacity, and engagement may have been slowed. While the project was fully disbursed as of April 2014, implementation status and results reports (ISRs) between April 2012 and October 2013 reference the initially slow pace in which the nine eligible banks were using the facility. Implementation during this period also notes the consistent delays in which the World Bank Group received the IFRs from the CBT.

In addition, the project was hampered by ineligible expenditures which took place in January 2017 and was not rectified until the final audit report received by the World Bank in December 2018. The methodology to capture performance indicators was subject to discrepancies between June 2015 and August 2017. A mission in August 2017 was dedicated to working with the client on rectifying methodology issues which created confusion for both the borrower and the World Bank Group. This issue was fully addressed by project closing, as captured in World Bank Group reviews of audit reports. Overall coordination and counterpart challenges were consistently addressed, with the CBT maintaining a high level of commitment and leadership throughout the project.

Results were subject to fluctuations. The acceleration of the depreciation of the Tunisian dinar throughout 2017 had adversely affected the ability of the project to disburse. Given

45 The current account is a broad measure of an economy’s health. It consists of the balance of trade, net primary incomes (earning on foreign investment minus payments made to foreign investors), and net cash transfers. A negative current account indicates it is a net borrower from the rest of the world.


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that the loan was denominated in Euro, the real value of the loan increased from TND 150 million at effectiveness to TND 200 million equivalent as of end June 2017. Similarly, the willingness and ability of the PFIs to finance MSMEs deteriorated at periods throughout project implementation. For example, after a positive trend in 2012, the total number of MSME loans in the portfolio of the PFIs deteriorated sharply from –7.8 percent in 2012 to December 2013 and –19.1 percent from June 2012 to December 2014. This credit crunch was because of the combination of two factors: a higher NPL rate in the MSME lending portfolio (linked to slow GDP growth) and the implementation of stricter provisioning rules issued by the CBT. The interest rate cap on SME loans made it an even bigger challenge for financial institutions to sustainably serve smaller enterprises.

Cost of financing increased. Cognizant of inflation risks and Tunisia’s cheap and record‐high interbank financing facilities, the cost of the World Bank Group’s financing increased from TMM (approximately 4 percent) during the initial loan to TMM + 1.75 percent for the cost of AF (approximately 6 percent). This slowed down the use of the financing lines by banks. Faced with scarce liquidity however, the line was fully used by project closure, particularly by leasing companies (representing 46 percent of the total line).

Diversification of Financial Instruments and Capitalizing on Market Development and Regulatory Reform

94. The project supported the expansion Tunisia’s microfinance sector during a critical period of sectoral reform. In 2011, decree‐law no. 2011‐117 was passed which brought Tunisia’s microfinance sector in line with international best practices. It authorized the emergence of new actors and restructured associations as microfinance LLCs or microfinance associations.46 It also created the ACM which oversees the sector. Outstanding microfinance loans facilitate through MFI LLCs and association increased from TND 728 million in September 2017 to TND 930 million at 30 September 2018, recording a growth rate of 27.7 percent. PAR 30 for the sector is below 2 percent.47 A critical piece of financial infrastructure supporting sectoral development included the credit registry (Centrale des Risques, CDR) which provided the informational infrastructure for MFIs to assess cross‐borrowings and effectively price risk. The World Bank Group was heavily involved in providing technical support to the AMC in the implementation of the CDR between 2011 and 2016.

95. Between 2015 and 2018, the LLC MFIs needed substantial financing to promote sectoral expansion. The sector did not have access to refinancing lines by the CBT and by law were unable to mobilize deposits to finance themselves. A 2015 market study conducted by the World Bank Group found the demand for microcredit to be between 950,000 and 1,400,000 people in Tunisia suggesting that in June 2016, approximately 18 months after effectiveness of the microfinance component under the AF, the sector was serving 307,000 clients, or approximately 32 percent of the total estimated demand.48

46 The law established the maximum loan amount (TND 5,000 for associations and TND 20,000 for LLCs) and confirmed an interest rate cap for loans refinanced through budgetary resources. 47 See microfinance barometer. 48 Note the study found an even larger demand of 2.5 million to 3.5 million individuals for a wider range of microfinance services, equivalent to 30 percent to 40 percent of the adult population. See: Financial Inclusion snapshot: http://www.worldbank.org/en/country/tunisia/publication/financial‐inclusion‐in‐tunisia.


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Equally there is no apex organization in Tunisia capable of refinancing the LLC MFIs.49 While international development finance institutions and socially responsible investors are active in Tunisia, exchange rate volatility adds to the complexity of accessing LOCs to finance expansion. Larger LLC MFIs are financed by local banks who are increasingly understanding the microfinance business model.

96. The introduction of the patient capital subcomponent, in 2015, provided the opportunity for the project to support authorities in finding innovative solutions to SME finance in a postrevolutionary context. The CDC is a state‐owned investment entity that was created in September 2011 with an original impetus of managing assets confiscated by the former ruling family as independently as possible to serve the public interest. The subcomponent introduced a new investment product into Tunisia’s financial market, successfully stimulated the long‐term corporate bond market, and mobilized private sector additionality into the operation through the active participation of private equity funds. It also supported Tunisia’s financial sector modernization strategy, unveiled in 2014, a reflection of the World Bank Group’s ability to respond to emerging policy priorities with financing solutions. The introduction of the instrument, however, added complexity to the operation and was subject to some implementation delays. While by project end disbursement of the facility stood at 87 percent, implementation took place largely in 2017 and 2018.

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME

A. QUALITY OF MONITORING AND EVALUATION (M&E)

97. The overall quality of the M&E is Substantial, reflecting a measurement system which corresponded to the operation’s PDO, however exhibiting minor shortcomings.

M&E Design

98. The overall M&E was designed satisfactorily, representing core sector indicators for projects involving an LOC. Indicators effectively captured the thrust of the PDO, which centered on increasing access to finance for MSMEs. Indicators used were in line with core sector indicator guidance during project preparation. The project‐level indicators centered on percentage increases in the total number and volume of MSME loans among the PFIs, while intermediate indicators were meant to guide implementation progress, capturing the number of PFIs, the total volume and number of financing across subcomponents, and loans to women. The Results Framework also included stability and sustainability metrics, notably the percentage PAR in addition to the ROAs of PFIs.

