Poverty Alleviation Fund II Project (PAF 11)(IDA Grant No. H857-NP; JSDF TF No. 11208)

Implementation Review and Support Mission (January 16-25, 2017 and February 8-10, 2017)

Aide Memoire

A. Introduction

1. An implementation review and support mission led by Mio Takada (Task Team Leader, SeniorAgriculture Economist) and Kamran Akbar (Co-TTL, Senior Disaster Management Specialist) tookplace from January 16 - January 25, 2017'. The Practice Manager Shobha Shetty and the CountryManager Takuya Kamata also participated in discussions during the wrap-up meetings at the Ministryof Finance. The Practice Manager Ms. Shetty also participated in discussions in PAF Secretariat andthe Office of the Prime Minister and Council of Ministers (OPM&CM). The main objective of themission was to follow up on the progress achieved since the last mission in July 2016 with focus on thefollowing key areas: financial management, staffing structure, graduation strategy of CommunityOrganizations (Cos), progress of pilot activities, including pocket area development and peri-urbandevelopment, support to the earthquake affected areas, and the future strategy of PAF beyond the projectcompletion date of December 31, 2018. In addition, atechnical support mission led by Vinayak Ghatate(Senior Rural Development Specialist) was conducted from February 8-10, 2017, to follow up theprogress of the activities under the project "Making the Markets Work for the Poor in conflict affectedNepal", which is funded by Japan Social Development Fund (JSDF).

2. The mission would like to express its sincere appreciation to the Government of Nepal (GoNfor the courtesies and cooperation extended to the World Bank Team. The mission visited Dhangadi,Dhanuslba, Kapilvastu, Ramechhap, Sindhupalchowk, Sindhuli and Udayapur districts. List of peoplemet is provided in Annex 1. List of agreed follow-up actions is in Annex 2, Results Framework inAnnex 3 and field visit report in Annex 4.

3. The findings of the mission, summarized in this Aide Memoire, were discussed at an internalwrap-up meeting at the PAF Secretariat which was chaired by Mr. Nahakul K.C., Executive Director,on January 23, 2017. The mission also presented the major findings during the wrap-up at the Ministryof Finance which was chaired by Hon'ble Deputy Prime Minister and Finance Minister Mr. KrishnaBahadur Mahara on January 24, 2017. The mission also briefed the outcome of the mission to the ChiefSecretary Dr. Som Lal Subedi, and the Secretary Mr. Tanka Mani Sharma in OPMCM on January 25,2017. As agreed at the wrap up meeting, this Aide Memoire (AM) will be classified as a publicdocument under the World Bank's Access to Information Policy.

'The team comprised: Mio Takada (TEL/Sr. Agriculture Economist), Kamran Akbar (co-TTL, Sr. Disaster Risk ManagementSpecialist), Purna Bahadur Chhetri (Senior Rural Development Specialist). Adarsh Kumar (Senior Agribusiness Specialist).Tashi Tenzing (Consultant, Infrastructure Specialist), Amir Hamza Syed (Rural Finance Specialist, FAO), Yoshiko Ishihara(Rural Sociologist, FAO), Cora Dankers (Agribusiness Specialist, FAO), Rekha Shreesh (Social Development Specialist),Annu Rajbhandari (Environment Specialist), Vinayak Ghatate (Senior Rural Development Specialist), Yogesh Bom Malla(Financial Management Specialist), Satish Chandra Lal (Financial Management Consultant), Ramesh Ra.i Bista (ProcurementSpecialist), Akira Dhakwa (Economist, IFC) and Tara Shrestha (Program Assistant).

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B. Key Project DataProject Data Project Performance Ratings

Summary Ratings Previous Current

Approval date Second June 5, 2013 Achievement of PDO MS MSAdditional FinancingEffectiveness Date Second AF: October 4, 2013 Implementation Progress MS MSClosing Date Second AF: December 31, 2018 Project Management MS STotal Grant Amount of Second US$80.0 million Procurement S MSAF Financial Management MU MSAmount Disbursed (As of USS63.37 million Safeguards MS MSDecember 31, 2016): (86%)

M&E S SCounterpart Funding S S

Ratings: HS=Highly Satisfactory; S=Satisfactory; MS = Moderately Satisfactory; MU = ModeratelyUnsatisfactory; U=Unsatisfactory; HU=Highly Unsatisfactory; NA=Not Applicable; NR=Not Rated

C. Achievement of Project Development Objective

4. The Project Development Objective (PDO) is to improve living conditions, livelihoods and

empowerment among the rural poor, with particular attention to groups that have traditionally been

excluded by reasons of gender, ethnicitv, caste and location. Progress on PDO level indicators are ontrack: the project has benefitted 286,700 households with access to community infrastructure and thetotal number of beneficiary households (both infrastructure and income generation activities) is 825,765.

5. In November 2016, PAF made an announcement on the results of the selection of Partner

Organization (PO) in 32 districts. As per the PAF Board decision, the number of POs was reduced by45 % in these districts as intensive social mobilization and technical support are no longer required.

Several POs in Siraha, Saptari, Bara and Parsha districts appealed to the Supreme Court, and a "stayorder" was issued. PAF has therefore not been able to issue any new contracts with the selected POs inthese districts, and the Block Grants (BG) disbursement and related infrastructure and IG activities havebeen on hold since mid-November. While the project is on track towards the achievement of PDO, thereis a risk that the Supreme Court case may get prolonged. Hence, the likelihood of achievement of the

PDO remains "Moderately Satisfactory".

D. Implementation Progress

6. The mission was encouraged to note good implementation progress. Most of the agreed actionsfrom the last mission have been achieved. Substantial progress has been made on key activities, suchas the roll out to 15 new districts, implementation of the Graduation Strategy, roll out of the Operationsand Maintenance (O&M), selection of Technical Support Partners (TSPs) for business and marketsupport for pocket area pilots as well as cooperatives, maturity assessment of COs, and new COformation in peri-urban pilots. The mission also acknowledged the consistent follow-up provided tostrengthen the revolving fund (RF) at CO level, and partial completion of revolving fund monitoring.The mission was encouraged to note an evolution of two types of solid higher level institutions (HLIs)

- (i) affinity-based CO networks which comprise 20-25 COs, and (ii) livelihood-based groups such ascooperatives. PAF is in the process of developing a coherent capacity building plan to support theseHLIs through dedicated technical support of TSPs as well as partnership with other developmentprograms especially under the local government. Separately, the Japan Social Development Fund(JSDF) mission reviewed the progress under the project and discussed with PAF on the utilization ofthe remaining fhnds and activities to be completed by July 2017, which is the closing date of the JSDFTF.

7. The mission expressed concerns with two critical issues; (i) slow progress of Block Grantsdisbursement to COs in the regular districts; and (ii) slow progress of the earthquake support component.

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8. On the first concern, the mission noted two reasons - delay in the roll out of a new web-basedManagement Information System (MIS) and the "stay order" issued by the Supreme Court sinceNovember 2016 (see para 5). Many of the transactions rely on MIS, and the transition to a new systemresulted in delay in the release of funds. The system is already complete and is in the process of roll outin 23 districts where POs are contracted. The Supreme Court case further delayed the Block Grantsdisbursement to the COs and POs in 32 districts.

9. On the second concern, PAF is lagging behind on implementation of key actions for theearthquake activities. It was noted that the CO proposals had already been approved by PAF, and thedisbursement has already started in one of the districts.

10. While recognizing significant progress made under most of the components, in view of the twoconcerns described above, the implementation progress remains "Moderately Satisfactory". Detaileddiscussion on the current implementation progress is described in Annex 5.

E. Project Management

1 1. The mission was encouraged to note that all key positions have been filled and PAF finally hasa full team both at central and district levels. The knowledge management component has madesignificant progress, District level monitoring has been enhanced through joint-monitoring with LocalDevelopment Officers at district level. A web-based MIS has been finally launched and is in the processof being rolled out. In view of these progresses, the rating for Project Management has been upgradedto "Satisfactory". However, there are some areas that require urgent attention of PAF which aredescribed below.

12. Staffing and Technical Consultants. The mission was informed that the recruitment processis on-going and that the recruitment process of 17 portfolio managers is nearing completion. As agreedat the last mission, key technical consultants have been appointed except for the Financial InclusionSpecialist and Resource and Partnership Specialist. Keeping in view of the past experience of slowrecruitment processes, the mission reiterated the need to engage consultants with urgency without goingthrough a long recruitment process for staff.

13. Consultant Portfolio Managers (CPM). Last year, the Board approved the hiring of 22 PMsas consultants to overcome the acute shortage of the staff PMs due to the suspension of some of themas a result of Commission for the Investigation of Abuse of Authority (CIAA) investigation and theresignation of some staff. It was informed that a former VC issued an instruction to suspend all 22consultant PMs as it is against the PAF regulations and by-laws. The mission brought this issue to theattention of the OPMCM and reiterated the Bank's earlier recommendation of continuing to fill thecritical positions (including PMs) through consultants considering that the project will end in less thantwo years, and the staff recruitment process through HIR agency typically takes 5-7 months. TheOPMCM recognized the problem and agreed to bring up the issue to the senior authorities. In themeantime, the OPMCM suggested the PAF Secretariat formalize its proposal on the organogram andstaff structure by commencing an organizational assessment process which is a requirement for anykind of major changes in the organogram. The OPMCM will then review the proposal for furtherconsultation. PAF has agreed to complete the organizational assessment by March 31, 2017.

14. It was brought to the attention of the mission that the contracts of CPMs will be ending in nextseveral weeks. It was also agreed that PAF would continue to hire well-performing CPMs for additionalsix months on a sole-source basis while waiting for formal clearance from OPMCM on the additionalstaff positions for PM. Once a new organogram and staffing with decentralized implementation isapproved by the GoN, PAF will initiate a process for recruitment of PMs through the HR agency as perbi-laws and PAF rules and regulations.

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15. PO Strategic Reduction and Supreme Court Case. The mission was informed that inNovember 2016 PAF made an announcement of the selection of 165 POs out of 300 in the (old) 32districts - a reduction of almost 45%. The mission was informed that PO selection was based onobjectively verifiable indicators. However, several NGOs appealed to the Supreme Court by requestingthe clarification of the selection process and by demanding the rights for employment. The SupremeCourt issued a stay order, and as a result, new contracts with POs are on hold. Several hearings at thecourt were planned but consecutively postponed. There is a likelihood that the court case might beprolonged.

16. Considering that the project has less than two years before the closure date, the next missionwill assess whether it is necessary to cancel some of the proposed activities in these 32 districts,especially those community infrastructure activities which typically takes one to one and half years tobe completed.

