Grant Assistance Kyrgyz Republic: Women s Entrepreneurship Development Project

Transcription

1 Grant Assistance Report Project Number: January 2013 Grant Assistance Kyrgyz Republic: Women s Entrepreneurship Development Project (Financed by the Japan Fund for Poverty Reduction)

2 CURRENCY EQUIVALENTS (as of 5 December 2012) Currency Unit - som (Som) Som1.00 = $ $1.00 = Som ABBREVIATIONS ADB Asian Development Bank JFPR Japan Fund for Poverty Reduction JICA Japan International Cooperation Agency M&E monitoring and evaluation MFI microfinance institution MOE Ministry of Economy PFI partner financial institution PMU project management unit NOTES (i) (ii) The fiscal year of the Government of the Kyrgyz Republic ends on 31 December. In this report, $ refers to US dollars. Vice President X. Zhao, Operations Group 1 Director K. Gerhaeusser, Central and West Asia Department (CWRD) General Director R. Hiraoka, Country Director, Kyrgyz Resident Mission, CWRD Team leader Team members G. Tentieva, Senior Economics Officer, CWRD A. Imanova, Associate Project Analyst, CWRD B. Omurzakova, Project Analyst, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 I. Basic Data Name of proposed activity Country JAPAN FUND FOR POVERTY REDUCTION (JFPR) JFPR GRANT PROPOSAL Women s Entrepreneurship Development Project The Kyrgyz Republic Grant amount requested $1,500,000 Project duration 4 years Regional grant Yes / No Grant type Project / Capacity building II. Grant Development Objective(s) and Expected Key Performance Indicators Grant Development Objectives: The development impact of the project is to improve living standards among women in rural areas and small towns in the Kyrgyz Republic a. The outcome will be the low-income women microentrepreneurs b in the rural areas and small towns in the Kyrgyz Republic scaled up to formal and sustainable businesses. The project will (i) build the capacity of women microentrepreneurs and policymakers to promote women s microentrepreneurship; (ii) help partner financial institutions (PFIs) adopt and improve gender-inclusive policies and outreach for women microentrepreneurs; and (iii) finance, on a pilot basis, introduction of new financial services that help to support women microentrepreneurs, and with potential for wide-scale replication by PFIs. Expected Key Performance Indicators: (i) Female employment rate increases from baseline of 47.1% in 2010 by at least 1.5% by (ii) 2018 Gap in level of nutrition between low-income (poor) and nonpoor households decreases from 27.8% in 2010 to 25% in 2018 (iii) At least 1 or 2 new financial services introduced by each PFI into its operations by 2016 (iv) At least 500 women microentrepreneurs, PFI staffs, and other stakeholders receive training to improve their knowledge and skills for developing sustainable women s microenterprises by end 2016 (v) Gender-sensitive and socially oriented policies and strategies streamlined into operations of PFIs by end 2016 a The target area excludes the city of Bishkek. The city of Osh is included, despite its relatively high level of economic activity, because of its post-crisis situation following the 2010 ethnic conflict centered in the city of Osh. b A low-income woman microentrepreneur is defined as a business which is majority owned (more than 50%) or managed by women with minimum income of 0 to $2,000 per annum. III. Grant Categories of Expenditure, Amounts, and Percentage of Expenditures Category 1. Revolving fund and/or credit guarantee fund (subgrant to partner PFIs) Amount of Grant Allocated in $ Percentage of Expenditures 250, Training, workshops, awareness campaign 515, Consulting services 418, Project management 167, Contingencies 150, Total (grant-financed) 1,500, Incremental cost of ADB project administration 37,500

4 2 JAPAN FUND FOR POVERTY REDUCTION JFPR Grant Proposal Background Information A. Other Data Date of submitting application 20 July 2012 Project officer Gulkayr Tentieva, Senior Economics Officer Project officer s division, , telephone Kyrgyz Resident Mission, Central and West Asia Department (CWRD), gtentieva@adb.org, Other staff who will need access to edit and/or review the Baktygul Omurzakova, Project Analyst, CWRD, bomurzakova@adb.org, report Sector Finance Subsector(s) Microfinance Theme Gender and development, capacity development Subtheme(s) Gender equity in economic opportunities, institutional development Targeting classification General intervention Was JFPR Seed Money used to Yes [ X ] No [ ] prepare this grant proposal? Have Staff Review Meeting Yes [ X ] No [ ] comments been reflected in the proposal? Name of associated ADB Investment Climate Improvement Program financed operation Executing agency Grant implementing agencies B. DETAILS OF THE PROPOSED GRANT Ministry of Economy (MOE) 1. Closed Joint Stock Company Microfinance Bank Bai- Tushum and Partners (MFB Bai-Tushum); Ms. Gulnara Shamshieva, Chief Executive Director, tel: +996 (312) , gulnara.shamshieva@baitushum.kg 2. Open Joint Stock Company Aiyl Bank (Aiyl Bank); Ms. Asel Omarova, Deputy Chairman, tel: +996 (312) , fax +996 (312) , aomarova@ab.kg 3. Closed Joint Stock Company The First MicroCredit Company (FMCC), Mr. Christian Hering, Director General, tel: (03222) 74747; s: chris.hering@fmcc.kg and mirlan.bakirov@fmcc.kg 1. Description of the Components, Monitorable Deliverables/Outcomes, and Implementation Timetable Component A Component Name Cost ($) $500,000 Capacity building and awareness campaign of stakeholders involved in the development of women s microentrepreneurship