99. Project design called for evaluation assessments periodically throughout project implementation which strongly supported capturing overall project effects. An evaluation mission was conducted in October 2013 and captured in an ISR filed in July 2014. Data from this evaluation included loan maturity, type of projects financed, sectoral composition, and number of new jobs generated by type of PFI. This greatly assisted in justifying the AF processed in March 2014. Equally, an evaluation exercised was completed in the fall of 2018 which updated these figures and substantially enriched the ability to

49 According to the Consultative Group to Assist the Poor, an apex institution is a second‐tier or wholesale organization that channels funding (grants, loans, guarantees) to multiple MFIs in single country or region. Funding may be provided with or without supporting technical service.


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assess the overall development impact of the operation. This supported capturing project effects not explicitly included in the results framework, for example loans provided to lagging regions and specific uses of credit which explains positive effects at the enterprise level.

100. The project documents could have more explicitly linked the Results Framework to the overall TOC. While the PDO explicitly mentions enabling previously creditworthy MSMEs to maintain access to credit, there were no indicators tracking the number of firms using project credit to restructure or exit from positions of financial destress. While project activities definitely contributed to an increase in the portfolio of MSME lending among PFIs, as captured by the PDO‐level indicators, it is possible that other LOCs or refinancing mechanisms, including the one provided by the CBT, also contributed to this shift.

M&E Implementation

101. The M&E implementation was considered satisfactory. The CBT should be recognized for its strong role in accumulating data from PFIs to complete the IFRs. This was a difficult exercise given that the CBT was dependent on individual PFIs for data. IFRs were generally quite comprehensive not only covering the status of disbursements and utilization of the funds among PFIs, but also the spectrum of indicators captured in the Results Framework in addition to loans by sector, average interest rate and maturity, and certain impact metrics such as employment and sales figures generated because of the loan. Data was reported with appropriate frequency by PIUs, despite discrepancies between various ISRs, the AF paper, and the IFRs submitted by the CBT.

102. The M&E was not highly specialized according to the various class of PFIs. For example, the same indicators were used to track the long‐term effects of leasing loans such as bank loans, regardless that leasing contracts generally were much more short‐term in nature and often used to lease fixed assets such as cars, which had limited effects on employment. Overall, capturing effective and timely data was complex, with counterparts, PFIs, and the World Bank Group’s task team expressing frustration over reporting complexity and delays. Additional TA resources could have been provided to PFIs to support the production of results as data as it was outside their typical reporting procedures. Regardless of these challenges, data used to evaluate the project were generally considered comprehensive and satisfactory.

103. The project encountered data methodology issues between 2014 and 2016 which were adeptly addressed throughout project implementation. Specific issues included using a baseline that corresponded to the effectiveness date of the AF while the M&E framework applied to the entire project since inception, not calculating indicators on all the PFIs, and excluding aspects of the ‘microfinance’ and ‘patient financing’ components. Because of the proactivity of both the World Bank Group’s task team and the CBT, this information was corrected at the beginning of August 2017.

M&E Utilization

104. M&E was effectively used throughout project implementation. The first impact evaluation was used to justify not only an AF for the operation, but also the inclusion of a more diverse set of financing instruments covering both microfinance and patient capital financing. Data produced through the IFRs and ISRs were used by the CBT and CDC to monitor the status of MSME finance in Tunisia, as well as inform critical policy discussions around liquidity positions in the banking sector, in addition to informing broader macrofiscal concerns around inflation and credit tightening. The M&E data were used to pursue policy


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dialogue on financial sector reform with authorities and donors. For example, a disbursement condition was making operational the credit registry for the microfinance sector. This registry is now well used by MFIs not participating in the project, and promotes responsible growth of the sector, in addition to producing quarterly performance reports on microfinance outreach.50

Justification of Overall Rating of Quality of M&E

105. The overall rating for the quality of M&E is Substantial, given there were minor shortcomings in not including data tracking related to firms in need of financial restructuring benefitting from the LOC and methodology questions which caused reporting complications by PIUs. This, however, must be balanced by the challenging condition facing the financial sector during project implementation after the AF. Impact evaluations’ efforts were built into the project design and significantly aided in getting an accurate view of how the project contributed to broader growth and development objectives. Additional guidance to counterparts and systems to make data gathering more efficient and transparent would have allowed the project to fully utilize M&E arrangements under the project.

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE

Compliance with Social Development Policies

106. The project was expected to have a positive social development perspective as it targeted small firms underserved with conventional access to finance and responded well to the social and economic turmoil the region was experiencing at the time. This analysis was informed by consultations held with government counterparts and agencies involved in SME finance, in addition to business associations, young entrepreneurs, and MSMEs themselves. During the AF of the project it was noted that the new subcomponent on microfinance would contribute to positive social outcomes as women are significant beneficiaries of microfinance loans. The subcomponent on patient capital financing will not only make the restructuring of companies possible but will also support entrepreneurs with higher capital needs that can be facilitated by banks or solely VC partners.

Compliance with Environmental Policies

107. The project is covered by the World Bank’s operational policy on environmental assessment (OP/BP 4.01). This informed a Master Environmental and Social Management System (ESMS) that was developed to identify, monitor, and minimize potential social and environmental impacts in compliance with World Bank Group policies. Given that the maximum loan size was to be TND 1.5 million, no substantial environmental issues were anticipated. The ESMS was developed by the National Agency for the Protection of the Environment (Agence Nationale de Protection de l’Environment, ANPE). The ESMS consisted broadly of (a) a screening mechanism to determine the environmental category of the subproject and (b) impact assessment and mitigation. The Environmental and Social Management Framework was part of the POM and categorized projects to be financed by PFIs on two levels. Category A projects that were deemed to have negative environment or social effects and required an environmental impact assessment and category B projects whose environmental and social impacts were set to be minimal. It fell on the PIE to conduct this screening. Category A projects would not be eligible for

50 See: ACM. Le Baromètre de la Microfinance en Tunisie. Available at: http://www.acm.gov.tn/Fr/.


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financing under the project, including those that cause deforestation, relate to the safety of damns, or affect international waterways. Subprojects on the exclusion list were also not to be included for financing, such as the financing of alcohol, tobacco, radioactive materials, or commercial logging operations.

108. The ESMS functioned satisfactorily; however, there is evidence that a significant number of firms that applied for financing were not informed about ESMS requirements and eligibility criteria. Effectively implementing the ESMS required close coordination between the CBT and ANPE, which was not always the case. The ISRs in the first two years of the project discuss difficulties of the PFIs to observe environmental and social norms. Between March and August 2013, the World Bank Group recruited a safeguards specialist who supported the CBT to review and screen eligible projects. As a result, certain projects were taken out of the portfolios of banks ensuring compliance with environmental safeguard policies. During this period, two workshops were also organized to inform PFIs on environmental safeguards policies.

