The World Bank Report No: ICR00002649 IMPLEMENTATION COMPLETION AND RESULTS REPORT ... · PDF file · 2016-07-14Report No: ICR00002649 IMPLEMENTATION COMPLETION AND RESULTS REPORT

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Document of

The World Bank

Report No: ICR00002649

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-39030 TF-57844)

ON A

CREDIT

IN THE AMOUNT OF SDR 4.8 MILLION

(US$7.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF NICARAGUA

FOR A

BROAD BASED ACCESS TO FINANCIAL SERVICES PROJECT

June 27, 2013

Finance and Private Sector Development

Central America Country Management Unit

Latin America and the Caribbean Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 3, 2013)

Currency Unit = Cordoba

1.00 = US$ 0.04

US$ 1.00 = 24.63

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ASDI Swedish International Development Agency

ASOMIF Asociación Nicaragüence de Instituciones de Microfinanzas (Nicaraguan

Association of Microfinance Institutions)

BCN Central Bank of Nicaragua

BP Banco Produzcamos (a newly created state development bank, which

assumed FNI’s coordination and implementation responsibilities for the

Project)

CAC Cooperativa de Ahorro y Crédito (Savings and Loans Cooperative)

CAS Country Assistance Strategy

CPS Country Partnership Strategy

CONACOOP Consejo Nacional de Cooperativas (National Council of Cooperatives)

CONAMI Comisión Nacional de Microfinanzas (National Commission of

Microfinances)

COSUDE Swiss Development Corporation

DCA Development Credit Agreement

ECF Extended Credit Facility

FCR Fondo de Crédito Rural (Rural Credit Fund)

FI Financial institution

FNI Financiera Nicaragüense de Inversiones (the Borrower's second-tier

investment financial company)

FSAP Financial Sector Assessment Program

GoN Government of Nicaragua

IMF International Monetary Fund

IADB Inter American Development Bank

ISR Implementation Status and Results

INFOCOOP Instituto Nicaragüense de Fomento Cooperativo (Nicaraguan Institute of

Cooperative Promotion)

MEFCCA Ministerio de Economía Familiar, Comunitaria, Cooperativa y Asociativa

MFI Micro-finance institution

MIFIC Ministerio de Fomento, Industria y Comercio (Ministry of Development,

Industry and Commerce)

MUCCOOP Manual Unico de Cuentas Cooperativas (Cooperatives Manual of

iv

Accounts)

NDP National Development Plan

NGO Non-governmental organization

PAD Project Appraisal Document

PAGSF Proyecto de Acceso Generalizado a los Servicios Financieros (Cr. 3903-

NI) (Title of this Project in Spanish)

PCU Project Coordination Unit

PROMIFIN An agency of COSUDE

RAAN Región Autónoma del Atlántico Norte (North Atlantic Autonomous

Region)

RAAS Región Autónoma del Atlántico Sur (South Atlantic Autonomous Region)

SECEP Secretaría de Coordinación y Estrategia de la Presidencia (Secretariat of

Coordination and Strategy of the Presidency)

SETEC Secretaría Técnica de la Presidencia (Technical Secretariat of the

Presidency

SIBOIF Superintendencia de Bancos y de Otras Instituciones Financieras

(Superintendence of Banks and Other Financial Institutions)

SINASIP Sistema Nacional de Seguimiento de Pobreza (National System for

Monitoring Poverty)

TA Technical assistance

TAL

UCRESEP

UNICOOP

Technical assistance lending

Unidad de Coordinación del Programa de Reforma del Sector Público

(Public Sector Reform Program Coordination Unit)

Instituto Nicaragüense de Fomento Cooperativo (Nicaraguan Institute of

Cooperative Development)

Vice President: Hasan A. Tuluy

Country Director: Carlos Felipe Jaramillo

Sector Director:

Sector Manager:

Marialisa Motta

P. S. Srinivas

Project Team Leader: Patricia Caraballo

ICR Primary Author: Claudio A. Pardo

ii

v

NICARAGUA

Broad Based Access to Finance Project

CONTENTS

A. Basic Information

B. Key Dates

C. Ratings Summary

D. Sector and Theme Codes

E. Bank Staff

F. Results Framework Analysis

G. Ratings of Project Performance in ISRs

H. Restructuring (if any)

I. Disbursement Profile

1. Project Context, Development Objectives and Design ................................................... 1 1.1 Context at Appraisal ................................................................................................ 1

1.2 Original Project Development Objectives (PDO) and Key Indicators .................... 1 1.3 Revised PDO (as approved by original approving authority) and Key Indicators,

and reasons/justification…………………………………………………….……. 2

1.4 Main Beneficiaries ................................................................................................... 2 1.5 Original Components ............................................................................................... 3

1.6 Revised Components ............................................................................................... 4 1.7 Other significant changes ......................................................................................... 4

2. Key Factors Affecting Implementation and Outcomes .................................................. 5 2.1 Project Preparation, Design and Quality at Entry .................................................... 5

2.2 Implementation ........................................................................................................ 6 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization ......... 7 2.4 Safeguard and Fiduciary Compliance ...................................................................... 8

2.5 Post-completion Operation/Next Phase ................................................................... 9 3. Assessment of Outcomes ................................................................................................ 9 3.1 Relevance of Objectives, Design and Implementation ............................................ 9

3.2 Achievement of Project Development Objectives ................................................... 9 3.3 Efficiency ............................................................................................................... 13 3.4 Justification of Overall Outcome Rating ............................................................... 14 3.5 Overarching Themes, Other Outcomes and Impacts ............................................. 14

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops…...15

4. Assessment of Risk to Development Outcome……………………………………….15

5. Assessment of Bank and Borrower Performance ........................................................ .15

5.1 Bank Performance ................................................................................................. .15 5.2 Borrower Performance ........................................................................................... 16 6. Lessons Learned............................................................................................................ 17 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 18

vi

Annex 1. Project Costs and Financing .............................................................................. 19 Annex 2. Outputs by Component...................................................................................... 21

Annex 3. Economic and Financial Analysis ..................................................................... 24 Annex 3-A. The Faces of Microfinance: Beneficiaries’ Stories from Supported Micro

Lenders .................................................................................................................. 29 Annex 4. Bank Lending and Implementation Support/Supervision Processes ................. 34 Annex 5-A. Regulation and Supervision of Microfinance Institutions in Nicaragua ....... 36 Annex 5-B. Selected Median Performance Indicators for ASOMIF-associated MFIs .... 36 Annex 6. World Bank Financial Sector Engagement in Nicaragua .................................. 38

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 39 Annex 8. Project Revisions and Amendments .................................................................. 41 Annex 8-A: Revisions to Project Indicators .................................................................... 41 Annex 8-B: DCA Amendments and Level 2 Restructurings ........................................... 42 Annex 9. List of Supporting Documents and List of Institutions and People Interviewed

by the ICR Mission ............................................................................................... 48 Annex 9-B. List of Institutions and People Interviewed by the ICR Mission .................. 48

Map …………………………………………………………………………………….. 51

i

A. Basic Information

Country: Nicaragua Project Name: Broad-Based Access to

Financial Services

Project ID: P077826 L/C/TF Number(s): IDA-39030,TF-57844

ICR Date: 06/27/2013 ICR Type: Core ICR

Lending Instrument: TAL Borrower: GOVERNMENT OF

NICARAGUA

Original Total

Commitment: XDR 4.80M Disbursed Amount: XDR 3.56M

Revised Amount: XDR 3.56M

Environmental Category: C

Implementing Agencies:

Banco Produzcamos (Previously, Financiera Nicaraguense de Inversiones)

SIBOIF

Cofinanciers and Other External Partners:

Government of Japan

Government of Netherlands

IDB - Inter-American Development Bank

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 03/19/2003 Effectiveness: 08/22/2005 08/22/2005

Appraisal: 11/03/2003 Restructuring(s):

11/27/2007

04/03/2009

09/15/2010

07/18/2011

Approval: 05/18/2004 Mid-term Review: 07/27/2009

Closing: 12/31/2009 12/31/2012

ii

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Satisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately Satisfactory Implementing

Agency/Agencies: Moderately Satisfactory

Overall Bank

Performance: Moderately Satisfactory

Overall Borrower

Performance: Moderately Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation

Performance Indicators

QAG Assessments (if

any) Rating

Potential Problem Project

at any time (Yes/No): Yes

Quality at Entry

(QEA): None

Problem Project at any time

(Yes/No): Yes

Quality of Supervision

(QSA): None

DO rating before

Closing/Inactive status:

Moderately

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Credit Reporting and Secured Transactions 3 3

General finance sector 26 26

Microfinance 70 70

Other non-bank financial intermediaries 1 1

iii

Theme Code (as % of total Bank financing)

Financial Consumer Protection and Financial Literacy 17 17

Micro, Small and Medium Enterprise support 33 33

Regulation and competition policy 33 33

Rural markets 17 17

E. Bank Staff

Positions At ICR At Approval

Vice President: Hasan A. Tuluy David de Ferranti

Country Director: Carlos Felipe Jaramillo Jane Armitage

Sector Manager: Subrahmanya Pulle Srinivas Danny M. Leipziger

Project Team Leader: Patricia Caraballo Michael J. Goldberg

ICR Team Leader: Patricia Caraballo

ICR Primary Author: Claudio A. Pardo

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

The Project Development Objective is to improve access to financial services provided by sound,

profitable financial institutions for low-income households and micro and small businesses.

Revised Project Development Objectives (as approved by original approving authority)

The PDO was not revised.

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1 : Increase in number of points of service for supervised private financial institutions

(SIBOIF)

Value

quantitative or

Qualitative)

Less than 200 10% increase in 5

years 220 320

iv

Date achieved 04/19/2004 05/19/2004 12/31/2012 12/31/2012

Comments

(incl. %

achievement)

Achieved. Target value (220) grew by 45.5% (320). Indicator only includes branches of

commercial banks and finance companies. In addition, there were 145 MFIs offices

across the country at end-2012.

Indicator 2 : Increase in number of accounts in supervised financial institutions

Value

quantitative or

Qualitative)

310,300 (Baseline value

does not correspond with

actual values in 2004. The

total amount of deposit

(540k) and loan accounts

(593k) was actually 1.13

million at end-2004)

Number of savings

and loan accounts

increases 20% in

five years

400,000

Deposit (985,479)

and loan (918,566)

accounts for a total of

1,904,045

Date achieved 04/19/2004 05/19/2004 12/31/2012 12/31/2012

Comments

(incl. %

achievement)

Achieved, based on the original formulation in the PAD that required a 20 percent

increase in accounts. The sum of deposit and loan accounts grew 68.1 percent from

2004 to 2012.

Indicator 3 : Volume of Bank Support (US$ MM): Institutional Development - Microfinance

Value

quantitative or

Qualitative)

0

n.a. (indicator was

added during July

2011 restructuring)

3.89 3.64

Date achieved 04/19/2004 05/19/2004 12/31/2012 12/31/2012

Comments

(incl. %

achievement)

Largely achieved (93.6 percent). Indicator includes actual expenditures under

components 1, 2 and 3, which are compared with the PAD figures for these three

components.

Indicator 4 : Volume of Bank Support (US$ MM): Enabling Environment - Microfinance

Value

quantitative or

Qualitative)

0

n.a. (this indicator

formally added

during July 2011

restructuring)

2.14 0.49

Date achieved 04/19/2004 05/19/2004 12/31/2012 12/31/2012

Comments

(incl. %

achievement)

Not achieved (22.9%). Target value was the PAD amount for component 4—

Monitoring access to Financial Services/Implementing Financial Access Policy.

Implementation faced technical shortcomings in the absence of national household

financial surveys.

v

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised Target

Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1 : Regulations, enforcement mechanisms and capacity to effectively supervise commercial

financial institutions with microfinance activities and second-tier institutions

Value

(quantitative

or Qualitative)

No functioning specialized

unit for supervision in place

(at SIBOIF)

Adequate regulatory

and supervision

framework for bank

and finance

companies engaged

in microfinance

Fully functional

system for in-

situ and extra-

situ inspections,

norms, reports

and on-line

tracking

Advanced

operational system in

place capable of

supervising in-situ

and via extra-situ

inspections (using

CAMELS-B-COR

model) all

microfinance

activities of SIBOIF-

supervised

institutions

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Largely achieved. The new tools put in place—partially with Project support—go far

beyond but certainly include micro financing activities. SIBOIF is currently in the latest

stages of implementation of a risk-based approach to supervision

Indicator 2 : Private credit registry established

Value

(quantitative

or Qualitative)

No system in place that

covers microfinance loans

Private credit

registry operating

under sound

regulatory controls

System

operating with

high degree of

microfinance

coverage

Two private credit

bureaus operate

actively in

Nicaragua:

SinRiesgos and

TransUnion

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Achieved. SinRiesgos was authorized in 08/2006 and received Project support. It started

as an ASOMIF initiative; its database includes most credit providers (250) sharing

positive and negative information and covering over 1.85 million debtors

Indicator 3 : SIBOIF has an automated credit information and analysis system in place

Value

(quantitative

or Qualitative)

No system in place

SIBOIF has

adequate staff and

systems in place to

monitor loan

portfolios for

commercial FIs with

microcredit

System

operating with

high degree of

microfinance

coverage

SIBOIF currently has

up-to-date IT systems

in place to receive,

store and analyze

micro credits and

other financial data

from supervised

vi

portfolio institutions on a

daily, weekly and

monthly basis

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Achieved. SIBOIF's risk unit and datacenter received Project support. The unit has the

ability to electronically receive, store and monitor on-site—and via an alternative

external site—transactions of banks and finance companies

Indicator 4 : Training on [BP] standards established, standards accepted by microcredit institutions

Value

(quantitative

or Qualitative)

No system in place; no

standards developed

Participating [in FNI

credit line]

unsupervised micro

credit and

microfinance

institutions will

voluntarily adopt the

accounting, external

auditing, credit

classification and

interest rate

disclosure and

reporting standards

established by the

SIBOIF

Standards in

place, training

offered, MFIs

qualified by BP

- BP credit policy and

procedures reflected

in a new manual. Its

credit review and

approvals have been

thoroughly upgraded

- MFIs and CACs

classified by risk

level and required to

fully collateralize BP

loans

- No systematic

training offered to

MFIs

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Partially achieved. Standards established but in need of revision since they rely mostly

on hard to meet collateral requirements —BP had 12 CONAMI-regulated MFIs and

audited CACs clients, for a portfolio of US$5.2 million at end-Jan 20

Indicator 5 : Participating MFIs will achieve improved efficiency and a higher degree of financial

sustainability

Value

(quantitative

or Qualitative)

No baseline data available

for financial sustainability

Participating MFIs

improve operational

(administrative

costs/average loan

portfolio) and

financial

sustainability

(adjusted operating

expenses/operating

income)

Improved

financial results

and outreach

compared to

baseline for

participating

MFIs

Average and median

operational

sustainability (as

defined) improved

steadily since end-

2004 for ASOMIF

members, with the

median going from

24.1% in 2004 to

18.1% in first half

2012. Data

unavailable for

quoted financial

sustainability ratio

vii

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Partially achieved. Project supported improvements in MFIs' loan portfolio

management, accounting systems and governance, contributing to better efficiency and

sustainability (the 4 solvency indicators published by ASOMIF have improved since

2007)

Indicator 6 : System of technical courses, technical assistance established and used by MFIs

Value

(quantitative

or Qualitative)

No system in place; no

quality training provided

System of technical

courses, technical

assistance in place,

used by MFIs

Training system

in place,

training offered

Project directly

supported and

promoted many

training initiatives

(mainly demand-

driven) for the

benefit of MFIs and

CACs by working

with industry

organizations (i.e.,

ASOMIF,

INFOCOOP, etc.)

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Partially achieved. PAD did not define a system but significant training took place

financed by the Project. Training is now dependent of funding from other donors.

Indicator 7 :

At least four MFIs have transformed or are in the process of transformation to regulated

supervised financial institutions

Value

(quantitative

or Qualitative)

0

n.a. (this indicator

was added following

the July 2011

restructuring)

4

Two previously

unsupervised MFIs

(FAMA in 2006 and

FINCA in 2011) are

now supervised and

operating under a

license granted by

SIBOIF. Two more,

FUNDESER and

FDL, are currently

advanced in their

process of

transformation

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Largely achieved. Two MFIs transformed and two are under the process of

transformation. Four others received various degrees of support. After the approval of

the new microfinance law 15 microfinance institutions registered with the new regulator

(CONAMI)

viii

Indicator 8 : Transparent transformation path established and disseminated to the industry (at least

10 MFIs informed)

Value

(quantitative

or Qualitative)

0

Transparent

transformation path

established and

disseminated to the

industry (at least 10

MFIs informed)

10

Path cleared by

several instruments

supported by the

Project:

- Methodological

guide and set of

management tools

needed for

transformation

(2009)

- Workshop with 19

MFIs participating

(2009)

- Direct support to at

least six MFI

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Achieved. ASOMIF members have adequate knowledge of the process and costs

involved in securing a bank/finance company license from SIBOIF. Several other

Project initiatives also contributed to the transparency of the transformation process

Indicator 9 :

Banco Produzcamos has adequate systems and specialized staff in place to monitor

access to financial services (including women's access), interest rates, transaction costs,

and other service characteristics

Value

(quantitative

or Qualitative)

No information collected

periodically and

systematically

The SECEP will

have adequate

systems and

specialized staff to

monitor access to

financial services,

interest rates,

transaction costs and

other characteristics

of financial services

Improved

information

system put in

place to

measure access

by household

Banco Produzcamos

has not put in place a

system which

systematically

monitors

access/outreach of

financial services by

households

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Not achieved. SINASIP, originally in charge of monitoring, never produced household

access statistics or other relevant information. However, information on access/outreach

gathered by ASOMIF and SIBOIF is reported annually by the IMF Fin. Access Survey

Indicator 10 : A regulatory framework is in place for financial cooperatives with adequate supervision

arrangements

Value

(quantitative

No supervision and

regulatory frameworks exist

A regulatory

framework is in

place for financial

Framework in

place,

appropriate

Legal framework

mostly in place: Law

499 (2005) created

ix

or Qualitative) for cooperatives cooperatives

(CACs), with

adequate

supervision

arrangements

staff in place,

reports on

financial

cooperatives

generated

INFOCOOP; its

Resolution 04-2011

norms cooperatives

financial statements

- Law 804 (2012)

created MEFCCA

with oversight over

cooperatives

- Regulation has

started; supervision is

still incipient

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Partially achieved. Standard financial reporting rules supported by the Project are in

place, but CACs figures are not publicly available. New legal framework (Law 804)

requires updating to make it fully compatible with Law 499 on INFOCOOP

Indicator 11 : The microfinance regulatory framework is in place, with adequate supervision

arrangements

Value

(quantitative

or Qualitative)

No supervision and

regulatory framework in

place

The microfinance

regulatory

framework is in

place, with adequate

supervision

arrangements

System

operating with

high degree of

microfinance

coverage

Legal framework

established by Law

769 (2011) which

created CONAMI

with oversight over

MFIs. End-2012, 15

MFIs had registered

with CONAMI, as

required by the law.