17. Appointment of the Vice Chair. The Vice Chair position has been vacant since January 8.2017 following the end of tenure of the previous Vice Chair. The mission reiterated to the GoN officialsthat the next two years would be critical to determine the future direction of PAF. It will be importantfor PAF to have an experienced development expert on board as the Vice Chairas early as possible whocould provide strategic guidance to the Secretariat and be engaged in the policy dialogue with the GoNsenior officials and the development partners.

F. Financial Management

18. The mission carried out a detailed review of the financial management and reviewed theimplementation of the previous agreed actions. A Statement of Expenditure (SoE) review was carriedout on a sample basis and it was noted that all SoE related records and documents are properlymaintained. It was noted that most of the critical agreed actions were completed such as revision of theFinancial Manual, hiring of the accounts staff etc. However, it was noted that some of agreed actionsare yet to be completed and the PAF team has committed to resolve these pending issues at the earliest.

19. Disbursements: Total disbursement including advance to Designated Account under IDAGrant H857, 1FAD C1200, C1380 and JSDF 11208 are USD 63.37 million, USD 3.92 million, USD0.64 million and USD 2.16 million respectively as of January 31, 2017.

20. Audit Report: The mission reminded that the audit reports for FY2015/16 are overdue andreminded to submit them as early as possible. A warning letter providing grace period for submissionof audit reports will be sent soon. According to PAF, the audit reports are expected in April 2017.

21. In view of good progress made in financial management and completion of most of thepreviously agreed actions, the Financial Management rating has been upgraded to "ModeratelySatisfactory".

22. The counterpart fund is rated as "Satisfactory". A detailed description on FinancialManagement is provided Annex 8.

G. Procurement

23. The mission reviewed the implementation of the procurement plan and the progress ofimplementation of action plans. A major procurement for training providers in the earthquake affecteddistricts has been delayed as the process for hiring firms was cancelled due to an error made in theprocess. In order to avoid further delay, it was agreed that the training would be carried out by PAFwith support of individual consultants. Other procurement process experiencing delays include; PovertyRanking study, Skill and Employment Generation study, and Audit firms to audit active COs.Considering delays in procurement of key activities, the overall progress in the implementation of

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procurement plan, the procurement performance rating has been downgraded to "ModeratelySatisfactory".

H. Environmental and Social Safeguards

24. The mission is pleased to note that PAF acted upon the agreed actions since the last mission,including the appointment of Social Safeguards and Gender Focal point, who will review and updateguidelines on social safeguards including on gender, Grievance Redressal Mechanism (GRM), and willprovide due diligence in the implementation of sub-projects. The mission is also pleased to note thatPAF has acquired a list of land acquisition from all the districts and shared with the Bank.

25. The existing Environmental Management Framework (EMF) has been revised to includevarious issues (physical, social and biological). The revised EMF is expected to be approved at the nextBoard meeting. The project conducted safeguard trainings regularly to PMs, POs, all new staff andconsultants, and 14 district engineers recruited for the earthquake rehabilitation works.

26. The field visit to Dhanusha, Udayapur and Sindhuli revealed that safeguard compliance stillneeds some improvement with regard to information dissemination, GRM, EMF implementation,monitoring and supervision. The mission suggested that PAF continuously record and update the listof land acquisition. An extensive effort should be made to raise awareness on the recently launchedGRM guideline among POs and COs. It has been agreed that PAF will complete the roll out process ofGRM by the end of June, 2017. The mission noted that most of the grievances are being handled atCO level. PM, PO staffs do not seem to be aware of the GRM framework of the project.

27. In view of good progress, safeguard rating has been retained as "Moderately Satisfactory".

1. Future Options of PAF

28. PAF has recently withdrawn USD 17 million, and is now left with the balance of only USD 7million (IDA) for the remaining two years. It is expected that all activities will be completed and IDAfunds will be fully utilized by June 2018, well before the current closure date of December 2018.

29. PAF is developing a Future Strategy to propose a new institutional structure and a renewed rolein the post-conflict and post disaster era, by building on its extensive outreach to the rural communities,with a revised focus on rural enterprise development, job creation, entrepreneurship support andlivelihood development. A preliminary ideas discussed include that PAF could support the GoN'sfederalism process by supporting sub-national governments for the effective poverty targeting and poorfocused activities. Initial discussions were held with Ministry of Finance and OPMCM with positiveindication for a potential follow-on program with a new design and framework. On this potentialfollow-on subject, PAF is planning to hold a national stakeholder workshop in May/June 2017 to sharethus far achievements and discuss the future role of PAF in the GoN's mandate of poverty alleviation.

30. PAF Act Amendment. The mission is of the view that fundamental structural and institutionalchanges should be made for PAF to remain relevant to the current context and to respond to theemerging needs of the country. This will require the amendment of the PAF Act. The PAF Act whichwas approved in 2006 requires substantial improvements to accommodate the needs of the emergingdevelopment since the conflict period when PAF was introduced. It was generally agreed that thegovernance structure including staffing and organogram should be reviewed, which would require theamendments of PAF Act as well as PAF rules and regulations.

31. Next Mission. The next Implementation Review and Support Mission is planned in August2017.

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Annex 1

List of People met

Office of the Prime Minister and Council of MinistersDr. Som Lal Subedi, Chief SecretaryMr. Tanka Mani Sharma, SecretaryMr. Rameshwor Dangal, Joint Secretary

Ministry of FinanceHon'ble Deputy Prime Minister and Finance Minister, Mr. Krishna Bahadur MaharaDr. Punya Prasad Regmi, Chief Economic AdvisorDr. Baikuntha Aryal, Joint Secretary, IECCD

Ministry of Cooperatives and Poverty AlleviationHonorable Minister, Mr. Hridayaram ThaniMr. Mohan Sharma, SecretaryMr. Suresh Man Shrestha, Joint SecretaryMr. Ram Hari Gaihre, Joint Secretary

Ministry of Federal Affairs and Local DevelopmentMr. Kedar Bahadur Adhikari, Secretary

National Reconstruction AuthorityDr. Govinda Raj Pokharel, Chief Executive Officer

National Planning CommissionMember Dr. Swarnim Wagle

Poverty Alleviation FundMr. Nahakul K.C., Executive DirectorMr. Chhabi Raj Pokharel, Deputy Executive Director

IFADMr. Bashu Aryal, Country Program Coordinator

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Annex 2

List of Agreed Actions

Action Original Agreed Revised/Newly Responsibility Current Status asDate agreed at this ISM of January 15,

2017

I: Current Implementation Status

Manuals/Guideline

Obtain the Board's approval of November 15, 2015 February 28, 2017 VC/ED/DED OM should beOperation Manual which was approved at next

concurred by the Bank Board meeting.

Revolving FundComplete RF trainings to LRPs in 32 May 31, 2017 CPROG/ programdistricts using master trainers coordinator / Pillar 3

lead/Embedding of RF monitoring June 30, 2017 CPROG/ programtemplates into MIS coordinator / Pillar 3

lead/

Complete the hiring of RF specialist February 28, 2017. CPROG/ program(Consultant) coordinator / Pillar 3

lead/Initiate the process to train February 15, 2017community professionals to support MIS lead, RF Consultantfull RF implementationComplete the hiring of Financial February 28, 2017. CPROG/ programInclusion Specialist (Consultant) coordinator / Pillar 3

lead/

Livestock insuranceInitiate regular meeting (at least once On-going processevery three months with the MOLD,and inviting relevant person from the CPROG/ProgramDepartment of Livestock Services and Coordinator/ Pocket arearespective Livestock Officers from specialist/ livestockdistricts to attend DPAC meetings and specialist from rosterfield visits.

Draft a workplan for support to COs Nov 15.2016 March 31, 2017 CPROG/Programfor livestock insurance Coordinator/ Pocket area

specialist/ livestockspecialist from roster

Community Infrastructure

Complete O&M training in the February 28, 2017remaining districts where POs are CINFRAavailableComplete an independent technical March 31, 2017audit of PAF infrastructure sub- December- CINFRA

projectsDecember 2015.projects7

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Prepare list of uncompleted activities January 15, 2017 March 31, 2017 CINFRAfor further discussion with otherstakeholder (AEPC and DOLIDAR)in 23 districts where POs areavailableCapacity Building of COsComplete orientation of new POs in December 1, 2016 March 31, 2017 CHR32 districts once the Supreme Courtcase is resolvedShare with the Bank a translated February 28, 2017 CURoutline of the training module forLRP and BookkeepersComplete VDC level trainings for June 15, 2016 March 31, 2017 CHRLRPs, Book keepers, select COmembers in 23 districtsPeri-urban pilot

Develop detailed implementation February 28, 2017 Peri-Urban Officer; Head

guidelines for Peri-Urban pilot. - Programs.

Collect and report data on agreed March 31, 2017. Peri-Urban Officer

impact parameters on a monthlybasis from POs.

Complete financing to remaining February 28, 2018.

COs whose applications are pendingwith project.

Strengthen provision of livelihoods March 15, 2017. Peri-Urban Officer; EOI is issued.

technical services to CO members. Market specialist This action iscriticalconsidering theimportance ofthepilot for the PAFfuture strategy.Applicationreceived andevaluationcommittee formed

Hold workshop with POs to appraise February 28, 2017 Peri-Urban Officer

them of guidelines and enhanceproportion of households providedwage-employment related skillstraining.