109. The ESMS was expanded at the time of the AF of the operation to respond to requests to make the ESMS more efficient. This included expanding the scope of eligibility criteria to agro‐food industries, pharmaceuticals, mechanical ceramics, and the hotel industry. The revised ESMS was published in Tunisia in February 2014. PFIs during ICR preparation suggested that the CBT and the World Bank Group could have played a more proactive role in training project partners on ESMS policies through the forms of capacity‐building workshops ensuring efficient compliance of the policy.

Financial Management Compliance

110. FM arrangements were critical to the success of the operation, as through these reports data on the performance and impact of the LOC were captured. The FM arrangements consisted of semiannual IFRs completed by the CBT which would gather information on the performance, use, and impact of the LOC from PFIs. At the end of the financial year, PFIs submitted, to the CBT, a copy of the annual audited financial statements, statutory audit reports, and project audit reports. In addition, a biannual special purpose audit on MSME eligibility compliance was also to be submitted to the CBT. A dedicated annual audited financial report for the component managed by the CDC was submitted. During the AF, the CDC was added as a PIE and provided unique reports directly to the World Bank Group. The AMC coordinated results from the three participating MFIs and submitted to the CBT for amalgamation into FM reporting. An annual audited financial report was produced by the CGF within the Ministry of Finance and provided detailed information on operational policies, disbursements, repayments, and derogations from project procedures with stated explanations. The objective of this audit report was to ensure that the loan funds were used in compliance with the loan agreement and highlight any material internal control conditions that may affect the quality of the project’s financial statements.

111. The PFIs reported a high level of specificity in reporting required by both the CBT in preparation of the IFRs in addition to information requested by the CGF. These data were not always specific to the financial product or type of financial institution. For example, leasing contracts are submitted, evaluated, and disbursed over one week and as a result leasing companies often lacked long‐term information on clients requested from reports. The CBT and impact evaluation efforts both stressed data quality as a key concern in overall FM arrangements for the project. While there was no dedicated data consolidation


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platform implemented to ensure data were captured accurately, the project pushed PFIs to improve data reporting procedures including tracking medium‐ and long‐term impact of credit facilitated.

Procurement

112. There was no procurement activity for this project. Bank funds were not used to provide any direct financing of goods, works, non‐consulting, or consulting services by the MSMEs within the scope of the project. Annex 6 of the POM specified procurement oversight requirements between PFIs and MSMEs. These centered on ensuring due diligence at various stages of goods/services procurement to ensure value for money and maintaining pro‐forma invoices to document goods purchased. While no material procurement issues were raised during project implementation, participating MFIs noted difficulty in adhering to these principles given the nature of the informal nature of microenterprise activity.

C. BANK PERFORMANCE

Quality at Entry

113. The World Bank’s performance with respect to quality at entry is Satisfactory, based on the following analysis:

The project was prepared under a tight time frame (nine months between the concept stage and approval) under an extremely difficult and unique political economy given the Tunisian revolution. Despite this, the project was extensively prepared. The PAD was rich in detail, both in technical content regarding financial sector deficiencies preventing greater economic activity among MSMEs and also regarding the utility of the intervention to respond to the social and economic demands in Tunisia. The PAD complied with all aspects of the World Bank Group policy and deftly explained how project systems would be put in place to address environmental, social, and procurement challenges. The risks were well captured in project documents and were candid with regard to potential challenges in working with a transitioning government, uncertain economic outlook, and potential effect on the project. The PAD and AF project paper assessed the overall health of Tunisia’s financial sector by presenting prudential ratios which provided a justification for project activities and informed the GoT and project stakeholders of the overall health of Tunisia’s financial system.

The project design was in line with international best practices as captured in project documents. This included not only creating a credit facility but also attaching it to the APL, which provided a platform to mobilize additional donor resources for capacity building and regulatory change. There was adequate flexibility in the project design, initially including both banks and leasing companies who required liquidity as a countercyclical measure in addition to incentivizing them to downscale to the SME market. Pricing was extremely transparent, as were eligibility criteria, which were stringent given the difficult financial sector outlook and issues regarding capital and liquidity in Tunisia’s banking sector.

The AF brought significant richness to the development impact of the operation, in terms of being able to serve more vulnerable beneficiaries through the microfinance subcomponent and introducing a new financing vehicle promoting long‐term finance for


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larger SMEs, incorporating risk capital elements into the operation. This reflected policy discussions at the time both international within the World Bank and within the broader development community on the need to support a diversified set of financing solutions to promote SME finance away from traditional LOCs.51

Quality of Supervision

114. The quality of supervision was Satisfactory. The project was supervised by a highly committed team who provided candid and accurate reporting in the form of ISRs and Aide Mémoires. An average of three missions were conducted each year staffed with relevant expertise, including financial sector specialists, fiduciary colleagues, results measurement specialists, and a variety of senior technical staff providing advice and quality control. The project is supported by 13 ISRs that provided timely insight not only into project performance, but also implementation challenges and broader economic outlook data affecting project performance. This included, for example, the effect of the depreciation of the Tunisian dinar and ongoing liquidity concerns, changes in provisioning ratios, and increases in NPLs, thus affecting overall project performance.

115. The task team displayed a level of candidness that proved to be extremely useful in providing an accurate picture of impact informing this ICR. For example, the task team directly addressed issues around ineligible expenditures of one PFI by downgrading the FM rating to unsatisfactory, despite the fact that the overall FM arrangements were working well and were effectively in place. Faced with challenges regarding methodology to calculate the Results Framework indicators between February 2015 and August 2017, the task team ran workshops with the PIEs and PFIs during a dedicated mission to clarify calculations and place the project back on a performance path. Similarly, in August 2017, the task team downgraded the overall implementation progress rating to Moderately Satisfactory, reflecting the fact that one PDO‐level indicator (percentage increase in the volume of loans by PFIs) was at risk of not being met, in addition to the effect of the Tunisian dinar devaluation on disbursement trends. The task team increased efforts to advance implementation after this stage, with disbursements increasing from 70 percent in August 2017 to 98 percent by project closure.