Active work

continues on

supervision

arrangements and

supporting

regulations

Date achieved 04/19/2004 05/19/2004 07/18/2011 12/31/2012

Comments

(incl. %

achievement)

Largely achieved. The passage of the microfinance law in 2011 which established

CONAMI was a major Project achievement. Project also supported the drafting of

regulatory/supervisory framework for CONAMI. The IADB is currently providing

additional support

x

G. Ratings of Project Performance in ISRs

No. Date ISR

Archived DO IP

Actual Disbursements

(USD millions)

1 06/10/2004 Satisfactory Satisfactory 0.00


3 04/26/2005 Moderately Unsatisfactory Moderately Unsatisfactory 0.00

4 09/21/2005 Satisfactory Moderately Satisfactory 0.50









13 06/23/2010 Moderately Satisfactory Moderately Satisfactory 3.84






H. Restructuring (if any)

Restructuring

Date(s)

Board

Approved PDO

Change

ISR Ratings at

Restructuring

Amount

Disbursed at

Restructuring

in USD millions

Reason for Restructuring & Key

Changes Made DO IP

11/27/2007 N S S 1.29

- FNI takes over subcomponent

A.6 from SIBOIF; this is now

known as B.4.

- FNI takes over UCRESEP’s

financial and procurement

responsibilities for the Project

- FNI takes over the PCU function

xi

Restructuring

Date(s)

Board

Approved PDO

Change

ISR Ratings at

Restructuring

Amount

Disbursed at

Restructuring

in USD millions

Reason for Restructuring & Key

Changes Made DO IP

and SECEP’s remaining

implementing responsibilitie under

Parts D and E.1 (SECEP is out)

- Requirement to hire a single

management firm (Sec 3.01 of

Credit Agreement) to manage

provision of TA under Parts C.1

and C.2 deleted

- Works category can now be

financed 100 percent out of credit

proceeds, up from 87 percent

04/03/2009 N S S 2.45

Reallocation of proceeds in

Schedule 1 of DCA:

- Substantial increases in Works

and Goods categories

- A reallocation of Consulting

Services shifting resources away

from Part C

- A major reduction on proceeds

reserved for training

09/15/2010 N MS MS 3.95

- Closing Date extended two years,

to 12/31/2012. This was the

second date extension of the

Project.

07/18/2011 N S MS 4.42

- BP replaces FNI and assumes its

coordination, procurement and

implementation responsibilities

- Project’s monitoring and

evaluation indicators updated to

reflect restructurings and new

institutions—several added,

revised or deleted

- Part D.1 (b) is redefined as the

“Implement the Inclusion Policy”

subcomponent

- Proceeds reallocated: Goods,

Consultants’ Services and

Operational Costs go up, and

Works and Training down

xii

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. In 2002 the Office of the Presidency of Nicaragua requested a project to increase

financial access, particularly of those poorly served at the lower end of the income scale. Access was scarce especially in rural areas, and the authorities were concerned with the high cost

of credit, transfers and payments incurred by small and micro businesses and households. The

Government of Nicaragua (GoN) saw an efficient, competitive financial sector with strong

outreach as an additional instrument for poverty reduction and alleviation—poverty was around

45 percent and inequality was high. International donors shared the Government’s view and had

been supporting the microfinance sector in Nicaragua with funding and expertise for years,

mainly for the benefit of microcredit.1

2. The proliferation of donor initiatives, however, contributed to considerable market

fragmentation, undermining the efficiency and viability of the financial system. At the

government level there was lack of transparency in microcredit provision and a large number of

conflicting programs. All this presented the final beneficiary with a chaotic menu of options.

3. In mid-2003, the Government announced a new policy for access to financial

services to address these challenges. The policy aimed at increasing market transparency,

strengthening financial intermediaries and establishing a more robust legal and regulatory

framework for microfinance activities.2 On the supply side, the policy sought sound,

commercially oriented financial institutions dealing in a fair and vigorously competitive

marketplace. This vision included the gradual transformation of unsupervised private providers

into supervised financial institutions and the restructuring of three state agencies: a) Financiera

Nicaragüense de Inversiones (FNI), a second-tier bank; b) Fondo de Crédito Rural (FCR), and c)

Instituto de Desarrollo Rural (IDR).

4. At the time of appraisal, the Project fit well with a Country Assistance Strategy

(CAS) focused on the Poverty Reduction Strategy Program (PRSP). This Project met the

CAS objectives by supporting two of its four strategic pillars: a) broad-based economic growth

and rural development, and b) good governance and institutional development.

1.2 Original Project Development Objectives (PDO) and Key Indicators

5. The Project Development Objective was: “to improve access to financial services

provided by sound, profitable financial institutions for low-income households and micro

and small businesses.” Two key indicators were originally defined to gauge outcome

achievement under the PDO: a) a 20 percent increase in the number of savings and loan accounts

in supervised financial institutions in five years, and b) a 10 percent increase in the number of

points of service of supervised financial institutions in five years. Additionally, the Project

Appraisal Document (PAD) defined five key performance indicators aimed at tracking

1 See CGAP’s Nicaragua: Country-Level Effectiveness and Accountability Review, July 2005, for a broad view of the

microfinance industry. Briefly, micro lenders, principally NGO microfinance institutions (MFIs) and savings and loans

cooperatives (CACs) had seen a sharp increase in the number of clients—approximately 26 percent per year from 1999 to 2004.

The CGAP review indicates that there were approximately 300 organizations serving 470,000 clients supplying some US$240

million in microcredit at end-2004—this made of Nicaragua the leading market for microcredit in Central America. 2 The referred policy is in the National Development Plan of September 2003.

2

intermediate results of four of the Project’s components (or Parts, as referred to in the

Development Credit Agreement or DCA)—a fifth component supported project coordination and

administration. These key intermediate result indicators were:

A private credit registry will be established

The Superintendence of Banks and Other Financial Institutions (SIBOIF) will have a fully

automated credit information and analysis system in place

Participating [in FNI credit line] unsupervised micro credit and microfinance institutions

will voluntarily adopt the accounting, external auditing, credit classification and interest

rate disclosure and reporting standards established by the SIBOIF

FNI will gradually develop a second-tier risk-based credit line for micro-finance

institutions (MFIs) of about US$15 million, with an acceptable level of portfolio at risk

Participating MFIs will achieve improved efficiency (as measured by administrative costs

as a portion of the average loan portfolio) and a higher degree of financial sustainability (as

measured by adjusted operating expenses as a portion of operating income)

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and

reasons/justification

6. The PDO was not revised. This was originally a five year Project which was extended

twice for a total of three and a half additional years in response to institutional changes and

external events. Nevertheless, the PDO was not revised during project life. Two core indicators

were formally added in 2011, to comply with Bank guidelines which require that MSME finance

core indicators should be reported for all World Bank lending operations supporting micro, small

and medium enterprises. In addition, the July 2011 Restructuring Paper presented a complete list

of revised intermediate result indicators. Three of the original intermediate result indicators were

dropped, two experienced a material change, and a new one was added to the original list in the

PAD (see Annex 8 for detailed information).

1.4 Main Beneficiaries

7. The primary target groups identified in the PAD were low-income households and

micro and small businesses, especially those in rural areas where access to financial

services was the weakest. However, broadening sustainable financial access and achieving

substantially higher levels of financial inclusion among targeted groups first required a major

structural reform in the supply of micro financial services. This was a precondition for achieving

a material change in the situation existing at the time of project appraisal.

8. Thus, the Project design made several public and private agencies and

organizations—including private micro lenders—the direct and indirect beneficiaries of

Project activities and resources. The aim was to significantly upgrade financial intermediation

and improve access of low income people and other vulnerable groups in the Nicaraguan society.

Many secondary beneficiaries were identified in the PAD or added later during project

implementation (see Figure 1). (Also see Annex 5 - Regulation and Supervision of Microfinance

Institutions in Nicaragua).

3

Figure 1. Beneficiaries of Project Activities

1.5 Original Components

9. The PAD defined five components or parts (as they are called in the Development Credit

Agreement), as follows:

10. Component 1 (Part A): Regulation and supervision of microfinance and credit

information. It provided support to SIBOIF to improve regulations and supervision for

overseeing microfinance operations of commercial banks, finance companies and FNI.

Resources also were allocated to upgrade SIBOIF technological platform, including the

remodeling of a computer center and its credit information database and associated analysis tools.

In addition, SIBOIF was to implement the legal and regulatory framework for the private credit

reporting industry and facilitate the initiation of this private activity by licensed companies. The

SIBOIF was also put in charge of coordinating technical assistance activities for enhancing

consumer protection in its area of competence.

11. Component 2 (Part B): Institutional strengthening of FNI. Besides providing credit to

commercial banks, this second-tier public lender administered donors’ funds going to

unsupervised microcredit institutions—although without assuming credit risk. This component

was geared to assist FNI enhance its intermediation capabilities and skills so that it could

intermediate available funds successfully on a low risk basis to its client’s base. Also, this

component was to assist FNI with promotional activities to attract commercially oriented

investors—so as to increase and diversify its funding sources for microcredit.

12. Component 3 (Part C): Outreach expansion support services. Crucial to the outreach

effort under the Project was the provision of technical assistance—coordinated by the Secretaría

de Coordinación y Estrategia de la Presidencia (SECEP)—for unsupervised MFIs to become

SIBOIF-supervised financial institutions individually or through mergers. Also, this component

was ready to assist commercial banks, finance companies and transforming MFIs to expand their

ability to provide profitable, sustainable and competitive microfinance services—including

technical assistance for market development, operational systems, technologically driven

financial innovations, and external audits. Support for cooperatives providing financial services

was also available under this component once adequate legal and regulatory standards and

supervision arrangements were in place. Business associations like ASOMIF could also be

supported and used as outreaching conduits.

Members of ASOMIF (over 20

micro lenders), in particular

FINCA, LEON, FDL, AFODENIC,

FUNDENUSE, FUNDESER, PANA-

PANA, PROMUJER, AMICA

Over 20 savings and loan

cooperatives (including

several multipurpose ones)

in particular CARUNA,

FECODESA and its affiliates,

LA CENTRAL, WASLALA

ASOMIF, SinRiesgos Credit

Bureau

SIBOIF, FNI, BP, SINAPSIS,

SECEP, UCRESEP, FCR,

INFOCOOP, CONACOOP,

MIFIC, CONAMI, Judicial

Branch

Savings and loan

4

13. Component 4 (Part D): Monitoring access to financial services and implementing

the financial services access policy. This component was designed to provide support to four

closely related activities.3 First, it was to assist SECEP to expand the SINAPSIP, a statistical

platform that was being developed to generate poverty-monitoring indicators at the national level,

so that it could also monitor the demand and supply of microfinance services. Second, this

component was to assist SECEP coordinate efforts geared to advance the formulation and

implementation of the government’s Financial Services Access Policy. Third, this component

included support for the enhancement and strengthening of the legal/regulatory framework and

supervision arrangements covering MFIs, cooperatives providing financial services, NGOs and

other micro credit institutions. Finally, the component would assist SECEP with the design of the

monitoring unit.

14. Component 5 (Part E): Project coordination. This component funded the Project’s

Coordination Unit (PCU) at SECEP and the procurement, financial management and accounting

support functions at UCRESEP, the Public Sector Reform Coordinating Unit.

1.6 Revised Components

15. Although the PAD components remained unchanged, they were updated in scope

and scale during the life of the Project. The DCA was modified five times. Changes were

introduced under the DCA amendments and restructurings—including two Closing Date

extensions and changes of the implementing agencies —and are summarized in section H of the

Data Sheet.4 Annex 8 elaborates on the rationale behind the changes agreed with the Borrower.

1.7 Other significant changes

16. Project financing reallocations took place in association with the restructurings.

Table 1 shows the history of credit proceeds for different expenditure categories, as stated in

Schedule 1 of the DCA. New country financing parameters adopted in 2005 reduced the need for

GoN’s counterpart funding, explaining the changes in the last two columns:

Table 1. Reallocations (in SDRs '000s)

Category Schedule 1 of CDA Bank funding

06/2004 05/2005 11/2007 04/2009 07/2011 Beginning End

Works 8.0 197.7 197.7 434.9 331.6 87% 100%

Goods 350.0 638.3 638.3 828.5 1,059.8 100% foreign;

87% local 100%

Consultants 3,780.0 2,170.1 2,170.1 2,323.2 2,523.6 100% foreign;

91% local 100%

- Part C 900.0 137.1 137.4 41.6 48.4 id.

- Other 2,880.0 2,033.0 2,033.0 2,281.6 2,475.2 id.

Training 235.0 1,728.7 1,728.7 1,151.6 817.6 100% 100%

Operational

costs 65.0 65.3 65.3 61.9 67.4 100% 100%

Unallocated 362.0 0.0 0.0 0.0 0.0

Total 4,800.0 4,800.0 4,800.0 4,800.0 4,800.0

3 Schedule 2 of the DCA consolidates those six subcomponents in the PAD into four subparts (Parts 4.1 to 4.4). 4 The main changes agreed with the Borrower include: (i) reallocation of credit proceeds, (ii) replacement of the SECEP and

UCRESEP with FNI as implementing agency for both programmatic and fiduciary responsibilities, (iii) replacement of FNI by

BP as the implementing agency mandated by law, (iv) two closing date extensions, and (v) update of the indicators in the results

framework. See Data Sheet and Annex 8 for additional information.

5

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

17. A TAL was the appropriate instrument in 2004 to support government policy and

better organize and coordinate the robust agenda for the microfinance sector. Project

preparation and design relied on analytical work5, including background papers

6 such as the

institutional strengthening of FNI under component 2 and the 2005 CGAP paper “Nicaragua:

Country-Level Effectiveness and Accountability Review”. The Project design was also closely

attuned to the objectives and policy strategies for financial services in the 2003 National

Development Plan (NDP)7 and the recommendations from the 2003-2004 Financial Sector

Assessment Program (FSAP). While there was limited Bank experience with financial reform in

Nicaragua on which to draw for the design of this TAL, the Project took into account lessons

learned from other initiatives.8

18. Commitment to the Project agenda was high. In 2002, the Office of the Presidency of

Nicaragua created a microfinance working group for the development of a more sustainable

microfinance sector. The fact that the PCU was incorporated into the SECEP and that the

management of components 3 and 4 was added to its list of responsibilities indicates that there

was ownership and commitment to the Project’s agenda at the highest levels of the Executive

Branch. Commitment was also high at SIBOIF, as shown by the satisfactory implementation of

component 1 under its management. Less clear was the commitment of FNI to the Project

objectives. FNI was less prepared to address the challenge of upgrading its intermediation skills

and the creation of a strong new line of business lending to unregulated MFIs. Although there

was general political consensus on the Project’s PDO and its components, there was less

consensus on the details of Project design in the National Assembly when the Board-approved

version went for ratification. As a result, the DCA had to be amended prior to effectiveness and

congressional approval (i.e., moving component 3 from the SECEP to FNI9), which led to delays

in implementation.

19. Macroeconomic stability was rightly identified in the PAD as a critical risk for a

smooth Project implementation. While the probability of macro instability was seen as

moderate, severe draught and the unexpected global financial crisis meant that this risk

materialized with severe consequences for the Nicaraguan financial sector and the microfinance

industry (MFIs and CACs alike). Furthermore, the situation for the microfinance sector was

aggravated by the “No pago” movement and the “Moratoria” Law in 2010. In addition, the

operational risk of the large number of stakeholders in a technical assistance loan was fully

5 As illustrated by the long list of documents on microfinances listed in Annex 9 of the PAD. 6 See footnote 4 in page 35 of the PAD. 7 For example, measures in the NDP to promote financial access, such as the establishment of a new legal and supervisory

framework for microfinance activities, the enhancement of consumer protection, a normative framework for credit bureaus or the

provision of TA to microfinance institutions—among others. 8 The experience of the Rural Financial Services component of the Agricultural Technology and Land Management project in

Nicaragua (1997-2000) appears to have been useful in this respect, in particular that “the legal and regulatory framework greatly

affects incentives for outreach expansion”. 9 While not the best, there were few options left since SIBOIF did not see that its mission of oversight over regulated institutions

fit well with the promotional activities in the agenda of component 3. On the other hand, there was opposition at the Economic

Commission of the National Assembly to the idea of mixing the responsibilities of the Office of the Presidency over the

formulation of the financial inclusion policy with the outreach function which was going to benefit specific private MFIs for their

transformation using public funds—the President’s office was expected to manage component 3 via SECEP.