Review existing market assessment August 31, 2016 March 31, 2017 Peri-Urban Officer;reports to identify opportunity areas Market Specialist.for skills training.Develop MOU with CTEVT to September 15, 2016 March 31, 2017 Peri-Urban Officer; Headidentify quality training providers. - Programs; Knowledge

Management Officer.Develop annual Training Calendar March 15, 2017 Peri-Urban Officerlisting details of trainings offered.Earthquake responseComplete cost estimates and December 15, 2016 February 15, 2017 EQ technical officer andtechnical assessment of damaged Engineersinfrastructure

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Complete disbursement of additional November 20, 2016 March 31, 2017 DED and EQ teamBGs for IG to 4500 COsComplete hiring process of training October 31, 2016 February 15, 2017 DED and EQ team The previousinstitutions for masonry skills procurement

process has beencanceled and itwas decided tohire individualconsultants

Complete masonry skill development March 31, 2017 June 30, 2017 DED and EQ team On tracktraining for all the targetedbeneficiariesFinalize a concept note on livelihood Nov 16, 2016 February 15, 2017 ED/DED/ EQ livelihoodsupport in three districts in specialist/Marketpartnership with NRA and Bank's specialisthousing projectExchange the MOU with NRA for Nov 30, 2016 February 15, 2017 ED/DEDcollaborationLaunch livelihood activities as per February 28, 2017 DED and EQ teamthe concept note in three districtsComplete all the activities under the June 2017 October 2017 DEDcomponentII. Graduation Strategy and Consolidation of COsPillar ICooperatives development andPocket areaComplete the negotiation process for Pillar I lead, PC andTSP for pocket area development and November 15, 2016 February 15, 2017 Pocket Area specialistbusiness development support forcooperativesReview and revise the TOR for TSP March 15, 2017 Pillar 1 lead, PC andto add the support to cooperatives Pocket Area specialistand financial management upon thereceipt of the inception reportRe-Announce second call for November 30, 2016 February 6, 2017 Pillar I lead, PC andproposals of pocket area Pocket Area specialistApprove proposals and business plan May 30, 2017 Pillar 1 lead, PC andunder the second call for proposals Pocket Area specialistObtain the approval from the Board March 30, 2017 Pillar 1 lead, PC andon the revisions of the guideline to Pocket Area specialistallow cooperatives and private sectorto applyIdentify the best 60 performing February 10, 2017 Pillar I lead, PC andagriculture cooperatives and September 30, 2016 Pocket Area specialistSACCOs for TSP's supportShare with the Bank the February 10, 2017 Pillar I lead. PC andproposal/concept note on the December 10,2016 Pocket Area specialistsupport/strengthening ofSACCOs/cooperativesBank Linkages and FinancialinclusionOrganize follow up meetings with February 28, 2017 Pillar 1 lead, PC and PCcommercial banks, MFis andlicensed coopsOrganize a meeting with Nepal February 28, 2017 Pillar 1 lead, PC and PCBankers associationPrepare a concept note for NRB on February 28, 2017 Pillar I lead, PC and PCthe PAF's approach on financial .

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inclusion under the deprived sectorlendingShare the list of cooperatives with February 28, 2017 Pillar I lead, PC and PCcommercial banksIdentify a few VDCs/Cooperatives March 30, 2017 ED, Pillar 1 lead and PCwhere bank linkagcs could be builtTrain and position 10 bookkeepers in May 31, 2017.3 selected VDCs, which were CPROG/ programidentified for bank linkages, from the coordinator / Pillar 3existing pool of local resource lead/persons and social mobilizersComplete the hiri ng of Financial March 31, 2017. Pillar I lead, PCInclusion Specialist (Consultant)Pillar 2Hire Partnership and Resource February 28, 2017 Pillar 2 lead TOR has beenMobilization Specialist developed, final

December 31, 2016 decision to betaken after thefuture strategy isfinalized

Submit a specimen CO Network February 10, 2017 CPROG/PCbylaw to the Bank for comments

MIS to include a parameter on February 10, 2017 CPROG/PCregistered CO NetworksStart providing support to CO March 1, 2017 CPROGIPCNetworks' consultantsPrepare an approach paper on a pilot April 1, 2017 CPROG/PCscheme to utilize CO Networks forthe role of POsRegister at least 100 CO networks April 1, 2017 CPROG/PCwith PAFShare with the Bank a concept note April 1, 2017 CPROG/PCon LRPs roles and arrangements fortheir engagementPillar 3Finalize RF performance report of February 28, 2017 Completed in 227,000 Cos in districts where POs are districts. A reporthired Pillar 3 lead, PC, RF was produced for

specialist 15 districts. Dataof 7 districts arebeing cleaned

Collect repayment rate date from 32 February 28, 2017 Pillar 3 lead, PC, RFdistricts through PMs specialistComplete RF performance March 30, 2017 Pillar 3 lead, RF As soon as POsmonitoring of the rest of Cos in the June 30, 2016 pialead come on board32 districtsFinalize the CO Maturity Assessment April 28, 2017 CM&EReportShare the plan for the next round of November 30, 2016 CM&ECO Maturity Assessment for February 28, 2017submission to the BankPillar 4Obtain the monitoring reports from April 28, 2017 Pillar 4 lead (DED);all the DDCs/DPACs CM&E

Project Management

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Complete the organizational May 2016 March 31, 2017 ED/DED/CADMINassessment, including the review ofthe current 4 % operational costs

Conclude the hiring process for Third February 28, 2017 CM&E/CPROGParty Monitoring

Re-advertise the EOI for employment February 15, 2017 CM&E/CPROGstudy and poverty ranking

Complete the follow up survcy data March 31, 2017 CM&E/CPROGcollection

Complete ERRof infra December 31, 2015 February 20, 2017 CINFRA/MIS/M&E/Bank

Complete the Roll out of web-based September 15, 2016 February 15, 2017 MIS teamMIS in 23 districts

Grant Innovation Awards to at least November 30, 2016 June 15, 2017 Communication team50 COs

Complete KM strategy March 15, 2017 Communication team

Issue at least 50 district newsletters+ June 15, 2017 Communication team 14 districtannual report newsletter havel

been issuedHire consultant for multi-dimensional March 15, 2017 ED/KM teampoverty measurement

Financial Management

Complete development of FMIS and February 15, 2017 MIS Team and CADMINroll outPrepare and share active COs audit April 30, 2017 CPROG/PMs/CADMINdata for FY2015/16 and FY 2016/17Hire external auditors for COs for FY March 30, 2017 CADMIN2016/17Hire internal auditor for FY2016/17 February 28, 2017 Procurement of PAFSubmit unaudited project account of February 15, 2017 CADMINFY2015/16Submit overdue audited project April 15, 2017 CADMINaccount of FY2015/16Environmental and SocialSareguards

Awareness raising and full roll out of June 30, 2017 ED, OnTrack Focal PointGRM/OnTrack systemBoard approval of the revised ESMF March 31, 2017 ED, Environmental and

Social SafeguardSpecialists

Future Options of PAFOrganize national stakeholder May 2017 VC/ED/Bank As soon as localworkshop elections are

completed

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Annex 3

Result Framework Poverty Alleviation Fund

Project Development Objective (PDO): To improve living conditions, livelihoods and empowerment among the rural poor, with particularattention to groups that have traditionally been excluded by reasons of gender, ethnicity, caste and location

Baseline Actual Comments Data SourcePDO Level Results Indicators UOM (Current Jan End Target Definition

U 23,2017)

Total. 286700 MIS

No of CO NoofCONumber of households includes1. Households benefitting from increased O Number 0 hhs= 239718 164,000 nu mber s inlunon CO members as wellaccess to community infrastructure

No of non COhhs= 47765

Beneficiary assessment is based Baseline and

2. Beneficiary households that have increased 0 68 70 on a sample survey of households follow uptheir incomes by at least 15% against base who have received PAF support surveyyear (2007), by the EOP for at least 3 years findings

3. Key positions in project community Percentage 0 61 60 Targeted households include MISorganization that come from targeted Dalits, Janajati and Muslimshouseholds

Beneficiaries

Number is increased to reflect the MISincreased number of beneficiaries

4. Project beneficiaries 831509 589,000 to be covered under the

4.1. CO members/households Number 0 earthquake response;

4.2. Non CO members/households 476 55,000Non CO members are benefittingfrom infrastructure activities

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Baseline Actual Comments Data Source

PDO Level Results Indicators UOM (Current Jan End Target DefinitionaU 23, 2017)

PAF monitors CO members. MIS

5. Female CO members (of the total CO 0 78 75 Women from non-CO members ismembers) Percentage not included

Intermediate Results Indicators

Component I: Community Infrastructure

6. infrastructure sub-projects that are This indicator is based on second MIScompleted with target community E Number 0 4023 4,000 fnancial disbursementparticipation, according to agreed design andquality standards

Technical

7. Infrastructure sub-projects with functional E Percentage 0 69 70 . Establishment of O&M fund, monitoringO&M system 2.O&M Mechanism report and

Study report

Rapid Earthquake

assessment MISshows 88

slightly

8. PAF supported Infrastructures rehabilitated Number 0 0 288 damaged, 229partially

damaged, and

50 completely

damaged

Component 2: Income generation Activities

Dalit 28 Target HHs for this indicator MIS (based on

9. [GA community organization members El Percentage 0 61 54 means Dalits, Janjatis and COs keywho belong to targeted HHs Janalati 30 Muslims

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Baseline Actual Comments Data SourcePDO Level Results Indicators UOM (Current Jan End Target Definition

23, 2017)

Muslim 3 position

holders data)

RF StatusCO members of 2 and more time Report (15

10. CO members accessing funds from the RFEl Percentage 0 60 50 lone taken form RF 60% district datamore than one time for IGAs during lifetimeof the project At least I time 90% analysis Dec

2016)

Based on the beneficiary/social re- study reports

1i. CO members with improved levels of food O Percentage N/A 63 68 assessment of sample COs during findingsecurity 2013/14

Based on the Earthquake

assessment MIS

77,000 COmembers need

TAC had approved for the

12. CO members benefited from asset/cash O Number 0 40,000 asset/cash revitalization of RF in EQ affectedtransfer for RF revitalization transfer districts

support for

revitalizing the

RE in EQaffected COs.