5 3 Component description This component will include training, awareness building, and capacity development targeting (i) PFI needs in terms of outreach to women microentrepreneurs, (ii) needs of policymakers and other stakeholders in terms of outreach to women microentrepreneurs, and (iii) needs of women microentrepreneurs willing to grow. 1 The training institute to be selected on a competitive basis for implementing this component must meet minimum criteria agreed with the government 2 and have proven capacity to (i) develop training modules and deliver a capacity and awareness building campaign, (ii) conduct monitoring and tracer studies of the trainees and provide advisory services, and (iii) support sustainability of project results through continuation and replication of training after project completion. This component will train around 500 stakeholders and support the awareness campaign. Specifically: (i) On the demand side, women microentrepreneurs will be trained to enhance the viability and sustainability of their businesses and their abilities to access financial resources and markets. Training will cover financial literacy, marketing, business development, cash inflow and outflow, the value of financial discipline, risks, and business planning. It will demonstrate the importance of such financial services as savings, insurance, and remittances. Training will also develop leadership and communication skills to empower women microentrepreneurs. (ii) On the supply side, training activities will include specific training for the sector regulator, the National Bank of the Kyrgyz Republic; training for PFI operations staff to identify suitable tools, methods, and financial services addressing the needs of women microentrepreneurs; and monitoring and evaluation (M&E) training to evaluate borrowers business development and presentation of best models and effective practices. Training will also help strengthen the ability of PFI staff to assess and review their lending procedures targeting specific needs of women 1 Capacity development needs have been identified in the following reports (i) A. Niazova, G. Ibraeva and S. Ibragimova Situation Analysis: Possibilities and Barriers for Development of Women Entrepreneurship in Villages. Bishkek (RETA 6431) (ii) ADB Rural women entrepreneurship development in the Kyrgyz Republic: Analysis of barriers and opportunities for micro, small and medium enterprise development. Consultant s report. Bishkek (RETA 7709); (iii) ADB Women Entrepreneurship Development Project. Consultant s report. Bishkek; and (iv) ADB Development of the rural women entrepreneurship in the Kyrgyz Republic: barriers and opportunities for the micro, small and medium size business development. Consultant s report. Bishkek (RETA 7563). 2 A training institute should have extensive experience in conducting high-quality training for microfinance institutions and women microentrepreneurs, as well as an ability to identify and attract high-quality resource persons. The team will be composed of (i) a gender in microfinance expert; (ii) financial literacy, leadership, and communication experts; (iii) business development experts; (iv) microfinance experts; and (v) others, as needed. The training institute will have sufficient capacity for developing the required training modules and providing outreach of the training and awareness campaign activities throughout the country. It will also have sufficient capacity for monitoring and tracer studies of the trainees and to provide advisory services as needed.

6 4 Monitorable deliverables/outputs Implementation of major activities: number of months for grant activities microentrepreneurs, develop new financial services, and expand outreach to women entrepreneurs. (iii) An awareness campaign on women s microentrepreneurship development will be delivered through roundtables, national and local TV programming, videos, publications, and other means. Training modules developed and training organized across the country (at least 1 in each oblast); Awareness-raising materials developed and at least 1 outreach campaign delivered each year; At least 50 women microentrepreneurs out of total 300 trained on financial literacy, leadership and communication skills received loans under the project; At least 200 staff members of the National Bank of the Kyrgyz Republic, PFIs, and other stakeholders trained in gender, microfinance, microenterprise finance, and other topics to support women microentrepreneurs; and Gender-sensitive practices (tool kits, checklists, guidelines) introduced within 3 PFIs. 48 months Component B Component Name Institutional Development Cost ($) $215,000 Component description This component will strengthen the ability of PFIs and relevant government agencies (MOE, the National Bank, and others) to incorporate gender and social inclusion approaches into policies, strategies, and programs. It will strengthen networking and information sharing to enhance women s microentrepreneurship. More specifically this will include: (i) Assessing and documenting policies and strategies related to promoting women s microentrepreneurship currently used by PFIs. (ii) Asessing and implementing modalities for PFIs to adopt gender-sensitive policies and socially oriented policies and programs. (iii) Organizing consultations, national roundtables, and exchange and learning initiatives among MOE, the National Bank, PFIs, and other stakeholders to disseminate project results and help institutionalize practices for streamlining inclusion of poverty, social inclusion, and gender equity into operations of PFIs and other stakeholders. (iv) Institutionalizing collection and use of sex-disaggregated data. This will include setting qualitative sex-disaggregated indicators on lending operations and data monitoring during project implementation. (v) Supporting existing business associations or any other organized women s groups to strengthen networking and