116. During the last 18 months of the project, activities under the microfinance and patient capital subcomponents accelerated significantly. For example, during this last year of the project the number of patient capital transactions increased from 7 (representing US$5 million) to 14 (representing US$8.68 million using the exchange rate at project closure). The quality of supervision and technical support from the task team assisted in making this implementation progress possible and was reflected in consultations help during preparation of the ICR. The fact that this was done during a period of macroeconomic stress for Tunisia provides further evidence of the quality of supervision and technical advice provided during this period.

117. The World Bank Group team provided timely reporting through ISRs, however, this was made more complicated by late reception of data from the PIUs. The final ISR was submitted March 2018 using data from a November 2017 supervision mission. The interim financial report providing data up to July 31,

51 For more on this discussion, see: The Big Business of Small Enterprise. Independent Evaluation Group. World Bank, 2016.


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2018 (project closing) was received only in October 2018. Despite delays reporting was candid and comprehensive based on available data.

Justification of Overall Rating of Bank Performance

118. With the quality at entry rated Satisfactory and the quality of supervision also rated Satisfactory, the overall rating for World Bank performance is Satisfactory.

D. RISK TO DEVELOPMENT OUTCOME

119. The risks to the development outcome are considered moderate and are largely outside the control of the project. They relate mainly to country and financial sector risks. These include the continued degradation of Tunisia’s macrofiscal outlook, anemic growth, ongoing political and social transition, NPLs in the banking sector, and ongoing scarcity of liquidity in the financial sector and its adverse impact on SME finance. This risk is mitigated through ongoing TA and policy engagement by the World Bank Group on financial sector reform in Tunisia. In part because of the performance of the project, the World Bank Group was able to mobilize a multi‐donor trust fund (MDTF) to continue financial sector reforms in Tunisia.52 Risks can also be mitigated through specific TA to PFIs to ensure know‐how in serving MSMEs through which the LOC is institutionalized and is thus rendered sustainable.

V. LESSONS AND RECOMMENDATIONS

120. The project was successful in providing credit to MSMEs through a variety of different financial institution types, and in doing so promoted business expansion, enterprise growth, and job creation, in line with the TOC of the overall operation. The project was completed during a period of significant macrofinancial stress for Tunisia. As such, it was also an important countercyclical measure that introduced liquidity in Tunisia’s financial markets. It also provided financing accompanying reform to the microfinance sector, supporting its overall development to bring it in line with international best practices. The key lessons moving forward are as follows:

Project Design: Development Impact, Design, and Reporting

121. The addition of microfinance and patient capital financing instruments in 2014 during the project’s AF provided significant development benefits to the overall operation. A total of 11,131 of the overall 12,048 beneficiaries supported by the project were from the microfinance sector. The patient capital component allowed nearly TND 49 million of private sector finance to be mobilized with significant positive impact on the overall sales figures of larger SMEs supported with long‐term financing. While the banking sector continues to be the largest sector fueling credit growth in a given country, the introduction of diversified financial instrument allowed the project to diversify the type of beneficiaries reached and in doing so provided a continuum of support throughout the life cycle of the firm.

52 The Mosanada Fund is a US$12,000,000 MDTF with contribution from the Swiss Development Cooperation Agency, the European Union, and the United Kingdom’s Department for International Development. It focused on financial sector reforms, in addition to working on local service delivery and governance. Through this platform the World Bank Group is continuing to work on financial sector reform covering issues around inclusion, stability, and integrity.


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122. An LOC does not address structural inefficiencies as to why banks do not lend to SMEs, including collateral requirements, risk management processes internal to a bank, and the inherent riskiness of working with smaller firms who have less financial and operational track record. As such, bank projects involving financial intermediation would do well to include a diversity of financing arrangements to fully achieve pro‐poor and sustainable development objectives, as reflected in this operation.

123. Results Frameworks capturing the changes in loan portfolios of MSMEs among PFIs may not adequately capture the overall social and economic impact of an LOC. While the project successfully attained its objectives in terms of credit intermediation done in a stable and sustainable manner, the two impact exercises conducted to justify the AF and at project closure provided substantially more information with regard to geographic and sectoral targets, effects on turnover and employment and the ability to target women and youth with such interventions. It is thus critical that future projects place additional emphasis on impact exercises to be built into the project design in a more systematic manner. For this project, a subcomponent providing technical resources to the CBT, ACM, and CDC, to conduct annual surveys, backed by qualitative interviews of MSMEs supported, would have been very useful.

124. The project was an opportunity for PFIs and various implementing agencies to improve their capacity to report on nontraditional results data focused on economic and social impact of the LOC. Future project should consider dedicated resources for systematic data collection and related quality control, including through the assistance of a dedicated consulting firm. Integrating technology‐focused solutions, for example a project platform providing real‐time data to assess overall project performance, can support effective real‐time data collection efforts.

125. The reporting requirements could have been reviewed more consistently throughout project implementation with a focus on efficiency and agility. For example, leasing being a short‐term activity (one leasing company during ICR preparation communicated that they used the financing under the project in one week) required a tailored set of data as compared to the banking or microfinance sector. An alternative example: given that the microfinance sector works primarily with informal enterprises, reporting on jobs created proved difficult, as did compliance with procurement oversight functions as detailed in the POM. Furthermore, PFIs lacked specific capacity to report on these figures on time.

126. There was scope in the project to review targeting principles to ensure that financing was going to productive purposes. Given that there was no requirement for leasing companies to serve companies rather than individuals with the financing, a large portion of funding went to the financing of vehicles. This is an important factor given that leasing represented just over 50 percent of the total financing intermediated through the operation. The leasing criteria could have been tailored to ensure that it was serving productive enterprises in specific sectors with a focus on new capital equipment investment with targets for underserved regions. In addition, in the Results Framework, there were no specific targets for serving financially destressed firms, which made this sub activity less of a priority/less accountable during project implementation.

127. The project was rightfully supported by World Bank Group TA to work on financial infrastructure (credit registry for microfinance, credit bureau, and secured transactions reform) and enabling environment reform (excessive lending law, banking sector restructuring, and microfinance law); however, the project could have done more to incorporate TA at the level of the PFIs themselves. Newer generations of projects in Tunisia supported by parallel donors are asking PFIs to put in place


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dedicated, multiyear TA programs through competitive bidding processes. Ultimately, sustainable financial sector development is a dynamic process, with the market shifting daily in response to risk and demand. Thus, more comprehensively coupling financing with TA to PFIs assists the market in making the required operational changes to serve SMEs more efficiently. While the project boasted an operational framework to make this happen through the APL, the overall project design could have more directly integrated TA to PFIs.