Component 3: Product Development, Market Linkages and Pilots

1 Agriculture & Includes only cooperatives (multi MIS and PAF

fivestocks and single purpose) which are Documents

13. Higher level institutions formed H Number 0 425 300 coops-200; already registered and not CO

SACCOs 225 federations or CO networks

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Baseline Actual Comments Data Source

PDO Level Results Indicators IUOM (Current Jan End Target DefinitionCU 23, 2017)

Revised from MIS and PAF

"Number of Documents

HLIs" to

"Pocket Areas'

to reflect the

project # of CGs linkage with marketsactivity. 29

14. Number of pocket areas developed and pocket areas f of CGs/Cooperatives linkagesupported by the project for collective U Number 0 29 50 have been with MFIs/Bankscommercial production and marketing ofcommoitiesformed and

received funds # of CB support from TSP

but yet to

receive the

business and

market linkage

support

COs Formned MIS and PAF

40, Documents

Baseline data

(social COs functioning mean Cos

15. COs functioning in urban! peri-urban E] Number 0 36 40 assessment) formed, registered and receivedsettings collected COs grants from PAPf

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Fund receivedCOs 4

Component 4: Capacity Building and(stitutional Ssrengthenitgionn

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Baseline Actual Comments Data SourcePDO Level Results Indicators UOM (Current Jan End Target Definition

0U 23,2017)

DPACC Report

25 (at least one established 55 Total # of participating DDCs and received from

monitored by districts VDCs in PAF monitoring / Total District16. DDCs/VDCs participating in monitoring Ol Percentage 0oDC 100Toa201 IofDCVCsweePPiPAF activities. DDC/ Total 2091 # of DDCs/VDCs where PAF is

DPACC) VDCs PAF is active

working

CO Networks LRPs are CO members with MIS

17. VDCs/CO Networks with at least one H Percentage 0 60.9 70 249 formal training and certification inLocal Resource Person (LRP) LRPs 415 one discipline

9,000 masons, Earthquake

5900 MIScarpenters are

18. Skilled persons trained in earthquake O Number 0 60 (MToT) 14300 idented inresistant construction techniques te j

the projectarea,

PO evaluation

report (266POs evaluatedO Percentage 0 100 100 To be measured on annual basis PAP during18.POs that have been evaluated by Cos by PAF duringPO reduction

Process)

19. Number of COs mobilized and made O Number 0 29,951 32,000 MISagreements with PAF

Component 5: PAF administration andproject managenient

16

Baseline Actual Comments Data Source

PDO Level Results Indicators UOM (Current Jan End Target Definition

U 23, 2017)

20.CO agreements endorsed/ approved by J Percentage N/A 90 70TAC within a month

N/A (3221.POs that submit PO progress and district COs

monitoring reports and audit reports according O Percentage N/A 70 74 under pos

to project standards of timeliness to project process

management of hiring)

Based on on

II complains received track systemgrievances

22, Complaints received by PAF recorded, f complains addressed (Solved/

addressed satisfactorily and the actions L Percentage N/A 85 94 forwarded to respective authority) Received otherdocumented through compliant handling forms of

mechanism #1 decision informed to respective grievances will

(who made complain) documented

and included

Record of KM

and Financesection

# of awarded COs from PAF

23. Number of Innovation Awards to COs Innovation awards Publications &

photographs,

News papers

30 success stories 30 Record of KM

- thematic documentary films 4 section24. Number of Knowledge Management Number 0 4 225 - radio program in districts 40Products developed _ TV Program episode 20

- Thematic brochures 5

17

Baseline Actual Comments Data SourcePDO Level Results Indicators UOM (Current Jan End Target Definition

aQ 23,2017)

20 - National radio program episode PAF35 Publications

5 - district annual report/newsletters 165

35

165

18

Annex 4Field Visit report

Theme 1: Community InfrastructureThe team made field visits to four district sub-projects funded by PAF. The following are the findings andobservations:

A. Sindhupalchowk District: Dandatole Drinking Water Supply Project and Guptesori DrinkingWater Supply Project:

Partner Organization (PO): Samajik Sewa Samuha (SSS):Community Organizations: Guptesori CO and Dandatole CO

This project comprises of two schemes: (a) one catering to Guptesori CO and another to Dandatole CO.The 2015 earthquake had damaged both the water supply schemes. While the intake structure for Guptesoriis still standing, the hill has slipped some 15m according to local estimates. The mission was informed thatexperts brought in by Dwarika Foundation has advised the people to move from the area as the hill is unsafeand still continues to slip. The residents of Guptsori are looking for alternate land to relocate the village.In view of this the mission suggests the rehabilitation of this water supply scheme follow a two-prongedapproach: (i) till such time as the village is relocated, make a temporary provision of pipe water using, tothe extent possible, the existing undamaged structures and (ii) once a decision to relocate the village to asafe area is finalized, fund the construction of a well designed water system, if Dwarika Foundation doesnot provide for it. Any further detailed study should keep this reality in view. Regarding the DandatoleWater Supply Scheme, there does not seem to be a need to relocate the village. The CO has requested thatan additional tap for the "Gomba" (monastery), it is planning to construct, be included in the design forrehabilitation of the scheme. Before, finalizing the design and estimate for rehabilitation of this scheme(which is at an advanced stage of preparation) due consideration be taken for this request. The CO reportedthat it has guarded securely the O&M funds of this sub-project.

B. Sindhupalchok District: Bhyagute Khola Suspension Bridge:

Partner Organization: ARSOW.

This 75 meters long suspension bridge funded by PAF and the DDC, Sindhupalchok, has replaced thedangerous cable crossing which had been a cause for loss of life in the past. The bridge is well constructed.However, the COs pointed out that the left bank has been eroded due to change in the course of the rivercaused by blockage by big boulders brought down when the river was in spate. The CO representatives arelooking for solutions to prevent further erosion of the bank to protect the suspension bridge. Their initialview was to build retaining structures on the left bank. An immediate solution may be to remove by somemeans (like breaking/blasting) the big boulders that caused the diversion of the river flow while the COcontinues to mobilize technical advice/solutions and financial resources for a more permanent least costsolution to protect the bridge. It is encouraging to note the COs are active.

C. Dhanusha District - Dohar Sichaiyojana (Dohar Irrigation Project):

Partner Organization: The Friends of DhanushaCommunity Organization: Laxmi and Sunarmai

The irrigation project covers an area of about 10 bigha irrigated by 5 artesian wells each of two inchesboring. With this irrigation scheme the COs have been able to irrigate land that has been lying barren andthus have increased their produce. The COs are in the process of leasing 20 additional bighas of land for

19

banana cultivation. The COs collect NRs. 10.00 per katha as a maintenance fund and as of December 2016had collected NRs. 12,540.00.

D. Udayapur District; Bhansari Micro Hydro Project':

Partner Organization: Peace Society CenterCommunity Organization: Bhansari

The visit to Bhansari Micro Hydro Project was unannounced as the condition of the vehicle was not fit togo to Thadokhola Micro Hydro Project the site planned to be visited. Bhansari Micro Hydro Project is inPuware Bhanjyang ward # 2. This completed project has been under O&M for about 1.5 years. The projectprovides electricity to 53 households, an increase of 6 households since inception. Each household isallowed to light four cfl lights of 5 watts or so and pays a monthly charge of NRs. 40 per household. TheCO pays the caretaker NRs. 4000 per month.

The team visited the powerhouse, which is about 100 m lower than the community. Due to time constraint,the intake could not be visited. However, it was learnt that the source yield is adequate and the water isshared with irrigation users. Electricity is provided from the evening to 5:00 am everyday and during theday the water is left for irrigation use. The CO does not have any plan to use the electricity for other usesexcept lighting. As the revenue generated does not meet the monthly salary of the caretaker, the CO needsto find ways to generate more income from electricity; e.g. by systematically replacing cfl bulbs with ledbulbs they may be able to reduce consumption and explore using electricity for small scalecommercial/industrial uses. The CO claims that it has NRs. 150,000 in it "kosh" (fund).Apart from that, the team noted that the powerhouse had a big crack, alleged to be due to the earthquake.The team advised the CO to repair the structural crack urgently to avoid a collapse of the powerhouse. Themission suggests that PAF follow up on it.

E. Sindhuli District: Ranikhola Pipe Sichai Pariyojana (Irrigration Project);

Partner Organization: Sindhuligadi Sewa Pratisthan (SISEP)Community Organization: Ratar & Laligurans Bhimeshwar-3 and 4

This is an ongoing pipe irrigation project in Bhimeshwar ward no. 3 and 4. This village was reported tohave had a fire outbreak and then a year later houses once again were destroyed by earthquake. The villagecan be approach by a motorable earth road. It was learnt that the District Road Office has planned to blacktop it this fiscal year. The District Water Supply Office has built a water system. Under Ranikhola PipedIrrigation Project, the construction of the intake, a reservoir and laying of the main pipeline has beencompleted. The quality of construction of the storage tank is satisfactory. However, there is no properpiping/valving at the outlet of the reservoir and so the full depth of the tank cannot be used for storage.Further, the reservoir may need to be protected, e.g. by some sort fencing to prevent small children fallinginto the reservoir.

As per the original field trip plan, the team set out to visit Thadokhola Micro Hydro Project. However, driving alongthe fair weather earthen road was difficult as well as dusty, particularly, the back door of the PAF four wheel vehicledid not close airtight. The vehicle started making noise and it was found that the bearing in one of the wheels had aproblem before reaching half way to the site. It was decided that the vehicle may not make it back if we continued toThadkhola site. Fortunately, there was Bhansari Micro Hudro Project on the way and the planned was changed tovisit this site instead. The lesson here is that before any long trip, the vehicles should be thoroughly inspected andserviced. Another lesion of this field trip is that long and arduous travel to visit a far off site may not be the best useof time.

20

The P.O. reported that payment of the final installment of NRs. 134,500.00 is pending.

Theme 2: Environment and Social Safeguards/ Earthquake

The Bank safeguard team visited the following sub-projects of PAF in Dhanusha, Udayapur and Sindhulibetween 11- 13 January, 2017.

A. Dohar Irrigation Sub-project (Federation), DhannshaFive 2" artisan boring has been installed under this sub-project. A small plot of land required for eachboring had been leased for 20 years from the landowner. Landowner confirmed that they were happy toprovide the land for the project and that they had signed MOUs. The community have benefited from theboring and have started to do farming all year round and are especially interested to do vegetable farmingwith continuous supply of water.

As the local people were using the water for drinking purposes, the Bank recommended the community todo a water quality test.

B. Bhansari Micro-hydro sub-project, UdavapurThe Bank team visited a 7 kW micro-hydro plant supportedby PAF. Construction was completed two years ago. Thepower house is built on private land. It was reported thatland was donated voluntarily and has been documented.Energy produced is just being used for lighting purposeonly. It was observed that the quality of construction workwas very poor (major cracks were seen in the powerhouse).Risks is envisaged for the person operating thepowerhouse.

C. Rani Khola Pipe Irrigation sub-project,Sindhulipowerhouse building

It was reported that construction of irrigation project hasbeen completed as per design. It was reported that thecollection pond was constructed on public land and thecommunity confirmed this during consultation.