6

recognized in the PAD. SECEP had to work smoothly with SIBOIF, FNI, UCRESEP and a

management firm (under the outreach component 3), to successfully integrate various donors and

other public and private parties with vested interest on the proposed agenda. These operational

and coordination risks did materialized during implementation and played a significant role in

the delays and slow pace of disbursement.

2.2 Implementation

20. Project restructurings created delays, but were necessary to adapt to changes in the

national institutional framework and to respond to unexpected external events.10

One of the

initial challenges for the Project was the long delay for effectiveness – one year after its expected

original date. In addition, following the 2006 Presidential election, some aspects of Project

execution were delayed due to significant policy changes, a more centralized process of decision

making, as well as a rotation of senior officials. Furthermore, external events outside Project

control also caused delays in implementation and affected Project output and outcome. In

particular, the ‘no-pago’ movement, which surfaced following the rising beneficiary

indebtedness after the 2008 global financial crisis, hindered MFI expansion. Thus, the Project

had to be restructured to adjust the work plan, provide additional time for Project execution and

facilitate implementation, while reallocating Project resources toward activities with the greatest

potential for impact. Most of the adjustments came in response to a changing political climate

and severe hardship in the macroeconomic environment that called for corrective measures and

structural reforms in the microfinance sector and its business model.

21. Although the IDA credit was not fully spent, the Project played an important

catalytic role and attracted a good deal of complementary donor support. Given

interruptions during implementation due to restructurings and the ambitious work program in a

poor country with large policy swings, disbursements were unevenly paced from year to year.

Frequent institutional adjustments—for example, the long transition from FNI to BP in 2010 and

2011, required an extended period of due diligence. Disbursements finally recovered in 2012

with the launch of the National Commission of Microfinances (CONAMI), a pickup in training

(i.e., postgraduate course for civil judges) and the equipment purchases at SIBOIF and BP. Still

some resources remained unutilized. On November 19, 2012, as per the request of the GoN,

SDR 933.5 thousand of the IDA credit was cancelled. This is due, in part, to the fact the IDA

credit helped Nicaragua attract and access co-financing for US$1.33 million in complementary

donations from third parties, which were not in the original funding plan and were given

disbursement priority. Besides the contribution by the Dutch government since 2006, a Japanese

grant and key donations from the Inter-American Development Bank (IADB)11

were received.

22. Despite challenges, most components produced a rich output and numerous

achievements (see section 3.2)12

. Successful implementation can be attributed to the

commitment of the implementing agencies to execute an ambitious Project agenda with

numerous intertwined and complex tasks, and the close Bank supervision during implementation.

The use of IDA credit was highest under component 1 executed by SIBOIF, where the

10 See Annex 8–B for details on Project revisions and amendments caused by a changing environment. 11 IADB has been particularly active in its support to CONAMI. It is also supplying fresh funding and technical assistance to BP. 12 Also see Annex 1 for more details on Project costs and financing, Annex 2 for Project activities by component and Annex 3 for

more details on achievements.

7

counterpart agenda and ownership was strong.13

Project implementation was the weakest under

component 4 since the system to monitor financial access by the poor proposed under that

component suffered from a combination of over-ambitious goals and implementing agency’s

shortcomings—first under SECEP and later on under FNI and BP.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

23. Although the Project was relevant to country needs, it was difficult to aggregate

impacts and to assess progress toward achievement of the PDO. The original list of key

performance indicators was to a certain extent appropriate for monitoring progress on

sustainability of micro lenders, given the PAD’s emphasis on rapidly transforming unsupervised

micro lenders into SIBOIF-regulated intermediaries. However the remaining unsupervised micro

lenders were also expected to voluntarily submit themselves to much more rigorous standards in

order to access FNI’s US$15 million new credit line. Unfortunately, this did not materialize as

expected. As previously mentioned, the Project was restructured often to meet the new political

and market realities; however, the performance indicators were not, ultimately affecting the

M&E implementation and utilization. The major revision of indicators in the last restructuring of

July 2011 improved partially the capacity to measure results although it did not go far enough to

improve the adequacy of the indicators. For example, in the case of the PDO Indicator 1 the

number of point of service remained limited to those financial institutions supervised by SIBOIF.

The original results framework was not successful in monitoring progress on financial access by

the poor and their micro and small businesses. Also, the two core indicators (Indicators 3 and 4)

added in July 2011 were not the best measure of specific PDO achievements.

24. Monitoring the TAL was based on continuous dialogue with Government

counterparts. Implementing agencies and the Bank staff did not systematically report on key

indicators. However, the Bank, SIBOIF and FNI (later BP) had sufficient data from alternative

sources to make decisions, including the rich information generated by the Project many

activities and intense supervision efforts. It is notable that ISRs tracked only a limited number of

performance indicators, conveying a narrow view of progress toward PDOs and intermediate

objectives. Nonetheless, the Bank team supervised Project execution closely, registering over

two supervision mission per year during implementation, having rated the Project performance

eighteen times in an equal number of ISR reports. The Bank made a concerted effort to obtain

information on all performance indicators by the time of the mid-term review and close to the

end of the Project’s implementation.

25. Of four PDO indicators, two were achieved, one was largely achieved and only one

fell short. The sharp increase in deposit and loan accounts and the much larger number of points

of service of intermediaries under SIBOIF oversight, the two main PDO indicators, were

particularly encouraging for financial access. Of the Project’s eleven intermediate result

indicators, six were achieved or largely achieved, four were partially achieved and one was not

achieved by the closing date. The intermediate results of indicators associated with component 1,

13 With the help of the Project and others, the SIBOIF has developed strong oversight capacities and capabilities over financial

institutions under its watch, adopting an integrated risk analysis approach whereby each supervised financial intermediary will

have to measure and assess the integral risk it faces in the marketplace. SIBOIF now has systems in place with the ability to

electronically receive, store and monitor on-site—and via an alternative external site— transactions of banks and finance

companies. SIBOIF is currently working on the implementation of an early warning system based on the risk profile of each

supervised institution. SIBOIF also provides online credit reports on clients of supervised institutions to banks and finance

companies, complementing the information provided by private credit bureaus.

8

as well as the indicators related to stronger MFI oversight, speak well of the efforts made to have

more financially sustainability and sounder MFIs coming out of the prolonged recent financial

crisis. Implementation issues in component 4 did not help in the monitoring of developments

related to financial inclusion.14

2.4 Safeguard and Fiduciary Compliance

26. Financial fiduciary performance by the Borrower (at UCRESEP, FNI and BP) was

adequate. Most audit opinions on the Project’s financial statements were unqualified, although

they highlighted moderate shortcoming in the internal control systems, which were generally

corrected to meet the audit recommendations. In general, these shortcomings did not prevent the

timely and reliable provision of information required to manage and monitor the implementation

of the Project. There were some financial management and operational capacity constraints at the

PCU, which with the adoption of timely corrections could have resulted in a more intensive

utilization of available Project resources.

27. The PCU management of procurement processes was mostly satisfactory, except in

the final year when it was rated moderately satisfactory. Procurement plans were adjusted

often to meet the demands of the several Project amendments, but processes were generally well

managed. The last procurement rating suffered due to shortcomings in the Borrower’s

procurement processes of major outputs and poor coordination between BP and SIBOIF.

Particularly, the Bank procurement staff observed in the last year a moderate overall risk in the

bidding processes and in the administration of contracted activities. No fraud or corruption issues

were found during Project execution.

28. Overall compliance with safeguard policies was satisfactory. The Project triggered the

Indigenous Peoples Policy (O.P. 4.10). As outlined in the Project’s Indigenous Peoples Inclusion

Plan, the objective was to actively pursue the PDO for the benefit of indigenous groups living in

the North and South Atlantic Autonomous Regions (RAAN and RAAS), where large

concentrations of indigenous people live. An open dialogue was established with indigenous

groups and communities in these two regions early on the implementation of the Project, leading

to extensive and focused provision of technical assistance.

29. In August 2007, the Caribbean coast was devastated by Hurricane Felix to which

the Bank responded with an emergency credit. This made Project assistance even more urgent.

A Bank mission visited the RAAN in early 2008, confirming the very limited supply of financial

services.15

There were just eight microcredit institutions with very limited funding access, poor

record in credit recovery and only serving small entrepreneurs around the three main urban

centers. Their reach in rural areas was undermined by costly and limited transportation and

communication means. Because indigenous lands are generally community owned, the lending

14 SECEP first and then FNI and BP were unable to assist with the development of a monitoring system for measuring access to

financial services. In its original formulation at appraisal, the responsibility to generate household access to financial services

data was placed in SINASIP within SECEP—in charge of monitoring a broad spectrum of poverty/access indicators. However,

the SINASIP initiative never materialized and was cancelled, together with discontinuation of SECEP, when the Ortega

Administration came into office. Several indicators of social outreach and coverage are published semiannually by ASOMIF—as

illustrated in Annex 5-B. These indicators, however, point in the direction of deterioration in financial access among the poor and

micro and small businesses since the onset of the global crisis in 2008, which has imposed a heavy burden on the most vulnerable

groups of the Nicaraguan society (see Annex 3). 15 BANPRO, the only bank operating in the region with one office in Puerto Cabezas, offered loans of at least US$3,500, too high

to be within reach of the majority of the indigenous population.

9

modalities of these financial intermediaries were mainly through solidarity groups and

communal banks.

30. The Project provided extensive technical assistance and training to assist micro

lenders in the Caribbean coast to improve their performance and reach. Project activity

focused on local intermediaries and community groups while the financial support was delivered

mainly via the Rural Credit Fund (FCR), a second-tier state institution also providing technical

assistance to agribusinesses across the country. Project funding helped improve accounting and

financial management processes and procedures, and provided training of local consultants (see

Annex 2 for a sample of Project activities in the Caribbean coast; also, Annex 3-A illustrates

micro lending in the RAAN). However, the sustainability of these investments was undermined

by lenders’ very low absorption capacity and the limited market size. Despite the extensive

technical assistance and training provided to micro lenders in the Caribbean coast, financial

access by indigenous people remains low. MFIs’ loan portfolios have continued to deteriorate

and never recovered after Hurricane Felix. The contrast between financial access in Managua

versus the RAAN and RAAS remains stark.

2.5 Post-completion Operation/Next Phase

31. Currently, the 2012-2017 CPS is following this TAL with a series of smaller

technical assistance grants and closer collaboration with IFC and MIGA. So far, three new

FIRST grants have been approved for different aspects of the financial sector – payment systems,

consumer protection and support to CONAMI. Meanwhile, MIGA recently approved a

guarantee for one microcredit lending and IFC is exploring re-entering the sector. No other IDA

credit is planned at this time. A follow up FSAP is also programmed for FY2015.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

32. The objectives of the Project are relevant to Government priorities and aligned with

Bank assistance strategies. Improving the low levels of financial access remains relevant for

reducing poverty and inequality in Nicaragua, and important for enhancing competitiveness and

exports by small producers, especially in rural areas.

33. The Project’s design correctly placed the emphasis on institutional strengthening,

which remains a priority for the microfinance sector of Nicaragua even today. As stressed

throughout this document, this operation contributed substantially to key issues in the

microfinance agenda. While responsive to government needs, this TAL had the ambitious goal of

reforming microfinances at all levels to advance financial inclusion on a more solid basis. This

meant that financial access had to reach rural areas, including indigenous people, and promote

the addition of a substantial number of new points of service by financial intermediaries. Key to

sustainability was the need of a major financial reform, which the Project promoted and assisted

with direct financing (see Annex 3).

3.2 Achievement of Project Development Objectives

34. The Project contributed to the development objectives, with gains made in several

areas. Project contribution is now broadly recognized and well appreciated by practically all

stakeholders. There were significant advances in PDO outcomes:

10

The number of financial (deposit and loan) accounts has had an impressive expansion

(68.1%) since 2004, even after netting out the impact of the financial crisis. Points of service

also have increased significantly from around 200 to 320, mostly among intermediaries under

SIBOIF oversight—the incorporation of MFIs FAMA and FINCA to this oversight certainly

helped16

.

Sustainability of the microfinance industry coming out of the crisis is more robust, under the

umbrella of a far stronger oversight by specialized public agencies and with MFIs showing

stronger coverage and outreach indicators (according to ASOMIF17

and SIBOIF data).

35. The strengthening of the legal, regulatory and supervisory framework of the

microfinance industry was a major Project achievement and central to PDO sustainability.

SIBOIF’s primary responsibility under the Project was to improve microfinance regulations and

supervision practices for commercial banks, finance companies and FNI, which are its direct

responsibility. Clearly, SIBOIF did that and component 1 provided substantial support to that

effect. The May 2005 restructuring added to SIBOIF the responsibility of also having to work

on strengthening the framework for MFIs and CACs. By 2006, SIBOIF was otherwise moving

forcefully ahead with its work of developing prudential norms for microfinance activities of

regulated intermediaries. In 2007, Project restructuring moved the responsibility to assist with

the strengthening of a similar framework for CACs and MFIs to FNI—as a new subcomponent

under the institutional strengthening component 2.18

At the end, SIBOIF did a satisfactory job

and currently has a comprehensive in-situ and extra-situ protocol for supervision of microfinance

activity of regulated entities.19

36. In 2011, with Project support, a new microfinance law created CONAMI as the

oversight body for MFIs. When the Bank approved the Project the general concept of the

Special Law on Microfinance had already been approved in first instance by the National

Assembly. In 2011, after the microfinance sector crisis and a new microfinance law was enacted

with the support of the Bank, the International Monetary Fund (IMF), and the Central Bank of

Nicaragua and created CONAMI as the regulator for the sector. It was particularly helpful in

this respect that the IMF included the passage of this law as one of the Structural Benchmarks

under its 2010-2011 Extended Credit Facility (ECF).20

In 2012, the Project was able to actively

support the launching of CONAMI (see Annexes 2 and 3) and the drafting of its regulatory and

supervisory framework. SIBOIF also has been contributing to CONAMI’s effort, which is

essential for the establishment of harmonized rules and practices for the oversight of

microfinances. Since its formal establishment in October 2012 until December 2012, there were

fifteen MFIs registered with CONAMI, with around US$134 million in loan portfolios. As of

today, all eighteen MFIs that were required by law to register have done so and other smaller

16 The incorporation of MFIs FAMA and FINCA to the SIBOIF oversight explained 10.9 percent of the points of sale under its

supervision at end-2012. FAMA and FINCA explained 8.2 percent of the loans accounts under SIBOIF supervision at end-2012.

As finance companies, these two MFIs do not take deposits from the public.

17 See Annex 5-A on performance indicators.

18 See table in Annex 8 for a detailed history of this subcomponent. 19 According to the Annual IMF Financial Access Survey Data, commercial banks had 91,389 SME loan accounts at end-2011,

while regulated MFIs (finance companies) had 242,688 borrowers in total (households and SMEs). 20 The effort to comply with the Fund’s conditionality benefited from the previous work done under this TAL operation to

improve microfinance regulation, supervision and enforcement under the SIBOIF. Fund-imposed conditionality to make

mandatory the use of the MUCCOOP—“Manual de Unico de Cuentas Cooperativas” was facilitated also by the assistance

provided by this Project to UNICOOP in the preparation of that manual.

11

MFIs have started to register. Now the challenge for CONAMI is to attract other unregulated

financial intermediaries to register and to enforce a sound and effective supervisory function.

37. The transformation of MFIs into regulated, deposit-taking institutions was a key

Project goal; however, a combination of external events and lack of targeted funding for

the effort reduced the Project’s efficacy in this area. Initially, MFIs did not see much

advantage in becoming regulated intermediaries. Until mid-2008, abundant foreign funding was

coming into Nicaragua, while the attraction of being able to take deposits from the public

required their transformation into commercial banks, a demanding undertaking in terms of

capital and management overhauling21

. The desire to transform on the part of MFIs became more

pronounced with the onset in 2008 of the global financial crisis, which sharply limited foreign

credit and imposed the need to upgrade operations and attract capital investors. However, the

financial support that the Project could offer at that time to assist with MFI transformations was

limited following cuts at the Borrower’s request.22

The Project nonetheless contributed to a better

understanding of the transformation process involved in securing a bank/finance company

license from SIBOIF. Also, with the Project’s assistance ASOMIF was able to: a) gather data via

a market survey to learn about MFIs feasibility of becoming regulated finance companies, b)

prepare a standardized set of financial accounts for its affiliates, and c) revise existing MFIs

manuals and accounting practices bringing them closer to SIBOIF requirements.

38. The Project made a significant effort to improve CACs’ prudential regulations and

supervision (see Annex 2). Since 2005 the responsibility to supervise cooperatives had been

with the Instituto Nicaragüense de Fomento Cooperativo (INFOCOOP), an autonomous state

agency, and the Project actively supported the development of its oversight function. However,

in July 2012 a new ministry (MEFCCA) was created and assumed oversight of cooperatives,

including CACs. The INFOCOOP was placed under its umbrella, with responsibilities limited to

the promotion and development of the cooperative model. While the separation of the

supervisory function from the other two functions INFOCOOP used to have is a step in the right

direction, there may be some risks inherent in the move. However, the impression of the ICR

mission was that much of the progress at INFOCOOP will be able to be of benefit to the new

regulator of cooperatives. In addition, the Project contributed with abundant TA targeted directly

to CACs under component 3.23

39. In addition, the Project’s agenda had important achievements consistent with the

objective of enhancing financial access by the poor and other vulnerable groups. In

particular:

SIBOIF prudential regulations and supervision practices and capacities benefited across the

board from Project assistance. This important achievement was extended to microcredit

21 Experience has shown that the direct cost of transformation can range from US$3 to 5 million, an amount hard to assemble

even for the biggest MFIs; much higher capital levels are also required. 22 In fact, the 2005 Assembly-led Project restructuring had deeply cut the availability of consulting funds for the outreach

component 3 (see consulting services, Part C in Table 1) geared for assisting with MFIs transformations. When the Ortega

Administration came into office in early 2007, it also showed little desire to dedicate great sums of IDA funding for this purpose.