128. The project rightfully assessed design options including risk‐sharing mechanisms at project preparation and incorporated long‐term financing elements during the AF. Future projects in Tunisia could consider combining approaches addressing liquidity support through LOCs with these instruments to address the market failure related to the risk of serving MSMEs. Moving forward, a comprehensive and candid market assessments can support the selection of such instruments for the project. Future projects could also consider adding more specialized criteria to liquidity support, for example, stipulations regarding the percentage of financing going to women, lagging regions, or energy efficiency outcomes. Given the large unfinished financial sector reform agenda in Tunisia, instruments combining investment finance and policy reform, through potential investment project finance with disbursement‐linked indicators or through program‐for‐results should be considered.

129. The APL function provided a platform for fundraising, donor cooperation, and the inclusion of different financing instruments during project implementation; however, it seemed underused during project implementation. The AF was not processed using procedures allowed for under the APL, the potential contingent credit component was never followed up on, and donor coordination during this period took place through different MDTFs rather than under the umbrella of the APL. It seems imperative that if an APL is to be used for future projects, more attention needs to be provided to fully use its design features during implementation. This requires intensive attention from staff, particularly to work across Country Management Units on regional platforms.

Pricing

130. The project’s pricing was transparent, consistently communicated to PFIs, and as a result there was little to no evidence of market distortion. Pricing to banks was increased during the AF to TMM+1.75 percent. Banks found this expensive and as a result, many banks chose not to use the LOC, particularly given the increases in TMM between 2016 and 2018, and the onerous reporting requirements. There is thus a tradeoff between pricing and demand for financial resources. This was made more complicated by the lending cap in the banking sector, which created a difficult position for banks to adequately assess risk for smaller enterprises. Policy dialogue and TA on excessive interest rates are helping address this challenge in Tunisia.

World Bank Performance and Reactivity

131. Given the dynamism of financial markets, the success of liquidity facilities is often based on the efforts of individuals to respond to questions highlighted in the POM or in the Results Framework. The project demonstrates the importance of proactively making adjustments during implementation. The project effectively worked with project partners at addressing challenges related to depreciation of the Tunisian dinar, the degrading liquidity positions of the financial sector, challenges with methodology related to the Results Framework, and advancing on financial sector reforms through the Mousanada


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fund. The project also demonstrates the importance of having field‐based task management for such projects or strong implementation support in the form of local staff and consultants. They can play an important role in ensuring that all eligible financial sector actors understand key features of a LOC, thus maximizing the chances of it being well used.

Box 4. Design and Features of Financing Instrument

Specific features of the financing instrument, as captured in the POM, that were captured during consultations at the time of ICR preparation are as follows:

Microfinance

Review TND 10,000 maximum loan amount. Certain MFIs found it limiting, particularly given the TND 20,000 maximum amount for the sector.

Review procurements requirements. It is not always feasible to ask for an informal microentrepreneur for competitive bidding processes for small contract amounts. Alternatively, integrate further TA to support microentrepreneurs with this process.

Consider additional TA to support the production of financial statements for microentrepreneurs to ensure compliance with financial reporting (requested by both the ACM and the CGF).

Leasing

Ensure procurement rules are adapted to leasing activity, in the sense that goods are acquired at the selection of the lessee.

Review eligibility criteria to focus away from car leasing and more toward financing productive enterprises in priority sectors.

Banking Sector

Review maximum loan amount considering currency devaluation. Banks reported the TND 1.5 million maximum loan amount being constraining given the devaluation.

Incentivize risk‐taking. Allow banks to finance a small portion of SMEs classified outside 0 or 1 according to Tunisian prudential standards. This can contribute to the additionality of the LOC.

Banks requested that they be able to serve SMEs with more than TND 7 million in credit outstanding. While the TND 7 million prompted bank downscaling, it could also have prevented broader participation in the LOC by certain banks.

Patient Capital

The CDC missed out on certain investment opportunities because of structural payment delays which face many SMs. The POM could have accounted for this issue and planned certain mitigation measures accordingly.

Transactions were delayed because of (a) delays in raising capital by private equity firms and (b) stipulation of needing to be in business for a minimum of three years. The team may have wanted to conduct additional analysis to determine if it was feasible to relax the TND 5 million minimum capital rule.

Request to review the TND 2.5 million maximum ticket size to facilitate larger investments.

The World Bank MNA Micro, Small and Medium Enterprise Financing Facility ( P124341 )

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ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS

A. RESULTS INDICATORS

A.1 PDO Indicators

Objective/Outcome: Increase access to finance for micro, small, and medium enterprises in Tunisia, including through enabling creditworthy MSMES to maintain access to credit.

Indicator Name Unit of Measure Baseline Original Target Formally Revised

Target

Actual Achieved at Completion

Increase in total no. of MSME loans in PFI portfolios

Percentage 0.00 10.00 13.00 79.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 29‐Dec‐2017

Comments (achievements against targets):


Target


Increase in the total volume of outstanding MSME portfolio of PFIs

Percentage 0.00 20.00 25.00 23.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 31‐Jul‐2018



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A.2 Intermediate Results Indicators

Component: Sub‐Component 1.1: Line of credit to banking and leasing sectors


Target


No. of MSME loans financed by the Line of Credit (sub‐component 1.1)

Number 0.00 250.00 379.00 917.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 31‐Jul‐2018



Target


Volume of MSME loans financed by the Line of Credit (sub‐component 1.1)

Amount(USD) 0.00 50.00 110.00 53.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 30‐Jun‐2017

Comments (achievements against targets): This indicator was significantly affected by the depreciation of the Tunisian dinar during project implementation. The dinar depreciated 27% between approval of the additional financing and project closure. The total financing volume in TND at the time of project closing was TND 162,314,454. Using the exchange rate in at the time of project effectiveness (Feb 11, 2015) of 0.52 TND/1 dollar the total financing volume would have been $84,403,516, which would have met 76% of the target.


Target


Volume of financing from the Amount(USD) 0.00 50.00 110.00 53.00


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Line of Credit to PFIs (sub‐component 1.1)

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 31‐Jul‐2018

Comments (achievements against targets): This indicator was significantly affected by the depreciation of the Tunisian dinar during project implementation. This indicator was significantly affected by the depreciation of the Tunisian dinar during project implementation. The dinar depreciated 38% between project kickoff (06/16/2015) and project closure.