During the discussion it was revealed that the sub-projecthad undergone all the recommended process of screening,consultation and applying mitigation measures. However,it was seen that the community is yet to fence the pond forsafety reasons and provide regulating valves and properlaying of pipes to avoid accidents etc.The community informed that these measures wereincluded in their next milestone after receiving the lastinstallment. Figure 2 Reservoir without fencing

D. Visit to Sindhupalchowk District (Infra and IG sub-projects)

The main objectives of visit was:Monitoring of Community organization and consultation for preparation of PAF-Il, forImplementation review of support Mission Aide memoire

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* District level consultation with Local Development Officer in Sindhupalchowk for sharingdecentralized office functional management with DDC and PAF

* To observe progress in earthquake hit area PAF community organization activities (EQ IG)* Prepare future strategy for PAF program

Community organizations met:* Pabidal Community Organization, Chokati VDC - -5 Sindhupalcjowk* Godabari Community Organization, Chokati VDC- 9 Sindhupalchowk* Chyabu Muhan Water supply scheme, Dhusmun VDC-8, Sindhupalchowk

Key observations:Bank mission with the team of PAF visited both the community organizations (Pabidal and Godavari) areoperated by Women groups members. Pabidal CO was established 6 years ago (2011 ). Members are holdingmonthly meeting about the idea creation on new schemes of income generation, saving fund investmentand providing loan assistance to its Members. Rs 4,97,000.00 was divided among the member as a loanfor buying buffalo, goat, tailoring, cardamom and poultry farming. All loan amount is returned to CO andno outstanding loan at all. Each member (24 members) are depositing Rs. 2,620.00 in CO account. GodavriCommunity organization is working on income generating activities. Members are befitted fromorganization as discussed during consultation. Despite the income generating activities, community hascreated awareness on women participation in ward level development activities through organizingmeetings. Now a days local people attitude looking to women is gradually changed in a positive way. Theyare to some extent have been able to control their husband and other male in alcoholism and gamblingactivities.

Bank mission visited Chyabu Muhan Water Supply Scheme funded by PAF as a rehabilitation program. Asper observation, earlier one Simkhet water source is depleted due to earthquake and now alternative watersource is used for water supply. Same as earlier one proposed water source RVT is used for existingalternative water source. Pharachuar, Ambate and Panighat settlement are served from alternative watersource drinking water supply. There are altogether 88 HH benefitted with 17 taps connection from thiswater supply scheme. All the community organization (CO) members are marginalized groups - Thami.Composition of CO is 3 male and 21 female.

Women (CO members) were demanding Mason training, cement block training (for earthquakereconstruction purpose) and sewing cutting training under PAF program.

Both the community organization requested to PAF to release earthquake damage infrastructure fund. Mr.Chabilal Raj Pokhrel, PAF, assured to release fund by end of Jan 2017 and all the document procedures arecompleted.

Mission consulted with Local Development Officer (LDO) Mr. Krishana Bahadyr Shahi. He was briefedabout the PAF programs implemented in Sindhupalchowk and objectives of mission visit and MOU madewith Ministry Of Foreign Affairs and Local Development for PAF programs in District DevelopmentCommittee (DDC) as a provision of decentralized management. Mr. Shahi, informed that DDC building iscollapsed due to earthquake and its staffs are providing service in temporary fabricated building andadditional PAF staffs are not equipped with room facility therefore it has been difficult to adjust all of themand provide logistic support.

Mr. Chabilal Raj Pokharel, PAF, interpreted question answer session and gave PAF clearance of ongoingactivities launched in Communities. Ms. Mio Takada (TTL) raised queries on how communityorganizations are working, support from PAF and CO future role in income generating activities. Dron Pun,

22

Environmental consultant asked how communities are making saving deposits and what lesson they havelearnt from PAF program. Earthquake damaged water supply scheme was visited and discussed with PAFengineer Mr. Ram Binod Roy and local person (water supply beneficiary) about environmental issues andrisk associated to water supply schemes and in PAF funded rehabilitation infrastructure projects andapplication of environmental safeguard in future programs.

Theme 3. PAF cooperatives and Pocket Area PilotThe task team comprising Cora Dankers, Agribusiness Specialist, and Amir Hamza Syed, Rural FinanceSpecialist conducted field visits to Kapilvastu, districts for exposure to the PAF promoted Agriculture andSavings and Credit Cooperatives (SACCOs) cooperatives and pocket area. The team visited fourcooperatives and had consultations with the District cooperative officer on the possible support areas forstrengthening cooperatives. PAF promoted cooperatives have evolved through the informal CO networkand was supported by the Partner Organization (PO) to develop into Agriculture and SACCOs. Followingcaptures the key insights from the field visits.

The team first visited Suryamukhi Agriculture Cooperative, which was formed in 2010 and has 181members. The PO proposed a pocket area on vegetables and subsequently the cooperative prepared thebusiness plan with PO assistance. The cooperative has already received the first installment grant of aroundNPR 1,100,000 to improve their activities which was used to buy polyethylene for greenhouses, sprayersand crates, as well as to for subsidies on inputs.. The cooperative provides good services to their membersincluding inputs on credit, loans for vegetable production and group marketing (the cooperative buys theproduce from the farmer and sells on). The cooperative mobilized savings of around NPR 1,500,000 andhas hired the services of a dedicated local resource person to maintain the books of accounts. Thecooperative is audited yearly. However, the mission noted the need to strengthen financial management forlinkages for commercial and development banks, Their ad-hoc marketing system is adequate at the moment,but if their production volumes increase further they will need to start production planning at group leveland to build up more long-term commercial partnerships with larger buyers.

Karameshwar Agriculture Cooperative exists since 2010, with currently 399 shareholders of which 303women. This SACCO provides personal loans towards agriculture, business and meeting foreign travelexpenses for migrants. The cooperative has a cumulative savings of NPR 3,631,000 and a collective sharecapital of NPR 1,355,000. The cooperative exhibited a repayment of close of to 99 per cent and has adheredto strict repayment norms. Some of the good practices of the cooperative include incentivizing the membersto pay on time and rewarding the best member of the year with a 1,000 NPR cash reward. They areregistered as an agricultural cooperative because this was easier, but as a result the tax office stimulatedthem to also develop agricultural activities. Thus they started a year ago with the purchase and sales of riceseed and fertilizer and a cooperative mushroom production (pilot). They sought support from the DistrictAgriculture Development Office, district livestock office and district cooperative office, but not from thePO. The cooperative received training from the district cooperative office on financial management andthis helped them to have an in-house support for managing accounts. SACCO executive team has exhibitedinterest to provide remittance services with support from PO and has agreed to conduct visits to nearbycooperatives to learn their best practices

Pragatishil Agriculture Cooperative in Bijuwa exists since 2008, employs 7 people and provides servicesto around 500 CO members. However they have only 205 shareholders while the rest are taking saving andloaning services from them. The cooperative has mobilized many grants from various programmes,including NPR 2,600,000 from PACT for onion production and marketing. They have also received supportfrom PROCASUR. Although they know income per activity and total expenditures, they did not analyzeprofit per activity, nor knew how to calculate depreciation. SACCO has a total loan outstanding of aboutNPR 1,100,000 and provides loan for farming and for meeting personal expenditures. The cooperativedisburses loans up to NPR 100,000 with loan duration of around 2 years and has a repayment rate of more

23

than ninety per cent. The cooperative indicated interest to focus on saving and credit activity and marketingof the agricultural produce and to hand-over the management of the production activities to the COs.

Chhimeki Agriculture Cooperative in Kopawa was formed in 2011 and has 218 shareholders out of which172 are female. PAF has mobilized a total of 691 CO members in the VDC. The Cooperative wasconducting savings and credit activities and last year collectively produced rice seed and has initiatedactions to venture into banana production, which they are planning carefully. The cooperative has workedwith the district office, talked to banana traders, and is going on a field visit to Chitwan to improve theirknowledge on banana cultivation. This cooperative has exhibited the unique practice to collectivelymobilize money from the member savings towards investments in agricultural activities. The cooperativehas the share capital of more than NPR 330,000 and saving of around NPR 1.8 million. The cooperativehas provided loans of up to NPR 660,000 and has a repayment rate of more than ninety per cent. It providescollateral free loan for up to NPR 10,000 and for members who are interested to take higher amount theyhave to contribute a higher amount towards savings. For amount more than NPR 40,000 the cooperativeanalyses the previous activities and repayment and penalizes the members who delay the repayment.

The district cooperative office recently provided a 6-day training on bookkeeping and account managementto Chhimeki cooperative. The Chief noted there should be improved coordination between PAF supportedcooperatives and the district office to develop the training needs and provide inputs through technicalsupport. Unfortunately, a list of subjects on which training could be provided was not readily available, butthis seemed to be mainly on cooperative principles and account management.

24

Annex 5

Detailed discussion on Implementation Status

Section 1: Current Implementation Progress

1. Operation Manual. The mission was concerned that there has been a delay in obtaining theBoard's approval of the revised Operation Manual which integrated various new activities and processes.It was agreed that the revised OM should be cleared and approved at the next Board meeting as soon asnew VC comes on board.

2. Roll-out to new 15 districts. It was informed that the roll out to the new 15 districts are on track.So far 3037 COs have been formed, out of which 1687 COs have been funded, which exceeded this year'starget of 1446. The mission was informed that a total of 4561 will be formed and fully funded under thesecond additional financing. A total of 34,300 COs will be formed by the closure date (December 2018),which will exceed that the original target of the results framework.

3. Intensification of BG disbursement in 23 districts. With a stay order in place in 32 districts,resulting in a low expenditure, it was discussed and agreed that PAF would intensify efforts and expeditethe BG disbursement process in 23 districts (15 new districts and 8 earthquake hit districts) where POs arealready in place.

4. Revolving Fund Management. The mission is pleased to know that separate RF manuals werefinalized for training PMs, POs and Bookkeepers/Social mobilizers. Trainings on the updated manuals werecompleted in the 22 districts where POs are in place. 10 PMs were trained as master trainers of the RFmanagement.

5. The mission was concerned about the delays in full implementation of RF trainings due to the stayorder of the Supreme Court in the 32 districts. The mission suggests providing trainings to LRPs and socialmobilizers with the help of master trainers. PAF has agreed to initiate the process to train the LRPs by April1, 2017 and complete by May 31, 2017.

6. The mission has reviewed and provided inputs on the RF monitoring templates that will beembedded within the MIS for real time tracking. The templates capture individual as well as group wisetransactions thereby digitizing all the financial transactions that take place at the CO level. Missionsuggested the templates should also track the member wise savings and the internal lending among COs.PAF has agreed to update the Bank on the MIS implementation at the CO level by March 31 , 2017 andagreed to make MIS for RF fully operational June 30, 2017.

7. It was agreed during the previous mission that bookkeepers would be positioned to strengthen theCO financial management systems. Mission reviewed and finalized the terms of reference for bookkeeper.Bookkeepers will be trained through central PAF team and will work under the supervision of PMs. Theteam agreed to train and position 10 bookkeepers in 3 districts each selecting them from the existing poolof local resource persons and social mobilizers by May 31, 2017.