Although, the Dutch grant was quite helpful in this respect and was used to this effect. 23 For example, over 100 CACs and over 20 MFIs received training: a) 24 courses (postgraduate level and certificate programs)

about finance, accounting, credit risk, financial planning, internal controls, risk management and systems, etc; b) 3 seminars in

the Caribbean coast, related to financial management and internal controls; c) 5 workshops related to "Manual Unico de Cuentas”

(MUC) and financial sector technology.

12

transactions of regulated banks and finance companies—which already have an important

share of microcredit.

Advances in consumer protection for financial services, the education of civil judges on

financial issues and the impact of licensed private credit bureaus in the mitigation of over

indebtedness of MFIs’ clients have had a social impact and favored those micro borrowers

with limited financial sophistication.

A clear path and renewed interest by leading MFIs (i.e Fundeser, FDL and others) to be

regulated under the SIBOIF umbrella. Moreover, direct and indirect MFI support contributed

to a strong industry response for establishing its regulatory and supervisory framework (see

Annex 2). All this is creating a better environment for a more sustainable sector.

The Project planted important seeds in terms of better accounting and management practices,

which were incorporated into new legislation and regulation. Substantial progress was made

on information management systems and technology used by the industry as a whole.

Although less advanced, important legal and regulatory steps have been taken to bring

prudential regulation and supervision to cooperatives providing financial services.

The Project also contributed training, studies, direct technical assistance and in-house experts

for the benefit of intermediaries and public agencies. Sustainability of Project achievements

in this area depends largely on continued support from the international donor community.

The work with the indigenous communities along the Caribbean coast (RAAN and RAAS),

was intensive. It now provides a more solid basis for future efforts in the region. Additional

support is needed from the low point left by the devastation caused by Hurricane Felix in

2007. Nonetheless, as mentioned in section 2.4, the work done to include indigenous groups

advanced the objective of reaching the poorest with financial services.

40. However, after a prolonged period of rapid expansion, the onset of the global

financial turmoil in late 2008 and the microfinance sector crisis that followed caused a

sharp reversal in credit access. The decline was generalized and affected clients of regulated

and unregulated micro lenders and it is still being felt strongly today. The number of loans of

small and medium-sized enterprises (SMEs) in commercial banks fell by 43.6 percent, from over

162,000 at the end of 2008 to over 91,000 at the end of 2011, a decline much more pronounced

than that of their overall portfolio. For MFIs members of ASOMIF, the number of clients

dropped by 36.3 percent between June 2008 and June 2012, to 225,966.24

An even bigger

concern has been the more pronounced decline in microfinance number of loans and clients in

municipalities with high poverty (i.e., RAAN and RAAS). ASOMIF results show a drop of 63.3

percent in the number of clients and of 60.7 percent in the size of the associated loan portfolio

from June 2008 to June 2012 (to US$45 million versus US$147 million for the MFI total

portfolio).

41. The recent deterioration in financial inclusion among the poor should not invalidate

the Project’s development achievements. While it is true that better financial access was

central to the Project outcome and the fulfillment of its PDO, the causal linkages between Project

outputs and enhanced financial access depended heavily on macroeconomic events outside the

Project control—as recognized in the PAD. This TAL operation emphasized the development of

24 This is explained in part by the transformation of FINCA into an SIBOIF-supervised institution and the bankruptcy of a couple

of large MFIs since the onset of the global crisis and which have disappeared from ASOMIF’s membership.

13

a healthier environment for financial intermediation for the longer term—at the oversight,

institutional and human capital levels—independently of the particular rhythm of the economic

and political cycles. Meanwhile factors outside the Project’s control are behind the observed

drop in financial access among the poor. Moreover, the problems confronted by micro lenders in

Nicaragua starting in 2008 were partly brought about by poor practices which had placed the

microfinance industry in a vulnerable position, and which had motivated taking substantive

action under this operation in the first place.

42. There are, fortunately, some preliminary signs that financial access has begun to

improve. One is the recent increase in the number of offices and accounts of SIBOIF-regulated

financial institutions (see Annex 3). The number of automated teller machines has continued to

go up, reaching 9.96 machines per 100 thousand adults at end-2011—up from 8.37 at end-2008.

Importantly, following major restructurings of their loan portfolios and capital increases, the

credit portfolios of FAMA and FINCA, two micro lenders recently added to the SIBOIF

oversight, have shown a healthy recovery in the last two years, and overdue loans have been kept

at low levels—less than one percent in the case of FINCA for arrears over 30 days.

3.3 Efficiency25

43. The economic benefits of the Project are significant and much was achieved with a

small TAL operation. Nicaragua has been a country prone to costly banking crises in the past,

where the burden imposed on the poor and the most vulnerable groups in society has been

disproportionally large—as repeated in the most recent experience. From a cost-effectiveness

perspective, this was a small IDA credit (US$7 million) with substantial benefits to a better

regulated and supervised credit intermediation, institutional strengthening, and capacity building

for outreach expansion of microfinances in Nicaragua. In this light, component 1 appears to

have been particularly efficient since it largely accomplished important objectives with a small

cost overrun—eleven percent over the original PAD projection. The cost-effectiveness of

component 2 also appears positive since BP has materially enhanced its second-tier

intermediation business with support from the Project. Now, BP is well positioned with technical

and financial resources to expand its coverage of micro and small businesses.26

The outreach

component 3 provided the foundations for many of the recent transformations that have taken

place in the microcredit industry. This component provided industry-wide and one-on-one

technical assistance to many micro lenders. Targeted training and the promotion and

development of more sophisticated management tools has had a permanent impact on the quality

of human capital and sector productivity (as illustrated by ASOMIF’s productivity and solvency

indicators27

). The monitoring of financial inclusion among the poor is a pending task—the

demand side of the equation—due to under-implementation of component 4, while the cost of

project management under component 5 stayed close to the original figure in the PAD. All in all,

25 As part of this ICR an effort was made to provide an approximate notion of project efficiency by contrasting project

achievements with the associated cost of implementation. Early on, the PAD recognized that project benefits were conditional on

factors such as adverse macroeconomic events hard to anticipate, so it did not venture into making a cost-benefit or an economic

analysis of its potential outcome. The approach in this ICR was on a preliminary assessment of the Project’s efficiency by

contrasting its achievements (i.e., its direct benefits) with the direct costs in IDA resources of its implementation. A more detailed

explanation of the results of such an analysis is presented in Annex 3. 26 BP now provides credit to a growing number of better qualified micro lenders (MFIs and CACs alike; 12 at end-2012), many of

which provide credit in rural areas and show a median loan size below US$600—so the poor are benefiting from this activity. 27 See Annex 5-B for a sample of these indicators.

14

this TAL operation appears to have had a positive impact when seen from a cost-effectiveness

perspective (see Annex 3).

3.4 Justification of Overall Outcome Rating

Rating: Moderately satisfactory

44. Overall this TAL is rated moderately satisfactory. The operation’s objectives, design,

implementation and outcomes were highly relevant to Nicaragua’s development priorities and

country circumstances, particularly following the unanticipated global financial crisis and the

“no-pago” movement. While overall financial access has improved (central to the PDO),

financial inclusion among the poorest segments suffered a sharp reversal after the onset of the

crisis, a trend which just recently has started to improve from very low levels. Despite external

events, the Project was a mitigating factor and its contribution to micro financial oversight,

institutional development and human capital in the industry is recognized as positive and

permanent by stakeholders. In fact, this small TAL operation added value in a country where

further development of microfinance on the basis of more sustainable institutions and better

financial access remain highly relevant to assist with the national priorities of improving income

distribution and reducing poverty. 28

While the relevance of the Project is considered high and

the achievement of the PDO significant, the shortcomings faced during implementation and the

weak results framework lead to the moderately satisfactory rating.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

45. Some of the activities supported by this TAL have the potential for having a

noticeable social impact. Activities with a potential for social impact were touched on in section

3.2. The work with indigenous communities was discussed in section 2.4. It should be added that

supported micro lenders in the Caribbean coast favor mainly women, even though this TAL did

not envision specific support based on gender.

(b) Institutional Change/Strengthening

46. This operation supported improvements in several government agencies, financial

intermediaries and ancillary service providers to the financial sector. Activities benefiting

agencies in charge of financial oversight were already discussed in previous paragraphs, but the

support provided to CONAMI is worth mentioning again since this new entity is seen as a first

stage by MFIs wishing eventually to become SIBOIF-regulated financial intermediaries. This

intermediate stage is providing a more gradual path for institutional strengthening for many

MFIs, which otherwise would have remained unsupervised. A parallel process of institutional

strengthening is starting to take hold in the cooperative movement, with CACs now actively

preparing for having their 2014 financial statements audited, following the standardized

accounting norms resolution of September 2011. The Project contributed to this important

initiative by supporting the development of the MUC and MUCCOOP.29

Other areas of

institutional development also worth mentioning are: a) the support provided for strengthening

28 As per the CPS Completion Report, this remains quite relevant today: “Despite credit growth during the last decade, access is

still an important constraint to economic activity in general and productivity improvements specifically among SMEs.” 29 The MUC is the “Manual Único de Cuentas” developed by the SIBOIF and MUCCOOP is the “Manual Único de Cuentas

Cooperativas” developed by INFOCOOP.

15

consumer protection, which is still ongoing at SIBOIF and CONAMI; and b) the support given to

SinRiesgos, the credit bureau created as an initiative of MFIs, and which today is a valuable

supplier of credit information to all types of creditors in Nicaragua.

(c) Other Unintended Outcomes and Impacts (positive or negative) – Not available

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops – Not

available

4. Assessment of Risk to Development Outcome

Rating: Moderate

47. The risk perception to this TAL' development outcome is considered moderate. The

legal framework for microfinance is by and large in place, save for additional legislation required

to clear inconsistencies between the roles of MEFCCA and INFOCOOP on the oversight of

CACs and to strengthen the legal underpinnings of consumer protection for financial services.

The regulatory and supervisory framework is satisfactory for banks and finance companies under

SIBOIF's oversight. The work in CONAMI is moving forward smoothly and they are expected

to receive additional support from both the government and donors for the work ahead. These

advances have contributed to much more transparency in financial intermediation, which

combined with improved financial soundness indicators suggest there is now in Nicaragua a

more resilient financial sector. At this moment, the largest risk to further quality progress on

micro financial oversight is in the cooperative sector.

48. The emerging picture is that financial inclusion among the poor is currently

recovering from the reversal it suffered in recent years. New professional management at BP

has made substantial progress with its lending program geared for small enterprises. BP has

plenty of funding available and is likely to receive additional technical assistance from the IADB.

It is also engaged in a campaign to rapidly expand its points-of-service network, primarily in

territories currently not serviced or serviced poorly by private MFIs. Today it has seventeen

points of service across the country. Furthermore, there are signs are that the microfinance sector

has much stronger foundations and is more focused on reaching the most vulnerable groups in

poorly serviced areas- to which the Project contributed. Together these conditions temper the

future risk to the Project's main objective and making it moderate.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry


49. The Bank rightly assessed the importance of the PDO and the strategic relevance of

the issues that had to be addressed, choosing an appropriated instrument to do so. This was

an extremely timely and relevant project. This was a relevant operation from inception and its

objectives remained valid throughout Project implementation. In response to the original

government’s request, the Bank team proposed an approach that emphasized institution building,

better financial oversight and material improvements in human capital and business practices in

the microcredit industry—an approach well aligned with the NDP, FSAP and the CPS. The

challenge of poverty alleviation was directly addressed with a Project Inclusion Strategy,

consistent with Bank policy and targeted to the indigenous communities living in two regions

16

along the Caribbean coast. However, the implementation arrangements at entry faced political

difficulties at the National Assembly that might have been mitigated by broader consultation in

preparation and component 4 overestimated the abilities and capacity of the Borrower to deliver,

reflecting weaknesses in the Bank’s risk assessment analysis. In addition, the quality at entry

rating suffered from a weak results framework.

(b) Quality of Supervision


50. The Bank team actively supervised Project implementation and was responsive to

client needs; however, the team was less successful in monitoring the results. The Bank team

showcased good financial sector skills and deep country knowledge during implementation. The

team paid a great deal of attention to this TAL’s developmental impact, and was highly

responsive to adapt to a changing institutional environment. The Project was working in a

difficult macroeconomic environment, including a broad-based and politically driven “no-pago”

movement; a major hurricane that destroyed most of the infrastructure and economy of the

northern Caribbean coast, a rural sector that suffered a severe drought, and a financial sector

impacted by a major global crisis. Despite concerted efforts of the Bank team during

implementation, the task of monitoring relevant key PDO and intermediate results indicators was

less successful diminishing the quality of supervision and justifying a moderately satisfactory

rating.

(c) Justification of Rating for Overall Bank Performance


51. World Bank technical support and funding stayed the course and helped to solidify

important legal, regulatory and supervisory advances in the microfinance industry. The

Bank used an appropriate instrument for dealing with the issues raised, reflecting the Bank

staff’s deep country knowledge. At the same time, the Bank was highly responsive to a fast

changing political and institutional environment. While the size of the technical assistance

operation was large for a country the size of Nicaragua, it had a catalytic effect in attracting

additional funds from the international donor community. Nonetheless, the overall rating of

moderately satisfactory is primarily due to weaknesses in the results framework.

5.2 Borrower Performance

(a) Government Performance


52. The government clearly recognized the PDO relevance and utilized this TAL to

carry out material improvements in the microfinance sector, contributing to its

sustainability. The Government in the form of successive administrations demonstrated

commitment to the Project over the course of its life. However, frequent policy reversals

(including the “no pago” movement, the “Moratoria” Law and numerous changes to the set of

implementing agencies and their responsibilities) did affect sector progress and delayed Project

implementation. In addition, ownership over the Project’s agenda was sometimes selective and

varied in intensity across the components, affecting the Project’s enabling environment and its

pace of implementation.

17

(b) Implementing Agency or Agencies Performance


53. Implementing agencies were highly committed, but coordination efforts were

lacking. Although Project output was substantive, implementation could have improved from

better coordination, which weakened further the absorptive capacity of the implementing

agencies. The Project’s cost-effectiveness looks positive, although the PCU (under SECEP, FNI

and BP) could have gained in effectiveness from more professionally oriented staff, given the

highly technical nature and variety of items in the agenda—most noticeable for component 4.

Inadequate monitoring of Project results by implementing agencies also contributed to the

shortcomings in the results framework.

(c) Justification of Rating for Overall Borrower Performance


54. With a high level of commitment, the borrower undertook complex reforms in a

difficult environment—exacerbated by the “no pago” movement. Despite the shortcomings

in the Government and implementing agency’s performance mentioned above, the Project had

several important achievements. More expedited delivery of a comprehensive legal framework

for the microfinance industry would have benefited overall Project implementation while a more

technically driven PCU could have made output delivery even stronger. Still, the government has

remained committed to strengthening the microfinance sector and leveraging advances under this

TAL could achieve further improvements.

6. Lessons Learned

55. This operation highlights that in a highly changing institutional environment, such

as Nicaragua, it takes time and patience to make an impact. The implementation of this

project took over eight years and despite the challenges faced, it achieved a great deal - with a

small TAL – results which would have been difficult to attain in the absence of Bank

engagement. This experience points to the catalytic role the Bank can play as a lead

developmental partner to assist small economy reach results over the long term. It also points to

the importance of disciplined and focused agenda without imposing excessive demands on the

capacities of implementing agencies.

56. Projects should include a relevant, independent and measurable set of performance

indicators, consistent with the PDO and project expected output. It is important to ensure

that Bank project teams and their country counterparts understand well project implications in

terms of expected output and outcomes. In addition, Bank teams should timely restructure

monitoring indicators to reflect the evolving realities on the ground. Project monitoring should

be an integral component of supervision and ISRs, with key performance indicators helping

guide execution and decisions.

57. Strong government and industry commitment to a project agenda are a

precondition for success of Bank projects. Strong ownership of this TAL helped to make

sizable progress following decisive policy actions by the Government and the National Assembly

or when MFIs saw clear advantages in their modernization and transformation. Commitment on

the part of SIBOIF is also worth noting—in contrast with the deficiencies at FNI. The fact that

Bank projects in Nicaragua—as those of other international organizations—need to be cleared at

18

the National Assembly implies that there has to be a broad political consensus that includes also

the implementation details of any proposed initiative.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

58. The Borrower did not have comments to this ICR aside from some minor editorial

changes that have been incorporated into the document.