Target


No. of participating PFIs (sub‐component 1.1)

Number 0.00 4.00 9.00 14.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 29‐Dec‐2017



Target


No. of active MSME loan accounts in PFIs (sub‐component 1.1)

Number 143553.00 125000.00 162214.00 221695.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 29‐Dec‐2017



Target



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Volume of outstanding MSME loans in PFIs (sub‐component 1.1)

Amount(USD) 2.90 0.00 3.60 3.40

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 29‐Dec‐2017

Comments (achievements against targets): This indicator was significantly affected by the depreciation of the Tunisian dinar during project implementation. The dinar depreciated 27% between approval of the additional financing and project closure.


Target


Loans to women‐led SME (sub‐component 1.1)

Percentage 12.00 0.00 13.00 17.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 30‐Dec‐2016

Comments (achievements against targets): This refers to loans to women‐led SMEs as a percentage of the total volume of loans granted under sub‐component 1.1. Measuring by total number of loans as a percentage of total loan, 27% of loans through banks went to women and 21% of loans through leasing companies went to women.


Target


ROA of PFIs Percentage 1.20 0.00 1.20 1.30

05‐Apr‐2012 31‐Jan‐2018 31‐Jul‐2018 31‐Jul‐2018


Component: Sub‐Component 2: Microfinance Sector Support


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Target


Micro‐finance loans financed by the Line of Credit (sub‐component 1.2)

Number 0.00 0.00 10000.00 11131.00

05‐Apr‐2012 31‐Jan‐2018 31‐Jul‐2018 31‐Jul‐2018



Target


Volume of micro‐finance loans from the Line of Credit (sub‐component 1.2)

Amount(USD) 0.00 0.00 25000000.00 11756667.00

05‐Apr‐2012 31‐Jan‐2018 31‐Jul‐2018 31‐Jul‐2018

Comments (achievements against targets): This indicator was significantly affected by the depreciation of the Tunisian dinar during project implementation. The dinar depreciated 27% between approval of the additional financing and project closure. Using the exchange rate at the time of project effectiveness (Feb 11, 2015), the total financing volume under the microcredit component would have been US$25,064,000, exceeding the target.


Target


Micro‐finance loans to women financed by the Line of Credit (sub‐component 1.2)

Percentage 50.00 0.00 60.00 47.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 31‐Jul‐2018


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Comments (achievements against targets): Note the baseline was set as the industry average for microfinance loans to women. The project line of credit performed just below industry average.

Component: Component 2 (SME Patient Financing)

Unlinked Indicators


Target


Patient financing operations financed under component 2

Number 0.00 0.00 15.00 14.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 31‐Jul‐2018



Target


Volume of patient financing operations funded under component 2

Amount(USD) 0.00 0.00 15000000.00 8333333.00

05‐Apr‐2012 31‐Jan‐2017 31‐Jul‐2018 31‐Jul‐2018

Comments (achievements against targets): This indicator was significantly affected by the depreciation of the Tunisian dinar during project implementation. The dinar depreciated 27% between approval of the additional financing and project closure. 87% of the line of credit was consumed. The total volume of patient capital financing was TND 26,500,000. Calculating the indicator at the exchange rate at project effectiveness (February 11, 2015) of 0.52 TND/1 USD, the total financing volume would have been $13,780,000 nearly meeting the target.


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Target


Portfolio at Risk >90 days for MSMEs (weighted by asset size)

Percentage 21.60 0.00 21.60 26.10

05‐Apr‐2011 31‐Jan‐2018 31‐Jul‐2017 31‐Jul‐2018



Target


Portfolio at Risk ‐ Microfinance

Percentage 3.00 0.00 3.00 0.79

05‐Apr‐2011 31‐Jan‐2018 31‐Jul‐2018 29‐Dec‐2017

Percentage of project‐supported institutions that are reporting on this indicator

Percentage 25.00 0.00 50.00 100.00

05‐Apr‐2011 31‐Jan‐2018 31‐Jul‐2018 29‐Dec‐2017



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B. KEY OUTPUTS BY COMPONENT

The project support one project development outcome, to increase access to finance for micro, small, and medium enterprises in Tunisia, including through enabling creditworthy MSMES to maintain access to credit.

Objective/Outcome 1 To increase access to finance for micro, small, and medium enterprises in Tunisia, including through enabling creditworthy MSMES to maintain access to credit

Outcome Indicators 1. 79% increase in total number of MSME loans in PFI portfolios 2. 23% increase in the total volume of outstanding MSME portfolio of PFIs

Intermediate Results Indicators

1. 917 MSME loans financed by the LOC through the banking and leasing sectors. 2. US$53,000,000 of MSME loans financed by the LOC through the banking and leasing sectors. 3. US $53,000,000 of financing from the line of credit to PFIs (banking and leasing sectors). 4. 14 PFIs. 5. 221,695 active MSME loan accounts (leasing and banking sector). 6. US$3.4 billion of volume of outstanding MSME loans in PFIs (leasing and banking sector). 7. 17 percent loans to women‐led SMEs as a percentage of the total volume of loans granted (under leasing and banking, Subcomponent 1.1). 8. 1.30 ROAs for PFIs (leasing and banking). 9. 11,131 microfinance loans financed. 10. US$15,906,000 in volume of microfinance loans financed. 11. 47 percent microfinance loans to women. 12. 14 patient capital financing operations. 13. US$8,333,333 in volume of patient financing.


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14. 26 percent PAR 90 for banking sector loans. 15. 0.79 PAR for microfinance loans. 100 percent of PFIs reporting on this indicator.


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ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION

A. TASK TEAM MEMBERS

Name Role

Preparation

Laurent Gonnet Task Team Leader

Steve W. Wan Yan Lun Operations

Sonia Sanchez Quintala Financial Sector Assessment

Abdoul Wahab‐Seyni Social Safeguards

Taoufiq Bennouna Environmental Safeguards

Jean Charles de Daruvar Legal

Eric Ranjeva Disbursement

Shirley Foronda Financial Management

Walid Dhouibi Procurement

Supervision/ICR

Fadwa Bennani Task Team Leader(s)

Slaheddine Ben‐Halima Procurement Specialist(s)

Mehdi El Batti Financial Management Specialist

Abdoul Wahabi Seini Social Safeguards Specialist

Laurent Gonnet Team Member

Mohamed Adnene Bezzaouia Environmental Safeguards Specialist B. STAFF TIME AND COST

Stage of Project Cycle Staff Time and Cost

No. of staff weeks US$ (including travel and consultant costs)