8. Mission is concerned about the delays in hiring the Revolving Fund consultant as the existingconsultant's contract expired in November. The RF specialist should focus on the day to day managementand monitoring of the revolving fund as well as consistent support to the PMs and master trainers to continueto strengthen the RF system. The mission recommends to initiate the hiring of RF specialist by February15, 2017.

25

9. Livestock Insurance. The mission was pleased to learn that PAF supported groups have now beenlinked to livestock insurance service providers in six districts as a start, including Dhading, Makwanpur.Bara, Parsa, Udaypur and Bhojpur. There are three insurance agencies that are going to be involved andwork with PAF. Himalaya insurance company is covering Dhading and Nuwakot while Bara, Parsa andUdaypur and Bhojur are respectively being covered by Shikhar Insurance and Lumbini Insurance.

10. PAF raised the need to train the social mobilizers in insurance for a better link the beneficiaries andservice providers. However, because of the lack of funds PAF is unable to organize the training. And,there is no additional money available. The mission recommended that this part could be done by the POswho have the mandate to train and empower the group. And there is a provision for financing such activityunder their TOR. Besides, they should also take advantage of the District Livestock Service Offices whoare to link the service providers and farmers for insurance. Besides, one could check with the governmentif there are training being organized for their extension agents on insurance services. If yes, some of thesocial mobilisers could attend. It is also the responsibility of the Insurance Companies to approach thegroups and explain.

11. On the technical collaboration with the department of livestock services there are two things thatneed to be done: (i) regular meeting (at least once every three months with the MOLD, and (ii) invitingrelevant person from the Department of Livestock Services and respective Livestock Officers from districtsto attend DPAC meetings and field visits.

12. Community Infrastructure. So far, of the PAF target of 208 infrastructure sub-projects for FY2016/17, 87 sub-projects have been approved and 53 contracted. However, due to the Supreme Court'sstay order, the progress on halt since last 1.5 months. This has created difficulty for PAF as the POs withinstitutional memory are not available easily.

13. Since the last mission, the Technical Division has prepared a simplified O&M guideline and hasprovided orientation in 21 districts.

14. The recruitment of a consultant for the independent technical audit of PAF infrastructure sub-projects was done on January 9, 2017. The mission met with the consultant along with the Division Chiefand an Engineer of the Technical Division and discussed what is expected of the review. Based on thediscussions, the consultant agreed to provide the Technical Division a revised questionnaire that wouldaddress the technical as well as the social and procedural aspects. In response to this, the consultantintroduced a non-technical member added to its team at a subsequent meeting at PAF office and furtherclarifications on the assignment were provided. The consultant will submit a revised questionnaire to PAFfor review and approval; after which it will be used to collect information to meet the requirement of theToRs.

15. During the last mission it was suggested that PAF convene a meeting of the partner financiers todiscuss issues related to implementation ofmulti-agency co-financed infrastructure. The Technical Divisionhas begun joint discussions with AEPC and is in dialogue with DOLIDAR regarding implementation ofjointly funded sub-projects. In the meanwhile, the Technical Division is currently being selective in takingup such projects.

16. In terms of rehabilitation of earthquake affected Guptesori Drinking Water Supply Project, inSindhupalchok District, it is suggested that PAF take a cautious approach keeping in mind the possibilityof relocation of the village due to the slip of the hill and advise the PO to come up with options forrehabilitation to address the current ground reality and future possibility. However, rehabilitation ofDandatole Drinking Water Supply Project could go ahead by taking adequate safeguard measures tomitigate possible threats to foreseeable damage to the structures from natural disasters.

26

17. Capacity Building of COs The mission acknowledged that the field implementation guideline hasbeen revised and a series of orientation workshops were organized for PMs. Re-orientation workshop onthe revised operational manual for POs has been completed in 21 districts. It is expected that the trainingsin the remaining 32 districts will be resumed once the Supreme Court case is resolved.

18. It was reiterated that the CB effort would continue to focus on the CO's sustainability rather thanthe CB of the POs, The mission acknowledged that a training module has been developed for LRPs andBook keepers, and it was requested to share the translated outline of the module. Training in 23 districtswhere POs are in place should be completed by March 31, 2017.

19. Peri-Urban pilots: Table I below summarizes the current status of implementation of the Peri-urban Pilot initiative. Since the previous mission, the project has hired a full time Peri-Urban Officer tomanage the initiative; draft formats for rapid feasibility appraisals of economic activities proposed by COmembers have been developed; and 14 additional COs have been appraised for financing. The missionobserved that the initiative has significant potential to demonstrate impact as (a) targeting of pooresthouseholds in peri-urban localities entered was good, with a bulk of such households reliant on manuallabor prior to the intervention; (b) COs promoted and financed were functioning well, with womenfunctionaries fulfilling ongoing operational responsibilities; and (c) women members were taking loans andinvesting them successfully in productive activities, leading to significant income increases.

Table I: Status of COs mobilized through the Peri-urban pilot

Total CO Applications Submitted to the Project 36

Total COs registered 28

CO pending registration 8

Total COs Appraised 18

Total CO financed 4

20. However, the mission also observed the following implementation bottlenecks which need to beaddressed. Firstly, financing for a bulk of COs promoted through the project are pending, despiteapplications being submitted. It is critical that the project urgently finance these COs, as there is the riskthat COs mobilized will collapse due to lack of financing from the project. Secondly, a number of COwomen are facing obstacles in their livelihoods activity - such as with reliable input supply and marketlinkages - that are leading to suboptimal livelihoods outcomes. Staff capacity of the PO was observed tobe an issue here, with one Social Mobilizer expected to support 10 COs with 625 members. The projectneeds to consider deploying a Livelihoods Technical Specialist to complement the Social Mobilizer, so asto strengthen provision of technical and hand-holding services to CO members and enhance impact. Thirdly,impact data is not currently being captured. It is important that the project systemically collect and reportkey impact indicators.

21. Key actions from the previous Aide Memoire on enhancing wage-employment related skillstraining remain pending. The project needs to choose focus sectors for skills training based on a literaturereview of existing market demand studies; identify quality training providers in these sectors in partnershipwith CTEVT; develop an annual calendar of training programs offered; mobilize and counsel youth fromtarget households to complete trainings; and conduct outreach activities to local industry to ensure jobplacements of youth trained. It was agreed that the project would develop clear implementation guidelinesto steer work in both self and wage-employment activities supported through the pilot.

27

22. Earthquake Response. The Mission is pleased to note that work has begun on community basedslope stabilization using bio-technology. In this regard a pilot is complete at VDC Salme whereas trainingfor scaling up is scheduled for February 6, 2017. PAF has unique access in the country to communities. Ithas the potential to especia.ly deliver on earthquake reconstruction for vulnerable. The mission understandthat already a pilot has begun in VDC Thansing. It is recommended that the pilot be scaled up and expendedto other VDC, especially in the three EHRP supported districts.

23. Progress on this emergency program is abysmally slow. Though data has been collected,implementation has just begun with disbursement of RF to one CO. The component has not been able tohelp the earthquake 2015 victims, it is proving to counterproductive for the project as well because ofabsence of any justification for the relationship of operational expenditure with that of program expenditureas reflected in the following tables:

Table-2: Earthquake Response Program Funds Utilization FY 2072/73 (in NPR million)

F.Y. 2072/2073

S.N. Details C C . .C

Operational cost 21.37 .202 0.9% .20 100.0% 0.9%

1.2

Consultant services 22.5 1.70 7.6% 1,7 100.0O% 7.6%

Capital/ Fixed Asset Cost 5.7 - 0.0% 0.0%3.

Program Cost 480.11 3.88 0.8% 2.89 61.6% 0.5%4.

5. Grand Total 529.62 5.78 1.1% 4,2 74.0% 0.8%

Caial pierasstioa cost 1.31 .80 .2 .0% 10.0% 32Table-3: Earthquake Response Programn Funds Utilization FY 2073/74 (in NPR million)

F.Y. 2073/2074

S.Nm Details.9C

Operational cost 21.31 .68 3.2% .68 100.0% 3.2%

Conulan srvce 225 .7 165% 3. 100% 3.2%__Consultant services 22.5 3.7 16.5% 3.7 100% 3.2%

2.Capital/ Fixed Asset Cost

3.Program Cost 616.97 58.43 9.5% 26.14 44.7% 4.2%

4.Grand Total 660.77 62.82 9.5% 30.53 48.6% 4.6%

5.

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24. The above tables imply that for the last FY:i. Operating expenses: 0.9% of the allocation was released, of which 100% was utilizedii. Consultants services: 7.6% of the total allocation was released, of which 100% was utilizediii. Capital/ Fixed Costs: none was released and utilizediv. Program Cost: 0.8% of the allocation was released of which 61.6% was utilized thus utilization

against total allocation comes to 0.5%

For the current FY:i. Operating expenses: 3.2% of the allocation was released, of which 100% has been utilizedii. Consultants services: 16.5 % of the total allocation was released, of which 100% has been

utilizedili. Capital/ Fixed Costs: No Allocationiv. Program Cost: 9.5% of the allocation was released of which 44.7% has been utilized thus

utilization against total allocation comes to 4.2 %

25. It appears that though the trend has slightly improved, still it is a long way to go. PAF will have tospeed up release of revolving fund, speed up infrastructure reconstruction/ rehabilitation and livelihoodsdevelopment.

Section 2. Graduation Strategy and consolidation process of Cos

Pillar 1: Development of Commodity Groups and Business Development Support26. Pocket Area Development. The mission was pleased to note that there has been a progress in theimplementation of the pocket area pilot. For the first call for proposals, 35 business plans had been receivedand 29 were selected. In most cases the business plan was written by the POs. Sometimes a financial planwas missing but business plans were not approved until this had been provided and evaluated positively.

27. During the field visit it was observed that foreseeable challenges will be establishing longer termrelationships with larger buyers, and the lack of expertise in these matters at the level of the POs. Themission was pleased with the recruitment of value chain development officer, marketing specialist andpocket area specialist and the selection of TSP, who will be able to address the marketing challenges.

28. The mission is concerned that no financial management training is foreseen for pocket areas as theyare dealing with larger amount of funds (Npr 2. 5 million). It was agreed that portfolio managers and/orselected POs will attend the financial management training of cooperatives (see paragraph on cooperatives)to become trainers for pocket areas.

29. The second call for proposals was issued end December 2016 but has to be re-advertised becauseeligibility criteria were not clear. It was agreed that for the 23 districts where POs are in place the call willbe re-advertised by February 6, 2017, with deadline for submission of proposals March 6. The productproposals will be reviewed and approved by the Technical Appraisal Committee by March 31, 2017, afterwhich the deadline for submission of business plans will be April 30, which will be reviewed and approvedby May 30, 2017.