(b) Cofinanciers – Not available

(c) Other partners and stakeholders – Not available

19

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) (as of March 2013)

Components Indicative Costs

(USD millions) % of Total

Bank

financing

(US$M)

% of Bank-

financing

Actual US$

1. Regulation and

supervision of

microfinance and

credit information

2.01 27% 1.83 26% 2.03

2. FNI Institutional

Strengthening 0.78 10% 0.76 11% 1.38

3. Outreach

Expansion Support

Services

1.30 17% 1.30 19% 0.81

4. Monitoring Access

to Financial Services

and Financial

Services Access

Policy

2.31 31% 2.14 31% 0.49

5. Project

Coordination 1.07 14% 0.97 14% 0.75

Total Project Cost 7.47 100% 7.00 100% 5.47

20

(b) Financing (as of March 2013)

Source of Funds Type of

Cofinancing

Appraisal

Estimate

(USD millions)

Actual/Latest

Estimate

(USD millions)

Percentage of

Appraisal

Borrower Fiscal budget 0.47 0.35 74.30%

International Development Association

(IDA) Credit 7.00 5.47 78.10%

Japan-PHRD Grant 0.00 0.21 >100%

Dutch Government Grant 0.00 0.95 >100%

Inter-American Development Bank Grant 0.00 0.17 >100%

Total Co-financing 0.47 1.33

Total 7.47 7.15 95.70%

21

Annex 2. Outputs by Component

Sample of Activities Supported by the Project:

1. Component 1: Regulation and supervision of microfinance and credit information (Implementing

agency: SIBOIF)

- Development of prudential norms specific to microfinance activities (2006)

- Seminar on governance and transparency in savings and loan cooperatives (CACs) (2006)

- Workshop on consumer protection issues (2006)

- Preparation of SIBOIF supervision manuals for in situ and extra situ supervision of microcredit

transactions (2008)

- Construction of new building at SIBOIF for the microfinance unit and SIBOIF database center (2008-

09)

- Data servers and backup equipment for the SIBOIF (2008)

- Setting up of the Consumer Protection Office at MIFIC (2009)

- Course for civil judges to obtain a degree on banking and related financial legislation (2010 and 2011)

- Consulting work to assist in the review and follow up of the new microfinance law (2010)

- Seminar for CONAMI staff on MFI credit risk management (2012)

- Training of IT staff of the SIBOIF (2012)

- Technical assistance (TA) to CONAMI on management and technical topics, including AML (2011-12)

- Upgrading and expansion of the SIBOIF database platform (2012)

2. Component 2: Institutional Strengthening of FNI and later on BP (Implementing agencies: FNI

and BP)

- Risk assessment of three MFIs by a credit rating agency (2006)

- Survey of second-tier funding availability; strategic proposal for FNI to enter that line of business

(2006)

- Assessment of feasibility of a credit scoring system for FNI accessible by microcredit institutions (2007)

- Training of MFIs/CACs in SIBOIF system of accounts for regulated entities (MUC) (2007-08)

- Technical assistance in situ to several CACs on MUC accounting and credit processes (2008)

- TA and workshops to strengthen rural community organizations on financial services (2008)

- Institutional strengthening of FCR (training, equipment, office infrastructure, etc.) (2008)

- TA to the Head Office and Directorate of Financial Services of INFOCOOP (2008-09)

- TA to strengthen community organizations in the Autonomous South and North Atlantic Regions

(RAAS and RAAN) (2008)

- Market study to detect new business opportunities for Tawira Misquito producers in the RAAN (2008)

- TA to FCR (accounting and finances) for the expansion of its credit activities in RAAN and RAAS

(2009)

- TA on operating systems, accounting and finances of CACs and MFIs which are clients of FCR (2009)

- Refurbishing of INFOCOOP office (2009)

- TA to FNI/FCR to merge loan portfolios from several government agencies into one (2009)

- TA to FNI to upgrade FCR internal controls, organization and credit operations (2009)

- Data servers and backup equipment for FNI/BP (2009-10)

- Consulting services to the Consumer Protection Department at MIFIC (2010)

- Training for CACs/MFIs staff on internal controls, and credit, risk and financial management (2010)

22

- BP business plan, cost structure analysis, organization and functions manual, etc. (2011)

- TA to INFOCOOP to design and implement new norms and mechanisms for supervision of CACs

(2011)

- TA to BP to develop a modern risk management function and assess credit worthiness of MFIs (2012)

- TA to develop the MFI registration and authorization function at CONAMI (2012)

- Purchase of personal computers and other office equipment for CONAMI staff (2012)

3. Component 3: Outreach expansion support services (Implementing agencies: SECEP, FNI and

BP)

- TA for strategic business plan of the MFI Pana Pana located in the RAAN; management training (2008)

- TA to AMICA (Association of Indigenous Women of Atlantic Coast) on management, including

information systems and software (2008)

- Motorcycles, pickup trucks to strengthen FCR financial service delivery in the RAAN and RAAS

(2008)

- Design/implementation of the financial services unit at the Tawira Communities Authority Office

(2008)

- TA to strengthen management and develop information systems in many CACs (2008-10)

- Technical assistance to strengthen management and information systems of MFIs in RAAN (2008-09)

- Institutional assessment and renovation of several manuals of ANFAM Crédito (2009)

- Course on the insertion of women in financial services (2009)

- Standardization of operative model of the credit window of ANFAM and CARUNA (2009)

- Strategic and business plan for CECOCAFEN (2009)

- Postgraduate course on management development for cooperatives (2009)

- Business assessment of AFODENIC, FUNDENUSE and LEON 2000 wishing to transform into finance

companies (2009)

- Market survey to support study on the feasibility of MFI transformation into regulated entities (2009)

- TA to MFIs for the implementation of auditing processes and internal controls (2009-10)

- Design/implementation of FINCA’s risk mgmt. unit as per SIBOIF norms on risk management (2009)

- Methodological guide and management tools for transformation of MFIs into regulated institutions

(2009)

- Standardization of accounting system, credit transactions recording and provisioning of ASOMIF

affiliates (2009-10)

- TA to strengthen auditing, internal control and information system of several CACs (2010-2011)

- Design of the Accounting Catalogue and Manual for CACs (MUCCOOP) (2010)

- Postgraduate course on financial/credit/risk management for BP and MFIs staff (2010-11)

- TA on accounting, credit operations and administrative manual upgrades to many MFIs/CACs (2010-

12)

- TA on auditing/staff training/credit quality/manual upgrading/management to FUNDESER (2011-12)

- TA on human resources needed by CACs/MFIs to implement and operate the MUC (2011)

- Assessment of MUC implementation of 5 CACs clients of BP

- TA to CACs in RAAS to upgrade their credit portfolio analysis capabilities (2011)

- Training of CAC staff (20) in financial accounting based on MUC (2011-12)

- Feasibility study for the transformation of FUNDESER into a regulated finance company (2011)

23

4. Component 4: Monitoring access to financial services (Implementing agencies: SECEP, FNI and

BP)

- Design/ analysis baseline financial indicators based on the Survey of Rural Investment Climate (2006)

- Design/ analysis baseline financial indicators based on the Household Survey on Life Expectancy (2006)

- Drive led by REDCAMIF to increase number of MFIs reporting to the Microfinance Information

Exchange/MIX (2007)

- Organization and setting up of the National Council of Cooperatives (CONACOOP) ((2007)

- Design/ analysis baseline financial indicators based on the Urban Survey of Microfinances (2007)

- Design of Automatic System for the National Registry for Cooperatives at DIGECOOP/MITRAB

(2008)

- Transition of DIGECOOP into and design/implementation of INFOCOOP (2008)

- Bylaws of the INFOCOOP’s Board of Directors (2008)

- Preparation of 2008-11 Strategic Plan of INFOCOOP (2008)

- Creation of the INFOCOOP archive system based on existing information (2008)

- Inventory/classification/merge of existing credit portfolios in government books (2008)

- TA for carrying out an internal audit and organization of INFOCOOP accounting system (2008)

- Office equipment for INFOCOOP (2008)

- Pickup track for FNI (2009)

- Detailed financial assessment in 10 CACs, with recommendations for action (2011)

- TA to the Directorate of Financial Services of INFOCOOP (2011)

- Study on the recent evolution of the microfinance industry in Nicaragua and its financial products

(2012)

24

Annex 3. Economic and Financial Analysis

During Project design the team recognized that the actual benefit was conditional on numerous

factors, many of which could not be anticipated in a formal cost-benefit analysis. Primary among

those factors was adverse events in the macroeconomic environment, as actually happened—and

it is documented in the main text and Annex 8-B of this ICR.

As an alternative, the PAD in its section D 1 provides a long list of potential benefits resulting

from Project outputs and expected outcomes on: a) regulated and unregulated financial

institutions (i.e., lower operating and funding costs, improved portfolio quality, expansion of

savings mobilized, increased profits, etc.); b) micro and small business owners (i.e., lower

interest rates for loans and increased credit access, higher enterprise returns, etc.); c) households

(i.e., improved socio-economic well-being from better access and cheaper credit), and d)

government (i.e., higher tax collections from higher profits on financial institutions and

businesses).

In addition, the PAD states that the costs associated with the entire Project are estimated to be

low in view of the high grant component implicit in the terms and conditions of the IDA credit

funding this operation (i.e., a 40-year maturity, a 10-year grace period, and concessional IDA

interest rates and fees). It should be mentioned, also, that this was a small loan (US$7 million)

although involved quite an ambitious development agenda which it proposed to meet.

As part of this ICR, an effort was made to provide an approximate notion of Project efficiency by

contrasting Project achievements with the associated cost of implementation. This was done by

reviewing, on the one hand, the main achievements of each component separately (i.e., its

perceived direct benefits) in light of its originally stated objectives and the extent they were met

and, on the other, comparing those results with the actual Project costs for that component.

Component 1: Regulation and supervision of microfinance and credit information.

This component largely accomplished its main tasks: a) A satisfactory regulatory and

supervisory framework was put in place for micro-finance activity of banks and finance

companies under the umbrella of SIBOIF; b) SIBOIF was successful in putting in place a

substantially upgraded information system for financial intermediation, going well beyond

microcredit intermediation and covering the whole range of bank and finance company

operations; c) private credit reporting licensed by SIBOIF is now fully functional with

competing credit bureaus providing a wide range of positive and negative credit information

and with strong coverage of micro borrowers, including individuals and micro and small

businesses; d) the consumer protection framework for financial services made progress under

the Project (i.e., contribution to the creation of the consumer protection function at MIFIC) but

still needs much improvement and, thus, a supporting grant from a project-sponsored FIRST

initiative, still under implementation, was designed to make substantive legal and operational

progress on this matter.

Work done by SIBOIF on the regulatory and supervisory front is producing important

synergies30

that are currently benefiting the newly established oversight framework of the

microfinance industry led by CONAMI—and which goes beyond the original objective of

30 Another example of SIBOIF’s contribution under the Project which is producing noticeable synergies is the organization and

training of 243 civil judges on financial matters. These judges took a postgraduate course (8 hours daily, 3 days a week during 3

months), capacitating them to better deal with financial consumers’ complaints received by civil courts across the country—a

recurrent topic is individuals’ complaints over credit card charges and transactional costs.

25

component 1. More specifically, last year SIBOIF (through component 1 of this Project)

actively supported CONAMI, which translated in speedy and important progress in the

following months. Now that the Project is closed, SIBOIF’s knowhow and resources continue

to make a strong contribution to CONAMI. The impact of SIBOIF’s work on microfinance

regulation and supervision is also being felt today among CACs via the recent introduction of

standardized financial reporting and auditing and the provision of related training.

From a cost-effectiveness perspective, component 1 appears to have been reasonably

efficient since it largely accomplished its objectives with a small cost overrun of 11% over the

original projection at appraisal (actual IDA-funded expenses of US$2.03 million versus original

projection of US$1.83 million). Mitigating this higher-than-anticipated cost is the fact that the

upgraded SIBOIF information system and enhanced financial oversight system are not only

benefiting microfinance activity but also all other bank and finance company intermediation

operations—which represent close to 80 percent of debtors in the Nicaraguan financial system

and close to 95 of the outstanding credit transactions (if the CACs’ contribution is excluded and

for which there is not public lending information available).

Highly relevant from a macroeconomic perspective, the benefits of a well regulated and

supervised credit intermediation system are enormous, particular in a country like Nicaragua

prone to costly banking crisis in the past. As the most recent experience clearly shows, the

sizable costs of a financial crisis tend to fall more heavily on the poor and the most vulnerable

groups in society—the 2009 financial crisis imposed a particularly high price on the rural poor

and their capacity to access financial services. From that perspective, improvements in the

regulatory and supervisory framework and its actual operation normally has important and

positive social implications, mainly by preventing potential financial problems and causing a

reduction in the overall systemic risk—which in the past has been associated with high costs

for the Nicaraguan economy. The output for this component, as that of two others, clearly

contributed to the recent material improvement in the financial framework of Nicaragua. Of

course, there were other factors that contributed heavily to this improvement over recent years,

but it is unquestionable that this Project’s output and the synergies that generated were worth

the rather small amount of resources that went into implementing this TAL operation (US$5.47

million in IDA funding) and this component, in particular.31

Component 2: Institutional strengthening of FNI and later on BP.

At first, progress under this component was scarce. The initial focus was principally in

the form of a significant institutional and intermediation capabilities upgrading of the FCR,

which was then merged into BP. This was important since FCR was reaching the rural poor and

going to places not favored by private MFIs. With support from the Project, FCR’s upgrading

did improve financial access in the rural sector, while adhering to much more sustainable

lending practices. BP improved its own intermediation skills in earnest following a complete

management overhaul in early 2012. With significant Project support, BP made decisive

progress by actively pursuing three key objectives of component 2: a) BP drastically improved

its risk evaluation function—for its first and second-tier activities; principally focused on the

operational and credit risks it faced—which included a new risk evaluation protocol for lending

activities of micro lenders under the regulatory umbrella of CONAMI and MEFCCA; b) BP

established a separate and professional credit function (i.e., credit rating of individual lenders,

31 The Bank has not had other lending operations targeted specifically to address issues in the financial sector of Nicaragua in the

recent past.

26

lending limits, new terms and conditions, standardized credit processing, collection and

promotion, etc.) to better serve these new micro lending clients operating via BP’s second-tier

intermediation platform32

, and c) BP has identified specific funding sources to serve these new

clients involved in micro-financing.

Currently BP is an active lender to many MFIs and CACs which previously did not have

access to BP’s funding. In fact, at the end of 2012 BP had 12 of these clients represented in its

portfolio—plus FAMA, a micro lender which is now under the oversight of SIBOIF. Moreover,

the number of new micro lenders accessing BP funding is increasing rapidly (FINCA and FDL)

were two recent client additions this year). All the same, BP credit line to micro lenders under

the oversight of CONAMI and MEFCCA is still rather small—US$5.2 million at the end-

January 2013—and short of the original objective of component 2 of gradually building a

US$15 million credit line for the benefit of unregulated but well run MFIs and CACs by the

time of Project closing. The transformation at BP came rather late during Project

implementation, but now this state bank has the lending instrument, the technical capacity in

place and the appropriate funding—from repayments of old loans funded with a long-term

IADB credit line—to expand this new line of business rapidly in the next couple of years. The

Project contributed significantly to this new reality at BP, but it was not able to see its labor

come to full fruition. As the experience of TAL operations show, it was to be expected that the

establishment and institutional transformation of BP into a competent financial intermediary

was to take time—the legal framework of BP was finalized in July 2009. Now that the main

ingredients for deployment of this new credit line are in place, BP has a good chance of fully

developing it to its full potential in the medium term.

From a cost perspective, component 2 had a significant cost overrun (76.9%) over the

original estimate at appraisal (US$.78 million in the PAD of IDA funding versus the actual

US$1.38 million spent). An important mitigating factor is that the original cost at appraisal was

for the upgrading of FNI and not BP—which was a new institution resulting from the merger of

six different state agencies, including FNI and FCR. The establishment of a proper first and

second-tier function at BP required a thorough overhaul of management and information

systems and a complete due diligence process of the loan portfolio. Besides, its new primary

lending function has been involved in a large expansion of BP’s physical presence, well beyond

the original FNI’s central office in Managua, so as to have a national coverage with numerous

points of service (see Annex 2 for a summary of activities financed under component 2 for the

benefit of BP’s transformation). In addition, tasks targeted to make of INFOCOOP a fully

functional overseer of cooperatives and CACs, in particular, was funded under component 2

(see Annex2), in the understanding that FNI and later BP could only lend to cooperatives that

were under the oversight of an adequately fitted agency.

Component 3: Outreach expansion support services.

A key objective of this component was the transformation of unsupervised MFIs into

supervised financial institutions under the oversight of SIBOIF. There were a series of

important obstacles on the road to a fully regulated financial intermediary. This was a difficult

task since SIBOIF imposed stringent financial and managerial requirements to unregulated

MFIs—including much upgraded information and reporting capacities, and more robust capital

positions—which were hard to meet for practically all aspiring MFIs at the time. Thus, MFIs

32 New risk and credit managers, with extensive private banking experience, were put in charge of these functions at BP.

27

wishing to become regulated intermediaries had to do a lot of preliminary upgrading work and

capital searching before they were able to present a satisfactory business plan acceptable to the

SIBOIF. The Project provided direct support to six private MFIs with a serious intention of

exploring the transformation option—with important co-financing assistance of the Dutch

grant. In the end, only two MFIs completed their transformation into SIBOIF-supervised

institutions during project implementation—FAMA and FINCA3334

. Three other MFIs assessed

the option of merging into one regulated institution with the support of the project, but as other

MFIs that received direct Project support, they had to rapidly turn their attention away from

their transformation efforts in order to deal with major adverse new developments. One was the

global financial crisis, which dramatically cut access to essential foreign funding, and two

others were the impact of the “no pago” movement and the severe draught that badly weakened

meat prices and generally affected agribusinesses in Nicaragua, all of which rapidly brought

about sharp deteriorations in portfolio performances in 2009. The impact of these events is still

being felt today by the MFI industry associated to ASOMIF.