7 5 Monitorable deliverables/outputs Implementation of major activities: number of months for grant activities information sharing and promote women s entrepreneurship. This may include training and advisory services and procurement of small equipment for strengthening the effectiveness of these groups. Use of information and communication technology, including networking with peers through mobile phones, will be explored. Gender-sensitive and socially oriented procedures, policies, and strategies documented and streamlined into operations of PFIs; 4 national roundtables and workshops carried out annually to facilitate knowledge exchange, distribute project findings, and recommendations, take follow-up actions; At least 2 per year local and national levels consultations and/or workshops for promoting women entrepreneurship held by 5 business associations and/or other organized women s groups, which were supported under the project; and At least 1 knowledge product on best practices in promoting women s entrepreneurship developed. 48 months Component C Component Name Pilot projects development and implementation Cost ($) $450,000 Component description (i) This component will finance, on a pilot basis, introduction of financial services that address the specific needs and constraints faced by women microentrepreneurs. The implementing agencies for this component three PFIs 3 representing a cross-section of banks and microfinance companies, currently working with women microentrepreneurs have been preselected based on selection criteria 4 agreed with the government as well as proven capacity and financial soundness to implement this component. 5 PFIs should have proven capacity to replicate pilot project results on a wider scale. More specifically, this will include: 3 MFB Bai-Tushum, Aiyl Bank, and FMCC. 4 PFIs have been preselected using the following criteria: (i) sufficient financial soundness and integrity satisfactory to the Asian Development Bank (ADB); (ii) significant coverage of rural areas and small towns; (iii) currently serving women microentrepreneurs and having sufficient outreach or demonstrate a willingness and capacity to serve women microentrepreneurs; (iv) proven capacity to replicate pilot project results widely; (v) either currently holding a deposit license or planning to obtain one in future that allows accepting deposits and offering savings accounts. 5 The capacity and financial soundness assessment for MFB Bai-Tushum, Aiyl Bank, and FMCC demonstrated their (i) commitment to microfinance; (ii) financial viability and soundness; (iii) capacity, operating system, and financial position adequate to delivery of microfinance services to the poor; and (iv) integrity compliance in accordance with ADB policies. ADB s anticorruption policy and other policies related to microfinance onlending operations were explained and discussed with the executing agency and the implementing agencies.

8 6 Monitorable deliverables/outputs (i) Development and introduction, on a pilot basis, of new financial services 6 into PFIs operations and expanded outreach to women microentrepreneurs. This will include recruiting microfinance experts to help the PFIs. (ii) Setting up subgrant financing ($250,000 from the project, while the PFIs are expected to contribute the same amount 7 ) for financing at least 25 pilot projects 8 across the country either (a) in the form of standby credit guarantee 9 for financial products made available to the women microentrepreneurs; or (b) as financing to the PFI account for onlending from a revolving fund to be used for financing women microentrepreneurs of the target group. The general terms of financing for pilot projects should be affordable to the target group but should not distort the market. The full amount of subgrants financing of $250,000 to the PFIs is to be returned by the PFIs to the government at project completion, excluding the amount of the arrears and outstanding nonperforming loans covered by the project. These resources are to be used for financing a new facility 10 established by the government to promote women s microentrepreneurship, women s business associations, or any other organized women s groups and resource centers (which also could include setting up the credit guarantee facility). Products and technologies to deliver sustained financial services to women microentrepreneurs in the form of new financial services; At least 1 or 2 new financial services targeting women microentrepreneurs developed and tested by PFIs; and Average 5% increase in annual savings as a result of savings products introduced. 6 New financial services are defined as services that address the unmet needs of women microentrepreneurs capable of and willing to develop sustainable businesses. New financial services may include (i) short-term lending products (purchase-order financing and lending to cooperatives), such as contract farming and purchase of finished goods; (ii) savings products which could improve the liquidity of women microentrepreneurs while reducing the need for additional borrowing, reducing collateral requirements, or both (in addition, savings improve the ability of financial institutions to lend money); (iii) retail products, such as payment and payroll processing, generating fee income for PFIs as well as being a source of convenience for women microentrepreneurs; and (iv) other products such as mobile banking. 7 The amount of a subgrant is decided based on the size of the PFI: (i) $100,000 to a large PFI with loan portfolio of $30 million or above, and (ii) $50,000 to a small PFI with loan portfolio of $10 million or above. 8 The pilot projects to be selected by the PFIs will be based on proper gender-sensitive credit analysis outcomes. The sector coverage of the pilot projects is to include but is not limited to (i) processing or mini-industry (handicrafts, textiles and apparel, furniture, jewelry, leather, wool, ceramics), (ii) agriculture and agro-processing; (iii) growing of planting stock for fruits and vegetables, flowers, etc.; (iv) services (general services, internet services, training, etc); (v) small trade and tourism; and (vi) catering. 9 The standby credit guarantee, kept on a deposit account within a PFI, is to be structured in such a way as to limit the credit risk associated with offering new lending products different in size and terms from those currently offered. Such a standby facility involves provision of partial support for credit risk incurred through 50% of a potential loss being covered by ADB and 50% by the PFI from its own funds (i.e. in accordance with the ratio of contribution to the facility). 10 The government will develop, as part of an exit strategy, a proposal agreed with ADB and the Government of Japan via the Office of Cofinancing Operations for development and operation of a facility to promote women s microentrepreneurship within 3 years from the project start. In case of the government s failing to develop a sound proposal for the facility within 3 years, the subgrants will be returned to JFPR.

9 7 Implementation of major activities: number of months for grant activities 48 months Component D Component Name Project Management, Monitoring, and Audit Cost ($) $185,000 Component description This component will support coordination and management of all project activities by supporting a project management unit (PMU), which to be established under the MOE s Department of Investments. The PMU will coordinate and monitor activities of all implementing agencies and will be responsible for collecting, analyzing, and further monitoring of the performance indicators on a quarterly basis. The executing agency will also be responsible for coordinating activities of all stakeholders including central and local government bodies involved in the project, the National Bank, and any other donor. Specifically: (i) Providing overall support to the establishment of an M&E system to assess the social and gender equality results of the financed activities. This will include setting a baseline (performance indicators) on a set of quantitative and qualitative indicators (disaggregated by sex) agreed with PFIs at project start-up and effectively monitoring these during project implementation (e.g., changes in women s or households incomes, jobs created, expenditures and consumption, nutritional status, and access to health care and education). (ii) Within 3 years from the project s start, the executing agency s developing in consultation with other government agencies a sound proposal for an exit strategy agreed with ADB and the Government of Japan via the Office of Cofinancing Operations in relation to a new facility developed and operating to promote women microentrepreneurs, women s business associations, or other organized women s groups. This component will also support operational and supervisory costs of the project implementation team, engaging the services of consultants and organizations for effective implementation and monitoring of the project activities and audit. Monitorable Effective project management and coordination among MOE deliverables/outputs and PFIs; Operational M&E system which will include tracking and reporting of sex-disaggregated outcome developed; Sound proposal for the development of a new facility to promote women microentrepreneurs developed; and Implementation of major activities: number of months for grant activities Annual audit submitted on time. 48 months