30. For the third call for proposals for the remaining districts, it was agreed to propose to the board toaccept proposals from any interested NGO (already PO or not), cooperatives formed by COs, and privatesector partners. In the procedural guidelines the eligibility criteria for who can propose products andfacilitate pocket areas will need to be changed. It was agreed to pay the first installment of the facilitationfee only after the business plan approval. After the board will have approved the revised guidelines or whenthe Supreme Court case will have been resolved - whichever is first - the third call will be issued for alldistricts with less than 2 approved pocket areas.

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31. The mission was informed that the roster of technical experts has been filled to provide technicalguidance to the various technical aspects of the pocket area proposals.

32. Monitoring and reporting should be standardized and a template will be developed for portfoliomanagers for the monitoring of pocket areas, which could also be used for monitoring agriculturalcooperatives.

33. Support to PAF CO Agriculture and Savings and Credit Cooperatives. Mission observed fromthe field visits that cooperatives that focused on saving and credit activities and that are registered asagriculture cooperatives have been encouraged by district authorities to develop agricultural activities andare venturing into input supply or cooperative businesses. Mission also identified financial management, asan important improvement area for the cooperatives for linkages with cooperatives. It was also agreed toselect the best 30 agricultural cooperatives (which may also implement pocket areas) and best 30 pureSACCOs for strengthening financial management systems through an additional assignment of theTechnical Support Partner (TSP) who is likely to come on board by mid February. PAF has agreed to sharethe list of sixty cooperatives and the concept note to strengthen the cooperatives by February 10, 2017.

34. Financial Inclusion and Bank linkages. Mission noted from the discussions with the commercialbanks their willingness to work with the PAF promoted COs and Cooperatives and provide loans under thedeprived sector lending policy which mandates them to lend 2% of the overall portfolio to directly tocustomers. A few commercial banks are already financing value chain activities in dairy and sugarcanefarming and they have requested PAF to share the list of cooperatives based on activities and geographies.Mission recommends sharing the list with the banks by February 286", 2017. Mission also noted from thediscussions with the Executive Director, Nepal Rashtra Bank that PAF has the opportunity to work withthe Government and contribute to achieve the financial inclusion goals through branchless bankinginitiative. Mission notes that hiring a financial inclusion specialist is critical to lead PAF for facilitatinglinkages with commercial banks as well as standardizing financial management systems. Mission hasshared the terms of reference and team has agreed to bring the Fl specialist on board by March 31, 2017.

Pillar 2: Support to Social Enterprise Development for the Poor35. CO network as Social Enterprise. The mission was pleased that PAF started drafting a specimenbylaw for CO Networks for approval by the board. A CO Network will be registered with PAF if the latteradopts its the bylaw. It was agreed that PAF will support an initial set of registered CO Networks withpreparation of proposals to access funds of government agencies (VDC, DDC or line agencies) or externalorganizations (including NGOs). CO Networks will be encouraged to identify projects/programs suitablefor the COs and their members, and to engage a local consultant of their choice to prepare a quality proposal.The PAF will support the cost of their service (a maximum Rs 50,000 per CO Network). The missionrecommends PAF to continue to identify well-functioning CO Networks, organize consultation meetings(in which the above-mentioned PAF support will be explained) and start actions for registration. Themission encourages PAF to register at least 100 CO Networks by end August 2017.

36. CO network as replacement of PO to support COs. Beyond the project completion, some ofstrong CO Networks are expected a play a role as replacement of POs to continue to provide technical(especially book keeping) support to their member COs. It was estimated that currently there are at leastaround 250 CO Networks who hire LRPs. The mission recommends PAF to initiate a pilot in selecteddistricts in which strong CO Networks will provide support to the COs outside their own VDCs. Themission requests PAF to prepare an approach paper on the pilot, select locations and initiate the processwhen appropriate.

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37. LRP. The mission was informed that there are around 150 COs, in addition to 250 CO networks,who directly hire LRPs. It was agreed that PAF would finalize the concept note on the LRPs with Nepaliname for such function. The concept of LRP will be promoted through the on-going CB process.

Pillar 3 Targeted Capacity Building Support to COs

38. RF performance Monitoring. Performance monitoring assessment is completed in the 22 districts.Data analysis and CO categorization was conducted based on the data collected and it was agreed thatrepayment rate would be taken as the critical criterion to determine the COs that have eroded RF. However,mission was concerned about the lack of PO support to complete the assessment in the remaining districts.It has been agreed that PMs will be requested to ascertain the COs' repayment rate from their districts onpriority basis to complete the assessment and data analysis by February 28, 2017. It has also been agreedthat the performance monitoring will be completed as soon as the POs are on-boarded in the 32 districts.The data analysis based on the first set of data collected is attached.

39. CO Maturity Assessment. Data analysis was completed for 16,334 COs. The results found that:18% of the COs are mature (Category A) and no longer require support from POs; 24% (Category B) canbe upgraded to Category A with minimum support; while 46% (Category C) require continued support.Data analysis for the remaining some 5,000 COs was delayed due to a lack of resources to enter the data atdistrict level, but is expected to be completed by April. It was agreed that PAF will finalize the MaturityAssessment report after including the data of the remaining COs by 28 April.

Pillar 4: Integration with Programs under Line Agencies and DDC

40. Partnership with DDC. The mission was informed that PAF has so far established District PovertyAlleviation Committees (DPACs) in all 55 districts. The field interaction with DDCs have been verypositive, and DPAC seem to be functioning well as coordination mechanism, The mission was pleased tonote that deputed PMs are working closely with Local Development Officer. It was informed that DDCofficers participating the joint monitoring visits to PAF project sites. PAF developed a reporting format forDDCs to verify their field visit findings as well as the expenditure of the monitoring budget provided byPAP.

Section 3. Monitoring and Evaluation41. Monitoring and Evaluation. The mission met with a firm who will conduct the follow up surveyof the impact evaluation. Assessment for technical quality of infrastructure have also commenced. Theselection process for the Third Party Monitoring is nearly completion. It was informed however that twoother studies- employment study and poverty ranking study, have not attracted minimum numbers ofapplicant firms. It was agreed that PAF would re-advertise REOI and would also encourage any relevantfirms to send EOls by February 15, 2017.

42. Web-based MIS: The mission was informed that PMIS is completed but the training for POs havenot been completed hence it is yet to function fully. Hence, regrettably noted that the roll out and trainingare very behind the schedule, which was originally planned in September 2016. The mission urged PAF tocomplete the roll out and training by mid-February 2017, while the reports are expected to be producedthrough the MIS from March 2017 onwards. All relevant parties, including admin and procurement, arerequested to provide maximum support to complete the training.

Section 4. Knowledge Management and Communication43. The mission noted that significant progress and achievements have been made, including the COawards, appointment of KM strategy consultant and development of various KM products. Particularly, theappointment of KM strategy consultant is a big step forward as the selection process has taken almost a

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year. The mission recommends and agreed the following (i) at least 50 innovation awards will be providedto best-performing COs by June 1, 2017; (ii) completion of KM strategy by March 15, 2017; and (iii)completion of report on Multi Dimensional Poverty Indicator study which could lay a foundation for re-visiting the current targeting criteria of PAF by March 15, 2017.

44. The mission congratulated the team for organizing the poverty -issue workshop in a very effectivemanner, and encouraged the team to plan and organize such event at least every six month so that PAF willgain reputation as the country's knowledge hub for poverty, livelihood and development.

Section 5. JSDF Making markets work for the conflict affected in Nepal (P128744)45. The Task Team noted that implementation of certain key activities such as artisan mobilization,registration of artisan producer groups and creation and administration of revolving funds have beensignificantly fast-tracked and are well on track to completion. Over 2400 artisans have been organized (53groups formed between Nov-2016 and Jan-2017 adding to 51 created thus far), and over $214,000 havebeen disbursed to revolving funds, with loans being made out to artisan groups according to demand. PAFexpects to register and organize approximately a total of 7600 artisans by the end April. 19 skill and designdevelopment workshops have been conducted so far, through which more than 80 prototypes have beendeveloped, many of which are unique and innovative. Interactions with artisans indicated that theseworkshops were well appreciated. Marketing activities have commenced. Fair Trade Group (FTG) hasprepared an action plan and expects to undertake activities as per the agreement. PAF expects to undertake2 major marketing events and I mega event featuring participation from JSDF projects in India and Pakistanin the period between April and June. Preparation for this has begun.

46. PAF has a full team in place for the project both at the central level and the district level. PAF'sPartner Organizations are well oriented and have prepared clear district level activity plans for theremaining period. The Task Team has asked PAF to diligently monitor action plans through weekly targetsin order to ensure timely implementation. Key areas that PAF will focus on in the first quarter of 2017 areskill and design development of registered artisans, preparation for marketing events and assessment ofrequirements for CFCs (three locations have been identified). PAF has accordingly initiated the process tohire individual designers for the identified craft skills, and expects to put in place procurement processes tohire marketing agency and key resource personnel for the planned mega events.

47. To fast track implementation and meet targets, the project needs to expedite its contracting processto ensure consultants/ consulting firms are in place as per agreed times lines. It was agreed with the projectteam that higher level institutional development activities (i.e. federating PGs into associations or formationof cooperative), which is a key factor for ensuring sustainability, will be prioritised and fast-tracked. Inaddition, the training of artisans by trained master artisans for developed prototypes needs to be rolled out.The project team has accordingly developed a detailed calendar plan that has been agreed to by all partnersand the Bank. This needs to be rapidly implemented with diligent monitoring.

48. Disbursement currently stands at 82%. PAF has submitted a utilization plan that projects completeutilization by July 2016. As agreed in the previous mission, the Task Team will continue to closely monitorand provide technical assistance to the project team through weekly review calls and monthly technicalmissions.

49. Agreed ActionsI. Approve all ToRs and initiate subsequent procurement process by 25h February, 20172. Commence training by trained artisans and production of developed prototypes by 15"' March,

20173. Initiate higher level institutional development activities by 2 5 h February, 2017

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Annex 6

Training needs for pocket areas and 30 coops.