Preparation

FY11 0 495,164.92

FY12 0 64,376.57

Total 0.00 559,541.49 Supervision/ICR

FY12 0 110,374.53

FY13 0 44,440.86

FY14 9.475 53,543.36

FY15 1.150 8,163.12

FY16 8.451 46,145.77


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FY17 19.539 90,705.06

FY18 .420 4,518.75

Total 39.04 357,891.45


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ANNEX 3. PROJECT COST BY COMPONENT

Components Amount at Approval

(US$, millions)

Amount at Additional Financing

Approval (US$, millions)

Actual at Project Closing (US$, millions)

Percentage of Approval (US$,

millions)

Lines of Credit 50.00 135 134.87 99.00

Patient financing 0.00 15 15.00 100.00

Total 50.00 150 149.87 99.00


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ANNEX 4. EFFICIENCY ANALYSIS

1. A traditional economic/financial analysis cannot be undertaken for this project, given that project costs at the level of PFIs cannot be determined. Project outcomes for the beneficiaries have been measured and discussed in other sections of the ICR. As noted in the additional financing project document, conducting a standard net present value and internal rate of return analysis for the project is not straightforward. Many of the benefits are not easy to quantify, other than making broad estimates of the increases in systemic liquidity, credit and the ensuing benefits. While the PAD and additional financing project document includes a net‐present value analysis, these are based on estimated/assumed data around costs and financing terms of the LOC. The actual data from PFIs through the BCT was not made available during ICR preparation and without detailed data on the cost structure of individual PFIs, such an analysis would be circumspect at best. Section II.C provides an efficiency analysis based on project outcomes (total change in MSME lending because of the LOC), leverage effects, and broader economic outcomes (sales turnover, realized business investment, and job creation) against stated estimates as suggested in the PAD and additional financing document.


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ANNEX 5. BORROWER, CO‐FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS

1. The three primary project counterparts ‐ BCT, ACM, and the CDC ‐ provided comments on the document through track changes and email correspondence. The comments were reflected in this final version of the document.


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ANNEX 6. SUPPORTING DOCUMENTS (IF ANY)

The following provides the completion report for the Tunisia MSME TA facility.

MSME TA Facility TUNISIA

Completion Report P145960

Development objective. To improve the business environment for MSME finance, build the capacity of financial institutions for sustainable financing, and support MSME business development services.

Pillar I: Enabling Environment

Program Overview of Pillar I: Under this pillar, the World Bank Group aimed at strengthening the policy and legal reforms in Tunisia.

FY13

During the first year of implementation of the MSME TA facility, the World Bank delivered two activities:

Corporate governance training (1/2). The World Bank completed a training on corporate governance for the on‐site supervision at the CBT on December 2012. The training was very well received by market participants.

Raising awareness on secured transactions. In cooperation with the European Bank for Reconstruction and Development, the World Bank and IFC held a workshop aiming at raising awareness of the stakeholders (banks, regulator, ministry of justice, lawyers). Later on, IFC launched a legal diagnostic on secured lending and conducted an institutional assessment to identify the most suitable party to host the collateral registry. Because of the lack of appetite and competing post revolution priorities, the secured lending agenda was suspended until recently.

FY14

During the second year of implementation of the MSME TA facility, the World Bank delivered the following activities:

Corporate governance training (2/2). In FY14, the World Bank pursued the work initiated in FY13 and delivered the first session of a targeted banking sector corporate governance capacity‐building program to the CBT and the Ministry of Finance (as shareholder of eight state‐owned financial institutions). The session was open to the insurance sector regulator. The session took place on November 14 and 15, 2013. An assessment of the training was done. All participants were satisfied or very satisfied and asked the World Bank team to provide more practical cases for the upcoming session.


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Promoting banking sector competition through improved transparency. The World Bank signed with the Tunisian Consumer Protection Association) a contract to conduct a survey aiming at comparing and ranking fees and interest rates applied to SME projects by the Tunisian banks. This survey started in January 2014 and was conducted throughout the Tunisian territory. It targeted three public banks, eight private banks, one private Islamic Bank, and two leasing companies. The outcome was made available to the public through a media campaign (radio, press, blogs). The objective was to spur banking sector competition in the SME segment.

Amending the excessive lending rate law. In December 2013, the World Bank and the CBT agreed on the terms of reference of a survey aiming at measuring the impact of the current regulation fixing a ceiling on interest rate. The conclusions of this survey, that was delivered in April 30, 2014, informed the CBT of the amendments to make to the legal framework on interest rate. The conclusions of this survey were discussed by the Board of the CBT. The decision to amend the legal framework on this point remains to be submitted to an interministerial committee and to the new parliament.

Extension of the credit registry to the microfinance industry (1/3). In June 2014, the World Bank provided TA to the CBT and the microfinance authority in drafting the terms of reference to extend the PCR to MFIs. Based on these terms of reference, an expression of interest was launched in July 2014.

Analytical work on mobile money (1/2). The World Bank led a demand‐side analysis examining the mobile money and innovation landscape in Tunisia. The analysis included (i) a survey examining access to, usage of, and demand for mobile payments in Tunisia; (b) a review of applicable laws and regulations affecting mobile money and a review of current supervisory regimes in place; and (c) analysis of future operational models for mobile money expansion in Tunisia with attention to potential products and delivery channels. This survey was co‐financed through the MSME TA facility and the Middle East and North Africa MDTF. It was delivered in April 2015 (see next section FY15).

FY15

Extension of the credit registry to the microfinance industry (2/3). In June 2014, the World Bank provided TA to the CBT and the microfinance authority in the drafting of terms of reference for the extension of the credit registry. A specialized consultancy firm was then selected and hired to carry out the technical changes.

Analytical work on mobile money (2/2). In April 2015, the World Bank finalized and disseminated the demand‐side study. The study examined the financial behavior of low‐income Tunisians and key barriers to adoption of mobile financial services. The study also examined the legal and regulatory framework for mobile money adoption and suggested operational models for the sector’s development. The study was based on a survey of over 1,200 adults, with a focus on women and youth and confirmed the potential for developing digital financial services to promote financial inclusion, particularly to reach the rural and


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underserved. The study identified that 60 percent of Tunisia’s population does not have access or has very limited use of formal financial services, 85 percent of the sample have never saved and do not think they have enough money to do so. The study developed an operational model for the sector’s expansion and outlined key investments in market and financial infrastructure to be made. A market facilitation approach was launched alongside the study, which created a national Steering Committee to discuss interim findings and discuss policy implications. The World Bank Group organized a round table event on April 23, 2015, providing final results of the study. More than 90 stakeholders attended including public authorities (CBT, Ministry of Finance), mobile network operators, banks, MFIs, and payment service providers. The event provided an analysis of the regulatory and legal environment underpinning mobile banking in Tunisia, presented the results of a demand‐side study on access/usage barrier, and presented an operational model to move the sector forward. Meetings with the CBT, Ministry of Finance, and market players (for example, MFIs, mobile network operators) were held to discuss follow‐up engagement. This work paved the way to legal and regulatory changes aiming at promoting mobile money in Tunisia.