10 8 2. Financing Plan for Proposed Grant to be Supported by JFPR Funding Source Amount ($) JFPR 1,500,000 (excluding incremental ADB cost) Government (in kind) 55,000 (government contribution will be provision of office spaces, regular remuneration of staff involved in the project implementation, participation at workshops and roundtables, and support to institutional development) Partner financial institutions 250,000 Community contribution (in- 15,000 (beneficiary contribution through kind) participation at workshops and roundtables) Total 1,820, Background 1. Poverty remains high in the Kyrgyz Republic, especially in the rural areas and small towns that account for about 80% of the population (of which 51% is female). Around 33% of the total population lives below the poverty line. The two southern oblasts of Jalal-Abad and Osh are the most populous, and they are home to 56% of the poor. After the Kyrgyz Republic gained independence in 1991, many women lost their jobs in the formal sector (more than 80% had been employed by cooperatives or state farms). They moved into the lower paid informal sectors and turned to subsistence farming and small-scale activities like trade or handicrafts. While two ADB projects, both completed in 2010, helped generate livelihood opportunities by supporting 2,300 female entrepreneurs, 11 most businesses remain very small. Moreover, limited availability of microfinance (generally in the range of $500 $1,500) provides little opportunity for turning self-employment into sustainable small businesses that generate jobs in rural areas. Therefore, there is a need to address cross-cutting women s microentrepreneurship development issues. The new project is designed based on an analysis of achievements, shortcomings, and lessons learned from the two aforementioned projects, namely, (i) continued capacity building of women microentrepreneurs is a prerequisite for any project; (ii) stronger networking and information sharing through marketing channels, resource centers, or other organized women s groups is an important thrust for empowering women entrepreneurs; and (iii) lack of financing to address the needs of women microentrepreneurs and their inability to seek such financing impede small microenterprises viability and sustainability. 2. In the Kyrgyz Republic, there are more than 600 active microfinance institutions (MFIs), 12 which provide micro-loans to around 9% of the population. More than 70% of microloan borrowers are women, indicating that their access to other forms of credit is difficult. Based upon the loan portfolios data of major MFIs, most of these women are returning customers. However, these loans provide limited opportunities for poverty-reducing job creation. Current lending activities in the microfinance sector are focused on group lending and lending on limited 11 ADB Grant Assistance to the Kyrgyz Republic for Improving Livelihood of Rural Women Through Development of Handicrafts Industry (Financed by JFPR). Manila; and ADB Regional Technical Assistance Project (RETA) for Promoting Rural Women s Entrepreneurship in Transition Economies (Financed by the Gender and Development Cooperation Fund). Manila. 12 This includes microfinance organizations, microfinance companies, credit unions, and banks providing microfinance.

11 assets with very short payback periods and high interest rates (on average over 35% per annum or higher). This is not necessarily sufficient to support enhancement of microenterprises owned or managed by women. Because such limited access is undermining their potential, there is a need to address demand for financial services by women microentrepreneurs with potential for developing into sustainable businesses. The project will help improve the services of MFIs to women microentrepreneurs through (i) expanding outreach and capacity to support women borrowers; and (ii) financing, on a pilot basis, of new financial services enhancing the viability and sustainability of women s microenterprises and with potential for wide-scale replication by PFIs. 3. Furthermore, affordable credit alone will not help women entrepreneurs to grow. It must be accompanied by adequate and sensitively designed training and capacity building and advisory programs. As evidenced by various studies (footnote 1), lack of capacity, experience, and information form a major barrier to increased use of financial services especially among rural women microentrepreneurs. The needs to foster improved capacity for both lenders and borrowers, including through improved marketing and sales on the part of lenders coupled with more efficient credit analysis of loan applications, as well as improved ability to evaluate the economic benefits of borrowed money on the part of women entrepreneurs, have been posed as the greatest challenges. The need for better information between and among lenders and borrowers, including improved explanation of loan terms and improved means of evaluating loan proposals on the part of women microentrepreneurs, constrain scaling up of lending activities. Traditional gender role expectations limit women s activities and education, and women entering micro-businesses tend to stay in traditional sectors and are forced also to keep up with their family responsibilities. Therefore, the project will address this through capacity building on leadership and communication, financial literacy, and business development by means of training and advisory services for women microentrepreneurs with growth potential who are willing to scale up to a formal and sustainable level. Moreover, public awareness campaign activities will aim to improve access to information on the microcredit market. 4. Expansion of women s enterprises has also come up against limitations of the regulatory frameworks and a lack of networks in place to service their production and distribution needs. Women microentrepreneurs limited access to finance is compounded by their having lower sales volumes, less capital, less collateral, and weaker business skills and experience compared to male-owned businesses. There is also a growing realization that MFIs involved in promoting women s entrepreneurship should more aggressively develop strategies and policies to mainstream gender and social issues and approaches in business development. There is a need to expand policies on collateral and the variety of lending instruments in order to address the needs of different types of micro-businesses. Therefore, the project will support efforts to institutionalize gender-focused and socially oriented policies and programs for microfinance both in PFIs during the project and at a policy level through the Investment Climate Improvement Program. 5. The primary beneficiaries of the project will include, but not be limited to, low-income women microentrepreneurs who are willing to scale up to formal and sustainable level and that (i) are majority owned (more than 50%) or managed by women, with minimum income of 0 to $2,000 per annum; (ii) have a sound business development plan or are willing to develop one in future; (iii) invest into business development not less than 10% of annual profit or are willing to do so in future; (iv) plan to employ in future or employ currently at least 1 non-family member. This will also include (i) recipients of financing from the two previous ADB projects (footnote 11), and (ii) eligible women beneficiaries of micro-loans selected from the PFIs databases. In cooperation with three PFIs, the project will pilot innovative financial services which should 9