Another important task funded under this outreach component was the provision of

industry-wide assistance to increase the transparency of the transformation process and shed

light on related costs and benefits. Much work was done in this direction, in close collaboration

with individual MFIs and their business association, ASOMIF. In addition, a key objective of

the industry-wide outreach effort was the provision of technical assistance to MFIs and CACs

willing to enhance and improve their abilities to provide competitive microfinance services in a

more efficient and professional way. This was consistent with the project development

objective of increasing sustainable financial access for the poor—a especial and continued

effort was made to target technical assistance to micro lenders operating in the two severely

poor municipalities of RAAN and RAAS.35

Thus, a whole range of assistance was made

available to over 20 MFIs and over 100 CACs for things such as: a) market development and

improvement of lending activities; b) training seminars, workshops, courses, etc., for managers

interested in improving their financial, accounting, operational skills and other business

functions. The Project also provided targeted technical assistance on a variety of business

functions, such as accounting, information technology, lending manual development and the

like, on one-on-one basis to specifically targeted microfinance institutions (see Annex 2). In

general, technical assistant benefited microcredit institutions lending primarily to individuals—

many of whom were accessing credit for their micro or small businesses. As a reference, the

median share of women in the loan portfolios of ASOMIF associates was 47.5 percent in June

2012. Most were rural clients and at that time, the lowest average portfolio for an MFI was

US$226 and the median portfolio size for the nineteen ASOMIF associates was US$584.

Although similar statistics are not available for CACs, indications are that the average credit

size of financial cooperatives was even lower than that of MFIs associated to ASOMIF.

A third objective of the outreach component was to assist ancillary businesses, such as

auditing and accounting firms and management and information services companies, working

33 FAMA and FINCA have continued to develop their micro lending business since they became under the supervisory umbrella

of SIBOIF. They have resumed vigorous portfolio growth in the last couple of years and shown very low levels of arrears. At the

end-2012 their combined client base added to some 97,000 debtors, with an average loan size equivalent to US$596 for FAMA

and US$398 for FINCA, considerably below the average loan size for other intermediaries under the oversight of SIBOIF. 34 The ICR mission found out in discussions with the industry that two other additional MFIs (FUNDESER and FDL) are well

advanced in the process of finalizing the documentation to submit their case for the approval of SIBOIF. 35 See Annex 3-A for a sample of personal borrowing experiences in the Atlantic coast region.

28

with the microfinance industry.36

Accounting and auditing activities were helped by the

dissemination and adoption of upgraded standardized financial reporting for microcredit

intermediaries, such as the Cooperatives Manual of Accounts (MUCCOOP) being legally

enforced today for the CACs by the new overseer of cooperatives, MEFCCA.37

From a cost perspective, all this outreach activity demanded 62.3 percent of the originally

projected amount in the PAD (US$1.3 million versus the actual US$0.81 million of IDA

disbursements). However, the Project was able to leverage complementary funding from the

donor community which significantly enlarged the reach of these activities—over 35 private

micro lenders received technical assistance and training benefits under this component.

Component 4: Monitoring Access to Financial Services and Financial Services Access Policy.

The execution of this component focused on monitoring access to financial services by

the poor and other targeted groups, but with scarce results. After several attempts during

Project implementation there was little to show in terms of relevant financial access

information as a result of Project activity. The original idea of using the National System for

Monitoring Poverty (SINASIP) under the umbrella of SECEP and related household and other

surveys, to generate periodical statistics on financial access and to calibrate the government’s

financial services access policy, proved to be above the technical capacity gathered by SECEP,

which was executing this component as the original PCU of the Project. As shown in Annex 2,

an effort was made by this first PCU (2006) to define baseline financial indicators to be

anchored to a couple of national surveys. There was also an attempt in 2007 led by

REDCAMIF, the Central American MFI association, to incorporate a large number of MFIs to

the MIX database—the Microfinance Information Service, which reports on microfinance

statistics worldwide. Most these industry monitoring initiatives were abandoned when FNI took

over the PCU and responsibility for components 4 and 5. Afterwards most of the resources used

under this component went to the development of the databases and information systems at

INFOCOOP, which had been created by law in 2005 to take over the responsibility of

promoting, developing and overseeing the cooperative movement, and financial cooperatives or

CACs, in particular. This was a fruitful and laborious effort that established INFOCOOP’

electronic archival system for cooperatives. This asset is now being capitalized by the new

overseer of the cooperative moment, the recently created ministry MEFCCA. In the end, this

component significantly under spent in relation to the original projection (actual IDA funds

spent were US$0.49 million versus the US$2.31 million allocated to it in the PAD).

Component 5: Project Coordination

The cost of project management, administration and fiduciary responsibility was

apposite. Indeed, component 5 used 13.8 percent of actual IDA disbursements, and 10.5 percent

of the total Project cost—including US$1.68 million in co-financing received from different

donors, of which US$0.21 million from a targeted PHRD grant were used to develop the PCU

function at FNI. These actual percentages look favorably when compared with the originally

projected cost of component 5, which was set in the PAD at 14 percent of the Project cost (see

Annex 1). The main struggle on efficiency under component 5 was the slow pace of

36 Early on the Project provided direct support under component 1 to SinRiegos, a private credit bureau created as an initiative of

ASOMIF associates, which also received significant parallel support from COSUDE, the Swiss development agency. Now

SinRiesgos is a well established credit bureau collecting and supplying positive and negative information on a fee basis for a wide

variety of debtors (roughly 1.9 million) with a coverage that goes well beyond the microfinance industry. 37 The Ministerio de Economía Familiar, Comunitaria, Cooperativa y Asociativa (MEFCCA) was established by law in 2012.

29

disbursement, which is reflected in the 78 percent level of disbursement of available IDA

financing. To be sure, exogenous factors such as recurrent changes to the institutional

framework, and particularly the shift of PCU responsibilities to FNI, contributed to delays and

additional PCU costs. However, internal factors like technical limitations at the PCU and

coordination frictions between the CPU and other implementing agencies also explain the low

level of IDA disbursements.

Annex 3-A. The Faces of Microfinance: Beneficiaries’ Stories from Supported Micro

Lenders38

Improved underwriting procedures protect entrepreneurs from over-indebtedness while

helping them grow their businesses.

Daysi owns a second-hand clothes store in Puerto Cabezas, the capital of the Region Autónoma

de la Atlántida del Norte (RAAN, Autonomous Region of the Northern Atlantic) in Nicaragua.

She opened her own business nine years ago thanks to a line of credit with PanaPana, a local

microfinance non-profit organization. Her first loan was for C 15,000 (about $650) to open a

convenience store. After a few years, she recognized she could see higher profits by selling

second-hand clothes instead of food. A new loan from PanaPana allowed her to invest in

inventory. She now has a steady clientele, and her business brings in gross sales of C 700-4000 a

day.

Daysi’s family has survived some difficult times in the last few years. Her husband was disabled

on the job, and she had to use some of her savings to pay for

doctor’s fees. If she had not received a loan from PanaPana, it is

likely she would have dipped into her savings to finance the

business, leaving little to pay for her husband’s unexpected medical

expenses.

In the wake of Hurricane Felix in 2007, she approached PanaPana to

restructure the loan she received from them in order to be able to

pay it off. Because she had this flexibility, Daysi successfully

repaid her loan and continued to make investments in her business.

The additional income she contributes helps the family make

improvements to their house and save money for their two young

daughters’ school expenses.

Daysi sees great potential for her business’s growth, which

has made her anxious to take out larger and larger loans

from PanaPana. With assistance from the World Bank,

PanaPana strengthened its underwriting procedures and

established strict loan approval processes with which its agents comply. For example, the

microfinance NGO now limits their clients’ loan amounts to a 30% increase over previous debts.

As a result, when Daysi requested a loan that was twice the amount of her previous one, the

request was not approved. Though Daysi was disappointed that it would take longer to grow her

business, she recognized that the limitations were put in place to protect her and her business

38 Annex 3-A was prepared by Katherine Scaife Diaz, Consultant, as part of fieldwork carried out by the Bank team in January

2012 as part of the supervisory mission.

Deysi and her daughter Cinthia. Deysi has a

thriving second-hand clothes store thanks to a

loan from PanaPana, a microfinance

institution which received World Bank

financing.

30

from taking on too much debt. She has now developed a timeline for growing her business,

which includes expanding her inventory and building a storefront in front of her home. She

expects to receive initial financing from PanaPana to begin these investments this year.

World Bank investments in human capital in rural areas allowed microfinance institutions to

assist would-be entrepreneurs navigate the complicated loan process.

Marleni also opened her small convenience store in Puerto

Cabezas, RAAN, with a C 15,000 ($650) loan from PanaPana.

She enjoys owning a convenience store because—though the

profit margin is slim—income is consistent month-to-month. Her

teenage daughters help her out in the store, and the slow but

steady business allows her time to attend to them and other

household needs at the same time.

Over the course of several years, Marleni has received and paid

six loans from PanaPana. Since she only finished third grade in

school, she appreciates the help she receives from PanaPana’s

loan agent, Jeny, who fills out the paperwork for her and walks

her through the requirements for registering collateral. Jeny is one

of several agents who received

training as a result of World Bank

financing. PanaPana’s staff training on microfinance,

accounting and loan restructuring policies allow loan agents to better respond to client needs at

the time of a loan’s approval and during the repayment process. Bank-financed trainings for

external auditors and local attorneys to supervise loan contracts has reduced the NGO’s

administrative costs and improved their ability to make loans to people who might not otherwise

obtain them.

Expanding financial access to women like Marleni brings an added responsibility to ensure

borrowers are also empowered clients. Marleni recounts that she requested her most recent loan

for C 50,000 have a repayment period of 18 months; when she received her payment plan, she

realized it had just 12 installments. Marleni say she feels a little nervous about asking for an

explanation and is unsure of the process to request a change. An important challenge for

microfinance institutions that have successfully expanded financial access will be to help people

like Marleni feel knowledgeable and empowered to request explanations from their lenders.

Despite her concern, Marleni has a good deal of trust in PanaPana and plans to continue working

with them in requesting financing in the future.

World Bank funding helped microfinance institutions to develop new product lines that

respond to market and client needs.

Monica, a single mother with a driven attitude and an eye for business, owns a small restaurant

on a well-trafficked road leading into Puerto Cabezas. Most of her clientele take their food to go,

though some stay to eat at the one table set up behind the counter. She serves fried chicken,

plantains, the typical rice and beans dish called “gallo pinto” and mashed potatoes stuffed with

cheese. She prepares all the food on a small grill and fryer set up at the front of the restaurant.

Her hope is that this restaurant is only a way-station for a larger goal: she wants to invest in

improvements in her own home which would allow her to open her restaurant there.

Marleni has grown her convenience store

with the assistance of PanaPana's loan

agents.

31

Monica was able to get where she is today from a small loan the she received as part of a

women’s group set up by PanaPana. By herself, Monica didn’t have sufficient collateral to

qualify for a loan, but PanaPana offered her a group loan along with six other women. The

women’s solidarity groups are loan products that emerged from the World Bank project’s

financing for PanaPana.

While Monica acknowledges that the women’s group was necessary in order to obtain her first

loan, she didn’t enjoy the experience too much. First of all, the weekly repayment structure was

restrictive, and she wasn’t comfortable feeling responsible for other women’s loans. She

understood the group as a stepping stone, though, and with the other women she successfully

paid back the early loans given to them. The only time there was disagreement among them was

when Monica left the group in early 2011—she had been a good partner, and they had hoped she

would stay. Instead, Monica opened an individual line of credit with PanaPana for C 25,000

(about $1,100), which she paid off in January

2012.

Monica’s plans to open a restaurant from her

own home could bring a number of benefits for

her family: first, she rents the space from which

she currently works, and pays an employee

during the hours her daughter is home from

school. Working from her own home would save

these expenses. Before opening the restaurant

she plans to install indoor plumbing (a toilet,

shower, and sink) and a septic tank. Such

improvements would significantly raise her

daughter’s and her own standards of living.

Monica is optimistic about the future, more so now that she has the responsibility to repay

PanaPana. She says that taking out the loan was just the push she needed to get started running

her own business—once she realized she’d have to pay that money back, she says, she had an

incentive to make the investment and see it flourish.

The World Bank’s role in developing credit-reporting bureaus has helped microfinance

institutions avoid approving loans to people with a history of over-indebtedness.

Eric has struggled with his finances for many years. He once owned a disco beside his house in

Nuevo Guinea, RAAS, which provided steady income. He decided to close the bar when his

daughter became terminally ill so that the noise and smoke would not affect her health. At that

time he took out his first loan of C 30,000 ($1,300) from a local savings and loan cooperative,

COOPEFACSA. He opened an electronics store but was disappointed when income from the

store was very little in the face of growing medical expenses. He eventually asked friends and

family to join the cooperative on his behalf and request additional loans which he promised to

pay off. He accumulated a debt of C 1 million ($43,000) that he faced paying off over the course

of 18-20 months. The money was ostensibly for his business, but in reality a great deal went

directly to his daughter’s care. Sadly, his daughter died a few years later.

As Eric struggled to overcome these personal and financial losses, he sought additional financing

from the growing number of MFIs in his town. He relates how he went from one to another

seeking small loans so he could support his business and his debts. Though Eric managed to pay

Monica is a natural business woman, and new loan products

developed by PanaPana have given her a chance to use her skills.

32

off these loans over time, he spoke of having to decide between putting food on the table, buying

much needed clothes, or repaying his debts.

Through the World Bank’s project, Nicaragua has seen the establishment of the country’s first

two credit bureaus—SinRiesgos and TransUnion.

Financial institutions including microfinance

organizations have quickly adopted this new source of

credit information, which allows them to strengthen their

credit analysis of a client through an assessment of their

current and past debts. COOPEFACSA, one of the

institutions Eric borrowed from, also received funding to

train its agents in credit analysis and loan approval

procedures. These efforts to systematize decision-making

about loan recipients and approval amounts have helped

the institution to reduce risk. Indeed, Eric notes that he

has found it more difficult obtain financing in recent

years. Considering Eric’s past levels of indebtedness and

the difficult choices that he faced, the decision to not add

to his current level of debt may be as helpful to him as it

is prudent of the financial institutions.

Today, Eric’s only debt is a C 150,000 ($6,500) loan

from COOPEFACSA, which had a repayment period of

two years and which he began to pay off eight months

ago. With this loan he built a new shop, moving his

business from its previously rented location. He has

grown his inventory, and though sales are not steady

throughout the year he knows the business well enough

to manage his cash flow. He feels confident he has

turned a corner in his finances, and looks forward to a future where his business’s profits can

support his family rather than paying back his debts.

The project’s investments in strengthening microfinance NGOs’ management allows

institutions to expand their membership to non-traditional clientele such as agricultural

cooperatives, which in turn extend financial services to far more people.

Agricultural cooperatives in Nicaragua can help farmers reduce their costs by coordinating the

production, harvest, and sale of their goods. Cooperatives can also offer members financing for

such costly inputs as fertilizer, pesticides, or enhanced feed. COOPMET is one such cooperative

established in Nuevo Guinea, RAAS, in 2006. It assists local farmers industrialize and

commercialize non-traditional horticulture while also facilitating credit lines and low cost

supplies to its associates. At its founding it received partial financing from the Inter-American

Development Bank, but needed to demonstrate the ability to provide 20% of the overall

financing. Though they had already relied heavily on their own funds to establish the

cooperative, the 36 associates considered selling their cattle in order to raise that financing.

Instead they were approved for a loan from COOPEFACSA, a local savings and loan

cooperative.

There are six other institutional members of COOPEFACSA, all of which were approved for

membership in the last few years as a direct result of institutional strengthening financed under

33

the World Bank project. The project funded an external audit for COOPEFACSA, the

recommendations from which were approved and implemented by the general manager and

board. Financing also supported training in liquidity, efficiency, institutional development

strategy, and internal auditing for the cooperative’s management. Management worked with a

consultant to develop manuals that reflected their organization’s needs. The result of this

investment was a cooperative that felt more confident and knowledgeable about its financial

position, which in turn allowed it to open membership to non-traditional members, such as the

cooperative COOPMET.

With financing from the IADB and COOPEFACSA, COOPMET invested in machinery for

processing pineapple and guava. They established a revolving credit fund for purchases related to

cattle, agriculture, or home improvements, and

purchased production inputs which could be sold

at low cost to the associates. The cooperative

developed its own brand name and has achieved a

certain level of market insertion. It guarantees

purchase of an associate’s harvest and provides

technical assistance to members, who have grown

to 43 men and women.

COOPMET considered other forms of financing

from banks, but found that the cooperative offered

a competitive rate, and banks required expenses and

collateral which were beyond what they could offer. What’s more, the repayment period and

monthly frequency offered by other financial institutions were not as suitable for the cooperative,

which can only repay at the time of harvest twice a year. Without a loan from COOPEFACSA,

it’s likely that the members of COOPMET would have obtained the 20% counterpart financing

which the IADB required; however, they would have done so by leveraging their own savings or

taking out a loan with an onerous repayment schedule. The institutional strengthening which

COOPEFACSA received through the World Bank project allowed the agricultural cooperative to

emerge without an undue burden on its members, and at the same time extended microfinance

opportunities beyond its own membership.

COOPMET members process pineapples for sale through

Nicaragua. COOPMET is one of six institutional members of

the savings and loan cooperative COOPEFACSA.