FY16

Extension of the credit registry to the microfinance industry (3/3). The extended credit registry was operational in February 2016, after a six‐month testing period working with the main MFIs in Tunisia. This work resulted in a sharp increase in the number of credit reports requested and obtained by the regulated financial institutions (for the microfinance compartment, the credit registry recorded 1,055,012 credit reports in 2017).

Table 6.1. Results and Projections for the Number of Credit Reports’’ Indicator

Project 2015 2016 2017

Tunisia credit reporting 2,725,742 2,951,323 3,340,955

Out‐of‐court workout (1/2). The World Bank started providing TA to the CBT and the Ministry of Finance to (a) design a tailor‐made out‐of‐court debt restructuring framework, (b) introduce it, and (c) build bankers’ capacity in implementing it.

FY17

Credit Bureau Law. After providing TA to the CBT and the microfinance authority to extend the PCR to MFIs, the World Bank extended its TA, in 2016, for the revision of the Credit Bureau Law prepared by the ministry of Finance and the drafting of the implementing regulations that set the minimum requirements and obligations for operating credit bureaus. At this stage, further support is being requested in the following additional areas which are deemed critical by the CBT for the supervision of credit bureaus in Tunisia: (a) putting in place a consumer protection framework, (b) establishing collaboration mechanisms with relevant supervisory authorities, and (c) training and operational tools and protocols for on‐site and off‐site supervision by the CBT.


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Out‐of‐court workout (2/2). The World Bank Group is supporting the development of a structured and transparent extra‐judiciary mechanism which will provide further options for creditors and debtors and complement the in‐court procedures that are already in place. To date, the World Bank Group (a) consulted with the private and public stakeholders on their need for such a framework and challenges they foresee; (b) assessed Tunisia’s legal and customary context to identify potential obstacles to the introduction of an out‐of‐court workout framework; and (c) developed and provided to the CBT) the core out‐of‐court work principles and standards (good faith, disclosure of information, confidentiality, standstill period, rescue funding, and transparency) to be used as a basis for the drafting of the CBT circular.

Secured transactions. Owing to the project, the Ministry of Justice has prepared an advanced draft of the secured transactions law. The draft is currently being reviewed to align it further with international best practices and adapt it to Tunisia’s local context. The draft law is being prepared for a ministerial cabinet review, following which it will be submitted to parliament. The project has also supported the delivery of an assessment of the institutional options for operation of the collateral registry under the new proposed secured transactions law considering well‐accepted qualities and requirements for movable collateral registries worldwide and provided recommendations on the entity to host the registry. Additional assistance will be given to support the establishment of an electronic movable assets registry and build capacity and raise awareness among registry stakeholders and users.

Pillar II: Advisory Services to Financial Institutions

Program overview of the Pillar II. Advisory services to financial institutions. Under this pillar, the World Bank Group planned to scale up MSME finance through improving MSME credit risk management of SOBs, Société Tunisienne de Banque and CDC. These activities were extended to Banque de l’Habitat and Banque Nationale Agricole in FY17. In parallel, the IFC team planned to conduct the following activities:

(a) Build the capacity of bankers by sharing knowledge of international best practices through the partnership with the CBT and the Tunisian Professional Association for Banks and Financial Institutions.

(b) Build the capacity and improve institutional sustainability of private banks such as Amen Bank.

(c) Build the capacity of MFIs such as ENDA Tamwheel and prepare them for growth and transformation.

FY14

Improving MSME credit risk management of SOBs (1/4). In January 2014, the World Bank completed a competitive process to select a firm to conduct a comprehensive capacity‐building program to improve the MSME credit risk management of two banks. The capacity building program started in one state‐owned financial institution (“CDC).


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FY15

Improving MSME credit risk management of SOBs (2/4). The World Bank continued delivering its TA to the CDC. It also conducted a comprehensive capacity‐building program to improve the MSME credit risk management in the Société Tunisienne de Banque—the largest SOB in Tunisia under restructuring.

FY16

Improving MSME credit risk management of SOBs (3/4). The World Bank trained the CDC and Société Tunisienne de Banque teams to use these tools appropriately (see activities conducted in FY14 and FY15)

FY17

Improving MSME credit risk management of SOBs (4/4). In September 2016, the World Bank initiated a new TA aiming at assisting three commercial SOBs (Société Tunisienne de Banque, Banque de l’Habitat, and Banque Nationale Agricole) in the effort to establish an internal credit risk rating. These internal credit risk ratings will be soon be made (2018) mandatory by the CBT. These systems help banks to better discriminate their risk at the underwriting phase and improve their risk portfolio surveillance system. This TA activity was co‐funded by the Moussanada Fund, an MDTF established in Tunisia in 2014 and aimed at, among others, financing the financial sector’s modernization plan adopted by the GoT (Moussanada is funded by SECO, United Kingdom, and the European Union). It is expected that the internal credit risk ratings will be delivered and effective by June 2018.

Pillar III: Support and Training to MSMEs

Program Overview of the Pillar III: Providing support and training to MSMEs.

FY14

Promoting entrepreneurship (1/2). In December 2013, the World Bank signed a partnership agreement with Maghreb Productions and Communications, owner of Express FM, the number one radio business in Tunisia. Under this agreement, the World Bank supported a second radio broadcast aiming at (a) the promotion of 20 projects (a gender parity will be required) until the establishment of their business and (b) the promotion of the entrepreneurship spirit and business literacy in the population, owing to two periodic radio‐broadcasted events. Approximately 60 percent of the program has been achieved during this fiscal year.

FY15

Promoting entrepreneurship (2/2). The World Bank pursued implementation of the partnership with Maghreb Productions and Communications. A ceremony to award the


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winners was held in September 2014. In total, there were 250 broadcasts, 1,000 applications, and 300 hours of coaching for the selected candidates.