12 10 improve access to finance and reduce the cost of funds through alternative financing schemes. This, in turn, will improve productivity and efficiency of women s microenterprises. The step up to higher productivity brings important benefits to the entrepreneur and, thereby, to her community. Women running microenterprises are often the primary sources of food security, health care and education for children, and all critical social development needs. Active participation of PFIs, along with active involvement of the government and other stakeholders, in promoting women s microentrepreneurship will help to create more jobs and income, and thereby to improve living standards among the population of the rural areas and small towns in the Kyrgyz Republic. 6. Taking into account the relative short life of the project and the need for further longerterm support of women microentrepreneurs needs, the government will develop within 3 years from the project start, as part of an exit strategy, a proposal agreed with ADB and the Government of Japan via the Office of Cofinancing Operations for the development and operation of a new facility to promote women s microentrepreneurship. 13 The subgrants made available to the PFIs for financing pilot projects through a standby credit guarantee facility or revolving fund will be returned to the government s separate account upon completion of the project. These resources are to be used for financing a new facility established by the government for promoting women s microentrepreneurship, women s business associations, or any other organized women s groups and resource centers (this could also include setting up a credit guarantee facility). 4. Innovation and Knowledge Sharing 7. The project will have several innovative features, including to (i) develop new financial services that foster growth (including improved loans, savings, retail products, and mobile banking) and work with selected PFIs, as well as their women microentrepreneur customers, to introduce these services into normal operations of PFIs; (ii) provide capacity building designed to support introduction of the new financial services directed to PFIs and customers, jointly and comprehensively; (iii) use a standby credit guarantee facility or revolving fund to finance, on a pilot basis, introduction of the new financial services; and (iv) innovatively use information and communication technology, including cell phones, to enable better access among women microentrepreneurs to such key information as pricing, new regulatory developments, and peer-to-peer advice. 5. Sustainability 8. The project will develop and introduce new financial services and greater outreach to women microentrepreneurs to help address their needs on a sustainable basis. The successfully tested new financial services will be mainstreamed into PFI operations by project completion. The project also provides opportunity for partial coverage of PFIs risks associated with testing of these services through financing, on a pilot basis, of the revolving fund or standby guarantee facility. 14 This will enable the PFIs to make use of the pilot project results and 13 Should the government fail to develop a sound proposal for the facility within 3 years the subgrants will be returned to JFPR. 14 The guarantee facility will provide 50% coverage from ADB for a possible loss and 50% by the PFI from its own funds, in accordance with the ratio of contribution to the facility.

13 replicate the projects on a much wider scale in future. The current legal and regulatory framework is adequate for usage of the proposed new services. 9. The project aims to foster improved capacity on both the supply side (including improved marketing and sales, as well as improved and more efficient credit analysis of loan applications on the part of PFIs) and on the demand side (by enhancing capacity of women microentrepreneurs for business planning, including their ability to evaluate financing options). This two-front approach is intended to promote sustainability in accordance with the recommendations of various studies (footnote 1). The capacity building is structured in such a way that it will provide continuity through the modules and curricula to be developed and which will be used by training institutions in future to scale up the pilot projects. The training institute engaged for this project should have proven capacity to replicate and continue training activities in future. 10. The project seeks to facilitate access by women microentrepreneurs to an appropriate range of information and services that support microfinancing. The project will institutionalize thereby introducing on a long-term, sustainable basis gender-related and socially inclusive policies for microfinance. Also, sustainable improvements through capacity development in financial literacy, leadership and communication, and business development skills will support sustainability of this intervention. 11. By ensuring a sustainable exit strategy, the project takes into account the relatively short life of the project and the need for further longer-term support of women microentrepreneurs needs (para. 6). 6. Participatory Approach 12. The project will be implemented in consultation with relevant central and local government agencies, women s and professional associations, and nongovernment organizations. MOE will engage a national consultant to conduct a poverty impact assessment to develop a baseline, collect and analyze relevant information and data covering rural areas and small towns (excluding Bishkek) in all seven oblasts, and support MOE in monitoring a set of agreed targets. This will be implemented through a consultative process with local and central agencies, including both government and nongovernment organizations. The institutional development component, including support for business associations and women s groups, will involve a wide range of consultation workshops, focus group discussions, and other mechanisms for local participation in implementing and monitoring the project. The capacity building component s implementation also will utilize a wide range of mechanisms for outreach into local communities, including (where applicable) information and communication technology. 13. ADB s team consulted with the Embassy of Japan in the Kyrgyz Republic and the Kyrgyz Republic office of the Japanese International Cooperation Agency (JICA) throughout project processing, meeting several times during reconnaissance and fact-finding missions. The Embassy of Japan supported the rationale for the proposed JFPR grant, the direct intervention to support low-income women microentrepreneurs with potential to scale up, and the gender and capacity building focus. The Embassy of Japan also agreed with project coverage of rural areas and small towns, and it supported pilot projects as a visible means of support to women microentrepreneurs. JICA supported the project scope and shared its experience with the One- Village-One-Product project, which also aids microentrepreneurs in the Issyk-Kul region. All these issues are reflected in the proposed project s design. 11