34

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team Members

Names Title Unit

Alberto Didoni Operations Officer CLAAS

Alvaro Larrea Senior Procurement Specialist LCSPT

Andres Mac Gaul Senior Procurement Specialist LCSPT

Anemarie Guth Proite Procurement Specialist LCSPT

Antonio Leonardo Blasco Sr Financial Management Specialist LCSFM

Carlos Francisco Siezar Consultant CLASB

Claudio Pardo Consultant (ICR Main Author) LCSPF

Daniel Ortiz del Santo E T Consultant LCSPF

Enrique Antonio Roman Financial Management Specialist LCSFM

Eric Palladini Consultant LCSDE

Eugenio Peral Fuentes Microfinance Specialist, Consultant LCSPF

Francisco Rodriguez Procurement Specialist LCSPT

Ilka Funka Consultant FFIDR

Irani G. Escolano Consultant LCSPT

Katherine Scaife Diaz Consultant LCSPF

Lisa Taber Microfinance Specialist, Consultant LCSPE

Luz Zenon Financial Management Specialist LCSFM

Marco Antonio Rosa Consultant LCSAR

Michael Goldberg Operations Adviser, Former TTL LCSPF

Miriam Milquelis Pujols-Tizol Program Assistant LCSSD

Monica Tambucho Senior Finance Officer CTRLN

Patricia Caraballo Financial Sector Specialist,

Task Team Leader LCSPF

Patricia Melo Senior Finance Assistant CTRLN

Robert Vickers Consultant CAIMR

Roberto Munster Consultant LCSPF

Rosa G. Valencia De Estrada Consultant LCSPT

Sunita Varada Private Sector Development Analyst LCSPF

Tanja Gabriele Faller E T Consultant LCSPF

Xavier Gine Senior Economist DECFP

http://wbsearch.worldbank.org/people?title=Sr%20Financial%20Management%20Specialist&bl=Sr%20Financial%20Management%20Specialist

35

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including

travel and consultant costs)

Lending

FY02 1.63 18.38

FY03 29.62 223.83

FY04 15.57 124.07

FY05 0.00 0.27

FY06 0.00 0.00

FY07 0.00 0.00

FY08 0.00 0.00

Total: 46.82 366.55

Supervision/ICR

FY02 0.00 0.00

FY03 0.00 0.00

FY04 0.00 0.00

FY05 16.49 81.10

FY06 18.99 80.59

FY07 19.46 74.50

FY08 14.66 86.92

FY09 11.85 88.50

FY10 19.64 133.00

FY11 30.12 124.08

FY12 10.70 85.70

FY13 15.11 109.11

Total: 156.34 928.26

36

Annex 5-A. Regulation and Supervision of Microfinance Institutions in Nicaragua

Regulation and Supervision of Microfinance Institutions in Nicaragua

Authority Domain Microcredit Institutions

1. SIBOIF - Superintendence of

Banks and Other Financial

Institutions—since 1999, an

autonomous state agency

Oversight of licensed banks: deposit

takers; 7, including BP; finance

companies (2), and representative

offices of foreign banks (5)

FINCA and FAMA—which are

finance companies and thus cannot

take deposits

2. CONAMI – National

Commission of Microfinance—

since 2011

Oversight of lenders such as NGOs

and other financial intermediaries not

licensed by SIBOIF, which voluntarily

or are required by law to register (all

are non-deposit takers)

15 MFIs were registered with

CONAMI at end-2012. Possibly nine

more will register in the course of

this year

3. MEFCCA – Ministry of

Economy for the Family,

Community, Cooperative and

Association—since 2012

(previously and since 2005,

overseer was INFOCOOP)

All socially oriented groups, including

cooperatives

CACs—Savings and loans

cooperatives and multipurpose

cooperatives offering financial

services to members (some 70 CACs

are expected to present financial

statements in 2014, as required by

law)

Annex 5-B. Selected Median Performance Indicators for ASOMIF-associated MFIs

End-2004 End-June

2007

End-2008 End-2009 End-2011 End-June

2012

Sample size (MFIs) 20 19 19 19 20 19

Efficiency Indicators

Administrative

cost/Average Asset 24.1% 21.5% 21.1% 15.1% 15.2% 18.1%

Cost of

Staff/Administrative cost n.a. 43.6% 58.1% 72.2% 54.1% 54.3%

Administrative cost

(C$)/Average number of

clients

n.a. C$913 C$1,589 C$2,408 C$3,089 C$3,257.5

Portfolio Quality Indicators

Portfolio in arrears (30-

day and over) 6.7% 1.9% 2.2% 7.0% n.a. 4.6%

Restructured loan

portfolio n.a. 0.05 0.5% 2.1% 1.0% 0.7%

Profitability Indicators

Net social

surplus/Average asset n.a. 5.85 2.5% -2.4% 0.9% 1.4%

Net social

surplus/Average capital

at risk

27.7% 22.35 2.7% -9.9% 3.3% 6.8%

37

Liquidity Indicators

Liquid asset/Average

liability n.a. 9.9% 9.9% 11.0% 16.6% 13.4%

Liquid asset+ST

investment/Financial

liability

n.a. 11.3% 10.9% 15.0% 24.6% 12.8%

Solvency Indicators

Loan-loss

provision/Gross portfolio n.a. 4.1% 4.7% 9.0% 5.8% 5.1%

Loan arrears/Capital n.a. 7.8% 15.0% 30.4% n.a. 0.5%

Capital/Assets 36.4% 24.6% 21.1% 23.8% 28.0% 25.9%

Financial liability/Capital 258.7% 283.5% 300.6% 180.7% 196.7%

Productivity Indicators

Clients per credit officer 393 311 298 337 304 297

Loan portfolio /Credit

officer (US$) US$170,900 US$174,856 US$213,145 US$214,556 US$160,801 US$153,503

Coverage Indicators

Average loan per client

(US$) US$616 US$633 US$671 US$630 US$594 US$584

Average loan/GDP per

capita n.a. 66.0 65.6% 56.1% 52.7% 51.8%

Gender and Reach Indicators

Loan to women/Total

Portfolio 57.4% 51.9% 48.3% 46.4% 48.6% 47.5%

Women clients/Total

clients n.a. 58.6% 56.7% 58.7% 55.8% 55.3%

Average loan for women

(US$) n.a. US$491 US$589 US$493 US$505 US$439

Average loan for men

(US$) n.a. US$768 US$846 US$831 US$706 US$694

Female staff/Total staff 52.8% 48.3% 50.0% 48.8% 49.5% 40.0%

Rural clients/Total

clients n.a. 25.0% 39.8% 34.5% 47.5% 41.6%

38

Annex 6. World Bank Financial Sector Engagement in Nicaragua

2002-2005 2006-2010 2011-2015

Fin

anci

al S

erv

ices

Nicaragua Public Sector TA

(P078891) (2004)

Nicaragua Broad-Based

Access to Financial Services

(P077826) (2005)

Nicaragua: Micro, Small &

Medium Enterprise

Development (P109691) (2009)

Nicaragua Enhanced

Competitiveness for

International Market Integration

(P092949) (2006)

IFC Credit Lines – trade,

microfinance, housing, small

supplier finance (upcoming)

Kn

ow

led

ge

Ser

vic

es

Nicaragua – CPAR

(P078843) (2002)

Nicaragua Land Sector

Work (P077916) (2002)

Nicaragua: Country

Financial Accountability

Assessment (P074827)

(2002)

Nicaragua FSAP (P087483)

(2003)

Nicaragua Investment

Climate Assessment

(P081176) (2002)

Nicaragua – Insolvency ICR

ROSC (P087430) (2003)

Nicaragua Public Debt

(P087936) (2004)

Nicaragua – Investment

Climate Survey (2004)

Investment Climate in

Nicaragua (2004)

FIRST: Nicaragua Design of

MIS for Deposit Insurance

Agency (2006)

Action Research on Rural and

Microfinance (P108630) (2007)

FSAP Update Nicaragua

(P118049) (2009)

Nicaragua: Report on the

Observance of Standards and

Codes – Accounting and

Auditing (P118982) (2009)

Nicaragua: Consumer

Protection #10136 (P126916)

(2011)

Nicaragua Strategic

Implementation Planning

Framework (2011)

AML/CFT TA to Nicaragua

(P144945) (2013)

Nicaragua #10213 Payment

Systems Legal and Oversight

Framework (P144344) (2013)

Leasing Country Mapping:

Nicaragua (P092135) (N/A )

IFC-WB Financial Innovation

Programmatic TA (FY 14

onward)

FSAP (FY15)

Co

nv

enin

g S

erv

ices

N/A Microfinance and Staff Training

(2009)

N/A

39

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The project (PAGSF) was designed to be implemented over a period of five years and lasted

eight years ending on the Dec. 31, 2012, with two amendments and two extensions of term and

the non-use of funds of 22% of the total amount of Cr 3903 -NI. The general objective of

promoting widespread access to financial services in rural and urban areas was accomplished at

an institutional level.

Since 2008 the Government has supported many initiatives in the microfinance and cooperative

sectors that reduced the ravages of the financial crisis. The creation of the CONAMI in 2011 and

the Ministry of Economics, Cooperatives, Community and Voluntary Sector has helped

significantly the regulation and supervision of credit activities.

With the support of the PAGSF, CONAMI improved significantly its organizational and

functional strengthening, and started developing tools for regulation and supervision of

microfinance institutions. By January, 2013, 15 microfinance institutions were registered. The

costs of regulation and supervision of microfinance are much lower than those microfinance

companies supervised by the SIBOIF, with an estimated cost of US$ 3 million in a period of 2

1/2 years. From a total of 5 microfinance institutions programmed in the project to become

finance companies, two finance companies became regulated by the SIBOIF and 2 more are in

process.

The INFOCOOP, advanced on the national register of cooperatives including those providing

financial services. With the creation of the Ministry of Economics, Cooperatives, Community

and Voluntary Sector, the relevance of the cooperative sector has increased. A Department of

Cooperatives has been established as the responsible body for the regulation and supervision of

Credit Unions, including those serving multisectoral financial services.

The SIBOIF was strengthened by a series of tools and instruments that substantially improved

regulatory and supervisory functions of microcredit activities in the regulated banking and

financial companies. With the provision of equipment and a new building the SIBOIF now has a

fully automated credit information and analysis system in place. Particularly noteworthy is the

establishment of a credit bureau with microfinance coverage authorized to operate by the

SIBOIF. Postgraduate courses to judiciary servants and other training were also successful.

The Bank for Promotion of Production (BFP), was strengthened with tools, technical assistance

and training from PAGSF, to help improve its operations. With the new policies, strategies,

management mechanism and tools implemented in 2012, the BFP is a bank with a more

consolidated corporate governance and operations of the first and second floor processes are

more efficient. In 2013 BFP has programmed more than $20 million for the intermediation of

MFIs that are registered at CONAMI and other big capital cooperatives.

MFIs and cooperatives that provide financial services, received technical assistance and training

from the PAGSF, allowing more than 25 microfinance and 130 cooperatives, improve its lending

operations, financial and accounting information, internal controls and governance. Investment

in human capital, and officials of cooperatives left much value added. In 2012 intermediation

increased with microfinance institutions and especially the Zero Usury program.

Microfinance institutions operating in the Caribbean Coast (RAAN and RAAS) received support

for institutional strengthening and the provision of tools and training to officials and technicians

from different areas. The Caribbean Coast is one of the areas were credit activities increased, in

40

particular the number of customers, branches and portfolio volume. It should be noted that World

Bank funds (grant funds to the Regional Government) increased the number of loans to 310

small businesses and small fishing chain (seafood gathering) held its portfolio normally.

41

Annex 8. Project Revisions and Amendments

Annex 8-A: Revisions to Project Indicators

The core indicators added by the July 2011 Restructuring Paper were:

Volume of Bank support at Closing for Institutional Development reaches US$3.89 million

(sum of credit proceeds allocated to components 1, 2 and 3 in section B.3 of the PAD),

with a Midterm value of US$2.1 million

Volume of Bank support at Closing for Enabling Microfinance Environment reaches

US$2.14 million (credit proceeds for component 4 in the PAD), with a Midterm value of

US$0.9 million39

The revision of intermediate result indicators of July 2011 made the following changes:

New intermediate result indicator:

At least four MFIs transformed into regulated, supervised financial institutions by Closing

(component 3)—this new indicator gives a feel for a tangible result of a key outreach effort

under component 3

Revised intermediate result indicators:

Training on [BP] standards established, standards accepted by microcredit institutions.

Target: by Closing such standards are in place, training offered, MFIs qualified by BP

(component 2)—the revision to this indicator was required since most MFIs which are BP

clients are now regulated and supervised by CONAMI, which is yet to develop a

comprehensive set of prudential norms and supervision standards for registered MFIs (see

section F.(a) of the Data Sheet for the original version of Indicator 8)

BP has adequate systems and specialized staff in place to monitor access to financial

services (including women's access), interest rates, transaction costs, and other service

characteristics. Target: by Closing BP has improved information systems to measure

financial access by households (component 4)—in the PAD version for this indicator,

SECEP40

was responsible for the design and implementation of the financial services

monitoring unit covering demand and supply side statistics for the microfinance market, so

when SECEP function was discontinued responsibility for this indicator was allocated to

FNI and then to BP, when the latter absorbed the former (see Indicator 13 in section F.(a)

of Data Sheet).

Deleted intermediate result indicators:

FNI will gradually develop a second-tier, risk-based credit line for MFIs of about US$15

million, with acceptable level of portfolio at risk (component 2 in PAD)—there is no

explanation in Implementation Status and Results reports or in the Restructuring papers for

dropping this indicator (activity in this area picked up in the second half of 2012, following

the management overhaul at BP)

39 There is an inconsistency with this Midterm target value—which was set ex-post in 2011—since the actual spent amount for

component 4 was already US$407 thousand at the time of the midterm review (July 2009). 40 SECEP, the Secretariat of Coordination and Strategy of the Presidency, was later on to be known also as the SETEC, the

Technical Secretariat of the Presidency.

42

FNI finds and attracts new investors in microfinance (component 2)—these activities were

directly linked to those covered by the previous indicator, so it is not surprising that it was

dropped along with it at the time of the July 2011 Project restructuring

Financial services consumer protection norms, enforcement and mechanisms established

(component 1)—funding for these activities under the Project were discontinued and taken

over by a FIRST grant41

Annex 8-B: DCA Amendments and Level 2 Restructurings

First DCA amendment/restructuring (May 2005).42

By November 2004 all conditions of

Effectiveness in the DCA had been met, but Nicaragua’s legal clearance system also required the

no objection to the Project by the National Assembly, where the Project was detained—in its

Economic Commission—due to political differences over the use of the credit proceeds and the

Project management arrangements. The main points of contention were the role of the SECEP as

Project coordinator and simultaneously as executing agency for the components on outreach

(under component 3) and monitoring over the strengthening of the legal and regulatory

framework for microfinances (under component 4). Members in the Assembly also wanted to

have a larger share of funds used for hardware and other investments and not for consultants.

Finally in May 2005 middle ground was found, which resulted in a major fund reallocation of

proceeds (by category of expenditures and components) and changes to the roles of SIBOIF, FNI

and SECEP in the management of the Project components. At that point, the Project was close to

cancellation by the Bank. However, when a political compromise was reached, the Bank decided

to go along and agreed to the required restructuring. Effectiveness was declared on August 22,

2005—one year after its expected original date.

The May 2005 version of the Project identified a greater role for SIBOIF, having been

assigned new responsibilities in two additional areas: a) the training of the Judiciary (civil

judges) in the new microfinance regulation and supervision framework, and b) the strengthening

of the legal, regulatory and supervision framework for financial cooperatives and MFIs—the

SECEP also kept a role on this since it was assigned the responsibility of supporting SIBOIF on

this topic by providing the latter with input generated via its monitoring of financial services

activities (the newly defined Part D.2 (a) in the DCA).

FNI’s role in Project execution was also enhanced by the May 2005 restructuring, taking

on some of SECEP’s original responsibilities. Indeed, FNI now was in charge of implementing

component 3 on Outreach Expansion Support Services. Thus, in practice SECEP basically kept

its project coordination function (component 5) and reduced responsibilities under component 4.

It kept, however, the important function of designing and managing the new microfinance

monitoring system under SINASIP, which was to provide crucial input to guide Project

implementation forward, as had been recognized in the PAD.

The May 2005 DCA amendment also extended the Closing Date one year, to the end of

2010. SECEP, FNI, SIBOIF and the Ministry of Finance all agreed with the need to expand the

41 In 2011 the Bank obtained a US$217,370 grant for SIBOIF from FIRST to promote financial services consumer protection.

This initiative became operational in September 2011 and was still active at Project closing. 42 This initial amendment to the DCA took place and was dated prior to the Project’s Effectiveness Date, so it is not reflected in

the Datasheet, which only includes post-effectiveness restructurings.

43

implementation period in view of past delays and the need to assimilate the changes introduced

by this first restructuring.

Second DCA amendment/First Level 2 restructuring (November 2007). By mid-2006 there

was some consensus that the Project implementation arrangements needed some additional

changes to enhance its effectiveness and efficiency. FNI was proposing that the DCA be

amended (section 3.01 limited outreach services to one firm) to allow several firms to provide

services to assist in the transformation of NGO MFIs into supervised institutions under the

SIBOIF (component 3 on Outreach). Now that SECEP was no longer in charge of this function,

the Bank team saw merit in the proposal of FNI. Also, while UCRESEP had been doing an

adequate job managing procurement and project finances, all implementing agencies (FNI,

SECEP and SIBOIF) thought that the costs of those services was elevated, thus FNI offered to

carry out procurement and financial services for the Project, functions in which had some

previous experience. The proposal also made sense since the Ministry of Finance had sent the

message about the transitory nature of UCRESEP. The need for counterpart funding for some

procurements categories (i.e., Works required a 13 percent of co-financing) was threatening to

limit the pace of implementation.43

The application of new country financing parameters in 2005

that eliminated Nicaragua’s counterpart funding permitted the modification of Schedule 1 in the

DCA, which also was incorporated into this restructuring.