Introduction

Pocket areas and agricultural cooperatives are formed from COs which have successfully managed arevolving fund of 25,000 NPR. Therefore, the members have basic organizational management andbookkeeping skills,

To successfully run an agricultural cooperative business, commodity groups and agricultural cooperativeswill however need additional training as listed below. Part of this training is already foreseen for pocketareas through the POs and the TSP. However, some gaps are identified and for the 30 selected agriculturalcooperatives so far no additional training has been arranged beyond ongoing PO support.The TSP will be invited to make suggestions in their inception report about how they could contribute infilling these gaps,

Training Subjects

a) Potential roles of commodity groups/cooperatives in the supply chain:Potential roles could include: input supply; machinery rental; production (group farm); research andextension (experimental plot to test out new production methods or running a farmer field school); marketinformation services; trading; processing (for a fee or as part of collective marketing).The group should be guided to analyze what are their members' needs and who are other actors who couldfulfil some of these roles better and could become partners.

b) Business planning;- Understand that there are two business levels: farm level and group level, and that both need to be

profitable for long-term sustainability- Purpose and content of a business plan- Mission, vision and objectives- Marketing plan: analysis and planned arrangements- Operational plan: activity schedule (including cropping calendar), input management, equipment

management, responsibilities- Financial plan at group level: estimating costs and income, net profit, years in which investment

will be earned back, working capital needs/cash flow projections- Farm budget and expected profit for members

c) Advanced bookkeeping skills: for diversified activities this may include separate ledgers and profit andloss accounts for different profit centers.

d) Financial management:- Comparing actual expenditures against budget and actual income against forecast and related

decision making- Calculating net profit before depreciation, taking into account organizational overhead costs- Basic understanding of depreciation (need to plan for future replacement of equipment), of

variable and fixed costs and break-even point.- Sources of funds and linkages with financial service providers

e) Organizational management- Legal registration:

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- For pocket areas: Understand advantages and disadvantages of various legal forms andbe able to make an informed choice (cooperative, cottage industry, marketingcommittee).

- For cooperatives: rules for cooperatives in Nepal, how to write by-laws- Organizational structure and the role of the manager- Ensuring transparency and member participation in a bigger organization.

f Marketing- Farm-gate, wholesale and retail prices, price fluctuations.- Types of buyers and their needs (market segments) and competitors: targeting buyers- Facilitated discussions with targeted buyers- In case longer-term relationships with buyers are developed and group moves from ad-hoc

marketing arrangements to contracts: Types of contracts, negotiating the terms of the contract,risk management (training may be specific for sales contract or contract farming as the casemay be)

g) Operational management and logistics: efficiency, communication, storage & stock control, transport.quality control, equipment maintenance (choose subjects relevant for the activities of the particularcommodity group or cooperative)

h) Technical training: production (and processing) techniques for the selected product

Support currently foreseen in PAF for pocket areasTraining subject Currently covered by: Gap could be covered by:a) role of the commodity TSP (domain 1)group/coop in the chainb) business planning training TSPb) assistance with business plan TSP (domain 1)writingb) cropping calendar TSP (domain 2)c) advanced bookkeeping TSP orTA*d) financial management TSP or TA*d) linkages to financial service TSP (domain 4)providerse) organizational management PO and TSP (domain 4)f) marketing TSP (domain I and 2)h) operational management and TSPlogisticsi) Technical training TSP (domain 3)

*TA = technical agency for financial management training for the selected 30 SACCOs and 30 agriculturalcooperatives (to be recruited)

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Annex 7

Summary of Meetings with CO Networks

PAF organized two meetings (17 January in Kathmandu; and 19 January in Dhangadhi) withrepresentatives of functioning CO Networks with a view to understanding factors of organizationalcontinuity, their future plans and expectations from the PAF. A total of 12 CO Networks from nine districtssent their representatives to the meetings (see Attachment 1).

Activities: Each CO Network comprises representatives of COs (20-25 persons) at the VDC level.All CO Networks said they provide continuous support to member COs so that the COs can perform wellas an organization. The CO Network representatives continue to meet regularly and appear to havedeveloped a good sense of an 'organization'. Areas of their support include monitoring the COs activities,support to organizing CO audits, and facilitation for Revolving Fund (RF) repayment. Some haveestablished close relationships with the VDC and participate in regular VDC meetings. Their interactionswith VDCs enabled some CO Networks to access fund from the VDCs for activities related to roadimprovement, sanitation and others although the amount appeared to be limited in most cases (in the orderof Rs 50,000). A couple of CO Networks seemed confident to manage focused interventions (livestockinsurance and ODF) on a continuous basis.

Factors of continuity: Most of the CO Networks mentioned meeting regularly is an importantfactor for their organizational continuity. Other factors included: access to VDC fund, presence at VDCcouncil and having an office. Many other responses in this regard related to effective support to COs asmentioned above, indicating that COs' demand for the services from the Networks gives their authorityand legitimacy as an organization.

Expectations for PAF: Registration of CO Networks as an organization was one of the mostimportant expectations raised in the meetings. The representatives said that registration will give them anofficial status and enable them to access a larger amount of fund from VDC and external agencies. Requestsfor capacity development were also voiced strongly, but their idea about training topics seemed rather vague.Support to drafting a bylaw, office space and equipment, financial assistance were also mentioned.

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List of CO Networks Participated in the Meetings

District Name Main activitiesSindhupalchowk 1. Chokati Community Network * Managing RF with minor support of

social mobilizer* Drawing support from other NGOs after

earthquakePanchthar 2. Lamfubang VDC Level CO * Saving by the members of the COs at the

Network Network level (this saving is used to payloan to the member of the CO Network)

3. Namfungyak CO Network * Monitor COs and provide supportDhading 4. Shree Sadhbhab Gariwi * Facilitate to organize regular COs meeting

Niwaran Bahuuddeshya * Provide additional loan to respectiveSahakaai Sanstha, Gajuri member of COs

* Implement pocket area developmentproject to promote vegetable productionand marketing

* Registered as a PAF cooperativeAchham 5. Mangalsen Pashubima * Monitoring of COs

(livestock insurance * Awareness creation activitiescommittee) * Work with VDC on its ODF programme

* Support to CO auditing* Livestock insurance Livestock insurance* RF management

6. Naya Nepal Community * CO MonitoringOrganization Network * Support to CO auditing

* Support VDC's ODF programmePyuthan 7. Bijaya Nagar VDC Level CO . Resolve conflicts

Network8. Bijuli VDC Level CO * Monitoring of COs

NetworkDadeldhura 9. Manilek CO Network * Monitoring of COs

* Presence in VDC council* Evaluation of COs* Implementation of the programne of other

donors in the communityDarchula 10. Bhagwati Saamudaaik * Support in RF Mobilizing

San jaalBardiya 11. Suryaputwa CO * CO Monitoring

NetworkJajarkot 12. Laliguras Krishi * RF mobilizations

Coopeartive * Drawing support from others* Provide additional loans to CO members

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Annex 8Financial Management

Approved Budget for FY2016/17 and Actual Expenditures:

The approved budget for FY2016/17 is NPR 3,822.87 million (an increase of 7.12% over FY2015/16budget). Budget authorization has been received on July 26, 2016 and the annual work plan submitted toOPMCM (Office of the Prime Minister and Council of Ministers) on July 28, 2016 has been approved.

The breakdown of approved budget and actual expenditure for FY2016/17 is as follows:

Particulars Bud et in NPR millionGoN IDA Grant JSDF TF IFAD Total

Conditional Recurrent Grant to GON 29.76 360.55 141.71 57.47 589.49institutions, boards (26412) 29.76 305 1.7747 84Capital Grants to other institutions and 0 2,957.35 121.78 154.25 3,233.38individuals (26423)Total 29.76 3,317.90 263.49 211.72 3,822.87Total Expenditures of FY2016/17 up 352.04to 13 January 2017Utilization Rate (%) 9.21%

The expenditures of NPR 352.04 million have been incurred so far in FY2016/17 till January 13, 2017which is only 9.2 1% of the approved budget. The breakdown of expenditures is as follows:

Particulars Amount in NPR Million

GON 7.21IDA Grant 335.51JSDF TF 3.16IFAD 6.16Total 352.04

Disbursements: Total disbursement including advance to Designated Account under IDA Grant H857,IFAD C1200, Cl380 and JSDF 11208 are USD 63.37 million, USD 3.92 million, USD 0.64 million andUSD 2.16 million respectively as of January 31, 2017.

In FY2016/17 (till January 13, 2017), the expenditures of about USD 3.18 million (equivalent to NPR344.84 million) on account of IDA, JSDF and IFAD source have been incurred. The outstandingreimbursable expenditures of FY2015/16 and FY2016/17 of about USD 15.48 million (equivalent toNPR1,679.90 million) are yet to be transferred for expenses incurred from IDA, JSDF TF and IFAD togovernment treasury as per following details:

Source l1cimbursable fund as on Jan 13,2017 Reimbursable expenses of FY2016/17 (Up to Jan 13, 2017)

Amount in USD Equivalent NPR Amount in USD Equivalent NPR

IDA 15.18 1,647.44 3.09 335.52JSDF TF 0.24 26.03 0.03 3.16IFAD 0.06 6.43 0.06 6.16Total 15.48 1,679.90 3.18 344.84

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Interest income: The PAF has transferred interest of NPR 1,326,012.42 received on call account for thelast quarter of FY2015/16 on September 27, 2016 to the revenue account of the Government. The interestof NPR 2,366,992 received for the first quarter of FY2016/17 is yet to be transferred to the Governmentrevenue.

Financial Management: The review team carried out SOE review on as sample basis. The supportingdocuments and records have been maintained.

Based on our review, the following key issues were observed:(a) Non-operating bank accounts of three community organizations of Darchula having bank balance of

NPR 146,117 are yet to be closed by transferring the amounts to PAF bank account;(b) Few unreconciled items of previous years noted in the bank reconciliation statement are yet to be

identified and adjusted;(c) Delay in reimbursement to Government treasury.

Implementation Progress Report: There are no outstanding trimester Implementation Progress Reports.Internal Audit: The internal audit report of FY2015/16 has been completed and report received. PAF is inprocess of hiring the internal auditor for FY2016/17.

Audit Report: The auditor is conducting audit of the books of accounts of FY2015/16. The audit report ofFY2015/16 is overdue.

Status of Agreed Actions: Most of the previous agreed actions have been completed. Based on thediscussions, the following agreed actions have been identified:

Actions Agreed Date ResponsibilityComplete development of FMIS and roll out February 15, 2017 MIS Team and CADMINPrepare and share active COs audit data for FY2015/16 February 15, 2017 CPROG/PMs/CADMINand FY 2016/17Hire external auditors for COs March 30, 2017 CADMINHire intemal auditor for FY2016/17 February 28, 2017 ProcurementSubmit overdue unaudited project account of February 15, 2017 CADMINFY2015/16Submit overdue audited project account of FY2015/16 April 15, 2017 CADMIN

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