14 12 Primary Beneficiaries and Other Affected Groups and Relevant Description The direct and primary beneficiaries will be low-income women microentrepreneurs scaling up to formal and sustainable businesses majority owned (more than 50%) or managed by women with minimum income of 0 to $2,000 per annum). The project will target the specific needs and constraints faced by those in the target group willing to achieve the viability and sustainability of their business activities. About 300 women microentrepreneurs involved in capacity building and those involved in the pilot projects implementation will be direct beneficiaries. So, too, will be 100 staff members of PFIs involved in training and pilot projects implementation, and more than 100 (central and local) government staff members involved in consultations and workshops, training, and capacity development. In total, at least 500 people will be primary beneficiaries of the project. Other Key Stakeholders and Brief Description The Ministry of Economy will be the project s executing agency. It was an executing agency for the project completed in 2010 JFPR- 9104: Improving Livelihood of Rural Women Through Development of Handicrafts Industry. The PMU will be responsible for day-to-day project coordination, and it will direct work of the three PFIs that will be the implementing agencies for the project. The PMU will also coordinate with other stakeholders including government, development partners, private and civil sector representatives, and communities. Secondary beneficiaries will be (i) family members, including children, who will benefit from increased income of the women microentrepreneurs; and (ii) other households in pilot project areas who will benefit from use of the strengthened women s associations. At least 2,500 people will be secondary beneficiaries of the project. Other beneficiaries: nongovernment organizations, women s and professional associations and groups, private sector representatives in the microfinance sector, recipients of awareness campaign activities, and many more. At least another 2,500 people will benefit from the project. 7. Coordination 14. Based on the discussions held with relevant stakeholders (government, development partners) it is clear that despite several programs targeted at micro and small, and medium enterprises (SMEs) development, the challenges of entrepreneurship development, especially for women, remain severe. The unmet needs of women microentrepreneurs for timely access to affordable finance, business development services, capacity development and training, as well as key information remain significant. To be efficient and effective, the project will be implemented in close consultation and collaboration with the following development partners active in the sector:

15 (i) (ii) (iii) Business Advisory Services Program of the European Bank for Reconstruction and Development (EBRD) aims to enable micro, small, and medium-sized enterprises to access a diverse range of consulting services by facilitating projects with local consultants on a cost-sharing basis. Financial Markets Infrastructure Advisory Services Project of the International Finance Corporation (IFC) works with financial intermediaries to enable their effective operation. Regional Program on Support to Microfinance in Central Asia, funded by German development cooperation through GTZ, builds capacity of stakeholders in the microfinance sector, and especially of that association of microfinance companies. (iv) One-Village-One-Product project of JICA supports entrepreneurship development especially in the Issyk-Kul region through improved marketing, human resource management, and quality control strategies. (v) Poverty Reduction Program of United Nations Development Programme (UNDP) mobilizes and develops capacity of the economically active poor population and improves its access to finance, employment, and other economic activities at the grassroots level. 15. The project will work closely with the Association of Microfinance Institutions in the Kyrgyz Republic and the Union of Kyrgyz Banks on institutionalization of gender-sensitive policies and programs. Exchange of knowledge and lateral learning will be facilitated through a series of workshops and roundtables with key stakeholders, implementing partners, and project beneficiaries. 8. Visibility 16. The proposed project is expected to include a public awareness program comprised of wide-ranging information, education, and communication strategies regarding (i) opportunities for women s microentrepreneurship development, and (ii) possibilities for those entrepreneurs access to finance and training to scale up businesses to viable and sustainable levels. The campaign will be implemented in cooperation with key stakeholders. Special attention will be given to the participation of women and other vulnerable groups, such as low-income women microentrepreneurs. 17. ADB and JICA have agreed actively to collaborate and share experience and expertise in promoting women s entrepreneurship, especially on marketing and quality control strategies developed under the One-Village-One-Product project. They also have agreed actively to cooperate and use the facilities and experts of the Kyrgyz Republic Japan Center for Human Development for training and capacity development activities in support of the project s capacity building and institutional development component. 9. Detailed Cost Table 18. Total cost of the project is estimated at $1,820,000 equivalent, including physical and price contingencies. It is proposed that JFPR will provide a grant of $1,500,000 equivalent to finance 82.42% of the project cost. The implementing partners of the project s three PFIs will provide $250,000 equivalent, or 13.74% of the project cost. The remaining $70,000 equivalent, or 3.84%, will be provided by the government and local communities, mainly in kind. In addition, $37,500 will be required by ADB for project administration. Please refer to Appendix 3 for detailed cost estimates and Appendix 4 for the fund flow arrangement. 13