Although committed to the PDO, the new Ortega Administration that came to power in

January 2007 decided to discontinue SECEP responsibilities under the Project, including

the functions assigned to SINASIP. Confronted with this situation and the need to facilitate

continued Bank support to Nicaragua in the crucial tasks included in this TAL, the Bank agreed

to move to FNI the remaining SECEP responsibilities under the Project. This meant that FNI was

now in charge of implementing the component 4 on monitoring access to financial services, in

addition to the components 2 and 3 which was already executing. Furthermore, a specialized unit

at FNI became the Project’s PCU under component 5, including procurement and financial

responsibilities previously handled by UCRESEP. This was FNI first experience as PCU for a

Bank operation, so the Bank team secured a PHRD implementation grant of US$210,000 to help

reinforce procurement and financial management skills at the new PCU. FNI agreed to retain the

specialized fiduciary consultants once the trust fund grant finished after eighteen months.

Also as part of the November 2007 restructuring, SIBOIF transferred to FNI the

responsibility which had assumed in 2005 to provide TA to bolster the legal, regulatory and

supervision framework for CACs and MFIs. The reasons for this change are not clear in the

documentation. The fact is that in the PAD, the primary responsibility to assist in the reform in

this area was with SECEP and the move to reallocate it to SIBOIF was part of the deal in 2005 to

obtain the no-objection at the National Assembly. At the time of this restructuring the new law

on micro financial institutions had already been long delayed in the Assembly, so the issue of

how to supervise unregulated and other financial intermediaries was in limbo. (See Table A for

the allocation of responsibilities during implementation of the tasks associated with the

strengthening of the legal/regulatory/supervisory framework for MFIs and CACs.)

43 The difficulty of securing sufficient allocations in the annual fiscal budget to carry out the Project’s programmed activities was

an issue of concern since the beginning. The need for counterpart funding for some procurements categories also contributed to

the problem caused by scarce public funds. An early Dutch grant of US$950,000 in co-financing in support of Project activities

had also helped alleviate funding constraints on Project activities.

44

Table A: Responsibility over the Task of Strengthening of the Legal & Regulatory

Framework of Microfinance Institutions

Date

Part of

Credit

Agree-

ment

Old and New Subcomponent Name Old and New

Implementing Agency

6/04 to

5/05

D.3 Support SECEP to strengthen the legal, regulatory

and supervision framework for financials

cooperatives and micro-finance associations

SECEP

(under Monitoring

Access to Financial

Services component)

5/05 to

11/07

A.6 Support SIBOIF to enable it to improve regulations

and supervision practices when overseeing micro-

finance operations of commercial banks, finance

companies and second-tier financial institutions,

through activities that include the remodeling of a

computer center and technical assistance to bolster

[the] legal, regulatory and supervision framework

for financials cooperatives and micro-finance

associations

SIBOIF

(Regulation and

Supervision of

Microfinance and credit

Information

component)

D.2 (a) Support SIBOIF to strengthen the legal, regulatory

and supervision framework for financials

cooperatives and micro-finance associations

SECEP

(Monitoring Access to

Financial Services

component)

11/07 to

5/11

B.4 Support FNI in the legal, regulatory and

supervision framework for financials cooperatives

and micro-finance associations

FNI

(Institutional

Strengthening

component)

D.2 (a) Support FNI in the legal, regulatory and

supervision framework for financials cooperatives

and micro-finance associations

FNI


Financial Services

component)

5/11 to

12/12

B.4 Support Banco Produzcamos in the definition of

the legal, regulatory and supervision framework for

financials cooperatives and micro-finance

associations

BP

(Institutional

Strengthening

component)

D.2 (a) Support Banco Produzcamos to strengthen the

legal, regulatory and supervision framework for

financials cooperatives and micro-finance

associations

BP


Financial Services

component)

45

Third DCA amendment/Second Level 2 restructuring (April 2009). This restructuring was in

response to a specific request from the Ministry of Finance to increase credit proceedings (Works

and Goods) allocated to finance the higher-than-anticipated cost of the construction of SIBOIF’s

new building. Also, funds were requested to pay for FNI plans to refurbish offices and expand its

physical presence and the provision of technical assistance in the Autonomous Regions of the

Atlantic coast. This meant that proceedings allocated to training suffered a major reduction.

Fourth DCA amendment/Third Level 2 restructuring (September 2010).Its purpose was to

extend the Closing Date two years, to the end of 2012—which actually happened. Additional

time was needed to give FNI and SIBOIF a better chance of completing their work so as to

advance the Project’ s still pending extensive agenda. The pace of Project implementation had

been slow and there were still US$3.4 million undisbursed. Donors and the President’s Office

had requested the Bank to stay engaged and support the microfinance industry during the period

of economic turmoil. The Borrower put in place a plan of action containing important activities

for the next two years, which a Bank supervision mission thought could have a good chance of

being carried out within the new timeframe.

Fifth DCA amendment/Fourth Level 2 restructuring (July 2011). The need for a final Project

restructuring had become likely when the National Assembly passed a law (Law 640) creating

Banco Produzcamos (BP), a new national development bank with first and second-tier functions

created to absorb five public entities granting credit to the general public—such as the Rural

Credit Fund (FCR)—or with credit portfolios in their custody. More broadly, the law made of BP

the only specialized financial entity able to receive, channel and manage credit programs funded

by the international community and targeted to promote domestic production. Then a new law

(Law 684) was passed in May 2009 expanding the reach of BP and making its framework more

explicit and operational. Crucial to the Project, the second-tier FNI was added to the long list of

public entities to be absorbed by BP—already having the big job of merging many different

entities into one—making certain the need to modify the DCA if the decision was to be made to

continue ahead with the Project’s implementation. One concern of the Bank team was the

potential threat the new legislation posed to the institutional capacity building being supported

by the Project; this fear was based in part on past experience with public banks in Nicaragua,

which had resulted in a politically-driven approach to microfinances and lending in general, as

well as increased financial indiscipline in the marketplace. The mixing of the first and second-

tier in one bank was also a matter of concern. Global Bank experience in this area was not

favorable. There was also fear on the part of MFIs that BP could end up being an unfair source of

competition for them. That would restrain MFIs of working with the second-tier unit of BP out

of a fear of leaks of sensitive customer information with a competing first-tier unit at BP.44

When BP was being established in 2009 the Nicaraguan financial sector was going through

a period of acute hardship as a result of the global financial crisis and a mix of domestic

factors. One of them was the “No Pago” movement and another severe draught affecting

agribusinesses. The “No Pago” movement had started in mid-2008 mostly supported by farmers

in the north of Nicaragua which expanded rapidly to other regions. It was a protest against what

they considered extremely high interest rates. That is, to the inability to pay of many due to

economic duress, the movement added a political component by promoting and adding their

44 There were other Bank projects working with FNI at the time and the shift to BP also required amendments to their agreements

to reflect the institutional change that was taking place.

46

unwillingness to service their credits, mostly received from MFIs and CACs. In two years (2009-

10), the 19 members of ASOMIF lost US$60 million in foreign financing and their credit

portfolio in arrear skyrocketed to close to 15 percent (over 30 days overdue) from some 3 percent

before the crisis. Several micro lenders went out of business or had to be heavily recapitalized.

The number of borrowers dropped dramatically with the crisis following the 2008 peak. All this

was having a devastating impact particularly on the financial viability of the microcredit industry.

Adding to this uncertain panorama for the industry, the National Assembly in April of 2010

enacted Law 716, a special law establishing terms and conditions for the renegotiation of

commercial and agribusiness debts which were in arrears with microfinance institutions on June

30, 2009. The law included a four month moratorium on legal proceedings, an effective interest

rate no higher than 16 percent and at least four years to repay loans of up to US$10,000.

Meanwhile, the so-called Special Law on Microfinance Associations, after 4.5 years of inaction

in the Assembly, was starting to gather renewed interest in view of the need for reform in an area

of the financial market suffering from serious problems of overindebtness, rapid contraction and

informality. Thus, a fresh new effort was being made to draft a law which could generate a

viable compromise.

To strengthen supervision, transparency and efficiency in the microfinance sector, the

National Assembly finally approved in June 2011 the Law for the Promotion and

Regulation of Microfinance Institutions (Law 769). This law was the product of a coordinated

effort led by the Central Bank of Nicaragua, which received input from SIBOIF, ASOMIF and

other interested parties. It kept several concepts in the previous draft of the law (i.e., the creation

of a promotional fund for microfinances, the certificate of social performance to assess financial

inclusion by a MFI of low-income groups) which had met with resistance at the Economic

Commission of the National Assembly. However, one important difference is that Law 769

established CONAMI, the National Commission of Microfinances, as an independent regulatory

and supervisory state agency for micro-financial institutions.

Key to the speedy passage of Law 769 was its inclusion by the International Monetary

Fund as one of two Structural Benchmarks in its 2010-2011 Extended Credit Facility

(ECF) to Nicaragua. As part of the same effort to improve transparency and efficiency in the

microfinance sector, the Board of Directors of the Nicaraguan Institute of Cooperative

Promotion (INFOCOOP), the oversight authority for cooperatives at the time45

, approved a

resolution establishing in detail standard criteria to facilitate the publication of audited financial

statements by CACs, an area to which the Project had contributed much since the creation of

INFOCOOP in 2005. All these key measures were encouraging steps in the direction of meeting

the PDO. In fact, they provided a strong argument in favor of moving forward with Project

implementation so as to assist with the renewed spirit of sector reform. Furthermore, in June

2010 a joint Bank/Fund FSAP mission had made a thorough update of the 2003-04 Technical

Note on microfinance and the GoN was ready to carry out studies and implement

recommendations that the FSAP mission had proposed.

The July 2011 restructuring took some time to be implemented due to the legal and

operational transition from FNI to BP. The issue was not as much operational since the

PCU—and FNI—staff and systems were to remain in place. But the Bank staff foresaw further

Project delays as BP tried to absorb credit lines from a variety of agencies with very different

45 Since July 2012 a new ministry (MEFCCA) is in charge of regulating and supervising cooperatives.

47

modus operandi than FNI. To be sure, the Bank management saw the need to carry out a

thorough due diligence first, so the revisions to the DCA were made conditional to a thorough

legal and institutional assessment of the new state bank replacing FNI. For the Bank staff the

Project continued to be a useful vehicle for important policy dialogue despite the Project

implementation being only moderately satisfactory at the time. Also, the Country Management

Unit appreciated that the Bank team continued actively engaging local counterparts to advance

the microfinance agenda in Nicaragua.

48

Annex 9. List of Supporting Documents and List of Institutions and People Interviewed

by the ICR Mission

Annex 9-A. List of Supporting Documents

- CGAP’s Nicaragua: Country-Level Effectiveness and Accountability Review, July 2005

- National Development Plan, GoN, September 2003

- Project Appraisal Document on Proposed Credit in the Amount of SDR 4.8 Million (US$7

Million Equivalent) to the Republic of Nicaragua for a Broad Based Access to Financial

Services Project, World Bank, April 19,2004

- Restructuring Paper on a Proposed Project Restructuring of Broad Based Access to Financial

Services Project-Credit Number 3903-NI, May 18, 2004. World Bank, September 15, 2010

- Restructuring Paper on a Proposed Project Restructuring of Broad Based Access to Financial

Services Project-Credit Number 3903-N, May 18, 2004, World Bank, July 18, 2011

Annex 9-B. List of Institutions and People Interviewed by the ICR Mission

An ICR mission composed of consultants Claudio A. Pardo and Eugenio Peral, visited Managua

from February 4 to February 8, for consultations on Project implementation. The list below

summarizes the institutions and people in Nicaragua and at the Bank in Washington that shared

their experiences with the mission:

Government of

Nicaragua

- Mr. Edward Jackson, Ministry of Finance (MHCP)

- Mr. Jorge Florez, General Director of Associativity at the Ministry of Family

Economy, Associativity, Cooperatives and Communities (MEFCCA)

- Mr. Freddy Rodriguez, Director of Consumer Protection Office, at Ministry of

Commerce (MIFIC)

- Mrs. Leslie Cantarero, General Director of Institute for Cooperatives Promotion

(INFOCOOP)

- Mrs. Carla Castro, Director for Promotion, (INFOCOOP)

- Mrs. Esperanza Prado, Former General Director of INFOCOOP

World Bank - Mr. Michael Goldberg, Project Task Team Leader (2004- 2012)

- Mrs. Patricia Caraballo, Project Task Team Leader (2012-)

- Mr. Enrique Roman, Financial Management Specialist, Nicaragua Office

- Mr. Francisco Rodriguez, Procurement Specialist

- Mr. Eugenio Peral, Microfinance Specialist

- Mr. Carlos Siezar, STC Nicaragua

Banco

Produzcamos

- Mr. Leonel Torres, General Manager

- Mrs. Ligia Espinosa, Risk Unit Manager

- Mrs. Sonia Estrella, Credit Unit Manager

- Mrs. Eva Acevedo, Former General Manager of Rural Credit Fund (FCR)

- Mr. Alejandro Argüello, Consultant, PCU

Superintendence

of Banks and

Other Financial

Institutions

- Mrs. Virginia Molina, Deputy Banks Superintendent

- Mrs. Soledad Balladares, Banks Superintendent

- Mr. Wilfredo Navarro, Microfinance Supervisor

- Mr. Leonidas Jimenez, Authorizations Director

- Mr. Carlos Florez, Technology Director

- Mrs. Breyssiz Gomez, Consumer Protection Office Director

49

National

Microfinance

Commission

(CONAMI)

- Mrs. Jim Madriz, President of the Board

- Mr. Flavio Chon, Deputy President of the Board

Judiciary - Mrs. Rafaela Urroz, President of the Judiciary Assembly

ASOMIF - Mr. Alfredo Alaniz, General Director of National Microfinance Association

(ASOMIF)

Cooperatives

Association

- Mrs. Mirna Delgado, General Director of Central of Financial Cooperatives of

Nicaragua

SinRiesgos - Mr. Sergio Gomez, General Manager of SIN RIESGOS, SL

Multilateral

Organizations

and Donor

Community

- Mr. Armando Chamorro, Financial Specialist at Nicaragua Office of IADB

- Mr. Juan Vega, Regional Director of fund PROMIFIN of Swiss Agency for -

Development and Cooperation (COSUDE)

- Mrs. Perla Rosales, National Director of fund PROMIFIN of COSUDE

50

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Turna

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PaharaPaharaLagoonLagoon

KarataKarataLagoonLagoon

Punnta Gorda

R I VA SR I VA S

B O A C OB O A C O

J I N O T E G AJ I N O T E G A

R E G I Ó NR E G I Ó NA U T Ó N O M A D E LA U T Ó N O M A D E L

AT L Á N T I C OAT L Á N T I C ON O R T EN O R T E

R E G I Ó NR E G I Ó NA U T Ó N O M A D E LA U T Ó N O M A D E L

AT L Á N T I C OAT L Á N T I C OS U RS U R

MATAGALPAMATAGALPA

CHONTALESCHONTALES

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J U A NJ U A N

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MASAYAMASAYA

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CHINANDEGACHINANDEGA

MADRIZMADRIZ

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NUEVANUEVASEGOVIASEGOVIA

MANAGUAMANAGUA

San BenitoSan Benito

RamaRama

NuevoNuevoAmanecerAmanecer

El Castillo deEl Castillo deLa ConcepcíonLa Concepcíon

KukalayaKukalaya

LeimusLeimus

BonanzaBonanza

BocayBocay

La RositaLa Rosita

SomotilloSomotillo

SébacoSébaco Muy MuyMuy Muy

Rio BlancoRio BlancoEl SauceEl Sauce

WiwilíWiwilíQuilalíQuilalí

San SebastiánSan Sebastiánde Yalide Yali

SiunaSiuna

La Cruz deLa Cruz deRío GrandeRío Grande

NuevaNuevaGuíneaGuínea

LóvagoLóvago

WaspamWaspam

MatagalpaMatagalpa

GranadaGranada

JuigalpaJuigalpa

San CarlosSan Carlos

LéonLéon

EstelíEstelí

SomotoSomoto

JinotegaJinotega

JinotepeJinotepe

BoacoBoaco

MasayaMasaya

OcotalOcotal

RivasRivas

MANAGUAMANAGUA

R I VA S

B O A C O

J I N O T E G A

R E G I Ó NA U T Ó N O M A D E L

AT L Á N T I C ON O R T E

R E G I Ó NA U T Ó N O M A D E L

AT L Á N T I C OS U R

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CHONTALES

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Prinzapolka

Kukalaya

Leimus

Bonanza

Bocay

La Rosita

Somotillo

Sébaco Muy Muy

Rio BlancoEl Sauce

Corinto

Potosi

PuertoSandino

WiwilíQuilalí

San Sebastiánde Yali

Siuna

La Cruz deRío Grande

San Juan del Norte

NuevaGuínea

SanMiguelito

Lóvago

Peñas BlancasSan Juan del Sur

Masachapa

Waspam

Matagalpa

Granada

JuigalpaBluefields

Puerto Cabezas

San Carlos

Léon

Estelí

Somoto

Jinotega

Jinotepe

Boaco

Masaya

Ocotal

Chinandega

Rivas

MANAGUA

EL SALVADOR

H O N D U R A S

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Gulf ofFonseca

PaharaLagoon

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PACIFIC OCEAN

LakeNicaragua

C a r i b b e a nS e a

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Mogoton(2,438 m)

15°N

13°N

15°N

14°N

13°N

12°N12° N

11°N

87°W 86°W 85°W 84°W 83°W

86°W 85°W 84°W 83°W

NICARAGUA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

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