16 14 C. LINKAGE TO ADB STRATEGY AND ADB-FINANCED OPERATIONS 1. Linkage to ADB Strategy 19. The proposed project fits well with the strategic thrust of the Kyrgyz Republic s country operations business plan, , which supports a favorable environment for sustainable inclusive growth with broader private sector participation. 20. One of the main goals of the medium-term development plan is social development. That plan seeks to ensure that citizens have an adequate, equitable, and decent working and living environment in the Kyrgyz Republic. The strategy envisages socioeconomic development through mobilization of domestic resources, effective structural reforms, infrastructure improvement, introduction of new technologies and information systems, and active involvement of civil initiatives. In other words, there should be sustainable dynamic development leading to improvement in the living standards and well-being of all citizens in the country. 21. Priorities of the state gender policy include to (i) increase women s participation in decision making, (ii) create equal economic opportunities for men and women, and (iii) improve government policies to be more gender-responsive. Therefore, the proposed project, which is in line with this policy, will improve access to finance and increase capacity for women to turn individual self-employment into poverty-reducing job creation. Document Country Operations Business Plan Medium-Term Development Plan National Strategy on Gender Equality Strategy on Microfinance Sector Development Document Number COBP MTDP ( ) NSGE ( ) SMFD Date of Last Discussion November 2012 Objective(s) The strategic thrust of the Kyrgyz Republic s country operations business plan, is to create a favorable environment for sustainable inclusive growth with broader private sector participation. April 2012 Sustainable dynamic development leading to improvement of the living standards and well-being of all citizens in the country; to integrate gender equality policy in national, sectoral, and regional strategic documents May 2012 To address such barriers to achieving gender justice in employment and entrepreneurship as lack of access to finance, loans, and investment support to micro- and small-scale entrepreneurship May 2012 To extend access of the poor population to financial services in order to ensure economic growth and poverty reduction

17 State Program on Entrepreneurship Development SPED To create a favorable policy environment to foster the development of entrepreneurship and increase its contribution to the country s economy in a long-term perspective Linkage to Specific ADB-Financed Operation Project Name (i) Investment Climate Improvement Program, Subprogram 1 (ii) Investment Climate Improvement Program, Subprogram 2 (iii) Investment Climate Improvement Program, Subprogram 3 Project Number (i) Grant 0120-KGZ (ii) Grant 0319-KGZ Date of Board Approval (i) 3 November 2008 (ii) 26 November 2012 (iii) expected in 2013 Grant Amount ($ million) (i) 12.5 (ii) 20.0 (iii) Development Objective of the Associated ADB-Financed Operation 22. The Investment Climate Improvement Program supports policy reforms in the areas of business deregulation, access to finance, and improved worker skills. The expected impact of this subprogram is sustainable economic growth and employment creation as a result of reform outputs. The expected outcome is improved business environment and investment climate. The structural impediments to lending are addressed by promoting alternative financial services and strengthening nonbank financing sources such as microfinance institutions. This will benefit microenterprises along with small and medium-sized enterprises, and particularly women microentrepreneurs, who account for more than 70% of MFIs borrowers. 4. Main components of the Associated ADB-Financed Operation No. Component Name Brief Description 1. Cost of regulatory compliance reduced 1.1 Piloting of one-stop shop in all regions completed and requirements for registration further reduced 1.2 Licensing requirements reduced based on results of regulatory impact assessment, and risk-based inspections institutionalized 1.3 Automation of pre-customs clearing initiated 2. Access to finance improved 2.1 Legal reforms on secured lending framework completed 2.2 Availability of financial services further increased 2.3 Institutional framework for credit information sharing improved 3. Workers skills enhanced 3.1 National Skills Development Council established 3.2 Qualification frameworks adopted for technical and vocational education in 18 professions

18 16 4. Public private partnerships facilitated 4.1 Legal and risk-management framework for public private partnership established 4.2 Units for risk-management and public private partnership promotion fully operational 4.3 First steps taken to build public private partnership project pipelines through screening methods and procedures 5. Rationale for Grant Funding versus ADB Lending 23. While the Investment Climate Improvement Program addresses broad binding constraints upon private sector development and economic diversification in the areas of business regulation and taxation, access to finance, worker skills, and public private partnerships, that project does not address the specific needs of women microentrepreneurs in accessing finance and capacity development. Nor does any other project or program of other development partners specifically address the needs of women microentrepreneurs. The JFPR grant will specifically target a sizable representation of women microentrepreneurs among the beneficiaries, not only enabling access to finance but also providing assistance in training to ensure that these recipients will be able to manage the numerous social and gender-related constraints that they face and to scale up their businesses. The grant will directly help women microentrepreneurs, strengthen gender-related policies, improve PFIs outreach to women microentrepreneurs by developing and pilot testing innovative financial services targeted to women microentrepreneurs, and increase the capacity of PFIs in developing gender-inclusive portfolios. None of the existing donor programs for small and medium-sized enterprises or microfinance have a project or technical assistance specifically targeting gender equity and women s empowerment. D. IMPLEMENTATION OF THE PROPOSED GRANT 1. Implementation Arrangements Executing and implementing agencies Women microentrepreneurs selection criteria The Ministry of Economy (MOE) will be executing agency for the project. The implementing agencies are: 1. Closed Joint Stock Company Microfinance Bank Bai- Tushum and Partners 2. Open Joint Stock Company Aiyl Bank 3. Closed Joint Stock Company The First MicroCredit Company Microenterprises meeting the following criteria will be eligible borrowers to access the pilot financial services: (i) Owned or managed by low-income women microentrepreneurs with minimum income of 0 to $2000 per annum; (ii) Employing at least one non-family member or planning to do so in future; (iii) Having a sound business development plan or willingness to develop such plan; (iv) Investing into business development not less than 10% of annual profit or willingness to do so in future;

19 (v) Undertaking start-up, expansion, diversification, or modernization activities in any of the eligible subsectors but excluding those on ADB s prohibited investment list; and (vi) Complying with microfinance institutions policies and other relevant government regulations Project implementation. The executing agency for the project will be MOE. A steering committee, chaired by the Deputy Minister and consisting of representatives from the executing agency, Office of the Prime Minister, Ministry of Finance, and other relevant stakeholders, will be established to oversee project implementation and advise on the need for any adjustments in the project scope. Coordination of all project activities will be the responsibility of the PMU, which will be established under the MOE s Department of Investments. The PMU will be staffed by the government and supported by consultants. The PMU will coordinate and monitor activities of all implementing partners and will be responsible for determining, analyzing, and further monitoring of the performance indicators on a quarterly basis. The executing agency will be responsible for coordinating activities of all stakeholders, including central and local government bodies involved in the project, as well as coordinating related activities supported by any other donors. 25. The implementing agencies (the preselected PFIs) will implement and cofinance the pilot projects. An assessment of these companies demonstrated their (i) clear commitment to microfinance; (ii) financial viability and soundness; (iii) capacity, operating system, and financial position adequate for delivering microfinance services to the poor; and (iv) integrity compliance adequate to ADB. The training institute to be selected on a competitive basis for the capacity building component will implement the capacity building and public awareness-raising initiatives. 26. Procurement and consulting services. The project will require consulting services to support project management, supervision, pilot projects implementation, capacity building, and the awareness campaign, as well as to conduct detailed economic, social, and poverty impact assessments. All procurements under the JFPR grant will be conducted in accordance with ADB s Procurement Guidelines (April 2010, as amended from time to time). All consultants, including the training institute will be recruited in accordance with Guidelines on the Use of Consultants (April 2010, as amended from time to time) to provide the services for implementation, management, and progress monitoring of the JFPR grant. 27. Exit strategy. The subgrants will be managed by the PFIs during the project implementation. Each PFI will submit quarterly statements on lending operations to the executing agency with copy to ADB. At completion of the project, the full amount of the guarantee facility to PFIs (subgrants financing of $250,000) is to be returned by the PFIs to the government, excluding the amount of arrears and outstanding nonperforming loans covered by the project. The guarantee facility will provide 50% coverage for the losses by ADB and 50% by the PFIs from their own funds, in accordance with proportional contributions to the facility. The returned funds will be used by the government for financing a new facility established by the government to promote women s microentrepreneurship, women s business associations, or any other organized women s groups and resource centers (this could also include setting up a credit guarantee facility). Within 3 years from the project s start, the government will develop a sound proposal agreed with ADB for the development and operation of such facility, otherwise the full amount of the guarantee facility is to be returned to JFPR.

20 Social and environmental safeguards. The project is categorized as FI and treated as C based on impacts on the environment, involuntary resettlement, and indigenous peoples. 15 The project activities will focus on improving the capacity of women microentrepreneurs to access financial resources, services, and market opportunities, and therefore no social safeguard issues are envisaged. The PFIs existing environmental and social management systems (ESMS) were assessed which are generally satisfactory in accordance with ADB s Safeguard Policy Statement 2009 (SPS). PFIs have sufficient institutional arrangements and capacity to monitor and manage the risks. The PFIs agreed to only fund women microentrepreneurs activities with minimal or no adverse environmental impacts. The project will only fund activities that are in compliance with applicable national laws and regulations. In addition, projects with activities included in ADB s Prohibited Investment Activity List will not be funded. Inasmuch as the pilot projects will be administered through the PFIs, however, to strengthen full compliance with ESMS requirements in accordance with ADB s SPS the training will be provided to the PFIs as well as executing agency s staff before the project implementation on how to screen and deselect micro-loan proposals that fall under categories B and A for environment in accordance with ADB s SPS. It will be requested that the initial 10 micro-loan proposals be submitted by the PFIs through the executing agency to ADB for verification of the environmental categories assigned to them. Compliance with environmental safeguards will be monitored throughout project implementation based on results of the midterm review meetings as well as on-site inspections. 2. Risks Affecting Grant Implementation 29. As the project activities will focus on improving the capacity of women microentrepreneurs to access financial resources, services, and market opportunities, there will be no social or environmental safeguard issues. Type of Risk Brief Description Measure to Mitigate the Risk Lack of capacity of women microentrepreneurs, PFIs, and other stakeholders to promote women entrepreneurship development Slow pace of institutional and legal reforms to promote socially oriented and gender-sensitive policies in microfinance Stakeholders adequate capacity is imperative to fulfilling the project s objectives. The legal and institutional framework pertaining to socially oriented microfinance needs to be improved. Consultations with beneficiaries and other stakeholders were initiated during the project processing stage to identify capacity constraints and measures to mitigate the risk through project capacity building activities. Consultations will also be continued during project implementation to confirm the findings and adjust the training programs as needed. The project will support services of gender and microfinance experts to help the stakeholders achieve an appropriate legal and regulatory framework. 15 A proposed project is classified as (i) category A if it is likely to have significant adverse environmental impacts that are irreversible, diverse, or unprecedented; (ii) category B if its potential adverse environmental impacts are less adverse than those of category A projects; (iii) category C if it is likely to have minimal or no adverse environmental impacts; and (iv) category FI if it involves the investment of ADB funds to, or through, a financial intermediary.